- Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd

Supreme Court of NSW|2024-07-31|Before: Black J

Solicitors: Henry William Lawyers (Plaintiffs) File Number(s): 2024/238463

Judgment

By Originating Process filed on 28 June 2024 the Plaintiffs, Absolute Vision Technologies Pty Ltd (admin apptd) ("AVT") and Mr Jeffrey Shute in his capacity as then voluntary administrator of AVT sought the Court's opinion, advice and direction under s 63 of the Trustee Act 1925 (NSW) ("Trustee Act") and s 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC") as to several matters. Since the proceedings were filed, AVT has entered into a deed of company arrangement ("DOCA") and Mr Shute is now the deed administrator. I will refer below to the several matters which are the subject of the application.

Affidavit evidence

The Plaintiffs read the affidavit dated 27 June 2024 of Mr Shute who refers to his appointment as voluntary administrator of AVT on 31 May 2024. Mr Shute refers to his review of AVT's books and records and to his access to documents provided by third parties and he notes that he continued to trade AVT's business during the voluntary administration, and that AVT is an independent software vendor that provides information technology services and develops Cloud based digital solutions for businesses using the Oracle NetSuite software and employs staff in Australia and also uses overseas contractors. Mr Shute's evidence is that AVT was also the trustee of a superannuation fund from about 2007 to 2017 and was the registered owner of four properties in New South Wales. It emerged, in the course of the voluntary administration that the fourth property ("Suite 901") appeared to be held on trust for the Absolute Vision Technology Pty Ltd Super Fund ("AVT Fund"), a self-managed superannuation for the benefit of Mr Srivastava, the director of AVT, and his former wife, Ms Kruppa-Srivastava.
Mr Shute refers to further information which he obtained in respect of the purchase of Suite 901, which included a contract for the sale and purchase of that property which recorded that it was purchased by AVT in its capacity as trustee for the AVT Fund. He also refers to his review of financial records which support the view that Suite 901 was purchased out of funds of the AVT Fund rather than out of AVT's assets. Mr Shute also refers to a purported lease of Suite 901 by the AVT Fund (which is, of course, not a legal entity) to AVT commencing 1 November 2014 and to his review of the Trust Deed ("Trust Deed") for the AVT Fund. Mr Shute also notes that, by a Change of Trustee Deed dated 30 March 2017, AVT retired as trustee of the AVT Fund and another entity, AVT ST Pty Ltd ("AVT ST") was appointed as trustee. Although the Change of Trustee Deed required AVT to take all steps necessary to transfer and give control of the AVT Fund assets to AVT ST, AVT did not then transfer Suite 901 to AVT ST as the new trustee of the AVT Fund. Mr Shute also addresses issues as to the financial records of the AVT Fund and the regulation of the AVT Fund as a self-managed superannuation fund.
Mr Shute's evidence is that, on or around 17 May 2024, prior to his appointment as voluntary administrator of AVT, AVT entered contracts for the sale of Suite 901 and the three other properties which it owned in its own right to a third party purchaser. One of the issues in the proceedings is whether AVT should now complete the contract relating to the sale of Suite 901. AVT ST, although not yet the registered owner of Suite 901, has also granted a lease over Suite 901 to an entity associated with the purchaser of Suite 901. Mr Shute also refers to his investigation of the circumstances surrounding the sale of that property and he notes that sale was undertaken by a real estate agent, together with the three other properties, on the open market. He notes that, if the sale of Suite 901 is completed, he will ensure that the proceeds of sale of that property are quarantined and kept separate from the proceeds of sale of the other properties, since it appears to him that Suite 901 is an asset of the AVT Fund. Mr Shute also referred to the notification of the proceedings to several interested persons, including the Australian Taxation Office ("ATO") and the Australian Prudential Regulation Authority ("APRA"), so far as they may regulate the AVT Fund as a self-managed superannuation fund, and the Australian Securities & Investment Commission ("ASIC").
By a second affidavit dated 25 July 2024, Mr Shute refers to AVT's entry into the DOCA with the approval of its creditors at the second meeting of creditors, and he notes that the control and management of AVT has reverted to Mr Srivastava under the terms of the DOCA. Mr Shute also refers to a conversation with a conveyancer acting for the purchaser of properties and addresses the proposed settlement of the sale of the properties in mid-August 2024. AVT also reads affidavits of service dated 5 July 2024 of Mr Power; 22 July 2024 of Mr Sheehan; 25 July 2024 of Ms Adams and 29 July 2024 of Mr Yalda.
None of APRA, the ATO or ASIC have appeared to contest the relief sought. By email dated 2 July 2024, ASIC confirmed receipt of the documents served upon it but did not indicate any position in respect of the application. By letter dated 5 July 2024, APRA advised that the AVT Fund was not a registrable superannuation entity regulated by APRA under the Superannuation Industry (Supervision) Act 1993 (Cth) ("SIS Act") and that it did not take any position in relation to the application. By email dated 19 July 2024, the ATO advised that, although it had been served with the documents, it was not party to the proceedings and did not intend to participate in the proceedings. It has nonetheless been given notice of the relief sought by the Plaintiffs and the opportunity to contest that relief, if it wished to do so. By email dated 19 July 2024, Ms Kruppa-Srivastava also confirmed her support for the relief sought in the application, other than as to the question of costs which Mr Srivastava and Ms Kruppa-Srivastava advanced no view.

Applicable principles

Mr Gandar addresses the nature of the Court's jurisdiction and the applicable principles in his Memorandum of Opinion. Section 63(1) of the Trustee Act relevantly provides that: "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."
As I noted in Re Montpac Pty Ltd (in liq) and Global Network Link Pty Ltd (in liq) (2020) 149 ACSR 138; [2020] NSWSC 1237 ("Montpac") at [9], to which Mr Gandar refers, that section authorises the Court to give advice or a direction to resolve legitimate doubts held by a trustee as to the proper course of action. Mr Gandar also refers to Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316 at [17], where Barrett J noted the role of such advice in providing guidance for the future. In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42, to which Mr Gandar also refers, the plurality of the High Court observed (at [56]-[59]) that there are no express words and no implications from the express words of s 63 of the Trustee Act limiting the power to give advice or on the discretionary factors relevant to the giving of advice, but that the discretion is confined only by the subject matter, scope and purpose of the Trustee Act. The plurality also noted (at [64]) that the procedure operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants" and affords a facility for providing "private advice" to trustees although the Court is not bound to give such advice. Kiefel J (as the former Chief Justice then was) also observed (at [196]) that: "The principal purpose of the section, and the opinion, advice or direction given under it, is the protection of the interests of the trust. Another purpose is the protection of a trustee who is acting in that regard and upon advice. Securing the latter purpose may ensure the attainment of the principal purpose, by removing the concern of a trustee about exposure beyond their usual indemnity."
In Re Estate Late Chow Cho-Poon; Application for Judicial Advice [2013] NSWSC 844 at [23], Lindsay J similarly observed that: "Section 63 provides a flexible means (and not the only means) by which the Court's jurisdiction relating to trusts can be enlivened. That jurisdiction includes as one of its purposes the due administration of trusts, including the protection of trust property and, incidentally, protection of trustees who, on the other side of the ledger, are subject to obligations enforceable by the Court."
In Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) v Equititrust Ltd (in liq) (rec apptd) (recs and mgrs apptd) (No 4) [2017] FCA 1133 at [7], Jagot J summarised the applicable principles as including, inter alia, that (1) the jurisdiction or power to give judicial advice is not constrained by any implications or limitations not found in the express words of the section; (2) the Court's discretion is confined only by the subject matter, scope and purpose of the legislation, and there are no implied limitations on the discretionary factors that may arise or rules governing the relative importance of such factors; (3) the judicial advice procedure is intended to be summary in character; (4) a judicial advice application is in the nature of "private advice" and a departure from usual Court proceedings in which there are multiple, adversarial parties and a person served with documents in respect of a judicial advice application is not thereby a "party" to the application; (5) the right to obtain judicial advice protects the trustee, but it thereby also protects the interests of the trust, by enabling the trustee to act in the interests of the trust without fear of being personally liable for costs; (6) the function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust; and (7) the usual form of order is that the trustee "would be justified" in taking the relevant course of action. I have summarised the applicable principles in Re Go Energy Group Ltd [2019] NSWSC 558 at [18]ff and Re The Project Volar Creditors' Trust established in the administration of Virgin Australia Holdings Ltd & Ors [2021] NSWSC 425 at [2]ff on which I have drawn for this summary.
Mr Gandar also rightly points out that, under s 90-15(1) of the IPSC, the Court may make such orders as it thinks fit in relation to the external administration of a company, including determining a question in connection with the performance or exercise of an external administrator's functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26]-[27]. He also rightly recognises that Court's powers under IPSC s 90-15 are broader than the powers formerly given under predecessor sections and, consistent with the approach taken in Montpac, are sufficiently wide to permit an external administrator to obtain a direction as to whether it would be justified in recognising the existence of an express trust and whether it would be within its powers to sell trust property..
Mr Gandar submits, and I accept, that these provisions are sufficiently wide to authorise the Court to give the judicial advice sought in this application, and that Mr Shute, as deed administrator of AVT, has standing under s 90-20(1)(d) to apply for directions or orders under s 90-15 to the same substantive effect as the questions for judicial advice. I am satisfied that the Court has jurisdiction to determine the questions raised in this application and that the Plaintiffs, or at least Mr Shute, has standing to seek the relief sought.

