Re AGW Funds Management Limited [2017] VSC 124 (24 March 2017)

(a) AGW Walnut Scheme No (1) (ARSN 119 514 724);

(b) AGW Walnut Scheme No (2) (ARSN 125 191 531);

(c) AGW Walnut Scheme No (3) (ARSN 136 845 022).

2 AGW (or the Trustee) seeks a direction or judicial advice under r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) that, as responsible entity of the three schemes, it is justified in accepting an offer from Webster Limited ('Webster') dated 27 January 2017 for the sale of all of the 2017 walnut crop ('the Webster Offer').

3 The application is supported by an affidavit of Timothy Christopher Holmes ('Holmes Affidavit'), the general manager of AGW, together with a supplementary affidavit by Mr Holmes ('Second Holmes Affidavit'), both affirmed on 16 March 2017.

4 The application was opposed by a group of growers ('the Growers') represented by Sarah Elizabeth Davies ('Davies'), a solicitor practising in Buderim in the State of Queensland.

5 The Originating Motion is dated 16 March 2017. The application was heard at 2.15pm on that day. Ms Douglas of Counsel, instructed by Davies was given leave to appear on behalf of the Growers. Ms Douglas filed an affidavit sworn by Davies on 16 March 2017 ('the Davies Affidavit'). Ms Douglas applied for an adjournment of the application in order to file and serve additional affidavits as contemplated by paragraph 13 of the Davies Affidavit. It was contended that the additional affidavits would show that the Trustee was not acting properly and in particular had not given fair or proper consideration to all relevant issues including price.

6 At the conclusion of the hearing on 16 March, I reserved my decision and indicated that I would give my decision at 10am the next day, being 17 March 2017. This was necessary because the Webster Offer referred to above expired at the close of business on 17 March 2017.

7 On 17 March 2017 at 10.00 am I gave my decision. I refused the adjournment, declined to give the Trustee any advice or direction and indicated that I would not make any order as to costs. I indicated that reasons would follow. These are the reasons.

8 AGW is responsible entity of the schemes and also manager of each scheme under a Management Agreement. AGW has the power to sell the crop under clause 10.1 of the Management Agreement. Clause 11 contains a list of factors AGW must take into account when selling.

9 AGW has a very large crop of walnuts to sell each year. The crop is perishable and practically must be sold within 12 months of harvest to obtain the best price before the crop degrades, and loses value, with age. The crop is large - it makes up about 25%-30% of annual Australian production - such that there is a narrow range of possible buyers, and in Australia, the only market participant to buy walnuts on that scale, it was submitted, is Webster.

10 The walnut crop is ready to harvest each year from about mid-March for a period of four weeks. Harvest is about to commence. Webster as the proposed purchaser of the crop is also the entity engaged by AGW to harvest the crop. In the same harvest Webster will harvest other non-scheme trees and the scheme crop will be mixed into a bulk. Although the volume of the schemes crop will be known it is not possible, it was submitted, to separate the crop from the non-scheme walnuts.

11 The proposal is that Webster both harvests the crop and purchases it from AGW at the point of drying after harvest, avoiding the need for AGW to take further steps to process, store and sell it.

12 Webster is a public company with its shares listed on the ASX. Webster is the parent company of AGW. It is the largest participant in the Walnut market in Australia, as both a buyer from growers and as a vendor. Although the proposed sale to Webster is not as such at arm's length it was submitted that each entity has separate boards and operate independently of each other.

13 Webster has previously purchased the crop from AGW in each of the last three years in the same way as is proposed this year. In each of those years it was, again, the only market participant to buy walnuts on that scale.

14 The Webster Offer was first made on 27 January 2017, open to 25 February. The offer has been extended at AGW's request, to permit time for it to be considered by AGW. It expired on 17 March 2017. AGW sought a further extension, but Webster declined to offer one. It has been put to AGW by Webster that if the offer was not accepted, it will not be put again.

