Re LSC and GC

Before the Court are two applications, each by a different “protected person” (within the meaning of section 38 of the NSW Trustee and Guardian Act 2009 NSW) , in separate proceedings under section 86 of the Act, for an order to the effect that management orders made under section 41 of the Act be revoked.

On the face of the Court’s Protective List records, each application appears to be irregular because the manager appointed under section 41 (a licensed trustee company governed by a chapters 5D and 7 of the Corporations Act 2001 Cth and the Trustee Companies Act 1964 NSW) is not, in fact, the manager (another licensed trustee company) presented as the entity to be discharged from the office of protected estate manager if a revocation order is made under section 86. Such an irregularity has to be addressed.

The object of this judgment is to deal with issues of principle and practice arising from a need to accommodate different regulatory regimes governing the work of a licensed trustee company in management of a protected estate.

Each of the applications before the Court concerns: (a) a proposed revocation of orders initially made under section 41 of the NSW Trustee and Guardian Act 2009 appointing The Trust Company Limited ACN 004 027 749 or The Trust Company (Australia) Limited ACN 000 000 993 (at the risk of over-simplification, but for convenience, described in this judgment, jointly or severally, as “The Trust Company”) as the manager of a protected estate; (b) an acquisition of all the ordinary shares in The Trust Company by Perpetual Trustee Company Limited ACN 000 001 007 (a wholly owned subsidiary of Perpetual Limited ACN 000 421 927) pursuant to a Scheme of Arrangement approved by this Court under the Corporations Act 2001; (c) a Voluntary Transfer Determination made by the Australian Securities and Investments Commission (ASIC) under section 601WBA of the Corporations Act 2001 to the effect that there be a total transfer of estate assets and liabilities of The Trust Company from that company to Perpetual Trustee Company Limited; and (d) an absence of any orders under section 41 of the NSW Trustee and Guardian Act and section 47 of the Interpretation Act 1987 NSW for the removal and replacement of The Trust Company as manager of the particular protected estate.

The usual form of orders made upon removal and replacement of a protected estate manager under section 41 of the NSW Trustee and Guardian Act and section 47 of the Interpretation Act 1987 are set out in M v M [2013] NSWSC 1495 at [55]. No such orders were sought, or made, in the course of management of the estates of the protected persons who have, in the proceedings presently before the Court, applied for revocation orders.

On 18 December 2013 The Trust Company became part of the Perpetual Group of Companies pursuant to a Scheme of Arrangement approved by the Court (on 3 December 2013) in proceedings conducted in the Court’s Corporations List: Re The Trust Company Ltd [2013] NSWSC 1947, read with judgments of the same name reported at [2013] NSWSC 1680 and [2013] NSWSC 1946. Pursuant to the terms of the scheme, Perpetual Trustee Company Limited acquired all the ordinary shares in The Trust Company.

Following implementation of the Scheme, The Trust Company Limited was delisted from the Australian Stock Exchange.

On 2 February 2015 ASIC made Voluntary Transfer Determinations under section 601WBA of the Corporations Act and, under section 601WBG of the Act, issued Certificates of Transfer stating that the transfer of estate assets and liabilities from The Trust Company to Perpetual Trustee Company Limited was to take effect on 1 March 2015.

ASIC’s “Statements of Reasons” accompanying the Voluntary Transfer Determinations were to the effect that (for the purpose of section 601WBA(2) of the Corporations Act) ASIC was satisfied that:

Having recited the matters about which ASIC was “satisfied”, the instrument of determination added the following paragraph:

With section 601WDA(3) in mind, on 23 February 2015 The Trust Companies and “Perpetual” published an advertisement in the public notices section of the Sydney Morning Herald, a newspaper circulating throughout New South Wales, and on or about 27 February 2015 Perpetual Trustee Company Limited wrote to each of the NSW Trustee and the “Supreme Court Registry” a formal letter marked to the attention of nobody in particular.

The Sydney Morning Herald advertisement, in terms, announced that The Trust Companies were transferring their traditional trustee company services to Perpetual Trustee Company Limited (effective 1 March 2015), that Perpetual Trustee Company Limited would be the only “Perpetual entity” providing such services, that The Trust Companies would be transferring their estate assets and liabilities to Perpetual Trustee Company Limited and that further information could be obtained via a specified telephone number or email address.