Whether AVT holds Suite 901 for the AVT Fund

The first question as to which the Plaintiffs seek judicial advice is whether, broadly, AVT holds Suite 901 in trust for beneficiaries of the AVT Fund. I treat that question as raising the issue whether AVT holds Suite 901 as trustee for the AVT Fund; it is not necessary to address the question of beneficiaries' rights under the AVT Fund in order to determine this application.
The Plaintiffs tender (Ex P1, CB 64) a title search of Suite 901, which records AVT as the registered owner of the property. That title search does not displace the possibility that AVT holds the property in trust for the AVT Fund since it would not be expected to record a trust interest in the property. A transfer dated 23 June 2024 in turn identifies the transferee of Suite 901 as AVT (Ex P1, CB 66). However, the contract for the sale and purchase of Suite 901 (Ex P1, CB 77) recorded the purchaser as AVT as trustee for the AVT Fund and was executed by Mr Srivastava and Ms Kruppa-Srivastava as the directors of AVT as trustee for the AVT Fund. Mr Gandar refers to the terms of that contract and contrasts that contract with the contract for purchases of the three other properties by AVT which identified AVT as the purchaser in its own right (Shute [24(d)]; Ex P1, CB 73-76). He also points to Mr Shute's evidence (Shute 27.6.24 [30]-[31]) that AVT's books and records do not indicate that AVT, as distinct from the AVT Fund, paid for the purchase of Suite 901. For completeness, Mr Shute Mr Srivastava (who is, as I noted above, the director of AVT and also a director of AVT ST) and Mr Long (the Chief Operating Officer of the business run by AVT) confirmed that position to Mr Shute, and I give greater weight to that confirmation where it is and consistent with the documentation. No subsequent dealing is recorded on the Torrens Title Register in relation to Suite 901 and there is nothing in evidence to suggest that there has been any subsequent encumbrance or dealing with any interest in Suite 901 by AVT in its capacity as trustee of the AVT Fund or otherwise and Mr Shute's evidence (Shute 27.6.24 [32]) is that his review of the books and records of AVT did not identify anything to indicate that AVT has alienated or encumbered its interest as the owner of Suite 901.
Mr Gandar submits and I accept that, on this basis, the Court should direct that Mr Shute would be justified in treating title in Suite 901 as held by AVT on trust for the AVT Fund. I am satisfied that the balance of the evidence establishes that Suite 901 was held by AVT as trustee of the AVT Fund, at least until it retired as trustee of the AVT Fund, and is now held as bare trustee, pending the transfer of Suite 901 to AVT ST as trustee of the AVT Fund or its sale as noted below. I gave consideration as to whether there is sufficient doubt as to this matter to warrant the giving of judicial advice, where the available evidence does not raise any real doubt as to the correctness of that conclusion. I have, with some hesitation, concluded that this is an appropriate matter for advice, because the Plaintiffs are at least exposed to the risk that the evidence available to them is incomplete.

