FEDERAL COURT OF AUSTRALIA
Pleash, in the matter of Suncoast Restoration Pty Ltd (in liq) [2013] FCA 355
| IN THE FEDERAL COURT OF AUSTRALIA | |
IN THE MATTER OF SUNCOAST RESTORATION PTY LTD (IN LIQUIDATION) ACN 140 886 540
| DATE OF ORDER: | |
| WHERE MADE: |
1. The Commissioner of Taxation be joined as a defendant to the proceeding.
2. The plaintiffs be granted leave to file an amended originating process.
3. The order made on 2 November 2012 in this proceeding be amended such that the words “section 96” in order number 2 be replaced with the words “section 94”.
THE COURT DECLARES THAT:
4. Pursuant to section 1318 of the Corporations Act 2001 (Cth) (the Corporations Act) and further or alternatively, section 310 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act), Blair Alexander Pleash and Richard Albarran (the Liquidators) in their capacity as liquidators of Suncoast Restoration Pty Ltd (in liquidation) acted honestly, and ought fairly be excused for any breaches, failure or omissions relating to the sale of the property located 30 Brookes Crescent, Woorim in the State of Queensland properly described as Lot 14 on Crown Plan W75338, County of Canning, Parish of Woorim, Title Reference 16447149 (the Property) as liquidators of Suncoast Restoration Pty Ltd ACN 140 886 540 (the Company) and the sale of other assets of the Company the subject of the Allen’s Asphalt Staff Superannuation Fund (the Trust).
5. Pursuant to section 76 of the Trusts Act 1973 (Qld) (the Trusts Act) the Company acted honestly, and ought fairly be excused for any breaches, failure or omissions relating to the sale of the Property and the sale of other assets of the Company the subject of the Trust.
6. The plaintiffs are entitled to be indemnified out of the assets of the Trust in respect of any debts owing by the Company incurred in its capacity as trustee of the Trust together with the costs and expenses of the winding up.
THE COURT ORDERS THAT:
7. Pursuant to section 94 of the Trusts Act the sales by the Company under the control of the Liquidators of assets held on trust for the Trust as identified in the Schedule hereto be deemed to be sales within the power of the Company as Trustee of the Trust.
8. Pursuant to section 479(3) of the Corporations Act:
8.1. the proceeds of sale of any Trust assets be dealt with by the Liquidators as assets in the winding up of the Company and accounted for accordingly;
8.2. the future distribution of monies held on trust for the Trust to priority unsecured creditors and secured creditors will be valid distributions by the Liquidators in the winding up of the Company;
8.3. the costs and expenses incurred by the Company and the Liquidators and the Liquidators’ remuneration in realising any Trust assets and otherwise dealing with the Trust including the costs of the Liquidators in complying with order 8.5 herein and the costs of this proceeding be costs in the winding up of the Trust and paid from the assets of the Trust and in so far as payments have already been made such payments be deemed to be costs in the winding up of the Trust and paid from the assets of the Trust;
8.4. the costs of this proceeding be costs in the winding up of the Trust and paid from the assets of the Trust;
8.5. at least one (1) month prior to the Liquidators calling for proofs for dividend purposes the Liquidators shall cause the Company to give a return to the Commissioner of Taxation under section 35D of the SIS Act for each of the 2010, 2011 and 2012 years of income.
9. The disbursements of the Commissioner of Taxation fixed in the sum of $8,490.75 of and incidental to this application be paid from the assets of the Trust.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
| QUEENSLAND DISTRICT REGISTRY | |
| GENERAL DIVISION | QUD 617 of 2012 |
IN THE MATTER OF SUNCOAST RESTORATION PTY LTD (IN LIQUIDATION) ACN 140 886 540
| BETWEEN: | BLAIR ALEXANDER PLEASH AND RICHARD ALBARRAN AS JOINT AND SEVERAL LIQUIDATORS OF SUNCOAST RESTORATION PTY LTD (IN LIQUIDATION) ACN 140 886 540 First Plaintiffs SUNCOAST RESTORATION PTY LTD (IN LIQUIDATION) ACN 140 886 540 Second Plaintiff |
| AND: | COMMISSIONER OF TAXATION Defendant |
| JUDGE: | REEVES J |
| DATE: | 18 APRIL 2013 |
| PLACE: | BRISBANE |
REASONS FOR JUDGMENT
1 Mr Blair Alexander Pleash and Mr Richard Albarran, the first plaintiffs, are the joint and several liquidators of Suncoast Restoration Pty Ltd (in liquidation), the second plaintiff. Before their appointment as joint liquidators, Mr Pleash and Mr Albarran had been appointed joint and several administrators of Suncoast following a resolution of its board under s 463A of the Corporations Act 2001 (Cth) (the Act) that Suncoast was, or was likely to become, insolvent. That appointment occurred on 15 February 2012.
2 Until the appointment of Mr Pleash and Mr Albarran as joint administrators of Suncoast, the company acted as the trustee of a superannuation fund: the Allens Asphalt Staff Superannuation Fund (the Trust Fund).
Procedural history
3 In late October 2012, the joint liquidators became aware for the first time that one of the effects of their appointment as joint administrators on 15 February 2012 was that Suncoast had thereby been automatically removed from its position as trustee of the Trust Fund. That realisation, in turn, raised a doubt as to whether they had the power that they previously assumed they had to sell the assets of the Trust Fund as part of the winding up of Suncoast. As a consequence, they made an urgent application to this Court in early November 2012 for, among other things, an order that they be permitted to proceed to settle a contract they had already entered into for the sale of the principal asset of the Trust Fund: a property located at 30 Brookes Crescent, Woorim in the State of Queensland (the Woorim property). Under that contract, settlement of the sale of the Woorim property was to occur on Monday, 5 November 2012.
