Supreme Court New South Wales Medium Neutral Citation: In the matter of Eighth Avenue Austral Pty Ltd [2024] NSWSC 1262 Hearing dates: 3 October 2024 Date of orders: 3 October 2024 Decision date: 03 October 2024 Jurisdiction: Equity - Corporations List Before: Black J Decision: Parties to provide short minutes of order giving effect to this judgment. Catchwords: TRUSTS – Whether declarations of trust over shares were binding – Whether there was an objective intention to create a trust. TRUSTS – Certainty of subject matter – Whether the trust extended to a trust over shares or only to benefits derived from shares. Legislation Cited: - Corporations Act 2001 (Cth), s 175 - Evidence Act 1995, (NSW), s 136 Cases Cited: - Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 - Electricity Generation Corporation (T/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 - Ellison v Sandini Pty Ltd [2018] FCAFC 44 - Hunter v Moss [1993] 1 WLR 452 - Saunders v Vautier (1841) 4 Beav. 115; (1841) 41 ER 482 - Shortall v White [2007] NSWCA 372 - White v Shortall [2006] NSWSC 1379 Category: Principal judgment Parties: SVVID Pty Ltd (First Plaintiff) Michael Gerace and Melissa Gerace atf the M & M Gerace Superannuation Fund (Second Plaintiff) Raffaele Gerace and Cinzia Gerace atf the R & C Gerace Superannuation Fund (Third Plaintiff) Nick Papallo and Catrina Papallo atf the N & C Papallo Superannuation Fund (Fourth Plaintiff) MG Investment Holdings (Aust) Pty Ltd (Fifth Plaintiff) RT Mammone Holdings Pty Ltd (Sixth Plaintiff) Lomandra Grove Pty Ltd (Seventh Plaintiff) Eighth Avenue Austral Pty Ltd (First Defendant) Aspromonte Pty Ltd (Second Defendant) Representation: Counsel: D L Cook SC/D Edney (Plaintiffs) F Corsaro SC (Second Defendant) Solicitors: Shabba & Thomas Lawyers (Plaintiffs) Bridges Lawyers (Second Defendant) File Number(s): 2024/131523 Judgment – ex tempore (Revised 4 October 2024) Nature of the proceedings 1. By Originating Process filed on 9 April 2024, the Plaintiffs, SVVID Pty Ltd ("SVVID") and others, sought a range of interlocutory and final relief in respect of the Eighth Avenue Austral Pty Ltd ("Company"). The Second Defendant to the proceedings, Aspromonte Pty Ltd ("Aspromonte"), is the trustee of several alleged trusts under which shares in the Company are purportedly held, in specified numbers, for the several Plaintiffs. - 2. The relief that is now pressed is a declaration that Aspromonte holds shares in the Company in particular numbers for each of the Plaintiffs, and an order, by way of specific performance or otherwise, that Aspromonte transfer those shares to each of the Plaintiffs in accordance with each of their respective entitlements, as required. An order under s 175 of the Corporations Act 2001 (Cth) ("Act") to amend the Company's share register is rightly not pressed, because such an order could not properly be made until steps had been taken to implement share transfers by Aspromonte to the Plaintiffs and there had been a failure to record those transfers in the share register. 3. The matter has proceeded on pleadings, now by an Amended Statement of Claim dated 18 July 2024, filed by the Plaintiffs, and Defences, which were previously filed which have not been updated but which, it appears, engage with the substance of the issues raised by the Amended Statement of Claim. The Amended Statement of Claim pleads that, on 16 November 2023, Aspromonte executed seven Deeds of Declaration of Trust ("Declarations of Trust"). That proposition is not admitted by the Company, and is denied by Aspromonte. That position is odd, in respect of both Defendants, where the evidence led by Mrs Carbone, a director of Aspromonte, confirms the execution of the Declaration of Trust by Aspromonte on or about that date. It may be that that non-admission or denial is directed to a question of the legal effect of the Declarations of Trust, which it appears is in issue. The Plaintiffs also plead the terms of the Declarations of Trust, and those terms are not admitted, although they appear accurately to record the terms of those documents. 4. The Plaintiffs then plead, in a proposition not admitted by the Company and denied by Aspromonte, that the effect of the Declarations of Trust is that Aspromonte holds the relevant shares on trust for the Company. The Plaintiffs then plead demands to transfer the shares from Aspromonte to the Plaintiffs, which it is common ground have not been complied with. 5. The Company's Defence is essentially a non-admission in respect of all aspects of the Plaintiffs' case. Aspromonte's Defence goes somewhat further to deny some aspects of the case. Aspromonte denies that the Declarations of Trust are binding, although the basis of that denial is not apparent; and contends that, at the time of the Declarations of Trust, there were no trust assets, although that proposition would be incorrect if the trusts are over shares in the Company which then existed. 