Bideena Pty Ltd as trustee for the Bideena Pty Ltd Superannuation Fund

This is an application for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW). The plaintiff seeks advice as to: (1) whether it is necessary for the plaintiff to obtain judicial advice as a condition of it having a right of indemnity for any costs orders made against it in proceedings NSD425/2016 in the Federal Court and (2) whether it is appropriate for the plaintiff to continue to conduct the Federal Court proceedings and to indemnify itself out of the property of the superannuation fund in ARF Investments Pty Ltd for all of its legal costs on an indemnity basis.

On 23 March 2013, the plaintiff, Bideena Pty Ltd (Bideena), commenced proceedings in the Federal Court by way of originating process against six defendants.

On 21 April 2016, the defendants in the Federal Court proceedings applied for security for costs on the basis that Bideena is required to obtain judicial advice before commencing the proceeding in order for Bideena to indemnify itself out of the property of the superannuation fund.

Bideena agreed to obtain judicial advice notwithstanding that Bideena’s position is that it is not necessary for it to do so in order to have a right of indemnity (Short Minutes of Order of Markovic J, 21 April 2016).

Bideena is the corporate trustee of the Bideena Super Fund. The directors and only shareholders of Bideena are Jennifer and Christopher Bevan.

Bideena’s claims in the Federal Court largely relate to allegations of oppressive conduct within the meaning of s 232 of the Corporations Act 2001 (Cth) on the part of ARF Investments Pty Ltd (ARF Investments) and its subsidiary Agricultural and Rural Finance Pty Ltd (ARF).

By way of overview, ARF (the third defendant in the Federal Court proceedings) provided loans to a total of about $10 million to investors in tea tree oil projects between June 1997 and June 1999. ARF’s sole business since January 2003 has been litigation seeking to recover the loans and interest. The sole directors of ARF until September 2012 were Anthony and Richard Sark (the Sark brothers).

Mr Bevan has acted as a barrister for ARF in litigation since about 2006. Mr Evangelos Patakas (the fifth defendant in the Federal Court proceedings) has acted as solicitor for ARF under the name “Evangelos Patakas and Associates” (EPA) in its dealings with borrowers and third parties since about July 2006.

In 2012, ARF loaned funds held on trust for the legal costs of Mr Bevan and Mr Patakas to related parties CaTTO, Felicity Cassegrain and OAL. ARF’s then directors, the Sark brothers, subsequently considered placing ARF into liquidation.

What instead transpired was that on 15 August 2012, ARF Investments Pty Ltd (ARF Investments), the second defendant in the Federal Court proceedings, was incorporated as a holding company for ARF. The Sark brothers resigned as directors and transferred two $1 shares in ARF Investments to the super funds of each of Mr Bevan and Mr Patakas on 26 September 2012.

Growth Super Fund Pty Ltd (Growth Super) is the trustee of the Patakas Superannuation Fund (the first defendant in the Federal Court proceedings). Mr Patakas is the sole director and shareholder of Growth Super.

Mr Patakas’ sister, Anastasia Patakas (the fourth defendant in the Federal Court proceedings) subsequently became sole director of ARF and ARF Investments (after a short interim period in which Mr Bevan’s son was also director prior to conversion to sole director companies). Bideena alleges that Mr Patakas is also a de facto director of ARF Investments within the meaning of the definition of “director” in s 9(b) of the Corporations Act 2001 (Cth).

Bideena alleges that the appointment of Ms Patakas as sole director was pursuant to an agreement that Mr Bevan would remain as counsel for ARF (for the sake of continuity and on account of the complexity of the length proceedings) and would therefore have no role in the management of ARF.

On 29 August 2013, Goeke Investments Finance Pty Ltd (Goeke) (the sixth defendant in the Federal Court proceedings) loaned about $500,000 to ARF on 29 August 2013 secured by a registered charge over ARF’s property. The sole director and shareholder of Goeke is Nina Freeman, the de facto wife of Mr Patakas. Bideena alleges that Mr Patakas is also a de facto director of Goeke.