4 On Friday, 2 November 2012, I made, among other orders, an urgent ex parte order in the following terms:
Pursuant to section 96 of the Trusts Act 1973 (Qld), the Company through its Liquidators be permitted to sell the property located at 30 Brookes Crescent, Woorim in the State of Queensland properly described as Lot 14 on Crown Plan W75338, County of Canning, Parish of Woorim, Title Reference 16447149 (the Property) pursuant to the contract of sale which appears at exhibit FHC-1 to the affidavit of F C Higginson sworn 1 November 2012.
(Emphasis in original)
5 At this point, it is convenient to move forward about six weeks and record that, at the final hearing of these proceedings in mid-December 2012, the joint liquidators’ counsel informed me that the applicable provision of the Trusts Act 1973 (Qld) (the Trusts Act) was in fact s 94, and not s 96. I therefore amended the orders of 2 November 2012 accordingly.
6 On 2 November 2012, in addition to the urgent ex parte order (at [4] above), I made orders directed to achieving a hearing of the balance of the relief sought by the joint liquidators in their originating application. As I have already noted above, that hearing occurred in mid-December 2012. In its final amended form, the final relief broadly fell into four categories:
(a) declaratory relief directed to the joint liquidators’ conduct in their capacity as the joint liquidators of Suncoast to the effect that:
(i) they acted honestly and ought fairly be excused under s 1318 of the Act and further, or alternatively, s 310 of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Superannuation Supervision Act);
(ii) they be indemnified by the Trust Fund for any debts incurred by Suncoast in its capacity as trustee and for the costs of the winding up;
(b) declaratory relief and other orders directed to Suncoast’s conduct at their direction to the effect that:
(i) in that capacity it acted honestly and ought fairly be excused from any breaches, failure or omissions under s 76 of the Trusts Act;
(ii) under s 94 of the Trusts Act, the sales of the motor vehicles and the sale of the Woorim property are deemed to be sales within Suncoast’s powers as trustee of the Trust Fund;
(iii) Suncoast be indemnified by the Trust Fund for any debts incurred by it in its capacity as trustee and for the costs of the winding up (in the same terms as (a)(ii) above).
(c) orders dealing with administrative matters, such as the treatment of the assets of the Trust Fund, the joint liquidators’ fees and the Commissioner of Taxation’s costs as contradictor; and
(d) in the alternative, orders that the joint liquidators be appointed receivers of the Trust Fund and conferring associated powers.
7 At a directions hearing held later in November 2012, in the absence of any other defendants seeking to take an interest in the proceedings, the Commissioner of Taxation, as the regulator under the Superannuation Supervision Act, agreed to my request to act as contradictor in the proceedings. The Commissioner therefore appeared at the final hearing in two capacities: as contradictor and as the Commissioner of Taxation.
8 The involvement of the Commissioner as contradictor proved to be quite beneficial for the resolution of at least one difficult question in the proceedings. That occurred after the joint liquidators had considered the written outline of submissions filed by the Commissioner and sought to amend their originating application to refine the relief sought and to alter the legislative provisions upon which they relied. Specifically, this led to them accepting that it was unnecessary to excuse them from any breach of s 126K of the Superannuation Supervision Act. That section provides that it is an offence for a “disqualified person” to act as a trustee of a superannuation entity. However, as the Commissioner correctly pointed out in his written submissions, neither of the liquidators was, or is, a “disqualified person” within the terms of s 126K because, as individuals, they do not fall within the definition of that expression in s 120 of the Superannuation Supervision Act. This removed any necessity to consider the vexed questions of whether s 310 of the Superannuation Supervision Act, or (even more so) the apposite provisions of the Trusts Act, could be used to excuse the joint liquidators of any offence under s 126K of the Superannuation Supervision Act.
9 Following that amendment, acting in his capacity as contradictor, the Commissioner did not oppose the balance of the final relief sought by the joint liquidators (see above at [6]). However, acting in his second capacity, as Commissioner of Taxation, the Commissioner sought an order that the Trust Fund’s outstanding tax returns be lodged. I will return to this matter at a later point in these reasons.
10 Despite this lack of opposition, Mr Looney SC, for the joint liquidators, made detailed written and oral submissions to demonstrate why the final relief sought should be granted. At the conclusion of the final hearing, I was satisfied it was appropriate to make orders essentially in the terms sought by the joint liquidators. At that time, I indicated I would provide written reasons for my decision in due course. These are those reasons.
Factual background and the nature of the joint liquidators’ problem
11 It is convenient to begin these reasons by providing some further details of the factual background of these proceedings and to provide more details of the nature of the joint liquidators’ problem. First, it should be noted that, following their appointment as joint administrators, Mr Pleash and Mr Albarran were appointed as joint and several liquidators of Suncoast on 21 March 2012. That appointment was made under s 499(2A) of the Act at the second meeting of creditors of Suncoast, after an earlier meeting of its creditors resolved that the company should be wound up.
12 Suncoast was appointed as sole trustee of the Trust Fund in late 2009. Thereafter its only role was to act as trustee of the Trust Fund. As I have already noted above (at [2]), the Trust Fund was a superannuation fund. As such, it was governed by the provisions of the Superannuation Supervision Act and the Trusts Act. It was constituted by a trust deed (the Trust Fund Deed).
13 When the joint liquidators were appointed joint administrators of Suncoast on 15 February 2012, the Trust Fund Deed contained the following pertinent clauses:
3.1 Ceasing to Act as Trustee A Trustee shall cease to be a Trustee if:
…
3.1.6 In the case of the Trustee being a company, a resolution is passed or a petition is presented for its winding up or liquidation or a receiver or administrator of its assets is appointed.
…
17.3 Trustee’s and Directors’ Indemnity Except where, and to the extent that, the Trustees may be personally liable pursuant to Rule 17.1 [which is not relevant for present purposes], the Trustees shall be indemnified and reimbursed out of the Fund for any costs, expenses, claims, liability and damages which the Trustees may pay or incur in or about the administration of the trusts, authorities, powers and discretions contained in the Deed.
