Solicitors:
Lander & Rogers (plaintiffs)
Emil Ford Lawyers (defendant)
File Number(s): 2015/150523
[2]
Judgment (ex tempore)
HIS HONOUR: The first plaintiff Perpetual Nominees Limited is the sole unit holder in the Storehouse Property Investment Trust ("SPIT" or "the trust") of which the defendant Storehouse Managed Investment Limited ("SMIL") is the trustee and responsible entity. The plaintiff became the unit holder in the trust by transfer for valuable consideration from the previous unit holder, the Trust Company (Superannuation) Limited ("TTCSL"), which had held its units on behalf of the Commerce Industry Superannuation Fund, a superannuation fund which has since been wound up. Until 1 September 2014, TTCSL had been a wholly-owned subsidiary of the Perpetual Group, but thereafter TTCSL was owned by another entity, Diversa, although it appears that it had an arrangement with Perpetual by which Perpetual would continue to act on its behalf. The transfer from TTCSL to Perpetual took place on 11 March 2015, although SMIL was notified of it only on 13 May 2015.
The principal asset of the SPIT is units in the Storehouse Residential Trust, of which SMIL is also the trustee.
On 15 April 2014, solicitors acting for TTCSL wrote to solicitors for SMIL, requesting on behalf of TTCSL as sole beneficiary of the SPIT that SMIL relinquish control over the assets of the SPIT, either by winding up the trust by transferring the entirety of its assets in specie to TTCSL, or by retiring from its position as trustee and appointing a nominee of TTCSL in its place. On 24 April 2014, SMIL responded that it did not believe that it was appropriate or in the best interests of members of the fund to respond to those demands until after the regulator - a reference to APRA - had had an opportunity to examine all aspects of the issue and TTCSL had considered and responded to the information provided to it. Thus, by 24 April 2014, SMIL, the trustee, had first rejected the request of the beneficiary TTCSL in effect to transfer the trust assets to the beneficiary.
On 2 May 2014, TTCSL wrote to SMIL, observing that in consequence of the failure to respond satisfactorily to the request for assistance in gaining control of the trust assets, it would be commencing all necessary legal and other action that it might consider appropriate. SMIL responded on 7 May 2014 that to request the handover of the management rights to the trust - given that TTCSL had refused to meet with SMIL in its capacity as manager or sponsor of the superannuation fund - would not seem to be a reasonable course of action, and suggesting that the first course of action should be to lodge a redemption request. This was, therefore, at least the second refusal by the trustee to comply with a request to transfer the trust assets to the beneficiary.
On 6 June 2014, Lander & Rogers, on behalf of TTCSL, wrote to solicitors for SMIL, proposing - in response to the suggestion of redemption - that TTCSL would consider a redemption proposal on a number of conditions, essentially that the proposal be in respect of all of the investments in SPIT, be provided within a timeframe of fourteen days and contain certain information about when the proceeds would be paid. On 20 June, solicitors for SMIL rejected that proposal in its entirety.
On 14 July 2014, SMIL wrote to Perpetual, acknowledging Perpetual's need for a speedy resolution and proffering a proposal that could be implemented almost immediately, but conditional, inter alia, on Perpetual investing $15 million in the Storehouse trusts. Needless to say, that was entirely inconsistent with the request that the trust assets be transferred to the beneficiary.
On 23 July 2014, Perpetual on behalf of TTCSL, wrote to SMIL, referring to the request of 6 June that SMIL either terminate the trust or allow the appointment of a replacement trustee and indicating that, absent SMIL's willingness to cooperate with that request or to propose an acceptable alternative, TTCSL would proceed with its plan to commence proceedings to remove SMIL as trustee of the SPIT.
It appears that on 25 July 2014, SMIL terminated the trust, presumably pursuant to clause 26.1(a) of the trust deed, which provided that the trust would terminate, relevantly, on a date specified by the responsible entity as the date the trust will terminate in a notice given to members - although there is no evidence that any such notice was given to members prior to 25 July 2014. In those circumstances, in any event, the procedure to take place on termination of the trust was set out in clause 27 of the trust deed, which provides as follows.
27 Procedure on Termination
27.1 Notice of termination
Within a reasonable time before, or as soon as practicable after, termination of the Trust the Responsible Entity shall give to each Member notice of the termination and of its intention to distribute the Trust Fund.
27.2 Realisation of Trust Fund
Subject to clauses 27.4 and 27.5, as soon as practicable after the giving of the notice under clause 27.1 the Responsible Entity must sell or realise the Assets in such manner as the Responsible Entity considers appropriate. The Responsible Entity must prepare final accounts of the Trust and cause the Trust Auditor to audit and report on those accounts.