By letters dated 27 February 2015 Perpetual Trustee Company Limited advised the NSW Trustee and the Court that: ASIC had issued certificates of transfer following the making of voluntary transfer determinations pursuant to the Corporations Act; Perpetual Trustee Company Limited was, from 1 March 2015, to become the successor in law of The Trust Companies; the provisions of section 601WBI(1) of the Corporations Act applied to the transfer of the duties, obligations, immunities, rights and privileges of the companies; and any appointment or nomination of The Trust Companies to a particular capacity (for example as trustee, executor or administrator) in relation to transferred estate assets and liabilities was to be taken as an appointment or nomination of Perpetual Trustee Company Limited to that capacity in relation to those assets and liabilities pursuant to section 601WBJ of the Corporations Act.

Each letter ended:

No application was made to the Court (or to the NSW Trustee), or (I infer) to the Guardianship Division of the NSW Civil and Administrative Tribunal (NCAT), for any form of order or direction, in relation to any protected estate, upon an exercise of protective jurisdiction. No attention was drawn to the possibility that questions relating to an exercise of protective jurisdiction had arisen, or might arise.

The correspondence has all the appearances of a formality, a fait accompli, unattended by any consciousness of larger questions of principle or practice. An ungenerous mind might construe it as correspondence calculated to be ignored or overlooked. I choose to believe otherwise. I proceed on the basis that it reflects an unconscious over-confidence in the paramountcy of the law of corporations, and the “group” thinking of a large corporation, and a failure to reflect on how, and why, the protective jurisdiction of the Court, and associated statutory authorities, work on a day-to-day basis.

Following ASIC’s issue of voluntary transfer determinations, and as part of an ongoing process of consolidation within the Perpetual Group of companies, the Australian Financial Services licences held by The Trust Companies under chapter 7 of the Corporations Act were, on 20 May 2015, restricted to the provision of traditional trustee company services to wholesale clients (as opposed to wholesale and retail clients) within the meaning of section 761G of the Act.

Pursuant to section 761G(6A) of the Corporations Act, if a financial service provided to a person is a “traditional trustee company service” within the meaning of section 601RAC(1), the service is deemed to be provided to the person as a “retail client” unless regulations otherwise provide. In this scheme, each of the plaintiffs in the current proceedings is a “retail client”. By default, pursuant to section 761G(4), a financial service is provided to a “wholesale client” if the person to whom it is provided is not a “retail client”.

The effect of all this is that, since 20 May 2015, The Trust Companies’ respective Australian Financial Services licences have been restricted to the provision of traditional trustee company services to wholesale clients within the meaning of section 716G of the Corporations Act. Within the Perpetual Group, traditional trustee company services in the nature of management of protected estates are provided under an Australian Financial Services licence held by Perpetual Trustee Company Limited.

The legislative framework within which ASIC acted is that for which part 5D.6 (sections 601WAA-601WDA) of the Corporations Act provides (here, with emphasis added):

Section 34A of the Trustee Companies Act 1964 NSW (relied upon by Perpetual Trustee Company Limited to explain the course of events in its acquisition of The Trust Company) is in the following terms (with emphasis added):

Perpetual Trustee Company Limited (on behalf of itself and The Trust Company) relies upon sections 34A(2) and 34A(3)(c) of the Trustee Companies Act and section 601WBJ of the Corporations Act in support of a contention that, on and from 1 March 2015, it became the successor in law of The Trust Company and that, since that time, it must be taken, without more, to have been manager of each protected estate to which The Trust Company had earlier been appointed manager.

It is not necessary, on the applications for revocation of management orders made in these proceedings, to explore the correctness of this contention in all its dimensions. Suffice to say that I harbour substantial doubts about its correctness in the stark form in which it has been presented.

Nevertheless, I accept that the Perpetual Trustee Company Limited has proceeded, honestly and reasonably, upon an assumption that the legislation cited in support of the contention it has advanced has the effect for which it contends.

Attention needs to be given to a principled, workable solution to problems that have been identified.

The language of the Corporations Act (adopted by the Trustee Companies Act 1964) does not, in all respects, sit comfortably with its application to an estate under protected estate management.