The solicitor for Goeke has sworn an affidavit stating that the balance of the loan remaining to be repaid as at 8 April 2016 was $30,685. Bideena alleges that Mr Patakas procured Goeke to not fully repay the loan for the reason of preserving Goeke’s right to appoint a receiver to ARF’s property in order to control the affairs of ARF if ARF is placed into administration or there is a charge of director/shareholders ordered by the Court.

Bideena’s claims in the Federal Court relate to allegations of oppressive conduct within the meaning of s 232 of the Corporations Act 2001 (Cth) on the part of ARF Investments Pty Ltd (ARF Investments) and its subsidiary Agricultural and Rural Finance Pty Ltd (ARF).

Bideena submits that the following omissions on the part of ARF constitute oppressive conduct within the meaning of s 232:

In relation to ARF Investments, the oppressive conduct is said to be constituted by:

Other claims in the originating process include a claim against Mr Patakas as a de facto director of ARF and a claim against Goeke.

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

The plurality of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 described s 63 as a discretionary power that is confined only by the “subject matter, scope and purpose” of the Act ([59]-[60]). No implications that are not found in the express words of s 63 should be read into that provision (55). The only “jurisdictional bar” that must 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” ([56]-[58]).

In its written submissions, Bideena submits that s 63 is enlivened in the present case because Bideena is seeking advice as a trustee with respect to the management and administration of trust property, namely the share held on trust in ARF Investments.

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

While the present case involves a non-charitable private trust, there is no conflict between the beneficiaries of the trust or between the trustee and the beneficiaries. Undoubtedly, however, the context of the application for advice remains important. As the plurality emphasised in Macedonian Orthodox, every application under s 63 depends on its own facts ([52]).

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] that:

In the present case, while the litigation in the Federal Court is not well advanced, the defendants have sought security for costs. In such circumstances, it is desirable in my view to grapple with the question now lest the proceedings in the Federal Court potentially be stifled.

In written submissions, Bideena notes that the defendants in the Federal Court proceedings argue that Macedonian Orthodox is authority for the following:

In Macedonian Orthodox, Gummow ACJ, Kirby, Hayne and Heydon JJ noted that a purpose of s 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” (at 93). Their Honours continued (at 93-4):

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

His Honour referred in particular to Lindley LJ’s remarks in In Re Beddoe (1893) 1 Ch D 547 to the effect that "a trustee who without the sanction of the Court … unsuccessfully defends an action, does so at his own risk", that risk being the risk of the trustee's costs of unsuccessfully litigating for which the indemnity is being sought having been "improperly incurred" (557-558).

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:

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

In my opinion, the better view of the authorities importantly Macedonian Orthodox is that it is not obligatory on the part of a trustee to first seek judicial advice before bringing or defending a claim. The High Court in Macedonian Orthodox said no more than that it was desirable that trustees in doubt as to a cause of action seek advice under s 63 rather than rely on s 85 after the event ([36]).

In written submissions, however, Bideena focussed upon what it submits was an “adoption” by the High Court (at [46]-[48]) in Macedonian Orthodox of observations made in In re Beddoe [1893] 1 Ch 547. In Beddoe, Lindley LJ stated that:

Bideena submits that the present case is “exceptional” within the meaning of Beddoe and that judicial advice as to whether the trustee is justified in pursing the proceedings is therefore unnecessary. The reasons given by Bideena as to why this case is “exceptional” can be summarised as follows:

I am of the view that the above is a correct analysis.

I should note that I also accept Counsel’s submissions that s 56(2A) of the Superannuation Industry (Supervision) Act does not apply in the present case as a self-managed superannuation fund such as Bideena is not a “registrable superannuation entity” within the meaning of s 10 of the Act.

The plurality in Macedonian Orthodox emphasised that s 63 is summary in character; it seeks to provide a cheap and simple means of determining the question at hand ([61]-[63]).

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]).

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]). I should note that for the purposes of the present proceedings, Counsel have provided a confidential Opinion and that there has been no waiver of privilege: see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160 at [53].

While there is a distinction between the question 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 ([82]-[85]).

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

The plurality noted ([162]-[164]) 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.

