Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

6022/03 - APPLICATION OF PERPETUAL TRUSTEE COMPANY LTD JUDGMENT

1 HIS HONOUR: On 28 November 2003 the plaintiff filed the present summons seeking the opinion, advice or direction of the court respecting a question set out in a Statement of Facts which was filed on the same day. That question was whether the plaintiff, as Trustee for the unit holders of the AMP Income Security Trust Deed, is justified in acting on the basis that the implementation of the demerger will not constitute an event of default within the meaning of cl 6.1 of schedule 2 of the relevant trust deed. 2 The word "demerger" needs fleshing out. The plaintiff is the trustee of a deed which involves the issue of securities by AMP Group Finance Services Limited and a guarantee by AMP Group Holdings Limited. Both these companies are members of the AMP group of companies. The AMP group of companies have decided to restructure in such a way as to sever the Australian and English operations, if I can put it simply and that is what is meant by "demerger". The securities were issued at $100 each. However, it seems common ground before me that their market price on the various exchanges is very much less than that, the price being somewhere between $66 and $93, on one piece of evidence that I have seen. 3 The Trust Deed provides that if what it describes as "an Event of Default" occurs then under condition 6.2(c): "The Trustee or, if the Trustee takes no action, each Holder may (subject to clause 8 of the Income Security Trust Deed dealing with enforcement action), in relation to their AMP Income Securities declare such AMP Income Securities to be due and payable and subject to Condition 2.3 seek to recover such amounts." 4 An event of default occurs in certain situations one of which is if the issuer or guarantor "ceased or threatened to cease to carry on all or a substantial part of its business or operations". 5 The Trustee has examined what it considers to be the facts pertaining to the demerger. It has taken legal advice from two members of the inner bar and it considers that even if the demerger becomes effective, (and this will involve a shareholders' meeting and the approval of a scheme of arrangement by the Federal Court) there will be no event of default. It is however being told by counsel, quite correctly, that it has no protection merely because it has received advice from counsel and for its protection it should seek an order under s 63 of the Trustee Act 1925 for judicial advice, hence this application. 6 Section 63(1) of the Trustee Act 1925 provides: "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 his duty as trustee in the subject matter of the application ... ." 7 Section 63 appears in the Trustee Acts of all the Australian states and territories save for Tasmania, but it is an Australian invention, there being no statutory equivalent in England, applications in England being made under the general law; see Re Beddoe [1893] 1 Ch 547. 8 The way the section is framed would suggest that the Trustee has a right to apply to the court and in Hohfeldian terms the court would have some sort of duty to give its opinion. However, the interpretation of the legislation over the last 75 years is that if the court considers that it is an inappropriate case to give advice, it is at liberty to give no advice and to dismiss the summons; see eg Harrison v Mills [1976] 1 NSWLR 42 and Auspac Corporate Managers Pty Limited v J Noble Pty Limited [2003] NSWSC 548 (Gzell J). 9 The section can be utilized in a large number of situations and the attitude of the court to the application will vary depending on the situation. Doubtless, as originally contemplated the court was basically concerned with an honorary private trustee who was in a difficult situation because of his or her duty to hold the scales equally between the beneficiaries or was in the situation where substantial moneys had to be paid out in settlement of litigation where there was no certainty as to the result of the litigation. The court took the view in such situations that if the Trustee had sought proper advice and if the Trustee had taken into account the relevant factors in making a decision, then it was appropriate for the court to protect the Trustee by giving the Trustee advice that he or she would be justified in acting in the way in which he or she had decided to do; see eg Re Mitchell (1913) 30 WN (NSW) 137. 10 There have been a number of decisions defining the extent over the years. Perhaps one of the most useful in modern times is the decision of Paterson J in Neagle v Rimmington [2002] 3 NZLR 826. 11 Accordingly, in the basic application under this section the court expected that if there was a question of law involved, the Trustee would take proper advice. The court expected that if there was some commercial decision to be made, the Trustee would take proper advice. Then the Trustee would consider matters of law, fact and expert opinion and reach a reasoned decision. The court would then give protection. It was usually not enough merely for the court to be told that the Trustee had determined, in the light of counsel's opinion and in the events which have happened, that its decision was X. 12 In the last 50 years the use of s 63 has expanded well beyond its primitive origins. Even as late as the 1950s it would be rare indeed that the court would assist any trustee company in a private trust because it took the view that the trustee company was not an honorary trustee as the typical trustee was in the 1950s, it was earning its commission and part of the reason for giving it commission was because it would take risks in decisions. That attitude has mellowed since the 1950s but the matter is still one which the court takes into consideration. 