Icepine Pty Ltd: In the matter of the Bellamy Street Unit Trust

1. [1]

   By amended summons filed in Court on 16 November 2017, the Plaintiff, Icepine Pty Ltd (Trustee), seeks judicial advice pursuant to section 63 of the Trustee Act NSW (Trustee Act) on questions concerning the interpretation of the trust instrument for the Bellamy Street Unit Trust (Trust Estate) and in particular the Deed of Settlement dated 10 September 1997 (Trust Deed).

2. [2]

   The Trustee relies upon two affidavits, one of a Ms Joanne Woodward sworn 26 November 2017 and a further affidavit of Mr Phillip Woodward sworn the same day. In addition two opinions from Counsel have been filed with the papers, one dated 25 October 2017 and a further supplementary opinion of 1 November 2017.

Background facts

1. [3]

   The Trustee holds two items of real property situated in New South Wales, being 75 and 77 Bellamy Street, Pennant Hills.

2. [4]

   The Trust Estate is a “Unit trust”. The Unitholders comprised Mr Peter John Woodward (deceased) and the Woodvest Pty Ltd as trustee of the Larkwood Trust.

3. [5]

   The deceased died on 12 January 2017. Whilst the deceased left a Will, probate has not yet been granted. Further, no administrator has been appointed with respect to the deceased’s estate.

4. [6]

   The deceased was a party to the Trust Deed and certain questions have now arisen as to the interpretation of the Deed, in particular the entitlement of any legal personal representation of the deceased with respect to the Units in the Trust Estate.

Relevant legal Principles

1. [7]

   Section 63 of the Trustee Act 1925 (NSW) provides:

2. [8]

   The plurality of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (‘Macedonian Orthodox’) at [59]-[60] described section 63 as a discretionary power that is confined only by the “subject matter, scope and purpose” of the Act. At [55], their Honours also explained that no implications should be read into section 63 and that the section must only be taken for its express words. The only “jurisdictional bar” to be satisfied is that the applicant must point to a “question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument”: Macedonian Orthodox at [56]-[58].

3. [9]

   The plurality in Macedonian Orthodox also indicated that the application of section 63 “will tend to vary with the type of trust involved”. Their Honours remarked at [67]-[68]:

4. [10]

   The plurality also noted that, where a trustee seeks judicial advice as to the conduct of litigation, the stage that the litigation has reached may be a relevant consideration. Their Honours remarked at [106]:

5. [11]

   In Macedonian Orthodox at [69], Gummow ACJ, Kirby, Hayne and Heydon JJ noted a purpose of section 63 is to enable trustees “to take advice before embarking on any course which might carry a risk of incurring costs that might be outside the indemnity”. Their Honours continued at [71] and [74]:

6. [12]

   In Northey v Juul [2014] NSWSC 464, Slattery J stated at [105]:

7. [13]

   His Honour referred in particular to Lindley LJ’s remarks in In Re Beddoe (1893) 1 Ch D 547 at 557-558 to the effect that:

8. [14]

   Similarly, in Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784, Robb J considered Macedonian Orthodox and remarked that:

9. [15]

   It is therefore clear the High Court’s remarks in Macedonian Orthodox have not been taken to imply a trustee who embarks upon litigation having not obtained judicial advice loses any right of indemnity.

10. [16]

    In my opinion, the better view of the authorities, importantly Macedonian Orthodox, is that a trustee is not obliged to first seek judicial advice before bringing or defending a claim. The comments of the High Court in Macedonian Orthodox make it clear that it is simply desirable for a trustee to seek judicial advice before making any judgment about a problematic cause of action, rather than rely on section 85 of the Act after the event: Macedonian Orthodox at [36].

11. [17]

    That the facts alleged in an application under s 63 are contested does not mean those alleged facts should be disregarded; instead, s 63(2) provides a safeguard in that the trustee will lose the protection of any opinion, advice or direction if guilty of any fraud or wilful concealment or misrepresentation: Macedonian Orthodox [79]-[80].

12. [18]

    Where the application is supported by an opinion of Counsel that is confidential, it may be difficult for a judge to provide reasons that are as full as would otherwise be given: Macedonian Orthodox [161].

13. [19]

    While there is a distinction between the questions as to whether, on the one hand, it is in the best interests for the trust estate for litigation to be conducted, and on the other hand, whether the trustee should be entitled to indemnity out of the trust property for its reasonable costs of litigation, the two questions are interrelated. As noted by the plurality in Macedonian Orthodox, where the conduct of litigation is in the best interests of the trust, how those proceedings are to be conducted “as a matter of practicality” must be considered. The financial capacity of the applicant is relevant in determining whether the applicant is entitled to be indemnified out of the trust property with respect to reasonable costs of litigation: Macedonian Orthodox [82]-[85].

14. [20]

    Again the plurality of the High Court in Macedonian Orthodox cited without disapproval the following remarks of Palmer J in Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80]:

15. [21]

    The plurality noted that Palmer J’s remarks should not be interpreted as drawing a distinction between mere “sufficiency” and “strength” and emphasised that Palmer J had considered the “merits and strengths of the claim” as a relevant factor: Macedonian Orthodox [162]-[164].

16. [22]

    In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, Darke J remarked that:

17. [23]

    In Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13 at [10]-[13], Slattery J also appeared to cite the remarks of Palmer J without disapproval and Palmer J’s comments were similarly cited by Davies J in Jax Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114 at [26], seemingly without disapproval.

The Trust Deed

1. [24]

   Pursuant to clause 2.1 “Unit Holders” means the person or persons, firm or firms, corporation or corporations registered from time to time in the Register of Unitholders.

2. [25]

   Clause 2.2(a) provides the beneficial interest in the Trust Fund will be divided into Units.

3. [26]

   Clause 3.1(b) provides the Trustees may in their absolute discretion refuse any application for Units and they will not be required to assign any reason or ground for such refusal.

4. [27]

   Clause 4.1(a) provides that the Trustees must keep a Register of Unitholders in which various details are to be entered.

5. [28]

   Clause 4. 2 provides there will be issued to the Original Unitholders in respect of the original number of Units and to every other person who is to become a Unitholder in respect of the Units of which he is registered a certificate evidencing the appropriate entry in the Register of Unitholders. Unit certificates are to be in the form and contain such information as the Trustees from time to time determine.

6. [29]

   Clause 4.3 provides each person who becomes registered as a Unitholder will be deemed to have agreed to become a party in the Deed and any supplementary Deed and will be entitled to the benefit or and will be bound by the terms and conditions of the Deed of any supplementary Deed.

7. [30]

   Clause 5 deals with the transfer and transmission of Units. Clause 5.1(a) provides Unitholders may request the Trustees to register transfers of all or any of the Units held by them. The Trustees may in their absolute discretion refuse to register a transfer (whether voluntary or by operation of law) of Units without being bound to assign any reason for such refusal.

8. [31]

   Clauses 5.1(b)(i) deals with the sale or transfer by a Unitholder of a Unit. Clause 5.1(b)(ii) deals with the form of transfer notice. Clause 5.1(b)(iii) deals with the question of fair value of the Units being transferred or sold. Clause 5.1(b)(iv) and (v), (vi), (vii), (viii), and (ix) deals with the methodology and/or process of transfer. Clause 5.1(c) deals with the registration of any transfer of Units.

9. [32]

   Clause 5.1(d) deals with the requirement or not of a written instrument of transfer and the Trustee’s discretion in relation to such a document. Clause 5.1(e) deals with the form of written transfer if executed on behalf of the Transferor and Transferee. Clause 5.1(f) permits the Transferee to make appropriate entries in the Register of Unitholders. Clause 5.2 is in the following form:

10. [33]

    Clause 5.2 of the Trust Deed is the starting point with respect to the consequences upon the death of a Unitholder.

11. [34]

    Paragraph 5.2(a) of the Trust Deed provides that:

12. [35]

    Paragraph 5.2(b) of the Trust Deed provides as follows:

13. [36]

    Paragraph 5.2(c) of the Trust Deed extends the scope of paragraph 5.2(b) of the Trust Deed, and provides as follows:

14. [37]

    Paragraph 5.2(d) of the Trust Deed provides that:

15. [38]

    Clause 12 deals with meetings of Unitholders and entitlements to vote. Clause 14 deals with notices which may from time to time be given.

16. [39]

    It is clear clause 5.2 is a provision which deals expressly with the situation where a Unitholder has died, which is the case here. Clause 5.2(a) provides expressly that unless the deceased Unitholder held Units jointly with another person (described in the provision as the survivor), then the legal personal representative of the deceased will be the only person or persons recognised by the Trustees as having any title to the deceased person’s interest in the Units.

17. [40]

    Further pursuant to clause 5.2(b) the Legal Personal Representative being a person “becoming entitled to Units in consequence of the death… of any Unitholder” may elect either to become registered as the holder of the Units or nominate another person to be registered as the transferee. In either case the Trustees do have a right to decline or suspend registration as they would have had in the case of a transfer of the Unit of that holder prior to such death.

18. [41]

    Clause 5.2(c) provides that if the person “entitled” elects to become registered they must deliver a notice in writing signed by that person and stating that person has so elected. The sub clause then provides that “all provisions” of the Deed relating to the right to transfer Units and the registration of those Units will be applicable. In my view this provision affords the right and the methodology of a legal personal representative to become in due course the registered Unit holder.

19. [42]

    It is clear that the “provisions” of the Deed relating to the right to transfer and register such Unit requires recourse to clause 5. It is apparent on the face of clause 5 that not all of the provisions can have application where the Unitholder is deceased. In my view all of the sub provisions of clause 5.1(d) and (f) which may be described as generic will not apply in the case of a legal personal representative seeking to become a registered Unitholder.

20. [43]

    In my view, the other provisions in clause 5 other than those I have just mentioned clearly refer to existing Unitholders seeking to sell or transfer their Units and the methodology and process to be adopted when such transfer or sale is to take place. Therefore the reference in my view in clause 5.2(c) to “all provisions” properly construed means those provisions contained in clause 5.1 that are relevant for the purposes of clause 5.2. I should also observe as far as clause 14 (notices) is concerned again there is a distinction in the provisions between Unitholders and persons entitled to a Unit in consequence of death (clause 14.1(c) and 14.2(d)(ii)). These provisions require a trustee to provide the requisite notices to such persons and in this case it means the legal personal representatives of the deceased.

21. [44]

    In a number of places in the Trust Deed, but importantly in relation to the Trustee’s discretion to refuse registration, the discretion is said to be “absolute discretion”. For example in my view clauses 5.2(b) and 5.1(a) gives the Trustees in circumstances where a legal personal representative applies for registration to exercise the same discretion (to decline) as would be the case if the Unitholder had made such application prior to his death. That discretion is to be found of course in clause 5.1(a).

22. [45]

    I agree with the supplementary opinion of counsel that the power, as it were, provided to the Trustee pursuant to paragraph 5.1(a) is not merely administrative in nature and rather more a dispositive power as outlined in that opinion. Pursuant therefore to the authority in Carger v Paul [1984] V.R 161 (as approved by the High Court in Finch v Telstra Super Pty Ltd (2011) 242 CLR 254) the Trustee may exercise a discretion and refuse the registration without disclosing any reasons for doing so. That discretion will not be examined except where it can be shown the Trustee has failed to act honestly and in good faith, failed to act upon a genuine consideration, or failed to exercise the power with due consideration for its proper purpose or having given reasons, reasons disclosed that it is a decision that no reasonable trustee could have made on the materials before it. It would follow that although there is discretion on the part of the Trustee, that discretion is appropriately circumscribed by the qualifications just mentioned.

23. [46]

    When the matter came back before me on 16 November 2017, having carefully read the supplementary Opinion and the materials again, I was satisfied the questions should be answered in accordance with those proposed minutes and made orders accordingly.