Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd

Supreme Court of NSW|2007-06-19|Before: Rein AJ

CITATION : Leonard Thomas Hinde [2007] NSWSC 640 This decision has been amended. Please see the end of the judgment for a list of the amendments.

CATCHWORDS : Judicial advice sought by trustee of trust to pay wages and other entitlements to class of employees of company in voluntary administration - whether advice should be given - advice re amounts proposed to be paid to employees - treatment of GEERS payments - increased remuneration - costs

Corporations Act 2001 (Cth), s 444B LEGISLATION CITED : Evidence Act 1995 Trustee Act 1925, ss 63, 81

Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2002) 174 FLR 1; [2002] VSC 576 Application of Trust Company of Australia re Barclays Commercial Property Trust (unreported, 19 March 1993, SC(NSW), BC9301985) Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316 Re Duke of Norfolk's Settlement Trusts [1982] Ch 61 Re Gulbenkian's Settlement Trusts [1970] AC 508 Macedonian Orthodox Community Church St Petka Inc v Petar (2006) 66 NSWLR 112; [2006] NSWCA 160 Re Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441; [2005] NSWSC 558 CASES CITED : Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547 Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185 St Edmundsbury & Ipswich Diocesan Board of Finance v Clark (No 2) [1973] 3 All ER 902 Re Application of Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 University of Sydney v Australian Photonics Pty Ltd (2005) 53 ACSR 579; [2005] NSWSC 412 Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521; [2000] NSWCA 25 Wilson v Wilson (1854) 5 HL Cas 40

PARTIES : Leonard Thomas Hinde (Plaintiff)

COUNSEL : M B Oakes SC (Plaintiff) M Allatt (Dept of Employment & Workplace Relations)