In no ordinary sense is the property of a protected person “property” or a similar “right” of a protected estate manager. In no ordinary sense is property of a protected person “vested” in a protected estate manager or a “belonging” of the manager. In no ordinary sense does a protected estate manager (in his, her or its own name), by virtue of the office of a manager, have an interest in land owned by the protected person. The definitions of “asset”, “estate assets and liabilities” and “interest” in section 601WAA of the Corporations Act do not readily embrace a protected estate. In no ordinary sense can a change of protected estate manager, a change ordinarily effected by an order of the Court or NCAT, be comprehended by the words “transfer, conveyance or assignment” found in section 601WBI(1)(a).

A protected estate manager is not, without qualification, able to be included in the same class as a trustee, executor or administrator, examples specified in section 601WBJ. A protected estate manager must comply with a dynamic regulatory regime, governed by the NSW Trustee and Guardian Act, monitored by the NSW Trustee, and supervised by this Court. That regime does not apply to mere trustees, or to representatives of a deceased estate, as such.

In JJK v APK (1986) Aust Torts Reports 80-042 at 67,881, Powell J likened the office of a protected estate manager to that of a bailiff. H S Theobald, The Law Relating to Lunacy (London, 1924), at pages 47 and 50, is to the same effect. In GDR v EKR [2012] NSWSC 1543 [36], White J described the relationship between a protected person and the manager of his or her estate as that of principal and agent rather than trustee and beneficiary; a manager does not ordinarily, merely by appointment to the office of manager, acquire title to estate property under management (which generally remains in the protected person) but merely manages the estate.

Having reviewed the authorities, in Ability One Financial Management Pty Limited and Anor v JB by his tutor AB [2014] NSWSC 245 at [174], I concluded that it may be best to regard the office of a protected estate manager as unique, attracting the obligations of a fiduciary, taking colour from the terms of his, her or its appointment as manager, governed by the Court’s protective jurisdiction and informed by the nature, purpose and historical origins of that jurisdiction.

Not uncommonly, as in the proceedings presently before the Court, the bulk of a protected person’s estate may comprise financial investments, effected by a licensed trustee company as manager, consequent upon: (a) an award of compensation made in favour of the protected person in personal injury litigation; and (b) an order that the protected person’s compensation money be paid out of court, to the manager, for management as part of the protected estate. In such a case, the manager may be said, loosely, to receive, hold, and invest the protected person’s money as a trustee.

It is not altogether unnatural in such a case to think of a licensed trustee company, acting as a protected estate manager of an “investment portfolio”, in terms that assimilate the concepts of a trustee and a protected estate manager.

To adopt such an attitude of mind is, however, to succumb to a risk of losing sight of:

The regulatory regime for which chapter 5D of the Corporations Act provides does not relieve a licensed trustee company which accepts an appointment as a protected estate manager under the NSW Trustee and Guardian Act (or under equivalent provisions of the Guardianship Act 1987 NSW) of an obligation to engage fully, and to comply with, the regulatory regime for which the NSW Trustee and Guardian Act provides.

The obligations to the Court of a protected estate manager intent upon ceasing to act in the office of manager or to “transfer” business to another entity cannot be discharged by so casual a procedure as a formal advertisement in the public notices section of the Sydney Morning Herald, or a formal letter posted to nobody in particular at the general registry of the Court, or a similar letter (again, to nobody in particular) posted to the office of the NSW Trustee, even if such steps satisfy the formal notice requirement of the Corporations Act, section 601WDA.

A protected estate manager remains in office, under the control of the Court, unless and until (at least) discharged by an order of the Court. A protected estate manager has fiduciary obligations, and an obligation to account as a fiduciary, that operate indefinitely. The circumstance that a manager might have purported to transfer its business to another entity, surrendered an Australian Financial Services Licence issued under the Corporations Act, or submitted to conditions on such a licence, does not of itself release the manager from the control of the Court (or entitle the manager to pass on its responsibilities to another entity), although each of these facts may provide an occasion for removal, and replacement, of the manager by the Court.

Nothing in chapter 5D of the Corporations Act displaces the Court’s protective jurisdiction.

Section 601SAA of the Corporations Act is in the following terms:

It is not to be doubted that the work of protected estate management falls within the definitions of “traditional trustee company services” and “estate management functions” contained in section 601RAC of the Corporations Act.

An incident of the office of a protected estate manager is that a manager is bound to act in the interests, and for the benefit, of a person incapable of managing his or her own affairs: M v M [2013] NSWSC 1495 at [50]. Lacking an entitlement rising above the interests of the protected person, a manager is liable to be removed from office if and when it is in the interests, and for the benefit, of the protected person that that occur.