15 The reasons given by Webster for rejecting an extension are:

(a) the harvest commenced this week [the week of 13 March];

(b) after harvest and processing, dried nuts are stored in the bulk and Webster does not have facilities for separation of, and separate storage of, the plaintiff's crops from the bulk;

(c) the first batch of walnuts will be dried and ready for storage during the week;

(d) accordingly, due to the absence of facility to segregate and store the nuts, Webster's offer to purchase at the point of drying ends once drying commences this week [the week of 13 March].

16 The Trustee submitted that there were no other offers for the walnut crop, that the price had been independently assessed and that it was therefore desirous of accepting the offer. However, it was submitted that it was appropriate that the Court give a direction that it was acting properly because of the objection of the Growers and the extreme urgency of the situation. The Growers submitted that as there were other better courses available to the Trustee, including a higher price (matters which it wished to establish by evidence), the Trustee was not acting properly.

17 Order 54.02 of the Supreme Court Rules provides as follows:

54.02 Relief without general administration

(1) A proceeding may be brought for any relief which could be granted in an administration proceeding and a claim need not be made for the administration or execution under the direction of the Court of the estate or trust in respect of which the relief is sought.

(2) Without limiting paragraph (1), a proceeding may be brought for:

(a) the determination of any question which could be determined in an administration proceeding, including any question -

(i) arising in the administration of an estate or in the execution of a trust;

(ii) as to the composition of any class of persons having a claim against an estate or a beneficial interest in an estate or in property subject to a trust; or

(iii) as to the rights or interests of a person claiming to be a creditor of an estate or to be entitled under the will or on the intestacy of a deceased person or to be beneficially entitled under a trust;

(b) an order directing an executor, administrator or trustee to -

(i) furnish and, if necessary, verify accounts;

(ii) pay funds of the estate or trust into court; or

(iii) do or abstain from doing any act;

(c) an order -

(i) approving any sale, purchase, compromise or other transaction by an executor, administrator or trustee; or

(ii) directing any act to be done in the administration of an estate or in the execution of a trust which the Court could order to be done if the estate or trust were being administered or executed under the direction of the Court.

18 In ExxonMobil Superannuation Plan Pty Ltd v Esso Australia Pty Ltd,[2] Habersberger J set out the relevant principles in relation to the role of the Court in applications under Order 54.02. At paragraph [87] his Honour said -

[87] Counsel for the Trustee submitted, and I agree, that the authorities demonstrate that the Court's role is not to consider the wisdom of the Trustee's exercise of discretion but to grant the Trustee's application for an order approving the Trustee's agreement to the Compromise, if the Court is satisfied of the propriety of the application. That involves considering whether:

(a) the Trustee's decision to agree to the Compromise was within power;

(b) there was any impropriety in the Trustee's decision;

(c) the Trustee exercised its discretion in good faith; and

(d) the Trustee gave fair consideration to the relevant issues.[3]

19 In Smoel v Morris,[4] after referring to the decision of the High Court in the Macedonian Church case,[5] Maxwell P[6] said -

[22] As is explained in the majority judgment in that case, and as appears from the language of r 54.02 itself, the purpose of establishing a procedure of this kind was to enable a trustee or executor to obtain the direction or opinion of the Court on a matter of administration or management, or as to the construction of the will or trust instrument, without the need to commence an administration suit with all its attendant delay and cost. As the High Court noted in Macedonian Church, the 19th century United Kingdom legislation which first established a procedure of this kind was designed:

to give trustees a summary right by petition ... to obtain the opinion of the Court of Chancery upon any point which might arise in the administration of the trust estate. This would be of great benefit to trustees, and, by substituting a cheap and simple process of determining questions, prevent the necessity of expensive suits.[7]

[23] The procedure invoked by the executors is thus a summary procedure, intended to enable questions arising in the administration of an estate or a trust to be resolved cheaply and simply. Moreover, as the High Court also pointed out, provisions of this kind operate as an exception to the Court's ordinary function of deciding disputes between competing litigants. These procedures afford a facility for the Court to give 'private advice'. It is private because the function of the judicial advice is to give personal protection to the trustee or executor in respect of the course of action sought to be authorised.[8]

...

[25] It was accepted by both parties to the appeal that what Crockett J said in 1972 in Re Green, about the nature of the Court's consideration of a proposed course of conduct, remained a correct statement of the law. That is, it is no part of the Court's function to pass judgment on whether what the executors (or trustees) propose to do is wise or unwise. That is a matter for the executors or the trustees, as the case may be. Rather, in a case such as the present, the question for the Court is whether there is power in the administrator to do what is proposed and - assuming that there is power - whether it is:

improper [for the executors] to exercise the power which they possess in the postulated manner.[9]

20 In the Macedonian Church case, the High Court said -

[60] The Attorney-General submitted that the fact that a court may rely on a written statement of the trustee or use other material "instead of evidence" by reason of s 63(3) undoubtedly gives rise to discretionary considerations of substantial weight where the question for advice is in form or substance an application which will determine or affect questions that could also be resolved in ordinary adversarial litigation. He also submitted that it may be the case that the court would properly decline judicial advice if, for example, a contested construction suit, constituted by the disputing parties and resolved by a judge acting on evidence, appeared to be more apt to the resolution of a question concerning the interpretation of the trust instrument. He further submitted, however, that the discretion of the court to consider applications brought under s 63 should not be yoked to a general first principle that, where there is a contest or where there are adversaries, it is not appropriate to give advice. Those submissions are correct, and early authorities must be read in their light.

...

[105] While accepting that it was not beyond power to give judicial advice that determined substantive rights in contested proceedings, the Court of Appeal appeared to think that it was so powerful a discretionary factor that generally this should not be done, and that this was decisive in the present case. The Attorney-General argued[10] that the Privy Council in Marley's case was not establishing a dichotomy, as the Court of Appeal appears to have thought, between ascertaining the best interests of the trust on the one hand and not determining adversarial rights on the other, the former function being permissible and the latter not. Rather the Privy Council was concerned to make the point that the court's sole purpose in giving judicial advice is to determine what ought to be done in the best interests of the trust estate, and that while it was not the court's purpose to determine the rights of adversaries, that could be done as a necessary incident of determining what course ought to be followed in the best interests of the trust estate.

[106] In the present context, that conclusion would appear to be supported by s 63(3)-(4) of the Act, which contemplate the use of evidence in some cases, by the notice procedures in s 63(4) and (8)-(10), and by the possibility of appeal contemplated by s 63(11) - all steps which could be material if there were a risk that the judicial advice given might affect the rights of adversaries. That is, while the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the court not to grant the advice. If they were, the consequence would be that advice would either never, or only very exceptionally, be given on the issue whether trustees should defend proceedings instituted against them for breach of trust. Nothing in the language of s 63 suggests this outcome.

21 It is clear from the authorities that the jurisdiction is discretionary[11] and that the procedure may in certain cases be unsuitable for disputed questions of fact.[12]

22 I decline to give the Trustee the advice or direction sought.

23 First and most importantly, I am unable and unwilling to give the advice in the time frame sought, that is instanter or overnight. Some careful reflection is needed in cases of this kind, particularly where these is opposition.

24 Secondly, although the Trustee undoubtedly has power,[13] I am unable to determine the propriety of the Trustee's proposed course of action and in particular whether its decision and discretion was exercised in good faith and with due regard to the relevant issues, including of course those raised by the Growers. This evaluation is difficult and I decline to undertake it in the circumstances referred to.

25 Thirdly, in essence this is an inter partes dispute between the Trustee and the Growers. Although, as stated in Macedonian Church, this is not a ground sufficient in and of itself for refusing to give Judicial Advice, in appropriate cases it may be so. This is such a case, given the totality of circumstances referred to. Given the serious allegations made by the Growers, including the relationship between the Trustee and Webster, it is best that the dispute be resolved in the usual way and not by a quick and summary evaluation of the issues. Further, given case management procedures and the willingness of the Commercial Court to hear urgent matters within days, the usual adversarial course should be followed. Indeed it is not uncommon in applications of this kind for a contradictor to be named, in order to ventilate and put the rival position. In such a case the underlying dispute is usually resolved,[14] in many cases with no less expedition.

26 Fourthly, I am concerned about jurisdiction. It is not clear why the Supreme Court of Victoria should embark on the application. In particular, why should a Judge of the Supreme Court of Victoria give 'private advice' to a Trustee based in Tasmania, in relation to property outside Victoria and with no evidence of any Growers in Victoria? The answer is not immediately apparent.

27 In all of the circumstances, which are indeed unusual, I am not comfortable providing any direction or advice to the solvent Trustee, and decline to do so.

28 Although declining to give advice, there are a few matters that need to be referred to. First, I do not mean to suggest in any way that the Trustee is not acting properly, but only that I am unable to determine this in a summary way. The Trustee of course remains free to make appropriate commercial decisions. It follows that I do not accept that it is open for the Court to deal with the matter in a summary way because the Court is not called upon to determine the wisdom of the decision and in any event it does not preclude the Growers from making a claim. However, although the advice may provide some protection to the Trustee, the protection is of less value and may even be worthless if a claim is still available. These issues are best avoided by dealing with the underlying dispute. However - and this is the second and related point - the Growers also need to give careful consideration to the matter. Had they applied for injunctive relief - which was threatened - they would have been required to give an undertaking as to damages. The damages may be extensive. Finally, although the Court has limitations and constraints, the parties do not and should work out an interim or final resolution to a problem that has been festering for some time.

29 I will hear the parties on the appropriate form of order.

[1] The background facts and matters are taken directly from the Trustee's submissions and the Holmes affidavit.

[2] [2010] VSC 357 (Habersberger J).

[3] Re Beloved Wilke's Charity [1851] EngR 375; (1851) 42 ER 330, 333; Gisborne v Gisborne (1877) 2 App Cas 300, 307; Re Allen-Meyrick's Will Trusts; Mangnall v Allen-Meyrick [1966] 1 WLR 499, 503; Re Green, deceased [1972] VicRp 98; [1972] VR 848, 850 (Crockett J); McKinnon v Samuels [2000] VSC 393, [14] (Eames J); The Ansett Superannuation Plan case [2004] FCA 130; (2004) 49 ACSR 1, [50]-[53] and [71] (Goldberg J).

[4] [2013] VSCA 11 (Maxwell P and Whelan JA).

[5] Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; [2008] 237 CLR 66.

[7] United Kingdom, Parliamentary Debates, House of Lords, 11 June 1857, col 1557 (Lord St Leonards), quoted in Macedonian Church [2008] HCA 42; (2008) 237 CLR 66, 91 [62].

[8] Macedonian Church [2008] HCA 42; (2008) 237 CLR 66, 91 [64].

[9] Re Green, deceased [1972] VR 850.

[10] Citing MTM Funds Management Ltd v Cavalane Holdings Pty Ltd [2000] NSWSC 922; (2000) 35 ACSR 440 at 445 [17].

[12] Nutter v Holland [1894] 3 Ch 408. See also Macedonian Church at [106].

[13] Often this is the critical question in applications of this kind whether under Order 54 or the relevant provisions of the Corporations Act 2001 (Cth) relating to advice to liquidators, administrators and receivers.

[14] See Warehouse Sales Pty Ltd (in liq) & Lewis and Templeton v LG Electronics Australia Pty Ltd & Ors (No 2) [2016] VSC 63.