Federal Court of Australia Hillier v Martin (No 3) [2021] FCA 709 File number: SAD 113 of 2020 Judgment of: CHARLESWORTH J Date of judgment: 24 June 2021 Date of publication of reasons: 28 June 2021 Legislation: Trustee Act 1936 (SA) s 59C Federal Court Rules 2011 (Cth) r 9.05 Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 32 Date of hearing: 24 June 2021 Counsel for the Applicant: Mr R Whitington QC with Mr O'Leary Solicitor for the Applicant: Sykes Bidstrup Counsel for the Respondent: Mr S Ower SC Solicitor for the Respondent: Norman Waterhouse ORDERS SAD 113 of 2020 BETWEEN: JAMES HILLIER Applicant AND: VICTORIA MARTIN Respondent order made by: CHARLESWORTH J DATE OF ORDER: 24 JUNE 2021 THE COURT ORDERS THAT: 1. The applicant has leave to amend the statement of claim by: (a) inserting the amendments in the proposed amended paragraphs 70.4 and 70.5 of the proposed second amended statement of claim in the form of annexure JH59 to the affidavit of James Hillier sworn on 17 June 2021; and (b) deleting the previously numbered paragraphs 75.4 to 75.7 of the first amended statement of claim. 2. The applicant has leave to introduce the pleas proposed at paragraphs 73.5 and 75.4 of the proposed second amended statement of claim on the condition that Nordburger Operations Pty Ltd be joined as the second respondent in the proceedings and the applicant is granted leave to join Nordburger Operations Pty Ltd as a party for that purpose. 3. The leave granted in paragraphs 1 and 2 is to be exercised on or before 28 June 2021. 4. Subject to paragraph 5, the applicant has leave to file a third amended statement of claim containing the plea presently proposed at paragraph 75.6 of the proposed second amended statement of claim on the condition that the applicant join as a party to the proceeding those persons comprising the "Craig Interests" referred to in paragraph 3 of the proposed second amended statement of claim and the applicant has leave to join those persons as a party for that purpose. 5. For the purpose of paragraph 4 those persons comprising the "Craig Interests" are: (a) Erik Vari Pty Ltd; and (b) Robert Craig. 6. The applicant has liberty to apply to vary the names of the persons identified in paragraph 5. 7. The leave granted in paragraph 4 is to be exercised on or before 5 July 2021. 8. On or before 19 July 2021 the first respondent is to file and serve an amended defence. 9. In the event that the leave in paragraph 2 is exercised, on or before 19 July 2021 the second respondent Nordburger Operations Pty Ltd is to file and serve a defence. 10. On or before 26 July 2021 the applicant is to file and serve: (a) an amended reply to the first respondent's amended defence; and (b) if so advised, a reply, to the second respondent's defence (if any). 11. Liberty to apply. 12. Judgment is reserved on the applicant's interlocutory application dated 18 March 2021. 13. The case management hearing be adjourned to 2.15pm on 25 June 2021. 14. Costs of the applicant's interlocutory application dated 17 June 2021 are reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT CHARLESWORTH J 1 On 24 June 2021 I made orders granting the applicant in this proceeding leave to amend his pleading (amendment application). The grant was in some respects unconditional and in other respects conditional upon the applicant being granted leave to join additional entities as respondents. I gave oral reasons for granting leave. What follows is a written record of those reasons with some modification to add some uncontroversial background and to improve expression. Reasons on the amendment application 2 This action was commenced in August 2020. The applicant's case is that he has an interest in the assets and income of a joint venture for the operation of a hamburger business, trading under the name Nordburger. He alleges that the parties to the joint venture agreement were himself, the respondent and persons whose interests were represented by one Mr Andrew Craig (referred to in the pleading as the "Craig Interests"). The pleading itself does not identify who those persons are, but their identity is known to the applicant. 3 The applicant alleges that the respondent held and continues to hold the Nordburger business on trust and on terms (governed by the joint venture agreement) recognising his equity share in the corpus and income of that trust. The respondent denies the existence of the joint venture. Her case is that the applicant's interest in the business is limited to that of a beneficiary of a discretionary trust, referred to in the pleadings as the Nordburger Holdings Trust. That trust is said to have come into existence by instruments created in late 2019. The trustee of the Nordburger Trust is Nordburger Operations Pty Ltd (hereafter referred to as Operations). It too came into existence in late 2019. 4 The proposed amended pleading is that forming annexure JH59 to the affidavit of the applicant, Mr James Hillier sworn on 17 June 2021 (the proposed 2ASOC). The respondent opposes the amendment application in part. 5 In relation to that part of the application that is not opposed, I will make the following orders: 1. The applicant has leave to: (a) insert the amendments in [70] and [73.4] of the proposed 2ASOC. (b) delete the previously numbered [75.4] to [75.7] of the first amended statement of claim. 