6. Aspromonte also denies an entitlement on the part of the Plaintiffs to have the shares conveyed to them on the basis that the trusts did not come into existence at the time alleged by the Plaintiffs. There is a degree of ambiguity in that position, so far as the Plaintiffs originally incorrectly pleaded, and then corrected, the date on which the Declarations of Trust were executed by Aspromonte, but there now appears to be no dispute that they were executed by Aspromonte in November 2023 and, to the extent they took effect, they did so at that time. 7. There were, at points, suggestions in Aspromonte's submissions that a broader point was taken, that the trusts did not come into existence at all, or that some previous trust had come into existence on different terms, but neither case was available to Aspromonte where neither case had been pleaded and the material facts which might support it had also not been pleaded. Other defences were also raised, for example, that the Plaintiffs had at no time paid for the issue of shares in the Company; but, it is, of course, not a requirement for the creation of a valid trust that the beneficiary have paid to acquire the asset which the trustee holds on trust for it. It is also plain here that contributions of funds had been made by the Plaintiffs, in respect of the funding of what appears to have been a successful property development, and distributions have since been made to them in respect of their funding. Aspromonte's real complaint appeared, at times, to be that Mrs Carbone had not, subjectively, intended the Declarations of Trust to extend, as they provide on their face, to the shares in the Company, and she intended them to have narrower operation or to be used for narrower proposes. 8. Aspromonte, in turn, defended its failure to transfer the shares for the Plaintiffs on the basis that it was not obliged to do so. 9. The Plaintiffs subsequently sought particulars of Aspromonte's Defence, and the particulars which were provided indicated, inter alia, that its position was that the Declarations of Trust were not binding on the basis that there was no intention on the part of its director, Mrs Carbone, to create legal relations. That contention was not available, having regard to the case law, for the reasons that I will explain below. Those particulars also identified a claim that, at the time the Declarations of Trust were signed by Mrs Carbone for Aspromonte, the Plaintiffs had received the entirety of the "benefit" to which they were entitled. This raised a question of construction of the Declarations of Trust, and of their commercial purpose, which went essentially to whether the Declarations of Trust, on their proper construction, extended to the shares held by Aspromonte or only to benefits such as dividends or franking credits that might be derived from them. Affidavit and other evidence 1. The Plaintiffs read an affidavit of Mr Krslovic, dated 9 April 2024, in chief, and a further affidavit of Mr Krslovic dated 5 September 2024 in reply. Mr Krslovic referred to the circumstances in which he was introduced to the late Mr Carbone and became involved in the development of land at Austral in New South Wales, on which a shopping centre was ultimately constructed and then sold, at an apparent profit. 2. Mr Krslovic referred to his investment (I interpolate, through SVVID) of $849,000 "into" the Company, although it is apparent that the manner in which investments were made had not been carefully addressed by the parties. He also refers to the investment of other Plaintiffs' funds into the Company, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW). It is plain that the other Plaintiffs had in fact made relevant investments, although there is a similar lack of clarity as to the structure by which that took place. 3. Mr Krslovic also addressed subsequent developments, including the issue of additional shares to Aspromonte and the circumstances in which the Declarations of Trust were prepared. Mr Krslovic's evidence is that his Company, SVVID, entered into that Declaration of Trust on 28 October 2022. His evidence is that other Plaintiffs also did so, although some correspondence suggests that some Plaintiffs did so at a later date. At least for present purposes, little turns upon that, because it is now apparent that the Declarations of Trust became effective in November 2023, which was the point at which Aspromonte entered into them. By his affidavit in reply dated 5 September 2024, Mr Krslovic gave evidence of his subjective intent as to the operative effect of the Declarations of Trust, which is not relevant for present purposes, and also referred to his execution of the Declarations of Trust for SVVID in October 2022, and to the assumption that he had made that those Declarations of Trust had become effective as at that date, which it is now apparent was not correct. 4. Mr Krslovic was cross-examined at some length. It is perhaps fair to say that Mr Krslovic was not particularly forthcoming as a witness; it is possible that he did not have a full understanding of the commercial and legal arrangements which were the subject of the cross-examination, and he may have had little need for such an understanding of those matters, which he said he had left to his lawyers; to the extent that he did have such an understanding of those arrangements, his evidence in cross examination did little to disclose its content. Ultimately, however, little or nothing turns upon Mr Krslovic's cross-examination, where the commercial background of the transactions is apparent from documents, and the matters to which I must have regard as matters of construction are well established in the case law. 5. Ms Carbone also gave