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

In Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13, Slattery J also appeared to cite the remarks of Palmer J without any disapproval (at [10]-[13]). In that case, his Honour found that the trustee would be justified in defending the proceedings and using the resources of the trust to do so on the basis that (1) in Counsel’s opinion, the defence had “reasonable prospects of success”, (2) the Court concludes that the trustee’s case is “not unarguable” and “seems reasonably maintainable” and (3) the trustee is the proper contradictor to the plaintiffs’ claims ([16]-[19]).

The remarks of Palmer J 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 seemingly without disapproval (at [26]).

Counsel for Bideena submit that the claims of oppression and claims against Mr Patakas and Goeke have reasonable prospects of success. For reasons which follow, I have formed a prima facie view that is correct, on the materials before the court.

As Bideena is a member of ARF Investments rather than the subsidiary ARF, the oppression claim in the Federal Court proceedings has been pleaded as a failure on the part of ARF Investments to take action to prevent ARF’s conduct.

I am of the view that that approach is arguable on the basis of Derrington J’s observations in Re Norvabron Pty Ltd No 2 (1986) 11 ACLR 279 at 292 that:

See also IceTV Pty Ltd v Ross [2008] NSWSC 1321 at [13] (Slattery J) and Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 at 616 (Powell J).

Counsel submit that the present involves a case of “sit on their hands oppression” (T2) within the meaning of s 232 of the Corporations Act 2001 (Cth).

Section 232 provides that:

The concept of “contrary to the interests of the members as a whole” is independent of the “oppressive, unfairly prejudicial or unfairly discriminatory” ground: Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44 at [32] per Campbell J.

Whether conduct is contrary to the interests of the members as a whole is determined by reference to whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the company: Goozee v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534 at [42]-[44]. Attention is to be directed not to the interests of the persons who are in fact members but rather the interests of an individual hypothetical member: Goozee at [42].

In Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459, Brennan J described the phrase “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” as concerned with:

It has been said that the “history and structure of the particular company and the reasonable expectations of the members” are to be taken into account in determining whether the detriment to the complaining member’s interests is “justifiable”: Thomas v HW Thomas Ltd [1984] 1 NZLR 686 at 694 (Richardson J); Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1 at [179] (Black J).

Oppression will not be found merely on the basis that the company has been mismanaged or managed poorly: Donaldson v Natural Springs Australia Limited [2015] FCA 498 at [250]; Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) (2013) 300 ALR 492 at [417].

Counsel for Bideena submits that there is a “prima facie” case of oppression. Counsel has identified with reference to the documents filed the evidentiary materials which it is submitted establish a prima facie case.

Bideena relies upon Mr Bevan’s affidavit sworn 23 March 2016. Mr Bevan’s evidence is to the effect that:

Bideena also relies on the following materials annexed to that affidavit:

Bideena further relies upon its Statement of Claim filed in the Federal Court dated 19 April 2016.

Bideena then relies upon the affidavits of Mr Bevan sworn 11 and 12 April 2016. In the affidavit dated 12 April 2016, Mr Bevan states that he believes that a “life-threatening bout of viral meningitis” suffered by Mr Patakas about six years ago has led to a “serious psychological deficit”, the effect of which has, so it seems, profoundly affected Mr Patakas’ productivity.

Bideena also relies upon the affidavit of Mr Bevan’s son James Bevan sworn 17 April 2016. In his affidavit, James Bevan recalls being asked to act as a director of ARF and ARF Investments temporarily in 2012. His evidence is that he was subsequently employed by Mr Patakas part-time from 2013 to 2015. He states that in mid-August 2014, he observed Mr Patakas referring to a 2012 calendar. His evidence is that Mr Patakas said words to the effect that “when you backdate ASIC documents you have to make sure the dates match up with whatever is happening and that the dates don’t clash”. James Bevan alleges that Mr Patakas asked him to sign documents dated 2012 which he did not read. It is alleged that the document signed by James Bevan was a share certificate of ARF Investments dated 15 August 2012.

Bideena further relies upon an affidavit sworn by Mr Bevan on 20 April 2016. In this document, Mr Bevan responds to affidavits filed in the Federal Court by the defendants relating to the interlocutory application seeking security as to costs.

It appears from Mr Bevan’s affidavit that the defendants allege that the share in ARF Investments is held by Bideena in its own right rather than as trustee of the Bideena Super Fund such that Bideena would have no recourse to the assets of the super fund to pay any costs orders that might be made against it. The defendants appear to further allege that there is a risk that Mr Bevan and his wife might transfer their beneficial interests in the super fund to another super fund or remove Bideena as trustee and appoint a new trustee.