27.3 Final Distribution
(a) Subject to the terms of issue of any Unit or Class, the net proceeds from realisation must be distributed among the Members in proportion to the number of Units they hold.
(b) For the purposes of clause 27.3(a), net proceeds from realisation means the proceeds from sale or other realisation of the Assets after paying or providing for:
(i) All Liabilities of the Trust;
(ii) any unpaid fees payable (or to be payable) to the Responsible Entity; and
(iii) the Expenses of termination.
(c) Unless the Responsible Entity otherwise determines, all Units in the Trust will be cancelled and taken to be redeemed from the date of the final distribution of the net proceeds from realization is made.
(d) This clause does not limit clause 27.6.
27.4 Transfer of Assets
Despite clause 27.3, the Responsible Entity may transfer Assets to any Member holding Units having a value in excess of $10,000, in satisfaction of that Member's entitlement in the Trust Fund. The value of the Assets transferred will be calculated at market value, as determined by the Responsible Entity, and the Expenses incurred in transferring the Assets will be borne by the Member or Members.
27.5 Postponement of realisation
The Responsible Entity may postpone the sale or realisation of any Asset for as long as the Responsible Entity thinks it is desirable to do so in the interests of the Members. The Responsible Entity will not be responsible for any loss attributable to the postponement.
27.6 Retention of property
The Responsible Entity may retain for as long as it thinks fit sufficient Assets as in its opinion, may be required to meet any outgoings or liabilities (actual or contingent) in respect of the Trust Fund. If any Asset retained is ultimately found not to be required, then it shall be distributed to the Members in accordance with this clause.
27.7 Continuation of powers
The powers, duties and rights of the Responsible Entity (including the rights to remuneration and to any indemnities under this Constitution or the Law) continue following termination to the extent to which they are not inconsistent with this clause 27.
27.8 Audit
If, at the time it is wound up, the Trust is a registered scheme and ASIC policy requires it, the Responsible Entity will provide for an independent review or audit by a registered company auditor of the final accounts of the Trust after termination.
On 28 July 2014, SMIL notified Perpetual that it had terminated the SPIT with effect from 25 July 2014 and would shortly be forwarding claims to TTCSL for damages and costs associated with actions of TTCSL since 30 June 2013. Over the ensuing year or so, much effort on the part of SMIL appears to have been devoted to formulating those claims against TTCSL. Just how claims by a trustee against the beneficiary TTCSL on behalf of the trust could enhance the beneficiary's position or be in the interests of the trust is unclear, since the success of any such claim would be commensurately to the detriment of the sole beneficiary of the trust.
On 12 September 2014 - by which time TTCSL had become owned by Diversa - Perpetual, at least purportedly on behalf of TTCSL, wrote to SMIL, referring to clause 27 of the trust deed and the procedure on termination, and requesting that - given that TTCSL's unitholding exceeded $10,000 and that it was the sole unitholder - SMIL transfer the assets to TTCSL rather than realising them and transferring the proceeds. The letter also contained an offer that Perpetual Superannuation Limited would assume the role of trustee.
On 22 September 2014, SMIL responded that it would be pleased to use its power of appointment to appoint Perpetual as replacement trustee, but subject to two conditions - namely, reimbursement to unitholders of the Storehouse Residential Trust of some $212,000, and reimbursement of SMIL of some $188,000 - the effect of which was to amount at least to constructive refusal of the request to appoint a new trustee. The response entirely failed to address the request for a distribution of trust assets in specie.
On 29 September 2014 Perpetual wrote again, repeating the request for an in specie distribution, and observing that it had not been addressed in SMIL's response of 22 September.
In a letter to TTCSL on 8 October, SMIL responded to the effect that it "continues to believe that acting in accordance with clause 27.5 will lead to a better outcome considering the interests of members". As is apparent from clause 27.5, set out above, it permits the responsible entity to postpone sale or realisation of an asset for as long as it thinks it desirable to do so in the interests of members. On what basis it could have been thought to be in the interests of members to postpone the transfer of the units in the SRT to the beneficiary - in circumstances where those assets were on any view illiquid, and the beneficiary was willing and asking to take a transfer in specie - has never been explained.
