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24 October, 3, 7, 8 November, 15 December 2006 …

WHITE v SHORTALLSUPREME COURT OF NEW SOUTH WALES EQUITY DIVISIONCAMPBELLJ24 October, 3, 7, 8 november , 15 december 2006 sydney [ 2006 ] nswsc 1379 Contract Trusts Shares Evidence Taxation Succession Whether testfor intention to enter contractual obligation is subjective or objective Measure ofdamages for breach Time of essence provisions in contract Objective orsubjective test for creating trust Equitable compensation for breach of trust Principles for calculation of equitable compensation for breach of trust Trusts forpart of debt Identification of shares on share-by-share basis or otherwise Burden of proof of payment being loan Timing of evidence given late in case andits significance Capital gains

WHITE v SHORTALL SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION CAMPBELL J 24 October, 3, 7, 8 November, 15 December 2006 — Sydney [2006] NSWSC 1379

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Transcription of 24 October, 3, 7, 8 November, 15 December 2006 …

1 WHITE v SHORTALLSUPREME COURT OF NEW SOUTH WALES EQUITY DIVISIONCAMPBELLJ24 October, 3, 7, 8 november , 15 december 2006 sydney [ 2006 ] nswsc 1379 Contract Trusts Shares Evidence Taxation Succession Whether testfor intention to enter contractual obligation is subjective or objective Measure ofdamages for breach Time of essence provisions in contract Objective orsubjective test for creating trust Equitable compensation for breach of trust Principles for calculation of equitable compensation for breach of trust Trusts forpart of debt Identification of shares on share-by-share basis or otherwise Burden of proof of payment being loan Timing of evidence given late in case andits significance Capital gains

2 Tax and its operation when trust declared part oflarger holding of shares Specific legacy of number of shares out of larger holdingof shares executor s assent (UK) Companies Act 1862 (CTH) Corporations Act2001 (CTH) Income Tax Assessment Act 1936 (CTH) Income Tax AssessmentAct 1997 (NSW) Securities Industry Code (CTH) Taxation Administration Act1953 (NSW) Uniform Civil Procedure Rules parties had been in a domestic relationship for several years prior to final separationand the commencement of this litigation. The defendant, a shareholder in a companyknown as Unitract Pty Ltd, wanted to raise public share capital through a publicly listedcompany known as Musgrave Block Holdings Pty Ltd.

3 An agreement was made betweenboth companies on 11 July 2002 for acquisition by Musgrave of all the shares of the othercompany. Musgrave changed its name to Unitract. At the same time the Australian StockExchange (ASX) imposed a restriction condition on the shares of Unitract which expiredon 1 november 2004. For the period from 1 november 2004 until 1 May 2005 all of thedefendant s shares in Unitract, and for the next 6 months thereafter, 500,000 of thedefendant s shares in that company were subject to a voluntary escrow. Over the next 6months the plaintiff gave several amounts comprising a total figure of $47,600 to thedefendant which she claimed were loans.

4 The allegation was also made by the plaintiff thatthe defendant had agreed to make good to her a loss of about $10,000 on another sharetransaction. There was agreement between the parties that some of these payments weremade to the defendant, but not all of question arose as to whether or not any such payments were by way of loan to thedefendant from the plaintiff. The defendant had offered to hold a certain number of sharesin Unitract in trust for the plaintiff, with a view to transferring them to her after thecompany had been floated. This offer was accepted by the questions had to be determined by the court in the arrangements between the parties were further complicated by the receipt by theplaintiff of an amount of $20,000 on 28 August 2002.

5 The defendant persuaded theplaintiff to give him that money to invest in the shares of Unitract. In exchange for suchan investment the defendant wrote a letter in which he declared that he wanted 222,000shares transferred to the plaintiff if he were to plaintiff sought equitable remedies for an alleged contractual breach, such remediesto include equitable compensation for the defendant s failure to transfer the shares to heras , with a verdict in favour of the plaintiff:654(i) As a matter of fact, the plaintiff would probably have sold the shares by January 2004if the defendant had transferred them to her.

6 As a whole the evidence of the plaintiff wasmore consistent and reliable than the defendant s, and was accepted as such.(ii) On the question of the type of intention necessary to create a trust, the law is , the subjective intention of the settlor is critical for a declaration of trust. Suchsubjective intention may be apparent from objective circumstances. The factual evidencewas sufficient in this case for an inference to be drawn of an intention of the parties todeclare a trust and enter into a contract.(iii) The common law would have regarded the contract between the parties as one inwhich time was of the essence, given the nature of the subject matter of the contract, whichconsisted of shares in a newly listed company.

7 (iv) The defendant breached his obligation under the contract to transfer the shares toher upon her request.(v) Compensation for breach of contract was assessed at $548,452, which wascalculated on the basis of the value of the shares which were not transferred.(vi) While there is no doubt that shares can be held on trust, the question arises whetheror not only some of a particular parcel of shares can be the subject of a trust. A trustcreated in this manner is not void for uncertainty. Just as a testamentary legacy of anumber of shares would be valid, so too is the trust of 222,000 shares in this case.

8 (vii) The nature of a company share was defined as a chose in action, being a right toa specified amount of the share capital of a company. This definition is contained in theCorporations Act 2001 (Cth) also. There is no significance in the fact that shares areunnumbered, provided that they are fully paid up and are of equal rank.(viii) In this case the declaration of trust was of a fund, with the shares being held forthe plaintiff and the defendant.(ix) This situation was distinguished from that where a person purports to hold part ofmoneys in a bank account in trust for another party.(x) The measure of damages for breach of trust is identical to that for breach of contract.

9 (xi) The question arose as to whether or not the stock exchange listing rules preventedthe transfer of shares by the defendant to the plaintiff as agreed in the contract, and underthe trust. The defendant had entered into a restriction agreement as required by the stockexchange rules. In the court s view a declaration of trust of any of the securitieswould have been a breach of cl 1 of the restriction agreement. Such a breach would haveto be remedied by enforcement action by Unilife, and not the ASX. The AustralianSecurities and Investments Commission can also take enforcement action. Unitract, andnot the defendant, would have been in breach of an obligation under the listing rules if theshares were the subject of a declaration of trust or were transferred by the defendant to theplaintiff in accordance with the trust.

10 (xii) Nevertheless, if the defendant were found to be in breach, the court would have nomore than a discretionary power to enforce the rules. In this case the shares in questionwere subject to a holding lock when the defendant declared a trust over them. Thevoluntary escrow imposed on the shares by the defendant had no legal recognition in theASX listing rules.(xiii) Equitable compensation for breach of trust is assessed by reference to what thesituation would have been if the trustee had performed his duty. In this case such anamount is calculated on the basis that the shares could have been transferred at any timeafter 1 november 2004.


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