Solicitors:
Davidson Legal, Consulting, Advisory - for the plaintiff
No defendant
File Number(s): 2017/360154
[2]
Judgment
This is an application by a trustee for judicial advice pursuant to s 63 of the Trustee Act. The High Court of Australia has comprehensively explained the basis of the jurisdiction to give such advice in Macedonian Church v Eminence Petar (2008) 237 CLR 66 at [54]-[76]. Among other things, 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. The effect of s 63(2) is to preclude any trustee who acts in accordance with the advice of the court from being held liable for breach of trust in the event of a later claim against it.
There are circumstances where it may not be appropriate to give advice to a trustee but the discretion is confined only by the subject matter, scope and purpose of the legislation and there are no implied limits that make some factors more significant or controlling than others: Macedonian Church at [59].
What is clear, however, is that the purpose of the jurisdiction is to provide protection to a trustee. The need for protection usually arises because there is a conflict between beneficiaries or because there is a suggestion, sometimes only faint, that there may be an alleged breach of trust if the trustee adopts a certain course of action. The conflict between beneficiaries or the possible breach of trust must arise out of some 'question' respecting the management or administration of the trust or in relation to the interpretation of the trust instrument. The advice which the court gives is 'private' because its function is to give protection to a trustee in those circumstances - in advance of, and having regard to the possibility of a claim against it for breach of duty.
It is normal to accompany the application for advice with an opinion by experienced counsel who practises in the jurisdiction. The opinion should set out the facts, explain the dilemma confronting the trustee and provide reasons why it is appropriate for the trustee to approach the court for advice in the circumstances.
In Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185 Young CJ in Eq stated at [9] that the jurisdiction is concerned with the trustee 'who is in a difficult situation because of his or her duties to hold the scales equally between the beneficiaries'. That, of course, is not the only case. His Honour added 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 advice that the trustee would be justified in acting in the way it proposes.
Section 63(4) provides that unless the court otherwise directs, it shall not be necessary to serve notice of the application on any person. However this may occur and has been done in this case. It sometimes results in the appearance in court of beneficiaries opposed to the course of action which the trustee is considering undertaking. See, for example, Application of Perpetual Trustee Company Ltd at [23]; Robert Peter Campbell as trustee for The Joan Macpherson Settlement Trust [2016] NSWSC 1927.
In this case, the application presents a number of difficulties. The summons itself does not identify the advice, direction or opinion of the court which is sought. The joint advice of counsel, which was tendered in support of the application, is not an advice that it would be appropriate for the trustee to approach the court for orders pursuant to s 63 because of a particular, crystallised conundrum which it faces. It seems to be an advice about the commercial choices which the trustee may adopt.
For example, the joint advice says that the trustee has certain powers and concludes that 'in selecting between these alternatives the trustee should take the course that it believes is in the best interests of the trust'. This is unremarkable but it does not assist me. The advice adds that 'if the trustee believes on reasonable grounds that it will not be in a position to exercise the call option because it does not believe it can raise the balance of the deposit then it must look to other alternatives'. This is obvious. It continues by saying that 'if the trustee considers that value can be extracted from the call option before its expiry, by selling the nomination rights, then the trustee should investigate the possibility and, if it forms the view that the sale of the nomination rights is feasible and willing purchasers of those rights exist, then the trustee should pursue that possibility'. It adds that 'any sale of nomination rights should be conducted through an open and arm's length sale process'. These are straightforward commercial considerations.
Finally, the advice concludes that 'if the trustee is unable to find a purchaser for the nomination rights and is unable to exercise the call option itself then, in our view, the trustee would be justified in allowing the call option to lapse because the trustee would then have exhausted all reasonable attempts to extract value from the call option'. But this has not happened yet. And it may not.
The real point of the judicial advice is set out in paragraph 30 of the statement of facts:
In the circumstances where the Trustee holds rights under the Option Deed which could, theoretically, be sold for value to a nominee prior to the expiry of the call option, the opinion, advice and direction of the Court is sought on the following questions:
(a) Is Camperdown Prime justified in allowing the call option to expire?
(b) Alternatively, should Camperdown Prime take steps to sell the option (and, if so, what steps should it take)?
(c) If the answer to each of questions (a) and (b) is 'No', what course of action does the Court advise in respect of the option?
The question as to whether the trustee should take steps to sell the option is a commercial matter upon which the trustee is in a far better position to decide than this court. That question depends upon the market for the sale of the option, the price that may be obtained and whether or not any such sale is a realistic possibility. The words in parentheses '(and if so what steps should it take)' make it as clear as can be, that the question depends upon commercial considerations rather than legal considerations.
The question as to whether the trustee is justified in allowing the call option to expire is largely a practical one. But the issue has not yet arisen. If the trustee decides to pursue the option of taking steps to sell the nomination rights pursuant to the put and call option deed and is unsuccessful in that endeavour then it will have no choice other than to allow the call option to expire.
The statement of facts and the evidence all make abundantly clear that the trustee is not in a position to pay the balance of the deposit in order to exercise the option. Nor has development consent been obtained. The trustee currently has only $26,677 in the Bank.
Judges of this court have said for many years that it is inappropriate to give commercial advice on applications such as these: Application of Perpetual Trustee Company Ltd at [13]; Application by Perpetual Trust Services Limited [2012] NSW SC 758 at [48]-[51]. That is part of the reason why I was at pains to identify during the submissions of counsel what was, if any, the protection for which the trustee required the court's assistance. The trustee is in a hopeless financial position and it is obvious that it cannot exercise the call option. Whether it can attract a buyer for the nomination rights is a matter entirely for it and completely outside the ability of this court to determine.
Furthermore, the evidence did not reveal any realistic possibility of a conflict or claim against the trustee. It is the trustee of a unit trust. There are four unit holders; each of the unit holders is a corporate entity. The directors of the trustee are Mr Milgrom and Mr Hausman. The evidence does not suggest that either of those individuals has a beneficial interest in the trust property, namely, the put and call option deed. Furthermore, the evidence does not suggest that any of the four unit holders has the slightest difficulty with the commercial alternatives put forward in the statement of facts and in the joint opinion of counsel. In other words, there is no sensible reason for alleging any wrongdoing by the trustee if it adopts the course which it appears that it has decided to take.
It is possible, I suppose, that if this were a different application and the trustee came to court with evidence that someone offered to buy the nomination rights under the put and call option deed for a specified price, the question might be whether the trustee was justified in selling the nomination rights for that price or whether it should ignore the offer and allow the option to lapse. That is the sort of situation that sometimes faces a trustee and for which it may sometimes need protection. But there is no conundrum at this stage. There are no facts that currently compel the trustee to make a choice, and for which it may need protection.
The application is premature and based upon a misconception of the court's jurisdiction to give advice in these circumstances: Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd [2003] NSWSC 54; Harrison v Mills [1976] 1 NSWLR 42. The solicitor for the trustee has served notices on each of the unit holders, none of whom has responded; none of whom has reflected any concern at what is being considered; and none of whom has appeared. It does not matter that one of the directors, Mr Hausman, is the subject of an order by Justice Fullerton that he not dispose of certain property. He does not have a beneficial interest in the trust property; he is merely a director of the trustee company.
Another order by Justice Fullerton relates to a person called Rostankovski. He owns 100 precent of the shares in a company call Luminous Investment Holdings Pty Ltd which in turn holds 50 percent of the shares in one of the unit holders. He has not expressed any concern about the proposed courses of action being considered by the trustee.
I propose to dismiss the summons. That does not however prevent the trustee making a further application for particular advice when and if a clear choice is before it, and the question is whether it is appropriate to provide the trustee with the protection that is sometimes needed if it is compelled to select one alternative or the other. In this case, the trustee has not yet decided what to do and there seems to be no real likelihood of a conflict or a claim arising, if at all, unless and until some different facts crystallise. It is not the function of this court to assist the trustee to make a commercial decision.
I therefore dismiss the summons. I make no order as to costs.
[3]
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Decision last updated: 14 February 2018