SOLICITORS : Hugh and Associates (Plaintiff) Australian Government Solicitor (Dept of Employment & Workplace Relations)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5844/06 Leonard Thomas Hinde JUDGMENT 1 HIS HONOUR: By a summons dated 14 November 2006, the plaintiff as trustee of the Australian Photonics Staff Entitlements Trust ("APSET") seeks judicial advice pursuant to s 63 of the Trustee Act 1925 ("the Act") and orders pursuant to s 81 of the Act. 2 The trust was created by deed of settlement on 12 October 2004 and the settlor of the trust was Australian Photonics Pty Ltd ("APPL"). A copy of the Trust Deed is at Tab 2 of Exhibit "LTH-1". Mr Chris Palmer of O'Brien Palmer ("the administrator") was appointed as administrator on 15 November 2004. APPL entered into a deed of company arrangement on 1 March 2005 pursuant to s 444B of the Corporations Act 2001 (Cth). A copy of the deed of company arrangement is found at Tab 3 of Exhibit "LTH-1", and as varied twice at Tab 2 of Exhibit "LTH-2" ("the DOCA"). 3 As at 12 October 2004, APPL employed a number of persons and the trust was established to provide benefits to various employees of APPL. 4 The trustee, for whom Mr M B Oakes SC appears, wants to distribute funds held in trust to the eligible employees, and all but one of those employees agrees to the proposed distribution and the respective amount which the trustee proposes to pay to each of them. 5 Dr Angelika Koch ("Dr Koch"), a former employee, does not agree with the amount which the trustee proposes to pay her for reasons which I shall describe. Dr Koch, as it happens, drafted the Trust Deed and, I infer, its schedule: see Exhibit "B". 6 The trustee, through his lawyers, has formally sought to obtain the agreement of all of the employees to the proposed distribution (see Tabs 7-8 of Exhibit "LTH-1", paragraphs 29-32 of the Statement of Facts by Trustee ("SOF")) but as I have noted, the approval of Dr Koch was not forthcoming. 7 Subsequently the trustee through his solicitors foreshadowed the current application to this Court if agreement could not be obtained: see paragraphs 33-34 of the SOF. 8 The matters on which judicial advice is sought all relate to the proposed distribution. 9 The summons' first return date was 9 February 2007. In January 2007, Dr Koch filed a Notice of Appearance, as did Mr Allatt, a solicitor of the Australian Government Solicitor acting on behalf of the Department of Employment and Workplace Relations ("DEWR"). On the first return date Mr Edwards of Truman Hoyle Solicitors appeared for the administrator, but no formal Notice of Appearance was filed on his behalf. A barrister appeared on behalf of Dr Koch: see SOF paragraph 21 (and the court file confirms this). 10 By consent Dr Koch, DEWR, and the administrator were ordered to file and serve any evidence and submissions by 2 March 2007. 11 Dr Koch has never provided any affidavit to the solicitors for the trustee or to the Court. She did not appear nor was she represented on 6 March, 3 April, 1 May, 22 May or 25 May 2007 when the matter was listed for directions. She did not appear on Wednesday 13 June 2007 when the matter was listed for hearing and called inside and outside court. 12 Dr Koch did however provide to the trustee's solicitors a document entitled "Statement of Facts of Dr Angelika Koch", dated 26 March 2007, which was accompanied by a bundle of documents marked "DRAK-1". It was provided, I am informed, together with a letter indicating that the document was provided undated, unsigned and on a confidential basis: see T2.18-20. Dr Koch also provided a copy of the document and DRAK-1 to Mr Allatt's office - that copy was not accompanied by a covering claim of confidentiality. Mr Oakes noted that the copy of the document incorporated in Exhibit "LTH-1" has as its provenance the Office of the Australian Government Solicitor ("AGS"), and the copy of DRAK-1 which he tendered and which became Exhibit "A", was produced by AGS. Dr Koch's Statement of Facts is more accurately described as a set of submissions. I have read these submissions and will make reference to them below, notwithstanding that they were not provided to the Court as submissions as was ordered and notwithstanding that the Court on 1 May 2007 had indicated that no regard would be paid to submissions not filed by 15 May 2007 (see Short Minutes of Order dated 1 May 2007 and paragraph 44 of the Supplementary Statement of Facts) since they were provided to the trustee's solicitors before 15 May 2007 and have been annexed to the Statement of Facts. 13 When the matter was called on, Mr Oakes advised the Court that Mr Edwards had advised the trustee's solicitors that he would not be attending on behalf of the administrator. 14 DEWR administers a scheme known as the General Employee Entitlement Redundancy Scheme ("GEERS"). It provides payments to administrators and liquidators to enable payments of entitlements to be made to employees where the company in administration or liquidation has not done so. The details of how the scheme operates can be found at Tab 11 of Exhibit "LTH-1". Generally payments will be made to "the insolvency practitioner", eg liquidator or administrator, and recovery of funds so paid will be sought from the assets realised (presumably on the winding up or fund achieved by the deed of company arrangement): see clause 11.6. If payments are made directly to employees, the scheme contemplates recovery of monies paid from employees who have received GEERS payments direct and had entitlements paid in due course by the administrator or liquidator. 15 GEERS payments totalling $150,246.07 were made to the administrator on behalf of employees of APPL: p 167 Exhibit "LTH-2". Mr Allatt, who appeared for DEWR, indicated (see T13-T14) that DEWR accepts that in determining entitlements to be paid to eligible employees the trustee is entitled to take into account GEERS payments, and that DEWR does not intend to make any claim for recovery of GEERS payments from the employees to whom payments have been made or to assert a claim against APSET, a position previously outlined in correspondence. He reserved DEWR's position on the question of a claim on the fund established by the DOCA, should the trustee pay any surplus over to APPL after payment of entitlements. 16 Mr Allatt advised the Court that an appeal by Dr Koch against a decision made by DEWR in relation to the amount of the GEERS payment made to her, has been lodged by Dr Koch, heard, and determined but with the outcome not yet advised to Dr Koch. In the absence of information as to whether there will be an increase in payment the trustee cannot assume that the payment by GEERS will be increased. 17 There are today assets of approximately $199,000 held in APSET. The total liabilities in the form of entitlements due to employees is, on the trustee's view, $213,512, but allowing for payments made out funds provided by GEERS this reduces to $63,208.41. There are in addition claims of $9647.55 from employees of APPL who are not regarded as "eligible" employees by the trustee because they were not named as such in Schedule 1 to the Trust Deed: see p 10 Exhibit "LTH-1". Although the Trust Deed does speak in the recital of employees who are "otherwise eligible to become beneficiaries under the deed", no mechanism is provided in the deed for such a process. 18 The trustee through the Supplementary Statement of Facts ("SSOF") sought the following: "(a) A direction that the plaintiff is justified in proceeding on a construction of the Trust Deed that the Eligible Employees have not been removed as beneficiaries by reason of an "Employment Termination Event" having occurred in relation to each of them. (b) A direction that the plaintiff is justified in treating the date the Settlor passed into voluntary administration as the date for calculation of entitlements of beneficiaries. (c) Further to (b), an order under section 81 of the Trustee Act authorising the plaintiff to treat the date the Settlor passed into voluntary administration as the date for calculation of entitlements of beneficiaries. (d) A direction that the plaintiff is justified in paying all entitlements at the same time and, if there are sufficient funds, paying them pro rata. (e) Further to (d), an order pursuant to section 81 of the Trustee Act authorising the plaintiff to pay all entitlements at the same time and, if there are insufficient funds, paying them pro rata. (f) A direction that the plaintiff is justified in treating Dr Koch's Entitlements A as having a quantum of $34,717.76 and her Entitlements B as having a quantum of $15,692.65. (g) A direction that the plaintiff is justified in taking into account the GEERS payment received by each Eligible Employee in assessing each Eligible Employee's entitlement to the Trust Fund. (h) Further to (g), an order under section 81 of the Trustee Act authorising the plaintiff to take into account the GEERS payment received by each Eligible Employee in assessing each Eligible Employee's entitlement to the Trust Fund. (i) A direction that the plaintiff is justified in paying each Eligible Employee without having to reimburse the Commonwealth for any GEERS payments.

(j) A direction that the plaintiff is justified in paying out of the Trust Fund income remuneration for the Trustee's services: (i) to 7 June 2007 in the sum of $5,955; and thereafter; (ii) on a time basis at the rate of $75.00 per hour." 19 Following the hearing, the trustee provided to the Court a Further Supplementary Statement of Facts ("FSSOF"), Amended Orders, and some Post-Hearing Submissions. As a consequence some of the issues have been removed but for completeness I shall deal with the matter as constituted at the hearing and note the changes where appropriate. 20 To understand the issues upon which judicial advice is sought it is necessary to set out some relevant portions of the Trust Deed, and to describe Dr Koch's claim for entitlements.

