WLD Practice Holdings Pty Ltd, in respect of the WLD Practice Holdings Trust v Sara Stockham and Anor

Background facts

1. The plaintiff in these proceedings is the corporate trustee for the WLD Practice Holding Trust, which is a unit trust (Trust).
2. The plaintiff and its five subsidiary companies, namely: 1. Mango Street Sign Co Pty Ltd (ACN 614 701 423); 2. WLD Employment Services Pty Ltd (ACN 619 162 944); 3. WLD Haberfield Pty Ltd (ACN 613 371 921); 4. WLD Armidale Pty Ltd (ACN 608 487 931); and 5. WLD Walcha Pty Ltd (ACN 619 366 971),
3. make up the WLD Group and carry on the business of a dental practice, trading under the name "White Leaf Dental", with practices operating in Haberfield, Armidale and Walcha, New South Wales (Business).
4. The plaintiff and the Trust are governed by the Constitution of the Trustee Company (the plaintiff), the Unit Trust Deed of the Trust and a Unitholders Agreement dated 28 October 2016. Under cl 1.4 of the Unitholders Agreement, the Unitholders Agreement prevails over the Constitution and the Unit Trust Deed to the extent of any inconsistency.
5. Under the Unitholders Agreement, the two unitholders of the Trust are Oorang Pty Ltd (Oorang) (whose directing mind and will is Dr Williams) and the second defendant, Sara Sarstock Pty Ltd (SSPL) (whose directing mind and will is Dr Stockham, the first defendant). Oorang and SSPL are also the two shareholders of the Trustee Company. The parties to the Unitholders Agreement are Oorang, SSPL, the Trustee Company, Dr Williams and Dr Stockham.
6. By or around March 2019, Dr Stockham began taking steps to leave the Business. On 6 May 2019, Dr Stockham issued a Notice of Resignation as director of the Trustee Company and its five subsidiaries (Dr Williams is now the sole director of the Trustee Company and its five subsidiaries) and SSPL issued a Notice of Sale in relation to its shares in the Trustee Company and its units in the Trust (under cl 10.3(c) of the Unitholders Agreement). This triggered a procedure for the compulsory sale of SSPL's units to Oorang (under cl 11 of the Unitholders Agreement).
7. Clause 11.3(a) of the Unitholders Agreement requires the Trustee Company to procure from the Company Accountant a determination of the Fair Market Value of SSPL's units. The Unitholders Agreement defines "Company Accountant" to mean "FMA Partners, or such other person nominated by the Unitholders by Unanimous Resolution" (cl 1.1(o)).
8. In a letter dated 13 May 2019, the defendants (through their solicitor) took objection to FMA Partners conducting the valuation. Subsequently, FMA Partners declined to carry out the work.
9. The plaintiff says that on 14 May 2019, Dr Williams proposed three alternatives to act as independent valuer in the place of FMA Partners. These proposals were: 1. Mr Graham Middleton of Synstrat; 2. An independent valuer nominated by the President of the Chartered Accountants Australia & New Zealand; or 3. A person chosen under a process whereby SSPL first proposes three names of independent chartered accountants, and Oorang selects one of the three persons so proposed.
10. The plaintiff also says that none of these proposals have been accepted.
11. This matter commenced as an expedited application for judicial advice. The plaintiff sought orders pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) or the Court's inherent jurisdiction that: 1. The plaintiff would be justified in exercising its powers under cl 19.1(a)(i) of the Unitholders Agreement to vote, on behalf of SSPL atf Sarstock Family Trust, in favour of a Unitholders resolution nominating another person as Company Accountant for the purposes of cl 1.1(o); 2. Further or in the alternative, the plaintiff would be justified in engaging any of: 1. Mr Graham Middleton of Synstrat; or 2. Mr Matthew Gwynne of PKF Australia 3. to make a determination of the Fair Market Value of the units of the WLD Practice Holdings Trust held by SSPL, and that such a determination would constitute a valid determination pursuant to cl 11.3(a); 1. In the event that the plaintiff pays, in the first instance, the costs of the determination of Fair Market Value performed by any person engaged pursuant to orders 1(a) or 1(b) above, the plaintiff would be entitled to recover those costs as a deduction from the purchase funds determined to be payable to SSPL pursuant to cl 14.1; and 2. The plaintiff would be justified in exercising its powers under cll 10.4(b), 11.4(a) and 19.1(a)(ai) to execute and deliver on SSPL's behalf the transfer forms necessary to effect a transfer of SSPL's units, and its shares in the plaintiff to Oorang atf Oorang Family Trust, and subsequently, in exercising its powers under cl 11.4(c) to cause Oorang to be registered as the holder of SSPL's Units and Shares.
12. That application was opposed. At the first directions hearing Mr Gray of counsel who appears for the defendants (who were both joined at the first directions hearing) raised any number of objections to the application proceeding as one for judicial advice. Those objections raised both legal and factual issues, all or most of which would seem to be the subject of dispute.
13. At my suggestion, the plaintiff amended the summons to seek declaratory relief in the alternative to judicial advice. That suggestion was made in the hope that it might expedite the matter. The defendants raised further legal and factual issues, including seeking a stay of the proceedings on the basis that the plaintiff was in breach of a dispute resolution clause in the Unitholders Agreement. Clause 17.1 of the Unitholders Agreement provides: Unless a party to this Agreement has complied with all of the provisions of this clause 17, that party may not commence Court proceedings or arbitration relating to any dispute between any of the Unitholders (or the Directors appointed by them) or between the Trustee Company and any Unitholders or otherwise relating to this Agreement (Dispute), except where that party seeks urgent interlocutory relief in which case that party need not comply with this clause before seeking such relief.
14. In an effort to expedite the proceedings, I directed that two issues be determined as preliminary questions. The first was whether in the circumstances a stay is warranted, in which case the matter will not proceed (stay issue). Further, whether this is an appropriate matter for judicial advice (s 63 issue).

