Pamplin v Irwin – Lessons for Business Owners from a Complex Family Dispute

When family and business interests intersect, the consequences can be legally and financially significant. The Supreme Court Court of Appeal decision in Pamplin v Irwin [2024] NSWCA 213 illustrates how informal arrangements, unclear ownership structures, and a failure to document agreements can result in years of litigation, significant legal costs, and unintended asset distribution.

This case, ultimately decided by the NSW Court of Appeal, provides timely lessons for business owners, particularly those operating family businesses or using discretionary trusts.

Background: Asset Protection or Trust Relationship?

In 2002, two brothers, Adrian and Lionel Pamplin, undertook a significant restructure of their business and personal affairs. With concerns about investigations by the NSW Crime Commission and the potential for asset seizure, they transferred assets, including shares in several companies, to their mother, Marie Pamplin. A new discretionary trust, the Dennis G Pamplin Family Trust (DGP Trust), was created with Marie as sole director and shareholder of the trustee company, DGP Pty Ltd.

Adrian's long-term partner, Ann Irwin, was later granted letters of administration for his estate after his death in 2013. In 2018, she commenced proceedings asserting that Marie held assets on trust for Adrian and Lionel and that the trust owed unpaid distributions to Adrian’s estate.

At trial, the Supreme Court of NSW accepted that an understanding existed whereby Marie held these assets for the benefit of her sons. The Court also found that the trustee owed $451,000 in unpaid distributions to Adrian’s estate. This decision was largely upheld on appeal, albeit with a recalculation of the debt owed.

Key Legal Issues Considered

Several legal principles emerged as central to the dispute:

• Express, resulting and constructive trusts – Whether the transfer of shares and other assets gave rise to a trust in favour of Adrian and Lionel.

• Shadow directorships – Whether Adrian and Lionel continued to control the companies despite formally resigning as directors.

• Estoppel and fettering trustee discretion – Whether the conduct of the parties gave rise to an estoppel limiting how the trustee could distribute trust income.

• Unpaid distributions – Whether entries in financial statements supported a debt claim for unpaid trust distributions.

• Taxation issues – Whether accounting for tax paid on behalf of a beneficiary should offset any distributions owing.

Key Findings of the Court

1. Informal “Warehousing” Arrangements May Still Create Trust Obligations

The Court upheld the finding that Marie held certain assets—particularly company shares—on trust for her sons. The purpose of the restructure was to shield assets from scrutiny, but the Court found that this did not negate the existence of a beneficial ownership arrangement.

Justice Leeming stated:

“Adrian and Lionel had much more than a mere hope that a distribution might be made to them as discretionary objects of the trust; to the contrary, they controlled the trustee.”

In essence, the parties’ conduct reflected a shared assumption that legal title would vest with Marie, but beneficial interest would remain with the brothers. This amounted to an express trust or, in the alternative, gave rise to equitable relief through estoppel.

2. Control Without Title Equals Risk

The Court found that Adrian and Lionel were shadow directors of both Mircon Pty Ltd and DGP Pty Ltd. Although they had formally resigned as directors, they continued to exercise control over the companies’ operations and decision-making.

This reinforces that individuals can attract legal responsibilities and exposure despite lacking formal titles or shares if they act in a manner that influences or controls corporate decisions.

3. Estoppel Can Limit Trustee Powers

The trial judge found, and the Court of Appeal accepted, that the trustee was estopped from distributing less than 50% of the DGP Trust’s capital and income to Adrian’s estate.

Although discretionary trusts usually provide broad discretion to trustees, the Court held that:

“There is no reason in principle that an estoppel may not extend to a power conferred on a trustee where the beneficiaries of the trust have acted upon the estoppel.”

Importantly, this ruling did not impose a rigid rule but rather acknowledged that, in this case, it would be unconscionable to allow the trustee to disregard the prior understanding and conduct of the parties.