21 The Deed distinguishes between two kinds of entitlement. "Entitlements A" means "Leave Entitlements, unpaid wages and superannuation". "Entitlements B" is defined rather confusingly to mean "Non-Leave Entitlements less unpaid wages and superannuation". Clause 1.1 also contain the following definitions: "(d) ' Eligible Employees' are the employees of the Settlor named in Schedule 1 . …

(g) ' Employment Termination Event' means the event of an Eligible Employee being made redundant from his or her employment with the Settlor or his or her employment contract with the Settlor otherwise being terminated. …

(j) ' Leave Entitlements' means annual leave, long service leave and other contractual or statutory leave entitlement balances accrued as at the Employment Termination Event. It does not include any form of leave accrued after the Employment Termination Event. The Leave Entitlements will be reduced by an amount equal to any annual or long service leave taken by the Eligible Employees before the Employment Termination Event.

(k) ' Non-Leave Entitlements ' means the Eligible Employees' contractual and statutory [entitlements] with regard to unpaid wages, superannuation, bonuses, commissions, pay in lieu of notice, severance pay accrued at the Employment Termination Event pursuant to his or her employment contract with the Settlor current at the time of the Employment Termination Event." 22 Clause 3.1 defines beneficiaries of the Trust as "the Eligible Employees". 23 Clause 3.2 provides: " Removal of Beneficiaries

An Eligible Employee will cease to be an Eligible Employee with completion of his or her Employment Termination Event". 24 Clause 4.1 states that the Trustee: "holds the Trust Funds and any Income to or for the benefit of the Eligible Employees, in such proportions equal to each Eligible Employee's Leave Entitlements and Non-Leave Entitlements". 25 Clause 4.3 provides for the manner of distribution, and includes: "The payment of Trust Funds may be effectively made by the Trustee for an Eligible Employee: by paying the Leave Entitlements and Non-Leave Entitlements at the Employment Termination Event to the respective Eligible Employee or to such person on behalf of the Eligible Employees as the Eligible Employee may authorise or direct, or as required by statute." 26 It deals with how funds are to be paid in the event of a deficiency and ends: "The particular Eligible Employee may seek any unpaid Entitlements from the Settlor."

Preliminary Matters 27 Section 63 of the Act is in the following terms: " 63 Advice

(1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction. (3) Rules of court may provide for the use, on an application under this section, of a written statement signed by the trustee or the trustee's Australian legal practitioner, or for the use of other material, instead of evidence. (4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application. (5)-(7) (Repealed) (8) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution. (9) The notice shall state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute in accordance therewith. (10) Any person who claims that the person's rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Court, apply to the Court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution. (11) Subject to subsection (10), and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance with subsection (8), shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings to which the person was a party." 28 I should note that the Trust Deed gave the right to the trustee to obtain counsel's advice and act upon it (clause 6.6) but it provided that that did not prohibit or impede the trustee from applying to a Court (implicitly for advice).

29 The trustee has taken the step of seeking judicial advice. The solicitors for the administrator by letter of 6 February 2007 (p 87 Exhibit "LTH-2") asserted that the application as formulated was misconceived. They asserted that all but one of the questions were matters upon which the trustee has already made a decision and "no other party seriously disputes", the one remaining question was the central question to be determined and would lead to the issue being determined with costs orders and would not be final because Dr Koch could appeal. They referred to Macedonian Orthodox Community Church St Petka Inc v Petar (2006) 66 NSWLR 112; [2006] NSWCA 160. As I have noted they have chosen not to appear and press this contention but I shall deal briefly with the issue of relief pursuant to s 63. 30 Issues of construction of a trust deed are a common basis for advice being sought: see for example Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2002) 174 FLR 1; [2002] VSC 576. 31 In Macedonian Orthodox Community Church St Petka Inc v Petar (2006) 66 NSWLR 112; [2006] NSWCA 160, judicial advice was sought on whether the plaintiff would be justified in defending proceedings, a not uncommon matter for advice under s 63 of the Act. The Church obtained a legal opinion at the request of the judge hearing the application, and the parties who had brought the proceedings against the Church subsequently sought access to the opinion so obtained, which application was, apart from a limited portion, granted. The majority (Beazley and Giles JJA) were of the view that the advice was privileged and provision of it to the Court in the context of seeking judicial advice did not constitute a waiver of the privilege, and they also dealt with the status of the advice under the Evidence Act 1995. In the course of considering the matter, their Honours commented on the nature of applications for judicial advice: "[8] … An application for judicial advice is a non-adversarial proceeding and may be heard ex parte by the Court. However, the Court may direct that the application be served on specified persons: s 63(4). Persons served with an application are bound by the advice or direction made by the Court 'as if the … advice [or] direction … had been given or made in proceedings to which the person was a party': s 63(11).

[9] Section 63 does not specify whether a person given notice of the application has any entitlement to place material before or make submissions to the Court or to be provided with the material that is placed before the Court by the trustee in support of the application. … [40] Nor should the second basis upon which the opponents rely, namely that the s 63 application was a proceeding in the Court, so that any material before the court becomes 'evidence' to which the Evidence Act applies, be accepted. Applications for judicial advice have a peculiar pedigree. This was discussed by Palmer J in Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441, and earlier by Young CJ in Eq in Re Application of Perpetual Trustee . As Palmer J pointed out in his judgment (at 445 [23]), the Court's jurisdiction under s 63 is 'an exception to the Court's ordinary function of deciding disputes between competing litigants' and is in the nature of 'private advice'. See also Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 440, per Sheller JA." 32 They noted that the order is permissive and does not carry the usual consequences such as creating a res judicata. They said: "[54] … There is a significant difference between parties being adversaries and proceedings being or not being adversarial. The mere fact that parties are adversaries does not convert the essential nature of a non-adversarial proceeding, as a s 63 application is, into an adversarial one … [56] … the Court is assisted by having the views of those persons who are likely to be affected by the judicial advice. …" 33 Hodgson JA agreed with the ultimate disposition of the appeal but disagreed with the categorisation of the application. He was of the view that s 63(11) does affect the rights of parties to claim against the trustee and "to that extent" does determine their rights, and said: "[64] … In any event, even if it is generally the case that s 63 proceedings are not adversarial proceedings, do not determine any rights, and do not create any res judicata, this is not necessarily so, and in my opinion it is not so in this case. [65] It has been held that s 63 proceedings are inappropriate to resolve disputes between trustees ( Harrison v Mills [1976] 1 NSWLR 42), and that advice under s 63 is generally not an appropriate resolution of disputes between parties to a trust ( Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405). However, if a trustee does seek to resolve what is in substance a dispute with a beneficiary or other claimant to trust property by making an application for advice under s 63, then, unless and until the Court dismisses the application because it is an inappropriate procedure, the proceedings are not prevented from being adversarial proceedings simply because the trustee has chosen to bring them in that way." 34 The divergence of opinion in the Court of Appeal in the Macedonian Church case centred upon whether the nature of the proceedings can change to adversarial by reason of the involvement of interested parties, but there was in that case no issue raised in either judgment as to the appropriateness of recourse to judicial advice and no criticism of the approach of Young CJ in Re Application of Perpetual Trustee Co Ltd [2003] NSWSC 1185. 35 In Perpetual Trustee, Young CJ outlined the history of s 63 and similar provisions and noted that the English approach is based on inherent jurisdiction (and see too Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547). His Honour described the Court's approach to judicial advice as having expanded "well beyond its primitive origins". Palmer J in Re Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441; [2005] NSWSC 558 accepted that the procedure "now has great flexibility and utility". 36 In Perpetual Trustee at [16]-[18] Young CJ in Eq said: "[16] However, although s 63(4) says that, "it shall not be necessary to serve notice of the application on any person", it has become increasingly the practice for trustees to serve other people with notice of the application. That causes problems because those parties have usually some other point of view to put forward and so tempt the court into determining disputed questions of fact. Sometimes that does not matter very much in a private trust with a limited number of beneficiaries. [17] If everyone is before the court, then the court can proceed under s 63 without fear or alternatively, can have the summons amended to a summons for declaration and indeed, the court today is far more lenient than it used to be twenty years ago. The court would, on a private trustee's application under s 63, often advise that the Trustee would be justified in issuing a summons to construe the will. Nowadays the usual order is to amend the summons to claim the declaration for the construction of the will. [18] The real difficulty arises where there are a host of other persons who are interested in the result. Under those circumstances, it is usually not wise to give judicial advice even though s 63(11) does not make the advice binding on anyone who has never been served, the reason being that those persons have never been heard." 37 See also Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316 at [26] where Barrett J indicated that the giving of notice might affect the availability of recourse to s 63 of the Act. 38 The question of the degree to which early statements of the inappropriateness, at least generally, of permitting recourse to s 63 of the Act where there are factual disputes have been affected by the more expansive approach taken in recent times is a matter that may need further elucidation in other circumstances, but I have formed the view that it is appropriate for the Court to give judicial advice in accordance with s 63 of the Act in this matter and for the following reasons:

(1) The trustee and the Court have taken appropriate steps to bring to the notice of the interested parties the present application.

(2) Formal appearances by Dr Koch and DEWR have been filed even though in the past the view was taken that appearances were not necessary, and orders made by consent that Dr Koch, DEWR and the administrator file and serve evidence and submissions.

(3) No application was made by any interested party to assert the inappropriateness of the recourse to s 63 (and that notwithstanding the fact that the administrator through his solicitors had raised that but a few days before in correspondence).

(4) No evidence was filed or served by any of the interested parties.

(5) The only interested party who appeared at the hearing (DEWR) supported the trustee's application so far as it related to it.

(6) The fact that if the trustee's approach is correct on the GEERS point there will not only be sufficient funds to pay all of the entitlements that the trustee proposes to pay but a net surplus which will be repaid to APPL that will in all likelihood exceed the amount of all of Dr Koch's claims.

(7) At least one of the eligible employees, Dr Scott, has received no GEERS payment and no payments from APSET or APPL and all of the eligible employees other than Dr Koch have been precluded from receiving their entitlements from APSET to date.

