Deadlocks, disagreements, differences of opinion: Can a unit holder unilaterally wind up a trust?

In the recent decision of David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108, the New South Wales Court of Appeal considered whether a clause in a trust deed gave a unit holder the power to wind up a trust. A secondary issue was whether a dispute between the trustees was grounds for winding up under section 232-233 of the Corporations Act 2001 (Cth) (Corporations Act).

The Carrs and Ritossas established Darbalara Holdings Pty Ltd to act as the corporate trustee of The Darbalara Property Trust, a unit trust. They used The Darbalara Property Trust to own and manage farmland near Gundagai, NSW. The two families were equal unit holders, and all four individuals were directors of Darbalara Holdings Pty Ltd. The Darbalara Property Trust is a typical example of a trading trust which actively conducts commercial operations with a view to achieving a profit. This structure is commonly seen within the agribusiness sector.

Drought conditions in the Gundagai area from mid-2017 to early 2020 adversely affected the profitability of the trust, leading to disagreement between the Carrs and Ritossas about the management of the farms. The Carrs expressed an intention to terminate the trust relationship. The Ritossas wanted to continue their investments.

In 2020, the Carrs commenced proceedings in the Equity Division of the Supreme Court of NSW seeking the winding up of the trust relationship. They argued that clause 3 of the Trust Deed gave them the unilateral power to do so, and that the deadlock over the future of the Darbalara Property Trust was grounds for winding up under section 233 of the Corporations Act. The primary judge dismissed their claims.

The Carrs appealed the primary judge’s decision, arguing that the primary judge erred in failing to find:

(a) clause 2 entitled each unit holder unilaterally to bring the trust to an end;

(b) the corporate trustee displayed oppressive conduct towards the Carrs that was contrary to all members, including failing to allow a redemption of units when requested and allowing a series of deadlocks in management decisions; and

(c) a receiver could be appointed, either under s 67 of the Supreme Court Act 1970 (NSW) or in the Court’s inherent jurisdiction over trusts, to “wind up” the trust where there was an irretrievable breakdown in mutual trust and confidence between unit holders who were “quasi-partners”.

The Court of Appeal dismissed the appeal, upholding the primary judge’s findings. We consider the Carr’s three arguments to support winding up the trust below.

Can a unit holder unilaterally call for a winding up of the Trust?

Generally, a single unit holder cannot unilaterally call for the winding up of a trust. The trust deed will usually outline how winding up can occur. It is typical for rights to be collective, requiring agreement from all unit holders for winding up to occur.

In this case, Clause 2 of the “Trust Rules”–which were deemed by the deed to have effect as if they were part of the deed – provided that “The Unit Holders are presently entitled to the Income [and Capital] of the Trust” and “may require the Trustee to wind up the Trust and distribute the Trust property or the net proceeds of the Trust property”.

The primary judge found that clause 2 of the trust deed did not entitle a unit holder to unilaterally call for a winding up. The Court of Appeal (Leeming JA, Stern JA and Griffiths AJA agreeing) agreed, holding:

• On its proper construction, clause 2’s reference to unit holders being “presently entitled” to require the trustee to wind up the trust means the unit holders collectively, rather than individually.

• The purpose of including the clause was only to make the unit holders owners of an equitable estate under a fixed trust, and thereby eligible for the tax-free threshold under s 3A(3B) of Land Tax Management Act 1956 (NSW).

• It did not have the effect of allowing a unit holder unilaterally to wind up the trust and claim their own interest.

Was a deadlock among unit holders ‘oppressive’?

The Carrs argued there was a series of deadlocks in the management of the Darbalara Property Trust such that the conduct of the corporate trustee, including its failure to allow a redemption of units when requested, was oppressive to the Carrs and contrary to the interests of members as a whole.

Section 233(1) of the Corporations Act provides a power for the Court to make any order that “it considers appropriate in relation to the company”, including an order:

(a) that the company be wound up;

…

(h) appointing a receiver or a receiver and manager of any or all of the company’s property;

Section 233 must be read with s 232, which provides that an order under s 233 may be made if the “conduct of a company’s affairs” is either:

…

(d) contrary to the interests of the members as a whole; or

(e) oppressive to… a member or members ...”

The primary judge found that the evidence did not establish deadlock and, even if there was deadlock, that would not be a sufficient basis for a realisation of the trust assets under s 233.

The Court of Appeal agreed that ‘a mere failure to agree is not usually oppressive’ and a deadlock in the operation of the corporate trustee or a breakdown in the relationship between its managers does not constitute ‘oppression’ under s 232. The deadlock ‘must be one which leads to further consequences in order to reach the evaluative judgment required by s 233’. Mere differences in opinion regarding sale of investments, “unpleasantness” of board meetings, and delays in the finalisation of leases, are insufficient to establish oppression under s 232.

Was the irretrievable breakdown in mutual trust and confidence between unit holders who were “quasi-partners”, sufficient for the Court to wind up the trust?

The primary judge held that there was no justification to appoint a receiver because the assets were being managed appropriately by the directors. The primary judge emphasised that the reliance on Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (Ebrahimi) was misplaced. This case involved consideration of when equity can intervene to wind up a company, when there has been a breakdown of relationship and mutual confidence between quasi partners. To rely on this principle, the appellants should have sought final relief under s 461 of the Corporations Act.

The Court of Appeal held that the Ebrahimi principle concerns the scope of statutory power to wind up a company; it does not create a general legal proposition that a trust can be terminated where there is a relationship breakdown. Finally, because the purpose of the Court’s inherent jurisdiction is to preserve trusts, a receiver cannot be appointed in the Court’s inherent jurisdiction over trusts to terminate the trust merely because there has been a breakdown in mutual trust and confidence.

Key takeaway

This case underscores the importance of including clear and comprehensive provisions in trust deeds, particularly regarding the resolution of deadlocks among unit holders. Stanton & Stanton is able to assist you with any queries you have in respect of establishing all forms of trusts, drafting or reviewing trust deeds and providing advice on how best to mitigate risks of dispute in management of trust affairs and to resolve disputes.

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