affidavit evidence, by her affidavit dated 24 June 2024. I recognised that she was in the somewhat difficult position of having assumed management of the Company, whether alone or with her daughter, immediately before the death of her husband. She was not cross examined in respect of her evidence. She outlined the relevant events, including the circumstances of a share issue of additional shares in the Company to Aspromonte, to which I referred above, and there expressed her understanding, which is on its face largely consistent with the Plaintiffs' case, that "the newly issued shares would be issued to Aspromonte and Aspromonte would hold the benefit of these shares" for the Plaintiffs, so that they could be paid their respective entitlements. I recognise, however, that Ms Carbone appears to read that statement as involving a qualification that the holding of the shares for the Plaintiffs was not, in fact, a holding of the shares on trust for the Plaintiffs, but only a holding of benefits such as dividends and franking credits that might emerge from them for the Plaintiffs. I will return below to the terms of the relevant Declarations of Trust. 6. Ms Carbone also referred to her understanding that Aspromonte held the "benefit" of those shares for the Plaintiffs, who she there describes as "Lenders", presumably by contrast with being either beneficiaries of the trusts or shareholders in the Company. Again, I understand her evidence to be that the concept of "benefit" of the shares there is more limited than that of ownership of the shares. Ms Carbone sought to give evidence of her subjective intent in executing the Declarations of Trust, but that evidence was not permitted, consistent with the case law, including the High Court's decision in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [114]-[115] ("Byrnes v Kendle") to which I will return below. 7. I was also taken, in the course of evidence and submissions, to documents and correspondence prior to the execution of the Declarations of Trust, and I have regard to those documents and correspondence so far as they involve the commercial background to the execution of those Declarations of Trust. By a Deed of Call Option dated 18 August 2017, the Company entered into a call option to purchase a development property, and it appears that purchase subsequently proceeded, and that property was profitably developed. 8. Mr Corsaro, who appears for Mrs Carbone, also draws attention to a Deed of Settlement dated, on its first page, 17 August 2017, and to a resolution of the sole director of the Company, the late Mr Carbone, authorising the Company's appointment to the position as trustee of a unit trust also dated 17 August 2017. Mr Corsaro submits, and I accept, that the document was plainly not executed on that date, where it refers to the allocation of units in the relevant trust to several of the Plaintiff companies, some of which had not been incorporated at that date. Presumably, that document was executed at a later date, but on or prior to 28 October 2020, when a statutory declaration was executed by Mr Carbone and witnessed by a solicitor in respect of the creation of that trust. 9. Mr Corsaro also submits, and I accept, that the structure of that Deed of Settlement for the unit trust contemplated that the Company would be trustee of that unit trust, and units in that unit trust would be issued, in accordance with the resolution of the sole director, to the Plaintiffs in specified numbers. It seems to me, however, that that proposition does not advance the Aspromonte's case here. The evidence, leaves open whether that proposal was abandoned or whether the unit trust was created and still subsists; and makes plain that the Declarations of Trust were then executed which have a different effect. It may be that the parties have acted inconsistently, or that the Declarations of Trust might not have been necessary, had the parties continued to maintain only the structure of a unit trust. The question for me, however, is not whether it was necessary for the parties to enter the Declarations of Trust or whether it was illogical for them to do so, where it is plain enough that they in fact did so and no attempt is made to set them aside, and I must instead determine their legal effect. 10. I was also taken to dividend statements issued in June and August 2023, which provided for payments described as "shareholder dividend[s]" and franking credits to the Plaintiffs in respect of the Company. Plainly, that description was incorrect, since the Plaintiffs were not then shareholders in the Company to whom dividends could be paid; and it is also not apparent, and not possible to resolve in these proceedings, how franking credits could have been allocated to them, where they were not shareholders in the Company to which those franking credits related. I leave open the question whether the Plaintiff's' position may have been improved in that respect by the creation of trusts which gave them a beneficial ownership in the relevant shares, which was not addressed by submissions. 11. As I noted above, the Declarations of Trust were executed by the Plaintiffs between October 2022, for at least SVVID, and possibly as late as November 2023 for some other Plaintiffs, and by Aspromonte as trustee in November 2023. These documents are in identical form, other than for the identity of the particular beneficiary, including, as Mr Corsaro pointed out in cross examination of Mr Krslovic, a common misprint at one point in the name of Aspromonte. Aspromonte in each case declares that it holds a specified number of ordinary shares in the Company in trust for the beneficiary "in fee simple". The words "in fee simple" may or may not be surplusage but it is clear that the trust is declared over the shares and not only the benefits that may be derived from the shares or, in a well-known analogy, over the tree and not merely the fruit of the tree. 12. Clause 2 of the Declarations of Trust provides that the trustee, when required by the beneficiary, will convey the interest held by it in trust to the beneficiary or act as trustee at the beneficiary's direction. Clause 3 requires the trustee to vote and do all things arising in respect of the shares as the beneficiary may from time to time direct. That commitment is, in its terms, consistent with a trust over the shares and not merely a trust over their benefit such as dividends or franking credits, where a shareholder's right to vote is an important incident of ownership of the share. Clause 4 provides that, at the request of the beneficiary, the trustee will execute a transfer or other documents required to have the beneficiary, or their assignees, registered as owners of their respective interests in the shares. That clause is also only consistent with the trust extending to the interest in the shares and not only to any benefits from the shares. 13. I was also taken, in submissions, to a letter dated 1 March 2024 from the solicitors then acting for the Company, apparently in the context of a then dispute with the Plaintiffs or some of them, which referred to a request to "change the trustee", referred to "the shares held by [Aspromonte] on trust for the Company" and then stated that: "It is only once those trust shares have been validly transferred to the relevant beneficiaries and those beneficiaries are recorded as the legal owner of those shares in the Company's share register that they will be entitled to properly call an extraordinary general meeting." 1. Plainly, the reference to shares held in trust for the Company was in error. However, it seems to me that that reference, when read in the context of the statement that follows it, is consistent with the Company then recognising that the relevant shares were held by Aspromonte on trust for the Plaintiffs, and that those shares could be transferred to the Plaintiffs in accordance with those trusts. On that basis, it would plainly be correct to say that the shares then held in trust for the Plaintiffs would need to be transferred to them, so they became the registered shareholders, before they could exercise the rights of shareholders. 2. I was also referred to subsequent correspondence where the Plaintiffs pressed for the transfer of those shares to them and, over an extended period, the Company and Aspromonte did not provide a substantive response to that request and, subsequently, did not implement the transfer. Applicable legal principles and the parties' submissions 1. Mr Cook, with whom Mr Edney appears for the Plaintiffs, provides an overview of the factual background to the proceedings and the manner in which the dispute arose, and ultimately puts straightforward submissions, in relatively narrow scope. First he submits that the effect of the Declarations of Trust is that Aspromonte, as trustee, holds ordinary shares in the Company on trust for each of the Plaintiffs in the relevant number, and that that provision is unambiguous, and cannot be read as limited to benefits in the shares, nor read as limited by any subjective intention of Mrs Carbone to create a narrower trust. 2. Consequentially, Mr Cook submits that the Plaintiffs are entitled to call upon Aspromonte to deliver the shares to them, in accordance with the principles in Saunders v Vautier (1841) 4 Beav. 115; (1841) 41 ER 482 ("Saunders v Vautier") or to obtain an order for specific performance of the express obligation to transfer those shares to the Plaintiffs on request, where they have given consideration for that obligation by way of an indemnity in favour of the trustee. Before turning to the latter proposition I should address issues of construction and one further question that remains in dispute between the parties in that regard. 3. So far as questions of construction are concerned, I bear in mind that the principles that are applicable to construction of the Declarations of Trust are consistent with those which would be applied to any other form of commercial contract. In Electricity Generation Corporation (T/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], the plurality in the High Court observed that (citations omitted): "[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'." 1. I also bear in mind that, in Byrnes v Kendle, to which I referred above, Heydon and Crennan JJ (with whom other members of the Court agreed) pointed to the fact that the concept of "intention to create a trust" involved an objective intention, to be extracted from the words used, not a subjective intention which might have existed but could not be extracted from those words, and that that proposition applied equally to unilateral Declarations of Trust and bilateral covenants to create a trust. 