13 However, in the primitive takeover law that existed in this State in the early 1960s it was vital for people involved in takeovers to be assured that the course that they were taking was correct and this court permitted applications to be made in chambers in private to give judicial advice. Furthermore, under the equivalent provisions in the Corporations Act 2001 liquidators could approach the court for advice and the court made it clear that, even though they were professional people who were charging a fee and so were not honorary trustees, that so long as the liquidator had directed his mind to the commercial considerations and to the law, the court would give advice; see eg Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115. However, the court would not give its own advice as to what was commercially appropriate. The court would not answer a question as to the disputed construction of a document, nor would it give commercial advice which it was just quite unsuited to give. As time has gone on, the approach that has been appropriate to applications under the Corporations Act has been taken over to a great degree into s 63 applications made by responsible entities or trustees in corporations matters, an example of which is MTM Funds Management Ltd v Cavalane Holdings Pty Ltd (2000) 158 FLR 121; 35 ACSR 440. 14 The jurisdiction is very peculiar because the primitive sort of application under s 63 was made by the trustee to the court usually sitting in private chambers. The Judge received a statement of facts rather than affidavit evidence. The Judge usually read those papers in chambers because there would usually be a large amount of sensitive information in the statement of facts. For instance, when the court was considering whether the Trustee would be justified in settling litigation, the court would have to be informed of all the difficulties in the Trustee's case, as well as counsel's advice and a whole host of other matters which, if the court did not give the advice and it became known to the other party in the litigation, would affect it commercially. Likewise, the court in commercial matters involving takeovers or otherwise would be told information which was very commercially sensitive. Furthermore, the general rule was that a Judge who had given advice would not hear any contentious application which involved the matter, because he had been privy to information which may not be public. 15 Almost as a corollary of that, disputed questions of fact and construction were not suitable to be dealt with under s 63 because a Judge usually only heard one side. 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. 19 A person served under s 63 is not a party. That has the awkward consequence that no appearance is ever filed and the court never knows who is the solicitor for the party. It also seems to be the case that all persons properly joined should have their appropriate costs out of the fund: see Hughes v NM Superannuation Pty Limited (1993) 29 NSWLR 653, 671, which leads to the rather paradoxical situation that a Trustee seeking judicial advice might be attacked by other beneficiaries because it has served some beneficiaries or persons interested and accordingly, the trust fund has become liable to pay their costs. 20 Also there has been subsumed into s 63 proceedings a number of the matters which were relevant to a summons for declaration. The law as to declaratory actions is that the court will not make a declaration if there is no utility in doing so and that includes cases where the question is premature; see, for instance, Re George Sinnamon [1940] QWN 41. 21 I am sorry that that was a fairly long introduction to the case currently before me but in view of the exchange of views as to the effectiveness of the present summons, I thought it was necessary to say it. In the present case it appears to be common ground at the bar table that there has been no event of default that has yet occurred. I am not to be taken as either assenting to or dissenting from that view. As I have said, 6.1 uses the words "threatened to cease" as well as "cease". However, on that assumption there is no jeopardy to the Trustee at the moment. 22 If the demerger becomes effective, which I am told will happen, it is to happen no earlier than 15 December 2003, at that point in time the persons who argue that there has been an event of default can take action under 6.2 of the Trust Deed. 23 The persons served included a limited partnership which was represented before me by Mr Pembroke SC and Mr Fury and they presented to me a whole series of propositions which indicated that, in any event, their client would be litigating the question of event of default, whether the Trustee did so or not. They submitted that the present application was futile both for that reason and for the reason that the facts in the statement of facts were inadequate, that the legal advice given to the Trustee was patently inadequate in that it failed to cover a number of important aspects of the case and that the question at the moment was hypothetical. 24 So far as whether the facts as presented are adequate or not, the law quite plainly is that if the court gives judicial advice on the basis of facts which turn out to be erroneous, the Trustee has no protection, or at least as a general rule has no protection so that if the facts as presented in the statement of facts are false, then that consequence follows and the whole proceedings are a waste of time. However, the court does not determine on this sort of application whether the facts are true or false. The real significance of the points being made by Mr Pembroke and Mr Fury is that their arguments sound as if they have some substance in them and there is no evidence that they have been considered by the Trustee. That is not necessarily the Trustee's fault as before today I am not at all sure that they were clearly enunciated. 25 Likewise with the legal advice. The point made by Messrs Pembroke and Fury was that it is important, whenever one is construing a commercial contract, to construe it in its factual matrix. The factual matrix includes the prospectus that was issued at the same time as part of the same commercial deal as the trust deed and that, when one looks at the prospectus, particularly clauses 2.11, 3.2 and 4.2 and the way in which the terms "business", "operation" and the like are used, one may take a different view of those words in the Trust Deed than a view based on dictionary definitions. There is a reference to the prospectus in the legal advice that has been given by the Trust to the Trustee but again the matters raised by Mr Pembroke and Mr Fury do not seem to have been fully considered, perhaps because the points have never been made before today. 26 The Deed itself has a number of problems with construction. One of the problems is that it tends to suggest that if the Trustee does not take any action, the holder may take an action. The holder, however, was never a party to the Trust Deed and it is doubtful how far it can sue at law. There may well be some action in equity (see West Merchant Bank Ltd v Rural & Agricultural Management Ltd (1996) 20 ACSR 563) but a big problem about actions in equity is that usually all beneficiaries have to be joined, unless some representative order can be made and sometimes it is very difficult to make a representative order. Furthermore, there are provisions in the Trust Deed which make it clear that there is a general prohibition on actions by the holders against either the issuer or the guarantor, though cl 8 tries to get the best of both worlds. It talks, however, in terms of the Trustee failing to take action. "Fail" is a bit of a weasel word because it can mean that the Trustee does not take action in fact or it can mean that the Trustee, despite being able to do so, does not do so: see CBS Productions Pty Limited v O'Neill (1985) 1 NSWLR 601 at pp 616 and 619-620. 27 There is also a problem for the Trustee, which it may have faced, but there is no evidence that it has, that if there is a viable argument that there is preventative default and if that means that the holders are entitled to $100 instead of $66 for their units, whether the Trustee might, as a commercial matter, consider that it is appropriate that in view of the chances that the other argument is correct, it is still commercially wise to commence action on behalf of all the unit holders or whether it should notify the unit holders of the problem and get some views or what otherwise. There will also be a possible problem if the unit holders are not unanimous as to how it is to hold the scales equally between the beneficiaries. It may be that the most appropriate commercial course is merely to look to 6.2(c) of the Conditions and do nothing. The consequence of doing that will be that only the unit holders who have taken action will be able to recover their $100 and the Trustee may be at some risk in not giving proper advice to the others as to the possibility. As I say, although I hinted last Monday some of those matters should be looked to, there is no material yet before the court. 28 In my view as at present there is no good legal or commercial reason for the court to give any advice to the Trustee at all because there is, on common ground at the bar table, no event of default and there will be no commercial risk, at least until 15 December. However, having gone this far I am loath to merely dismiss the summons. It seems to me that it may well be that between now and the end of term the events at any shareholders' meeting and in the Federal Court, the result of further consideration of these reasons by the Trustee and its advisers, that the summons can be further amended or a more precise question to be stated upon which judicial advice could be given. 29 I should have mentioned that apart from a limited partnership I was also assisted by Mr Justin Gleeson SC and Mr McGrath who appeared for the issuer and the guarantor. They were helpful in their submissions, though generally supported the plaintiff. 30 Mr Griffiths, who appeared for the plaintiff, said that one of the matters his client was very concerned about was that this matter would come to a head during vacation. He would then face the problem of a busy vacation Judge who may not have the time to consider the matter in full depth. I think this is a valid concern. However, the way to meet that concern is, I believe, to stand this matter over before me on 18 December at 10.00 am. I would hope that this summons, or any amended version, can be finalized and I would think that, in view of the submissions I have heard today, that should not take more than an hour or so. 31 Mr Pembroke has indicated that his client intends to take action. It seems to me that I should give liberty to Mr Pembroke's client or indeed anyone else who wishes to do so, to file a summons returnable before me at 10.00 am on 18 December so that directions can be made as to the progress of the matter and during vacation the evidence can be collected and if it is appropriate, the matter can go into the expedition list early in the new year. 32 I will not make any formal order but if anybody is in that situation, they can apply to my Associate and I, in chambers, will give leave to issue a summons returnable at short notice before me on 18 December on the basis that the plaintiff has at least two days notice. I repeat, I will not be hearing the summons on that date, I will be merely making directions and of course there is no obligation for anyone to file any summons at all. Our facilities for receiving summonses by email are so limited that I will expect a hard copy I can initial and which can be filed and the filing fee paid. 33 So accordingly, all I will do is stand the matter over part heard before me on 18 December at 10.00 am.

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