PART SIX:
Trustee’s Powers
…
1. The Trustee must invest the Fund in any of the following investments:
1.1 any investment authorised by law for the investment of trust funds.
1.2 the purchase or acquisition of shares, stocks, debentures, notes bonds, mortgages, options or other securities.
…
1.6 the purchase, acquisition, leasing or hiring (from or to any person) of any real or personal property.
…
2. The Trustee shall have power to sell any investments and to vary and transpose any investments into other investments authorised by the Deed.
(Emphasis in original)
14 As can be seen from clause 3.1.6 of the Trust Fund Deed (above), where the trustee of the Trust Fund is a company, it ceases to be the trustee upon the appointment of an administrator, or upon a resolution for its liquidation. It follows that, from the time the joint liquidators were appointed as administrators of Suncoast, Suncoast ceased to be the trustee for the Trust Fund. Furthermore, there is authority that, from that point on, Suncoast became a bare trustee of the assets of the Trust Fund and, more significantly for the joint liquidators, in that capacity, Suncoast did not have the power to sell the assets of the Trust Fund: see Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472; [2008] FCAFC 184 (Bruton 2008) at [79] per Ryan, Mansfield and Dowsett JJ and Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 (Caterpillar) at [26] and [28] per Gordon J. This meant that, in their capacity as the joint liquidators of Suncoast, the joint liquidators lacked the power to sell the assets of the Trust Fund as a part of the winding up of Suncoast.
15 The joint liquidators’ difficulties were further compounded by the fact that the only relevant asset in Suncoast’s winding up was its right to be indemnified out of the assets of the Trust Fund to meet the liabilities it had incurred as its trustee (clause 17.3: see [13] above).
16 As is already alluded to in the final relief sought by the joint liquidators (see at [6(b)(ii)] above), the assets of the Trust Fund fell into two categories: the four motor vehicles and the Woorim property (the Trust Assets). Soon after their appointment, the joint liquidators obtained two separate valuations for the four motor vehicles and, by June 2012, they had sold them for prices within the range of those valuations. Then, in early October 2012, they entered into a contract to sell the Woorim property for $349,000. This sale price was in excess of the valuation of $330,000 they had earlier obtained for that property.
17 The liabilities Suncoast had incurred as trustee of the Trust Fund were essentially confined to the unsecured taxation debts owed to the Commissioner. There were no secured creditors.
18 By November 2012, the joint liquidators had paid themselves an amount of fees as remuneration for the work they had performed in the winding up of Suncoast. Since there were no other assets in the Trust Fund (specifically, there was no cash), I infer that those fees were paid from the proceeds of the sales of the four motor vehicles (above).
19 Finally, it is important to note that, as at the time of the hearing in mid-December 2012, no one had been appointed to replace Suncoast as trustee of the Trust Fund. Further, at that hearing, I was informed that there was no intention on the part of the joint liquidators, or anyone else to their knowledge, to appoint a replacement trustee for the Trust Fund.
Issues to be determined
20 Taking into account the amended final relief sought (see [6] above), the following issues fall to be determined:
(a) in their capacity as liquidators of Suncoast, should the joint liquidators be excused under s 1318 of the Act and/or s 310 of the Superannuation Supervision Act?
(b) should the joint liquidators, in their capacity as liquidators of Suncoast, and Suncoast be indemnified by the Trust Fund for any debts incurred by Suncoast in its capacity as trustee and for the costs of the winding up?
(c) should Suncoast be excused from any breaches, failure or omissions under s 76 of the Trusts Act?
(d) should the sales of Trust Assets be deemed to be within the powers of Suncoast as trustee of the Trust Fund under s 94 of the Trusts Act?
(e) should directions be made under s 479(3) of the Act that the joint liquidators, in their capacity as liquidators of Suncoast, be given powers to deal with the Trust Fund in the ordinary course of the winding up, that the Trust Fund pay the Commissioner’s costs and that the joint liquidators lodge certain tax returns?
should the joint liquidators be excused under section 1318 of the Act AND/OR Section 310 of the Superannuation Supervision Act?
What section 1318 provides
21 The joint liquidators submitted that they had acted honestly and should be excused for any breaches, failure or omissions they may have committed by selling the Trust Assets. They relied on s 1318 of the Act and further, or alternatively, on s 310 of the Superannuation Supervision Act. Dealing first with s 1318 of the Act, that section relevantly provides:
(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2) Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
…
(4) This section applies to a person who is:
…
(d) a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
THE EVIDENCE REGARDING Section 1318
22 Mr Pleash, one of the joint liquidators, swore an affidavit in which he claimed that he and his fellow liquidator were unaware of the operation of clause 3.1.6 of the Trust Fund Deed and were therefore unaware that once they were appointed joint administrators of Suncoast it became a bare trustee of the Trust Assets and, as such, it did not have the power to sell those assets. Mr Pleash stated that he first became aware of these matters after retaining new solicitors to get advice about the correct entity liable to pay any taxation debts incurred by the Trust Fund. His new solicitors brought these matters to his attention after the contract of sale had been signed for the Woorim property and after the four motor vehicles had been sold. I was informed by Mr Looney from the bar table (without objection from Mr Brennan, counsel for the Commissioner) that Mr Pleash and his fellow liquidator first became aware of these matters on 1 November 2012, the week before the originating application was filed in these proceedings.
23 The joint liquidators did not waive privilege over the advice (see at [22] above) that they received from their current solicitors. However, annexed to one of Mr Pleash’s affidavits was a letter of advice he received from their previous solicitors in late March 2012. This letter is significant as it does not mention any concern about Suncoast’s continuing role as trustee of the Trust Fund. Accordingly, in his affidavit, Mr Pleash stated that the joint liquidators:
… genuinely and honestly, but mistakenly believed that there were no issues regarding the Trust or [their] capacity as either administrators or liquidators of the trustee of the Trust and continued to operate as if [Suncoast] was still trustee of the Trust.
