Disagreement Does Not Always Mean Dysfunction

The case of David & Ros Carr Holdings Pty Ltd v Ritossa [2024] NSWSC 1125 deals with the management and potential winding up of the Darbalara Property Trust (DPT). The Carrs wanted to exit the trust and sell its assets, while the Ritossas wanted to continue their investment.

Background of the Dispute: The Carrs and the Ritossas established DPT in 2010 to purchase rural properties, but disagreements arose in 2019 regarding the management of the farms and the desire to sell the trust’s assets.  The disagreements arose from around mid-2019 the management of the farms by Carr Agriculture Capital Management Pty Ltd (CACM), a company where the Carrs were the directors and shareholders.  The drought in the Gundagai area from mid-2017 to March 2020 affected the profitability of the business of DPT, which precipitated these disagreements.

Claims and Relief Sought:

The Plaintiffs’ Claim

1. Winding Up the Trust:  The plaintiffs sought declarations and orders to wind up DPT and distribute its assets.  They claimed that the trust should be wound up due to the breakdown in the relationship between the parties and the alleged oppressive conduct by the defendants.
2. Appointment of a Receiver:  Alternatively, the plaintiffs sought the appointment of a receiver to manage the trust’s assets.  They argued that the appointment was necessary to preserve the trust’s assets and ensure their proper management.
3. Oppressive Conduct:  The plaintiffs claimed that the defendants’ conduct was oppressive, unfairly prejudicial, or unfairly discriminatory against them.  They argued that the disagreements and deadlock in the management of the trust constituted oppressive conduct under the Corporations Act.
4. Oral Agreement and Estoppel:  The plaintiffs also claimed that there was an oral agreement or estoppel that would allow for the unilateral termination of the trust if one party wanted to exit.  They argued that this agreement or estoppel should be enforced to allow them to exit the trust and sell its assets.

The Defence

1. No Oral Agreement or Estoppel:  The defendants argued that there was no oral agreement or estoppel that would allow for the unilateral termination of the trust if one party wanted to exit.  They contended that the plaintiffs’ claim of an oral agreement or estoppel was not supported by evidence.
2. Interpretation of Trust Deed:  The defendants argued that the trust deed did not grant individual unit holders the right to wind up the trust or call for a distribution of capital.  They contended that such rights were collective and required the agreement of all unit holders.
3. No Oppression:  The defendants argued that their conduct was not oppressive, unfairly prejudicial, or unfairly discriminatory against the plaintiffs.  They contended that the disagreements between the parties were legitimate differences of business judgment and did not meet the threshold for commercial unfairness.
4. Functioning of the Board:  The defendants argued that the breakdown in personal relationships between the Carrs and the Ritossas did not translate into a breakdown of the working relationship.  They contended that the board continued to function and make decisions, and therefore, the trust should not be wound up.
5. No Need for a Receiver:  The defendants argued that there was no evidence that the trust property was in jeopardy or that the appointment of a receiver was necessary to preserve the trust’s assets.

Key Legal Issues:  The Court examined whether there was an agreement or estoppel to sell the trust’s assets if one party wanted to exit, the interpretation of the trust deed, and whether the conduct constituted oppression under the Corporations Act.

A. Oral Agreement and Estoppel

The Court found no evidence to support the plaintiffs’ claim of an oral agreement or estoppel that would allow unilateral termination of the trust.  The Court considered the testimonies of the witnesses and found inconsistencies and contradictions in the plaintiffs’ account of the alleged oral agreement. The Court then examined the conduct of the parties and found that their actions did not align with the existence of an oral agreement or estoppel.  The Court noted that the parties continued to operate the trust and make decisions collectively, which contradicted the plaintiffs’ claim of a unilateral termination agreement.

B. Interpretation of Trust Deed

The Court ruled that the trust deed did not grant individual unit holders the right to wind up the trust or call for a distribution of capital.  The Court concluded that such rights were collective and required the agreement of all unit holders.

C. Oppression Claim

The Court found no evidence of oppression, noting that the disagreements between the parties were legitimate differences of business judgment and did not meet the threshold for commercial unfairness.  The Court noted that the breakdown in personal relationships between the Carrs and the Ritossas did not translate into a breakdown of the working relationship.  The board continued to function and make decisions, which indicated that the trust was still operational.  The Court found no evidence of oppression, unfairly prejudicial, or unfairly discriminatory conduct by the defendants against the plaintiffs.  The Court considered the deadlock in the management of the trust and the breakdown of mutual trust and confidence but concluded that these factors alone did not justify winding up the trust.

D. Appointment of a Receiver

The Court declined to appoint a receiver, finding no evidence that the trust property was in jeopardy or that the appointment was necessary to preserve the trust’s assets.

E. Valuation Discrepancies

There was a significant discrepancy between the value of the trust’s net assets and the market value of a 50% unit holding, complicating the plaintiffs’ exit strategy.

F. Final Rulings

The Court dismissed the plaintiffs’ claims, ruling in favour of the defendants and ordering the plaintiffs to pay the defendants’ costs.

Key Takeaways

The judgment is a good reminder about:

1. Importance of Clear Agreements:  clear and documented agreements between parties, especially in business ventures would go a long way to avoiding the kinds of argument in this case.  The lack of evidence for an oral agreement or estoppel led to the dismissal of the plaintiffs’ claims.
2. Collective Rights in Trust Deeds:  The judgment emphasises that rights under a trust deed are collective and require the agreement of all unit holders.  Individual unit holders did not have the right to unilaterally wind up the trust or call for a distribution of capital.
3. Legitimate Business Judgment:  The Court recognized that disagreements between parties can be legitimate differences of business judgment and do not necessarily constitute oppression.  This underscores the need for parties to work through their differences in a constructive manner.
4. Functioning of the Board:  The Court noted that the breakdown in personal relationships did not translate into a breakdown of the working relationship.  The board continued to function and make decisions, indicating that the trust was still operational.
5. No Need for a Receiver:  The Court found no evidence that the trust property was in jeopardy or that the appointment of a receiver was necessary to preserve the trust’s assets.  This highlights the need for concrete evidence when seeking such relief.

For more information about building & construction and commercial litigation and equity disputes, contact David Collins in the Mullane & Lindsay litigation team.

Liability limited by a scheme approved under Professional Standards Legislation