IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
Commercial Court
Commercial List
S ECI 2021 01394

FRED IT GROUP PTY LTD (ABN 68 109 546 901)	Plaintiff	
		
v  		
		
PHARMX PTY LTD (ACN 117 870 434)	Defendant	

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JUDGE:	M Osborne J	
WHERE HELD:	Melbourne	
DATE OF HEARING:	24-28 October 2022, 31 October 2022, 2-3 November 2022 and 23 November 2022	
DATE OF JUDGMENT:	21 April 2023	
CASE MAY BE CITED AS:	Fred IT Group Pty Ltd v PharmX Pty Ltd (No 3)	
MEDIUM NEUTRAL CITATION:	[2023] VSC 209	

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TRUSTS – Breach of trust – Equitable compensation – Action for money had and received – No present entitlement to a vested and indefeasible interest.

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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	M O’Sullivan KC
G S J Berlic 	SBA Legal	
			
For the Defendant	P Wallis KC 
S Ure 	Watson Mangioni	

HIS HONOUR:
1	The plaintiff, Fred IT Group Pty Ltd (‘Fred’), held 30% of the units in a unit trust known as the PharmX Unit Trust (‘Trust’) until 2 April 2020.  The circumstances which led to Fred ceasing to be a unitholder are explored in the reasons for judgment in a proceeding commenced by another unitholder, Corum Systems Pty Ltd (‘Corum’) against Fred, which was heard and determined at the same time as this proceeding.
2	In this proceeding, Fred sues the trustee of the Trust, PharmX Pty Ltd (‘PharmX’), for $1,313,121.05.  The claim is for the distributable income that Fred alleges ought to have been paid to Fred by PharmX for the financial year ending 30 June 2020 (‘FY 2020’).  The claim is brought for moneys had and received, and in the alternative for breach of trust.  
3	The terms of the Trust are set out in the trust deed dated 27 February 2006 (‘Deed’).  Its terms include:
(a)	clause 2.1, which provides that the beneficial interest in the Trust is divided into Units; 
(b)	clause 2.2, which provides that the Trust is constituted for the benefit of persons who become holders defined in turn as a holder of a unit or units; and
(c)	clause 6.1, which provides that a unit confers on its holder an undivided but proportional beneficial interest in the capital proceeds realised from the sale of trust property, subject to trust liabilities, and further provides that a holder has no interest in any asset or part of any asset of the Trust and that a holder is not entitled to call for or assert an interest in any part of the Trust property.
4	Clause 27 of the Deed is headed ‘Distributions’ and reads as follows:
27.1	Cash distributions
(a)	During the period in which the Stapled Securities Agreement is in force, the Trustee may at any time determine that:
(i)	an amount of capital Income be distributed to the Holders (Distributable Income); and
(ii)	any amount of capital be distributed to a Holder pro rata to the number of Units held in the Trust as at a time determined by the Trustee, 
provided that only cash is distributed.
(b)	Where the Trustee makes a determination under clause 27.1(a)(i), the amount to be distributed to an individual Holder is the amount calculated in accordance with Schedule 2.
(c)	When the Stapled Securities Agreement is not in force, the Trustee may at any time elect that any amount (capital or income) of the Trust be distributed to Holders pro rata to the number of Units held in the Trust as at a time determined by the Trustee, provided that only cash is distributed.
27.2	Distribution of Distributable Income
Within two months after the end of each trust year, the Trustee must distribute any undistributed share of distributable income to which any Holder is entitled.
27.3	Holders’ interest in Income
Each Holder is presently entitled as at the end of each Trust Year to a share of Income for that Trust Year, if any, which has not previously been distributed:
(a)	during the period in which the Stapled Securities Agreement is in force, which is an amount equal to the amount calculated in accordance with Schedule 2, as if the income were Distributable Income; and
(b)	during the period in which the Stapled Securities Agreement is not in force, which is an amount equal to the proportion of Income that is equivalent to the proportion of the number of Units held to the aggregate of all Units then on issue on the Trust.
Each Holder has a vested and indefeasible interest in all amounts of Income to which that Holder becomes entitled in accordance with the operation of this clause.
5	 ‘Income’ is defined as follows:
Income in respect of any financial year (or any other period determined by the Trustee) means the net income of the Trust for that period (being an amount calculated after deducting expenses of the Trust) determined according to generally accepted accounting principles and approved accounting standards and, unless the Trustee determines otherwise:
(a)	without regard to any loss on income account incurred in any preceding financial year (or if another period is determined by the Trustee, that period); and
