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The Supreme Court decision in Mir v Mir [2023] NSWSC 408 is an example of a very common scenario seen by commercial litigation lawyers: a family dispute concerning a group of companies and trusts set up over a long period of time. The facts are as follows.

The group of companies and trusts

In the 1950s three brothers started a business which became successful. It was run as a group of companies and trusts that grew in value and complexity over time. The group was run informally by the three brothers (and later their kids) and structured pursuant to tax advice: [20]. In 2018 the plaintiff, one brother, sued seeking to divide the business into three equal parts; each part passing to each brother’s family or estate. The Court accepted the relationships broke down for “unclear and complicated” reasons including issues with a parcel of land allegedly owned by  and issues with the new generation running the group: [41] – [50], [126], [154]. The plaintiff argued that the group was operated by an “overarching” partnership. In essence, he said that the group had many of the attributes of a partnership, such as the fact that it was run by three brothers, had profit share etc.): [82], [101]. However, the group’s underlying assets were held on trust. A partnership can be a beneficiary of a trust, but not a legal owner of assets held on trust: [95]. The Court found that it was fatal to the plaintiff’s claim that if a receiver was appointed to the “partnership” what could that receiver do about the assets held on trust? The answer was: nothing outside of what the trust provides: [97].   The plaintiff also argued that parts of the group were a “sub-partnership” between the brothers’ spouses. However, the spouses were trustees, not partners: [98], [99]. The Court found that the group was an “overarching” partnership: [101].

The remedy

The plaintiff then said the group should be wound up on the just and equitable grounds: [103]. In 2017 one brother died and his son then represented his interests in his capacity as his executor. The parties engaged in negotiations to divide the group, but failed to agree. The litigation was commenced. Together this showed the group could not return to its state when run by all three brothers: [115]. However, the appropriate question regarding section 461(1)(k) of the Corporations Act is whether each company, many of which were trustees, should be wound up. The plaintiffs did not make submissions on each company but rather treated the group as a whole: [119]. No suggestion was made that each trustee company was failing in its obligations with no suggestions trust assets were in jeopardy: [120], [121], [132]. In the absence of this evidence and submissions, it was not for the Court to try to find a basis for an order winding up the group on the just and equitable ground pursuant to section 461(1)(k) of the Corporations Act: [124]. The plaintiffs sought the dissolution of the trusts in the group, but the only basis for that would be bringing forward each one’s vesting date. In the absence of hearing from the beneficiaries the falling out between the brothers was not a basis for the Court to direct the trustees to so exercise their powers: [139]. The plaintiff was not itself a party to the partnerships in the group and so could not dissolve them: [146]. The Court considered its conclusions “could not be regarded as a satisfactory resolution of the case”: [154]. The Court found that the brothers, having chosen this structure in large part for tax effectiveness, must now live with the consequences and sought submissions on next steps: [155], [158].

Take away

This case demonstrates the extremely complex issues faced by commercial litigation lawyers dealing with shareholder disputes involving trustee companies. Shareholders and beneficiaries need specific advice about each separate legal and beneficial interest held by them, rather than approaching a group as a whole. Should you need advice about any aspect of corporate or trust dispute resolution, contact Carneys Lawyers’ commercial litigation lawyers.