6 Any amended pleading filed in accordance with the orders may incorporate changes to paragraph numbering to that presently incorporated in the proposed 2ASOC. 7 I now deal with that part of the amendment application that is opposed. 8 The disputed amendments are those in [73.5], [75.4], [75.5] and [75.6] of the proposed 2ASOC. Each of those proposed pleas is contained in the prayer for relief. 9 It is convenient to deal first with the proposed plea in [75.5]. It seeks an order in the following terms: to the extent as may be necessary, an order pursuant to s 59C of the Trustee Act 1936 (SA) that the Nordburger Holdings Trust be revoked and the income, monies and assets of the trust be distributed to the joint venturers to be held on the terms of the Nordburger Joint Venture Agreement; 10 Section 59C of the Trustee Act 1936 (SA) provides: (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. (4) An order made by the Supreme Court in the exercise of powers conferred by this section is binding upon all present and future trustees and beneficiaries of the trust. (5) This section does not apply to— (a) a trust affecting property settled by an Act; or (b) a charitable trust. (6) This section does not derogate from any other power of the Supreme Court to vary or revoke a trust, or to enlarge or otherwise vary the powers of trustees. 11 Having regard to the whole of the applicant's pleaded case I am not satisfied that any scenario could conceivably arise in which it would be necessary for the Court to make any order under s 59C of the Trustee Act following a trial of the disputed factual issues. The occasion for granting relief in this proceeding will arise if the Court were to accept the applicant's claims as to the existence and terms of the joint venture. In that event, it would follow that the instruments brought into existence in late 2019 (including instruments creating the Nordburger Holdings Trust) could have no valid effect on the rights and interests of the parties under the joint venture as the applicant has alleged them to be. So much is pleaded in the existing plea in [70.4] which remains unchanged and which is reflected to some extent in the declarations presently pleaded at [73.1] and [73.4]. If the plea at [70.4] were to be accepted, there could be no valid trust that could be the subject of orders under s 59C of the Trustee Act. On its proper construction, s 59C is directed to affecting rights and interests that otherwise exist under a valid trust. It can have no sensible application to a scenario in which the trust instrument has otherwise been held to have no valid legal effect at general law or in equity. 12 I am reinforced in that view by the respondent's attitude to the pleading. Senior counsel for the respondent accepted that if the pleaded allegations in [1] to [72] of the body of the pleading were made good, then there could be no valid trust upon which s 59C could operate. But if the respondent were to change her position in that regard, then the issue, being interlocutory in nature, would be capable of being revisited in the interest of justice. 13 Accordingly, leave will not be granted to make the amendment in [75.5] of the proposed 2ASOC. 14 I turn next to the proposed amendment in [75.6]. It seeks an order in the following terms: an order pursuant to s 59C of the Trustee Act 1936 (SA) that the trust constituted by the Nordburger Joint Venture as between the joint venturers inter se be revoked and the property of the Joint Venture after payment of all Joint Venture liabilities be distributed to the joint venturers in proportion to their respective shares in the Joint Venture; 15 The order sought in [75.6] is to be considered against the whole of the declaratory relief in [73]. 16 The trust alleged to have been constituted by the joint venture is alleged to be one to which persons referred to as the Craig Interests are beneficiaries. In that context, the respondent opposes the amendment on the basis that its inclusion in the statement of claim would necessitate the joinder of the persons referred to as the Craig Interests. 17 I accept that submission. At the very least, I am satisfied that on the applicant's case the persons comprising the Craig Interests are beneficiaries of (at least) the remedial trusts sought by the applicant in the proceedings and the bare trust otherwise asserted in the body of the pleading. If that case were to be accepted, there can be no utility in declaring the rights of the applicant and respondent vis a vis each in the proportions alleged by the applicant, that is in three portions. There could be no finality in these proceedings if the two equity shares of the applicant and respondent were declared and yet the Craig Interests were not bound by the declaration as to the size of their remaining share. In order for the proposed order in [75.6] to be made, it would be necessary for the Court to ensure that the interests of the persons comprising the Craig Interests were represented. If the Craig Interests were joined as respondents only at the remedial stage, then they may resist the order if they did not accept the factual findings the Court had made in their absence. 18 In my view, leave should not be granted to make the amendment in [75.6] except on the conditions that the applicant file and serve an application for leave to join the persons comprising the Craig Interests as parties and that application is allowed. 