Whether AVT is bound to transfer Suite 901 to AVT ST as trustee for the AVT Fund

The second question as to which Mr Shute seeks a direction whether AVT is bound to transfer Suite 901 to AVT ST as trustee for the AVT Fund, although this direction is to some extent displaced by the third direction he seeks below. Mr Gandar submits and I accept that this is an appropriate question for judicial advice within s 63 of the Trustee Act because it concerns both the management and administration of trust property and the interpretation of the Trust Deed and Change of Trustee Deed and is also the appropriate subject of a direction under s 90-15 of the IPSC as it is a question arising in the external administration of AVT.
I have referred above to the Trust Deed for the AVT Fund (Ex P1, CB 112), which relevantly provided The Trust Deed also provided for resignation of the trustee on the appointment of another trustee (cl 12.6); for the application of the provisions in the Trustee Act with regard to the removal of trustees and the appointment of new or additional trustees (cl 12.9); and, as Mr Shute noted in his affidavit, for the execution of all transfers or other documents necessary to transfer investments into the name of the new trustee prior to a change of trustees (cl 12.10). As Mr Shute also noted in his affidavit, and cl 2(c) of a Change of Trustee Deed dated 30 March 2017 (Ex P1, CB 159) required AVT to take all steps necessary to transfer and give control of the "SMF assets" (as defined) to AVT ST on the change of trustee of the fund from AVT to AVT ST; those assets were defined as any assets of the SMSF as defined in the SMSF Deed, and I infer that they included Suite 901.
Mr Gandar refers to AVT's obligation to transfer the trust property to the new trustee, on its retirement, under cll 12.6-12.10 of the Trust Deed and cl 2(c) of the Change of Trustee Deed and also refers to ss 8-9 and 71 and 78 of the Trustee Act in that respect. He points out that ss 8(1) and (2) of the Trustee Act relevantly provide that a trustee may by registered deed retire from the trust, with the consent of co-trustees or such other person as is empowered to appoint trustees, and provided there will be left after the retirement at least two continuing trustees, or the NSW Trustee, or a trustee company, to perform the trust. Subsections 8(4) and 8(6) of the Trustee Act requires retiring trustees to execute or do any conveyance or thing required for vesting the trust property in the continuing trustee(s) and provide that, if that obligation is not fulfilled in respect of any part of the trust property, the retiring trustee is not discharged in respect of that part of the trust property. Subsection 8(8) of the Trustee Act provides that this section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument and to the provisions contained in it. I have referred to the Trust Deed above, and it does not appear to be inconsistent with these provisions.
Mr Gandar also points to ss 9(1) and 9(2) of the Trustee Act, by which trust property automatically vests in a new trustee or, in the circumstances where a trustee retires, it automatically vests in the continuing trustees. However, s 9(3) of the Trustee Act provides that land required to be registered in the Torrens Register under the Real Property Act 1900 (NSW) does not automatically vest in the new or continuing trustee(s) and only vests when the appropriate transfer is executed and registered, so that the property is duly transferred, or an entry of the vesting is made by the Registrar-General. Under s 9(7) of the Trustee Act, the right to call for the transfer of the property and to sue for and recover the property is vested in the continuing trustees. The Court may also make a vesting order where a trustee has retired, and that order will have the same effect as if the persons who before the retirement were the trustees had duly executed all proper conveyances of the property, except that, in respect of land subject to the Real Property Act, the land again does not vest until the appropriate entries are made in accordance with the Trustee Act: ss 71(1)-(2) and 78(1)-(2) of the Trustee Act.
Since I am satisfied that AVT held Suite 901 as trustee for the AVT Fund, and since the Trust Deed and Change of Trustee Deed each, unsurprisingly, required the transfer of assets to the new trustee on AVT's retirement as trustee of the AVT Fund, I am satisfied that AVT was bound to transfer Suite 901 to AVT ST in its capacity as the new trustee of the AVT Fund, subject to the third direction sought by the Plaintiffs which I address below. I will give the direction which the Plaintiffs seek in this respect.

Whether AVT is justified in completing the contract for sale of Suite 901

The third question as to which the Plaintiffs seek a direction is somewhat more controversial. This question rightly proceeds on the basis that the sale of Suite 901 by AVT would constitute a breach of trust, where AVT is bound to transfer Suite 901 to AVT ST as trustee for the AVT Fund, rather than to sell it to a third party. Mr Gandar submits and I accept that this is properly a question for judicial advice because it concerns the management and administration of trust property and is also within the scope of IPSC s 90-15 as a question arising in the external administration of AVT.
Mr Gandar also submits, rightly, that AVT has acted in breach of trust in failing to transfer Suite 901 to AVT ST where, as I have found above, AVT was required to convey Suite 901 to AVT ST as the new trustee and, until it did so, it had not been discharged of its obligations as trustee in respect of the property. Mr Gandar also refers to Mr Shute's evidence indicating the possibility of other breaches of trust by AVT, including that AVT has used Suite 901 for its own benefit by entering into an unregistered lease over the property, effectively with itself, between 1 November 2014 and 31 October 2019 (Shute 27.6.24 [33]; Ex P1, CB80-103). Mr Gandar recognises that the completion of the sale of Suite 901 would constitute a further breach of trust because AVT is not authorised by the trust instrument to sell Suite 901 and to do so would be in further default of its obligation to transfer the property to AVT as the new trustee under the Trustee Act, Trust Deed and Change of Trustee Deed. Mr Gandar also notes that AVT became a disqualified person under the s 120(2)(c) of the SIS Act (if it had not previously been disqualified as a result of breach of its obligations as trustee) when it entered external administration and is prohibited from acting as a trustee of a superannuation entity.
However, Mr Gandar also points to Ms Shute's conclusion, which I noted above, that the sale of Suite 901 was an arm's length transaction, entered into after public advertisement on the open market, in a sale process where AVT was represented by an experienced commercial real estate agent (Shute 27.6.24 [64]-[65]; Ex P1, CB 327-364). The contract for sale dated 17 May 2024 of Suite 901 to the third party purchaser is in evidence (Ex P1, CB 213) and the estate agent who was engaged in respect of the sale has advised that the four properties were marketed for sale at the same time, with only one advertisement for sale or lease, on the basis that all of the properties would be sold at once, either to one purchaser or multiple purchasers (Ex P1, 328).
Mr Gandar submits and I accept that there is no suggestion that the price achieved under the contract for sale of Suite 901 was less than market value. He points out that the beneficiaries of the AVT Fund have been notified of the proceedings (Adams 5 July 2024 [3]-[11], Annexures A-E; Adams 25 July 2024 [2]-[4], Annexures A-C) and that they have indicated, through a solicitor acting for Mr Srivastava, that they consent to the sale completing and the net proceeds of sale being transferred to AVT ST (Adams 25 July 2024 [9]-[11], Annexures H-J). He also points out that AVT ST has also been notified of the proceedings and has not indicated any opposition to the sale nor taken any steps to call in Suite 901 and take it out of the hands of AVT.
Mr Gandar also recognises that, where AVT was acting as bare trustee at the time the sale contract was entered into and would be acting as bare trustee at the time the sale is due to complete, it is not empowered to sell the trust assets and must instead protect the trust assets; although he also points out that AVT is not a bare trustee in the same sense as the companies in liquidation in many of the cases because a new trustee, AVT, has here been appointed: Pleash and others as joint and several liquidators of Suncoast Restoration Pty Ltd (ACN 140 886 540 (in liq)) (2013) 93 ACSR 606; [2013] FCA 355 ("Pleash") at [14]; Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 ("Caterpillar") at [26] and [28]. In Montpac at [28], I observed that: "As [Counsel] points out, where a corporate trustee has been disqualified and no new trustee has been appointed or will be appointed, the corporate trustee holds the assets as bare trustee for the beneficiaries of the trust: Caterpillar above at [24], [26], [36]; Suncoast above at [14], [27]. A bare trustee does not have the power to retain or sell those assets as against any new trustee, and a bare trustee's duties, powers and rights are ordinarily limited to protecting the trust assets: Caterpillar above at [14], [26]; Woodgate, Re Bell Hire Services Pty Ltd (in liq) [2016] FCA 1583 ("Woodgate") at [21]; Suncoast above at [27]; Dengi above at [30]). A liquidator may be granted a power to deal with trust property, and relieved from liability when doing so, where the company has become a bare trustee of the assets of the trust upon the liquidator's appointment; the company had acted only as trustee of the trust and not in any other capacity; all of its assets were held as trustee of the trust and all liabilities incurred by it were incurred as trustee of the trust; and no new trustee had been appointed: Caterpillar above at [35]-[36]; Balsub above at [25]. [Counsel] also submits, and I accept, that the Court has the power under the Trustee Act 1925 (NSW) to authorise the liquidator of a company that holds trust assets as a bare trustee to deal with those assets and apply them to meet claims in the winding up of the company, and it may be appropriate to exercise this power where there is no present likelihood of a new trustee being appointed …."
Mr Gandar also points to s 81(1) of the Trustee Act which provides that where, in the management or administration of any property vested in trustees, a sale (amongst other things) is in the opinion of the Court expedient, but cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. He notes that this power, under equivalent legislation in other States, was used in Pleash at [63] and in Caterpillar at [29]-[30] to empower, including retrospectively, bare trustees to effect certain sales of property.
Mr Gandar submits, and I accept, that, if AVT does not complete the contract for sale and purchase of Suite 901, it will potentially be exposed to an action by the purchaser for specific performance, or alternatively for return of the deposit and damages as a result of the breach of the contract for sale. He submits that this position is not in the interests of the beneficiaries of the AVT Fund or the creditors of AVT. He also points out that AVT's failure to complete the sale may also expose AVT and AVT ST to other claims because AVT ST has entered into a purported lease of Suite 901 (of which it is not the registered proprietor) to a related entity of the purchaser (Shute 27.6.24 [59]-[63]; Ex P1, CB307-320) and the solicitor acting for the purchaser and putative lessor has advised that the purchaser entered into contracts to purchase all three properties (Suites 901-903) and obtained finance on that basis and that only two of those properties would not be of use to it (Shute 25.7.24 [26]-[29]; Ex P2, CB 655-659; Yalda [2]-[3], Annexure A).
I am satisfied that, although the sale would be in breach of trust, there is no prejudice to the AVT Fund or its beneficiaries from the sale, where it occurred after a proper sales process and at market value, and the beneficiaries of the AVT Fund, namely Mr Srivastava and Ms Kruppa-Srivastava, have given their consent to the sale, and I am satisfied that that consent was fully informed. I also recognise that a failure to complete the sale would potentially expose AVT to claims under the sale contract and AVT ST to claims under the purported lease which it has granted, although it is not the owner of Suite 901, and that course would not be in the interests of AVT or its creditors or the beneficiaries of the AVT Fund. For these reasons, I am also satisfied that this direction should be given.