(b)	without regard to any loss on capital account incurred in the current financial year or in any preceding financial year (or if another period is determined by the Trustee, that period).
6	Schedule 2 sets out a formula for the calculation of the amount of trust distributions and dividends and reads as follows:
The amount of Distributable Income to be distributed to a Holder under clause 27.1(a) is an amount equal to the aggregate of the amounts calculated in respect of that Holder for each Supplier (as defined below), in accordance with the following formula:
A x    x    where:  
A is the Distributable Income; 
B is the revenue from the particular Supplier earned by the Trust as determined by the auditors of the Trust and based on the audited accounts for the most recent financial year; 
C is the total revenue from all Suppliers earned by the Trust as determined by the auditors and based on the audited accounts for the most recent financial year; 
D is the number of purchaser order lines to the particular Supplier registered by PharmX’s ordering gateway software from the relevant Holder during the last financial year; and 
E is the total number of purchase order lines to the Supplier registered by PharmX’s ordering gateway software from all Holders during the last financial year.
In this schedule, Supplier means any manufacturer, wholesaler or distributor of products to pharmacists which pay a fee or other income to the Trust for the use of its electronic ordering gateway.
7	In effect, the distribution formula provides for distributions of income to be made, in broad terms, to unitholders not by reference to unit holdings but rather by reference to the share of the income of the Trust generated by users of point of sale (‘POS’) software owned by each unitholder.
8	Unitholders also hold corresponding shares in PharmX. The units and shares are stapled to each other and are referred to as ‘stapled securities’.  The unitholders are parties to a stapled securities agreement with PharmX (the ‘SSA’).  The SSA has primacy over the Deed to the extent of any inconsistency.  
9	Clause 12 of the SSA provides that the amount of any income distributed to a stapled security holder must be made in accordance with clause 27 of the Deed.  
10	Clause 22 of the SSA reads:
22	Termination
22.1	Automatic termination
Subject to clause 22.2, this agreement terminates automatically:
(a)	if all parties agree;
(b)	for a Stapled Security Holder, when it stops holding, directly or indirectly, any Stapled Securities, at which time the Stapled Security Holder has no further rights or obligations (except under clause 21) under this agreement;
(c)	for the Trustee, when it stops being trustee of the Trust;
(d)	when the Trust or Trustee is wound up by a resolution of Stapled Security Holders or by an order of a Court;
(e)	on the day an agreement to sell all of the Stapled Securities is completed; or
(f)	any Stapled Security Holder becomes the sole holder of all Stapled Securities.
		22.2	Accrued rights
Termination of this agreement is without prejudice to any accrued rights of the parties.
11	As noted above, Fred ceased to hold any units in the Trust (and shares in PharmX) on 2 April 2020.  It executed unit transfers on that date and was removed from the register of unitholders.  As a result, the SSA terminated (insofar as Fred was party to it) on the same day.
12	On or about 4 September 2020, the directors of PharmX (as trustee) by resolution:
(a)	approved the financial statements for the Trust for the year ending 30 June 2020;
(b)	declared that the financial statements for the Trust for the financial year ended 30 June 2020 presented fairly the Trust’s financial position as at 30 June 2020; and
(c)	approved the payment of distributions to unitholders for the financial year ended 30 June 2020 as follows:
(i)	Corum — $2,438,326;
(ii)	Mountaintop Systems Pty Ltd — $193,812; and
(iii)	Daleflag Pty Ltd — $279,826.
13	Fred submits that it acquired a vested and indefeasible interest in the amount of $1,313,121.05 at the end of 30 June 2020 on the basis that the Schedule 2 calculations result in an amount required to be distributed to Fred of $1,313,121.05 which had not been distributed prior to 30 June 2020.  It maintains that it acquired that interest and retained it notwithstanding that it ceased to be a unitholder on 2 April 2020.  
14	Although PharmX denies that the proper operation of clause 27.3 of the Deed is to give rise to any entitlement on the part of a former unitholder, it accepts that had such an entitlement arisen, application of the formula set out in Schedule 2 would result in an entitlement in the amount of $1,313,121.05.  