19 It is convenient to deal with the remaining disputed amendments together. 20 Proposed [73.5] is a declaration in the following terms: a declaration that Nordburger Operations Pty Ltd holds the shares in Nordburger Pty Ltd and the intellectual property rights purportedly transferred to it by Nordburger Pty Ltd (to the extent that the transfer of any such assets to Nord burger Operations Pty Ltd is valid, which is not admitted) on trust on the terms of the Nordburger Joint Venture Agreement. 21 Proposed [75.4] seeks an order as follows: Nordburger Operations Pty Ltd provide an accounting to the Applicant of all income, profits, and the disposition of profits and assets, of or derived by the Nordburger Holdings Trust since its inception in about October 2019; 22 These amendments are opposed on the basis that their inclusion in the pleading would have the effect that Operations is a necessary party to the proceedings. The respondent submits that any grant of leave to introduce the pleas should be conditioned in the same way, namely that the amendment not be allowed except on the condition that Operations be joined as a party. 23 The applicant submits that if there be a necessity to join Operations as a party at all, then the question of joinder can and should be deferred until the point in time at which the Court determines remedies. 24 At present I am satisfied that if the amendments were to be made, Operations should be joined as a party at least on the basis specified in r. 9.05(1)(b)(i) of the Federal Court Rules 2011 (Cth), that is the joinder of Operations is necessary for its cooperation in the enforcement of the Court's orders. 25 On the limited submissions that have been made before me today, I am not presently satisfied that Operations, as a corporate trustee, otherwise has a legitimate interest in being heard in the controversy between the applicant and the respondent as articulated in the pleadings in the present form. More particularly, I am not presently satisfied that it is either necessary or appropriate for Operations, as trustee, to adopt a partisan position in the disputed allegation in [70.4] of the first amended statement of claim, which is not affected by any proposed amendment. If the allegation in [70.4] is made good, it is difficult to see what submission Operations could make to resist declarations of right giving effect to that finding. Operations should nonetheless be joined as a party if orders are sought against it, such as those now proposed. In that regard, I am not satisfied that the respondent is presently the sole controller of Operations, having apparently divested herself of share holdings in her name and having appointed her husband as a co-appointor of the Nordburger Holdings Trust and co-director of Operations in its capacity as trustee. 26 For the effective enforcement of the Court's orders, should there be an entitlement in the applicant to an account of profits as claimed in the amended paragraphs it seems to me that Operations ought to be joined. 27 To be clear, I do not consider it necessary at this stage to express any concluded view as to whether Operations has a right to be heard generally in the proceedings at the trial stage. If Operations agitates a position that is incompatible with its asserted role as trustee, then that may be the subject of other applications at a later time and determined on their merits, as and when they present themselves. 28 I otherwise accept the applicant's argument that the factual basis for the claim is sufficient to support the claims for relief against Operations without any additional pleaded facts, as opposed to particulars. The respondent did not contend otherwise, save to say that better particulars could be given. 29 I accept that for the purposes of identifying Operations as an entity knowingly in receipt of trust property, it is sufficient to plead and prove that the respondent was the alter ego of Operations at the time of the impugned transactions. The opening words in [70], as amended, are sufficient for that purpose. But it is a different question as to whether orders can or should be made that are directed in their terms to Operations without that company being joined, particularly orders directly requiring Operations do what would be required by [75.4] of the 2ASOC. 30 I am satisfied that the grant of leave should be conditioned by a requirement that the applicant seek leave to join Operations and that Operations in fact be joined. There does not appear to be a compelling reason to delay its joinder as a party. 31 I propose to grant the applicant leave to join that entity as a party if so advised, and to make the application to rely on the amended pleas in [73.5] and [75.4] conditional on its joinder. Subsequent applications and orders 32 Following the delivery of oral reasons, the applicant applied for leave to join Operations and the Craig Interests as parties. Leave was granted in each instance such that the conditions for the relevant amendments were fulfilled. The orders accompanying these written reasons are in the form pronounced after the applications for leave to join additional parties were made and allowed. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate: Dated: 24 June 2021