4. Unpaid Distributions Must Be Accounted For

The Court confirmed the trial judge’s finding that DGP owed Adrian’s estate $451,000 based on distributions recorded in financial statements from 2006 to 2012. These distributions were declared in the trust’s minutes and recorded in Ann Irwin’s tax returns, yet not paid.

The Court acknowledged that failing to pay declared distributions gives rise to a debt:

“Once distributions were declared and reflected in tax returns, the amounts became payable.”

However, the Court adjusted the amount to reflect tax paid on Ann’s behalf, to prevent double recovery. The parties were directed to agree on a revised calculation or provide submissions if they could not.

Lessons for Business Owners

1. Document All Arrangements—Even Within the Family

Perhaps the most striking feature of Pamplin v Irwin is the near-total absence of formal documentation setting out the terms of the 2002 restructure. The parties relied on conversations, emails, and tax records to prove or dispute beneficial entitlements.

Business owners must ensure that:

• Any asset transfers are documented with clear terms;

• Declarations of trust, if intended, are executed in writing in compliance with ss 23C and 54A of the Conveyancing Act 1919 (NSW);

• Trust deeds are properly reviewed and updated when circumstances change.

Failure to do so creates uncertainty and can expose the business to future litigation.

2. Be Cautious About Asset Protection Strategies That Lack Substance

While asset protection is a legitimate concern, using a family member as a legal owner while retaining control behind the scenes risks creating unintentional trust relationships.

As this case shows, courts are prepared to look past formal ownership to the real arrangement between parties. If the “legal owner” acts on the instructions of someone else, and the structure is designed to preserve beneficial ownership, a trust relationship may arise.

3. Understand the Risks of Shadow Directorships

Business owners who relinquish formal control but continue to influence operations should be wary of shadow directorship liability. Shadow directors can be liable for breaches of duty, insolvent trading, and other corporate obligations even if they are not named as directors.

Formal resignation does not eliminate exposure if decision-making continues.

4. Discretionary Trusts Are Not Immune from Equitable Obligations

Trustees of discretionary trusts must exercise their powers independently and in accordance with the trust deed. However, courts can impose constraints where conduct amounts to an estoppel or the trustee has led a beneficiary to rely on a certain understanding.

For business owners using trusts:

• Be consistent in how trust powers are exercised;

• Avoid representations that suggest guaranteed entitlements;

• Keep trustee decisions properly documented and supported.

5. Ensure Trust Distributions Are Paid, or Risk Litigation

If a trustee resolves to distribute income to a beneficiary, that amount becomes payable. Where unpaid distributions appear in tax returns, the beneficiary may have a valid debt claim—even years later.

Delays in paying distributions, especially without explanation or record, can expose the trustee to liability and the trust to significant financial strain.

6. Consider the Tax Consequences of All Transactions

This case also highlighted the potential for tax to impact trust distributions. The Court accepted that if tax had already been paid on Ann’s behalf, failing to account for this could result in double recovery.

Trustees should:

• Maintain complete and accurate tax records;

• Ensure distributions are matched with payments;

• Understand the tax implications of unpaid trust entitlements.

Conclusion

Pamplin v Irwin serves as a cautionary tale for business owners who structure their affairs informally or rely on family loyalty in lieu of legal documentation. Particularly where family discretionary trusts are involved, clear record-keeping, formal documentation, and proper advice are essential.

The case also reinforces that courts will take a pragmatic view of arrangements that, while designed for asset protection, in substance reflect continued beneficial ownership and control. As the Court’s findings demonstrate, the “paper” structure of a business can be overridden by equitable principles if it conflicts with the parties’ conduct and understandings.

Key Takeaways

• Informal arrangements among family members can still give rise to binding trust obligations.

• Shadow directors may attract liability despite resigning from official roles.

• Trustees of discretionary trusts must exercise powers consistently and be cautious of estoppel claims.

• Failure to pay declared distributions can create enforceable debts.

• Asset protection strategies should be legally sound and documented; otherwise, they may backfire.