LPY Investments Pty Ltd v JY Property Pty Ltd
[2024] VSC 94
•7 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 06002
| LPY INVESTMENTS PTY LTD (ACN 127 529 837) | Plaintiff |
| v | |
| JY PROPERTY PTY LTD (ACN 160 297 281) & ANOR | Defendants |
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JUDGE: | Cosgrave J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 January 2024 |
DATE OF JUDGMENT: | 7 March 2024 |
CASE MAY BE CITED AS: | LPY Investments Pty Ltd v JY Property Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2024] VSC 94 |
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Catchwords: REAL PROPERTY – Caveat – Application to remove caveat – Whether unitholder has sufficient interest in land to justify caveat – Terms of trust deed important – Trust deed does not assign beneficial interest in land to unitholders – Unitholders’ interest does not compel trustee to act in a particular manner – Insufficient interest in land to sustain caveat – Caveat ought be withdrawn.
Legislation Cited: Transfer of Land Act 1958 (Vic)
Cases Cited: Ambasax Pty Ltd v Evindon Pty Ltd & Anor (Supreme Court of Victoria Court of Appeal, Phillips JA & McDonald AJA, 10 November 1995); Australian Broadcasting Commission v O’Neill (2006) 227 CLR 46; Australian Securities and Investments Commission In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 6) [2006] FCA 814; Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126; Charles v Federal Commissioner of Taxation (1954) 90 CLR 598; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90; CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98; Evindon Pty Ltd v Ambassax Pty Ltd & Anor (Supreme Court of Victoria, O’Bryan J, 25 October 1995); Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547; Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490; Jeak Ding Ek v Red Eagle International Pty Ltd [2022] VSCA 254; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Piroshenko v Grojsman & Ors (2010) 27 VR 489; Re Smith [1928] Ch 915 at 918; Schmidt v 28 Myola Street (2006) 14 VR 447.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Glick KC with Mr G McCormick | Australian Legal Advisory Centre |
| For the First Defendant | Mr M Clarke KC with Ms K Wangmann | Ascot Solicitors |
TABLE OF CONTENTS
Nature of application........................................................................................................................ 1
Background......................................................................................................................................... 1
Legal principles.................................................................................................................................. 5
Caveator’s submissions..................................................................................................................... 7
Caveatee’s submissions.................................................................................................................. 10
Consideration.................................................................................................................................... 11
Conclusion......................................................................................................................................... 23
HIS HONOUR:
Nature of application
This is an application under section 90(3) of the Transfer of Land Act 1958 (Vic) (“TLA”) by the plaintiff (“LPYI”) for orders that the first defendant (“JY Property”) remove caveats which it has lodged over certain properties. The second defendant is the Registrar of Titles who did not participate in the hearing of the plaintiff’s application. In the circumstances, I have assumed that the Registrar neither supports nor opposes the application and will abide by any order made by the Court.
Background
Katherine Yang (“Yang”) and John Yun (“Yun”) are or were husband and wife. Yang is the director and secretary of LPYI. Yun is sole director and shareholder of JY Property. They are currently involved in substantial contested litigation in the Federal Circuit and Family Court of Australia.
LPYI is the trustee of the LPY Investments Hybrid Unit Trust (“the Hybrid Trust”). LPYI is the registered proprietor of a number of properties at two separate sites. The first site is 434 - 448 Burke Road, Camberwell and the second is at 187 - 191 Reynolds Road, Doncaster East. LPYI developed both sites and there are properties at each site which remain unsold. These properties include both residential apartments and retail shops. Some of the properties are currently on the market for sale.
Yun says that LPYI is a special purpose vehicle established to buy and develop land. Yun was a director of the company from 2010 until he was removed as a director in 2023.
Yang claims to be the only unitholder in the Hybrid Trust. Yun denies this and says that there are several unitholders including JY Property. Yun relies upon a unitholder register which purports to set out the existing unitholders in the Hybrid Trust including the date the units were acquired, the number of units held and the class of units. JY Property claims that the current unit holdings in the Hybrid Trust are as follows:
Unit Holder Name & Address ACN (if company) Date Acquired Cancellation Date Certificate No. Units Kadesh Yun Pty Ltd
5 Dora Court
TEMPLESTOWE VIC 3106
103 623 721 17/3/2016 No. 27 45 A Class Huan Bo Hai Group Pty Ltd
Unit 12/265 Canterbury Road
FOREST HILL VIC 3131
105 724 936 17/3/2016 No. 28 20 A Class Equity Realty Development (Australia) Co. Pty Ltd
2 Silverdale Court
DONCASTER VIC 3108
113 352 846 17/3/2016 No. 29 50 A Class LBZ Pty Ltd
15/191 Reynolds Road
DONCASTER EAST VIC 3109
155 338 873 17/3/2016 No. 30 20 A Class RZL Pty Ltd
15/191 Reynolds Road
DONCASTER EAST VIC 3109
165 258 202 17/3/2016 No. 31 20 A Class J Y Property Pty Ltd
5 Dora Court
TEMPLESTOWE VIC 3106
160 297 281 17/3/2016 No. 32 45 A Class
Yang says that, until served with the register and unit certificate documents which JY Property relies upon, she had not seen such documents. Yun produced the register on or about 21 December 2023 and other certificate documents on or about 22 January 2024. Yang denied that the alleged unitholders had applied for units in the Hybrid Trust or that she, as a director and secretary of LPYI, had dealt with such applications or issued any unit certificates.