2. Here, it seems to me that, as a matter of construction, the Declarations of Trust are clear, that they extend to a trust over the shares, and create a covenant to transfer the shares on demand, and cannot be read down to having an application only to the benefits to be derived from the shares. Putting aside any unpleaded claim that the Declarations of Trust were not intended to have effect in accordance with their terms, that reading is reinforced by the fact that there would be no utility in declaring a trust over the benefits of shares, which took effect only after the dividends and franking credits had already been distributed to the Plaintiffs. The commitment to execute a transfer and other documents necessary to have the Plaintiffs registered as owners of their respective interests in the shares is only consistent with the trust existing in the shares themselves, since no transfer needed to be or could be executed in respect of dividends and franking credits that had previously been paid out. 3. The remaining issue in dispute was whether the trust was sufficiently certain, in circumstances that it amounted to a trust over a pool of shares, without individual shares having been identified as the subject of the trust. Here, Mr Cook drew attention to the English decision in Hunter v Moss [1993] 1 WLR 452 at 459, which expressed the view that a person can declare himself or herself trustee of a specified number of his or her ordinary shares in a Company, and that is effective to give a beneficial proprietary interest to the beneficiary under the trust, and no question of a blended fund thereafter arises. 4. Mr Cook acknowledges that Campbell J did not accept that view in White v Shortall [2006] NSWSC 1379 ("Shortall"), although his Honour there accepted that a trust could be created without the identification of particular shares in which a beneficiary had a beneficial interest, and that an individual could have a beneficial interest in a specified number of shares out of a larger parcel of shares, even if it were not possible to identify individual shares that are held in trust. I there put, in somewhat simplified terms, what is a much more complex analysis on his Honour's part. An appeal from that decision was subsequently dismissed in Shortall v White [2007] NSWCA 372, although the appeal may not have addressed this issue. 5. In Ellison v Sandini Pty Ltd [2018] FCAFC 44 at [148]("Ellison"), to which Mr Cook also refers, the Full Court of the Federal Court addressed this question, including by reference to the decision in Shortall and later English decisions, and observed that: "In terms of principle, the weight of authority is that there can be a valid trust over a fungible pool of assets provided the assets and relevant proportions for the different beneficiaries are identified with sufficient certainty. The better view is that for the requirement of certainty to be satisfied the trust must be over all of the fungible assets in the pool, the beneficial co ownership proportions reflecting the respective interests of the beneficiaries." 1. There is no suggestion that those requirements were not satisfied here. 2. Mr Corsaro submits that the decision in Shortall was wrong and should not be followed, and that there is here not sufficient certainty to support a trust, where the shares which are its subject matter are not identified in a more specific way. I do not accept that submission. First, the interests of consistency in decision making in corporations matters are such that I should not depart from a decision that has long stood in this Court, unless I was satisfied that it was plainly wrong, and I should particularly hesitate before departing from a decision of a judge as experienced in company and equity matters as Campbell J was. There is, here, no reason to think that his Honour's decision is wrong and every reason to think that it promotes the commercially beneficial course of allowing the creation of trusts over shares. I also should not depart from that decision where it has been approved by the Full Court of the Federal Court of Australia in Ellison. For these reasons, I do not accept Mr Corsaro's submission that those decisions are wrong and I cannot accept the submission that here the trust lacks certainty. 3. I accept that, where the trusts exist and are sufficiently certain, and apply to shares in the numbers indicated for the relevant Plaintiffs, then the Court would make the orders sought in respect of the transfer of the shares to the Plaintiffs, both by reference to the principle in Saunders v Vautier and because Aspromonte's promise to transfer those shares to the Plaintiffs on demand is also specifically enforceable. Orders 1. I direct the parties to submit to the Associate to Black J, by 4pm on 8 October 2024, their agreed orders to give effect to this judgment and as to costs or, if there is no agreement between them, their respective orders and submissions, not exceeding four pages, in one and a half spacing, in Arial font 12, as to any differences between the form of those orders and as to costs. I also order that the exhibits be returned. ********** Amendments 09 October 2024 - Typographical error in cover sheet. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 October 2024