Plaintiff v Defendant

Supreme Court of Victoria|2009-08-17|Before: ROBSON J

CORPORATIONS - directions - court appointed liquidator's application for directions under s 479(3) of the Corporations Act 2001 - jurisdiction of the court - whether the court is entitled to give directions where the questions relate to disputed claims against a third party - whether the court in its discretion should give directions where the questions relate to disputed claims against a third party - questions going to issue whether company in liquidation entitled to indemnify itself out of trust assets that it holds on trust for unit trusts - relevance of adversarial nature of proceedings - finding that court has jurisdiction and should give directions sought - limitation on findings to those necessary to give a direction on whether liquidator justified in administering the winding up on basis that company executed guarantee at trustee - application granted and directions given - s 479(3) of the

CONTRACT - guarantee - construction - whether executed personally or in capacity as trustee - evidence - admissibility of extrinsic evidence to establish capacity

ASC v Melbourne Asset Management Nominees Pty Ltd [1994] FCA 1031; (1994) 121 ALR 626

Editions Tom Thompson Pty Ltd v Pilley (1997) 24 ACSR 617

Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443; (2007) 25 ACLC 1433

Owners of "Shin Kope Maru" v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404

Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674

Re Interwest Hotels Pty Ltd (1993) 12 ACSR 78

Re JW Murphy & PC Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569

Re Magic Aust (in liq) (1992) 7 ACSR 742

Re Riverside Nursing Care Pty Ltd [2004] FCA 93

Re Security Provident Fund Ltd (in liq); Rodger v Gourlay (1984) 9 ACLR 56

Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115

St Petra Inc v Petar [2008] HCA 42; (2008) 249 ALR 250

1 The Court appointed liquidator of Mento Developments (Aust) Pty Ltd, Giuseppe Rambaldi, seeks directions in the winding up of Mento Developments. Before setting out the specific matters on which he seeks directions it is convenient to outline the background facts.

2 Mento Developments was wound up on the application of Rexwell Pty Ltd. Mento Developments did not oppose the application. According to Mento Developments' sole director, Mr Simmons, Mento Developments was the trustee of four trusts: the Weeroona St Unit Trust (WSUT), the Mento Developments Trust (MDT), the Simmons Investment Trust and the Rovada Downs Trust.

3 At all relevant times, Mr Simmons was carrying on practice as an accountant under the name of Simmons Regos & Co. Mr Simmons says that the WSUT owns land at Ruffy where farming activities are conducted. The farming business is conducted by Mento Developments as trustee of the MDT. Mento Developments also carried on the accounting practice as trustee for the MDT. The practice has now been sold. Mr Simmons' firm also acted as a project manager on property developments and Mento Developments received fees for these activities as trustee of the MDT.

4 Mr Simmons produced balance sheets for the MDT. The trust assets included plant and machinery used on the farming properties, motor vehicles for both the farms and the accounting practice and furniture and fittings for the accounting practice. Mr Simmons produced annual accounts for the WSUT which included in its assets the farming properties at Ruffy.

5 The Rovada Downs Trust owns units in the WSUT. All the trusts are unit trusts save the Simmons Investment Trust which is a discretionary family trust. Mr Simmons said it receives the income from the other trusts and effectively owns the other trusts.

6 The MDT was established on 20 June 1981 and the WSUT was established on 20 December 1981.

7 Mr Simmons says that on 26 August 2003, MDT was replaced by Wixart Pty Ltd as the trustee of the four trusts.[1]

8 Mento Developments was wound up in insolvency by an order made 27 July 2005 on the application of Rexwell Pty Ltd.[2] Mr Rambaldi was appointed the liquidator for the purpose of the winding up.

9 The claim of Rexwell Pty Ltd against Mento Developments arises out of a guarantee given in respect of a joint venture agreement dated 20 March 1998. The parties to the agreement were Ian Fayman and his company Rexwell Pty Ltd, Robert and Sandra Jackson, Mr Simmons and his company Mento Developments, Bristead Pty Ltd as trustee of the Bristead Unit Trust, Bristead Pty Ltd as trustee of the Jackson Development Trust and Lagoon Ridge Pty Ltd. The agreement related to the development of a property 2-18 Hotham Street, East Melbourne. Under the property venture agreement Rexwell was the financier, Jackson the developer and Simmons or his nominee was to received a $150,000 project management fee. Mr Simmons says that Mr Fayman was Mr Jackson's employer.

10 Under the agreement the Jacksons, Mr Simmons, Mento Developments, Jackson Development Trust and Lagoon Ridge Pty Ltd guaranteed certain obligations including the repayment of $500,000 that Rexwell agreed to invest in the unit trust known as the Bristead Unit Trust established by the registered proprietor Bristead Pty Ltd of the property.

11 There were negotiations between the parties to the venture as to the terms of the agreement. On 16 March 1998, the solicitors for Mr Fayman and Rexwell Pty Ltd set out the terms their clients would be willing to consider to enter into the venture. The letter was faxed to Mr Simmons. The letter contained 18 clauses. At the foot of the letter a handwritten clause was added: "19 - New item - companies family trusts of Jackson and Simmons to also provide guarantees. Please provide details."[3]

12 On 17 March, Mr Fayman sent a handwritten memorandum to Mr Simmons. Mr Simmons accepts that he probably received it. A copy was sent to Mr Mark Wallan, Mr Fayman's solicitor. The subject matter was East Melbourne. The memo said:

I spoke to Mark. He believes we should get the guarantee from your trust as you offered yesterday as this will give more security because the personal guarantees may not be sufficient. Considered your offer I now accept it.

Further regarding Bristead Pty Ltd is it the only guarantor on Hotham St E Melb or are there others. If Toorak/Sth Yarra gets into "trouble" can you confirm categorically that E. Melb will not be "pulled in."[4]

...

13 On 17 March 1998, Mr Fayman's solicitor again faxed a letter to Mr Simmons. It appears to be in similar terms to the faxed letter of 16 March save for minor amendments to paragraphs 9 and 17 and the addition of 19 in a typed form.[5] Written in hand after "Please provide details" appears:

"Simmons

Mento Developments (Aust)

Trustee

Mento Developments Unit Trust

Jackson

Bristead Pty Ltd

Trustee

Jackson Development Trust

Lagoon Ridge Pty Ltd"

14 Mr Simmons initialled the minor changes but not the additional handwritten notation referring to the Mento Development Trust and formally signed the document along with Robert and Sandra Jackson.

15 On 20 March 1998, a deed of guarantee was executed. The schedule to the deed listed the guarantors as:

Bristead Pty Ltd in its capacity for and on behalf of the Jackson Development Trust

Mr Simmons relies on the absence of any reference to the MDT in the list and contrasts the reference to Mento Developments Pty Ltd to that of Bristead Pty Ltd.

16 There is a dispute between Mr Simmons on the one part and Messrs Fayman and Mr Wallan whether or not as Mr Simmons alleges he told Mr Fayman he was not prepared to give a guarantee by his trusts.

17 The liquidator applies for directions in respect of the following matters in the winding up:

(1) Was the defendant the trustee of the MDT when it executed the guarantee in favour of the plaintiff?

(2) Was the defendant the trustee of the WSUT when it executed the guarantee in favour of the plaintiff?

(3) If the defendant was the trustee of the MDT when it executed the said guarantee in favour of the plaintiff, did it do so in its own capacity or in its capacity as trustee of that trust?

(4) If the defendant was the trustee of the WSUT when it executed the guarantee in favour of the plaintiff, did it do so in its own capacity or in its capacity as trustee of that trust?

(5) Does the defendant own the farming properties in its own right or in its capacity as trustee of the WSUT?

18 For the reasons given below, I give the following directions to the liquidator:

On the evidence presently available to the liquidator:

(1) The liquidator is justified in conducting the winding up of Mento Developments on the basis that Mento Developments was the trustee of the MDT when it executed the guarantee in favour of Rexwell Pty Ltd.

(2) The liquidator is justified in conducting the winding up of Mento Developments on the basis that it was the trustee of the WSUT when it executed the guarantee in favour of Rexwell.

(3) The liquidator is justified in conducting the winding up of Mento Developments on the basis that when it executed the guarantee in favour of Rexwell it did so in its capacity as trustee of the MDT. The liquidator is justified in instituting or defending proceedings, if necessary, to establish the same as against Wixart Pty Ltd and/or Mr Simmons.

(4) The liquidator is justified in conducting the winding up of Mento Developments on the basis that when it executed the guarantee in favour of Rexwell it did not do so in its capacity as trustee of the WSUT.

(5) The liquidator is justified in conducting the winding up of Mento Developments on the basis that it owns the farming properties as trustee of the WSUT.

19 Wixart submits that the questions posed in the liquidator's interlocutory process, particularly questions 3, 4 and 5 are not amendable to directions by the court under s 479(3) of the Corporations Act 2001. Wixart says the proper scope of a liquidator's application for directions is set out in the decision of McLelland J in Re G B Nathan & Co Pty Ltd (in liq)[6] where he said:

The historical antecedents of s 479(3), the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction.

