"Solicitors:" ""First and second plaintiffs: James Noonan Defendant David de L. Winter

1. I rule today on the plaintiffs' summons of 11 March 1997 pursuant to rr 54.01 and 54.02(2)(a)(iii), in which (as informally amended on 21 March) they seek: "A direction as to whether, assuming the defendant had received a valid requisition in terms of the first plaintiff's requisition for a meeting of unit holders dated 12 February 1997, the defendant would be lawfully obliged, in the circumstances as disclosed in the material to which counsel referred in submissions, to convene the said meeting."
2. The defendant is the Trustee of the Casuarina Unit Trust, under a Trust Deed dated 22 February 1993. The application arises from Clause 13.1 of the Trust Deed which provides: " The Trustee may call a meeting of the unit holders at any time and shall call such meeting on the requisition of unit holders holding not less than twenty per centum (20%) of the Units in the Trust." (emphasis added)
3. It is not disputed that: (a) by Requisition dated 12 February 1997, duly served on the defendant that day, the first plaintiff required the defendant "as Trustee [of the Casuarina Unit Trust] to summon a meeting of unitholders to consider the following resolution;

1. That Territory Homes Pty Ltd ACN 055 696 814 be forthwith removed as trustee of the Casuarina Unit Trust.

2. That a corporation to be nominated by Pikos Holdings (Northern Territory) Pty Ltd be forthwith appointed as trustee of the Casuarina Unit Trust."

(b) The defendant has not called, and does not propose to call, the meeting which was thereby requisitioned. 4. For the purposes of this application, the parties do not require me to determine whether the first plaintiff holds not less than 20% of the units in the Trust.

Against that factual background Mr Wyvill of counsel for the plaintiff asks for the direction sought, to remedy what he submits is a clear breach of the Trustee's obligations under Clause 13.1 of the Trust Deed to comply with the Requisition. He submits that Clause 13.1 imposes a mandatory requirement on the trustee - see "shall call"

• and that the court should compel the defendant to carry out its duty thereunder, and should not at this time be concerned about what no one can possibly know - that is, what the outcome of the requisitioned meeting may be. That outcome would depend on the issues raised at the meeting - which might include whether any change of trustee should be conditional on first obtaining the creditor Bank's consent, or on the basis that existing Trust property be preserved, or that the Trustee's indebtedness to the Bank be first discharged. As to the proposed resolution no.2 (p2) he submitted that there was no information before this Court as to the share structure of the proposed new trustee-corporation. In general, he submitted that the defendant was in clear breach of the Trust Deed by failing to do what was required of it under Clause 13.1, and there was not enough evidence before the Court at this time to warrant the Trustee being excused from complying therewith.

I consider that a trustee must not omit to do an act where that omission would constitute a breach of trust. A trustee's major duty is to obey the terms of the trust deed under which it has accepted office as trustee. Clearly enough, Clause 13.1 is expressed in mandatory terms when unit holders with the required percentage requisition a meeting; it casts on the defendant-Trustee an imperative duty to call the meeting.

Mr Bruxner of counsel for the defendant submitted that on the face of the Requisition it was reasonable to predict that at the requisitioned meeting, the defendant would be removed from its office of Trustee of the Casuarina Unit Trust.

He submitted that the defendant's admitted failure to comply with the requirements of Clause 13.1 did not necessarily involve it in a breach of trust. This was primarily because as trustee it had an overriding duty not to act in such a way as to fail to carry out its primary obligation to ensure the economic well-being and welfare of the beneficiaries (the unit holders) of the Trust. Mr Bruxner cited the well known reference by Lindley LJ in National Trustee Co. of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373 at 375-6, to the effect that - "The great use of a trustee is to commit judicious breaches of trust."

The observation has great force in an appropriate situation, but I do not consider that it can stand against the express terms of a mandatory duty, such as that expressed in Clause 13.1. If the defendant thought that some such breach would result, it was at liberty to have applied to the Court for relief, under s49A of the Trustee Act. It is a trustee's duty to adhere rigidly to the terms of the trust deed under which it is appointed, and that duty modifies all other duties (apart from any statutory duties and duties ordered by a court). A trustee departs from the provisions of the trust deed at its peril of afterwards having to satisfy a Court that its departure was necessary or beneficial.

