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Case Note: Mercier Rouse Street Pty Ltd v Burness

Case Note: Mercier Rouse Street Pty Ltd v Burness

Last blog we looked at different types of interests, including security interests and beneficial interests. Last year, the Victorian Court of Appeal decided Mercier Rouse Street Pty Ltd v Paul Andrew Burness in his capacity as liquidator of Zinc Port Melbourne Pty Ltd (in liq) [2015] VSCA 8, which shows some of these interests in action, and highlights the importance of having clear trust documentation. This case gave rise to a few legal issues - we will focus on the question of whether there was an implied trust, whereby one party held property for the benefit of another party.

 

Important parties to the case

There were a number of important players in the case, including:

  • Mercier Rouse Street Pty Ltd (MRS), a company that was effectively managed and controlled by Mr Emery;
  • Zinc Port Melbourne Pty Ltd (Zinc), the company that held the assets and managed the joint venture (discussed below); and
  • Equity-One Mortgage Fund Ltd (EOM), who loaned money to Zinc and was granted mortgages in favour of some property.

 

Facts

The facts of this case are quite complex, so only the facts relevant to the trusts and interests issues are summarised below.

In 2007 Zinc, MRS and some other parties entered into a Joint Venture Deed (JV Deed) to build a block of apartments on some land. Under the JV Deed, Zinc was to hold the assets of the joint venture and be the project manager. Zinc would become the registered owner of the apartments when construction was complete. Thus Zinc had a legal interest and a beneficial interest in the joint venture assets and the apartments.

In December 2010 Zinc entered into facility agreements with EOM, and EOM took mortgages over some apartments in the building and all of Zinc's assets. This gave EOM a security interest over property that Zinc had a beneficial interest in.

Ultimately the relationships between various parties broke down and the joint venture was dissolved. Zinc went into liquidation and disputes arose regarding interests in the apartments. This case is an appeal by MRS to the Victorian Court of Appeal from an initial decision on the matter.

 

Issues in dispute

The case raises various legal issues. One of the main questions is whether MRS had a sole beneficial interest in Units 208 and 301 (Units) in the apartment building when Zinc granted a mortgage to EOM over those Units. This is important because EOM had a security interest over all joint venture property that Zinc had a beneficial interest in. Therefore, if MRS had a sole beneficial interest when Zinc grated the security interest, then EOM did not have a security interest over the Units.

In the case, MRS argued that it had sole beneficial interest in the Units because Zinc held those Units on trust for MRS. MRS argued that the trust arose either:

(a)  impliedly; or

(b)  because of the wording of the JV Deed.

There were other issues considered however we will not discuss those for the purposes of this blog.

 

Was there an implied trust?

MRS firstly contended that its beneficial interest in the Units arose because of the nature of entering the JV Deed. On this issue the JV Deed was somewhat like a sale of land; it provided that MRS would be entitled to the Units in future provided a 'contribution amount' had been paid. MRS made this argument on the basis of old law that a trust relationship is formed between a seller and purchaser of property when the contract of sale is executed.

It is possible for a trust to exist without executing a trust document (i.e. an implied trust), but only in certain circumstances. The Victorian Court of Appeal (Court) reviewed the case law and held that a trust relationship is not formed between a seller and a purchaser of property when a contract of sale is executed. Therefore MRS's contention failed and MRS did not have a beneficial interest in the Units by virtue of an implied trust.

 

Did the terms of the JV Deed establish a trust?

It is possible for a trust to be established without executing a trust document if the circumstances clearly demonstrate that the parties manifested an intention to create a trust. MRS's second contention was that it had a beneficial interest in the Units arising from a trust established by the wording of  the JV Deed. MRS argued that the wording of the JV Deed demonstrated an intention that Zinc would hold the Units on trust for MRS.

The Court held that the wording of the JV Deed did not demonstrate and intention that Zinc would hold the Units on trust because the JV Deed was a significant legal document for a complex commercial project, and was drafted by experienced lawyers such that if a trust was intended it would have been stated clearly. Further, the Court held that MRS could not have a sole beneficial interest in the Units for reasons including:

  • the JV Deed states that the parties to it had joint beneficial interest in the joint venture assets;
  • the JV Deed states that none of the apartments be transferred until payment of the 'contribution amount' by the relevant purchaser; and
  • there was no reference to a trust in the JV Deed.

 

My client wants to establish a trust. How can a dispute like this be avoided?

This case illustrates the interaction between several different types of interests in property. It also reveals the importance of having clear trust documentation if you do wish to establish a trust. At the time of the dispute the parties disagree about the existence of a trust relationship between them. But if, at the time of entering the JV Deed, they had intended to create a trust with Zinc as trustee and MRS as beneficiary, this intention would have failed to be realised because they did not have any or adequate trust documentation.

If your client does have an intention to establish a trust, a dispute about its existence can be avoided by having a clear trust document. Allawdocs can provide trust documents for a variety of trust types, including unit trusts, discretionary/family trusts, charitable trusts, and more. Allawdocs trust documents come with the significant benefits. The online platform makes it quick and easy to obtain your document, and the documents are of the highest quality having been drafted and checked by lawyers from our supporting law firm GV Lawyers. For complex matters like this case, it is important to obtain legal advice through the establishment phase and beyond.

 

 

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Allawdocs provides fast, quality online legal documents for accountants, financial planners, lawyers, and business owners around Australia, including company formations, trust deeds, and SMSF documents. With the legal support of GV Lawyers, clients can receive free legal advice relating to their Allawdocs document.

Find us at www.allawdocs.com.au, LinkedIn or Twitter.

 

Blog provided by GV Lawyers.

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