Melrob Investments Pty Ltd v Blong Ume Nominees Pty Ltd - [2022] SASCA 29

SUPREME COURT OF SOUTH AUSTRALIA
(Court of Appeal: Civil)
MELROB INVESTMENTS PTY LTD & ORS v BLONG UME NOMINEES PTY LTD & ORS
[2022] SASCA 29
Judgment of the Court of Appeal
(The Honourable Justice Lovell, the Honourable Justice Bleby and the Honourable Justice David)
7 April 2022
EQUITY - TRUSTS AND TRUSTEES - APPOINTMENT, REMOVAL AND ESTATE OF TRUSTEES - RETIREMENT AND REMOVAL - REMOVAL BY THE COURT - JURISDICTION AND POWERS
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT
Appeal and cross-appeal against a decision of a single judge.
Three principals, Messrs Orfanos, Michaels and Ouwens, agreed to form a joint venture to purchase a property in Adelaide (‘the Property’), which comprised an office building. The principals each controlled a separate company: Mr Orfanos controlled Orfanos Nominees Pty Ltd (‘Orfanos Nominees’), Mr Michaels controlled Melrob Investments Pty Ltd (‘Melrob’), and Mr Ouwens controlled Ouwens Corporate Services Pty Ltd (‘OCS’) (collectively, ‘Corporate Beneficiaries’). They agreed that a shelf company, Semweb Nominees Pty Ltd (‘Semweb’), would purchase the Property as trustee for the Corporate Beneficiaries.
The Corporate Beneficiaries entered a joint venture deed (‘JVD’), which provided that the sole purpose of the joint venture is to ‘acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and if agreed to further develop the Property’. The Corporate Beneficiaries and Semweb also made a Trust Deed, by which Semweb agreed that it would purchase and hold the Property as trustee for the Corporate Beneficiaries.
Upon becoming the registered proprietor of the Property, Semweb leased part of the building to each of the principals’ professional practices; namely to Sims Richmond Pty Ltd (Mr Michaels’s practice), OCS (Mr Ouwens’ practice), and Orfanos Corporate (Mr Orfanos’ practice). In December 2007, Mr Orfanos having fallen into dispute with Mr Ouwens, Orfanos Corporate vacated the Property. On two occasions after that, Mr Orfanos complained that Semweb did not lease the Property on market terms and conditions. Thereafter, Blong Ume Pty Ltd (which purported to succeed Orfanos Corporate) purported to terminate the joint venture, and offered to sell its interests in the joint venture to Melrob and OCS. Melrob and OCS did not accept that the notice of termination was effective.
Mr Orfanos, Orfanos Corporate and Blong Ume brought an action claiming that Semweb had failed to carry out its obligations and seeking declarations to the effect that the joint venture had been validly terminated. They also sought equitable compensation and an order for the winding up of Semweb.
Justice Parker dismissed the claim. He found that, in summary, the joint venture did not give rise to a partnership and that no right to terminate the joint venture on reasonable notice was implied in the JVD. On appeal, the Full Court found that Semweb had breached its duty as a trustee by failing to take steps to ensure that the property was leased at market rates. The Full Court allowed the appeal and remitted certain specific issues for hearing and determination.
The parties reached agreement with respect to most of the remitted issues. They remained in dispute over two issues, which a single judge heard and determined. These were:
•the Orfanos entities’ claims for the removal of Semweb as trustee of the Trust and/or winding up of the Trust pursuant to ss 36 and 59C of the Trustee Act 1936 (SA); and
•the Orfanos entities’ claims for remedies under ss 232, 233 and 461 of the Corporations Act 2001 (Cth).

With respect to the first, the judge was satisfied that the criteria under s 59C of the Trustee Act were met for the revocation of the trust, and the distribution of the proceeds to the beneficiaries. However, he allowed Melrob and OCS an opportunity to negotiate in good faith to purchase the interest held by Orfanos Nominees/Blong Ume, in accordance with the mechanism provided under cl 9 of the JVD, prior to making final orders.
Having been satisfied that the conditions under s 59C of the Trustee Act were met, he considered that it was not necessary to determine the alternative claim under s 233 of the Corporations Act. However, he indicated that in the event the power conferred under s 59C was not enlivened, he would nevertheless have exercised the power under s 233 to wind up Semweb, with consequential orders to the same effect as he proposed.
The issues arising on the appeal and cross-appeal are:
•whether the judge erred in revoking the trust, directing the sale of trust property and ordering the distribution of the proceeds equally to the three beneficiaries under s 59C of the Trustee Act 1936 (SA); and
•in the alternative, whether he should have made orders winding up the trustee company pursuant to either s 233(1) of the Corporations Act 2001 (Cth), on the basis of conduct coming within the description of s 232 of that Act; or s 461(1)(e), (f) or (g) of that Act.

Held, per Bleby JA (Lovell and David JJA agreeing), allowing the appeal and dismissing the cross-appeal:
1.The sole purpose of the joint venture (as opposed to the subjective expectations of each of the principals of the respective joint venturers) is the investment purpose as described. The JVD does not make the provision of reasonable, secure and sustainable accommodation for the professional practices a purpose of the joint venture itself. Once initial agreement has been reached, the constructional choice presented by the JVD favours the investment proceeding on that agreed basis, unless and until some different agreement is reached. It follows that an implied term to negotiate in good faith in the ongoing conduct of the joint venture is not necessary to give business efficacy to the JVD; neither is it so obvious as to go without saying.
2.The facility available to Orfanos Nominees under cl 9 of the JVD to sell its interests in the joint venture has not been exhausted. OCS and Melrob are entitled to rely on that clause. Mr Michaels and Mr Ouwens have not forced a minority discount on Orfanos Nominees in their negotiations to purchase its interest. The judge erred in finding that there was good reason to exercise the discretion conferred by s 59C of the Trustee Act.
3.With respect to the claim of oppression, insofar as the management of Semweb’s affairs is characterised by non-participation of Mr Orfanos and majority decision-making of the others, Mr Orfanos has acquiesced in a de facto arrangement for his own reasons. It is not now open for him to claim that the conduct of the company’s affairs is contrary to the interests of the members as a whole.
4.As Mr Orfanos has acquiesced in the present decision-making practices of Semweb for his own reasons, his non-participation in those decision-making processes does not have the character of unilateral exclusion. Insofar as the claim of oppression is based on what is said to be the forcing of a minority discount, it is not established.
5.The conduct of Messrs Michaels and Ouwens in undervaluing the market rents was oppressive to, unfairly prejudicial to and unfairly discriminatory against, Mr Orfanos in his capacity as controller and beneficiary of Orfanos Nominees. However, in the circumstances, it is not appropriate to exercise the powers under s 233 or s 461(1) in response to the oppression occasioned by the historical breaches with respect to market rents. The underpayments have been corrected, and the claimed ongoing risk of oppression is being facilitated by Mr Orfanos not taking up the facilities reasonably available to him to minimise or eradicate that perceived risk.