Where a corporation has been appointed to manage the estate of a protected person and there has been a substantial change in the ownership or management structure or mode of operation of the corporation, bearing upon the capacity of the corporation to manage the estate or the means by which the estate might be managed, a protected person and his or her family and carers can reasonably expect to be allowed an opportunity to consider for themselves whether the change is in the best interests, and for the benefit, of the protected person.

It is one thing for ASIC, at a “macro” level, to be satisfied about the desirability of making a Voluntary Transfer Determination. It may be altogether a different thing for individual affected persons viewing their particular circumstances, as they are entitled to do, from a “micro” perspective. Both perspectives need to be taken into account. A manager cannot assume that what is good for it is necessarily good for, or acceptable to, an individual protected person.

A voluntary transfer determination made by ASIC under the Corporations Act 2001 does not, and cannot, of itself displace an order made by this Court for ongoing management of a protected estate. It might provide a sound basis upon which the Court can, and should, make orders (under section 41 of the NSW Trustee and Guardian Act and section 47 of the Interpretation Act 1987 NSW) for “the transferring company” (as defined by sections 601 WAA(1) and 601WBA(1) of the Corporations Act) to be removed from the office of protected estate manager and for “the receiving company” (as defined by sections 601WAA(1) and 601WBA(1)) to be appointed to the office of manager in its stead. However, the Court’s jurisdiction cannot be, and has not been, displaced by a global, administrative determination by ASIC.

In expressing this view, I acknowledge that, under Part 5D.6 of the Corporations Act, upon ASIC’s issue of a “certificate of transfer” (pursuant to section 601WBG) “the receiving company becomes the successor in law of the transferring company in relation to estate assets and liabilities of the transferring company, to the extent of the transfer” (section 601WBI), and “any appointment or nomination of the transferring company to a particular capacity (for example, as trustee, executor or administrator) in relation to the transferred estate assets and liabilities is taken to be an appointment or nomination of the receiving company to that capacity in relation to those assets and liabilities” (section 601WBJ).

A protected estate management order appoints a “suitable person” (to use the language of section 41(1)(b) of the NSW Trustee and Guardian Act) to the office of manager, not as a trustee of the protected person’s property.

An order for the appointment of a protected estate manager is an order which has continuing, operative effect unless and until revoked. Its effect is not “one off” but continuous. A manager is subject to directions of the NSW Trustee under the NSW Trustee and Guardian Act, and to supervision by the Court in exercise of its jurisdiction under the Act and upon an exercise of inherent jurisdiction.

In a sense, as both protected estate and manager are under the ongoing supervision of the Court, a protected estate manager could reasonably be described as an “officer of the Court”. Be that so, or not, the Court is entitled to proceed on the basis that an order for the appointment of a manager continues in force unless and until revoked or, in the case of a natural person, terminated by death. The Court is entitled to proceed, and needs to be able to proceed, on the basis that its records are authoritative in their identification of a manager. The due administration of protected estates requires no less.

Part 5D.6 of the Corporations Act (including sections 601WBI and 601WBJ) is predicated upon an assumption that a “transferring company” has, by virtue of “an appointment”, a property interest in property the subject of a “transfer”. By its reference to “estate assets and liabilities” of a transferring company and its reference to the “capacity” of a “trustee, executor or administrator” it appears, principally, to have had in mind a licensed trustee company appointed to administer an estate as a trustee, or as a legal personal representative (executor or trustee) of a deceased person. This language does not sit comfortably with the office, rights and obligations of a protected estate manager.

The focus of ASIC in deciding whether or not to make a “transfer determination” is upon “macro” concepts, not the “micro” concepts that constitute the very essence of an exercise of protective jurisdiction.

The governing purpose of an exercise of protective jurisdiction by the Court is protection of the welfare and interests of the particular protected person concerned; any decision made affecting the welfare or interests of such a person must be made in a manner, and for a purpose, calculated to be in the best interests, and for the benefit, of that person: Holt v Protective Commissioner (1993) 31 NSWLR 27 at 238 and 241-242.

Before ASIC can make a “transfer determination”, sections 601WBA(2)(b) requires that it be satisfied, inter alia, that:

This language does not sit comfortably with the nature and operation of the Court’s protective jurisdiction, even allowing for an awkward, contemporary usage of the term “client”. An exercise of protective jurisdiction must be viewed from the perspective of each individual person in need of protection, as an individual not merely as an unidentified member of a “group”.

