Allco Funds Management Ltd (Receivers and Managers Appointed) (In Liquidation) v Trust Company

The issues on which advice is sought

1. Originally, this proceeding was commenced seeking advice that TCL would be justified in paying, or retaining amounts paid from trust assets, its costs of the proceeding before Hammerschlag J (including costs orders against it) and the costs it incurs in connection with AFML's proposed proceeding. However, since this proceeding was commenced, AFML has reached a settlement with the Current Unitholders under which those unitholders agreed to buy AFML's funding units. In addition, the Current Unitholders took an assignment of AFML's claims against TCL. The transfer of the units has taken effect, with the result that the Current Unitholders are now the only unitholders in AWPF. Subsequently, the Current Unitholders entered into the Settlement Deed with Arcadia and TCL by which they settled any claims they might have against those two entities. Relevantly, the Settlement Deed provides (a) for mutual releases between the Current Unitholders and TCL, (b) that TCL and the Current Unitholders release Arcadia from any claims they might have against it and (c) that TCL be entitled to recover all of its costs relating to the litigation before Hammerschlag J, the consequences of that litigation and the current proceeding from the assets of AWPF. That settlement is conditional on TCL receiving the advice that it now seeks in this proceeding.

Should the advice be given?

1. In my opinion, TCL is entitled to the advice that it seeks.
2. There is no question that TCL, as trustee, has standing to seek the advice. The only jurisdictional bar that exists to advice being given under s 63 is that the applicant must point to "the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument": see Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [58] per Gummow A-CJ, Kirby, Hayne and Heydon JJ. That requirement is satisfied in this case.
3. It is appropriate for TCL to seek advice in this case. TCL stands to benefit from the Settlement Deed in its own right and therefore cannot bring independent judgment to the question whether it is in the interests of the Unitholders that it as trustee enter into the deed.
4. Although it would have been proper for TCL to have sought advice in relation to the defence of the proceeding heard by Hammerschlag J and to have made an application for the joinder of the Current Unitholders to that proceeding, it is important to bear in mind that TCL defended that proceeding for the benefit of the Current Unitholders. At the time TCL defended the proceeding, they were the only unitholders in AWPF and it is strongly arguable that TCL was, therefore, acting for the benefit of unitholders as a whole in defending the proceeding. Consequently, it is strongly arguable that TCL was entitled to be indemnified against its costs of defending the proceeding out of the trust funds on the basis that those costs were reasonably and properly incurred by TCL in discharging its duties as trustee: see s 59(4) of the Act. In addition, cl 19 of AWPF's constitution contains a broad release in favour of the responsible entity (that is, TCL) unless it acted both otherwise that in accordance with the constitution and without a belief in good faith that it was acting in accordance with the constitution. Clause 20 also contains a broad indemnity except in cases where the responsible entity acted negligently, fraudulently or in breach of trust. TCL had a strong case that it was entitled to recover the costs it incurred under that indemnity.
5. In advice obtained by TCL in relation to the Settlement Deed from Mr Giles SC, Mr Giles refers to the statement of Lindley LJ In re Beddoe [1893] 1 Ch 547 at 557 (quoted by Gummow A-CJ, Kirby, Hayne and Heydon JJ in Macedonian Church at [47]-[48]) that a trustee who without court approval defends an action unsuccessfully is not entitled to be indemnified out of the trust estate except in "very exceptional" circumstances. Whether that is a correct statement of the law is open to some doubt. The question under s 59(4) of the Act is whether the costs were reasonably and properly incurred. A trustee who is unsuccessful in litigation may have some difficulties in satisfying that requirement. But that is not to say that the circumstances must be "very exceptional". In any event, I agree with Mr Giles advice that the aspects of this case that I have already referred to make it "very exceptional". TCL acted honestly in defending the proceeding before Hammerschlag J. It acted on the advice of senior and junior counsel and with the knowledge and approval of the Current Unitholders. At the time, they were the only unitholders in AWPF and TCL defended the proceeding for their benefit.
6. Moreover, the Current Unitholders are now the only persons who have an interest in AWPF. If TCL had not incurred costs in defending AFML's claim they would have had to incur those costs themselves. It would be odd in those circumstances if TCL were required to repay to AWPF amounts that had been paid in respect of legal costs TCL incurred, or if TCL were not permitted to recover from AWPF's assets costs for which it was liable, when the beneficiaries of that requirement would be the ones who benefited from the expenditure.
7. It is apparent that each of the Current Unitholders is a sophisticated investor who, in relation to the proposed settlement, is advised by experienced lawyers. It is to be assumed that they have obtained advice from those lawyers before agreeing to the settlement with TCL. It is plain, therefore, that the interests of the beneficiaries of AWPF in connection with the Settlement Deed have been adequately protected. The release of Arcadia was given at their request.
8. The Settlement Deed has benefits for AWPF. It resolves potentially costly and distracting court proceedings and, in doing so, permits TCL and Arcadia to focus on maximising the value of the fund for all unitholders. If the proceeding was brought, there is at least a risk that TCL would retire as trustee and responsible entity, causing AWPF costs in finding a replacement. Although TCL benefits from the settlement, it benefits in circumstances where the Current Unitholders have made it plain that they have no interest in pursuing proceedings and in a context where it is doubtful that those proceedings would be successful in any event.

Orders

1. The orders of the court are: Pursuant to section 63 of the Trustee Act 1925 (NSW) the plaintiff be advised and directed that it was and is justified, as trustee of the Australian Wholesale Property Fund, in entering into, and is justified in giving effect to, the terms of a deed dated 8 February 2016 between the plaintiff, Arcadia Managed Investments Pty Ltd, State Street Australia Limited (as custodian of Sunsuper Superannuation Fund), National Nominees Limited (as nominee for Emergency Services Superannuation Scheme) and Commonwealth Superannuation Corporation (as trustee for the ARIA Investments Trust).

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 February 2016