On 13 May 2015, after Perpetual had acquired the units from TTCSL and become the beneficial unitholder, it wrote to SMIL, referring to matters of which it had been informed in the meantime by TTCSL - including the termination of the trust - and expressing Perpetual's understanding that TTCSL had previously requested the transfer of the trust assets to TTCSL in specie, rather than awaiting realisation, that the investment in the SRT was illiquid and the expected time to realise it uncertain, and that no assets had been transferred to TTCSL, that TTCSL was not aware of any plan to do so. Perpetual requested that the SRT units now be transferred to Perpetual in specie pursuant to clause 27.4 as soon as possible and in satisfaction of the trustee's obligation to wind up the trust efficiently and in a way that discharged its duty to act in the best interests of beneficiaries. The letter asked that the transfer take place by 18 May 2015.
There having been no response by 18 May, Perpetual commenced these proceedings on 20 May 2015 by summons claiming the following relief:
1. A declaration that the Storehouse Property Investment Trust (the Trust) has been terminated.
2. A declaration that the Defendant is not entitled to indemnification from the Trust assets in relation to:
a. costs and expenses referred to in the "Investment Statement" dated 30 September 2014; and
b, amounts referred to in invoices dated 4 and 5 November 2014 sent to the previous unit holder of the Trust (to the extent that such amounts exceed the sums in sub-paragraph (a)).
3. Subject to order no. 4, an order that the Defendant give effect to the termination in accordance with clause 27 of the Trust Constitution.
4. An order that, by way of interim distribution, the Defendant transfer all of the units in the Storehouse Residential Trust (ARSN 135 812 074) held by the Defendant as trustee if the trust in specie to the First Plaintiff, in accordance with clause 27.4 of the Trust Constitution.
5. In the alternative to prayers 1, 3 and 4, an order that the assets held by the Defendant as trustee of the Trust vest in the First Plaintiff pursuant to the rule in Saunders v Vautier (1841) 41 ER 482.
6. In the alternative to prayers 1, 3, 4 and 5, an order that the Second Plaintiff be appointed trustee of the Trust in substitution for the Defendant pursuant to section 70 of the Trustee Act 1925 (NSW) such that all assets now subject to the Trust vest in the Second Plaintiff pursuant to section 71 of the Trustee Act 1925 (NSW).
7. The Defendant to pay the First and Second Plaintiffs' costs of the proceedings.
8. An order, pursuant to rule 42.25(2) of the Uniform Civil Procedure Rules 2005 (NSW), that the costs payable to the Plaintiffs and the Defendant's costs are not to be paid out of the trust assets.
9. Any further or other order this Court deems fit.
The proceedings came before the Court on 1 June 2015, when they were adjourned without further directions to 15 June. For reasons which are not immediately apparent, the matter seems next to have been listed on 22 June, when directions were made for the defendant's evidence to be served by 31 July, the plaintiffs' reply evidence by 21 August, and the proceedings were adjourned to 24 August.
On 28 July, the defendant's solicitors sent to the plaintiffs' solicitors a letter which asserted that since the last occasion the matter was in Court, "the winding up of the trust has progressed and the consequences of that winding up have also progressed". It was said that SMIL had now received "clarification" regarding the Castle Hill property and, in particular, that there was no additional return available in respect of that property and that putting aside the value of the disputed invoices to TTCSL, "which our client believes are best left with your client to determine the recovery of or not", that left available a value to be determined in respect of the units in the SRT "which are to be transferred to your client". It was then said that an auditor had been appointed for the final audit of the trust, and that it was intended to declare an interim position by 15 August, "which will in turn enable a distribution of assets in kind to be done on an interim basis - our client expects that the final audited accounts and therefore the complete finalisation of the trust will be completed in two to three months". It was then suggested that it was futile for the proceedings to continue, and that the proceedings should be stood over until a date in November to enable the finalisation of the winding up and the audit to take place.
On 30 July, the plaintiffs' solicitors responded that they did not agree to any variation of the Court's timetable. On 3 August, they sought further clarification of the letter of 28 July and, in particular, what steps had been taken to wind up the trust, what were the "consequences" referred to, and who had been appointed as auditor and when. Those were only two of a number of matters raised in that letter, which received on 6 August 2015 a somewhat desultory two sentence response that the books of the SPIT had been closed and the audit process was under way and the auditors Assura Group anticipated finalising the audit by the end of October 2015.
On 21 August 2015, the solicitors for the plaintiff sent a follow up request, pressing the earlier request for information and some additional information. There does not appear to have been any response to that request.
When the matter returned before the Court on 24 August, a direction was made for the plaintiff to serve its evidence in reply by 11 September, and the proceedings were adjourned to 16 September. On 16 September, the proceedings were set down for hearing before me for two days commencing on 16 December.
On 1 December, the plaintiff received from the defendant audited accounts of the trust for a two year period from 1 July 2013 to 31 July 2015, and at or about that time, a transfer of the units in the SRT, less a number which had apparently been transferred - it is not entirely clear to whom, but purportedly in payment of invoices payable by the trust - and others which were set aside and retained by the trustee by way of provision or termination expenses to a value of about $75,000.