24 Mr Pleash also expressed his belief that he and his fellow liquidator had acted in the best interests of the creditors of the Trust Fund, of Suncoast itself and of the beneficiaries of the Trust Fund in selling the Trust Assets and in obtaining the best market price possible for them.
Principles relevant to corporate trustees and liquidators
25 In order to determine whether the joint liquidators should be excused under s 1318 of the Act, it is helpful to begin by digressing briefly to consider in a little more detail where a liquidator stands when he or she is winding up a corporate trustee that has been removed from its position by a self-executing clause in a trust deed similar to clause 3.1.6 in this case. Fortuitously, in Caterpillar, Gordon J encountered a similar factual situation to the present case and, in the process of dealing with it, her Honour conducted a comprehensive analysis of that question and the legal principles that are germane to it.
26 In Caterpillar, a company that was previously the sole trustee of a trust entered into liquidation. By virtue of a disqualification clause contained in the trust deed similar to clause 3.1.6 (see [13] above), the company automatically ceased to be the trustee for the trust. Unaware of his limited powers as bare trustee, the liquidator sold some of the trust property: a BMW motor vehicle. However, the principal asset of the trust (some real property) had not been sold by the time of the application to the Court. That application was for relief similar to that sought by the joint liquidators in this case. Finally, there was, as in this case, no intention to appoint a replacement trustee for the trust.
27 The following principles can be discerned from the helpful analysis Gordon J undertook in Caterpillar (with citations omitted):
(a) As a general principle, provided a corporate trustee is acting properly in its capacity as trustee, it has the following rights (at [14]):
(i) when a corporate trustee incurs a liability on behalf of the trust, it has a right of indemnity out of the trust assets and retains an equitable lien or equitable charge over the trust assets to secure that right of indemnity;
(ii) it also has a right of exoneration out of the trust assets in respect of any prospective liability; and
(iii) it has a right to deal with the trust assets, in accordance with the terms of the trust, to satisfy any liabilities in respect of which the right of indemnity or right of exoneration attaches, including the power to sell trust assets.
(b) When a corporate trustee enters liquidation, its position is as follows:
(i) its right of indemnity, or exoneration (described above), is retained (at [16]);
(ii) it continues to have the right to meet creditors’ claims related to any liabilities incurred by it in its capacity as trustee, out of the trust assets (at [15]–[16]); and
(iii) in addition, its liquidator has the right to claim costs and expenses incurred in winding up the corporate trustee insofar as that relates to its role as trustee and its liquidator has a right of indemnity against the trust assets in respect thereof and a right of exoneration against the trust assets in respect of any prospective liability (at [17]).
(c) When a corporate trustee is removed as trustee by the operation of a disqualification clause in the trust deed, the position is as follows:
(i) notwithstanding the appointment of a new trustee, as the former trustee, it retains its right of indemnity and/or exoneration (described above). These rights may be enforced by its liquidator against the trust assets, although it is not clear how, as the former trustee, its liquidator would proceed to enforce them (at [18] and [20]);
(ii) there is conflicting authority (Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99 per King CJ and Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 per Brereton J) as to whether, as the former trustee, it has the right to retain trust assets as security for any accrued right of indemnity as against any new or replacement trustee (at [19] and [21]–[25]);
(iii) the position will be different where there has not been, and will not be, a new or replacement trustee appointed. In that event, as the former trustee, it continues as bare trustee of the trust assets and retains its right of indemnity and/or exoneration and its lien over the trust assets ([26]); and
(iv) however, as a bare trustee, its duties, powers and rights are limited to protecting the trust assets and that does not include any power of sale of the trust assets (at [26] and [28]);
28 From this analysis, it can be seen that the absence of any new or replacement trustee is critical to the disposition of this matter, as it was in Caterpillar. In that event, the countering rights of the former trustee and any new or replacement trustee do not need to be considered. However, there does remain a significant issue concerning the deficit in the former trustee’s powers where a liquidator is seeking to achieve an orderly winding up of the affairs of the former corporate trustee. Before addressing that issue in this case, it is first necessary to deal with the joint liquidators’ conduct to date in the winding up of Suncoast. This brings me back to their application to be excused under s 1318 of the Act.
CONSIDERATION ON Section 1318
29 In this case, there are no civil proceedings on foot against the joint liquidators. As a consequence, s 1318(1) of the Act (set out at [21] above) does not apply to them. However, s 1318(2) of the Act may apply. In order for it to do so, the joint liquidators must establish three matters, that:
(a) they have reason to apprehend that a claim will, or might, be made against them;
(b) that claim is in respect of any negligence, default, breach of trust or breach of duty in their capacity as joint liquidators; and
(c) they acted honestly in relation thereto.
30 There is no evidence in this case that any claim “will” be made against the joint liquidators. Instead, they rely upon an apprehension that such a claim “might” be made against them. In this context, the word “might” must be taken to require that the claim in question is a real, not fanciful or remote possibility: see CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30 at [64] per Gummow, Kirby, Heydon, Crennan and Kiefel JJ.
31 As to the nature of the apprehension, I agree with the observations of Campbell J in Re Vouris; Epromotions Australia Pty Ltd and Relectronic-Remech Pty Ltd (in liq) (2003) 47 ACSR 155; [2003] NSWSC 702 at [116] that:
The requirement [in s 1318(2)] that that person “has reason to apprehend” that a claim will or might be made against him or her means that there must be an objective basis for believing that the claim will or might be made against that person.
