In the recent decision of Sara Stockham Pty Limited v WLD [2021] NSWCA 51, the NSW Court of Appeal considered a dispute that arose concerning a unit trust. Two dentists worked together using a unit trust in which both dentists’ entities held units. The relationship between all was governed by an agreement. The agreement contemplated a unit-holder exit for “fair market value”.

One dentist tried to exit from the unit trust arrangement. That triggered a clause in the agreement regarding the trustee appointing a valuer, and the trustee approached the Court for judicial advice pursuant to s63 of the Trustee Act 1925 (NSW).

The dentist who was trying to exit opposed that application for advice, but the trustee got the Court’s advice and went ahead with the valuation. The disgruntled dentist then commenced further Court proceedings. As part of those, the parties asked the Court to separately determine the meaning of a particular clause of the agreement: Clause 7.8.

At first instance, the Court held that Clause 7.8 did not apply to any valuation. However, the disgruntled dentist appealed this decision, and the Court of Appeal had to give further thought to the operation of Clause 7.8.

Clause 7.8’s effect was to prevent the trustee from effecting decisions on “Major Policy” issues (like dealing with assets worth over $50,000.00) without unanimous unit-holder approval. The disgruntled dentist said that a Major Policy decision made without unanimous consent was void pursuant to Clause 7.8 and should not be part of a valuation.

The Court disagreed.

The Court of Appeal (agreeing with the first instance decision) found that Clause 7.8 renders the trustee’s decision void if there is no unit-holder unanimity but not the resulting transaction. What that means is that the transaction itself still stands, but a claim against the trustee for breaching the agreement may be available to the disgruntled dentist if they wished to pursue it.

That meant that while there may be a later dispute about the valuation or an alleged breach of the trustee’s duties, those issues were not raised in this litigation which solely dealt with the operation of Clause 7.8. The appeal was dismissed.

This case highlights the importance of carefully “reading the fine print” on any agreement before you enter into it and, potentially, obtaining legal advice concerning it. That is one of the best ways to avoid being bound to a relationship whose terms no longer suit you.

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