Having thus secured the substantive result that it sought to achieve in the proceedings, the plaintiff seeks leave to discontinue the proceedings or, alternatively, to have them dismissed, but seeks in respect of costs an "otherwise order" - namely, an order that the defendant pay its costs of the proceedings - while the defendant submits that the plaintiff, having suffered the dismissal of the proceedings, should pay the defendant's costs.
The plaintiff contends that the ultimate transfer of most of the units in the SRT to it represented a capitulation, on the eve of the hearing, to the relief it had sought from the outset; and that the defendant's conduct was unreasonable and caused the proceedings to be brought and prosecuted up until that point. The defendant submits that the plaintiff had no reasonable cause for instituting the proceedings.
First, as it seems to me, when the proceedings were instituted, more than 10 months had passed since the termination of the trust, and there was no indication that anything had been done to progress the realisation or distribution of the trust assets. Even by then, repeated requests for a transfer of the trust assets had been declined.
Secondly, it may well be, as the defendant submits, that neither the plaintiff nor its predecessor TTCSL could necessarily have obtained an order for transfer of the trust assets in specie: the trust constitution gave the trustee a discretion to transfer in specie, but did not give the beneficiary a right to a transfer in specie. But in circumstances where there had apparently been nothing done to progress the winding up of the trust after its termination, where the plaintiff or its predecessor was the sole beneficiary of the trust, where the plaintiff and its predecessor had both indicated that they were content to take a transfer of the assets in specie, and where it was self-evident that the trust assets were illiquid, it is very difficult to see that there could be any proper basis for an exercise of that discretion in any way other than to transfer the assets in specie. At the least, it is difficult to see how there could have been any proper basis to exercise a discretion in favour of deferring doing so on the basis that it was in the interests of the beneficiary to do so.
Thirdly, even if the beneficiary was not entitled to a final distribution until an audit was completed, there was no apparent obstacle in the trust constitution to an interim distribution. As it transpires, SMIL as trustee has, in any event, retained assets sufficient to enable it to provide for termination expenses. There is no reason why it could not have done that 12 months ago, rather than deferring doing so until just before the matter came to trial. No acceptable explanation has been provided why it took 12 months for the audit to be instituted. Reference has been made in correspondence and submissions to allowing 12 months for an orderly realisation; but so far as the SRT units are concerned, there is no evidence of any attempt to realise them. And so far as the other assets are concerned, they appear to have comprised a leasehold interest in a property occupied by SMIL at Castle Hill together with an option to purchase it (which lease had expired) and some vaguely described "capital right" in respect of a property at Westleigh, the nature of which was not clearly established. In any event, the evidence of "orderly realisation" is scant, to be generous.
Next, it was submitted on behalf of the defendant that it was bound by its constitution and concerned to take no risks in circumstances where it was faced with a hostile beneficiary. There are a number of defects in this submission. First, true it is that the defendant was bound by its constitution; but its constitution, far from prohibiting it from acceding to the beneficiaries' request for a transfer in specie, permitted it to do so. It is not apparent how its constitution required the defendant to act in the manner in which it chose to act. Secondly, when pressed, counsel for the defendant was unable to identify any risks associated with acceding to the request by way of transferring the SRT units. Thirdly, the view that it was confronted with a hostile beneficiary tends to overlook the nature of the relationship between these parties of trustee and beneficiary, and the obligations of the trustee in those circumstances being primarily to act in the interests of the beneficiary and not in its own interests.
Further, so far as it might be suggested that SMIL's letter of 28 July 2015 foreshadowed what would ultimately happen in the proceedings, it did not do so in significant respects: in particular, an interim position did not materialise in August as foreshadowed. If the defendant wished to relieve itself of any risks as to costs at that time, then its proper course was not to suggest an adjournment - the consequence of which would be that if it did not do what it said it intended to do, there would be further delay - but to offer binding undertakings or submit to the orders which would have had that effect at that time. The defendant did not do so.
In my view, having had the opportunity of reviewing such of the material as has been put before me on the costs application, the proper conclusion is that the plaintiff beneficiary was faced with a trustee whose recalcitrance was the real cause for the institution and prosecution of the proceedings.
I grant leave to the plaintiffs to discontinue the proceedings. I order that the defendant pay the plaintiffs' costs of the proceedings, and that the defendant not be entitled to have recourse to the trust assets by way of indemnity in that respect.
[3]
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Decision last updated: 22 January 2016