(8) The cost of proceedings to date, and if extended the further costs, would not be insubstantial standing alone and in relation to the size of the trust fund. Standing of Trustee 39 Dr Koch attacks the standing of Mr Hinde as trustee, pointing out that he was an employee of APPL (but not an eligible employee as defined under the Trust Deed) and is therefore an unsecured creditor. Although the submissions refer to remedies in this regard and more generally, no application has been made by Dr Koch and she has not come forward to advance any positive case. For as long as Mr Hinde is trustee he is, in my view, entitled to seek relief under s 63. Dr Koch's Claim 40 Dr Koch lodged a proof of debt with the administrator by which she claimed $120,574.21, of which the administrator allowed $34,717.76 for Entitlements A and $15,692.65 for Entitlements B, making a total of $50,410.41: see Tab 4. The administrator detailed his approach to the claims in his Notice of Rejection of Formal Proof of Debt: pp 59-60 Exhibit "LTH-1". 41 The administrator took the view that Dr Koch was entitled to five weeks pay in lieu of notice pursuant to clause 11 of her contract of employment with APPL (see p 122 of Exhibit "LTH-1") and no other amount in lieu of notice or redundancy. He regarded her claim for long service leave as inflated and reduced it by $1446.77. Long service leave he calculated as $29,153.90 rather than the $30,600.68 claimed. 42 In subsequent correspondence the administrator accepted that Dr Koch's long service leave should be increased to $30,209.16, making a total entitlement of $51,465.66: see p 144 of Exhibit "A" - information which it would appear was not made known to the trustee but which he is, I was informed, prepared to accept as correct. 43 Dr Koch's employment contract provided for a 12 month period of employment from 5 January 2004 to 4 January 2005. Notice of termination was given by the administrator to Dr Koch on 30 November 2004.

44 Dr Koch was unhappy with the approach taken by the administrator and as a creditor of APPL she made her position known at a meeting of creditors called to consider a Deed of Company Arrangement. Dr Koch moved an amendment to the Deed of Company Arrangement. The motion proposed by Dr Koch was accepted by a majority. It was in the following terms: "That the Company execute a Deed of Company Arrangement as propounded by CVC Limited, Warman Investments Pty Limited and Redfern Photonics Pty Limited on terms not materially different to those contained in the statement tabled at this meeting as amended in accordance with the attachment to the letter from Dr Koch dated 7 February 2005 (tabled at this meeting)." 45 The amendment proposed was in the following terms: "7. 'Employee Creditors and Subrogating Employee Creditors to accept their full entitlements as outlined in the Schedule out of the First Deed Fund in full settlement of their claims.' And 9. 'The First Deed Fund is to be applied to in payment of Employee Claims or Subrogating Employee Creditors, to be distributed pro rata to such creditors in full settlement of their claims as outlined in the Schedule.'" 46 Clause 6.1 of the DOCA is in the following terms: " Distribution of the First Deed Fund The Administrator shall distribute the First Deed Fund in payment of the Claims of the First Deed Fund Participating Creditors including those as set out in Schedule 2 to this Deed and any claim by any Subrogating Employee Creditor, on a pro rata basis after allowing for any amount paid to the First Deed Fund Participating Creditors by the Trustee under the Trust , in accordance with the priority in Section 556(1)(e)-(h) of the Corporations Act ." [footnote omitted] 47 The Schedule referred to (see p 46 of Exhibit "LTH-2") shows a claim of $120,189 for Dr Koch.

The Issues on which Advice is Sought 48 The first issue upon which advice is sought, 18 above, involves the construction of clause 3.2. The clause could be read as precluding consideration of the employee as an "Eligible Employee" on termination. No party propounds such a reading of the clause and such an interpretation would require payment of all benefits before termination. In my view the clause has been poorly drafted but can only make sense in the context of the overruling purpose of the deed of providing entitlements to eligible employees if it is read as removing those employees whose employment has been terminated as beneficiaries of the trust only for the future. In my view, it could not have been intended that accrued rights of employees would end on termination. A construction that would undermine the effectiveness of the document for its obvious purpose should be eschewed: see Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2002) 174 FLR 1; [2002] VSC 576 at [215] and Re Gulbenkian's Settlement Trusts [1970] AC 508 at 522 per Lord Upjohn; and see also Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521; [2000] NSWCA 25, St Edmundsbury & Ipswich Diocesan Board of Finance v Clark (No 2) [1973] 3 All ER 902 and Wilson v Wilson (1854) 5 HL Cas 40 dealing with construction of contracts. In my view the trustee is entitled to proceed upon the basis that employees' rights to payment of entitlements under the Trust Deed were not terminated. 49 The second issue, 18 above, was that the trustee contended that the "termination event" should be interpreted as the date of appointment of the administrator on 15 November 2004. I think that Dr Koch's criticism of this approach was correct as the appointment of the administrator did not bring the employees' contracts to an end. In the case of Dr Koch, her contract of employment was terminated on 30 November 2005, being the date on which her contract with APPL was terminated by notice from APPL: see pp 58-59 of Exhibit "LTH-1". It is now clear from the Further Supplementary Statement of Facts that the administrator calculated the unpaid entitlements of Dr Koch from 30 November (see p 10), and that other employees who worked on past 15 November were paid entitlements accruing after that date as part of the administration of APPL: see pp 10-11 of the Further Supplementary Statement of Facts, so that this issue is no longer of any significance. 50 The third issue, 18 above, is whether the trustee should pay Dr Koch (and the other employees) in accordance with the administrator's determinations of entitlement. The contract between Dr Koch and APPL is specific in limiting payment in lieu of notice to the end of the one year contract. To the extent that some other different agreement is asserted to have been made by APPL and Dr Koch prior to APPL's entry into voluntary administration, no evidence of it in admissible form has been provided to the Court by Dr Koch. Dr Koch's submissions speak in the most general terms of verbal agreements: see for example paragraph 51. Dr Koch also asserts that by virtue of the DOCA entered into in 2005 and varied in March 2006 and June 2006, the administrator agreed to pay her the full amount of $120,574. 51 In proceedings that were taken by the University of Sydney following entry into the DOCA on 5 March 2006 (as varied) and by which the University sought to have the DOCA set aside by virtue of its being prejudicial to unsecured creditors (of which the University of Sydney was one) Palmer J (University of Sydney v Australian Photonics Pty Ltd (2005) 53 ACSR 579; [2005] NSWSC 412) noted the claim by Dr Koch. 52 His Honour said: "[12] … It is clear that one of the employee/creditors, Dr Koch, has claimed remuneration under her contract of employment which the administrator believes to be substantially in excess of her contractual entitlement. A somewhat abbreviated examination of Dr Koch's contract of employment does suggest quite strongly that her claim for remuneration exceeds the amount of her true entitlement by close to $30,000.