Principles of construction

1. In Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104 ('Mount Bruce Mining') at [46]-[52], French CJ, Nettle and Gordon JJ explained the principles applicable to the construction of commercial contracts: [46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. [47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. [48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. [49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. [50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations. [51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Walesand Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Incv Jireh International Pty Ltd. (citations omitted)
2. Mount Bruce Mining was most recently cited by the High Court in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [73] (Nettle J) and applied by the New South Wales Court of Appeal in Advanced National Services Pty Ltd v Daintree Contractors Pty Ltd [2019] NSWCA 270 at [54] (Gleeson JA).

A stay of proceedings and the Court's discretion

1. Where a contract contains a dispute resolution clause, "the Courts begin with the fact that there is a special contract between the parties" and "consider the circumstances of a case with a strong bias in favour of maintaining the special bargain" (Huddart Parker Ltd v Ship Mill Hill (1950) 81 CLR 502, 508-508 per Dixon J). However, the Court retains a discretion as to whether to stay proceedings where there are grounds to do so (see Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 224, 231, 259; Akai Pty Ltd v People's Insurance Co Ltd (1996) 188 CLR 418 at 445, 447).
2. Relevantly, in Incitec Limited v Alkimos Shipping Corp (2004) 138 FCR 496, Allsop J (as his Honour then was) held (at 506): To the extent that the operation of the exclusive jurisdiction clause causes financial or forensic inconvenience to the party which bound itself to the clause, that, of itself, is to be seen as only the direct consequence of the bargain entered and, generally, can be set to one side. What really are of importance in weighing against the operation of the exclusive jurisdiction clause are: (a) the inconvenience, if any, whether financial or other, caused to third parties; (b) the effect, if any, upon the due administration of justice; and (c) any other appropriate public policy consideration that can be discerned in all the circumstances.

The proper characterisation of 'judicial advice'

1. Section 63 of the Trustee Act relevantly provides 63 Advice (1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction. (3) Rules of court may provide for the use, on an application under this section, of a written statement signed by the trustee or the trustee's Australian legal practitioner, or for the use of other material, instead of evidence. (4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application. (5)-(7) (Repealed) (8) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution. (9) The notice shall state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute in accordance therewith. (10) Any person who claims that the person's rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Court, apply to the Court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution. (11) Subject to subsection (10), and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance with subsection (8), shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings to which the person was a party.
2. As the High Court explained in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand (2008) 237 CLR 66 ('Macedonian Church'), s 63 operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants" (at [64]). Instead, s 63 is designed to afford trustees a "summary" procedure for obtaining "private advice" (Macedonian Church at [61], [64]). The plurality noted (at [64]) that "[i]t is private advice because its function is to give personal protection to the trustee." In addition, 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" (Macedonian Church at [105]). It is "not the court's purpose to determine the rights of adversaries" although that can "be done as a necessary incident of determining what course ought to be followed in the best interests of the trust estate" (Macedonian Church at [105]). However, Even if notice of the application for private advice is given to other persons (by reason of rules of court, or a court direction under s 63(4), or by reason of s 63(8)), those persons are not strictly speaking "parties" to "proceedings" by reason of the closing words of s 63(11), although they are able to participate in the proceedings to some extent. Section 63 reflects a compromise between a procedure for affording private advice to trustees and the need for affected persons to be given a hearing in some cases. It was an error on the part of the Court of Appeal to treat the plaintiffs as being in a position of parity with the Association in the judicial advice proceedings. (Macedonian Church at [65]-[66]).

