Trust Company Fiduciary Services Ltd v Challenger Managed Investments Ltd

Trust Company Fiduciary Services Ltd v Challenger Managed Investments Ltd - [2008] NSWSC 1155 - NSWSC 2008 case summary — Zoe

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4538/08 Trust Company Fiduciary Services Ltd v Challenger Managed Investments Ltd JUDGMENT 1 Rein J: I heard this matter on Wednesday and Thursday last week, and indicated that I would endeavour to deliver judgment today as the matter is one of some urgency to the parties. The plaintiff, which I shall refer to as "TCF", and for whom Mr T Bathurst QC appears with Mr Darke, holds certain property in the nature of securities on trust for the benefit of holders of securities known as Tradable Interest bearing Convertible to Equity Trust Securities ("TICkETS") issued in the Macquarie Airports Reset Exchange Securities Trust ("MAREST") by its "responsible entity" Macquarie Airports Management Ltd ("MAML"). 2 TCF seeks, pursuant to s 81 of the Trustee Act 1925 ("the Act"), the conferral upon it of power for the purpose of permitting substitution for the security that is presently held, alternative security, which I shall describe. The process of which the substitution of security forms part is described by MAML as 'defeasance', and by others as a 'decoupling', and I shall describe the defeasance proposal in more detail below. 3 S 81 of the Trustee Act is in the following terms: "Advantageous dealings (1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and (b) may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income. (2) The provisions of subsection (1) shall be deemed to empower the Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustees by the trust instrument, if any, creating the trust, or by law is expedient, to authorise the trustees to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust, and in particular the Court may authorise the trustees: (a) to sell trust property, notwithstanding that the terms or consideration for the sale may not be within any statutory powers of the trustees, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument, (b) to postpone the sale of trust property, (c) to carry on any business forming part of the trust property during any period for which a sale may be postponed, (d) to employ capital money subject to the trust in any business which the trustees are authorised by the instrument, if any, creating the trust or by law to carry on. (3) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order. (4) The powers of the Court under this section shall be in addition to the powers of the Court under its general administrative jurisdiction and under this or any other Act. (5) This section applies to trusts created either before or after the commencement of this Act."

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4 The background to the application is that Macquarie Bank, considering that investment in various airports around the world, including Sydney airport, was a worthwhile commercial activity, established a framework in which funds would be raised to enable a company in the Group, Macquarie Airports Limited Holdings (Bermuda), now known as Macquarie Airports Limited ("MAL"), to buy shares in companies that operated certain airports. To raise the requisite capital the MAREST was established and TICkETS representing units in the MAREST sold to investors for an amount totalling in excess of $900 million. The scheme by which this was achieved is complex, involving trust deeds, poll deeds, supplemental deeds, a support deed, charges, guarantees and mortgages. The monies lent by MAREST to Macquarie Airports Trust 1 ("MAT1") to MAL were lent by means of agreements known as "on lending agreements" of which there were three "OLA", "SOLA" and "FOLA". 5 It was an inherent feature of the investment scheme that money received by the sale of TICkETS would be on-lent to a specifically created investment trusts (MAT1) that would then lend to MAL and that the owners of TICkETS would receive an interest payment twice a year on their investment at a rate of 6.475% per annum. Each TICkET was issued for a face value of $100 and some nine million TICkETS were issued. There is provision for a redemption premium of 5% of the face value of the TICkET which premium is a fixed percentage. 6 There are provisions in relation to TICkETS by which: (1) holders are able to seek to exchange their security for equities (known as "triple-stapled" equities because they consist of shares in MAL, units in MAT1 and units in Macquarie Airports Trust 2 ("MAT2") which cannot be traded separately. I shall refer to these three entities as "MAp"; (2) MAML can either exchange, redeem or procure purchase of the TICkETS should the holder seek to exchange; (3) there is provision for MAREST to initiate an exchange, whereby MAp equities will be issued in accordance with a formula if the holder seeks such exchange and a default "trigger event" which will lead to exchange of TICkETS for MAp equities redemption (referred in the documents as "MAP securities") or purchase; (4) The trust can, on the reset date, be terminated by redemption by MAML at its option: clause 3.3, Exhibit A1, Tab 1, p 8; (5) the rate of interest and other terms could be "reset" at nominated dates but not before 1 January 2010; (6) if no notice is given, the MAREST trust continues: see clause 4.2(b), Exhibit A1, Tab 1, p 18 7 It was a feature of the arrangements that the money lent by MAREST to MAp would only be used for the purchase of interests in airports: see , clause 2, Exhibit A, Tab 2, p 11. 8 MAp has sold some of the shares it or MAL owned in airport companies and is desirous of selling more of its interests. MAp accepts that it cannot, as matters stand, apply surplus funds to any purpose other than the purchase of shares in airports because of the terms of the OLA and FOLA by which MAREST lent money to MAp. 9 The security which TCF holds in trust for the benefit of TICkETS holders consists of guarantees, charges and mortgages which secure the obligation of MAREST to make half-yearly interest payments and to pay a defined price for TICkETS if redeemed or purchased from TICkETS holders known as the "Responsible Entity Purchase Price". It is a feature of the existing arrangements that the trusts created, of which TCF is the trustee, are created by the same document as creates the security. In each case, an amount of $10 is settled on the trust. There are eight such instruments: three guarantees, two mortgages and three charges. There is also a Support Deed by which MAML on behalf of MAT1 and MAT2, MAL MAML as responsible entity for MAREST undertakes to TCF (then known as Permanent Trustee Company Ltd) to take actions which will enable issue of stapled securities pursuant to exchange when the request is initiated and comply with other obligations. 10 TICkETS are traded on the Australian Stock Exchange ("ASX"). Prior to 20 August, they were trading at approximately $93.57. On 20 August, MAML announced its intention to undertake defeasance, and the TICkETS price moved to close to $100: see Exhibit A2, Tabs 34, 35 and Exhibit B2, Tab 15. The increase in price, it was submitted, ought be inferred to have been a result of the announcement and hence is an indication that the market regards the proposed changes as beneficial to holders of TICkETS ("Holders"). The rise seems to be more dramatic than would be expected due to proximity to distribution date or changes in the current interest rate relative to the fixed rate of the TICkETS. 11 The defendant, Challenger, holds approximately 9% of the TICkETS issued: see the affidavit of Mr Paul Van Ryn, Head of Fixed Interest Funds Management at the Challenger Group, who has responsibility for the Challenger High Yield Investment Funds. AMP Ltd holds a similar number, and the 14 largest holders hold at least 42% of TICkETS presently on issue. I say presently, because a significant number of TICkETS were redeemed between August and September this year. The redemption has reduced the number of Holders and reduced the overall amounts that will fall due from MAREST. 12 All of the 14 largest Holders of TICkETS have broadly supported the defeasance proposal: see paras 24-30 of Mr Johnson's second affidavit. Challenger and other major holders raised a number of matters relating to the defeasance proposal, all but one of which have been incorporated in the current proposal No opposition to defeasance has been voiced by anyone to MAML prior to or following the announcement made to the ASX. 13 TCF, as part of its Summons, seeks an order that Challenger be appointed as representative of all TICkETS Holders and Challenger is agreeable to that appointment. In my view, it is appropriate for the appointment to be made pursuant to rule 7.6(1)(b) of the UCPR, the test (set out in rule (2)(c)) being whether it is expedient for the purpose of saving expense for a representative to be appointed to represent all investors. The reasons which justify that decision are: (1) There are 1652 such Holders; (2) The 1651 other holders and Challenger have identical interests and Challenger has a substantial interest and is in a position to fairly and honestly represent the interests of the group as a whole as there is no distinction in their positions; (3) Challenger is independent of MAML and MAL, and has demonstrated, by its actions, its interest in ensuring that a defeasance process is effected with safeguards seen as appropriate (see letter of 9 October 2008 from Minter Ellison (solicitors for Challenger) to Allens Arthur Robinson; Exhibit B2, Tab 18); (4) There is no evidence of dissent from any holder pointing to the need to appoint an opponent of the defeasance scheme; (5) Challenger is a wholly owned subsidiary of an ASX listed company which has a market capitalisation of almost $1.4 billion; and (6) Challenger is the responsible entity for the Challenger High Yield Fund, and has obligations to the beneficiaries of that fund.

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14 I therefore appointed Challenger to be the representative of all TICkETS Holders, with the consequence that a judgment or order entered in proceedings will be binding on all of them, as if each were a party. 15 Mr Foreman of Counsel appears for Challenger, and has provided me with helpful submissions, as have Mr Bathurst, and Mr Darke. Mr Foreman indicated that Challenger supports the defeasance proposal as modified and presented by TCF to the Court. 16 The defeasance proposal has a number of components: (a) first, MAL will repay to MAT1 the balance outstanding under the SOLA. After this, only the balance of the FOLA and the OLA under which MAREST lent to MAT1 the funds raised by the TICkETS issued will remain; (b) secondly, MAp will establish a separate TICkETS Defeasance Trust ("TDT"), of which MAML will be the trustee, with the principal purpose of issuing units in the TDT which will yield funds to TDT to enable the creation of a "defeasance fund" which fund will ensure payments will be made to MAREST sufficient for MAREST to meet its obligations to TICkETS holders under the TICkETS terms; (c) thirdly, as an element of this, TDT will be obligated to lend to MAT1, when called upon to do so in late 2009, to MAT1 an amount of around $800.5 million which will be sufficient to pay the holders for TICkETS redeemed in around January 2010 (this will be effected under a TDT Loan Agreement which has been drafted); (d) fourthly, MAT1's obligations under the FOLA and the OLA to pay monies due under those agreements to MAREST will be secured by: (i) charges in favour of MAREST over MAT1's interest in the class A units in the TDT and interests of MAL in class B units in the TDT; (ii) a charge in favour of MAREST over MAT1's interest in the TDT Loan Agreement and the proceeds of that loan; and (iii) a charge in favour of TCF, the benefit of which will be held by it on trust for all TICkETS holders, over MAML's interest in the TDT; and (e) fifthly, of the existing MAp security, the MAT1 Guarantee, MAL Charges, MAT1 Security Mortgage and MAT2 Share Mortgage will be released (as will the MAT1 Charge), but the MAL Guarantee, MAT2 Guarantee and Deed of Support will remain in place. (f) Neither TCF nor the Holders will be required to contribute towards the costs of the defeasance scheme.

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18 Focussing on TDT, the proposed scheme involves the following: (1) that an amount of $800,476,105.26 will be provided to TDT by MAp purchasing units in the trust to be issued (2) that MAML as trustee of the TDT will be required by the terms of the trust deed to invest the TDT trust funds in "Authorised investments", defined inter alia to require that 75% of the monies obtained by TDT (including the proceeds from the sale of the units in TDT) must be invested with Australian-authorised deposit taking institutions with a credit rating from Standard & Poors Australia Pty Ltd ("S & P") of AA- stable or above for long term securities and "A-1+ stable" for short term securities (see definition of "Authorised Investments" in draft constitution, Exhibit B1, Tab 8. No more than $200 million is to be deposited with any one institution). Part of the portfolio is to be invested in a manner that will ensure the redemption premium amount is available at the time of redemption and part of the funds are to be used to protect the fund against fluctuations in rates. (3) that the TDT will loan an amount of $800,476,105.26 ("the TDT loan") to MAT1 in late December 2009 to enable MAT1 to pay to MAREST sufficient funds as will enable MAREST to meet its obligations to Holders (4) the amount which will be provided by the TDT is calculated to be an amount sufficient to meet the distributions required under the terms of the MAREST trust to be paid to TICkETS holders up until January 2010, and the redemption price for all TICkETS at that time. MAML has already indicated that it intends to buy back TICkETS: see Exhibit B2, Tab 20, subject to approval of MAp investors. (5) The amount proposed for the funds of TDT and the protocol describing the proposed TDT investments have been the subject of consideration and reports by Mr Jedlin of KPMG, see Annexure A to Mr Jedlin's affidavit of 13 October 2008 and Annexure A to the affidavit of Mr Jedlin of 28 August 2008, and Exhibit D. His independent reports support the conclusion that the proposed amount of funds, as at that date $906 million, and the return on the investment of those funds will be sufficient to enable payment of distributions, redemption price and redemption premiums (6) Two classes of units will be created in the TDT, Class "A" and Class "B". Class "A" units will be issued only to the custodian of the responsible entity of MAT1 entitling it to receive preferential distributions of income equivalent in timing and amount to payments due to holders until the TDT Loan is made and Class B units to MAL (7) A new Deed of charge is to be given by MAML as responsible entity for MAT1, Trust Company Ltd as custodian of MAT1, MAML as responsible entity of MAREST over all its present rights (defined as rights under the (TDT) Loan Agreement) and the Loan proceeds. (8) MAML as trustee of the TDT and Trust Company Ltd as custodian of the TDT charge assets of the TDT and other defined assets and agree to hold the benefits of the assets as trust property for the Holders: see clause 9 of the draft deed, Exhibit B2, Tab 10.

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20 The current S & P rating for TICkETS is BBB and the assets underlying the current security are BBB (Sydney Airport), BBB (Brussels), BBB+ (Copenhagen) and unrated (Bristol) . S & P have, by letter of 19 August 2008, advised that if the TDT is established as proposed and sufficiently funded, TICkETS credit rating will be upgraded to "AA-" to reflect the minimum allowable underlying credit quality of the security: Exhibit A2, Tab 33, page 1. Mr Jedlin, at section 6.2 of his report, identifies some of the risks associated with the current security, including the fact that although Holders rank ahead of MAp equities holders and holders of ordinary units in MAREST they will not rank ahead of lenders with security over assets of MAp. 21 The existing arrangements for Holders do not involve security over airports or airport land, or even over the shares in the companies that directly own and operate those airports. TICkETS holders clearly regarded the structure as one suitable for their investment, and I draw attention to the fact that the Court is not being asked for advice by TCF as to where investment funds held by the new trust or MAT1 should be placed, but rather what is sought is an order pursuant to s 81 conferring a power that is otherwise absent to permit TCF to agree to the release of existing security and to its replacement with new security with a better credit rating. There may be an additional advantage to Holders and that is that they will be able to terminate their holdings by January 2010 rather than remain locked in to TICkETS (although they are tradable on the ASX). 22 S 81 of the Act (and its analogues) has been the subject of much consideration. The section was the subject of consideration in a decision of Austin J in Arakella Pty Ltd v Paton [2004] NSWSC 13, [2004] 60 NSWLR 334 and many of the cases on s 81 were reviewed by his Honour. 23 Arakella concerned a trading trust that had been established for the benefit of newsagents and other retailers of stationery to purchase stationery and office supplies to on sell to newsagents and thus to harness the advantages of purchasing significant quantities of products. Although not established to make a profit, the trust had traded successfully and although there were only 365 unit holders, the business had 3,400 customers. There were problems with the form of the trust deed and lack of compliance with the Corporations Act and the trustee proposed the establishment of a new company with exchange of units in the trust for shares in the new company. His Honour held that s 81 did empower the Court to make orders for the implementation of the scheme "even though the trust instrument in terms does not permit the amendments, and even though the amendment operated to divest the beneficiaries of their beneficial interests and replace them with shareholdings". The case at that stage was concerned with whether there was power to make such an order and his Honour did not decide whether it was expedient. 24 I will endeavour to summarise the general principles relevant to s 81 which can be drawn from the cases: (1) the central question for determination is whether the proposed transaction is expedient in the management or administration of any property vested in the trustee: Arakella [80], and see Stein v Sybmore Holdings [2006] NSWSC 1004 [37] - [50] per Campbell J (as he then was) (2) s 81 uses very wide language and is not to be read down by implications that are not expressed: Riddle v Riddle (1952) 85 CLR 202 and see Arakella [80] and Re Strang (1941) SR (NSW) 114 at 115 per Jordan CJ (3) expediency means "advantageous", "desirable", "suitable to the circumstances of the case" and includes "expediency created by sound practical business considerations" per Williams J, Riddle pp 221-222 (4) expediency is adjudged by reference to the interests of the beneficiaries: Riddle per Dixon J, p 214 and see Stein v Sybmore (5) the jurisdiction can only be invoked when the transaction in question cannot be effected by reason of the absence of any power vested in the trustee for that purpose (6) s 81 cannot be used to subvert the beneficial disposition in the trust instrument, but if an order is made in the management or administration of trust property, it is permissible under s 81 to accommodate the beneficial interest to the new situation created by the new order: Arakella [112]. It should be noted that s 81, unlike some of its analogues, does expressly refer to "adjustment of respective rights of beneficiaries": see [1706] of Jacob's Law of Trusts in Australia (7th edn, Heydon & Leeming, Lexis Nexis Butterworths, 2006) on the question of changes that do not benefit all beneficiaries. (7) The power granted can override powers derived from the trust instrument or the general law Riddle at p 223.10 per Williams J

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26 I have already referred to the fact that there is not one single trust and one trust deed, and that the trusts are in each case created by each security instrument itself. One of the deeds of guarantee by clause 9.6 (and said to be typical) provides: " Variation of this guarantee The Security Trustee may, without prior consent of the Holders, at any time and from time to time concur with the Guarantor in making any alteration, modification, or addition to this guarantee if such alteration, modification or addition: (a) is in the opinion of the Security Trustee made to correct a manifest error or is of a formal, technical or administrative nature; (b) is in the opinion of the Security Trustee or of a barrister or solicitor instructed by the Security Trustee necessary or expedient to comply with mandatory provisions of the law; (c) is in the opinion of the Security Trustee required by or in consequence of or consistent with any amendment to the Corporations Act ; or (d) is considered by the Security Trustee not to be materially prejudicial to the interests of the Holders. Any such alteration, modification or addition is binding on the Holders". One of the deeds of charge contains the following clause 9.6 (and said to be typical): " Instructions; extent of discretion (a) In the exercise of all rights, powers and discretions under this Deed the Chargee shall act in accordance with the instructions (if any) of any Holder. (b) In order to instruct the Chargee to exercise rights, powers and discretions under this Deed, a Holder must provide the Chargee with a statutory declaration stating that the Holder is a Holder as defined in the MAHBL Guarantee and detailed particulars of the rights, powers or discretions to be acted on. (c) In the absence of those instructions, the Chargee need not act. However, it may act as it thinks to be in the best interest of the Holders. (d) Any action taken by the Chargee in accordance with this Deed binds all of the Holders. (e) The Chargee is not obliged to consult with the Holders before giving any consent, approval or agreement or making any determination under this Deed, except where this Deed otherwise expressly provides". 27 Mr Bathurst and Mr Foreman submitted that these clauses are not wide enough to confer on the trustee power to agree to discharge of the security conditional upon the creation of a new trust over new trust property by a new trust deed, and I accept their submissions. I think that clause 9.6 of the guarantee does not apply because the 'alteration modification or addition' which is permitted relates to the guarantee and not to the security, and I do not think that 'release' of the security is an 'alteration modification or addition'. Clause 9.6 of the Charge is dealing with the exercise of such rights as exist not powers beyond the scope of the trust deed.

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28 The defeasance proposal in my view involves a "surrender" or "release" of trust property, and also involves a "transaction". The question then, is does the defeasance proposal arise in the management or administration of property vested in TCF. The property in the case of the guarantee deeds, in addition to the sum of $10, the guarantee, is the charge in the case of the charges and is the mortgage in the case of the mortgages and the rights given to TCF thereby. What is proposed is not the replacement of a guarantee by the settlor with another security but the creation of a new trust over new security, albeit with the same trustee and the same beneficiaries. 29 There are some indications within s 81 itself that "management or administration" ought not be read narrowly by reference to what outcome is achieved by the proposed transaction because s 81(1) expressly empowers "surrender release or disposition". Secondly, s 81(1)(a) permits the Court to impose "such provisions and conditions" as it thinks fit, and hence appropriate conditions for release or surrender of property can be wide ranging. Further, as I have already noted the conditions can include "adjustment of the respective rights of beneficiaries". Mr Bathurst mentioned that it is possible that a trustee might wish to dispose of property that was "wasting". For example, if land generating no income and having no prospect of resale was incurring rates and taxes, the trustee might wish to transfer the property for nil consideration. In my view "management and administration" of the property does not confine the power to be exercised to retention of the property, but rather the phrase is a means of ensuring that the question of what power should be exercised or sought arises in the course of management and administration of the trust property. In Arakella, the proposal was to transfer all units in the trust to the new company and issue shares in the company to unit holders. Austin J noted that the proposal involved the substitution of shares for unit holdings and therefore the adjustment of the rights of beneficiaries, but he said it was not a case where the sole or principal purpose was to alter beneficial interests "or in any way subvert the beneficial dispositions in the trust instrument": [117]. 30 In Hornsby v Playoust (2005) 11 VR 522, Mandie J made an order under s 63 of the Trustee Act 1958 (Vic) which is in similar, but not identical terms to s 81 of the Act, empowering the estate of the late George Adams to transfer all of the assets of the estate to a newly formed company ("Tattersalls Ltd") as part of a proposal which would result in beneficiaries of the estate receiving shares in Tattersalls Ltd in proportion to their interest in the estate. 31 Mandie J expressed the view with which I respectfully agree, that "management or administration" are not confined to continued holding of the property in question and having referred to Arakella, he held that the proposed distribution in specie of shares in Tattersalls Ltd to the beneficiaries in satisfaction of their beneficial entitlements under the will is a transaction which arose in the 'administration' of the trust property. It will be observed that the trust created by the will was brought to an end by the conferral of power on the trustees appointed under the will. 32 In Re AS Sykes (decd) and The Trustee Act [1974] 1 NSWLR 597, the trustees of an estate sought power to transfer a grazing property to a company in exchange for shares in the company, the purpose of the transaction being to avoid NSW death duty. Helsham J made orders pursuant to s 81 as he regarded it as expedient in the management or administration of the grazing property, even though (as Austin J notes in Arakella) it had the effect of converting the property held on trust into another form. As Mr Foreman pointed out the case involved substitution of one form of property with another but in the same trust, whereas here a new trust is sought to be created. Sykes does demonstrate that a change in assets from land to shares in a company can be treated as a matter in the management or administration of the property.

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34 I agree that Arakella and Hornsby do support the first proposition and I think that there is no sufficient distinction for the purposes of s 81 of the Act between the creation of a new trust in favour of the beneficiaries of the existing trust and the creation of shares in a new company to warrant a different conclusion to that reached in Arakella and Hornsby. 35 Counsel have, quite properly, drawn to my attention a number of cases which contain views which support or might be viewed as supporting the proposition that the power conferred under s 81 of the Act cannot be such as would alter the substantive trusts, but submitted that insofar as the cases touched on the present issue, the views expressed were obiter and the cases distinguishable. Mr Bathurst argued that what was proposed here did not alter the substantive trust as it did not involve a termination, but only a partial release. Mr Foreman submitted that the cases, when analysed, did not support the contention that s 81 does not permit substantive alteration in respect of property or termination of a trust (see paras 40 and 41 of the defendant's submissions and T57.5). 36 In Re Shipwrecked Fishermen and Mariners' Royal Benevolent Society [1959] Ch 220, Danckwerts J considered whether trustees appointed under a charitable trust established by statute should have conferred a wider power of investment than that bestowed upon them in the Act, held that the equivalent of s 81 did permit the Court to so empower the trustees. He said at p 228: "In either case the situation is one where the court is being asked to do something purely in the administration of the trust. It is not altering the substantive trusts in any way whatever; it is simply giving the trustees power, in the administration of the funds which they have under their control, to administer them in a more satisfactory and more effective way which the changed circumstances of a hundred years show to be necessary for the proper administration of the charity".

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37 In Freeman v Attorney-General for NSW [1973] 1 NSWLR 729, the Court, conferred on trustees the power to lease property to the University of Sydney in connection with a wheat research program. Helsham J, having expressed the view that the jurisdiction conferred by s 81 was no less extensive in relation to charitable trusts than it was in respect of private trusts and before citing with approval the passage in Shipwrecked to which I have referred in [35] above, said at pp 735-736: "In its application to charitable trusts there is still, of course, a requirement of jurisdiction that the transaction in question must be one arising in the management or administration of property vested in trustees. And in connection with such trusts expediency must be determined by reference to the purpose or objects of the particular trust. The section would not permit an order to be made that enabled a use of trust property which went outside the confines of the purpose or objects to benefit of achieve [sic.] which the trust was constituted, but would permit an order which enabled use of trust property directed towards furthering such purpose or objects. If the purpose or objects of a charitable trust, although initially possible, had ceased to be possible of achievement with the means at the disposal of the trustees, as, for example, where objects might require to be adjusted to changed circumstances, then the situation might not be appropriate for an advantageous dealing to be empowered under s. 81; likewise, if the machinery designated for effectuating the charitable purpose had failed the situation might require the settlement of a scheme; there would doubtless be other occasions when the same could be said. But a charitable purpose does not become impossible of achievement merely because the trustees wish to alter the mode of employing trust property but have not the power to do so; providing the proposed use could be said to be a means of employing the trust property in order to effectuate the purpose of the trust, then the court would be entitled to empower such use if it enabled the property to be more effectively employed in furtherance of such purpose". [Emphasis added].

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38 Neither of these charitable trusts cases were dealing with a situation comparable to the present one. I regard the passages emphasised in bold as important however in drawing attention to the need to consider the purpose or objects of the trust and I accept that the Court must have regard to the objects of the trust in determining whether or not the trustee should be empowered to do what he seeks, just as it would also be relevant to ascertain whether any beneficiaries will be adversely affected relative to any other beneficiaries. I shall return to consider the objects of the trust below. 39 In Re McNaughton (Supreme Court of New South Wales, unreported, BC 9403436), Young J (as he then was) referred to an application to permit the trustees to extend the winding up of a charitable trust to support the victims of the Newcastle earthquake which occurred on 29 December 1989. The trust was expressed to continue for five years, and provisions were made as to what should be done with any surplus on winding up. His Honour did pose the question for determination as "whether what the Trustees are seeking is power in respect of the management or administration of property or whether they are really seeking that the Trusts be altered or extended" (emphasis added). His Honour referred with approval to what Helsham J had said in Freeman, that expediency must be determined by reference to the purpose or objects of the particular trust and that there was no power to permit the use of trust property outside the confines of the purpose or objects of the trust. He also referred to Burnside (1993) LGERA at 189. 40 His Honour clearly regarded the purpose of immediate use of the fund to assist victims as of paramount importance as an object of the trust, and the express limitation to a 5-year period, coupled with the provisions for dealing with surplus, lead him to the view that an extension of time for winding up was inconsistent with those purposes. The case can be viewed as one in which the proposed powers were inconsistent with the objects and purposes of the trust. I do not think it is inconsistent with the approach in Arakella or Playoust.

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44 I do not read Einstein J as expressing disagreement with the approach in Arakella. So far as Hughes is concerned, I accept for present purposes that the power cannot be used to adjust rights between beneficiaries except as an incident or consequence of the grant of power (23 above) and there is no issue of that kind in this matter. 45 In Perpetual Trustee Ltd v Goodsall [1979] 2 NSWLR 785, the testator had left his wife a life estate of the matrimonial home with remainder to his daughter and grandchildren. The house had not been properly maintained by the wife. In permitting the sale of the house and replacement by a smaller house, Rath J took into account that the remainder would be disadvantaged by the sale of the house at a value lower than that which would have been achieved had the house been properly maintained and he made provision for that in the orders. Thus he was able to ensure that the changes did not result in a more generous outcome to the wife than the testator had intended. His Honour noted the argument by counsel for one of the remainderman that "it would be extraordinary to describe the inability of a trustee to destroy a specific devise and replace it with a fund (as to part of which a beneficiary is to have rights of a nature not heretofore existing) as a lack of power in administration. Powers, he said, are enjoyed by trustees to facilitate, not to subvert, the limitations in the trust instrument; to effectuate the distributions therein, not to achieve a result which the trustees believe the settlor or creator could or should have intended" p 791, C-D. Rath J described this approach as wrong, because it disregarded the wording of s 81 and the criterion of jurisdiction under s 81 which is "expediency in the management or administration of any property vested in the trustees". He did go on to adopt what was said in Re Downshire Settled Estates [1953] Ch 218, at 247, namely that management and administration did not extend to rearranging the beneficial interests in the trust per Evershed MR, with whom Romer LJ agreed. 46 In Permanent Trustee Co Ltd v National Australian Managers Ltd (Supreme Court of New South Wales, unreported, 8 August 1994), McClelland CJ in Eq regarded an amendment, the effect of which would be to bring the trust to an end by divesting unit holders of their units and vesting all units in a corporate entity of which the unit holders would become shareholders, as with an express power to amend contained within the trust deed and not subject to an implied limitation. This, whilst not concerned with s 81 of the Act, does offer support for the approach that restructuring of the kind in Arakella and Hornsby is not inconsistent with the existence of the trust. 47 There are a number of cases in South Australia which would support the contention that s 81 is not available to empower the trustee to allow trust property to be sold or to vary the trusts. In Burnside City Council v Attorney General for South Australia 16 LGRA, Debelle J noted that the trustee was seeking to sell "the very subject of the trust", and he referred to Shipwrecked, Freeman, and In Re Dutton in holding that that Court had no power under the equivalent to s 81 to authorise the sale of a sports field: see p 228. In the Court of Appeal's decision, Legoe J adopted the same approach, but his was a minority view and the majority did not need to address that point: see City of Burnside v Attorney General for South Australia 61 SASR 107. 48 In In Re Dutton, it was held that a bequest to be held on trust for payment of a stipend to the rector of a country church and such matters could not be varied to maintain the church as there was no power under s 59(b) because the scope of s 59(b) was limited by the words "where in the management or administration of any property". Municipal and General Securities Co v Lloyds Bank (1950) 1 Ch 212 was cited in support of this conclusion. 49 Municipal and General, relied on in In Re Dutton, was not the subject of submissions from counsel. It is not mentioned in Jacobs Law of Trusts in Australia. The plaintiffs in that case had settled a portfolio of assets, including shares, on the trustee. Legislation was introduced to support a plan of nationalisation of gas, coal and rail in the United Kingdom, with the effect that a number of the stocks held in the trust were affected, and "compensation stock" issued. The trustee was desirous of selling the altered stocks. The Court held that the trust deed did not empower sale of the relevant shares and then had to determine whether s 57 of the Trustee Act 1925 (equivalent to s 81 of the Act) could be utilised to grant a power of sale. Wynn-Parry LJ held that it could not, and for two reasons. Wynn-Parry LJ said at p 223: "It appears to me that there must be some limit on the scope of this section [s 57]. It cannot be construed as having such wide import as would allow a complete re-writing of a trust deed or a substitution of a completely different object from that for which the trust was brought into being". He then said that he did not see any "difficulty or real inconvenience in relation to the management or administration of the property subject to the trust, or in carrying out the trust", He made reference to the fact that the trust had as a result of the nationalisation process, ended up with stock which his Honour accepted, from the point of view of the trust deed, were foreign to its policy: p 224, but he saw no difficulty or inconvenience because of the holding of compensation stock which the relevant statute deemed to be 'ordinary stock' for all purposes. 50 There are, with respect, a number of aspects of the decision to which attention needs to be drawn. First, in dealing with the first basis for rejection of the application under s 57, Wynn-Parry LJ seems to be focussing on matters going to expediency rather than linking rejection to one or other of the two limiting factors he proposes. If his Honour's view was that the orders sought did involve a complete rewriting of the trust deed or substitution of a completely different object, he does not expressly say so and if that was his view, the first ground would not be lack of 'expediency', as it seems to be. So far as the reference to objects is concerned, I have earlier mentioned that I agree that regard must be had to the object and purpose of the trust, but if Wynn-Parry J's view was that the sale of the stocks would undermine the purpose of the trust, that would involve a very restrictive view of purpose or objects and even more so because, as he noted, the new shares were 'foreign to the purpose of the trust' as set out in the trust deed. 51 Secondly, an approach to expediency which asks only whether it is difficult or inconsistent for the trustee to continue holding the property is, I think, quite inconsistent with Riddle. 52 Thirdly, his Honour held that as there was a power of sale in the trust deed, albeit it was one which did not permit sale in the circumstances that had arisen, that was a reason to refuse relief. 53 Doubt was cast on the last basis of the decision in Municipal and General in In Re Allison (decd) [1958] NZLR 678, and rightly so in my view, because the reason why sections such as s 81 are invoked, is because there is no power to do the particular thing sought to be done. Williams J in Riddle said that an express power in the trust deed can be overridden: see pp 223-224.

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55 It is clear that MAp sees it as in its interests to reduce its holdings in companies that operate the airports. The fact that MAp is unable, as matters presently stand, to move out of investment in airports and hence required to retain funds in an unproductive form or reinvest in airports is not, of itself, a reason for the TCF to agree to any change in the structure of the securities. What is of relevance to the holders however, is that the restructuring which MAp and MAML wish to engineer offers the prospect of enhanced security with consequent positive effect on the value of the TICkETS. 56 I referred earlier to the need to consider the objects or purpose of the trust, and when considering the question of expediency to focus on the beneficiaries, i.e. the TICkETS Holders. 57 The purpose of the present trust in each of the security documents is to create a trust in favour of TCF of the guarantee charge or mortgage, as trustee for the benefit of the Holders of TICkETS as beneficiaries, as security for the payment of the distributions promised to the holders and to the ultimate repayment of the monies invested (together with any premium on purchase or redemption). That this is so is obvious, but it is specifically referred to in the prospectus: see Exhibit B1, Tap 29, p 44.. 58 Whilst the trust of the original settled amount will remain intact, it is of course nominal, and insignificant. In considering what is proposed, it seems to me that it is appropriate to consider the substance of the transaction which is that, in return for giving up securities in form X, the trustee on behalf of the beneficiaries (i.e. the Holders) is to obtain security in the form of Y. Security Y is obtained only because X is available and its release is of value to MAp. In this sense, TCF as trustee is utilising X (by agreeing to its surrender or release) to obtain Y for the benefit of the Holders, because Y cannot be created without release of X. Thus, it can be said, in the words of Helsham J, that the proposed means of employing the trust property is to "effectuate the purpose of the trust". The funds which are available create the fund upon which the new security is based, arises from the original investment by MAL in airport companies. 59 In a broad practical and commercial sense, if the security which TCF holds is enhanced and the value of TICkETS on the market is enhanced, there is not only no detriment to the holders, but a positive commercial advantage. 60 If I accept the evidence of Mr Jedlin, that evidence and the evidence of the rise in price paid for TICkETs, and the evidence relating to rating, support the contention that the value of the security provided to TCF by implementation of the defeasance proposal will be enhanced and that the market value of TICkETS will be improved thereby from the value immediately prior to the announcement on 20 August. Given the fact that a substantial portion of the funds of TDT are to be invested in what would be regarded as conservative investments, some of which will benefit from the recent announcement by the Australian Commonwealth Government that: "the Australian Government will guarantee all deposits of Australian banks, building societies and Australian subsidiaries of foreign-owned banks" for a period of three years: and also to guarantee wholesale term funding of Australian banks and other authorised deposit-taking institutions". see Exhibit D, Tab 5, and having regard to the rather volatile nature of world share markets in recent times, the desirability of the move towards a more conservative form of investment seems entirely reasonable. Few can confidently predict developments in the world's financing and equity markets at the present time, but the rating by S & P has provided guidance to TCF which has been vindicated by the market's response, and which seems to have a sensible foundation. Mr Foreman submitted that if I accepted the evidence of Mr Jedlin (and he pointed to nothing which would preclude such acceptance) then I would be entitled to be satisfied that the TDT will be sufficiently funded: T60.5. 61 For the defeasance scheme to be implemented, and to benefit the Holders, it is necessary for TCF to permit release of securities which prevent MAp from purchasing units in the TDT (which purchase will create the funds necessary to purchase the Authorised Investments). TCF accepts that it could only do this: (1) when the TDT has been created; (2) when TDT has been provided with the requisite funds; and (3) when TCF has been appointed trustee of the charge under a deed of charge, executed with appropriate authority and enforceable in its terms which will provide the envisaged security.