(Emphasis added)
32 In this case, the factors pertinent to the existence of that objective basis for belief do not all point in one direction. On the one hand, there appears to be a distinct lack of interest in the future of the Trust Fund evidenced by the absence of any move to appoint a replacement trustee to it. Furthermore, the evidence shows that all of the impugned asset sales were undertaken by the joint liquidators at, or above, their assessed market values. These facts tend to indicate that the prospect of a claim being made against the joint liquidators is unlikely. On the other hand, the absence of interest in the future management of the Trust Fund does not necessarily lead to the conclusion that the possibility that a beneficiary of the Fund may decide to pursue a claim against the joint liquidators at some time in the future is fanciful or remote. This conclusion is reinforced by the patent (albeit that adjective is applied after studied and informed hindsight) nature of the joint liquidators’ breach of trust, viz all of the assets sales were undertaken when Suncoast, as a bare trustee of the Trust Fund, had no power of sale. After weighing up these factors, I consider that, in all the circumstances of this case, there is an objective basis for concluding that there is a real, rather than a fanciful or a remote, possibility that a claim might be made against the joint liquidators for their breaches of trust.
33 The second thing the joint liquidators must show in order to obtain relief under s 1318(2) is that the claim concerned is in respect of “negligence, default, breach of trust or breach of duty” in their capacity as liquidators. In Deputy Commissioner of Taxation v Dick (2007) 64 ACSR 61; [2007] NSWCA 190, Spigelman CJ said of these expressions (at [11]):
The words appear interspersed in a context which extends to “civil proceedings … for negligence, default, breach of trust or breach of duty”. Words such as “negligence” and “breach of trust” would not extend, in their natural and ordinary meanings to statutory obligations. Each clearly refers to obligations under the general law. In my opinion, the other words should be similarly so confined, save with respect to many, if not all, of the obligations imposed by the Corporations Act itself.
(Emphasis added)
34 Under the general law, “a breach of trust consists in nothing more nor less than an act by the trustee in contravention of the duties imposed upon him or her by the trust, or an act done in excess of his [or her] powers”: see Re Spedding (deceased) [1966] NZLR 447 per Turner J at 463–4. It “may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers”: see Armitage v Nurse [1998] Ch 241 at 251 per Millet LJ.
35 I therefore consider the sales of the Trust Assets by the joint liquidators when Suncoast was a bare trustee, albeit they were done unwittingly and they have not apparently resulted in any loss to the Trust Fund, still constituted breaches of trust by the joint liquidators for the purposes of s 1318(2) of the Act. For these reasons, I consider that the joint liquidators have established that the claim they apprehend might be made against them includes one “in respect of … breach of trust”. This is not to indicate that their conduct may not also result in claims for “default”, or “breach of duty” under the general law.
36 Finally, the joint liquidators must establish that they acted honestly in the circumstances which gives rise to the apprehended possibility of a claim. In Caterpillar, Gordon J emphasised that a liquidator’s explanation for dealing with trust assets without holding the requisite power of sale will be critical because (at [38]) “[i]f he did not know [the company was a bare trustee] and did not have reason to know, the duties of a trustee cannot be imposed.” Noting that the liquidator had not sold the assets below their value, and that he had conducted himself honestly and reasonably, Gordon J (at [42]) was prepared to excuse his behaviour under s 1318 of the Act and further, or alternatively, under s 67 of the Trustee Act 1958 (Vic) (the Victorian Trustee Act).
37 Mr Pleash’s explanation in this case reveals that he did not know that Suncoast had been removed as the trustee of the Trust Fund and that Suncoast had thereafter become a bare trustee of the Trust Assets. Further, he and his fellow liquidator did not know that, as a bare trustee, Suncoast (and, therefore, they, as its liquidators) lacked any power to sell the Trust Assets. I accept Mr Pleash’s evidence that he was not advised of these matters by his former solicitors. In the absence of legal advice, I would not expect Mr Pleash and his fellow liquidator to be aware of them. This conclusion is further supported by the fact that Mr Pleash commenced these proceedings almost immediately after being informed about these matters by his current solicitors. So, in summary, I accept Mr Pleash’s explanation that he and his fellow liquidator proceeded in ignorance of the existence and effect of the disqualification clause in the Trust Fund Deed. Finally, I accept that Mr Pleash obtained valuations of the motor vehicles and of the Woorim property and subsequently sold those assets for prices that were equal to, or more than, those valuations (see [16] above).
38 For these reasons, I consider that the joint liquidators did act honestly in the circumstances giving rise to the claims they apprehend might be made against them. It follows that I consider the joint liquidators have established the three matters required of them to justify relief being granted under s 1318(2) of the Act (see above at [29]).
39 The final question under s 1318(2) is a discretionary one: whether, having regard to all of the circumstances of the case, the joint liquidators ought fairly to be excused for their breaches of trust. Since the joint liquidators: acted unwittingly and honestly; took action promptly once they became aware of the deficiency in their powers; and, since, on the evidence, the Trust Fund does not appear to have suffered any loss as a consequence, I consider it is appropriate to make a declaration under s 1318(2) of the Act excusing the joint liquidators from liability for any claim that might be made against them in connection with their conduct in selling the Trust Assets without having the power to do so.
WHAT Section 310 OF THE SUPERANNUATION SUPERVISION ACT PROVIDES
40 In the alternative, the joint liquidators have sought relief under s 310 of the Superannuation Supervision Act. That section relevantly provides:
Court may relieve liability for misconduct
(1) If, in a civil proceeding against a superannuation official for official misconduct in a capacity as such a person, it appears to the court that the official is or may be liable in respect of the official misconduct, the court may, if subsection (2) is satisfied, relieve the official either wholly or partly from the liability, on such terms as the court thinks fit.
Basis for granting relief
(2) The court may only relieve the official from the liability if it appears to the court that:
(a) the official has acted honestly; and
(b) having regard to all the circumstances of the case, including those connected with the official’s appointment, he or she ought fairly to be excused for the official misconduct.
…
Where claim yet to be made
(4) If a superannuation official has reason to believe that a claim will or might be made against the official in respect of any official misconduct in a capacity as such a person:
(a) the official may apply to the Court for relief; and
(b) the Court has the same power to grant relief as it would have under subsection (1) if it had been a court before which proceedings against the official for official misconduct had been brought.
Definitions
(5) In this section:
officer, in relation to a corporate trustee, means:
…
(d) a liquidator or provisional liquidator of the corporate trustee; or
…
official misconduct means negligence, default, breach of trust or breach of duty.
superannuation official means:
…
(b) an officer of a corporate trustee of a superannuation entity; or
…
(Emphasis in original)
CONSIDERATION ON Section 310
41 Section 310(1) of the Superannuation Supervision Act applies “in a civil proceeding” against a “superannuation official for official misconduct”. Thus, as with s 1318(1) of the Act (see [29] above), since there are no civil proceedings on foot against the joint liquidators, that subsection does not apply in this instance. Instead, the equivalent of s 1318(2) of the Act, viz s 310(4) of the Superannuation Supervision Act, may apply.
42 However, for s 310(4) of the Superannuation Supervision Act to apply, the joint liquidators need, among other things, to show they are each “a superannuation official” and that a claim might be made against them for “official misconduct”. Dealing with the latter expression first, “official misconduct” is defined in s 310(5) of the Superannuation Supervision Act to mean “negligence, default, breach of trust or breach of duty”. This terminology is identical to that used in s 1318 of the Act (see [21] above). While the joint liquidators denied engaging in “official misconduct”, they submitted that their conduct in selling Trust Assets while Suncoast was a bare trustee could fall within this definition of “official misconduct”. It is on this basis that they sought to be relieved of liability under s 310(4) of the Superannuation Supervision Act. For the reasons given above in relation to s 1318(2) of the Act (see at [30]–[35]), if s 310(4) of the Superannuation Supervision Act applies to the joint liquidators (as to which see further below), I consider their conduct amounted to “official misconduct” as it is defined in s 310 of the Superannuation Supervision Act.
43 As I have already noted above (at [42]), for s 310(4) to apply to the joint liquidators, they must also fall within the definition of the expression “superannuation official” in that section. That expression is also defined in subsection 310(5). Subparagraph (b) of that definition relevantly provides that an “officer” of a corporate trustee of a superannuation entity is a superannuation official. Then, subpara (d) of the definition of the word “officer” in s 310(5) relevantly provides that a liquidator of a corporate trustee is such an officer. That, in turn, leads to the meaning of the expressions “corporate trustee” and “trustee” as they are used in those two definitions. Those expressions are each defined in s 10 of the Superannuation Supervision Act as follows:
corporate trustee, in relation to a fund, scheme or trust, means a body corporate that is a trustee of the fund, scheme or trust.
…
trustee, in relation to a fund, scheme or trust, means:
(a) if there is a trustee (within the ordinary meaning of that expression) of the fund, scheme or trust—the trustee; or
(b) in any other case—the person who manages the fund, scheme or trust.
(Emphasis in original)
44 The joint liquidators submitted that Suncoast held (and continues to hold) legal title to the assets of the Trust Fund and continues to manage the Trust Fund and its corpus. They also submitted that Suncoast is a corporate trustee because, even though it has been automatically removed as trustee by virtue of the terms of the Trust Deed, it remains a bare trustee such that it is “a trustee (within the ordinary meaning of that expression)”. It follows, so they submitted, that Suncoast falls within the definition of “trustee” and, therefore, within the definition of “corporate trustee” in s 10 of the Superannuation Supervision Act. Finally, they submitted that, as liquidators of Suncoast, they are officers of a corporate trustee and therefore superannuation officials as defined in s 310(5) of the Superannuation Supervision Act, such that they can apply for relief under s 310.
45 I do not consider the first of these submissions can be accepted, but I consider the remainder can. The first submission relies upon clause (b) of the definition of “trustee” and the proposition that Suncoast was a “person who manages the fund, scheme or trust”. The verb “manages” has been held to mean ““[c]onduct or carry on (a war, a business, an undertaking, an operation); … control and direct the affairs (of a household, institution, State, etc)” (Shorter Oxford Dictionary)”: see Clarke v Federal Commissioner of Taxation (2008) 170 FCR 473; [2008] FCAFC 106 per Branson, Sundberg and Dowsett JJ at [57]. Similar definitions of “manage” or “manager” have been given in R v Rahme (1993) 70 A Crim R 357 at 362 per Grove J (Campbell and James JJ agreeing); Barac v Farnell (1994) 53 FCR 193 at 201–3 per Beaumont J; Gibson v Barton (1875) LR 10 QB 329 at 336 per Blackburn J; Field v Nationwide News Pty Ltd [2009] NSWSC 1285 at [124]–[125] per Johnson J. All of these decisions emphasise the need for the person to have active control over the entirety of the entity concerned.
46 In Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 (Herdegen), Gummow J made remarks in obiter about the meaning of the expression “bare trust” (at 281–4). In the course of those remarks, his Honour said that (at 281):
Today the usually accepted meaning of “bare” trust is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.
47 His Honour then posed the question (at 281): “What is meant in these situations by saying that the trustee holds the property without any duties to perform other than that to convey the property to the beneficiary or as the beneficiary directs?” He proceeded to provide the answer to this question, by reference to Waters, Law of Trusts in Canada, 2nd ed, 1984, p 27 where the author described a bare trustee’s duties as passive, as follows:
It is of course true that so long as a trustee holds property on trust he always retains his legal duties, namely to exercise reasonable care over the property, either by maintaining it or by investing it; he cannot divest himself of these duties. The reference, however, is to duties which the settlor has enumerated. For example, the settlor may have required that the beneficiary be maintained until he reaches the age of majority, when he is entitled to call for capital and income. The trustee is then bare or naked of these active duties decreed by the settlor. If the trustee possesses his legal duties only for the purpose of guarding the property, prior to conveyance to the beneficiary, these duties are said to be passive.