Modern Australian authority confirms the view that s 479(3) "does not enable the court to make binding orders in the nature of judgments" and that the function of a liquidator's application for directions "is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation"....(citations omitted)

20 Wixart contends that the principles governing applications for directions under s 479(3) may be summarized as follows:

(a) Although the discretion given under s 479(3) is wide, it is usually only proper to exercise the power where the matter involves guidance to the liquidator on matters of law or principal or to protect him against accusations of acting unreasonably. The court does not usually consider it proper to intervene and make the liquidator's commercial decisions for him. Matters in respect of which a liquidator may seek, and obtain, directions or judicial advice under s 479(3) include:

(iii) whether the liquidator should act on his commercial judgment to postpone the sale because he recognizes his legal duty ordinarily requires him to reduce the company's assets into cash as soon as possible and to distribute;

(iv) where there are two or more completing purchasers for the company's property and the liquidator can see that it may be alleged that he has acted mala fide or in an absurd, unreasonable or illegal way: Sanderson v Classic Car Insurances Pty Ltd[7]; Re Ansett[8] but see ASC v Melbourne Asset Management Nominees Pty Ltd,[9] which was disapproved by McLelland J in Re JW Murphy & PC Allen; Re BPTC Ltd (in liq).[10]

(b) The function of a liquidator's summons for directions is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation: Re Security Provident Fund Ltd (in liq); Rodger v Gourlay.[11]

It is to be emphasized that an application for directions under s 379(3) of the Companies Code (or s 479(3) of the Corporations Law) is an administrative non-adversary proceeding, and a direction given pursuant to the section has no effect on the substantive rights of persons external to the winding up.[13]

(d) In Editions Tom Thompson Pty Ltd v Pilley,[14] Lindgren J stated:

Conceptually, the application of the corrections is an ex parte one. No doubt, on an application to directions under ss 479(1) or 447D, the Court has power to grant leave to, inter alia, a "creditor" of the company to be heard on the question whether the directions sought should be made, without being made a party...But whether or not advantage is taken of leave to be heard, directions given by the court to a liquidator or administrator would not affect the creditor's rights and a creditor would not be "estopped" by the directions. Although O 71 r 10(4) in terms empowers the court to order that a creditor be added as a respondent in a proceeding under the Law, it follows from what I said that in my respectful view it is difficult to understand on what basis it would be an appropriate exercise of discretion to do so, at least in the absence of consent, so long as the proceeding remained no more than an application to directions under the statutory provision.[15]

(see also Re Riverside Nursing Care Pty Ltd[16]).

(e) The liquidator bears the responsibility of making full and fair disclosure to the court of the material facts, and it is no part of the court's function on an application to directions to resolve factual issues: Re Magic Aust (in liq).[17]

(f) Notwithstanding the above, the procedures of the court are sufficiently flexible to enable proceedings commenced as an application to directions to be changed into proceedings of the determination of substantive rights. This is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay. However, it is important that the distinction between the two kinds of proceedings not be overlooked, and such a fundamental change should not be permitted unless the court is satisfied that those affected have consented to the course, or will not suffer injustice in consequence of the operation to the status of the proceedings: Re G B Nathan & Co.[18]

21 In Editions Tom Thompson Pty Ltd v Pilley,[19] a company in administration, ETT, sought direction that ETT was entitled to sell certain Bradman memorabilia. The respondent to the application, Mr Pilley, disputed ETT's entitlement to sell and claimed the memorabilia was his property. As a preliminary issue, Lindgren J held that ETT was not entitled to apply for directions but rather the administrator should apply. ETT sought to amend its application to add the administrator as an applicant. Lindgren J said that he was not prepared to amend unless he could proceed to hear and determine the application for the directions sought.[20]

22 As to the jurisdiction of the court, Lindgren J said as follows:

I was taken to many authorities dealing with applications by liquidators under the provision of the Law or its predecessor legislation comparable to s 447D. The current provision is subs 479(3) of the Law which provides:

"The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up."