An initial application for caveat removal concerned a property which was due to settle shortly and which could not proceed to settlement while the caveat remained in place. The plaintiff’s solicitors wrote to the first defendant’s solicitor on 11 December 2023 and noted that Yun had, through a company controlled by him, He Run Pty Ltd, lodged a caveat in August 2023 over the Burke Road properties but later withdrew it. The letter asked that JY Property explain the grounds relied upon for the claimed interest in the relodged caveat.
By letter on 12 December 2023, JY Property’s solicitors responded. They said that they lodged the caveat on the basis that a trust of which LPYI was trustee was held for beneficiaries including itself. They said further that Yun sourced, purchased and developed the land in question, either directly or through his related corporate entities. These included He Run Pty Ltd and the first defendant. They said that the first defendant obtained its interest in the land on or about 9 May 2016. JY Property said that it would remove the caveat and allow the settlement of the sale to proceed as scheduled on 20 December 2023 if:
· the first defendant received a copy of the statement of adjustments before settlement; and
· the statement of adjustments showed that the nett balance of funds received from the sale were to be paid to Macquarie Bank in order to pay down a loan owed to it by LPYI.
In a responding letter dated 14 December 2023, the plaintiff’s solicitors advised that the current arrangement with Macquarie Bank was that the bank received at least 90% of settlement monies from property sales in order for LPYI to reduce the amount of the loan it owed to the bank. The debt at the time was approximately $9.063 million.
The solicitors also referred to JY Property knowing of a default notice which Macquarie Bank issued on 27 November 2023. The default alleged was that the newly appointed directors of LPYI had not provided guarantees and indemnities for the financial facility which Macquarie Bank had granted to LPYI. The position had to be rectified by 15 December 2023.
On 14 December 2023, the first defendant’s solicitors wrote again contending that JY Property had a caveatable interest in the property the subject of the contract of sale. Notably, part of the letter states:
b.Our client reiterates that he requires the following to be provided and he will remove the caveat over the property that is settling on 20 December 2023:
i.information relating to the disbursement of funds at settlement including statement of adjustments; and
ii.for the balance funds to be paid to Macquarie Bank in full. If the funds are not used to pay down the substantial loan with Macquarie Bank, our client requires for the funds to be deposited into Court.
In further correspondence dated 15 December 2023 LPYI’s solicitors denied that being a unitholder in the Hybrid Trust constituted a sufficient basis to lodge a caveat. They said that the first defendant’s concerns about the repayment arrangements with Macquarie Bank and the directors’ guarantees and indemnities were not a proper ground for a caveat. They threatened to make an urgent application to remove the caveat so that settlement could proceed.
Ultimately, LPYI initiated an urgent hearing to remove the caveat, but JY Property withdrew the caveat before the hearing.
However, between the time of the adjourned court hearing and 24 January 2024, another dispute arose between the parties about a caveat which affected another property which was due for settlement.
Legal principles
Section 90(3) of the TLA:[1]
[P]ermits any person adversely affected by a caveat to ‘bring proceedings in a court against the caveator for the removal of the caveat’ and empowers the court dealing with such an application to ‘make such order as the court sees fit’.
[1]Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126 (“Carbon Black”).
In considering an application under s 90(3), the court applies a two-stage test, as explained by Warren CJ in Piroshenko v Grojsman& Ors as follows:[2]
Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. Insofar as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. This approach has been established law in Australia since the decision of Lord Diplock in Eng Mee Yong v Letchumanan was approved by the Full Court of the Queensland Supreme Court of Appeal in Re Jorss’ Caveat. This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial. This is still the approach taken by the courts in Victoria when deciding applications under s 90(3) of the Act.
[2]Piroshenko v Grojsman & Ors (2010) 27 VR 489 at [7] (“Piroshenko”).
In Piroshenko v Grojsman & Ors, Warren CJ noted that[3] although the courts have adopted a two stage test as an aid to the consistent exercise of the discretion under section 90(3), the section confers a broad discretion on the court to make such orders as it thinks fit. No test can limit or restrict the discretionary power granted by the statute. It can only “inform the ultimate consideration”, namely, whether the court should exercise the discretion in any particular case, and if so, precisely how.[4]
[3]Ibid at [11].
[4]The Victorian Court of Appeal approved these views in Carbon Black [2015] VSCA 126 at [36].
Warren CJ made explicit reference to the decision of the High Court in Australian Broadcasting Commission v O’Neill[5] and said that henceforth, when considering the question of caveat removal, the court should consider not whether there was “a serious question to be tried” but whether the caveator had established “a prima facie case”. This did not mean that it had to be more probable than not that the caveator would succeed at trial. Rather, it was enough to show that the caveator had a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. Her Honour concluded the assessment of the situation by stating that in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under section 90(3), the caveator must persuade the court that:[6]
· there is a probability on the evidence that a caveator will be found to have the asserted equitable rights or interests; and
· that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in accordance with their normal proprietary rights.
[5](2006) 227 CLR 46.
[6]Piroshenko at [18].
The caveator has the onus of showing that it has the requisite interest or rights in land. Caveats are not to be used as bargaining chips or for leverage. The caveator must establish an interest in the actual land the subject of the caveat, not merely that the caveator has rights, whether contractual, equitable or statutory, against the caveatee.[7]
[7]Ibid at [23].
When the court addresses the question of removing a caveat, the court cannot make final determinations about disputed questions of fact.[8] It is neither appropriate nor necessary. The issue of the prima facie case can usually be resolved by noting the evidence without the need to decide whether the evidence should be accepted. The process is akin to a court dealing with an application for interlocutory injunction.
[8]Carbon Black at [38]; Jeak Ding Ek v Red Eagle International Pty Ltd [2022] VSCA 254 at [25].
To make out a prima facie case, the caveator’s evidence must show a sufficient probability that it has the rights or interests asserted in order to justify the preservation of the status quo.[9]
[9]Piroshenko at [16] and [18].
A beneficiary under a discretionary trust does not have an equitable interest in the assets of the trust.[10]
[10]See first defendant’s submissions dated 22 January 2024 at [10] and cases cited therein.
Caveator’s submissions
JY Property contended that as a unitholder under a unit trust such as the Hybrid Trust, it had an interest in the land owned by LPYI as the trustee and that interest was sufficient to justify the lodgement of a caveat.
JY Property relied on the decision of Warren CJ in Schmidt v 28 Myola Street[11] where her Honour said:[12]
[11](2006) 14 VR 447 (“Schmidt”).
[12]Schmidt at [23] – [24], [33].
23.As a starting point or, indeed, characterised as a point of distinction between this case and Swanston is the pivotal feature of a unit trust compared with a mortgagee’s duty. Of course, a unit trust bears the important entitlement or conferment of a proprietary interest in all of the property that is subject to the relevant trust deed. Furthermore, the extent of the unit holder’s beneficial interest is proportionate between the units of the individual unit holder and the total number of units issued.
…
24.I turn then to one of the main questions in this case. The trustee of a unit trust holds property on trust for the benefit of unit-holders. Each unitholder has an interest in the trust property pro rata their subscription to the trust. Monies yielded from the trust property are distributed accordingly. Despite this general description, the exact nature and shape of a unit trust will depend on the exact terms of the deed giving rise to its existence. A unit trust is of course different from a discretionary trust or a constructive trust as considered in Walter v. Registrar of Titles & Anor.
…
33.On this basis, I conclude that, depending on the terms of the trust deed, a unitholder to a unit trust may possess an interest sufficient to support a caveat.
Her Honour said that the outcome of the caveat removal application in Schmidt depended upon whether:
· the interest Schmidt claimed could support a caveat under section 89 of the TLA; and
· the court should exercise its discretion to allow the caveats to remain.[13]
[13]Ibid at [5].
After reviewing various authorities, her Honour concluded that an equitable interest in land was capable of supporting a caveat even where that interest would not compel the registered proprietor to deliver a registerable instrument.
In the judgment, her Honour made some general observations about unit trusts. She said that:
· a unit trust bears the important entitlement or conferment of a proprietary interest in all of the property that is subject to the relevant trust deed;[14]
[14]Ibid at [23].
· the extent of the unitholder’s beneficial interest is proportionate between the number of units held by the individual unitholder and the total number of units issued;[15]
[15]Ibid at [23].
· the trustee of a unit trust holds property on trust for the benefit of unitholders. Each unitholder has an interest in the property which is proportionate to their unit holding in the trust. Monies yielded from the trust property are distributed accordingly;[16]
[16]Ibid at [24].
· the precise nature of a unit trust will depend upon the particular terms of the deed creating the trust;[17]
· a unit trust is different from a discretionary trust or a constructive trust; and
· by reference to Charles v Federal Commissioner of Taxation,[18] while a share confers upon a shareholder no legal or equitable interest in the assets of the company, a unit in a unit trust confers a proprietary interest in all of the property which for the time being is subject to the trust created by the deed.
[17]Ibid at [24].
[18](1954) 90 CLR 598, 608 – 609 (“Charles”).
Her Honour concluded that, depending on the terms of the trust deed, a unit holder in a unit trust could possess an interest sufficient to support a caveat. This view was based to a significant degree upon the decision of Brooking J in Costa & Duppe Properties Pty Ltd v Duppe.[19] Her Honour said that the facts in Duppe were much the same as those before her in Schmidt – an incorporated trustee of a unit trust sought to remove a caveat lodged by an alleged beneficiary.
[19][1986] VR 90 (“Duppe”).
Warren CJ drew upon a passage in the decision of Brooking J where his Honour examined the decision of the High Court in Octavo Investments Pty Ltd v Knight[20] and noted that:
[20](1979) 144 CLR 360.
· the trust fund was held for five companies on trust to pay the income to them in equal shares and to distribute the capital equally between them on the “vesting day”;
· the trustee had power to carry on any business as it thought fit;
· the five companies for whom the trustee conducted the business had a proprietary interest in the trust assets;
· both the trustee and the beneficiaries could have a beneficial interest in the trust assets;
· the unitholders had a proprietary interest in each asset of the trust notwithstanding the possible duration of the trust, the wide powers of management given to the trustee and the possibility that the trustee might lose some or all of the capital through unprofitable trading or speculation.
This passage was influential in the court’s consideration of whether to remove the caveat. However, while the court found that Duppe supported the idea that a unitholder in a unit trust has a proprietary interest in the trust property, it did not mean that a unitholder in a unit trust held a sufficient interest to support a caveat under section 89(1) of the TLA.
JY Property relied upon Schmidt to contend that the effect of the definition of “Trust Fund” and “Property” in the deed together with clause 2.2 meant that unitholders had a beneficial interest in the property held by the trustee. The first defendant said that LPYI’s reliance upon the trustee’s discretion in the definition of Hybrid Trust was misconceived because the discretion was subject to the rights of unitholders.
In the circumstances, JY Property contended that being a unitholder in the Hybrid Trust meant that it had a prima facie case to support the caveatable interest.
Caveatee’s submissions
LPYI noted from the outset that notwithstanding the affidavit material and submissions filed by JY Property, the first defendant restricted its case so that the sole basis advanced for the caveat was its position as a unitholder in the Hybrid Trust. JY Property no longer pursued the constructive trust claim as justifying the lodgement of the caveat. Given that the plaintiff explicitly raised this matter in open court and counsel for the first defendant did not seek to contest or qualify the point, I have accepted it as accurately reflecting the position between the parties.
Having drawn attention to the specific basis upon which JY Property justified the caveat, counsel for LPYI stated that, for the purposes of the application, the plaintiff accepted that there was a serious question to be tried about whether JY Property was a unitholder in the Hybrid Trust. While ultimately, the plaintiff contested the alleged unitholding claimed by the first defendant, it contends that, even if JY Property were a unitholder, that fact was insufficient to justify the lodging of the caveat over the property.
Consideration
It appears from the authorities that courts now emphasise that one should not simply rely upon labels such as “unit trust” or “discretionary trust” in analysing trust deeds. Rather, it is necessary to examine carefully the terms of the trust deed to establish the specific rights and entitlements granted under the deed. For example, in CPT Custodian Pty Ltd v Commissioner of State Revenue[21] the High Court said that terms like “unit trust” and “discretionary trust”, in the absence of an applicable statutory definition, do not have a constant, fixed or normative meaning. In reaching this view, the court followed the approach taken by French J (as he then was) in ASIC v Carey (No 6)[22] where his Honour referred to the decision of the High Court in Chief Commissioner of Stamp Duties (NSW) v Buckle[23] and the views of Gummow J in FCT v Vegners.[24] The former accepted that the term “discretionary trust” had no fixed meaning and described certain features of some express trusts. The latter differentiated a discretionary trust from a fixed trust because the entitlement of the beneficiaries to the income or the corpus or both was not immediately ascertainable.[25] Gummow J described a discretionary trust as purely discretionary when the income and capital could be withheld altogether. Such a trust would be a non-exhaustive discretionary trust. This was different from a trust in which the discretion related only to the time or methods of making payments to the beneficiaries. The later was an exhaustive discretionary trust. This description applied when the deed required the trustee to distribute the whole of the income at specified intervals.
[21](2005) 224 CLR 98 at [15] (“CPT”).
[22]Australian Securities and Investments Commission In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 6) [2006] FCA 814 (“ASIC v Carey (No 6)”).
[23](1998) 192 CLR 226 at [8] (“Buckle”).
[24]Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 at 552.
[25]Ibid.
The distinction between exhaustive and non-exhaustive trusts has significant consequences for the beneficiaries. Where the trust deed grants the trustee a discretion to apply the whole or part of a fund for a person, that person cannot demand the fund from the trustee. The trust gives the person only so much as the trustee thinks fit. But if the trustee has no discretion about the amount to be applied to the person but only the method of application, the person can demand the whole entitlement from the trustee.[26]
[26]See Re Smith [1928] Ch 915 at 918.
Where a trustee has no duty to distribute any particular amount to an individual beneficiary, or indeed any amount at all, the beneficiary’s rights are limited to requiring the trustee to consider whether or not to make a distribution in his favour and to ensure the proper administration of the trust. But the beneficiary cannot compel the trustee to act in any particular way. A beneficiary in those circumstances has no more than an expectancy because the trustee alone has the power to determine whether the beneficiary will benefit at all and, if so, in what way and to what extent from the exercise of the trustee’s power.
An important first step is to examine the terms of the trust deed.
The following are material terms of the Hybrid Trust. Clause 1 of the deed includes the following definitions:
Capital:the Trust Fund but excludes any undistributed Income held by the Trustee.
Hybrid Unit Trust: a unit trust in which, subject to the rights entitlements and restrictions attaching to a class of Unit and the provisions of this Deed, the Trustee has discretion as to any payment of Income or Capital between Unitholders (as to all or one or more exclusive of the other or others) having an entitlement to share in the Income but in the absence of the Trustee having exercised such a discretion then in proportion to the number of Units which carry such a right and entitlement which each Unitholder holds.
Income:the income of the Trust Fund derived in accordance with the Act including profits and gains of a capital nature which are derived or realised by the Trustee in respect of the Trust Fund.
Property:real personal movable or immovable property of any description and wherever including, without limiting the generality hereof, policies of assurance or endowment cash and chose in action.
Trust:the Trust constituted by this Deed.
Trust Fund:the amounts paid by the Unitholders to the Trustee for the issue of Units, or property transferred to the Trustee by Unitholders for which Units have been issued or are to be issued, together with all the accumulations of Income being accretions to the Trust Fund and the investments and property from time to time representing the said money investments property accumulations and accretions.
Unitholders: the holders of Units from time to time until the Vesting Day despite such persons corporations or trustees not being in existence or have not having come into the defined category at the date of this Deed.
Vesting Day: the last day of the Perpetuity Period.
Clause 2 of the deed reads as follows:
2.1the Trustee will, from this time, stand possessed of the Trust Fund and of the Income upon the trusts and with the powers and subject to the provisions expressed in this Deed;
2.2 the Trust Fund and the Income shall be held in trust for the Unitholders and for no other party; and
2.3the Trustee shall have power at any time and from time to time until the Vesting Day, in accordance with the provisions of this Deed, to issue additional Units and redeem Units.
Other relevant terms are:
9.1The Trustee shall in each Accounting Period determine the Income of the Trust Fund after allowing for all expenses including losses of a capital nature.
9.2The Trustee shall, on or as soon as practically possible following the determination of the Income, determine to:
(a)pay apply or set aside the whole or any part of the Income for all or one or more exclusive of the others or other of the Unitholders whose Units carry the right and entitlement to share in the Income in such proportions and in such manner as the Trustee, in the Trustee’s absolute discretion and without being bound to assign any reason, shall think fit or accumulate the same or any part of it;
(b)in the absence of the Trustee making a discretionary determination as set out immediately above, or in the event that the Trustee fails to make any form of determination, then pay apply or set aside the whole or any part of the Income for all of the Unitholders whose Units carry a right and entitlement to share in the Income and pay apply or set aside to those Unitholders in proportion to the number of Units which carry such a right and entitlement which each Unitholder holds;
(c)where a Unitholder has held any Units for only part of the Accounting Period then the Trustee may adjust the amount to be paid applied or set aside to reflect the period for which the Unitholder has held the Units;
(d)accumulate all or part of it
PROVIDED THAT:
(e)if the Trustee shall not by the last date of the Accounting Period have paid or set aside the Income then the Trustee shall hold the amount of Income not so paid or set aside as an accumulation from that Accounting Period which the Trustee may pay or set aside in future Accounting Periods for the benefit of Unitholders at such time whose Units carry the right and entitlement to share in the Income [but a resolution by the Trustee, within six (6) months following the last day of an Accounting Period to Unitholders holding Units during the previous Accounting Period shall not, of itself, be invalid]
…
10.1As of the Vesting Day the Trust Fund and the Trust shall vest absolutely. The Trustee shall stand possessed of the Trust Fund and shall pay and assign the whole of the Trust Fund to the Unitholders whose Units carry the right and entitlement to share in the Trust Fund upon its termination.
10.2The distribution of the Trust Fund upon its termination shall be determined in proportion to the number of Unit which each Unitholder holds and such distribution shall account for any amounts outstanding by the Unitholders to the Trustee for the issue of Units.
I note that the trust deed confers upon the trustee a wide range of powers and discretions with respect to the management of the Hybrid Trust and the investment of the Trust Fund.[27] Subject to any express provision to the contrary, every discretion which the trustee has is absolute and uncontrolled and every power is exercisable at the trustee’s absolute discretion.[28]
[27]Clause 11 of the trust deed.
[28]Clause 12.7 of the trust deed.
The terms of the Hybrid Trust are such that the trustee has a discretion whether to pay income to any and which unitholders. The trustee can pay no income, or some or all the income, to some or no unitholders as it sees fit. The Income definition is broad because it includes capital profits and gains - that is, accumulations to the trust fund which would not necessarily be regarded as income from the viewpoint of the Australian Taxation Office. Likewise, the trustee’s determination of income in each accounting period is to take account of capital losses.
Clause 10 makes clear that upon termination of the trust at the Vesting Day, the Trust Fund is to be distributed to unitholders in proportion to their holding at the time. This seems to me uncontroversial because it deals with the situation at the termination of the trust, not the period before. One would expect the trust deed to provide for how the Trust Fund was to be distributed upon the termination of the trust or the vesting day.
JY Property sought to draw support from clause 2.2 for its alleged interest in the assets comprising the Trust Fund. Again, I regard this clause as uncontroversial. It is a statement of the obvious. The definition of Trust Fund means that, in practical terms, it amounts to the capital paid for units in the Hybrid Trust together with accumulations and accretions to the fund. Hence, it is unremarkable that the trustee should hold the capital and income of the trust for the benefit of unitholders as they are the ultimate beneficiaries under the trust deed and the only people to whom the trustee could make distributions of trust assets or property.
In my view, a major issue for JY Property is that the trustee of the Hybrid Trust enjoys a broad discretion about whether to pay, apply or accumulate the income of the Trust Fund. No unitholder has any guaranteed entitlement to the income. A unitholder’s entitlement to a proportionate share of the trust fund arises only upon the termination of the Hybrid Trust. The cases upon which JY Property relied such as Schmidt and Duppe involved trust deeds with significantly different terms.
In Schmidt the trust deed included the following terms:
6The Original Unit Holders hereby direct and the Original Unit Holders and Trustee hereby agree and declare that the Trustee shall stand possessed of the Trust Fund and of income of that fund (including any business of whatever nature carried on by the Trustee) for the benefit of the general beneficiaries and of the Unit Holders in proportion to the number of units respectively held by them of each class of unit and the respective rights of each class of unit. The Trustee acknowledges that subject to the discretionary entitlements of the general beneficiaries the Unit Holders are and shall be beneficially entitled to all assets of whatever nature of the Trust Fund in accordance with the respective rights of each class of unit in proportion to the number of units respectively held by them of each unit.
7(a)The beneficial interest in the assets of the Trust Fund as originally constituted and as existing from time to time shall be vested in the Unit Holders for the time being.
(b)Each person who becomes registered as a Unit Holder shall be deemed to have agreed to become a party to this Deed and any supplemental deed and shall be entitled to the benefit of and shall be bound by the terms and conditions of this Deed and of any supplemental deed.
8Each unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder nor any combination of Unit Holders shall be entitled to the transfer of any assets or property comprised in the Trust Fund and save as hereinafter provided, no Unit Holder shall be entitled to interfere with or question the exercise or non-exercise by the Trustee of any discretion in relation to the Trustee’s ownership of such assets or property or in relation to the conduct of any business carried on by the Trustee or otherwise.”
These provisions in the Schmidt trust deed show that:
· the trustee holds the trust fund and the income of the fund for the benefit of the general beneficiaries and unitholders in proportion to the number of units held
· the unitholders are beneficially entitled to all the assets of the trust fund in accordance with the respective rights of each class in proportion to the number of units held
· the beneficial interest in the assets of the trust fund is vested in the unitholders for the time being
· each unitholder is entitled to a beneficial interest in the trust fund as an entirety but shall not be entitled to any particular interest or security in the trust fund
The court noted that the trust deeds in question were in some respects similar to those in Duppe. Indeed, clauses 7(a) and the first section of clause 8 of the trust deed in Schmidt were in substance the same as two clauses in Duppe.
By comparison, the trust deed in this case is quite different. It does not have terms equivalent to clauses 7(a) and 8 in Schmidt. Nor does it have any term like the latter part of clause 6 in Schmidt which provides that unitholders have a proportionate beneficial entitlement to all the assets of the trust in accordance with their unit holding in the trust. In short, the terms of the Hybrid Trust do not provide that:
· unitholders are beneficially entitled to all assets of the trust fund in proportion to their unit holding;
· the beneficial interest in the assets of the trust fund as existing from time to time is vested in the unitholders from time to time;
· each unit holder together with all the other unitholders is entitled to the beneficial interest in the trust fund as an entirety, but no unitholder is entitled to any particular security or investment.
The position with the Hybrid Trust perhaps reflects the situation discussed by the High Court in CPT[29] where the court endorsed the views of Griffith CJ in Glenn v Federal Commissioner of Land Tax[30]. There Griffith CJ rejected the assumption that whenever the legal estate in land is vested in a trustee, there must be some other person entitled to it in equity for an estate of freehold in possession. However, he said that to make that assumption was not valid because one had to ask if any such person existed. It was, he said, possible for the trustee to be entitled to the whole of the estate in possession both legal and equitable.
[29]CPT at [25].
[30](1915) 20 CLR 490 at 497.
The unanimous judgment in CPT said that Griffith CJ presciently rejected a dogma that where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else because it is an essential attribute of a unit trust that it confers upon individuals a complex of beneficial legal relations which may be called ownership.[31]
[31]CPT at [25].
In examining the arguments advanced by the Commissioner of State review, the High Court examined the concept of ownership, the alleged hallmarks of a unit trust and the interest of a unitholder under the deed before it.[32]
[32]Ibid at [25]-[40].
It is perhaps also worth noting that, in the absence of express terms about the repository of the beneficial interest in the trust assets, there could be some difficulty in identifying and quantifying those assets at any given point. The trustee’s right of reimbursement or exoneration which indemnifies the trustee out of the trust assets against personal liabilities incurred in the performance of the trust, will take precedence over the rights of beneficiaries. Because the extent of the indemnity fluctuates over time, the precise identification of the substance and value of the trust fund will also change over time. The entitlement of the beneficiaries in respect of the assets held by the trustee which constitute the property to which the beneficiaries are entitled in equity is distinguishable from the assets themselves. The beneficiary’s entitlement is limited to so much of the assets as are available after all relevant liabilities have been discharged or provided for.[33]
[33]Buckle at [48]-[50].
JY Property did not identify any case in which a unitholder was held to have sufficient interest in land to justify the lodging of a caveat when the trustee of the trust had the broad discretionary power referred to above[34] regarding the distribution of income from the trust.
[34]See clause 9.2 in [41].
The High Court in CPT did not determine whether Duppe correctly decided the requirements in Victoria for a caveatable interest in land.[35] The court’s discussion of what Brooking J decided implied that it might not reach the same conclusion.[36]
[35]CPT at [32].
[36]Ibid at [30]–[31].
However, as O’Bryan J said in Evindon Pty Ltd v Ambassax Pty Ltd & Anor,[37] the Duppe decision concerned whether, regardless of the nature of the estate or interest claimed and the precise grounds set out in the caveat, the caveator had an estate or interest in the land. The parties in Duppe treated the answer to the question as depending upon whether a unitholder, by virtue of the trust deed, had a proprietary interest in the land which formed part of the trust fund. Brooking J was not asked to decide, and did not determine, whether a unitholder in a unit trust in which the trust fund comprises land holds a sufficient interest in the land to support a caveat.[38] O’Bryan J concluded that whilst a unitholder in a unit trust had a proprietary interest in the trust fund, it was inconsistent with the terms of the trust deed that a unitholder could lodge a caveat to protect that interest in land owned by the trust.
[37](Supreme Court of Victoria, O’Bryan J, 25 October 1995) (“Evindon”).
[38]Ibid at 3-4.
On an application to the Full Court for a stay pending appeal from the decision at first instance, Phillips JA, with whom McDonald AJA agreed, was not persuaded that the caveator appellant’s case on appeal was arguable. His Honour said even if he were wrong about that, there were other reasons why it was inappropriate to grant a stay of the initial judgment. He also observed that a unitholder under a trust deed is bound to allow the trustee to manage the trust in accordance with the terms of the deed. Hence, the caveat should, if properly drawn, forbid dealings by the trustee only if, and to the extent that, the dealings were not authorised by the deed.[39]
[39]Ambasax Pty Ltd v Evindon Pty Ltd & Anor (Supreme Court of Victoria Court of Appeal, Phillips JA & McDonald AJA, 10 November 1995) at 3.
Similarly in Charles,[40] the trust deed divided the beneficial interest in the trust fund into units and the trustees were bound to make half-yearly distributions of the “cash produce” which the trustees received to unitholders in proportion to their respective number of units.[41]
[40](1954) 90 CLR 598.
[41]CPT at [34] – [36].
Having regard to:
· the importance of the precise terms of the trust deed when construed as a whole in determining the nature of a unitholder’s interest in a trust;
· the limited interest which a unitholder has in the assets of a trust such as the Hybrid Trust;
· the breadth of the trustee’s discretionary powers to distribute, apply or accumulate the Income of the Hybrid Trust;
· the inability of a unitholder in a trust such as the Hybrid Trust to legally compel the trustee to act in any particular manner regarding the distribution, allocation or application of income generated by the trust;
· the absence of a term in the trust deed establishing the Hybrid Trust to the effect that:
· the beneficial interest in the assets of the trust fund as existing from time to time shall be vested in the unitholders for the time being;
· each unit entitled the registered holder thereof, together with the registered holders of all the other units, to the beneficial interest in the trust fund as an entirety but no unit holder had any entitlement to any particular security or investment or any part thereof;
I find that the caveators did not have a sufficient interest in the properties to support a caveat.
In summary, the reasons are as follows. First, the terms of the trust deed are such that, apart perhaps from when the trust terminates at the vesting day or otherwise, the unitholders do not clearly have a beneficial interest in the whole of the assets comprising the trust fund. In particular, they have not shown that they have an interest in the land the subject of the caveat. Secondly, the unitholders’ interest in the trust is not such that they can compel the trustee to act in any particular manner regarding the distribution, allocation or application of income generated by the trust.
If I am wrong to conclude that JY Property does not have a sufficient interest to sustain a caveat, I would not allow the caveat to stand in any event. I so find for the following reasons.
First, as noted, the trustee has very broad powers of investment and management under the terms of the Hybrid Trust. The trustee’s powers include an absolute power and discretion:
· to hold construct maintain repair renovate reconstruct develop improve subdivide transfer and convey or otherwise deal with any real or personal property;[42]
[42]Clause 11.1(h) of the trust deed.
· to acquire carry on or join in carrying on any business either alone or in partnership with power for that purpose to employ therein such part or parts of the capital of the trust fund as if the trustee were beneficially entitled thereto and without responsibility for loss;[43]
[43]Clause 11.1(l) of the trust deed.
· to partition subdivide or agree to the partition or subdivision of any land or other property which or any interest in which may for the time being be subject to the trusts created by the Hybrid Trust;[44]
· to determine whether any real or personal property or any increase or decrease in the value of any property or any receipts, payments, gains or losses from or in connection with any real or personal property shall be treated as and credited or debited to capital or to income and generally to determine all matters as to which any doubt or question may arise under or in relation to the execution of the trusts and powers of the settlement;[45] and
· to sell transfer or dispose of any real or personal property of the trust fund.[46]
[44]Clause 11.1(m) of the trust deed.
[45]Clause 11.1(p) of the trust deed.
[46]Clause 11.2 of the trust deed.
If the caveator is allowed to maintain the caveat over the properties, then it will likely have the effect of interfering with the powers of the trustee who seeks to sell properties available for sale at the Camberwell and East Doncaster sites.
It troubles me that a caveator could have this effect upon the operation of the Hybrid Trust. Especially is this so when the caveat requires an absolute prohibition on dealings with the properties. Arguably this might be appropriate where a trustee is threatening to act in a manner which clearly entails a breach of the trust deed. However, where the trustee is acting in a legitimate exercise of power conferred under the terms of the trust deed, it is a notably different scenario. As a matter of discretion, I do not consider that the court should permit a caveator to act in this way.
Secondly, I have referred in paragraph 11 above to some of the correspondence sent by the solicitors for JY Property. That letter specifically refers to Yun, and not the company, as the client. It appears from the material before me that Yun has given Macquarie Bank a guarantee and indemnity in relation to the advances made by the bank to LPYI. It seems that Yun is concerned to reduce his potential liability by indirectly forcing LDYI to pay the whole of the nett proceeds received from property sales to Macquarie Bank. This would have the effect of minimising Yun’s personal responsibility for the debt.
These facts raise an issue about whether the caveat is lodged for a collateral purpose, namely, to reduce Yun’s potential liability to Macquarie Bank, rather than the protection of the caveator’s interest in the land in question.
Conclusion
In the circumstances, the caveator has not discharged its onus of showing the requisite interest in the land the subject of the caveat. The evidence does not show a sufficient probability that the caveator has the rights or interest asserted to justify the preservation of the status quo.
Even if the caveator ultimately proves to have the claimed rights, the case is sufficiently weak that the balance of convenience is against retention of the caveat until trial. The caveat limits unduly the exercise of the trustee’s powers and, quite possibly, was lodged for an inappropriate purpose.
For the reasons given, the first defendant should withdraw the caveat.
I will hear the parties on the question of costs and form of final order. The parties should file and serve written submissions on these matters by 4.00pm on 13 March 2024. The submissions are limited to four A4 pages, a minimum 12-point typeface, 1.5 spacing and 40 mm margins on either side of the page.
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SCHEDULE OF PARTIES
S ECI 2023 06002
| BETWEEN: | |
| LPY INVESTMENTS PTY LTD (ACN 127 529 837) | Plaintiff |
| -- and -- | |
| JY PROPERTY PTY LTD (ACN 160 297 281) | First Defendant |
| THE REGISTRAR OF TITLES VICTORIA | Second Defendant |
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