15	Under the terms of the Deed, the Trust is constituted for the benefit of persons who hold units in the Trust.  Clause 27.1 provides that the trustee may at any time determine that an amount of income be distributed to the holders, but there is no obligation on the trustee to make such a determination.  It is the making of that determination which gives rise to a vested interest in the unitholder.  The trustee made no determination to distribute income to Fred in connection with FY 2020 prior to 2 April 2020.  Fred did not acquire any vested or indefeasible interest in the amount of $1,313,121.05 or any other sum.  It did not acquire any accrued right which survived it ceasing to be a unitholder or the termination, as far as it concerned Fred, of the SSA.
16	In the absence of any earlier resolution, as at 30 June 2020, each holder of units becomes entitled to a share of income of the Trust for that trust year which had not previously been distributed.  The ‘trust year’ is defined in the Deed as the ‘year or other period in relation to which taxable income of the Trust for purposes of the Tax Act must be determined’.  There is no issue in this proceeding that the end of the trust year was 30 June 2020.  As at 30 June 2020, Fred was not a holder of units in the Trust. Accordingly, the absence of any earlier resolution does not assist Fred, because it was not a unitholder at 30 June 2020. 
17	The combination of there being no resolution of the trustee to distribute to Fred made whilst Fred was a unitholder, coupled with Fred not being a unitholder as at 30 June 2020, means that Fred derived no present entitlement.  The absence of any such entitlement  means that Fred did not acquire a vested and indefeasible interest in the undistributed income which would facilitate the making of its claim for moneys had and received.  Accordingly, Fred’s claim for moneys had and received fails.
18	Fred’s alternative claim fails for substantially the same reasons.  There was no obligation on the trustee to make any such resolution prior to 2 April 2022 whilst Fred was a unitholder, and as such the fact that no resolution was made during that period does not amount to a breach of trust.  The resolution of the trustee made 4 September 2020 was in accordance with the Deed, because it provided for the undistributed income of the Trust to be paid to those who were unitholders on 30 June 2020.  Any resolution, or payment to those who were not unitholders, would have been in breach of trust. 
19	Fred’s submission that the amount of distributions the subject of the 4 September 2020 resolution did not comply with Schedule 2 and thereby occurred in breach of trust, entitling it as a former unitholder to equitable compensation, ignores the fact that Fred was not a unitholder as at that date and in any event is based on a misapprehension of the application of the formula set out in Schedule 2.  
20	The exit of Fred as a unitholder on 2 April 2020 has no effect on the amount of each of the integers contained in the formula as at 30 June 2020.  Fred’s submission assumes that component E incorporates the purchaser order lines registered by PharmX’s gateway from Fred during the financial year ending 30 June 2020, with the consequence that there is an undistributed component of income to which Fred has an entitlement.
21	That submission is rejected; first, Fred’s purchaser order lines are not taken into account for the purposes of integer E for the same reason they are not taken into account for the purposes of integer D; Fred was not a holder as at 30 June 2020.  
22	The income derived from the Trust for the financial year which was derived in part from purchaser order lines registered by Fred for the period in which Fred was a unitholder remains in integer A.  The revenue that Fred generated for the Trust via orders placed with Fred POS software is taken into account in the determination of the amount of income to be distributed to those who remained unitholders by reference to the proportion of order lines placed using the particular remaining unitholders’ ordering gateway software as a proportion of the total number of orders made by the ordering gateway POS software from the ordering software of all those holders as at 30 June 2020.  In that respect, the revenue generated by the Trust from orders placed by Fred’s POS ordering software is no different to the revenue generated by the Trust from POS ordering software of any other third party vendor of POS software.
23	There is nothing in the above conclusion which is in any way inconsistent with the conclusions in PharmX Pty Ltd (in its capacity as trustee of the PharmX Unit Trust) v Fred IT Group [No 3].  That proceeding in part concerned the entitlement of unitholders to their respective share of distributable income for periods when they were unitholders and where financial statements had been approved by the directors of the trustee but where the distributable income had not been paid out.  The reasoning in that case, with which I entirely agree, has no bearing on the present circumstance, which involves a claim by a person who is not a holder of units in the Trust.
24	Accordingly, the claim is dismissed.