The preponderance of authority is to the effect that on a liquidator's application for directions under that provision or its predecessors, the Court has no power to make orders binding upon, or affecting the rights of, third parties, and the view is also commonly taken that directions should not be given where the proposed acts of the liquidator which would be "sanctioned" by the directions would affect such rights: Re TTC (SA) Pty Ltd (in liq) (formerly Tom the Cheap (SA) Pty Ltd) (1983) 1 ACLC 914 (SA/White J); Re Security Provident Fund Ltd (in liq); Rodger v Gourlay (1984) 9 ACLR 56 (ACT/Blackburn CJ); Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 (NSW/Young J) esp at 118; Re Sportsman's Leisure and Hobby Warehouse Pty Ltd (in liq) [1990] 2 Qd R 93 (Cooper J) esp at 98; Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 (NSW/McLelland J) esp at 679-680; Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742 (NSW/McLelland J); Re J W Murphy & P C Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569 (NSW/McLelland J); Re AMN Pty Ltd (in liq) (unreported, FCA/Cooper J, 20 January 1997); but cf Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (Receiver and Manager Appointed) [1994] FCA 1031; (1994) 49 FCR 334 (Northrop J). On the hearing, but not in his prior written submissions, Mr Harrowell seemed not to challenge these propositions in relation to liquidators.

In Re G B Nathan & Co Pty Ltd (in liq), supra, McLelland J referred to the legislative pedigree of subs 479(3) of the Law and said (at 677 E-678E):

"Generally speaking, if the court gave a direction to an official administrator [his Honour used the expression `official administrator' to refer to those entrusted by the Court of Chancery with the administration of property under the control of the court, principally, trustees of trust property or executors or administrators of a deceased estate, under administration by the court pursuant to a decree for general administration, and receivers (and managers) appointed by the court in respect of property the subject of litigation] who had made a full and fair disclosure to the court of the material facts, the official administrator might act in accordance with the direction without thereby incurring personal liability to any of the persons in whose interests the administration was being conducted, for example, creditors or beneficiaries of a deceased estate: ...

The protection of the official administrator, acting under a direction of the court, from personal liability would not however affect the rights of creditors and beneficiaries as between themselves: ...

The court had no jurisdiction under a decree for general administration to decide questions as against persons making proprietary claims adverse to the trust or estate in question ..." [21]

23 Lindgren J found that he could see no distinction in the present case between an application by administrators under s 447D and an application by a liquidator under s 479(3).[22]

24 Lindgren J held he was not prepared to grant the amendment as he was not able to hear and determine the application. He said:

I should not grant leave to amend the application if I would not proceed to hear and determine an application by the Administrators for the direction sought. I would not do so. Since it is not possible for the Court, within the framework of an application for directions, to resolve the parties' dispute, there is at least a real possibility of a second, but inter partes, proceeding relating to the same issue. It would be wasteful of the Court's and the parties' resources and could prove embarrassing for the Court to give a direction, even in a modified form (such as that the Administrators are "justified" in selling), in these circumstances. One can conceive of exceptional circumstances, such as a case involving an imminent auction (cf Re Magic Aust Pty Ltd (in liq) (unreported, Supreme Court of New South Wales, Powell J, 22 May 1992) and (1992) 7 ACSR 742 (NSW/McLelland J)) or a proposed sale of perishable goods, in which the giving of directions in a case of challenged title may be unavoidable notwithstanding such disadvantages. But the present case is not of such a kind.

25 Lindgren J also relied on the injustice Mr Pilley would suffer if the issue of ownership was finally determined without pleadings and discovery. [23]

26 Wixart relies on this case and points to the similarities to the case at hand. Its submission has considerable force.

27 On the other hand, the liquidator submits that he is entitled to seek the directions that he does. He disputes Wixart's contention that the liquidator is asserting the guarantee was executed by Mento as trustee and not in its own right. The liquidator submits that he does not assert that but rather has five open questions.[24]

28 In his written submissions of 26 March 2009 he contended that as Wixart has an interest in the issues in respect of which the liquidator seeks directions, the interlocutory process filed 20 March 2009 and the liquidator's affidavit sworn 19 March 2009 have been served on Wixart. The liquidator said that Wixart may wish to be heard in this proceeding.

29 The liquidator asserts that until Wixart indicates its attitude it will not be known if this will be an adversarial matter. He said that Wixart has not commenced any proceedings to compel the liquidator to transfer the Ruffy land to it. He said that he has not to commenced adversarial proceedings. The liquidator said that he wishes, instead, to apply to this Court for directions.

30 The liquidator submits that in any event, there is sufficient flexibility in the procedures of the Court to convert an application for directions into proceedings for the determination of substantive rights: Meadow Springs Fairway Resort Ltd (in liquidation) v Balanced Securities Ltd.[25]

31 At the hearing, Wixart appeared and made its attitude known. Nevertheless, the liquidator maintained it was appropriate to give the directions sought, although the liquidator also repeated his submission that there is flexibility to convert the proceedings for directions into adversarial proceedings, relying on the observations of French J in Meadow Springs Fairway Resort Ltd.[26] Although invited to do so by counsel for Wixart, the liquidator requests that the application for directions be heard without amendment.

32 The liquidator also relies on the High Court decision in St Petra Inc v Petar.[27] The issues are described in the head note as follows.[28] In essence, the appellant association (the Macedonian Orthodox Community Church St Petka Inc) dismissed the second respondent (the Very Reverend Father Mitko Metrev) as parish priest of the St Petra parish. The respondents (his Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand and Father Metrev) contended this was wrongful and commenced proceedings in the Supreme Court of New South Wales (the main proceeding). The association filed a summons in the Supreme Court applying for judicial advice under s 63 of the Trustee Act 1925 (NSW). The association held certain lands including the parish church of the St Petka parish, the church hall and other investment land. It had been held in earlier proceedings that certain of the lands such as the church and the church hall were held on a charitable trust by the association to be used by the association as a site for a church of the Macedonian Orthodox Religion. The High Court described the proceedings as bitterly contested.[29]

33 On the hearing of the summons, Palmer J made orders that the association: (1) would be justified in defending the main proceedings on the issue of the terms of the trust, and (2) was entitled to have recourse to certain of the property of the association held by it on trust for the purpose of paying costs of defending the main proceedings.

34 The Court of Appeal upheld an appeal against the orders of Palmer J and dismissed the summons. The majority of the Court of Appeal did not hold that the giving of judicial advice was beyond the power of Palmer J. Instead, the Court of Appeal held that Palmer J erred in the exercise of his discretion essentially as he did not expressly consider the adversarial character of the proceedings. In particular, it was said that Palmer J failed to address the fact that the association was not disinterestedly seeking advice as to whether it should follow one course of conduct or another but asked the court to support its view as to religious doctrine and organisation over those of the plaintiffs in the main proceedings.

35 The association appealed against the order of the Court of Appeal. The High Court (Gummow ACJ, Kirby, Hayne, Heydon and Kiefel JJ) upheld the appeal. They held that:

(i) There was not express words in s 63 and no implications from the express words used in s 63, that (a) automatically precluded the court from giving the advice which the association sought; (b) limited its application to "non-adversarial" proceedings, and (c) made some discretionary factors more significant or controlling than others.

(ii) Section 63 afforded a facility for giving "private advice" because its function was to give personal protection to the trustee. It was an error on the part of the Court of Appeal to treat the respondents, as being in a position of parity with the association in the judicial advice proceedings.

(iii) The judicial advice was not to be treated as a trial of the issues that were to be agitated in the main proceedings.

36 As to (ii) the plurality (Gummow ACJ, Kirby, Hayne and Heydon JJ) said:

There is no disharmony or lack of realism in treating the plaintiffs and the association in the main proceedings as adversaries but recognising the association, in the judicial advice proceedings as trustee (for that it was) seeking judicial advice to which later it would be obliged to adhere.[30]

37 The plurality made eight points on s 63 which, in my opinion, have relevance to the proper approach to the application of s 479(3) of the Corporations Act 2001

38 Implications not to be read in.[31] The plurality confirmed the much-cited statement of the court in Owners of "Shin Kope Maru" v Empire Shipping Co Inc[32] as relevant to s 63:

It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words.

39 No implied limitations on power to give advice.[33] The plurality said there is nothing in s 63 which limits the advice which the association sought or which limits its application to "non-adversarial" proceedings.[34] The plurality said that the applicant must be able to 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.[35] Applying those observations to this case, the liquidator does raise questions respecting the administration of the winding up of the company.

40 No implied limits on discretionary factors.[36] The plurality held that there were no express words in s 63 and no implications from the express words which are used in s 63 making some discretionary factors always more significant or controlling than others. It must be borne in mind that the majority of the Court of Appeal did not find that the questions were beyond power but held that on discretionary factors Palmer J should not have answered the questions. The plurality said:

In particular, s 63 does not provide that the adversarial nature of the proceedings about which the advice is sought, the tendency of the advice to foreclose an issue in those proceedings, or the fact that the trustees seeking the advice are being sued for breach of trust are of special significance. Hence the discretion is confined only by the subject-matter, scope and purpose of the legislation. While it was accepted by the Court of Appeal that the court has power under s 63 to give advice even if the proceedings are "adversarial" in character, their approach was to give that consideration very great significance as pointing to an exercise of the discretion against granting advice. (citation omitted)[37]

41 Of particular significance to this case, is the observation on the tendency of the advice to foreclose an issue in the proceedings. In this case the relevant proceedings may be any future proceedings over the right of the liquidator to indemnify Mento Developments from the assets of the MDT. The fact that the advice sought by the liquidator may tend to foreclose such an issue is of no particular relevance to the court exercising its discretion to give the direction sought.