That the Corporations Act is not unmindful of the perspective of individual “clients” is apparent from section 601WDA. Subsection (3) of that section provides that “[if] a certificate of transfer for a voluntary transfer determination comes into force, the transferring company must, as soon as practicable, publish notice of the transfer of estate assets and liabilities.” Nevertheless, that provision falls short of what is required (in terms of notification of affected persons) if the licence of a trustee company is cancelled or a compulsory transfer determination comes into force.

The due administration of protected estates in NSW requires something more of a licensed trustee company (operating within the administrative procedures for which Part 5D.6 of the Corporations Act provides) than a mere publication of notice of the transfer of estate assets and liabilities, assuming (as one might) that such a transfer has operative effect vis-a-vis property of a protected person.

No protected estate manager has a legal entitlement to be, or to remain, manager of a particular protected estate: Holt v Protective Commissioner (1993) 31 NSWLR 227 at 237-238; M v M [2013] NSWSC 1495 at [50]; Ability One Financial Management Pty Limited and Anor v JB by his tutor AB [2014] NSWSC 245 at [151]-[153]. Each protected person is entitled to due consideration in the ordinary course of management of an estate.

A licensed trustee company intent upon invoking, or relying upon, Part 5D.6 of the Corporations Act is under an obligation, attaching to the office of protected estate manager, to consult with the NSW Trustee (and, if need be, to obtain directions from the Court) to ensure that affected persons are given an opportunity, as may be necessary or appropriate, to enable them (or somebody duly representing them) to apply for relief consequential upon an ASIC order, made or proposed. An individual protected person, his or her family and carers may not be content to be subjected to ASIC’s “group” assessment of the protected person’s interests, or to a commercial agreement between licensed trustee companies to which the protected person is in no sense a party.

I am satisfied that each plaintiff is now a person capable of managing his own affairs, and that revocation orders should be made under section 86 of the NSW Trustee and Guardian Act, together with remedial orders to address what I find to be an irregularity in the procedure by which Perpetual Trustee Company Limited came to assume management of the plaintiff’s protected estate (that is, without an appointment by the Court).

In the course of considering the plaintiffs’ applications for revocation orders in the subject proceedings, I sought (and obtained) the assistance of the NSW Trustee and Perpetual Trustee Company Limited. In doing so, I invited Perpetual Trustee Company Limited to liaise with the NSW Trustee as to whether (and, if so, in what respects) supplementary orders should be sought in respect of protected estates, other than those immediately affected by these proceedings, to ensure that any other, comparable irregularities have been, or can be, appropriately addressed.

I am satisfied that The Trust Company and Perpetual Trustee Company Limited have at all times acted honestly and reasonably (albeit, in my assessment, mistakenly). Nothing in this judgment is intended to suggest otherwise.

In all the circumstances, I propose to accede to the application of Perpetual Trustee Company Limited (on behalf of itself and The Trust Company) that (upon an exercise of the jurisdiction described in C v W (No. 2) [2016] NSWSC 945 at [22]-[47]) they be excused from any breaches of fiduciary duty arising only from their acting upon an assumption that a voluntary transfer determination of ASIC was, of itself, sufficient justification for Perpetual Trustee Company to assume management of a protected estate to the exclusion of The Trustee Company without a confirmatory order of the Court (or NCAT) upon an exercise of protective jurisdiction.

I anticipate that, as a result of experience of these proceedings and consultations involving the NSW Trustee, it may be both necessary and appropriate to make similar orders, and orders confirmatory of the identify of the manager, in other protected estates managed by Perpetual Trustee Company Limited.

I will deal with any application for such orders when made.

To the extent that Perpetual Trustee Company Limited may presently have other protected estates under its management without the sanction of an express order appointing it as manager, it will continue, pending the making of remedial orders, holding property under management as a constructive trustee on terms similar to those upon which it would hold the property if possessed of a formal appointment as manager. In that context, as in performance of the functions of a protected estate manager, it should act upon directions given by the NSW Trustee, subject only to orders of the Court. Property of a protected person does not cease to be governed by the NSW Trustee and Guardian Act, or to be subject to the jurisdiction of the Court, merely because it happens to be under the management, in fact, of a person not duly appointed for that purpose.

In the meantime, in each set of proceedings I make, inter alia, orders to the following effect: