Australian Karting Association Ltd V Karting (New South Wales) Incorporated [2022] NSWCA 188
The Appellant was the national body responsible for go-karting in Australia and trustee of a related trust.
The Respondent was responsible for go-karting in NSW and the ACT, and a member of the Appellants national body.
The Appellant’s constitution obliged its members to pay on the fees they collected from go-kart drivers in races that the Appellant approved.
Appellant was Trustee of a fund for the construction of new go-kart tracks. The trust deed empowered the Appellant to distribute trust capital and income to its beneficiaries who were its members.
The Appellant, as trustee, would loan funds for track construction to the relevant state body. The loans were 5 for 10 years with interest not charged if terms were complied with. On default, the loan was repayable in full plus the interest.
From 2014 the Respondent queried the Appellant’s management asked for return of funds held on trust for it.
In 2019 the members of the Appellant voted to expel Respondent as a member, a default event. The net assets of the trust were recorded in the annual financial statements of the trust as $1.00.
The trust’s financial statements were audited and approved by the Appellant’s board (and Appellant’s predecessor’s management committee) in the relevant years.
The Appellant sought repayment of its loan plus interest. The Respondent cross-claimed seeking unpaid distributions.
The Appellant lost on both points and appealed.
The Appellant said the money it recorded as held in a loan account for the Respondent showed what was to be paid to Respondent (and other beneficiaries in the Respondent’s position) when the trust vested, and so was not a distribution.
The question of whether it was a distribution was pivotal. If it was, it would have to be paid to the Respondent on demand.
The primary judge had found that the recording of the loans in the Respondent’s favour were distributions, held by the Appellant on bare trust and not as part of the track construction trust.
Importantly, no estoppel by convention claim was raised at first instance, and so was not available on appeal.
On appeal, the Appellant argued the loan were a liability contingent on the vesting of the trust, though this new argument was no available on appeal.
In any case, the audited accounts recorded the loans as actual liabilities, not contingent liabilities.
There was no evidence that the beneficiaries intended to make a loan to the Appellant, and the financial records acknowledged debt to the beneficiaries in the amount of the unpaid distributions.
The Appellant’s argument that it intended to accumulate income was unfounded because of what the financial statements showed: (i) the profit and loss reflected income as distributed to beneficiaries; (ii) the accounts reflected a corresponding liability; and (iii) the trust assets remained $1.00 rather than increasing.
The resolution of the Appellant’s directors to approve the accounts in the relevant years gives rise to an inference the Appellant resolved to make distributions to the beneficiaries (including the Respondent).
There was no error by the primary judge. The Appellant’s appeal was dismissed. Costs followed the event.
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