Whether AVT is justified in distributing the net proceeds of sale to AVT ST

The final question as to which the Plaintiffs seek judicial advice is whether AVT is justified in distributing the net proceeds of the sale of Suite 901 to AVT ST, or, alternatively, paying those funds into Court. Mr Gandar submits and I accept that this is also an appropriate question for judicial advice because it concerns the management and administration of trust property, and is appropriately the subject of a direction under section 90-15 of the IPSC as it is a question relating to the external administration of AVT.
Mr Gandar recognises that the sale of Suite 901 by AVT may constitute a breach of the SIS Act and there are also potential breaches of the SIS Act by AVT ST, in respect of covenants relating to superannuation entities under Pt 6 of the SIS Act, in-house asset rules under Pt 8, the sole purpose test under s 62 and the requirement for investments to be made and maintained on an arm's length basis under s 109 of the SIS Act. He also recognises that, in May 2022, an audit of AVT Fund for the year ended 30 June 2021 resulted in the issue of an audit report and audit management letter to AVT ST, which identified several contraventions of the SIS Act and the Superannuation Industry (Supervision) Regulations 1994 (Cth) ("SIS Regs") by AVT ST, and the details of the AVT Fund have been removed from display in "Super Fund Lookup" due to a failure to lodge returns (Shute [43]-[45]; Ex P1, CB 205). Mr Gandar also points out that it is likely that the AVT Fund is regulated by the Commissioner of Taxation, since it appears to be a self-managed superannuation fund within the meaning of s 17A of the SIS Act, and the Commissioner of Taxation has been notified of the Proceedings and has indicated that it does not intend to participate (Power 5 July 2024; Adams 5 July 2024, [12]-[13], Annexure F; Sheehan 22 July 2024; Adams 25 July 2024 [5], [7], Annexure D). As I noted above, APRA and ASIC have also been notified of the proceedings and APRA responded that the AVT Fund is not a registrable superannuation entity regulated by APRA under the SIS Act and APRA does not take any position or wish to be heard in relation to the Proceedings (Adams 5 July 2024 [21]-[23], Annexures L-N).
The consequence of the findings that I have reached above, namely that AVT is bound to transfer Suite 901 to AVT ST as trustee of the AVT Fund, but is justified in completing the contract for sale to the third party purchaser in the relevant circumstances, implies that AVT should account to AVT ST as trustee for the AVT Fund for the proceeds of that sale. The only qualification to that position is that, as Mr Gandar points out, AVT ST appears to be in breach of obligations owed under the SIS Act and that may have regulatory consequences or expose AVT ST to the risk of penalties. Where each of the Commissioner of Taxation, APRA and ASIC have been notified of the proceedings and none of them have sought to participate or identified any potential claim for a penalty that is to be pursued against AVT ST, there would be no utility in making an order that the funds be paid into Court, since there is no claim to those funds other than AVT ST's claim to the funds and no dispute to be resolved, and the Plaintiffs would be justified in distributing the net proceeds of sale to AVT ST. That direction does not, of course, prevent the DCT pursuing any available regulatory penalty or claim against AVT ST in future.

Costs

Mr Shute seeks an order that costs and expenses incurred by him and his reasonable remuneration of dealing with the sale of Suite 901, and his costs of these proceedings, be paid out of the proceeds of sale of Suite 901. I am satisfied that such an order should be made.

Orders

For these reasons, I made the orders sought by the Plaintiffs at the conclusion of the hearing on 31 July 2024.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 August 2024

Superannuation Industry Supervision Act 1993(Cth)

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