Principles for determining whether a matter is appropriate for judicial advice

1. In Macedonian Church, the High Court also emphasised (at [58]) that: Only one jurisdictional bar to s 63 exists: the applicant must 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.
2. Further, plurality stated (at [56]-[57]): There is nothing in s 63 which limits its application to "non-adversarial" proceedings, or proceedings other than those in which the trustee is being sued for breach of trust, or proceedings other than those in which one remedy sought is the removal of a trustee from office. This conclusion follows the principle referred to in the previous paragraph: from the unqualified words of s 63(1), particularly the words "respecting the interpretation of the trust instrument"; from the contemplation of s 63(4) that affidavit or other evidence may be used and that notice may be given; from the contemplation of s 63(8)-(10) that advice may be given not only where there are controversies among beneficiaries, but where beneficiaries are in dispute with trustees about those controversies; and from the contemplation of s 63(11) that there may be an appeal from the opinion, advice or direction.
3. In relation to discretionary factors, the plurality explained (at [59]) that there are also "no implied limitations" in s 63 "making some discretionary factors always more significant and controlling than others." In particular, the plurality noted (at [59]-[60]) that: … 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. 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.

Public Policy

1. There has from time to time been debate about whether parties can contract out of statutory provisions. Often, the question is determined as a matter of statutory construction and the first question is usually whether the statute expressly prohibits exclusion by contracting parties (see, e.g., Westfield Management Ltd v AMP Capital Property Nominees Ltd 247 CLR 129, 143 [46] ('Westfield Management')). However, in addition to, and distinct from, cases where a statute expressly or impliedly prohibits exclusion by contracting parties are cases 'where the policy of the law renders contractual arrangements ineffective or void': International Ait Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 179 [51]. Thus, in Westfield Management, French CJ, Crennan, Kiefel and Bell JJ said (at [46]) (emphasis added): It will be contrary to the statute where the statute contains an express prohibition against "contracting out" of rights. In addition, the provisions of a statute, read as a whole, might be inconsistent with a power, on the part of a person, to forego statutory rights. It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone.
2. By way of example, it was common ground that liability under s 52 of the Trade Practices Act 1974 (Cth), which contained no express or implied prohibition on contracting out, could not be excluded by contract (see e.g. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 348 [130]; Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 112, per Riordan J, discussing both s 52 of the Trade Practices Act as well as s 18 of the Australian Consumer Law). In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83, Lockhart J explained (at 99) the juridical basis for that "no exclusion" principle (which was also emphasised by Riordan J in Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 599 [115]): There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.
3. Section 63 of the Trustee Act does not expressly prohibit contracting out. However, the Trustee Act makes clear that the trustee document will be determinative in some circumstances by making certain powers and duties subject to 'the instrument (if any) creating the trust'. See, for example, ss 14, 14A, 14B, 14C, 14DA. This is not true of s 63, which may suggest that Parliament intended to prohibit contracting out of that provision. Nevertheless, it seems to me that a contractual provision which excluded a trustee's right to seek judicial advice may be contrary to the statutory purpose and policy of s 63. As the High Court noted in Macedonian Church (at [62]- [63]), … Before Lord St Leonards' Act, as Palmer J said in Judgment No 2: "[I]f a trustee wished to obtain the direction or opinion of the court on a matter of administration or management or as to a question of construction of the trust instrument, the trustee had to commence an administration suit. The trustee would raise on the pleadings in the suit the particular point upon which the court's advice was sought. Having obtained the court's direction or advice on that point, the trustee would then obtain a stay of all further proceedings in the administration suit … On 11 June 1857, in delivering his First Reading Speech on the Trustees Relief Bill, the Bill which when enacted became Lord St Leonards' Act, Lord St Leonards said that he proposed (81): "to give trustees a summary right by petition, without rendering it necessary to file bills, 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 a great benefit to trustees, and, by substituting a cheap and simple process of determining questions, prevent the necessity of expensive suits."
