Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13

Background to the Principal Proceedings

1. Both the ADF Proceedings and the CBA Proceedings concern loans that the Commonwealth Bank of Australia ("CBA") made to the Anglican Development Fund, Diocese of Bathurst Board ("ADF") in the sum of approximately $37.8M. Out of these loan funds, ADF in turn loaned approximately $19.5M to the council of Macquarie Anglican Grammar School Dubbo ("MAGS Council"), and $15.4M to the council of Orange Anglican Grammar School ("OAGS Council"). Associated with these loans the Bishop of Bathurst issued two letters to CBA. A dispute exists in the Principal Proceedings as to whether these two letters are legally binding "letters of guarantee" or whether they are only "letters of comfort". Upon default by MAGS Council and OAGS Council in making repayment to ADF, and default by ADF in making repayment to CBA, the Court appointed receivers and managers to ADF, and thereafter: (a) the receivers and managers caused ADF to commenced the ADF Proceedings; and (b) CBA commenced the CBA Proceedings, seeking relief in the nature of specific performance, to require some 20 individuals that comprise the Bishop-in-Council ("BIC") of the Anglican Church of Australia ("Church") Diocese of Bathurst ("Diocese") to sell property belonging to all parishes, schools and other organisations of the Diocese ("Diocesan Entities") and apply the proceeds of such sales in discharge of the loans. APT holds the legal title to the property of the Diocesan Entities. ADF and the CBA allege APT breached certain enforceable obligations that it owed to each of them.
2. In the Summons in the ADF Proceedings and the CBA Proceedings the several plaintiffs claim relief of the following general kinds: 1. an order that APT report to BIC: 1. a default by MAGS Council and OAGS Council under the loans ADF had made to each of them; 2. a default by ADF under the loan facilities provided by CBA; 3. pursuant to cl 1(c) of the Bathurst Anglican Church Finance Ordinance ("Finance Ordinance"); and 1. an order that BIC promote the making of an ordinance to levy jointly and severally all Diocesan Entities in the amount of approximately $37.8M, or alternatively $25.4M, pursuant to certain powers of levy available to it, namely cl 4 of the Finance Ordinance, and cl 32 of the Anglican Development Fund Diocese of Bathurst Ordinance ("ADF Ordinance"); and 2. an order that BIC direct APT to realise assets held by it on behalf of Diocesan Entities, and to pay the net proceeds of sale of these assets (after deduction of the expenses of sale) to the receivers and managers of ADF in the amount of approximately $37.8M, or alternatively in the amount of $25.4M; and 3. alternatively, damages.
3. The relief claimed in the Principal Proceedings appears to raise three main groups of issues, which may be shortly summarised. The first group of issues is whether BIC can validly pass an ordinance to levy Diocesan Entities and require APT to realise assets held on behalf of Diocesan Entities (which assets are subject to specific trusts for charitable purposes unconnected to the purposes of ADF) in order to discharge the indebtedness of ADF, and whether if BIC passed such an ordinance that APT would be in breach of trust in complying with such an ordinance (the Trust Property Issues).
4. The second group of issues that arise in the Principal Proceedings are issues as to whether the two letters the Bishop of Bathurst signed and issued constitute a guarantee or give rise to any enforceable obligation on the part of BIC or APT, which obligation is capable now of being sued upon by CBA or the receivers of ADF (the Security Document Issue).
5. The third group of issues arising in the principal proceedings is whether either of CBA or ADF engaged in conduct in relation to BIC which gives rise to claims for relief by APT under the Contracts Review Act 1980, the Fair Trading Act 1987 or the Australian Securities and Investments Commission Act 2001 (Cth), such as would prevent CBA and/or the ADF (through its receivers and managers) from enforcing any obligation of BIC to pass any such ordinance (the Impeachment Issue).

