Management Difficulty Short of Deadlock does not Attract Trust Termination

In David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108 (25 May 2025), the NSW Court of Appeal dealt with a dispute between two families which had set up a trading trust to engage in investment.  The families fell out – rendering it difficult to manage the trust assets at monthly meetings – but continued to invest and protect the trust assets.  The case points up the need to carefully draft the trust deed – depending on the requirements of the parties – and to the need to point to clear evidence of deadlock short of gaining corporate remedies.  Given the complexities of the matter, it suffices, for the purpose of this case note, to set out the lengthy headnote, followed by the link to the case if the reader wishes to descend further into the case or any particular issue.

The headnote provides:

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 2010, Mr and Ms Carr and Mr and Ms Ritossa constituted Darbalara Holdings Pty Ltd as the corporate trustee of a unit trust – the Darbalara Property Trust – for the management of farmland near Gundagai, NSW. The two families are equal unit holders. Each of the Carrs and the Ritossas are directors of Darbalara Holdings. Clause 2 of the trust deed provided that “The Unit Holders are presently entitled to the Income [and Capital] of the Trust” and “may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property”. In 2019, disagreements emerged between the Carrs and the Ritossas, and they had a falling out in a meeting in December 2019. The Carrs expressed an intention to terminate the trust relationship; the Ritossas wished to continue their investment.

In 2020, the Carrs commenced proceedings in the Equity Division seeking the winding up of the trust relationship on the basis that (a) clause 2 of the trust deed allowed a unit holder to unilaterally call for a winding up, (b) the corporate trustee’s conduct was oppressive so as to justify orders under s 233 of the Corporations Act 2001 (Cth), and (c) a receiver should be appointed to wind up the trust given jeopardy to the trust assets.

The primary judge held that cl 2 of the trust deed did not entitle a unit holder to unilaterally call for a winding up. The primary judge found that the evidence did not establish deadlock. Even if there was deadlock, that would not be a sufficient basis for a realisation of the trust assets under s 233. Because the primary judge found that the assets were being adequately managed in monthly board meetings between the directors, there was no jeopardy to the trust assets justifying the appointment of a receiver to liquidate the trust assets and make final distributions to unit holders.

On appeal, the appellants submitted that the primary judge erred in failing to find that (a) cl 2 entitled each unit holder unilaterally to bring the trust to an end (Ground 1), (b) there was a series of deadlocks in the management of Darbalara Holdings Pty Ltd such that the conduct of the corporate trustee, including its failure to allow a redemption of units when requested, was oppressive to the Carrs and contrary to the interests of members as a whole (Grounds 2-8), and (c) a receiver could be appointed, either under s 67 of the Supreme Court Act 1970 (NSW) or in the Court’s inherent jurisdiction over trusts, to “wind up” the trust where there was an irretrievable breakdown in mutual trust and confidence between unit holders who were “quasi-partners” (Ground 9).

The Court (Leeming JA, Stern JA and Griffiths AJA agreeing) held, dismissing the appeal:

As to Ground 1:

1. On its proper construction, cl 2’s reference to unit holders being “presently entitled” to require the trustee to wind up the trust means the unit holders collectively, rather than individually. The purpose of including the clause was only to make the unit holders owners of an equitable estate under a fixed trust, and thereby eligible for the tax-free threshold under s 3A(3B) of Land Tax Management Act 1956 (NSW). It did not have the effect of allowing a unit holder unilaterally to wind up the trust and claim their own interest: [66]-[93] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Sayden Pty Ltd v Chief Commissioner of State Revenue (2013) 83 NSWLR 700; [2013] NSWCA 111, distinguished.

CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; [2005] HCA 53; Davis v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs (2023) 279 CLR 1; [2023] HCA 10; Vanderstock v Victoria [2023] HCA 30; 98 ALJR 208, considered.

As to Grounds 2-8:

2. There is no basis to exclude from the scope of “the conduct of a company’s affairs” the conduct of a corporate trustee in the management of the trust or to exclude from the scope of orders “in relation to the company” an order concerning the interests of the trust beneficiaries: [105]-[112] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Trust Company Ltd v Noosa Venture 1 Pty Ltd [2010] NSWSC 1334, disapproved.

Melrob Investments Pty Ltd v Blong Ume Nominees Pty Ltd [2022] SASCA 29; Wain v Drapac [2012] VSC 156, approved.

3. Mr Carr as a discretionary object of the Carr Family Trust, which was one of the unit holders of the trust, did not have standing to complain of any oppression: [135]-[139] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).
4. Mere deadlock in the operation of the corporate trustee or a breakdown in the relationship between its managers does not constitute “oppression” under s 232. The deadlock must be one which leads to further consequences in order to reach the evaluative judgment required by s 233. Mere differences in opinion as to the sale of investments, the unpleasantness of board meetings, and delays in the finalisation of leases, are insufficient: [113], [159]-[177] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

As to Ground 9:

5. The principle in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360concerns the scope of the statutory power to wind up a company, rather than a proposition at general law that a trust can be terminated where there has been a breakdown in an original relationship of mutual trust and confidence. No such general law proposition can be developed by analogy with statute: [215]-[236] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).
6. Because the purpose of the inherent jurisdiction is to preserve trusts and not destroy them, a receiver cannot be appointed in the court’s inherent jurisdiction over trusts to terminate the trust merely because there has been a breakdown in mutual trust and confidence. The position is not otherwise under section 67 of the Supreme Court Act 1970 (NSW): [237]-[254] (Leeming JA); [258] (Stern JA); [259] (Griffiths AJA).

Mir v Mir [2023] NSWSC 408; Baba v Sheehan [2019] NSWSC 1281; Re Austec Wagga Wagga Pty Ltd (in liq) [2018] NSWSC 1476, approved.

The link to the case is here.