Application by Eastwood Retirement Pty Ltd [2022] VSC 568 (26 September 2022)

2 Until very recently, Eastwood has chosen not to seek judicial advice. However, events that occurred in April and May 2022 have resulted in it bringing this application.

3 For the reasons that follow, the advice is that Eastwood is justified in defending the claims made against it in the Main Proceeding, and that it is appropriate to pay, and Eastwood would be justified in paying, in the first instance, its costs of defending the Main Proceeding out of the assets of the Eastwood Retirement Unit Trust.

4 It is unnecessary to go into extensive detail about the claims made in the Main Proceeding. In very broad terms, Joseph claims that it was and remains entitled to exercise an option to purchase real property held by Eastwood, together with a retirement village business owned and managed by Eastwood ("the Retirement Village") at a price which is substantially less than the current value of the Retirement Village.[1] Thus, if Eastwood accedes to the claims or is ordered to do so, the unitholders of the Eastwood Retirement Unit Trust ("the Eastwood Unitholders") would receive an amount which would be significantly less than the present value of the units (which is, in turn, based in large part on the current value of the Retirement Village).[2] In these circumstances, there could be no issue that it is in the interests of the majority of the Eastwood Unitholders for Eastwood to defend the claims made against it in the Main Proceeding if Eastwood has a substantive defence.[3]

5 As to the more recent events giving rise to this application, in April 2022 Joseph's director sent a letter to the Eastwood Unitholders by which it was suggested that Eastwood did not have a good defence to the claims made in the Main Proceeding. The letter stated that where there was uncertainty as to how a trustee should act, it was typical for it to get directions from the unitholders or the court. It was noted that this had not been done by Eastwood despite its ability to do so.

6 In seeking to establish why it was not in the interests of the Eastwood Unitholders for Eastwood to continue to defend the case against it, various matters were raised. These included reference to without prejudice settlement negotiations had at a mediation. Further, the letter from Joseph's director contained 2 offers, which Joseph suggested the Eastwood Unitholders should consider at an extraordinary general meeting which Joseph invited the requisite number of Eastwood Unitholders to convene.[4]

7 The letter referred to Eastwood's obligations as a trustee, including the obligation to act in the best interests of the Eastwood Unitholders. In essence, it was claimed that by defending the Main Proceeding, Eastwood was acting in a manner inconsistent with its obligations to the Eastwood Unitholders. Further, the letter stated that it was Joseph's intention that, if Eastwood ultimately failed in its defence, then Joseph would take legal action against Eastwood and each of its directors in order to seek to recover the difference between the value of the units and the value they would have had if the Main Proceeding had not been defended (and thus Joseph had been able to successfully exercise its option to purchase the Retirement Village at the designated price under the option deed).

8 In a later letter, the position of Joseph as stated above was affirmed.

9 In May 2022, a written joint advice was provided to Eastwood by senior and junior counsel dealing with the merits of the claims made against Eastwood in the Main Proceeding. Counsel concluded, based on the pleadings as they then stood and the documents they had reviewed, that, although there could be no assurance that Eastwood would succeed, Eastwood has reasonable prospects of successfully defending the claims made against it. Counsel concluded that on balance, in their opinion, Eastwood would succeed in defending the Main Proceeding.[5]

10 The court has the power to provide judicial advice in respect of a trust. Rule 54.02(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ("the Rules") relevantly provides:

(2) Without limiting paragraph (1), a proceeding may be brought for -

(a) the determination of any question which could be determined in an administration proceeding,[6] including any question -

(ii) directing any act to be done in the ... execution of a trust ... which the Court could order to be done if the ... trust were being ... executed under the direction of the Court.

11 Eastwood may seek judicial advice without the Eastwood Unitholders or Joseph being a party to this proceeding.[7] No other party has been joined to this proceeding. During the course of submissions, Eastwood's counsel agreed that it would be appropriate for all of the Eastwood Unitholders to be informed of any orders made by the court as a result of this application.

12 In circumstances where, as a result of a trustee being sued in its capacity as trustee, there is a real issue as to how a trustee should act with respect to trust property, it is appropriate that the trustee seek the advice of the court. As was explained in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand,[8] by seeking the court's advice the doubt that exists about whether it would be proper for a trustee to incur the costs and expenses in defending a proceeding may be resolved. This includes for the purpose of a trustee's entitlement to an indemnity from the trust property. Not only does seeking advice protect the position of the trustee (and avoid the risk of its personal liability affecting its decision-making as a trustee), but such a step protects the interests of the trust.

13 As to the approach to be taken in these circumstances, the principles applicable were recently repeated in Application by GAV (Vic) Pty Ltd:[9]

... In general terms, in an application for judicial advice where a party seeks such declarations or orders, the Court's task is to determine whether, on the material presently available, it would be proper for an applicant to defend the relevant proceeding.

In determining this issue the Court is not bound to investigate the evidence in order to make a finding as to whether the related proceeding would be successful or not or to determine the issues in the relevant proceeding. The Court's role is to determine whether the defence of the proceeding is justifiable. This means the Court should satisfy itself that the defence of the relevant proceeding will not be fruitless. The Court is entitled to make a determination based on legal advice obtained by the applicant that canvasses the prospects of success in the relevant proceeding, as well as whether the likely costs are proportionate to the issues and the significance of the case.

Generally, the issue is whether the applicant seeking the advice of the Court has a legitimate interest in defending the relevant proceeding. Whether there is a legitimate interest in defending the proceeding depends on the nature of that proceeding and the circumstances of the particular case. The focus is on the impact of the relevant proceeding as a whole.

14 Eastwood submits that it has little choice but to defend the Main Proceeding. It submits that even though there have been allegations of breach of trust in the correspondence referred to above, in essence the trust is being sued by a third party and Eastwood has a duty to protect the trust and represent it in the dispute.[10] It relies on the fact that the letters sent to the Eastwood Unitholders have not resulted in an extraordinary general meeting being convened, thereby indicating a lack of appetite of the Eastwood Unitholders for the more recent offers made by Joseph and a desire for Eastwood to continue with its defence. Although there have been settlement discussions and offers made, the evidence discloses that Eastwood's directors believe that the 2 offers that possibly remain available for acceptance are not commercially acceptable to the Eastwood Unitholders.[11]

15 In short, I accept Eastwood's submissions. In circumstances where the financial consequences of not defending the Main Proceeding are so significantly adverse and Eastwood has obtained the advice it has from experienced counsel, there can be no real issue that Eastwood is justified in continuing to actively defend the claims made against it.

16 Evidence has been provided as to the costs incurred to date, together with the likely costs of continuing to defend the Main Proceeding until the trial is completed. Without going into the specifics, I am satisfied that the costs are proportionate to the amounts in dispute. Thus, given the defence is justifiable, that it will directly benefit the Eastwood Unitholders if successful, and the fact that there could be no suggestion of any disproportionate incurring of costs, it is appropriate that in the first instance Eastwood have its costs of and incidental to the Main Proceeding paid out of the assets of the Eastwood Retirement Unit Trust.[12]

17 Accordingly, orders will be made substantially in the following form:

(1) The plaintiff is directed that it would be appropriate for the plaintiff to defend, and the plaintiff would be justified in defending, the claims made against it by Joseph Finance and Investment Pty Ltd (ACN 153 729 125) (as trustee for the Lifestyle Investment Unit Trust) in Supreme Court of Victoria proceeding number S ECI 2021 02186 ("the Proceeding").

(2) The plaintiff is directed that it would be appropriate for the plaintiff to pay, and the plaintiff would be justified in paying, in the first instance, its costs of defending the Proceeding out of the assets of the Eastwood Retirement Unit Trust.

(3) The documents comprising exhibit DS-2 to the affidavit of Daniele Solomon affirmed 28 July 2022 (which, for the avoidance of doubt, includes the chronology emailed to the court at 10.18am today), together with the further affidavit of Daniele Solomon affirmed 26 September 2022, shall be sealed and marked as confidential and remain confidential to the plaintiff and its legal representatives and no other person may inspect or obtain a copy of the documents except by order of this court.

(4) The plaintiff's costs of this application are to be paid out of the assets of the Eastwood Retirement Unit Trust.

(5) As soon as reasonably practicable, but in any event by no later than 4.00pm on 30 September 2022, the plaintiff must send (by email and ordinary post to the last known addresses respectively of each unitholder) a sealed copy of these orders to each unitholder of the Eastwood Retirement Unit Trust.

[1] Although the parties may differ on the exact amount, it is common ground between Eastwood and Joseph in the Main Proceeding that the value of the Retirement Village far exceeds the purchase price payable if the option were able to be exercised.

[2] The evidence put forward on this application suggests that distributions are also being made in relation to the Retirement Village such that the Eastwood Unitholders are receiving dividends from time to time.

[3] The reason for the qualification "the majority" is that companies related to Joseph are Eastwood Unitholders, holding 24.35 percent of the issued units.

[4] Pursuant to the Eastwood Retirement Unit Trust deed, a certain number of Eastwood Unitholders are required to request an extraordinary general meeting before there is any obligation for such a meeting to be convened. No extraordinary general meeting was held a result of Joseph's invitation.

[5] It was recommended that if an offer containing realistic commercial terms were received prior to trial then the opportunity to settle the Main Proceeding should be fully explored.

[6] "Administration proceeding" is defined to mean "a proceeding for the administration of ... the execution of a trust under the direction of the Court": r 54.01.

[7] Rule 54.03(c).

[8] [2008] HCA 42; (2008) 237 CLR 66, 93-94 [71]-[72] (Gummow ACJ, Kirby, Hayne and Heydon JJ).

[9] [2022] VSC 516, [12]-[14] (McMillan J), citing with approval Charlesworth Nominees Pty Ltd v Charlesworth [2017] VSC 445; (2017) 54 VR 155, 159 [12]-[13] (Croft J).

[10] See Application by GAV (Vic) Pty Ltd [2022] VSC 516, [15]-[16] (McMillan J).

[11] There were also settlement negotiations had at mediation. The evidence did not disclose the details of these negotiations or the subsequent offers of settlement. Eastwood adopted this approach on the basis that any offers at mediation were no longer on foot and the Eastwood Unitholders had chosen not to convene a meeting in relation to the subsequent offers; and therefore any evidence of offers were of peripheral relevance. In any event, it was contended that it was not clear if any of the exceptions to s 131(2) of the Evidence Act 2008 (Vic) applied and thus, in an ex parte application, it was not appropriate to be making disclosure of without prejudice communications without any affected persons in the Main Proceeding having notice of any possible disclosure. It was submitted the mere fact that the details of the offers had been disclosed to the Eastwood Unitholders did not interfere with the legitimate expectation that the communications would be excluded in any subsequent proceedings: see Karri Country Produce Pty Ltd (as trustee for the Franceschi Trust) v Advance Packing & Marketing Services Pty Ltd (as trustee for the APMS Unit Trust) [2022] WASC 37, [149] (McDonald JR). In my view, this was the correct approach.

[12] See, for example, Hopkins v Edwards [2020] VSC 456, [191]-[200], [217]-[244] (Lyons J).