[13] Mr Gleeson, who appears for the plaintiff, suggests that cl 6 of the deed itself entitles Dr Koch to receive more by way of distribution from the funds under the deed than she is entitled to in law or would be entitled to in a liquidation, to the prejudice of other unsecured creditors. That result could flow from one interpretation of cl 6.1 of the deed. I do not need to examine this question in great depth. However, it seems to me unlikely that cl 6.1, taken in conjunction with the other provisions of the deed as a whole, would receive the construction for which Dr Koch might wish to contend. I would read cl 6.1 as merely requiring Dr Koch and the other persons listed in Sch 2 to lodge their claims against the deed fund in accordance with the provisions of the deed.

[15] Mr Newlinds SC, who appears with Mr Silver for APPL, points out that the administrator takes the view that the construction put forward by Mr Gleeson is not the correct construction. Mr Newlinds also points to provision in the deed for the administrator to bring about either termination of the deed, if he considers its operation to be prejudicial, or else to bring about the variation of the terms of the deed. Although Dr Koch has strongly urged a claim for a remuneration to which, prima facie, she does not appear to be entitled, I cannot assume that she will persist in that claim to the point of litigation nor in such a way as will necessarily impede or delay the administration of the deed. However, as Mr Newlinds points out, if Dr Koch commences some proceeding founded on a construction of cl 6.1 and that proceeding inhibits the administration of the deed, it would be open to the administrator to invoke the machinery provisions of cl 8 to procure either an amendment of the deed which resolves the ambiguity in construction unfavourably to Dr Koch or else results in a termination of the deed." 53 If the construction which Dr Koch sought then and now seeks to place upon clause 6.1 were correct (and I express no opinion on it other than to note and respectfully share Palmer J's doubts as to how that would fit with other provisions of the deed), the fund out of which those monies would be paid would be the First Deed Fund - the First Deed Fund is not the Trust Fund. APSET was not a creditor of APPL and the trustee in his capacity as trustee of APSET, I was informed, had no involvement in the acceptance of the DOCA. If APPL under administration has agreed to pay monies to Dr Koch that go beyond her strict entitlement that is a matter between APPL (and/or the administrator) and Dr Koch but the administrator of APPL has not informed the trustee that those entitlements claimed by Dr Koch as payable to her are in fact payable - on the contrary he has rejected her claim beyond $51,465.66.

54 In paragraphs 20, 22 and 23 of her submissions, Dr Koch asserts that her entitlements are fixed in Schedule 1 annexed to the Trust Deed and are contained in the Trust Deed. The Trust Deed does not make any use of the schedule other than to describe the eligible employees and it is not correct to describe the entitlements referred to in the Trust Deed as "fixed". Dr Koch points to the fact that there were a number of employment contracts - the only one with which the trustee need be concerned is the one in force at the time of termination of her contract. I have had regard to that contract in forming the view I have reached. 55 By paragraph 29 of her submissions, Dr Koch asserts that only APPL can assess the trust funds and employee entitlements by virtue of clause 4.2(a) of the Trust Deed. Clause 4.2 certainly provides that APPL will assess how much to contribute to the fund and that it will make payments where appropriate having regard to employee entitlements, but I do not think that this clause deals with the calculation of entitlements. Clause 4.3 refers to payment by the trustee and clause 4.5 speaks of "a determination of the Trustee in favour of an Eligible Employer becoming irrevocable". There are no provisions of the Trust Deed which specify how the trustee is to make his determination (or indeed how if made it will become irrevocable) but it is clear that the trustee has the role of making a determination. Since there is no prescribed means of making a determination I think it is open to the trustee to consider, and if appropriate, to take into account, APPL's views on the entitlements of employees. The administrator having been appointed, I think the trustee is entitled to take into account and adopt, if he regards it as appropriate and to pay, the amounts determined by the administrator as payable following receipt of a proof of debt. 56 I do not accept the implicit contention of Dr Koch (see paragraphs 30-36 of Dr Koch's submissions) that the trustee is required to treat the DOCA and its annexures as a determination by the administrator or APPL of the amount payable to her by APPL or as a determination upon which the trustee is required to act. The administrator has not, on the facts presented, informed the trustee that he accepts Dr Koch's claims but rather has through the rejection of Dr Koch's proof of debt and provision of his response to the trustee asserted the contrary. 57 Dr Koch asserts that the administrator adjudicated on her claim on 28 April 2005 at a time when he had not been appointed but according to the ASIC search he was appointed on 15 November 2004 (whenever the notification occurred is not presently relevant). She asserts that the administrator revoked his rejection of her proof of debt, which he does not appear to have done: see p 144 Exhibit "A". 58 Dr Koch argues (paragraph 48 of her submissions) that her contract of employment was a "continuous one" and not a fixed term position. The contract is at Tab 8 Exhibit "LTH-1". Clause 2.1 provides that subject to clause 11 (which permits early termination) the contract was for a period of one year commencing on 5 January 2004 and ending on 4 January 2005. It is surprising that the contract provides in clause 8.1 that the employee's remuneration will be reviewed each year but I think it is explicable because of clause 3 which provides for reappointment if the company wishes to offer it, and even if that view were not correct, clause 8 is not sufficient, in my view, to alter the essential nature of the contract. 59 Dr Koch's submissions on the effect of clause 11.1 initially ignore the provisions of clause 11.1.6. When they do deal with clause 11.1.6 they assert that the reference to payment in lieu of notice is "a mistake" (paragraph 51), and "should have referred to redundancy payment instead". The submissions refer to an interpretation "verbally agreed" of which there is no evidence (and see also paragraph 21 of the submissions) and which would in any event not be admissible to assist in interpretation of the contract: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 in which the High Court has reaffirmed the objective approach to construction of contracts. 60 Contrary to the submissions of Dr Koch, clause 11.1.6 does not provide for three months salary and benefits in lieu of notice without qualification. Paragraph 53 refers to verbal agreements of which there is no evidence. The content of other employees' contracts is irrelevant even if the factual contention was made out. Paragraph 54 of Dr Koch's submissions involves the same misapprehension as to the terms of clause 11.1.6 and contention that the contract extends beyond 4 January 2005 to which I have earlier referred. 61 In my view, the trustee is entitled to rely on the calculations of the administrator as to the employees' entitlements and would be acting appropriately by paying the amounts determined by the administrator as due and in particular the amount of $51,465.66 to Dr Koch.

GEERS 62 The next issue (see 18 above) relates to how GEERS payments are to be treated. It is an important feature of the matter that the monies representing employee entitlements were paid to the administrator by GEERS (as administrated by DEWR) who then paid the respective amounts due to each employee who was deemed by GEERS to be entitled. It was a requirement for GEERS that the employee had not resigned prior to appointment of the administrator (see clause 5.3, p 161 Exhibit "LTH-1") although there was an exception to that requirement which, it would appear, was viewed by DEWR as not having been established in the case of one employee, Dr Scott. Since the administrator has paid money, the source of which was GEERS, to employees to whom A or B Entitlements (or both) were due, it seems entirely appropriate that such payments (notwithstanding the source of funds) should be viewed as payments in reduction of amounts due from APSET, just as if the company had paid the employee's entitlements without calling on the trust fund. 63 Dr Koch's position on GEERS is that the trustee should, in making payments to employees of their entitlements, disregard the payments made by DEWR under the GEERS scheme. She asserts that the effect of the approach which the trustee wishes to take is one which will in effect see APPL benefit at the expense of the Federal Government because treating the payments made under GEERS as a reduction of the amount due to be paid by APSET will produce a surplus which will go back to APPL. 64 Initially I too had some concern about this aspect but it is answered by the following matters:

(1) DEWR, the administrator of GEERS, not only does not oppose the course proposed to be taken by the trustee but supports it.

(2) The administrator, in this case, received the GEERS payments and paid them to the employees. The administrator could not make the payments unless entitlements were due, and payment must reduce the liability of APPL to pay the employees by the amount so paid. The liability of APPL to repay monies so advanced under GEERS is not affected and as I have noted DEWR reserves its position and may well claim to recover any net surplus proceeds returned to APPL by APSET. It appears that DEWR would stand in the shoes of the employees (see the definition of Subrogating Employee Creditor, p 18 Exhibit "LTH-2", part of DOCA), and hence be a creditor with a high level of priority (see s 556(1)(e)-(h)), but whether this is so or not, DEWR seems to regard itself as having a better claim on APPL to recover monies (or a portion of them) paid to APPL than to recover from the employees to whom the payments were made by the administrator: see T13.56-T14.4. 65 The consequence of permitting the GEERS payment to be taken into account is that the trust fund is more than adequate to meet all outstanding claims, even Dr Koch's rejected claim. 66 I have accepted Dr Koch's submission in paragraph 12. I agree too with the approach she advocates in paragraphs 13, 14, 15 and 16 but the sufficiency of funds means that there is no need for prioritising. The fact that a surplus will exist on this approach means that the trustee need not be concerned as to whether A Entitlements should be paid before B Entitlements, thus removing the need for any concern by the trustee: see 18 above. It follows that in my view, the trustee is justified in paying all of the determined entitlements at the same time.