Trustee Act 1936 (SA) ss 36, 59C; Corporations Act 2001 (Cth) ss 53, 232, 233, 461, referred to.
Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors [2017] SASC 137; Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385; Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors (No 2) [2021] SASC 22; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Retail Employees Superannuation Pty Ltd v Pain (2016) 115 ACSR 1; Westpac Securities Administration Ltd v Cooper [2016] SASC 122; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Polyresins Pty Ltd [1999] 1 Qd R 599; McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244; Surf Road Nominees Pty Ltd v James [2004] NSWSC 61; Ciccarello; Re Adelaide Property Development Pty Ltd v Cubelic [2008] FCA 141; Vigliaroni v CPS Investment Holdings Pty Ltd (2009) 74 ACSR 282; Trust Company Ltd v Noosa Venture 1 Pty Ltd (2010) 80 ACSR 485; Wain v Drapac [2012] VSC 156; Turnbull v NRMA Ltd (2004) 50 ACSR 44; Medical Research and Compensation Foundation v Amaca Pty Ltd (2005) ACSR 587; Exton v Extons Pty Ltd (2017) 53 VR 520; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639; O’Neill v Phillips [1999] 1 WLR 1092; William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 343; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; Beaumont v Peel & Ors [2018] NSWSC 95; Re Scientific Management Associates Pty Ltd [2019] NSWSC 1643; Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd [2004] FCAFC 153; HEST Australia Ltd v Inkley [2018] SASC 127, considered.

MELROB INVESTMENTS PTY LTD & ORS v BLONG UME NOMINEES PTY LTD & ORS
[2022] SASCA 29
Court of Appeal – Civil: Lovell, Bleby and David JJA

LOVELL JA: I agree with the reasons of Bleby JA and the orders he proposes.
BLEBY JA: This appeal and cross-appeal against a decision of a single judge of this Court concern:
·whether the Court erred in revoking a trust, directing the sale of trust property and ordering the distribution of the proceeds equally to the three beneficiaries under s 59C of the Trustee Act 1936 (SA); and
·in the alternative, whether the Court should have made orders winding up the trustee company pursuant to either s 233(1) of the Corporations Act 2001 (Cth), on the basis of conduct coming within the description of s 232 of that Act, or s 461(1)(e), (f) or (g) of that Act.
Background
In November 2002, Nicolas Orfanos, Michael Michaels and Willem Ouwens (‘the principals’), agreed to purchase a property on Frome Street, Adelaide, comprising an office building (‘the Property’). Messrs Orfanos and Michaels are chartered accountants. Mr Ouwens is a solicitor. The shared intention of the principals was that they would operate their respective practices from the Property.
Mr Orfanos was the principal of Orfanos Nominees Pty Ltd (‘Orfanos Nominees’), Mr Michaels was the principal of Melrob Investments Pty Ltd (‘Melrob’), and Mr Ouwens was the principal of Ouwens Corporate Services Pty Ltd (‘OCS’) (collectively, ‘Corporate Beneficiaries’).
The principals agreed that a shelf company, Semweb Nominees Pty Ltd (‘Semweb’), would purchase the Property as trustee for the Corporate Beneficiaries. Each of the three principals became a director of Semweb and each holds one share in that company. Only three shares have been issued.
On 25 November 2002, the Corporate Beneficiaries entered into a Joint Venture Deed (‘JVD’). The JVD provides that the sole purpose of the joint venture is ‘to acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and if agreed to further develop the Property’.
On the same day, the Corporate Beneficiaries and Semweb also made a Trust Deed, by which Semweb agreed that it would purchase and hold the Property as trustee for the Corporate Beneficiaries.
Upon becoming the registered proprietor of the Property, Semweb leased most of the Property to the three principals’ professional practices. The lease was for a five-year term, expiring in December 2007. Semweb leased the whole of the ground floor to Sims Richmond Pty Ltd (Mr Michaels’ practice), and most of the first floor to OCS (Mr Ouwens’ practice) and Orfanos Corporate Pty Ltd (Mr Orfanos’s practice). Semweb leased the remaining space to other tenants.
In December 2007, Mr Orfanos having fallen into dispute with Mr Ouwens, Orfanos Corporate vacated the Property. On two occasions after that, in May 2008 and then in March 2012, Mr Orfanos complained that Semweb did not lease the Property to the remaining corporate practices on market terms and conditions, and that the rent collected was less than the market value rent. Orfanos Nominees also attempted to sell its interest in the Property to the remaining joint venturers, in late 2006 and then in October 2010. Those efforts were unsuccessful.
In September 2012, Blong Ume Pty Ltd (which claimed to be the successor to Orfanos Nominees as trustee of the Stables Trust, Mr Orfanos’s family trust) purported to terminate the joint venture, effective 31 December 2012. On the same occasion, Orfanos Nominees offered to sell its interest in the joint venture to Melrob and OCS for $1,010,000 (and discharging its liability for one-third of the mortgage). Melrob and OCS did not accept that the notice of termination was effective.
On 3 June 2013, Mr Orfanos, Orfanos Corporate and Blong Ume commenced an action claiming that Semweb had failed to carry out its obligations and seeking declarations to the effect that the joint venture had been validly terminated. They also sought equitable compensation and an order for the winding up of Semweb.
Parker J dismissed the claim, finding, in summary, that the joint venture did not give rise to a partnership and that no right to terminate the joint venture on reasonable notice was implied in the JVD.[1] In the event that a right to terminate for breach was implied into the JVD, that would be subject to giving notice of the breach and an opportunity for rectification. The notice did not identify any purported breach of the JVD.
[1] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137.
Parker J further found that while Messrs Michaels and Ouwens owed fiduciary duties to Semweb and the other participants in the joint venture, there was no breach of those duties, as the plaintiffs had not established on the balance of probabilities that Semweb had been receiving less than market rent from the remaining corporate practices. The plaintiffs had not established that the Michaels and Ouwens entities had breached the JVD or the Trust Deed, nor that Semweb had breached its fiduciary duty or the Trust Deed. It followed that there was no basis for relief under s 36 or s 59C of the Trustee Act.
Finally, Parker J found that there had been no oppression of Mr Orfanos under the Corporations Act, and that it had not been shown that Semweb was dysfunctional, such that it should be wound up pursuant to s 461 of that Act.
On appeal, the Full Court found that Semweb had breached its duty as a trustee by failing to take steps to ensure that the property was leased at market rates. The Full Court allowed the appeal and remitted certain specific issues for hearing and determination.[2]
[2] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385.
The parties reached agreement with respect to most of the remitted issues, in particular, the issue of market rent and the amount that Semweb was obliged to recover from Sims Richmond and OCS They remained in dispute about the following remitted issues:
·the Orfanos entities’ claims for the removal of Semweb as trustee of the Trust and/or winding up of the Trust pursuant to ss 36 and 59C of the Trustee Act 1936 (SA); and
·the Orfanos entities’ claims for remedies under ss 232, 233 and 461 of the Corporations Act 2001 (Cth).
Kourakis CJ heard these two remitted issues and gave judgment on 3 March 2021.[3] With respect to the first, his Honour was satisfied that the criteria under s 59C of the Trustee Act were met for the revocation of the trust, and the distribution of the proceeds to the beneficiaries. However, he allowed Melrob and OCS an opportunity to negotiate in good faith to purchase the interest held by the departing beneficiary, Orfanos Nominees/Blong Ume, in accordance with the mechanism provided under cl 9 of the JVD, prior to making final orders.
[3] Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors (No 2) [2021] SASC 22.
Having been satisfied that the conditions under s 59C of the Trustee Act were met, his Honour considered that it was not necessary to determine the alternative claim under s 233 of the Corporations Act. However, he indicated that in the event the power conferred under s 59C was not enlivened, he would nevertheless have exercised powers to wind up Semweb, with consequential orders to the same effect as he proposed.
The appeal
The complaints on appeal by the Ouwens and Michaels entities require close consideration of the JVD and the Trust Deed, the findings of fact at both trials, and Kourakis CJ’s characterisation of and conclusions about the relationship between the parties.
The JVD and the Trust Deed
Clause 3.1 of the JVD states the purpose of the joint venture:
3.1 Purpose
The sole purpose of the Joint Venture shall be to acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and if agreed to further develop the property.
Clause 3.2 then provides for the term of the joint venture, which is contingent on agreement:
3.2 Term of Joint Venture
This Agreement shall be for a term commencing on the Commencement Date and expiring on such date as shall be mutually agreed in writing between the Joint Venturers.
Clause 3 then goes on to provide that ownership of the property lies with Semweb as trustee pursuant to the Trust Deed (cl 3.3), and that each of the principals shall hold one third of the issued shares in Semweb, unless otherwise mutually agreed in writing (cl 3.4). Similarly, each of Messrs Orfanos, Michaels and Ouwens were appointed directors of Semweb (cl 3.5.1). Clause 3.5.2 then provides:
3.5.2Any changes to the directors of the Company during the period of the Joint Venture shall be unanimously agreed in writing between the Joint Venturers and no Joint Venturer shall be entitled to nominate or appoint any directors to the Company without the prior agreement in writing of the other Joint Venturers.
By these clauses, then, the fortunes of each joint venturer, as joint venturer, were tied to the fortunes of all. This is also reflected in the Trust Deed, the joint venturers being the Beneficiaries of the Trust, in that cl 4 of the Trust Deed provides:
4. DEALINGS
The Trustee hereby acknowledges and agrees with the Beneficiaries that the Trustee shall not sell transfer assign dispose of or otherwise deal with the Land or any part thereof or any estate or interest therein other than as agreed in writing between the Trustee and the Beneficiaries from time to time.
Returning to the JVD, cl 3.6 then provides for management and control:
3.6 Management and Control
The Directors shall have full and unfettered management and control of the Company and shall at all times act in the best interests of the Joint Venturers in and about the management and control of the Company and the Directors shall keep the Joint Venturers fully apprised and informed of all acts matters or things involving the Company and the ownership of the Property.

Clause 6 confers on Semweb obligations and powers of management of the Property, including as follows:
6.     Management of the Property
6.1    Management
In and about the holding ownership management and administration of the Property the Company shall ensure that:-
6.1.1the Property is managed and administered in a proper efficient and businesslike manner at all times;
6.1.2the Property is maintained at all times in a state of repair and condition having regard to the age the uses thereof which a prudent investor would maintain the same in order to ensure the maximum level of occupancy by lessees tenants and other persons and maximum level of rent return;
6.2    Management Powers
The Company shall be responsible for the management administration and sale of the Property for and on behalf of the Joint Venturers and without limiting the generality of the foregoing shall have the power to:-
6.2.1Grant leases tenancies licences concessions rights accept surrenders thereof give release in relation thereto compromise debts and disputes in relation thereto; and
…
6.2.10Enter into a contract to sell the Property upon such terms and conditions as the company shall see fit; …
The tying in of the interests of each joint venturer to that of the others is then reflected in the highly prescriptive regime by which one joint venturer is permitted to sell their interest in the Property, and the right of first refusal of the others:
9.     Sale of Interest
9.1    Notice of Intent
In the event that any one or more of the Joint Venturers (“the Retiring Joint Venturer”) is desirous of disposing of its interest in the Property or any part thereof the Retiring Joint Venturer shall give notice in writing to the other Joint Venturers (“the Continuing Joint Venturers”) of its intention to sell its interest in the Property and setting out the purchase price and other terms and conditions upon which the Retiring Joint Venturer proposes to sell its interest in the Property and the Continuing Joint Venturers shall have the right of first refusal to purchase the Retiring Joint Venturer’s interest in the Property or the relevant part thereof in the same proportions as their beneficial ownership of the Property bears to each other and at the price and upon the terms and conditions set out in the Notice hereinbefore referred to provided that if any one or more of the Continuing Joint Venturers shall desire to purchase the Retiring Joint Venturer’s interest in the Property as aforesaid then such Continuing Joint Venturers as shall desire to purchase the Retiring Joint Venturers interest in the Property shall be at liberty to purchase the same in the same proportions as their respective beneficial interests in the Property bears to each other.
9.2    Offer to sell
Any notice given by the Retiring Joint Venturer pursuant to clause 9.1 hereof shall constitute an Offer by the Retiring Joint Venturer to sell (“the Offer to Sell”) the Retiring Joint Venturer’s interest in the Property or the relevant part thereof specified in the Offer to sell to the Continuing Joint Venturer.
9.3    Irrevocable Offer
Any offer to sell made by the Retiring Joint Venturer pursuant to clause 9.1 hereof shall be irrevocable by the retiring Joint Venturer.
9.4    Acceptance or Rejection of Offer
The Continuing Joint Venturers or any of them shall give notice in writing to the Retiring Joint Venturer of the Continuing Joint Venturers’ acceptance or rejection of the Offer to Sell within one (1) calendar month from receipt of the Offer to Sell.
9.5    Deemed Rejection
If the Continuing Joint Venturers or any of them do not give Notice in writing of its acceptance or rejection of the Offer to Sell within the relevant time period specified in clause 9.4 hereof then the Continuing Joint Venturers shall be deemed to have rejected the Offer to Sell.
In the event of a rejection, deemed or otherwise, the Retiring Joint Venturer is then able to go to the market, but again only under strict conditions. Clause 9.6 is of particular importance to the present matter:
9.6 Sale by Retiring Joint Venturer
9.6.1In the event that the Continuing Joint Venturers shall reject or be deemed to reject the Offer to Sell then the Retiring Joint Venturer shall be at liberty at any time within a period of three (3) calendar months thereafter to sell the Retiring Joint Venturer’s interest in the Property or part thereof as the case may be to any third party at a price not less than the purchase price set out in the Offer to Sell and on terms and conditions not otherwise more favourable to the third party than the terms and conditions set out in the Offer to Sell provided always that prior to such transfer or sale aforesaid the retiring Joint Venturer shall procure the execution by such third party of a Deed with the continuing Joint Venturer and the Company and the Director whereby the said third party covenants with the Continuing Joint Venturer and the Company and the Director to duly and punctually observe and perform all the obligations to be observed and performed by the Retiring Joint Venturer hereunder.
9.6.2In the event that the Retiring Joint Venturer becomes entitled at any stage to sell the Retiring Joint Venturer’s interest in the Business pursuant to clause 9.6.1 hereof to a person other than the Continuing Joint Venturer and the Retiring Joint Venturer fails to enter into a legal binding and enforceable Contract with a third party within the period of three (3) calendar months specified in clause 9.6.1 hereof then the entitlement and right of the Retiring Joint Venturer to sell the Retiring Joint Venturer’s interest in the Business to any third party shall lapse and the Retiring Joint Venturer shall not be entitled to sell or offer for sale the Retiring Joint Venturer’s interest in the Property or any part thereof without giving a further notice to the Continuing Joint Venturer pursuant to clause 9.1 hereof and making a further Offer to Sell to the Continuing Joint Venturer and complying in all other respects with the foregoing provisions of this clause 9.
(Emphases added)
Put simply, the JVD ensures that if a Retiring Joint Venturer wishes to sell their interest, it must offer to sell it to the Continuing Joint Venturers at a specified price and on specified terms. If the Continuing Joint Venturers reject the offer, the Retiring Joint Venturer has three months to go to market, but on terms no less favourable (including price) than it offered to the others. If no sale results in three months, the right to sell lapses and the process must start again with a new offer. The commercial likelihood in such a case is that when commencing the process under cl 9.1 afresh, the Retiring Joint Venturer would have to lower the price offered to the Continuing Joint Venturers.
The findings of the purpose of the joint venture and an implied obligation to negotiate in good faith
Kourakis CJ’s findings, on the basis of which he determined to revoke the trust, direct the sale of the Property and order the distribution of the proceeds equally to the three beneficiaries, were made against the background of an important characterisation of obligations under the JVD and the Trust Deed. He noted that cl 3.1 anticipates ‘that the way in which the property is held, or dealt with, might change over time’.[4] He continued:[5]
The stipulation of ‘mutual agreement’ contemplates that all of the joint venturers must reach agreement on how to deal with the investment. It does not contemplate that decisions will be made by a majority. Moreover, the agreement of the joint venturers must be a dynamic one if the very purposes of the investment are to be achieved. At the very least, the stated purpose shows, and exposes, that the operation of the joint venture will require cooperation and negotiation in good faith. So too with respect to the very term and period of the joint venture which by Clause 3.2 expires ‘on such date as shall be mutually agreed in writing between the Joint Venturers’.
(Emphasis added)
[4] [2021] SASC 22 at [19].
[5] [2021] SASC 22 at [19].
Similarly, with respect to the Trust Deed, his Honour said:[6]
It is plain that the Trust Deed, too, is premised on a high degree of co-operation between the parties. It is a necessary implication of Clause 4 that the beneficiaries must consider, in good faith, a proposal put by any one or more of them that the property be dealt with in any particular way, because it confers on each of the joint venturer beneficiaries the power to control the exercise of Semweb’s duty, as a trustee, to the beneficiaries. The Trust Deed thereby provides a flexible mechanism by which the competing purposes of the investment can be accommodated and managed equitably. It would, for example, be an act of bad faith on the part of one joint venturer/beneficiary to withhold consent to the sale of the property to a third party in order to force the sale at a discount of the interest of a joint venturer/beneficiary whose principal reasonably wishes to retire from professional practice after the purpose of the JVD and Trust Deed have been largely achieved.
(Emphasis added)
[6] [2021] SASC 22 at [25].
There are three preliminary observations to be made about these statements. First, they express conclusions that the JVD carries an implied obligation to negotiate in good faith in its operation, and that the Trust Deed implies an obligation to negotiate in good faith on the part of the Beneficiaries on the topic of dealing with the Property. The appellants dispute the correctness of these conclusions, all the more so in circumstances where the existence of such obligations was not pleaded.
The respondents submitted that his Honour was simply describing the practicalities inherent in the instruments and, thereby, the character of the underlying spirit of the trust arrangement within the meaning of s 59C of the Trustee Act. However, I am satisfied that it is apparent from the broader context of the judgment, discussed below, that his Honour did find that there exist implied contractual obligations to negotiate in good faith. Having said that, for the reasons appearing below, I respectfully disagree with his Honour’s conclusions as to there being a continuing necessity for the parties to negotiate in good faith, however that may be characterised as a matter of law.
Secondly, the example his Honour gave in respect of the Trust Deed is directly relevant to the events that transpired between the principals and their Corporate Beneficiaries.
Thirdly, that example was premised on ‘the purpose of the JVD and Trust Deed hav[ing] been largely achieved’. It is necessary to be clear as to the purpose to which this statement referred. The Chief Justice characterised the purpose(s) of the Trust Deed and the JVD in the following way:[7]
The immediate object of the Trust Deed is to give effect to the JVD, that the premises be held on a trust by an independent corporate trustee for the benefit of each joint venturer equally. However, the spirit of the trust extends to, and includes, the commercial purposes of the JVD. Those purposes are to procure reasonable, secure and sustainable accommodation for the professional practices of the three principals, and to allow for capital growth in the investment of the joint venturer/beneficiaries under favourable taxation conditions arising out of the leases to the corporate practices. It is inherent in the nature of an investment that the, hopefully augmented, capital ultimately will be realised. Plainly, there is a tension between the objectives of securing office accommodation on the one hand, and recouping the capital in the investment on the other, if there is not unanimous agreement on when to do so.
(Emphasis added)
[7] [2021] SASC 22 at [12].
It was that tension between the purposes in the JVD of providing accommodation and achieving capital growth that Kourakis CJ considered underpinned the implied obligation to negotiate in good faith:[8]
A high degree of goodwill and cooperation is therefore required by the arrangement, because the professional, financial and personal circumstances of the principals may diverge over time. The tension may be resolved by the remaining corporate practices negotiating leases with the potential purchaser at the time of sale or by the remaining joint venturers/beneficiaries purchasing the property, or the retiring joint venturer’s interest, themselves. As my reasons explain, the Trust Deed provides a flexible mechanism to accommodate those potentially competing purposes if the tension is not resolved in those, or any other, ways.
[8] [2021] SASC 22 at [12].
This statement of purpose(s) of the JVD requires careful scrutiny, given its importance for framing the found implied obligation to negotiate in good faith and the subsequent findings of fact.
First, cl 3.1 of the JVD itself is clear, in expressing that the sole purpose of the joint venture is ‘to acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and if agreed to further develop the Property’. The JVD does not mention the provision of reasonable, secure and sustainable accommodation for the professional practices.
The provision of accommodation can safely be inferred to have been a subjective purpose of each of the three principals at the time the Corporate Beneficiaries entered into the JVD. Moreover, for each professional practice to have access to accommodation via the facility of the joint venture would likely make it a more attractive investment for each of the joint venturers. It would create stability in the investment and potentially have certain taxation advantages. In that sense, the provision of accommodation to each of the practices supports the investment purpose. However, the JVD does not make the provision of reasonable, secure and sustainable accommodation for the professional practices a purpose of the joint venture itself. Further, for a practice to decline the facility of accommodation would not in any way undermine the express purpose of the joint venture.
Secondly, the express, sole purpose of holding the Property as an ‘investment’ is not limited to achieving capital growth. Generating income is an integral purpose of investments in office buildings. Indeed, this element of the ‘investment’ purpose underscored the Full Court’s findings as to Semweb’s breach of fiduciary duties in failing to take steps to ensure that the property was leased at market rates. However, as identified below, the descriptive limit to the investment purpose as being one of capital growth was important to Kourakis CJ’s conclusions as to the appropriateness of making orders under s 59C of the Trustee Act.
His Honour characterised the facility provided by cl 9 of the JVD as follows:[9]
Clause 9 is a negative stipulation preventing a retiring joint venturer from imposing on the continuing joint venturers a party with whom they may need to share accommodation in the property and co-operate in the performance of the JVD. It ensures that any third party to whom the retiring joint venturer’s interest is sold, is bound by those same clauses.
[9] [2021] SASC 22 at [24].
I respectfully do not consider this to be a completely accurate statement of the effect of cl 9. If the Continuing Joint Venturers do not accept the offer by the Retiring Joint Venturer, the Retiring Joint Venturer has a three-month window in which to go to market on not less favourable terms than offered to the Continuing Joint Venturers. Any incoming third party will certainly be bound by those same clauses, but the Retiring Joint Venturer is not prevented from imposing a third party on the Continuing Joint Venturers, subject to those conditions. Clause 9 simply ensures that if that course is taken, the Continuing Joint Venturers remain protected by the terms of the JVD to which they signed up in the first place. Prior to that occurring, they have a right of first refusal on any terms and conditions of sale that the Retiring Joint Venturer is prepared to offer.
The findings of fact
Parker J made the main findings of fact at the first trial. However, Kourakis CJ made certain further findings in respect of events since delivery of the Full Court’s judgment on 10 December 2019. He drew on those findings and the history as found by Parker J in describing the ongoing relationship between Mr Orfanos and the other two principals as ‘fractious’ and ‘fraught’. The following is a summary of the matters to which his Honour had regard.
In December 2019 and January 2020, following the Full Court judgment, Mr Michaels and Mr Ouwens caused to be paid into Semweb’s bank account the shortfall of rental income.[10] Meanwhile, they and their respective Corporate Beneficiaries applied for special leave to appeal to the High Court, challenging the obligation to account for the shortfall in market rent. His Honour connected this action to his finding of an implied obligation to negotiate in good faith:[11]
That Mr Michaels and Mr Ouwens held that view, strongly enough to incur the expense of an application for special leave to appeal to the High Court, does not portend well for a good faith relationship which requires a significant degree of cooperation and collaboration.
[10] [2021] SASC 22 at [30].
[11] [2021] SASC 22 at [31].
His Honour further observed that this action ‘continued the high level of conflict’ which had previously characterised their relationship for some time.[12]
[12] [2021] SASC 22 at [32].
There had been no communication between Mr Orfanos and Mr Ouwens relating to the conduct of the trust or the management of the property from commencement of the trial before Parker J in September 2015 to 21 August 2020.[13] In February 2018, Mr Michaels and Mr Ouwens caused a statutory demand for costs of $13,200 to be served on Blong Ume in relation to the Supreme Court proceedings, without notifying Mr Orfanos beforehand. From late 2018 to 2019, there were various communications between Mr Michaels and Mr Orfanos about decisions made by Semweb without Mr Orfanos’s input. These related to a reduction in the Westpac loan facility, an increase in rent paid by OCS and Sims Richmond, and recovery of costs by Semweb in the Supreme Court proceedings.[14]
[13] [2021] SASC 22 at [34].
[14] [2021] SASC 22 at [33]-[37].
In November 2019, Westpac Bank contacted Mr Orfanos to advise that the other joint venturers had requested a reduction in the loan facility and an extension for six months on an interest only basis. Neither Mr Michaels nor Mr Ouwens had contacted Mr Orfanos to discuss this.[15] By 17 December 2019, Mr Orfanos had received no notice of any meeting of Semweb’s directors since the commencement of the trial. He had received information from an employee of Sims Richmond about the preparation of financial accounts and tax returns relating to the joint venture.[16]
[15] [2021] SASC 22 at [38].
[16] [2021] SASC 22 at [40].
In the first half of 2020, there was further correspondence between Mr Michaels and Mr Orfanos on the topic of reducing Semweb’s loan on the property. Mr Michaels and Mr Orfanos made different proposals, reflecting their different positions regarding what would be a resulting tax liability. His Honour noted that neither proposal was consistent with the priorities contemplated by cl 5.6 of the JVD.[17]
[17] [2021] SASC 22 at [41], [54]-[55].
In April 2020, Mr Michaels sought a review of the rent paid by Sims Richmond, because of a COVID-19 related downturn in the business. He proposed to hand back part of the tenancy and suggested a board meeting. As Kourakis CJ noted, this highlighted the differential advantages of rent reductions to those joint venturers whose practices remained in the Property.[18] This issue progressed over the first half of 2020 with a proposal for a mediation. Ultimately, Mr Michaels abandoned the claim following the refusal of the application for special leave.[19]
[18] [2021] SASC 22 at [44].
[19] [2021] SASC 22 at [45]-[50].

Otherwise, Mr Orfanos gave evidence about generally being excluded from discussions about Semweb’s banking facilities, and that documentation was put to him by Westpac once the other two directors had resolved on a course. Decisions were presented to him as a fait accompli.[20]
[20] [2021] SASC 22 at [52].
Mr Orfanos gave evidence that by this time, he had commenced attempting to leave the joint venture.[21] It is to be recalled that in 2012, Orfanos Nominees had offered to sell its interest in the joint venture to Melrob and OCS for $1,010,000 (and discharging its liability for one-third of the mortgage). In 2015, the Ouwens entities had put an offer to the Orfanos entities to settle the proceedings on terms that involved the Michaels and Ouwens entities purchasing the Orfanos entities’ interest in the joint venture for $385,433. The ascribed value was premised on no underpayment of rent having occurred, this being at the outset of the proceedings. Further, the offer incorporated a discount on the market value of 22.5 per cent for the sale of a partial minority interest.[22] Mr Ouwens gave evidence at the trial before Parker J that he was not prepared to purchase the Orfanos interest without applying a minority discount of that order to what was otherwise identified to be the market value.
[21] [2021] SASC 22 at [53].
[22] Blong Ume Nominees Pty Ltd & Ors v Semweb Nominees Pty Ltd & Ors [2017] SASC 137 at [127]-[128].
Kourakis CJ noted the evidence of Mr Michaels at the trial before him that:[23]
…he had recently engaged in without prejudice discussions with Mr Orfanos in an attempt to resolve their differences and to discuss a purchase of Mr Orfanos’s interest. He gave evidence that he was prepared to purchase Mr Orfanos’s interest for one third of the value of $3.1 million, determined by Westpac’s valuer. However, that valuation is not accepted by Mr Orfanos. Expert evidence on the market value of the property was not adduced before me.
[23] [2021] SASC 22 at [56].
Mr Michaels’ evidence was that he was prepared simply to pay one third of the bank valuation. He did not give evidence that he would apply a discount for a minority interest to that. Mr Ouwens was made available for cross-examination but was not asked about whether he still held the position he had taken in 2015, namely that he would require a minority interest discount on any market valuation. The Chief Justice noted the evidence of Mr Ouwens on this topic from the trial in 2015.
As to the present circumstances of the principals, Kourakis CJ noted that that Mr Orfanos was, in 2021, 74 years old. He had intended to retire at 65, but his evidence was that the circumstances of the joint venture had prevented him from doing so. Mr Michaels was 52 in 2021. Mr Ouwens had told him earlier that he intended to pass his practice to his daughter, but that he wished to continue to rent office accommodation.[24]
[24] [2021] SASC 22 at [59]-[60].
There is one further matter of fact that assumed considerable importance on the appeal and against the background of which his Honour’s conclusions proceeded. This is that at no time did Mr Orfanos engage the facility provided by clause 9 of the JVD, of going to market to sell Orfanos Nominees’ interest in the Property on no less favourable terms than offered to the Continuing Joint Venturers, once they had rejected an offer.
The trial judge’s application of s 59C of the Trustee Act
Kourakis CJ disposed shortly of Blong Ume’s application for an order pursuant to s 36 of the Trustee Act to remove Semweb as trustee:[25]
The pre-conditions of the exercise of the power to remove a trustee pursuant to s 36 of the Trustee Act are that the removal is in the interests of the beneficiaries, or necessary or desirable, in order to advance the purposes of the trust. In this case, the appointment of an independent trustee, either a natural person or a corporate trustee, would serve very little purpose. Far from bringing an end to disputation it would simply change its character. If the underlying tension between the joint venturers remains unresolved, an independent trustee is likely to find itself regularly seeking directions from the Court on how to resolve their competing demands. Moreover, the appointment of an independent trustee must come at a cost. I would not make an order removing Semweb as trustee.
[25] [2021] SASC 22 at [62].
He then turned to the application to revoke the trust under s 59C of the Trustee Act. That section provides, relevantly:
59C—Power of Court to authorise variations of trust
(1)     The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust—
(a)     vary or revoke all or any of the trusts; or
(b)     where trusts are revoked—
(i)distribute the trust property in such manner as the Court considers just; or
(ii)resettle the trust property upon such trusts as the Court thinks fit; or
(c)enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.
(2)     In any proceedings under this section the interests of all actual and potential beneficiaries of the trust must be represented, and the Court may appoint counsel to represent the interests of any class of beneficiaries who are at the date of the proceedings unborn or unascertained.
(3)     Before the Court exercises its powers under this section, the Court must be satisfied—
(a)that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and
(b)that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class; and
(c)that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers; and
(d)that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.
…
His Honour reviewed the primary authorities on when the power may be exercised, noting that in Retail Employees Superannuation Pty Ltd v Pain,[26] Blue J held that whether there is good reason to vary or revoke a trust ‘is to be determined by considering the purpose and effect of the proposed variation in the context of the purpose and effect of the Trust Deed as a whole and the relevant surrounding circumstances’.[27] Kourakis CJ also adopted Blue J’s description of the preconditions to the application of s 59C(1), in the context of an application to vary a trust, in HEST Australia Ltd v Inkley:[28]
[26] (2016) 115 ACSR 1.
[27] Retail Employees Superannuation Pty Ltd v Pain (2016) 115 ACSR 1 at [168]-[169]; see [2021] SASC 22 at [68].
[28] [2018] SASC 127 at [21], cited in [2021] SASC 22 at [69]; see also Westpac Securities Administration Ltd v Cooper [2016] SASC 122 at [38].
This Court’s power to vary a trust is conditioned on satisfaction of eight prerequisites:
1An application is made by a trustee of a trust (or a person with a vested, future, or contingent interest in property held on trust).
2The interests of all actual and potential beneficiaries are represented in the proceeding.
3The application is not substantially motivated by a desire to avoid or reduce the incidence of tax.
4 There is good reason to make the proposed variation.
5 The proposed variation would be in the interests of beneficiaries.
6The proposed variation would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class.
7The proposed variation accords as far as reasonably practicable with the spirit of the trust.
8The proposed variation would not disturb the trust beyond what is necessary to give effect to the reasons justifying the exercise of the powers.
(Citations omitted)
His Honour considered that in the circumstances of this case, the primary consideration was the proper interests of the single class of beneficiaries of the trust administered by Semweb. Importantly, he then reasoned:[29]
The purposes and objectives of the JVD and the Trust Deed inform the identification of those interests. For the reasons given in [25] above, the purposes and objectives of both were to accommodate, in a flexible way, the interests of the joint venturers/beneficiaries in the property as an investment and as office accommodation for their related professional practices.
[29] [2021] SASC 22 at [71].
I have identified earlier what I consider to be the difficulties with this characterisation of purpose of the JVD and Trust Deed. However, this was the first of several limbs on which his Honour rested his determination to revoke the trust, elevating the importance of this purpose over the purpose of cl 9 that he identified:[30]
The purpose of Clause 9 of the JVD is, as I explain in [24] above, to prevent the assignment of interest to an outsider without first giving the continuing partners an opportunity to purchase. Clause 9 would assume greater importance as a reason for not to revoke the Trust Deed if a retiring partner wished to sell so soon after the property was purchased that the contemplated benefits of the purchase, both to the joint venturers/beneficiaries and their related professional practice entities, would be thrown away. In those circumstances, the retiring joint venturer/beneficiary is likely to carry the burden of finding an acceptable assignee of its interest.
However, in the 18 years since the property was purchased, Mr Orfanos has substantially reduced the size of his practice and has worked from home for four years longer than the common age of retirement. But for the disputation which has plagued the relationship of the joint venturers, he had hoped to have retired already. Mr Ouwens is a similar age and is also considering retiring from practice and passing on his practice to his daughter.
[30] [2021] SASC 22 at [72]-[73].
It was on the basis of this reasoning that his Honour rested the first limb of his conclusion that it was in the interests of the beneficiaries, viewed holistically, to revoke the trust, being:[31]
(a) the expectations of the parties in entering into the JVD and the Trust Deed by and large have been met;
[31] [2021] SASC 22 at [80].
I am respectfully unable to agree with this conclusion. Identifying the purpose of the JVD requires an objective enquiry. As already discussed, the sole purpose of the JVD was to acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and, if agreed, to further develop the Property. The subjective expectation of the individual principals that this investment would provide stable accommodation for their professional practices does not form part of that purpose.
As to the investment purpose having been ‘met’, this appears to rely on the finding at the commencement of his Honour’s reasons, that:[32]
The joint venturers/beneficiaries have benefitted from a substantial increase in the value of the building and from collateral taxation advantages for many years. The incidence of taxation now operates differentially on them and is a cause of friction. The JVD and the Trust Deed have subsisted for long enough, and the value of the property has increased sufficiently, so that the sale costs will be a relatively small proportion of the capital growth. I find that the time has come when the balance of the competing purposes of the joint ventures [sic] weigh strongly in favour of its termination.
(Emphasis added)
[32] [2021] SASC 22 at [13].
This statement appears to rely on the investment purpose of the joint venture being one of capital growth only. It also relies on the provision of accommodation as described by Kourakis CJ as being a competing purpose.
In my view, his Honour’s conclusion that the purpose of the joint venture had been ‘met’ relied on an incorrect characterisation of the purpose of the JVD. Once focus is placed on the sole purpose as described, being one of investment, which necessarily includes the generation of income, I do not think that this conclusion was available.
Related to this conclusion is his Honour’s treatment of the position of Melrob and OCS relying on the failure of Orfanos Nominees to take the steps required by cl 9, if it wished to retire from the joint venture:[33]
The essence of the submission advanced on behalf of Melrob and OCS is that they are entitled to expect Orfanos Nominees to adhere to the contractual bargain they had made. I acknowledge that that commercial arrangement embodied in the JVD is a relevant and important consideration in the exercise of the powers conferred by s 59C of the Trustee Act, but it cannot exclude its operation nor the totality of the considerations which are relevant to the exercise of the power it creates. Moreover, the JVD and the powers conferred on Semweb by the Trust Deed are premised, as I have earlier observed, on the ongoing mutual agreement of the joint venturers on how to deal with and manage the property.
Counsel for Mr Ouwens and Mr Michaels submitted that it would be unfair to make an order for the distribution of the trust property and to thereby give Mr Orfanos a more beneficial outcome than that to which he is contractually entitled. The proposition is generally persuasive, and indeed may be determinative, in a dispute between shareholders of a corporation which engaged in a stand-alone ongoing commercial enterprise. In those circumstances, an investment in the equity of the company, as a minority shareholder, carries with it certain commercial consequences which are a reflection of the legal incidents of that shareholding. However, that proposition does not address the dual and competing purposes of the JVD which were to both provide an investment for the joint venturers and accommodation for the professional practices of their respective principals. Nor does it address the necessary implication in Clause 4 of the Trust Deed.
(Emphasis added)
[33] [2021] SASC 22 at [74]-[75].
These paragraphs raise several issues. First, once the premise of ‘competing purposes’ of the JVD is rejected, his Honour’s primary basis for rejecting the submission, that Melrob and OCS were entitled to demand that Orfanos Nominees act in accordance with cl 9, falls away.
Secondly, his Honour relied on the joint venture being premised on ‘the ongoing mutual agreement of the joint venturers on how to deal with and manage the property’. He identified that premise as an obligation arising from cll 3.1 and 3.2 of the JVD and the complementary obligation that he identified as arising from cl 4 of the Trust Deed. These clauses, so construed, provided important foundations for his Honour’s identification of an implied obligation to negotiate in good faith.
The appellants challenged his Honour’s construction of these clauses. Clause 3.1, they submitted, constituted the agreed manner of holding the investment, unless and until the joint venturers agreed otherwise. Similarly, clause 4 of the Trust Deed permits dealing with the land only where that has been agreed in writing between the Beneficiaries. Neither clause should be construed as requiring that the joint Venture and Trust should maintain only for so long as the joint venturers/Corporate Beneficiaries remained in agreement, thereby requiring an obligation to continue to negotiate in good faith.
We are therefore presented with a constructional choice. The immediate difficulty with the construction preferred by his Honour is that if the purposes of the JVD and the Trust Deed were to be maintained only for as long as there remained agreement as to the manner of holding the property as an investment, then regardless of whether there was an obligation to negotiate in good faith, the joint venture would be demonstrably unstable.
This is reinforced by the fact that the sole purpose of the joint venture (as opposed to the subjective expectations of each of the principals of the respective joint venturers) is the investment purpose as described. Once initial agreement has been reached, the constructional choice favours the investment proceeding on that agreed basis unless and until some different agreement is reached. Otherwise, the prospect that one joint venturer might at any time withdraw their agreement to the manner of holding the Property – even in good faith – would be tremendously destabilising of the investment purpose.
Having regard to this resolution of the constructional choice, and having rejected his Honour’s thesis that the JVD has competing purposes, it follows that an implied term to negotiate in good faith in the ongoing conduct of the joint venture is not necessary to give business efficacy to the JVD; neither is it so obvious as to go without saying.[34]
[34] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 (PC); Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605-606.
Even if his Honour was describing a more abstract necessity arising from the documents that simply informed the spirit of the trust, as contended for by the respondents, I would reach the same conclusion. Neither the JVD, nor the Trust Deed, is premised on the ongoing high degree of cooperation of the parties that Kourakis CJ found to be necessary.
His Honour’s conclusion as to the necessity of a high degree of cooperation and good faith then informed the next stage of his reasoning, as follows:[35]
I also find that Mr Michaels and Mr Ouwens have attempted to take advantage of Mr Orfanos’s personal circumstances to purchase his interest for less than one third of the market value of the property by insisting on a ‘minority discount’. The minority discount from which they wish to benefit arises because independent third parties will be reluctant to bind themselves to an investment of this kind which is dependent on a high level of cooperation and good faith on the part of the joint venturers. Forcing a minority discount on Mr Orfanos after this length of time is not a legitimate interest of Melrob and OCS under the JVD, or the Trust Deed, having regard to the purpose of the former and the spirit of the latter.
[35] [2021] SASC 22 at [14].
There was no evidence of the likely behaviour of independent third parties in the event that the Orfanos entities had gone to market. Even if this were to be treated as a proposition of logic, I do not agree with its underlying premise of the existence of an implied duty (or necessity) to negotiate in good faith. In any event, Mr Orfanos never tested the market pursuant to the facility in cl 9.6. I am therefore unable to accept the correctness of the conclusion that Mr Michaels and Mr Ouwens ‘forced’ a minority discount on Mr Orfanos.
While it is clear that Mr Ouwens had insisted on a minority discount in 2015, it is not clear on the evidence that this formed part of Mr Michaels’ thinking by the time of the trial before Kourakis CJ. However, it is not ultimately necessary to resolve whether there was sufficient evidence to conclude that the imposition of a minority discount represented the position of both Mr Ouwens and Mr Michaels by the time of that trial, as I do not accept that it has the significance that his Honour ascribed to it.
His Honour developed that significance in his conclusions:[36]
The position taken by Melrob and OCS would allow a majority of the joint venturers/beneficiaries to profit from the vulnerability of the principal who first reaches retirement age. The approach is both unreasonable and a breach of the underlying spirit of the trust arrangement. It is inconsistent with the duties of good faith and fairness inherent in the arrangement. Counsel for Mr Orfanos submitted that the JVD and Trust Deed cannot properly be used to force a ‘minority discount’ on the value of the interest of Orfanos Nominees/Blong Ume. I accept that proposition.
[36] [2021] SASC 22 at [76].

It is against this background that the respondents’ claim on the cross appeal that the failure to set market rents, in the circumstances in which it occurred, was oppressive conduct such as requiring orders under s 233. Building in Grounds 1A(a)(v) and (vi) into the argument, they submit:
The breaches by Semweb were at the instigation of Ouwens and Michaels, and/or the instigation or request of Melrob and OCS as beneficiaries of the Trust, and was to the advantage or benefit of each or any of OCS, Melrob, Ouwens and Michaels, to the detriment of Orfanos Nominees. This is demonstrated by the finding that Ouwens and Michaels (in breach of their own statutory, equitable and fiduciary duties to the company)[79] caused Semweb to breach its duties by failing to secure market rent to the detriment of Orfanos Nominees and to the benefit of their associated Joint Venturers.[80] This conclusion was made in the context that it was “indirectly important to the claim pursuant to s. 232 and 233 of the Corporations Act”.[81]
(Footnotes in original)
[79] In Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 at [214], Basten JA observed that a breach by directors of their duties under ss 181 – 183 of the Corporations Act would likely be contrary to the interests of the members as a whole.
[80] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385, [181] – [185].
[81] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385, [175].
The observation by Sackar J in Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) is applicable:[82]
It may be oppressive if directors or majority shareholders conduct the affairs of a company in a way that advances their own interests or the interests of others, to the detriment of a minority shareholder…
[82] [2015] NSWSC 1639 at [108].
I have had regard, again, to the interrelationship between the capacities of Mr Orfanos as a member of Semweb and controller and beneficiary of the Corporate Beneficiary, Orfanos Nominees. On the basis of that interrelationship, I am prepared to find that the conduct of Messrs Michaels and Ouwens in undervaluing the market rents was oppressive to, unfairly prejudicial to and unfairly discriminatory against, Mr Orfanos in his capacity as controller and beneficiary of Orfanos Nominees.
It follows that once the Semweb corporate trust structure is recognised as no barrier to incorporating the capacity of Mr Orfanos as controller and beneficiary of Orfanos Nominees, this is manifestly a case of the kind contemplated by s 232(e). It is not necessary to decide whether it is also falls within s 232(d).
Sections 233 and 461(1): relief
The respondents submit that the demonstrated oppression justifies an order winding up Semweb, and the consequent associated relief that would terminate the joint venture. They submit that the agreements that have been reached since the judgment of the Full Court have been nothing more than ‘knee-jerk’; there have been no formal valuations undertaken, no entry into formal leases or long-term arrangements to prevent repetition.
I accept that the conclusions I have reached above are sufficient to enliven the power to wind up Semweb under any of s 461(1)(e), (f) or (g).
The question of the necessity for relief is informed by all the circumstances, including risk. As Sifris J observed in Exton v Extons Pty Ltd:[83]
From a review of the authorities, the better and predominant view is that the sections are enlivened if the conduct occurs at any time and notwithstanding that it may have ceased at the time of trial. However this will be of relevance in determining whether and to what extent orders should be made. There may be no need or utility for any remedy. Any remedy will depend on the particular circumstances of the case.
[83] (2017) 53 VR 520 at [34].
For the purposes of considering the discretion to order relief, then, the conduct of Messrs Michaels and Ouwens in procuring the breaches of duty by Semweb require consideration of all relevant circumstances.
As things stand, the underpayments have been corrected, both by agreement as to the amounts and their payment. It remains the case that Mr Orfanos has not acted to engage cl 9 of the JVD in his attempts to sell the interest of Orfanos Nominees. The joint venture remains a passive investment venture. Importantly, Mr Orfanos has not responded to the proposal by the others, which he accepts is open, that the joint venture engage an independent property manager who would then appoint a valuer to fix the rent. His reason for not responding is his desire to await the outcome of this proceeding.
These matters indicate that the claimed ongoing risk of oppression is being facilitated by Mr Orfanos not taking up the facilities reasonably available to him to minimise or eradicate that perceived risk. First, he has not engaged cl 9 of the JVD. Secondly, he has not engaged with a proposal to ensure against repetition of the oppressive conduct. That proposal reflects the observations of the Full Court as to how the oppression should have been averted in the first place.[84]
[84] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (2019) 135 SASR 385 at [87]; [182].
In those circumstances, I am not satisfied that it is appropriate to exercise the powers under s 233 or 461(1) in response to the oppression occasioned by the historical breaches with respect to market rents. I would not exercise the discretion to wind up Semweb and make the associated orders sought. I would dismiss these grounds of the cross-appeal.
Section 36 of the Trustee Act – Ground 2 of the cross appeal
The respondents contend, in the further alternative, that in the event that the primary judge erred in making orders under s 59C, on the findings that the judge made and the matters the subject of the Notice of Alternative Contention, the judge ought to have made orders under s 36 of the Trustee Act removing Semweb and appointing a new trustee.
The respondents acknowledge that it would not be in the interests of the parties that a new trustee be able to charge commission on both the capital and income of the trust. They propose a further order under s 36(1)(d) of the Act, permitting the trustee to operate the joint venture pursuant to the terms of the JVD.
As observed above, Kourakis CJ held:[85]
The pre-conditions of the exercise of the power to remove a trustee pursuant to s 36 of the Trustee Act are that the removal is in the interests of the beneficiaries, or necessary or desirable, in order to advance the purposes of the trust. In this case, the appointment of an independent trustee, either a natural person or a corporate trustee, would serve very little purpose. Far from bringing an end to disputation it would simply change its character. If the underlying tension between the joint venturers remains unresolved, an independent trustee is likely to find itself regularly seeking directions from the Court on how to resolve their competing demands. Moreover, the appointment of an independent trustee must come at a cost. I would not make an order removing Semweb as trustee.
[85] [2021] SASC 22 at [62].
I agree that it would not be in the interests of the beneficiaries to remove Semweb. Doing so would change little and would necessarily incur cost. Further, a change in trustee would not address the ongoing difficulties occasioned by the non-engagement of cl 9 and the failure of Mr Orfanos to engage with the proposal for an independent property manager. I would dismiss this ground.
Conclusion
I would order as follows:
1.The appeal is allowed.
2.The cross-appeal is dismissed.
3.The claims made by the respondents remitted to the primary judge for re‑hearing are dismissed.
I would hear the parties as to the appropriate costs orders.
DAVID JA: I agree with the reasons of Bleby JA, and the orders he has proposed.