Mr Bevan’s evidence is that the ASIC register inaccurately records that Bideena holds the share in ARF Investments in a non-beneficial capacity. Mr Bevan alleges that the error was either a mistake by Mr Patakas or else it was done “contrary to my clear instructions to him on behalf of Bideena”.

Mr Bevan in his affidavit gives undertakings not to transfer his interest to another superannuation fund or remove Bideena as trustee.

Prima facie, this evidence exposes irreconcilable differences between Mr Bevan and Mr Patakas and, if accepted, Mr Patakas’ inability or unwillingness to proceed with various recovery actions, and the materials before the Court supports in my view allegations of oppression in the relevant sense.

Bideena submits that the claim against Mr Patakas has “reasonable prospects of success”.

Section 9 of the Corporations Act 2001 (Cth) defines a director to include:

As to the first limb, the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 indicated that the phrase “acts in the position of a director” contemplates that the person “has been acting in a role (or roles) within the company and performing functions one would reasonably expect to have been performed by a director of that company given its circumstances” (at [65]). With respect to the second limb, the Full Court expressed the view that “a rigid distinction between a de facto and a shadow director cannot be maintained” (at [69]).

Bideena relies upon Mr Bevan’s affidavit evidence sworn 23 March 2016 to the effect that Mr Patakas’s firm EPA has:

Bideena also relies upon Mr Bevan’s affidavit evidence that on 28 July 2015, Mr Patakas told Mr Bevan over the telephone that his sister has “nothing to do with ARF” and “signs whatever I want her to sign” and that he left part of the Goeke debt outstanding:

Bideena further relies upon letter dated 16 March 2016 from WKA Legal Pty Ltd (that is, Mr Patakas’ personal solicitors) to Bideena that was sent in response to enquiries made by Bideena about ARF.

In essence, Bideena’s case is that Mr Patakas has been conducting the affairs of ARF independently of his sister Ms Patakas.

Again, prima facie, this evidence, if accepted, exposes Mr Patakas’ control or at least influence over the affairs of ARF and/or Goeke, and hence his potential liability.

Bideena also submits that the claim against Goeke has “reasonable prospects of success”.

By way of Originating Process dated 23 March 2016, Bideena seeks leave under s 237 of the Corporations Act 2001 (Cth) to bring proceedings against Goeke concurrently with its oppression claim. While there may be different theoretical views as to the process to be adopted where leave is sought under s 237 on the basis of an oppression claim, I am of the view that the proposed course appears efficient and therefore there are reasonable prospects that such a course will be permitted.

A succinct summary of the criteria to be satisfied for a grant of leave under s 237 is provided by Black J in Re Akierman Holdings Pty Limited [2015] NSWSC 1395 at [13]. His Honour stated that:

As to the requirement of good faith, Palmer J stated in Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583 at [36] that:

As to whether the proceedings would be in the best interests of the company, Ball J remarked in In the matter of Gladstone Pacific Nickel Limited [2011] NSWSC 1235 at [57] that:

In support of this claim against Goeke, Bideena relies upon the materials relating to the Goeke loan referred to above in relation to its claims against Mr Patakas and its oppression claim.

As above, the evidence, if accepted, prima facie indicates that Mr Patakas exercises a degree of control over both Goeke and ARF, and in such capacities arguably has procured the continuance of Goeke’s charge over ARF’s property for the purpose of preserving Goeke’s right to appoint a receiver to ARF’s property. Again prima facie this exposes Goeke to liability.

For the reasons above, I am of the opinion that it is not necessary for Bideena to obtain judicial advice as a condition of it having a right of indemnity for any costs order made in the Federal Court proceedings.

I am also satisfied that in the circumstances, it is appropriate to give judicial advice to Bideena at this stage in the Federal Court proceedings. I am of the view that, on the materials before the Court, it is in the best interests of the Bideena Super Fund to continue the Federal Court proceedings and that it is appropriate for Bideena as trustee to indemnify itself out of the property of the Bideena Super Fund.