42 Summary character of s 63 procedure.[38] The plurality emphasised the summary nature of the procedure to allow a cheap and simple process of determining questions that might arise in the administration of trust estates.

43 Private and personal advice.[39] The plurality said:

A fifth matter, closely related to the fourth, is that s 63 operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants"; it affords a facility for giving "private advice"[40]. It is private advice because its function is to give personal protection to the trustee.[41]

44 Role of context in applying s 63.[42] The plurality said that the application of s 63 will tend to vary with the type of trust involved. This probably has less relevance to the matter in issue in this case.

45 Relationship of s 63 to rights of indemnity.[43] Although speaking in the context of trusts, in my opinion, the plurality made observations on the purpose of seeking advice that have application to that of a court appointed liquidator. They said:

In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs.

It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust. [44]

46 The Court of Appeal's general principles.[45] I need not address this eighth point in any detail. The plurality did, however, take issue with the Court of Appeal's observation that it would be rare and difficult for a trustee who was alleged to have committed breach of trust to obtain assistance under s 63.

47 The plurality said that they had dealt with this matter at some little length for a number of reasons including that the powers under consideration rarely come before appellate courts but are of practical importance in the administration of the Act. They also said these laws find reflection in statutes operating in Australian jurisdictions other that than that to which the Act applies. I take that to be a reference to provisions such as s 479(3) of the Corporations Act 2001.

48 In Hall v Poolman[46] the New South Wales Court of Appeal (Spigelman CJ, Hodgson JA and Austin J) accepted that the principles espoused by the High Court in St Petra Inc v Petar[47] applied to an application for judicial directions under s 479(3).[48]

49 I have dealt with St Petra Inc v Petar[49] at some length as I believe it has particular relevance to the issues raised by Wixart. Applying a similar approach to that adopted by the High Court to s 63 of the Trustee Act 1925 (NSW), in my view:

(1) The liquidator is entitled to seek directions on his administration of the winding up even though the issue about which he seeks a direction may be or become an adversarial issue in other proceedings.

(2) The direction or advice is to be directed to advising the liquidator on whether or not he or she is justified in conducting the winding up in a certain way and not deciding disputes between competing parties.

(3) The direction or advice should not seek to resolve an issue between competing parties but the fact that the advise may tend to foreclose an issue in other disputed proceedings is not of special significance in the court exercising its discretion to give private advice to the liquidator.

(4) Where a liquidator seeks advice on an issue which may be contested between competing parties, the court should be alert to not going further than is necessary to give the advice sought.

(5) The liquidator is not limited to seeking directions about the limited range of matters that Wixart contended as set out above. It is unnecessary for me to proscribe the range.

50 In this case the liquidator has had great difficulty getting together the relevant evidence. Mr Simmons in the statement of affairs provided no information on the various trusts of which Mento Developments had been the trustee. Despite a request from the liquidator to produce the trust deeds Mr Simmons failed to do so. The liquidator did not receive many of the relevant documents until he had examined Mr Simmons and obtained a court order for their production. The material that the liquidator has, does not clearly establish the position of Mento Developments and the four trusts it acted as trustee of. The documents he has been provided leave gaps and uncertainties. In my opinion, the liquidator is entitled to ask the questions that he does.

51 In this case, the liquidator does not seek a resolution of any issue between Mento Developments and Wixart as was sought in Editions Tom Thompson Pty Ltd v Pilley.[50] I am not being asked nor do I determine any issue between Wixart and Mento Developments. Rather, I see the matter as the court assisting the liquidator to get on with winding up Mento Developments and focusing on the real issues it faces. I do not consider that my decision is contrary to any of the cases referred to me by Wixart. It does, however, benefit from the examination of the related issue in the St Petra Inc v Petar[51] case.

52 I propose to apply those principles in giving directions on the five questions.

53 On questions one and two, Wixart asserts in its submissions, there is no reason to doubt that the Mento Developments was the trustee of the MDT when it executed the Rexwell guarantee on 20 March 1998. It was appointed as trustee on 20 June 1981 and did not cease to be trustee until 26 August 2003, when it was replaced by Wixart. Similarly, Mento Developments was trustee of the WSUT from 20 December 1981 until 26 August 2003, when it was replaced by Wixart.

54 The liquidator, however, expressed his concern that there is little evidence of the trust relationship. He says the only evidence appears to be first a bundle of balance sheets which would suggest that assets are owned by a trust, and second a handful of minutes which relate not to the initial trustee relationship but to the change of trustee. The liquidator contends there are substantial gaps in all that evidence.

55 The liquidator does not assert a particular position in respect of question one but due to the paucity of evidence seeks the direction of the court.

56 As to question two, the liquidator has similar concerns including that there are no documents of Mento Developments that recognise it holds Ruffy properties on trust for the WSUT. Wixart produced accounts in the name of WSUT but no declaration of trust or other internal minutes of Mento Developments as trustee acknowledging it holds the properties on trust for WSUT. Wixart did produce a letter dated 10 December 1997 from the ANZ to Mento Developments offering a facility to Mento as trustee of the WSUT to purchase a property at Ruffy.

57 The liquidator submits that Mr Simmons is an experienced accountant and tax agent and therefore one would expect that with one of Mr Simmons' own companies there would be a minute, at the very outset, saying, "The company hereby resolves that it acquires this asset in its capacity as a trustee." He contends that such minutes are normally kept. The liquidator submits that as the WSUT held land one would expect a minute of that sort and preferably a declaration of trust but again there are no such documents. The liquidator said he is uncomfortable about that position. There is substance in what the liquidator says. Mento Developments carried on business as an accountancy practice and a project manager. One would have expected that Mr Simmons was seeking to shield trust assets from debts incurred by Mento Developments that conduct of the trusts would have been properly recorded. There does appear to have been a laxness about the conduct of the relevant trusts.

58 On balance, however, in my view the evidence available to the liquidator at this stage does justify him proceeding in the administration on the basis that Mento Developments was the trustee of each of the MDT and the WSUT when it executed the guarantee on 20 March 1998.

59 This question asks in what capacity did Mento Developments sign the guarantee. Both parties submitted that the correct approach to this question was resolved in Re Interwest Hotels Pty Ltd[52] a decision of Eames J of the this Court. There a company which acted solely as a trustee and had not assets in its own right signed a guarantee and indemnity. The issue before his Honour was whether or not the company executed the guarantee in its own right or as trustee. It is sufficient to quote from the head note:

(i) As a matter of objective fact, the company executed the deed of guarantee solely in its own right.

(ii) The question of capacity in which the company executed the deed of guarantee and indemnity is a matter to be determined objectively and not on the basis of the subjective intentions of the parties; and is a matter of construction to be decided by reference to all the circumstances in the case.

(iii) There is no presumption that a company is acting in any capacity other than on its own behalf when it contracts with another party and, therefore, no rule that a company is, without more, presumed to be acting in capacities other than its personal right when it contracts with another company.

(iv) Where a company known to have only acted in the past in a trustee capacity, claims to have acted in its own right, and in so doing to have given a worthless guarantee, that company faces an evidential burden if it is to establish that a contract which defies commercial logic in such a manner is one which has been accepted on that basis by the other party to the contract.

(v) Once it is accepted that extrinsic evidence must be adduced to resolve a factual question, ie, in what capacity a party entered into a certain contract, there is no logical reason why that evidence should be confined either temporally, or as to oral or documentary evidence. The only restriction which needs to be imposed is that which encompasses the traditional rules concerning the admissibility of evidence.

(vi) Extrinsic evidence, when led to establish the capacity in which a party has executed a contract, is not being led in order to construct the terms of the contract. Such evidence was not concerned with the actual intentions of the parties as to the meaning of the written terms of the contract but to a matter which was in common contemplation but was otherwise embodied in the terms of the written agreement and was, therefore, admissible.

(vii) A conclusion that the company did not execute the deed of guarantee and indemnity as trustee, but only personally, would not be one which would destroy the effect of the deed, although the efficacy of the deed as a source of funds in the event of default but the borrower would be limited unless the company later came into funds in its own account.

60 Both parties contended that in accordance with this principle I could have regard to all the evidence led before me and in particular to the letters leading up to the execution of the guarantee and the oral evidence of Mr Fayman, Mr Wallan and Mr Simmons.

61 If the matter rested on the contemporaneous documents alone, then the evidence would suggest that Mento Developments executed the guarantee as trustee of the MDT, as it had agreed with Mr Wallan' as confirmed in Mr Fayman's handwritten letter to Mr Simmons and the notations on the letter of 17 March 1998.

62 Eames J referred to the evidential burden which falls on Mento Developments to establish that on an objective basis the parties agreed to Mento Developments giving a worthless guarantee when the other guaranteeing party appears to have given a guarantee of value.[53] In view of the nature of this application, no such burden exists on Mr Simmons.

63 Mr Simmons gave evidence that Mr Fayman made it clear through his solicitors that he would not go ahead with the deal unless he had Mr Simmons' personal guarantee. Mr Simmons acknowledges that Mr Fayman also asked that Mr Simmons sign a guarantee on behalf of his trust. He admitted his recollection was a bit "hazy", but his recollection is that he spoke to both Mr Fayman and Mr Wallan. He says it was either a phone call or a meeting and he said he would not give a guarantee from his trust.[54] He could not recall which of the two he said he said that to.

64 Mr Fayman denied meeting Mr Simmons. He said he would not have proceeded with the venture without guarantees from Mr Jackson's and Mr Simmons companies and their trusts. Mr Wallan could not recall whether or not Mr Simmons told him he was not agreeable to providing a guarantee from his trust but in substance says that it is unlikely he did in view of the notation on the letter 17 March.[55]

65 It is fair to say the memory of all concerned was "hazy". That is only natural as we are dealing with events that happened eleven years ago. Mr Simmons agreed that it was likely that the existence of the MDT which is recorded on the letter of 17 March 1998 came from him. He could offer no other suggestion how Mr Fayman and Mr Wallan found out about its existence.

66 The provision of that information is not consistent with Mr Simmons' evidence that he did not provide details of his trusts as he told, either Mr Wallan or Mr Fayman, he was not prepared to provide a guarantee from his trust.

67 It is also relevant to note that the MTD was to profit by the property development venture. As such it may seem only fair and reasonable that it was a party to the guarantee.

68 Mr Simmons' suggestion that he was agreeable to provide the guarantee of Mento Developments in its own capacity as it had no assets may also be a relevant factor to bear in mind.

69 I do not believe it is appropriate on a summons for directions to express a concluded view on whether or not I accept Mr Simmons evidence. On the other hand, the liquidator is entitled to directions on whether or not he is justified in administering the winding up on the basis that Mento Developments signed the guarantee in its capacity as trustee of the MDT.

70 In those circumstances, having regard to the test laid down by Eames J in Re Interwest Hotels Pty Ltd[56] and the evidence presented to the court, I find that on the evidence presently available to the liquidator he is justified in proceeding in the administration of the winding up on the basis that Mento Developments executed the guarantee as trustee of the MDT. I also will direct that the liquidator is justified in instituting or defending proceedings, if necessary, to establish the same as against Wixart Pty Ltd and/or Mr Simmons.

71 When one has regard to the letter of 17 March 1998, there is little or no evidence to support the view that Mento Developments signed the guarantee in its capacity as trustee of that trust. The liquidator is unable to point to any evidence to suggest that Mento Developments signed the guarantee in its capacity as trustee of the WSUT.

72 Accordingly, on the evidence presently available to the liquidator he would not be justified in treating Mento Developments as singing the guarantee as trustee of the WSUT.

73 The liquidator contends that on this question Mr Simmons and Wixart have only produced a series of balance sheets which show that the WSUT owns land, but the registered proprietor is Mento, and for the last couple of years, Wixart, who is the new trustee, has been demanding that the liquidator transfer the property, and the liquidator has not been satisfied about the information that he's had and about the documents he's been given.

74 The liquidator said that it's been suggested that there's been full cooperation. He says the documents just don't bear that out, and it's not the case here. He says the most fundamental document is the deed of trust itself, and it took a court order to have that produced.

75 Mr Simmons is an accountant and effectively controlled Mento Developments and the WSUT. Every year he produced accounts showing that the Ruffy land was held on trust for the WSUT. He produced the letter from the ANZ offering finance to Mento Developments as the trustee of the WSUT. Mr Simmons gave evidence that Mento Developments bought the Ruffy land as trustee for the WSUT. There is no evidence that Mento Developments provided its own moneys to buy the land. In my view, on the evidence presently available to the liquidator, he would not be justified in proceeding in the administration of the winding up on the basis that Mento Developments is the beneficial owner of the Ruffy land.

I certify that this and the 22 preceding pages are a true copy of the reasons for Judgment of Robson J of the Supreme Court of Victoria delivered on 17 August 2009.

[25] [2007] FCA 1443; (2007) 25 ACLC 1433, BC200707834, at [49] per French J.

[28] I quote extensively from the headnote.

[40] Re Application of Macedonian Orthodox Community Church St Petka Inc (No 2) [2005] NSWSC 558; (2005) 63 NSWLR 441 at [23]; approved in Macedonian Orthodox Community Church St Petka Inc v Petar (2006) 66 NSWLR 112; [2006] NSWCA 160 at [40] per Beazley and Giles JJA.

At a glance

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Judgment (160 paragraphs)

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Cases Cited (8)