Question 1 - Whether APT is justified in defending the Principal Proceedings

1. APT bases its application upon the principles Palmer J stated in Re Application of Macedonian Orthodox Community Church St Petka Inc [No 3] [2006] NSWSC 1247 at [80], in relation to the issues to be considered in determining whether the trustee of a charitable trust should be given judicial advice to defend charitable trust proceedings. The High Court of Australia approved Palmer J's statement of principles in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 ("Macedonian Orthodox"); (2008) 237 CLR 66, at [162].
2. The High Court also described in Macedonian Orthodox (at [36] - [60] and [65] - [66]) the Court's general power to give judicial advice under Trustee Act, s 63 and the importance of considering the charitable or other context of the advice being given (at [67]).
3. In Re Application of Macedonian Orthodox Community Church St Petka Inc [No 3] [2006] NSWSC 1247 at [80] Palmer J said: "In a judicial advice application in which the trustee asks whether it is justified in prosecuting or defending litigation, all the Court does is to reach a view as to whether the Opinion of Counsel satisfies it that there are suffıcient prospects of success to warrant the trustee in proceeding with the litigation. Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable. Whether, in the light of Counsel's Opinion, there are 'suffıcient' prospects of success calls for another judgment, founded upon such considerations as: - the nature of the case and the issues raised; - the amounts involved, including likely costs - whether the likely costs to be incurred by the trustee are proportionate to the issues and [the] significance of the case; - the consequences of the litigation to the parties concerned; - in the case of a charitable trust, any relevant public interest factors."
4. Thus, counsel's opinion is used on such applications to assess whether the propositions of law relied upon are properly arguable. But counsel's opinion is also used to determine whether there are sufficient prospects of success for the litigation, the relevant considerations for which Palmer J has identified in the passage cited above.
5. A trustee will not ordinarily be permitted recourse to trust assets for the purpose of defending proceedings, unless the "expenditure from trust resources will not be futile" or "fruitless": Re Application of Macedonian Orthodox Community Church St Petka Inc [No 3] at [40] per Palmer J; and see also Re Application of Macedonian Orthodox Community Church St Petka Inc [No 4] [2007] NSWSC 254 at [6] per Palmer J.
6. Having reviewed the materials provided to the Court, I conclude that APT would be justified in defending the Principal Proceedings and would also be justified in using the resources of the trust to do so.
7. Three principal considerations inform this conclusion. Firstly the Court has reviewed the opinion dated 26 May 2014 of Garth Blake SC (the "Blake Opinion"), upon which APT relies. It is an important factor inclining the Court to the conclusion that APT would be justified in defending the Principal Proceedings. The Court made a confidentiality order in respect of the Blake Opinion. It is the subject of client legal privilege within Evidence Act 1995, Pt 3.10, Div 1 and that privilege has not been waived: Macedonian Orthodox Community Church St Petka Inc v Diocesan Bishop of Macedonian Orthodox Church of Australia and New Zealand (2006) 66 NSWLR 112.
8. Although the Blake Opinion remains confidential, it can nevertheless be said in these reasons that it fully and clearly articulates the arguments that APT anticipates it will deploy in the Proceedings and is as complete as might reasonably be expected at this stage of the Principal Proceedings. The Blake Opinion supports the conclusion, upon the assumptions that it makes and the materials it identifies, that APT would be justified in defending the claims made in the Principal Proceedings. Counsel's present view is that APT has reasonable prospects of success in defending the claims made and would be justified in opposing the relief claimed.
9. Secondly, the Court concludes that APT's case is not unarguable and that APT can reasonably contend that the relief sought by the several plaintiffs was not made out. The Blake Opinion identifies various disputes of fact and law that in my view are sufficient to justify APT's contention that the relief sought against it will not be made out. Whether that relief actually succeeds or not is of course question for the trial judge in the Principal Proceedings. But at this stage of the Principal Proceedings APT's answer to the relief sought seems reasonably maintainable.
10. Thirdly, APT is the proper contradictor to the several plaintiffs' claims. No other party could readily answer the allegations made against APT. Moreover, it can be anticipated that the Principal Proceedings will involve an examination of APT's own conduct and its administration of the charitable trusts the subject of these proceedings. That APT is the proper contradictor of these claims may be seen by looking more closely at the issues that will be fielded in the proceedings.
11. The Trust Property, Security Document and Impeachment Issues each raise questions as to the management or administration of the trust property within s 63(1) of the Trustee Act. The ultimate purpose of the Principal Proceedings is to appropriate the assets now held by APT on the several trusts to the payment of the liabilities incurred by one of the Diocesan Entities. As the guardian of this trust property, APT is the proper contradictor in respect of such issues.
12. The Trust Property and Security Document Issues also raise questions as to the interpretation of the trust instrument within s 63(1) of the Trustee Act. The resolution of these issues depends in part upon the proper construction of ordinances in force within the Diocese by reason of the constitution of the Diocese and the Church, pursuant to the Anglican Church of Australia Constitution Act 1961 (NSW) and the Anglican Church of Australia Constitution Act 1902 (NSW). These ordinances are said to form part of the charitable trusts upon which the APT holds the subject property. As the guardian of this trust property, APT is the proper contradictor in respect of such issues.

Question 2 - Whether APT is justified in using trust assets to fund its defence

1. The second question is whether APT should be permitted to utilise the trust's assets for its defence of the Principal Proceedings. In my view, APT is justified in using trust assets to fund its defence in the Principal Proceedings. In addition to the important consideration that the expenditure from trust resources would not be futile because of the matters the Court has already considered in relation to the Blake Opinion, three other reasons prompt this conclusion: (1) APT is unable to fund its defence without recourse to Trust assets; (2) Trust assets would be significantly depleted if the relief sought in the Principal Proceedings were granted; and (3) the costs likely to be incurred by APT in funding its defence are proportionate to the issues raised in the Principal Proceedings. The Court will deal with each of these matters in turn.
2. The Costs of Defending the Substantive Proceedings. The estimated legal costs of APT defending the Substantive Proceedings (on the basis the ADF Proceedings and the CBA Proceedings are heard together) are $1,142,218.55 (exclusive of GST).
3. APT is unable to fund these legal costs of its defence of the Principal Proceedings without recourse to trust assets. Whether it should be permitted in these circumstances to have recourse to the Trust's assets has been said to follow closely upon consideration of whether the trustee is a proper contradictor, and has an arguable case: AMP Capital Investors Ltd as Responsible Entity for the KSC Trust [2012] NSWSC 67 at [14]. I have already concluded in these reasons that APT is a proper contradictor and that it does have an arguable case.
4. The Cost to the Trust of the Relief Sought in the Substantive Proceedings. The amount at stake in the Substantive Proceeding is $37.8M, or alternative $25.4M (the latter being the net asset deficiency of ADF). If obtained, the relief sought would, at the worst, involve APT being required to sell Trust property to pay monies of the order of $25-$37 million plus interest and costs to CBA.
5. The evidence discloses that APT holds some 245 parcels of real property grouped as being associated with 33 named parishes of the Diocese (comprising churches, church halls and rectories used within these parties), 15 parcels of real property grouped only as "Diocesan" properties and two other parcels grouped as "Non-Diocesan" properties. APT also holds investment funds, its holding of which is recorded in over 263 separate bank accounts, which are grouped either under named parishes for specified purposes in connection with the named parish, or for specified diocesan purposes, or specified diocesan organisations.
6. The relief sought in the Principal Proceedings would require the disposal of a very substantial part of the assets APT holds for and on behalf of Diocesan Entities. If the plaintiffs are successful in the Principal Proceedings, then the Trust property, which is held by APT on specific trusts for various Diocesan Entities will be realized and diverted for purposes which are outside the specific trusts on which that property is held. Ultimately that means that the Trust property in question will probably not be available to the Diocesan Entities to conduct the ministry of the Church for benefit of the communities in western New South Wales.
7. Costs APT is Likely to Incur are Proportionate. Another relevant matter is the ratio of the costs of the Principal Proceedings to the total assets of the Trust. The likely costs of APT defending the Principal Proceedings are substantial. But they are nevertheless proportionate to the issues raised, as the outcome of these issues will determine whether the property held by APT on specific trusts for various Diocesan Entities can be required to be realized and diverted to satisfy the indebtedness of a particular Diocesan Entity, and thus whether that property will remain available for carrying out the charitable purposes of those Diocesan Entities.
8. The amounts that will probably be required to be expended to defend the Principal Proceedings are, the evidence establishes, less than 5% of the total value of the claims made by CBA and/or ADF against the various defendants to the Principal Proceedings. It does not seem disproportionate for APT to expend up to 5% of the amount of the Trust funds that might be at risk if the Principal Proceedings were not defended. This is a relevant consideration: AMP Capital Investors Ltd as Responsible Entity for the KSC Trust at [15].
9. APT proposes to have recourse to liquid assets standing to its credit in order to defend the Principal Proceedings, and these will be shared between the Diocesan Entities, whose funds they are, in a rateable and proportionate way. Some of these liquid assets will be replenished by the sale of select real property.

Question 3 - Claim on the Ansvar Insurance Policy

1. It is not in issue that a policy of insurance covering Trustees' liability in certain circumstances was issued by Ansvar. At the time of the hearing Ansvar has not yet advised whether or not it accepts that the Ansvar Policy responds to the claims against APT in the Principal Proceedings. Whether the policy of insurance is available to APT is the subject of the third question for judicial advice.
2. Once again on this issue APT relies upon the confidential Blake Opinion. APT was not concerned that the result of the Court's judicial advice on the third question might be made public, although the terms of the Blake Opinion on the subject remain confidential. In those circumstances it is sufficient for the Court now to express the view that having seen the Blake Opinion in relation to the potential for a claim on the Ansvar Policy the Court advises that APT would be justified in not commencing proceedings against Ansvar in the event it were to deny or not admit liability on the Ansvar Policy.

Summary of further Procedural Developments and Orders

1. On 26 May 2014 the Court made the orders set out below. Those orders did not exhaust the relief that APT sought on its Summons. The proceedings were stood over to permit APT to obtain further judicial advice in relation to a possible cross claim in the proceedings, should it have that need. A further document entitled "First Statement of Facts" was filed on 13 November 2014 in relation to that potential issue and the proceedings were mentioned again on 27 February 2015 and then stood over to 1 May 2015 with a view to the hearing of this issue. But on 1 May 2015 APT indicated that it did not require any further judicial advice in relation to any cross claim. It was not therefore necessary to make any further order in the proceedings on that day. Thus the orders set out below on 26 May 2014 are the only orders made in the proceedings. But the Court had indicated that it would publish its reasons.
2. In accordance with applicable principle, as APT's application for this judicial advice arises in the course of its duties as trustee it is entitled to be indemnified for its costs of this application. Thus an order to that effect was made.
3. The Court made the following orders and directions on 26 May 2014:
4. That the plaintiff would be justified in defending each of proceedings with the case number 2014/75940 in the Commercial List of the Equity Division of this Court and proceedings with the case number 2014/75947 in the Commercial List of the Equity Division of this Court.
5. That the plaintiff is entitled to have recourse to trust assets for the purpose of paying its reasonable costs and disbursements of defending the proceedings in paragraph 1 above.
6. That the plaintiff would be justified in not commencing proceedings against Ansvar Insurance Limited in the event that it denies liability or fails to admit liability under the "Anglican Church of Australia Management Liability Insurance Policy" for the 12 months ending on 31 October 2014 which is Exhibit 1 tab 23 to the First Statement of Facts filed on 16 May 2014.
7. That the plaintiff is entitled to have recourse to trust assets for the purpose of paying its costs of these proceedings on the indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 February 2016