Remuneration 67 The Trust Deed by clause 6.2 provides for a specific level of remuneration: see p 5. The remuneration sought, as updated by the Further Supplementary Statement of Facts, is $5995 to 5 June 2007 and $75 per hour thereafter. The amount sought exceeds the amount permitted under the Trust Deed by almost $1100, not allowing for some further costs associated with distribution of funds: see p 21. 68 Mr Oakes in his post-hearing submissions drew my attention to cases dealing with the Court's inherent power to authorise remuneration for past and future work, including Re Duke of Norfolk's Settlement Trusts [1982] Ch 61 and Re Application of Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798 in which Campbell J (as he then was) spoke of the width of the power. My attention was drawn also to H A J Ford and W A Lee, Principles of the Law of Trusts, Thomson, looseleaf, [13170] et seq, and to a decision in Application of Trust Company of Australia re Barclays Commercial Property Trust (unreported, 19 March 1993, SC(NSW), BC9301985) per Waddell CJ (Eq). In the last mentioned case his Honour summarised the cases on the point and held that the Court has jurisdiction to permit remuneration beyond that provided for in the trust deed when the trustee is called on to perform work and carry out duties significantly beyond those ordinarily involved. 69 I accept that the Court has power to increase the amount of remuneration of the trustee where appropriate. I regard the present situation where the trustee has had to become involved in attempting to obtain agreement of the beneficiaries and having to make an application for judicial advice as one in which the relatively small amount of additional remuneration ought be permitted. Section 81 70 Orders were originally sought under s 81 of the Act (see 18, (e) and (h) above), but it became clear that these orders were sought only if the Court were of the view that the trustee was not empowered to act as he proposed and the application for relief under s 81 was not pressed. Costs 71 The trustee seeks an order that his costs of the summons be paid out of the trust estate on an indemnity basis. Clause 6.2(b) permits him to pay out all costs, charges and expenses out of the trust and an order of that kind is usual: see [2136] of J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, LexisNexis. Conclusion 72 For the reasons given above I make the following orders:

The Plaintiff is justified in proceeding on a construction of the "Australian Photonics Staff Entitlements Trust" ("Trust") which was created by deed of settlement dated 12 October 2004 ("Trust Deed") between Australian Photonics Pty Ltd ACN 067 263 861 ("Settlor"), as settlor, and the Plaintiff, as trustee, that the Eligible Employees (as that term is defined in the Trust Deed) have not been removed as beneficiaries by reason of an Employment Termination Event (as that term is defined in the Trust Deed) having occurred in relation to each of them. 2. The Plaintiff is justified in paying all entitlements of the Eligible Employees (as that term is defined in the Trust Deed) at the same time. 3. The Plaintiff is justified in treating Dr Angelika Koch's Entitlements A (as that term is defined in the Trust Deed) as having a quantum of $35,773.01 and her Entitlements B (as that term is defined in the Trust Deed) as having a quantum of $15,692.65 (before any deduction in respect of any payment received by Dr Koch under the General Employee Entitlements Redundancy Scheme ("GEERS")). 4. The Plaintiff is justified in taking into account any payment received by each Eligible Employee under GEERS in assessing each Eligible Employee's entitlement to the Trust Fund. 5. The Plaintiff is justified in treating the entitlements of each Eligible Employee under the Trust after deducting payments received under GEERS as follows:

Name Entitlements A Entitlements B Total Sanjeev Kumar $630.00 $6.50 $636.50 Angelika Koch $17,242.86 $7,316.90 $24,559.76 Sylvia Kim $309.38 $309.38 Peter Lightbody $2,219.39 $2,489.48 $4,708.87 John Scott $30,369.69 $30,369.69 Maree Koler $427.50 $427.50 Joseph Ungaro $422.61 $239.50 $662.11 Pamela Thompson $221.56 $221.56 Andrew Stevenson $2,397.00 $11.29 $2,408.29 TOTAL $54,239.99 $10,063.67 $64,303.66

The Plaintiff is justified in paying each Eligible Employee without having to reimburse the Commonwealth of Australia for any GEERS payments. 7. The Plaintiff's remuneration for the period 6 December 2004 to 5 June 2007 be approved in the sum of $5,955.00 and paid from assets and/or income of the Trust. 8. The Plaintiff be paid for his services in administering the Trust on and from 6 June 2007 from the assets and/or income of the Trust on a time basis calculated at a rate of $75.00 per hour. 9. The costs of these proceedings be paid out of the funds of the Trust on an indemnity basis. **********

25/06/2007 - Note: Amendments to the orders (order 5 amended and a new order 7 added to take into account developments in relation to the GEERS payments) were made on 22/06/07 subsequent to the reasons for judgment being handed down and are not incorporated in the text of the reasons for judgment above. - Paragraph(s) 72

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