Mr Bruxner referred to the fact that there had been a meeting of the Directors of the defendant on 19 February 1997 which had decided, by resolution carried in accordance with its Articles, not to hold the meeting requisitioned; see Annexure 28 to Mr Drummond's affidavit of 17 March 1997. However, I do not see that any such decision by the defendant can affect its clear duty as Trustee to call a meeting which had been duly requisitioned under Clause 13.1. What is manifestly clear is that an unbridgeable chasm has arisen between what were termed before me "the Darwin faction" and "the Adelaide faction", as regards the directors of the defendant.

Mr Bruxner advanced 2 reasons why, in the interests of the unit holders generally, the direction sought should not be given.

First, he submitted that it was clear that the plaintiffs intended to install a trustee which would be under their control and which would act in the interests of the majority of the unit holders (that is, the plaintiffs); he relied on par8 of the affidavit of Mr George Pikos of 10 March 1997. He submitted that such a purpose and outcome of the requisitioned meeting was inimical to the interests of the unitholders generally.

I accept that the nature of a unit trust is such that the investments of its unit holders in it, and the property which it acquires, are vested in the trustee and held by the trustee upon trust for the unit holders as a body, with the result that the trustee on assuming office owes equitable duties to the individual unit holders. That is to say, the trustee of the unit trust is under a duty to act fairly and impartially towards all the unit holders. Each unit holder has a proprietary interest in the whole of the property of the trust; see Charles v Federal Commissioner of Taxation (1954) 990 CLR 598 at 609. However, I consider that there is nothing inimical to the concept of a unit trust in a provision that the trustee may be removed by a majority decision of the unit holders. See, for example, the former Companies Act 1958 (Vic), s63(5)(c). In the present case the rights of a unit holder against the Trustee stem from the Trust Deed; it is vital to observe that there is an express power in Clause 17.3 of the Trust Deed for the unit holders to remove the Trustee. Any new trustee appointed pursuant to a meeting requisitioned under Clause 13.1 remains under the same duty to act fairly and impartially towards all unit holders. It cannot be assumed that a new trustee would not act in accordance with this obligation, which is enforceable in Court. I observe that it is clear that a trustee is not to be subjected to the dictation of the unit holders.

Mr Bruxner's second submission was that the trust property in this case is presently subject to a number of "security interests", by way of fixed and floating charges. He referred in particular to monies owed by the Trustee to the S.A. Bank; see the details in Annexure 7 to Mr Drummond's affidavit of 17 March. It can be seen that Clause 32.6.2 of the Bank's debenture charge of 24 May 1993 contains an undertaking by the Trustee that unless the Bank has given its prior written consent "it shall remain as the only Trustee of the Trust." It may be that the removal of the defendant as Trustee without the Bank's prior written consent (or the consent of the other creditors) would result in the immediate enforcement of this or other charges or securities, with possible cataclysmic effect upon the fortunes of the unit holders in the Casuarina Unit Trust. That and similar issues would appear to be vital questions for consideration by the unit holders at the requisitioned meeting. Clearly enough, the position of the outgoing Trustee, which is liable to the full extent of its assets for all the debts incurred in its administration of the Casuarina Unit Trust, and the position of any guarantors of those liabilities, would have to be gone into most carefully; see J.W. Broomhead (Vic) Pty Ltd (in liq) v J. W. Broomhead Pty Ltd [1985] VicRp 88; (1985) 9 ACLR 593, and the article by Dr R. A. Hughes in (1990) 64 ALJ 567.

Mr Bruxner submitted that the determination of the application under r54.02 entailed a consideration of the reasons why the defendant had not complied with Clause 13.1 of the Trust Deed; he referred in particular to Clauses 10.18 and 11.17. I accept that the reasons of the defendant, which appear to be usefully summarised at pars80-89 of Mr Drummond's careful and detailed affidavit of 17 March, should be considered; I have done so. They involve very significant matters which may have to be resolved, should occasion arise, by an appropriate application to this Court. They do not, however, in my opinion, impact upon the Trustee's present duty to act as required by Clause 13.1 of the Trust Deed. Whether cause for concern on the part of Mr Drummond and Mr Manning and their interests eventually arises, would appear to depend on the outcome of the requisitioned meeting.

In the result, I consider that to fail to observe the mandatory requirements of Clause 13.1 following the Requisition, involves a breach of trust on the part of the Trustee. The proposed subject matter of the requisitioned meeting, as set out in the Requisition, is in order under Clause 17.3. In exercise of the discretion available under r54.02(2)(a)(iii) I consider it is appropriate to make the direction sought by the plaintiff. I note that by consent the question of the costs of the plaintiffs' application of 11 March 1997 is adjourned, with liberty to apply.