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63 TCF, by its Amended Summons, seeks conferral of the power to release security conditional upon the implementation of the defeasance proposal as described in paras 35 to 44 of Mr Johnson's first affidavit, 9 to 19 of his second affidavit, and 13 to 16 of his affidavit of 14 October 2008. I will treat the Summons as being amended to include reference to Mr Johnson's fourth affidavit of 16 October 2008, to which he relevantly annexes a revised draft of the TDT loan agreement, which draft makes clear the nature of the monies to be loaned. 64 I have referred to the opinion of Mr Boxall of Allens Arthur Robinson. It is qualified by the need to ensure proper execution and registration but it provides advice to TCF that the creation of the TDT and the charge will be effective to protect the Holders. Mr Foreman submitted that the Court could accept that evidence and no reason was advanced as to why I ought not: T60.30. There are several matters however to which I shall refer later, which I think need the attention of the parties. 65 There was, I mentioned, one change which Challenger had requested which had not been adopted. This was that the loan agreement requires the TDT trust to make a loan to MAT1 of the amount needed to redeem the TICkETS if requested but it does not require MAT1 to seek the loan. Challenger accepts that it is not necessary for this requirement to be added because: (1) MAT1 could obtain funding of the $800 million or so needed to pay MAREST to enable MAREST to redeem the TICkETS from other sources (2) if MAT1 did not seek a loan, MAREST has a charge over the loan agreement and can exercise the right under the power of attorney granted to it. Conclusion 66 I am satisfied that it is in the commercial interest of the Holders and hence expedient for TCF to agree to release or surrender of the security over assets linked indirectly to airports in order to obtain a more highly rated security, and in my view the Court has power in principle to confer upon TCF the power to release the current securities (or significant and effective parts of them) in consideration for the creation new security with invested funds as the underlying asset. 67 Whilst I have not embarked upon a comprehensive analysis myself of the very complex documentation, I have however noticed a number of matters that, together with some aspects of Mr Jedlin's reports, I think warrant further attention before orders of the kind sought in the Amended Summons could be made. These matters do not relate to the fundamental concept of "defeasance", but rather its proposed implementation and clarification and satisfaction as to the assumptions made by Mr Jedlin and S & P. For example: (1) Mr Jedlin's report was predicated on the number of TICkETS on issue as 9,068 097, which linked to a redemption payment to 31 December 2009 calculation of $906,809,700 and a redemption premium of $47,726,826. There was an assumption that $29,599,175 would be needed as at 31 December 2008 and the same amount as at 30 June 2009. It appears that the number of units having dropped, the amount which will be required to fund payments which is quite logical but I have not been able to find any reference to the new figure in Mr Jedlin's reports or affidavits. I think also that he needs to confirm that the premium is 5% and not 5.26%, which appears on p 6 of his first report. (2) The reference in the new Deed of Charge to the chargee entering into the Finance Documents (which include the OLA and FOLA) is confusing, because TCF is defined as the chargee and it is not a party to the OLA and FOLA; (3) "Security Interest" in clause 3.1 of the Deed of Charge does not appear to be defined - a most important matter, because the charge is expressed to take priority over them. 68 I will have provided to Counsel a more detailed list of these items, and give them an opportunity to consider them and also to address me on the question of whether any orders can or should now be made.

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Judgment (33 paragraphs)

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