4. Section 63 creates a very special procedure which is intended to facilitate trustees who are in doubt as to whether or not they can exercise their fiduciary or contractual obligations one way or another. A trustee would be loath to give away such a valuable right and, in my view, if they were to exclude it, they would need at the very least to do so expressly. However, s 63 is also an important aspect of the Court's role in "supervising the administration of the trust" (see Macedonian Church at [51]). Judicial advice is for the benefit and protection of the trust, not only the trustee, and it would be antithetical to the nature of trusts and trustees if the trustee were able to restrict itself in relation to the advice which it could receive. There is a real question as to whether a trustee could consistent with public policy contract out of s 63, even expressly.
5. In Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082, Brereton J, in considering the validity a clause purporting to disinherit any beneficiary who commenced an action against a current or former trustee, said (at [23]) (emphasis added): The position on the authorities can, I think, be summarised as follows: First, there is no general rule against the validity of conditions discouraging beneficiaries from taking proceedings to contest a Will, although there are some limits on this [Evanturel v Evanturel (1874) LR 6 PC 1; Cooke v Turner (1846) 15 M & W 727; (1846) 153 ER 1044; AN v Barclays Private Bank & Trust (Cayman) Ltd, [54]]. Secondly, however, where there can be seen in a statute conveying a beneficial right to make applications for provisions out of an estate an intention that such jurisdiction cannot be excluded by private arrangement - as, for example, under the testators family maintenance legislation - conditions which are calculated to deter the invocation of that jurisdiction are contrary to public policy and void [Leiberman v Morris (1944) 69 CLR 69; Barns v Barns [2003] HCA 9; (2003) 214 CLR 169; In the will of Gaynor [1960] VR 640, 642-644 (O'Bryan J)]. This rule is based on discerning an (unexpressed) statutory policy against it being possible to contract out of the rights given by the relevant legislation [Leiberman v Morris; Smith v Smith (1986) 161 CLR 217, 235 (Gibbs CJ, Wilson and Dawson JJ)]. Thirdly, a condition against the taking of any proceedings whatsoever having the effect of preventing any question of administration of a trust or Will, or securing the due administration of the trust or Will by the trustees, is too wide and will be void for ousting the jurisdiction of the Court, although one which merely discourages disputing the validity of the Will or trust will not offend that rule [Permanent Trustee Company v Dougall, 86-87]. Fourthly, a clause in a trust deed may validly exempt the trustee from obligations and liabilities other than those contained in that irreducible core of a trustee's obligation - namely, to act honestly and in good faith. It is not contrary to public policy to exclude a trustee's liability even for gross negligence, but it is to exclude liability for dishonesty or bad faith [Armitage v Nurse [1998] Ch 241 (CA)].
6. Further, Brereton J said at [26]-[27] (emphasis added): Ultimately, two things, follow. The first is that if the construction of clause 17 which I have preferred is correct, then it does not offend against public policy. It would not prevent actions to secure due administration. It would only deter actions asserting liability for breach of trust against the trustees, other than those for wilful default. Armitage v Nurse shows that liability for such breaches may permissibly be excluded, and it must follow that a provision which has the effect of deterring a party from approaching the Court to assert such a liability, where that liability has already been permissibly excluded by another clause in the deed, is not contrary to public policy. The second is that if I be incorrect as to the construction of clause 17, and its true purport would be to operate on an application to secure due administration of the trust (including an application for the removal of the existing trustee), it would, in my view, be contrary to public policy. Neither Madden CJ nor Smellie CJ suggested that the clauses which confronted them could be valid if given effect according to their absolute terms. Consistently with what Harvey CJ in Eq said in Permanent Trustee Co v Dougall, to give effect to clause 17 if it operated on actions to secure the due administration of the trust and for the removal and appointment of the trustees would be inconsistent with the rights of the beneficiaries to have the trust duly administered, and would exclude the Court's inherent jurisdiction in the supervision of trusts to remove and appoint trustees, and the statutory jurisdiction conferred by Trustee Act 1925, s 70. Accordingly, if contrary to my view, clause 17 properly construed has the wider operation that it would be triggered by the present proceedings, then in my opinion it would be void as contrary to public policy.
7. Then, in Re Estate Late Chow Cho-Poon (2013) 10 ASTLR 251; [2013] NSWSC 844 Lindsay J noted (at [135]), albeit in passing, that: Clause 9(b) expressly reserves the entitlement of the testator's "Trustee" to make an application to the court for judicial advice. The nature of the office of a trustee is such that a provision purporting to deny such an entitlement might well be ineffective in any event: Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082 at [23]. (emphasis added)
8. Neither of these authorities is definitive in the sense that the point in my mind has not been fully canvassed. However, in my view, the correctness of Lindsay J's observation is supported by the history and unique function of s 63. On balance I consider the better view is that it would be contrary to public policy for a clause to preclude a trustee from approaching a court for judicial advice, even if the clause purports to have that express effect.

The plaintiff's evidence

1. The plaintiff relied on two affidavits sworn by Dr Williams on 5 March 2020 and 1 April 2020, respectively. It also relied on the affidavit of Walter MacCallum, sworn on 12 March 2020.
2. In his first affidavit, Dr Williams provided his account of the events that led to the application for judicial advice as well as circumstances that make the application urgent. He stated that the business is in a dire financial predicament and that he is currently loaning close to 100% of his income back to the Business. In December 2019, he negotiated with Bank of Queensland a pause on repayments due under the various finance facilities that the Business holds with them (but under which interest continues to accrue). This repayment free period expires in May 2020.
3. Dr Williams stated the Business cannot be refinanced without Dr Stockham's cooperation or her removal as a unitholder of the Trust. He also stated that there a number of business expenses that need to be paid in the next one or two months if the Business is to continue operating.
4. In his second affidavit, Dr Williams responded to Dr Stockham's second affidavit (see below) and deposed that the medical crisis and consequential economic crisis caused by the COVID-19 pandemic has resulted in the financial position of the Business worsening, making the need to refinance more urgent. The annexures to this affidavit include an offer that the plaintiff made to the defendants on 1 April which proposed, amongst other things, the appointment of Mr Middleton of Synstrat as valuer on the basis that his estimate for the cost of the valuation was lower than that of Mr Gwynne of PKF.
5. Annexed to the affidavit of Mr MacCallum are the CVs and cost agreements of Mr Middleton and Mr Gwynne.

The defendants' evidence

1. The defendants relied on two affidavits sworn by Dr Stockham on 14 and 30 March 2020, respectively.
2. In her first affidavit, Dr Stockham provided her account of significant events that occurred prior to those outlined in Dr Williams's first affidavit, which the defendants submit are relevant to the present application. Amongst other things, Dr Stockham stated that numerous invoices were prepared in her personal name and showing the ABN of SSPL but nominating a bank account specified by Dr Williams and unrelated to the WLD Practice Group. The first schedule to the affidavit also identifies two and a half years' worth of requests for access to the books and records of the WLD Practice Group. Dr Stockham stated that she has been seeking access to the books and records since May 2018.
3. In her second affidavit, Dr Stockham outlined why, in her opinion, the current COVID-19 pandemic has reduced the urgency of the plaintiff's application.

The defendants' submissions

1. The defendants submit that these proceedings are contractually barred by cl 17 of the Unitholders Agreement. They submit that the clause was intended by the parties to cover all disputes between all or any of them and even persons or entities not party to the agreement, such as directors appointed by parties. They say that there is no plausible commercial justification for dividing disputes into those subject to clause 17 and those which are not.
2. The defendants further submit that the word "disputes" confers the "widest possible jurisdiction" (quoting Mustill and Boyd on Commercial Arbitration in England p 86) and that cl 17 is to be read widely, not restrictively, in order to achieve the manifest commercial purpose (citing United Group Rail Services v Rail Corporation (2009) 74 NSWLR 618 at [57], citing Upper Hunter CDC v Australian Chilling and Freezing (1968) 118 CLR 429 at 436-7).
3. The defendants say that the Court should act on the principle that its task "is to give effect to and not impede such solemn express contractual provisions" (quoting United Group Rail Services v Rail Corporation (2009) 74 NSWLR 618 at [74] and Qantas Airways v Dillingham Corporation (1985) 4 NSWLR 113 at 118F). They also say that it is significant that the dispute need only "relate to" the Unitholders Agreement (citing O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at [1], [10], [19] and [27]-[30]).
4. The defendants submit that there are disputes between the plaintiff, Oorang and Dr Williams on the one hand and the defendants on the other which are "disputes … relating to this agreement" and are intimately connected to the question of whether the plaintiff and Oorang are entitled to enforce the Unitholders Agreement against the defendants.
5. Further, the defendants submit that this proceeding does not fall into the exception of "urgent interlocutory relief" because the amended summons claims final orders which would give rise to res judicata determinations. The defendants also say that, in the present economic environment, the need for financial restructuring and capital expenditure is not "urgent". Specifically, the defendants assert that it would be commercially irrational and medically undesirable for the dental practices to operate in the usual manner during the COVID-19 pandemic, and that government and banking responses provide a moratorium on tax and debt repayments.
6. At the hearing, I invited the parties to provide further written submissions on the issue of whether trustees can contract out of s 63 of the Trustee Act (public policy issue). The defendants submit that cl 17 of the Unitholders Agreement does not have the effect of "preventing any question of due administration of the trust or securing the due administration of the trust" (Leerac Pty Ltd v Garrick E Fay per Brereton J at [23]) of being determined by the court; it merely requires mediation as a condition precedent to initiating legal proceedings.

The plaintiff's submissions

1. The plaintiff submits that there are seven independent reasons why the defendants' stay application should be dismissed. Counsel for the defendants responded to each of these submissions during the hearing and I also note those responses here (to the extent they differ from the defendants' submissions noted above).
2. First, the plaintiff submits that the defendants have waived the right to seek a stay by taking active steps to be joined as parties to these proceedings and participating in them (citing BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (2008) 168 FCR 169, 184-185 at [52]-[54]). At the hearing, counsel for the defendants submitted that this position is indefensible (relying on J & H Manktelow Pty Ltd v Alloway Grazing Pty Ltd (1975) 1 NSWLR 385, where Reynolds, Hutley and Samuels JJA held that the defendant, who was granted leave to amend its defence to plead a Scott v Avery clause at trial, had not previously waived its right to amend its defence).
3. Secondly, the plaintiff submits that at no time prior to the commencement of the judicial advice application was there any dispute between the parties about the four questions on which judicial advice was sought, and that, if the defendants now decide to contend that a dispute does exist in relation to the construction questions, they would need to set out the nature of that dispute in a Dispute Notice as required by cl 17.2 of the Unitholders Agreement.
4. Thirdly, the plaintiff submits that the disputes that have arisen subsequently are distinct from the pre-existing judicial advice application and do not affect its competency.
5. At the hearing, counsel for the defendants submitted in response that the plaintiff's statement of facts indicated that there were several disputes between the parties. Counsel for the defendants also indicated that the ultimate disputes between the parties concern the information that would be provided to the valuer (due to the defendants' concern that money had been diverted to different accounts) and whether certain clauses of the Unitholders Agreement are unenforceable as penalties, but not the construction of the relevant clauses. Counsel for the plaintiff reiterated the submission that in those circumstances there is no relevant dispute in relation to the questions on which judicial advice is sought and therefore cl 17 is not engaged.
6. Fourthly, the plaintiff submits that a judicial advice application is not a "proceeding" relating to a "dispute" within the meaning of cl 17. They say that a judicial advice application is a non-adversarial proceeding which is not predicated on the existence of any "dispute" (referring to Macedonian Church at 92 [65]), and is not strictly speaking a "proceeding" but a "procedure for private advice to trustees" (quoting Macedonian Church at 91 [64] and the contradistinction drawn between judicial advice applications and "proceedings" in s 63(11)). At the hearing, counsel for the defendants submitted that dispute resolution clauses should not be construed narrowly and that "proceeding" alone, without any competing description of legal process, would plainly cover any form of legal curial process (referring to Rinehart v Welker (2012) 95 NSWLR 221 at [117]; Dance With Mr D Limited v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [52]; and Black v Norris (1990) 20 NSWLR 300 at 306).
7. Fifthly, the plaintiff submits that judicial advice applications are not susceptible to contractual dispute resolution procedures because it is an inherent right of trustees to seek such advice, and because the protection that a Court grants in giving judicial advice is not capable of being obtained through any alternative dispute resolution procedure (relying on Rinehart v Welker (2012) 95 NSWLR 221 at [164]; Comandate Marine Corp v Pan Australian Shipping Pty Ltd (2006) 157 FCR 45; and Dance With Mr D Limited v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [54]). At the hearing, counsel for the defendants submitted that the proposition that judicial advice applications are not susceptible to mediation is a universal generalisation that is manifestly incorrect. The defendants further submitted that a compromise would have been possible in the Macedonian Church case as they say it is in this case.
8. Sixthly, the plaintiff submits that, even if cl 17 applied, this application would fall within the exception of "urgent interlocutory relief". The plaintiff says that the Business is in a very dire position which has been exacerbated by the COVID-19 pandemic. The plaintiff also relies on Kiefel J's characterisation of judicial advice applications as interlocutory in nature in Macedonian Church at [195]: Proceedings provided for by s 63 do not involve the determination of a controversy, but rather the giving of advice or direction to a trustee with respect to questions of the kind referred to in the section. Section 63 is an exception to a Court's ordinary practice of deciding disputes between competing litigants, as Palmer J observed. But his Honour's orders were not determinative of the parties' rights. The advice given was as to whether, and upon what terms, proceedings should be pursued in order to finally determine the controversy as to the terms of the trust upon which the Association held property. The advice was advice respecting the interpretation of the trust instrument and was therefore within power. The interests of the parties and the liability of the Association as trustee were to be determined, but in the Main Proceedings.
9. At the hearing, counsel for the defendants raised the plaintiff's inactivity between 6 May 2019 and 6 March 2020 in response to the plaintiff's submission on urgency.
10. Seventhly, the plaintiff submits that the Court should exercise its discretion to permit the application to proceed. It says that the likely effect of requiring the parties to engage in a protracted mediation process will be to guarantee the collapse of the business by denying the plaintiff the judicial advice it requires to break the deadlock and obtain finance, which will cause financial inconvenience to the Bank of Queensland. It also says that the due administration of justice is best served by permitting the trustee recourse to the s 63 facility, and that the Court ought to fulfil its traditional role in superintending the administration of trusts in this State. In response, the defendants submitted that they ought to be entitled to invoke and enforce their rights under the Unitholders Agreement, in particular, cl 17.
11. In relation to the public policy issue, the plaintiff submits that the Court should follow the approach taken by Brereton J in Leerac v Pty Ltd v Garrick E Fay, specifically that the Court should construe cl 17 as not extending to applications for judicial advice, and the Court should hold that, if that construction be wrong, then cl 17 is void as contrary to public policy.

The plaintiff's submissions

1. The plaintiff submits that the "only jurisdictional bar" to s 63 is satisfied as each of the questions posed by the Trustee is a question respecting the interpretation of the Unitholders Agreement. It submits that there are no factual issues that require resolution and the proceeding raises four narrow questions of contractual construction. Thus, it submits that no issues arise that take the application beyond the realms of s 63.
2. The plaintiff further submits that the defendants have sought to plead the existence of further controversies in order to deprive it of the benefits the High Court has attributed to s 63, and that the now adversarial nature of the proceedings should not bar its s 63 application.
3. The defendants filed points of defence articulating several reasons why the court should not exercise its discretion to give to the plaintiff the advice sought in the amended summons. The plaintiff responded to these in its written submissions and submitted that each defence ought to be disposed of summarily:
4. The first defence asserts that the plaintiff is precluded from commencing this proceeding because it has not engaged in the dispute resolution process in cl 17 of the Unitholders Agreements. This is the stay issue. The plaintiff's submissions on that issue are summarised above.
5. The second defence asserts that cll 11.2, 11.3 and 11.4 are unenforceable as a contractual penalty because the "events of default" in cl 11.1 cannot cause other unitholders any or any appreciable loss. The plaintiff submits that the defence fails at the threshold by reason of the test set out by the High Court in Andrew v Australian and New Zealand Banking Group Ltd (2012) 247 CLR 205 at [10] in that there is no primary stipulation the observance of which cll 11.2, 11.3 and 11.4 seek to secure.
6. The third defence alleges that the plaintiff has failed to keep accurate financial accounts and statements of the WLD Practice Trust. It further asserts that, as the plaintiff is bound to exercise its powers under the Unitholders Agreement impartially as between the unitholders, and given that the object of the valuation of the units is to fix the fair market value, the plaintiff cannot be justified in exercising any power which will affect the interests of the beneficiaries of the WLD Practice Trust and which may be prejudicial to one of them in favour to the other. The plaintiff submits that this is not an answer to its application for judicial advice because any such breach of contract or duty might give rise to a cause of action for damages but would not affect the validity of any valuation conducted in the manner proposed in the plaintiff's questions. The plaintiff further submits the accuracy of the accounts is a matter for the valuer, not this Court (relying on Network Ten Pty Ltd v TX Australia Pty Ltd [2018] NSWCA 312 at [125]).
7. The fourth defence alleges that the plaintiff and Oorang have committed a series of breaches of the Unitholders Agreement and that the plaintiff has committed breaches of its fiduciary duties. The plaintiff submits that, insofar as those allegations are assumed to be true, the breaches of the Unitholders Agreement may entitle the defendants to damages, and the breaches of fiduciary duties may entitle the defendants to seek equitable compensation and/or an account of profits, but neither would affect the validity of the valuation that has been proposed.

The defendants' submissions

1. The defendants submit that the plaintiff knew when instituting these proceedings that there were serious disputes between the defendants and Oorang, and that the plaintiff's intention in bringing these proceedings was to obtain the protection of s 63 advice which would enable the plaintiff to take actions under the Unitholders Agreement which would settle those disputes. This, the defendants submit, is not something for which judicial advice proceedings should be used (citing Macedonian Church at [111).
2. The defendants further submit that a full and frank disclosure to the Court of the facts asserted against the plaintiff in the defendants' points of defence (see above) would inevitably result in the Court declining to give the plaintiff the advice sought. The defendants assert that the first defendant had no practicable alternative but to terminate her employment, and the second defendant had no practicable alternative but to give a notice of sale of its units in the trust, due to the plaintiff's and Oorang's breaches of the Unitholders Agreement.
3. In the alternative, the defendants submit that, if the plaintiff were to deny the breaches of the Unitholders Agreement, the consequences of those breaches, or the legal unenforceability of cll 11.2, 11.3, 11.4 and 19.1(a) (so far as it would be applicable to "give effect to cl 11"), there would be a dispute as to the rights and obligations of the parties, and in those circumstances the Court will decline to give advice to the trustee (relying on Macedonian Church at [60] and [111]).

The stay issue

1. The question of whether a stay ought to be granted turns primarily on the proper construction and validity of cl 17 of the Unitholders Agreement, specifically whether that clause applies to applications for judicial advice, and if so, whether it is ineffective due to being contrary to public policy.
2. In my view, the term "proceedings" in cl 17 was objectively intended to mean proceedings in the nature of adversarial proceedings. The defendants are right to point out that the meaning of the word "proceedings" depends on its context. However, that the term was I consider, intended to refer to adversarial proceedings between parties with rights or obligations against each other in this contract is what makes the negotiation and mediation procedures contained in cll 17.3 and 17.4 appropriate. The plaintiff was correct in submitting that an application for judicial advice is a non-adversarial proceeding which is not predicated on the existence of any "dispute". Applications for judicial advice in my view are not properly described as adversarial even when surrounding disputes exist and for that reason in my view fall outside cl 17. They often, as in this case, involve questions about whether the trustee has power to do something. The whole point of s 63 is that, whether or not a beneficiary agrees or disagrees with the course of action a trustee wishes to undertake, the Court, upon application, can give permission to the trustee to undertake that conduct, and can have costs associated with the application paid for by the estate, notwithstanding disagreement on the part of a beneficiary.
3. Even if parties can expressly contract out of making an application under s 63, cl 17 does not do that. However, as I have said it is not open for parties to contract out of s 63, even expressly, although the question does not arise here. The issue turns upon public policy considerations not the least of which relate to the protection that s 63 affords trustees who seek the advice of Court. It seems antithetical to the very character of a trustee, the paradigm example of fiduciary, that it would be able to give away its rights to seek the advice and protection of the Court.
4. Counsel for the defendants submit that cl 17 is not ineffective because it merely requires mediation as a condition precedent to the seeking of advice. However, limiting or restricting a trustee's ability to seek advice even in this way is antithetical to the prophylactic nature of the facility created by s 63. As I have already said, s 63 creates a special procedure by which trustees can obtain advice and protection, which is in their interests as well as those of the trust. In my view, trustees should not have to wait until a dispute arises and for mediation to occur before they can approach the Court.
5. Finally, I would not exercise my discretion in favour of granting a stay. In argument, counsel for the defendants said that Dr Stockham had been in dispute with Dr Williams for some time prior to the serving of the notices of resignation and sale (Tcpt, 3 April 2020, pp 7 (23-30), 8(34-37)). Dr Stockham had on numerous occasions sought access to information and financial records, suspicious that money was being diverted from the practice. The defendants insist on strict adherence to cl 17 by the plaintiff. But not once did they seek to invoke cl 17. The defendants have in effect pre-empted mediation by serving a notice of sale and notice of resignation instead. There is as a result likely a waiver of their entitlement to invoke the clause. I need not determine that at this point. Further on the evidence I am satisfied there is no basis for suggesting that the application for judicial advice was brought male fides.
6. For completeness I should make comment on two additional points made by the plaintiff. First, in my view even if cl 17 was applicable, I am not satisfied that the subject matter of the proposed questions has been or are the subject of any dispute between the parties. The disputes, which it may be accepted are numerous, do not turn upon questions of construction of the relevant instrument or the trustee's power to do certain things or not. They range from the accuracy of the accounting records to questions whether certain of the provisions of the instrument operate as a penalty.
7. In addition, even if cl 17 is applicable, I am satisfied the application would fall within the exception of "urgent interlocutory relief". In that regard, I respectfully accept Kiefel J's characterisation of such an application in Macedonian Church at [95]. In addition, on the evidence and as a matter of judicial notice this country and in particular this business is in a dire situation. The COVID-19 pandemic is creating havoc to all businesses in this country and in particular dental practices for the reasons set out by Dr Williams, whose evidence I accept. I do not on the other hand accept the evidence of Dr Stockham. Her attempt to diminish the sense of urgency created by the pandemic is somewhat removed from reality.

Are the questions within the scope of s 63?

1. I am also of the view that on their face the questions as posed by the plaintiff fall within the purview of s 63(1), each respecting the interpretation of the Unitholders agreement.

Conclusion

1. For the various reasons stated I do not consider cl 17 has the operation contended for by the defendants and I am satisfied that the questions are appropriate for judicial advice.
2. I would invite the parties to bring in short minutes to reflect these reasons. If the parties cannot agree on the appropriate costs order they are at liberty to have the matter relisted for argument.

Amendments 21 April 2020 - cover sheet: amendment to instructing solicitors and counsel in the matter 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: 21 April 2020