48 In the decision subsequent to Bruton 2008, Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2011) 193 FCR 442; [2011] FCAFC 79, the Full Court (Stone, Jacobson and Edmonds JJ) highlighted the limitations to a bare trustee’s active duties by stating (at [21]) that such a trustee “has a duty to maintain and protect the trust property and to refrain from active management that does not fall within this duty”.
49 While Suncoast continues to hold the Trust Assets as bare trustee, its duties and powers in that capacity are limited to the passive role of protecting those assets. Conversely, it has no active control over those assets demonstrated, in part, by the fact that it lost the power to sell them once it was removed as trustee of the Trust Fund and became a bare trustee of the Trust Assets. It must follow, in my view, that, once it was removed as trustee and became a bare trustee of the Trust Fund, Suncoast could not be thereafter described as a person who “manages” the Trust Fund. For these reasons, I do not consider Suncoast falls within clause (b) of the definition of “trustee” in s 10 of the Superannuation Supervision Act.
50 I turn now to the remainder of the joint liquidators’ submissions, which rely upon clause (a) of the aforementioned definition. In Bruton 2008, the respondent company was, like Suncoast, a corporate trustee that had been removed as trustee by the operation of a clause in a trust deed upon the appointment of administrators to that company. No new or replacement trustee had been appointed. The Full Court in Bruton 2008 described Bruton’s position as trustee as follows (at [79]):
As the primary Judge pointed out, the liquidators are winding up a former trustee, not a “serving” trustee. ... In the present case the liquidators cannot claim to have been performing Bruton’s duties as trustee. It no longer holds that position. It may still hold Trust property, but as a bare trustee. Its duties, powers and rights are limited to protecting the Trust assets. The liquidators’ duties, powers and rights cannot be any greater than Bruton’s.
51 While these observations make it clear that Bruton no longer held the position of a “serving trustee”, they do not deny that it continued to act as a trustee of the Trust Assets, albeit in the more limited role of a bare trustee. This is consistent with the observations of Gummow J in Herdegen (at 281) that a “bare” trust: “… is a trust under which the trustee or trustees hold property without any interest therein …” (see at [46] above). There is also support for the proposition that a bare trustee is a trustee as a matter of plain language in Thakral Fidelity Pty Ltd v Commissioner of Stamp Duties (1997) 37 ATR 146. In that case, Muir J (at 157) rejected an argument that a company that was acting as a bare trustee holding the legal title to certain property was not “[a] company which is the trustee of a trust”.
52 Drawing from the observations in these decisions, I consider that a bare trustee is a trustee within the ordinary meaning of the word “trustee” and thus is a trustee within the terms of clause (a) of the definition of “trustee” in s 10 of the Superannuation Supervision Act. It follows that I consider the joint liquidators are correct in their submissions that, in its role as a bare trustee, Suncoast fell within the terms of that definition.
53 That being so, it also follows that I consider Suncoast falls within the definition of “corporate trustee” in s 10 of the Superannuation Supervision Act and, in turn, that the joint liquidators are each a “superannuation official” as that expression is defined in s 310(5). Accordingly, they can avail themselves of the relief contained in s 310(4) of that Act. Since they meet the other pre-requisites for relief expressed in that section (see at [42] above), I consider that they are entitled to the alternative relief they have sought.
54 Before leaving this issue, it is appropriate to briefly record that no relief is sought in respect of Suncoast itself under s 310 of the Superannuation Supervision Act. This accords with the obiter remarks of Gzell J in Apostolovski v Total Risk Management Pty Ltd (2010) 79 NSWLR 432; [2010] NSWSC 1451 (at [51]) that s 310 is limited in its application to natural persons.
SHOULD THE JOINT LIQUIDATORS and suncoast BE INDEMNIFIED BY THE TRUST FUND for the debts incurred by Suncoast in its capacity as trustee and for the costs of the winding up?
55 The joint liquidators have sought a declaration that both they, in their capacity as the liquidators of Suncoast, and Suncoast are entitled to be indemnified by the Trust Fund for the debts owing by Suncoast, incurred in its role as trustee, and for the costs of winding up.
56 It is well-established that a corporate trustee has such a right of indemnity and, whether it be a former trustee or not, that right vests in its liquidator: see the principles extracted from Caterpillar as summarised at [27] above. While there is conflicting authority as to whether a former trustee retains a lien over trust assets in circumstances where it is removed as trustee by operation of a disqualification clause and a new trustee has been appointed (see [27(c)(ii)] above), that issue does not arise in this case because no new or replacement trustee has been appointed. Nonetheless, the position in this case has arguably been complicated by the joint liquidators’ intervening breaches of trust. So, while I do not consider that conduct has affected the joint liquidators’ well-established right of indemnity, I consider it is appropriate, in the circumstances, to put that beyond doubt by making the declaration sought by the joint liquidators.
SHOULD suncoast BE EXCUSED UNDER Section 76 OF THE TRUSTS ACT?
57 The joint liquidators have also sought a declaration that Suncoast be excused from any breaches, failure or omissions under s 76 of the Trusts Act. That section provides:
If it appears to the court that a trustee, whether appointed by the court or otherwise, is, or may be, personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, then the court may relieve the trustee either wholly or partly from personal liability for that breach.
58 Section 76 of the Trusts Act is in substantially identical terms to s 67 of the Victorian Trustee Act. As noted above (at [36]), that section was considered by Gordon J in Caterpillar (at [39]–[42]). Among other things, her Honour observed that s 67 of the Victorian Trustee Act would not assist a trustee that had failed to adduce evidence of honesty and reasonableness (at [39]). Her Honour also referred (at [40]) to the observations of Holdroyd J in Kerferd v Perpetual Executors and Trustees Association of Australasia Ltd (1893) 19 VLR 700 at 706 that, if a trustee’s actions would have been authorised by the Court had the trustee applied for directions, the trustee can expect their conduct to be excused.
59 Since they are substantially identical provisions, I consider that the principles discussed by Gordon J in Caterpillar are equally applicable to s 76 of the Trusts Act. I note that Collier J adopted this same approach in Fletcher, in the matter of Starrit Pty Ltd (in liq) [2012] FCA 803.
60 The conduct of Suncoast occurred at the direction of the joint liquidators. For the reasons I have already given (see at [37] above), I consider that the joint liquidators have demonstrated that they acted honestly and reasonably in causing Suncoast to act in that way. I therefore consider it is appropriate to make the declaration under s 76 of the Trusts Act sought by the joint liquidators.
SHOULD THE SALES OF THE TRUST ASSETS BE DEEMED TO BE WITHIN THE POWERS OF SUNCOAST AS A TRUSTEE OF THE TRUST FUND UNDER Section 94 OF THE TRUSTS ACT?
61 Suncoast does not have a power of sale in respect of the Trust Assets, and it has not had that power since it entered administration on 15 February 2012 (see at [1] and[14] above). To ensure the validity of the sales of the Trust Assets (described above at [16]), the joint liquidators submitted that those sales should be deemed to be within the powers of Suncoast as a trustee of the Trust Fund. They contended that the Court had power to make such an order under s 94 of the Trusts Act. That section provides:
(1) Where in the opinion of the court any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, retention, expenditure or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the court, or it or they can not be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income.
(2) The court may from time to time rescind or vary any order made under this section, or may make any new or further order; but such a rescission or variation of any order shall not affect any act or thing done in reliance on the order before the person doing the act or thing became aware of the application to the court to rescind or vary the order.
(3) An application to the court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.
62 Section 94(1) gives the Court a very wide discretion to confer upon a trustee the power to deal with trust property. In Caterpillar (at [29]–[30]), in the context of an equivalent provision in the Victorian Trustee Act, Gordon J considered this power applied equally to a bare trustee, such as Suncoast. So much is also clear from a plain reading of that provision. Consistent with this view, I have already made orders pursuant to s 94 to provide the joint liquidators with the power to proceed with the sale of the Woorim property (see at [4] above). That order does not, of course, address the joint liquidators’ earlier entry into the contract of sale for that property. However, given the breadth of the discretion conferred by s 94 of the Trusts Act, I consider it does extend to allow me to make retrospective orders in relation to that sale and to the sales of the other Trust Assets. I would also interpolate that, even though I have already determined to make orders to excuse the joint liquidators for any personal liability they may have incurred in making those sales, those orders do not cover the validity of those sales.
63 For these reasons, I will make the orders sought by the joint liquidators, deeming the sales of all the Trust Assets to be sales within Suncoast’s powers as trustee of the Trust Fund. However, I will confine that order to the Trust Fund assets the joint liquidators are presently aware of, viz the four motor vehicles and the Woorim property. In the unlikely event the joint liquidators discover that the Trust Fund has other assets, they can apply to the Court for further directions.
SHOULD THE JOINT LIQUIDATORS BE GIVEN POWERS TO DEAL WITH THE TRUST FUND IN THE ORDINARY COURSE OF WINDING UP UNDER Section 479(3) OF THE ACT?
64 The final category of orders sough by the joint liquidators can broadly be described as dealing with future administrative matters. They are sought pursuant to s 479(3) of the Act. That subsection provides: “The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up.”
65 As noted above at [28], to achieve an orderly winding up of Suncoast, the joint liquidators were required to sell the Trust Assets and deal with the proceeds of those sales. While their conduct in selling the Trust Assets has been addressed in the various orders contemplated earlier in these reasons, that does not address the proceeds of those sales. To remedy this deficit in their powers, the joint liquidators have sought a number of orders that would allow them to deal with the proceeds of the sales of the Trust Assets to pay creditors, to pay their fees and to pay the associated expenses of Suncoast (including the costs of these proceedings).
66 The orders sought are required in the ordinary course of winding up Suncoast as a corporate trustee. In the circumstances outlined above, I consider these orders are necessary and appropriate.
67 It is also appropriate to order that the Trust Fund pay the costs of these proceedings. As Mr Looney submitted, the Trust Fund has not incurred any additional costs as a consequence of the joint liquidators selling the Trust Assets prior to filing its application in these proceedings. Suncoast was a bare trustee and for the joint liquidators to undertake an orderly winding up of Suncoast, it would have been necessary to sell the Trust Assets. An application would therefore have been required in any event.
68 Finally, two administrative orders were sought by the Commissioner (both pursuant to s 479(3)). The joint liquidators did not object to those orders being made. They were that:
(a) the Trust Fund pay the costs of the Commissioner in these proceedings; and
(b) the joint liquidators lodge certain outstanding returns with the Commissioner under s 35D of the Superannuation Supervision Act at least one month prior to calling for proofs for dividend purposes.
69 Mr Brennan submitted that the Commissioner was entitled to his costs because the proceedings, brought by the joint liquidators, required a proper contradictor (the Commissioner) and the Commissioner’s submissions were useful for the joint liquidators and the Court. I accept these submissions and accordingly consider that, in the circumstances, the Commissioner is entitled to his costs.
70 During the hearing, I expressed concern that the second order sought by the Commissioner (at [68(b)] above) was too uncertain, as no dividends may ever be paid and, even if they are, that may not occur for some time. Mr Looney submitted that a fixed period of time for the returns to be provided should not be imposed, because it was not clear how long it would take to prepare the returns and, in the unlikely event that there are no dividends, the returns may be redundant. Mr Brennan did not seek to have a fixed period of time included in the order. In all these circumstances, I consider the most appropriate course is to make the order sought in its original form.
71 Having granted the administrative relief sought (or variations thereof) in the amended originating application (see above at [6(c)]), it is not necessary for me to consider whether it would be appropriate to appoint the joint liquidators as receivers of the Trust Fund: see [6(d)] above.
Conclusion
72 For these reasons, I made the orders sought by the joint liquidators on 17 December 2012.
| I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves. |
Associate:
