FEDERAL COURT OF AUSTRALIA

Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) v Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers and Managers Appointed), in the matter of Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (No 4) [2017] FCA 1133

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to sections 59 and 96 of the Trusts Act 1973 (Qld):

(a)    the interests of Equititrust Ltd in its capacity as responsible entity of the Equititrust Income Fund as applicant in this proceeding be represented by Blair Alexander Pleash and Richard Albarran as the liquidators of Equititrust Ltd;

(b)    the interests of Equititrust Ltd in its own capacity as a respondent in this proceeding be represented by Liberty Mutual Insurance Company ABN 61 086 083 605 (Liberty), which shall be responsible for Equititrust Ltd's conduct of the proceeding; and

(c)    any document in relation to this proceeding that may or must be served on Equititrust Ltd in its own capacity as a respondent in this proceeding may be served on that firm of lawyers appointed to act to defend the interests of Equititrust Ltd in the proceeding, such firm to be notified to the Applicant's lawyers by Liberty within 14 days.

2.    Pursuant to section 96 of the Trusts Act 1973 (Qld), it is not necessary to serve the Amended Interlocutory application filed 24 July 2017 on the unitholders of the Equititrust Income Fund.

3.    Pursuant to section 511 of the Corporations Act 2001 (Cth):

(a)    Mr Albarran and Mr Pleash have the power, pursuant to s 506 of the Corporations Act 2001 (Cth), to permit Liberty to appoint lawyers to defend the interests of Equititrust Ltd in its own capacity as a respondent in this proceeding and give instructions to those lawyers.

(b)    Mr Albarran and Mr Pleash would be justified in permitting Liberty to appoint lawyers to defend the interests of Equititrust Ltd in its own capacity as a respondent in this proceeding and give instructions to those lawyers.

4.    Pursuant to section 37 AF of the Federal Court of Australia Act 1976 (Cth) and on the ground specified in 37 AG(1 )(a), the Court orders that, subject to any application to vary or revoke these orders, the documents contained in:

(a)    Exhibit BAP 18 to the affidavit of Mr Blair Pleash sworn 29 May 2017; and

(b)    Volume 4 of the Court Book, which contains that Exhibit,

are to remain confidential and are not to be disclosed to anyone other than Equititrust Ltd in its capacity as trustee of the Equititrust Income Fund and its legal representatives. The court book and the exhibits are to be returned.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JAGOT J:

1    I have decided to make orders pursuant to s 59 and, insofar as necessary, s 96 of the Trusts Act 1973 (Qld) as sought by the applicant, the principal effect of which will be that in the proceedings the interests of Equititrust Ltd in its capacity as responsible entity of the Equititrust Income Fund as applicant in the proceeding will be represented by the liquidators of Equititrust and the interests of Equititrust in its own capacity as a respondent in this proceeding will be represented by the insurer Liberty Mutual Insurance Company which shall be responsible for the conduct of the proceedings by Equititrust .

2    While this kind of separate representation of the same entity which acts in different capacities might seem unusual, it is specifically contemplated by s 59 of the Trusts Act. In this regard, I should note that, for example, in AMP Capital Investors Ltd v Parsons Brinckerhoff Australia Pty Ltd [2013] NSWSC 1633, Pembroke J dealt with an application for separate representation of a plaintiff in its capacity as trustee and in its capacity as an investment manager on the basis of conflict of interest. At [18], his Honour noted that:

It does happen that parties to litigation, who act in a representative capacity, sometimes have competing and inconsistent allegiances which cannot be reconciled.

3    As his Honour further said:

…separate representation, tightly controlled, may be allowed.

4    I accept the submissions put in support of the present application that this case does not involve the application or interpretation of s 59 and must be understood as involving a statement of the position under the general law which, it is apparent from the terms of s 59, that section is intended to ameliorate. Section 59 of the Trusts Act is in these terms:

Notwithstanding any rule of law or practice to the contrary, a trustee of any property in that capacity may sue, and be sued by, himself or herself in any other capacity whatsoever, including the trustee’s personal capacity; but in every such case the trustee shall obtain the directions of the court in which the proceedings are taken as to the manner in which differing interests are to be represented.

5    Section 96 provides as follows:

(1)    Any trustee may apply upon a written statement of facts to the court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.

(2)    Every application made under this section shall be served upon, and the hearing thereof may be attended by, all persons interested in the application or such of them as the court thinks expedient..

6    In resolving this application, I am grateful for and acknowledge the substantial assistance provided by counsels’ submissions filed in support of the application. Those submissions comprehensively and cogently address the factual and legal matters of which I need to be aware, including the issues which the respondents to the proceedings have raised at various times. While none of the respondents have appeared today, my attention has been drawn to the issues they raised and the response to them. . In short I accept counsels’ submissions which explain why it is appropriate to make the orders sought.

7    Because it appears that s 59 has not been subject of particular consideration in the authorities, I propose to make some observations which are based on counsels’ submissions. Indeed, the clarity of those submissions is such that it is sufficient for me to say that in terms of the interpretation of s 59, I accept the following nine propositions as set out in counsels’ submissions:

First, the trustee’s right to bring a claim in its capacity as trustee against itself in its personal capacity is an entitlement and does not depend on the exercise of any favourable discretion.

Secondly, the trustee may commence the proceeding against itself in its personal capacity before seeking the directions referred to in the section. So much appears to follow from the fact that the directions must be sought in ‘the court in which the proceedings are taken’, which seems to presuppose the existence of the proceedings prior to the directions being obtained.

Thirdly, whether or not that be right, a trustee should prudently obtain the directions referred to in the section before it takes any steps in the case against itself in its personal capacity.

Fourthly, there cannot be any conflict of interest and duty giving rise to a breach of trustee duties merely because a trustee (a) determines to sue itself or (b) applies for directions as contemplated by s 59 of the Trusts Act.

Fifthly, the ‘directions’ referred to in s 59 of the Trusts Act either are, or are in the nature of, what is referred to as ‘judicial advice’ in New South Wales. The Trusts Act does not contain a provision dealing with ‘judicial advice’ but rather the analogous section is s 96, which refers to a right for a trustee to obtain ‘directions’:

Right of trustee to apply to court for directions

(1) Any trustee may apply upon a written statement of facts to the court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.

(2) Every application made under this section shall be served upon, and the hearing thereof may be attended by, all persons interested in the application or such of them as the court thinks expedient.

In those circumstances, the effect of s 59 is to require a trustee to obtain directions under s 96 of the Trusts Act in defined circumstances. An alternative view is that a trustee required to apply for directions under s 59 of the Trusts Act must seek those directions under s 59 itself. It is submitted that the former view is the better view. However, due to the uncertainty as to which of these two views is to be preferred, Equititrust seeks order 1 of the Application on alternative bases.

Sixthly, in assessing the application for order 1, the Court would adopt the principles set out below that apply in respect of applications for judicial advice.

(a)    The jurisdiction or power to give judicial advice is not constrained by any implications or limitations not found in the express words of the section: cf Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 (the Macedonian HCA Case) at 89 [55]-[57] and Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844 (Lindsay J) (Cho-Poon) at [185].

(b)    The Court’s discretion is confined only by the subject matter, scope and purpose of the legislation, and there are no implied limitations on the discretionary factors that may arise or rules governing the relative importance of such factors: Macedonian HCA Case at 90 [59] and 128 [196]; Cho-Poon at [187]. Each case will turn on its own circumstances: Cho-Poon at [191].

(c)    The judicial advice procedure is intended to be summary in character: Macedonian HCA Case at 90-91 [61]-[63]).

(d)    A judicial advice application is in the nature of ‘private advice’ and a departure from usual Court proceedings in which there are multiple, adversarial parties: Macedonian HCA Case at 91-92 [64]-[66]; Cho-Poon at [37], [190]. Accordingly, a person served with documents in respect of a judicial advice application is not thereby a ‘party’ to the application: Macedonian HCA Case at 91-92 [65]-[66]; Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328 (Gnitekram) (Hallen AsJ) at [17(e)].

(e)    The right to obtain judicial advice protects the trustee, but it thereby also protects the interests of the Trust, by enabling the trustee to act in the interests of the Trust without fear of being personally liable for costs: Macedonian HCA Case at 93-94 [71]; Cho-Poon at [182].

(f)    The function of the Court in a judicial advice application is to determine what should be done in the best interests of the trust: Macedonian HCA Case at 102-103 [104]-[107]; Cho-Poon at [45].

(g)    The usual form of order is that the trustee “would be justified” in taking the relevant course of action: Cho-Poon at [31]; Gnitekram at [15].

(h)    In order to ensure the protection of the trustee, it is necessary that the statement of facts fully discloses the relevant matters, but it is not necessary for the trustee to “prove” the facts to a certain standard of proof as would be the case in adversarial litigation: Gnitekram at [17(b)].

(i)    The practice of the Court has been to look for, and in appropriate cases, rely upon, a memorandum of opinion from counsel: Cho-Poon at [48]; Gnitekram at [17(c)]. Such an opinion is not mandatory and is not necessary in every application, but it may have practical importance: Cho-Poon at [109].

Clearly these principles are applicable if the application is characterised as one under s 96 of the Trusts Act. But it is submitted that even if the Court were to take the view that order 1 of the Application is properly sought under section 59 of the Trusts Act rather than section 96, the Court would take the same approach.

Seventhly, an application contemplated by s 59 of the Trusts Act must be approached with a view to attaining the subject matter, scope and purpose of the legislation. Their objective of the directions referred to in s 59, evidently, is to ensure that both the interests of the beneficiaries and those of the trustee in its own capacity are appropriately represented in the circumstances of the case.

Eighthly, the Federal Court has jurisdiction to give directions of the kind contemplated by s 59 of the Trusts Act provided that the application arises as part of a litigious or justiciable controversy of which a federal matter forms a part: Hodges v Waters (No 7) [2015] FCA 264; (2015) 232 FCR 97 (Perram J) at 107 [43].

Ninthly, assuming the Federal Court has jurisdiction to give directions of the kind contemplated by s 59 of the Trusts Act, it can exercise the power conferred by s 59 and/or s 96 of the Trusts Act to make such orders, or alternatively it can exercise analogous powers as an incident of its inherent and statutory powers to control its own processes, and the court should do so in order to achieve the objection of s 59 of the Trusts Act. .

8    Otherwise I should note that a statement of facts has been tendered in support of the application which sets out the facts underlying each of the orders sought. The statement of facts is annexed to these reasons for judgment.

9    As to the concerns which, at various times, have been raised by the other parties, I accept the submissions put in support of the application. In particular, I accept:

(1)    The potential prejudice which might result to the second and third respondents as potential co-insureds under the insurance policy cannot be material to the decision whether or not to make the directions given the terms of s 59.

(2)    Any issue about the sufficiency or otherwise of the order made by which Equititrust obtained leave to proceed as a company in liquidation under   500 (2) of the Corporations Act 2001 (Cth) is also not a matter which would prevent the making of the relevant directions under s 59 of the Trusts Act. As submitted, if there is any point to be made in respect of the sufficiency of that leave, then the appropriate person to decide whether to take that point is Equititrust itself and this cannot effectively occur until directions, as sought, are made.

(3)    The receiver of the Equititrust Income Fund was given notice and does not object to the application. Otherwise, Equititrust remains the responsible entity of the Equititrust Income Fund and, accordingly, is the appropriate entity for the purpose of this application.

10    In circumstances where the application was sought to be avoided if at all possible, I do not accept that there has been any delay of a kind which might have a disentitling effect. Indeed, in circumstances where it appears that the terms of s 59 expressly contemplate that an entity will be able to bring proceedings against itself, there would be nothing to be served by refusing to make directions as sought on this basis. In any event, given the need for amended defences to be filed if leave is granted to amend the existing application, it seems unlikely that the making of the orders as proposed will have any serious adverse impact on the conduct of the substantive proceedings.

11    I accept that it is appropriate that order 2 relieving any obligation of service on the unit holders in the fund should be made on the basis of the evidence that notice has been given of the orders to be sought and it is otherwise impractical and ineffective in terms of cost to require personal service on each unit holder.

12    As a result, and based on the material before me, I am satisfied, that the liquidators are justified in coming to the view that it is in the best interests of Equititrust for them to appoint Liberty to instruct lawyers to act on behalf of Equititrust in its own capacity with the consequence that order 3 also should be made. Otherwise, order 4 concerns the confidentiality of aspects of the material placed before me and I am satisfied that that order, in addition, should be made. Accordingly, I make orders 1 to 4 as set out in the short minutes of order, as well as an order that the court book and the exhibits are to be returned.

Associate:

Dated:    21 September 2017

ANNEXURE A – STATEMENT OF FACTS

STATEMENT OF FACTS

Order 1

(1)    Equititrust Ltd (Equititrust) holds certain assets on trust for the unitholders of the Equititrust Income Fund (the EIF), a registered managed investment scheme.

(2)    Equititrust has commenced the substantive proceeding, as applicant, in its capacity as responsible entity, and therefore as a trustee.

(3)    The first named respondent in the substantive proceeding is Equititrust in its own capacity.

(4)    Equititrust in one capacity is able to sue itself in another capacity as a result of section 59 of the Trusts Act 1973 (Qld).

(5)    However, Equititrust is required to obtain directions as to the differing representation of Equititrust in different capacities.

(6)    The liquidators of Equititrust would be in a position of conflict or potential conflict if they were able to control both Equititrust’s conduct as an applicant and Equititrust’s conduct as a respondent.

(7)    The liquidators of Equititrust have determined that Liberty Mutual Insurance Company (Liberty) would be an appropriate person to represent the interests of Equititrust in its own capacity. That is because, in their judgment, Liberty has an interest in preventing a judgment debt from arising against Equititrust in its own capacity.

(8)    Liberty has agreed to take responsibility for the conduct of the proceeding on behalf of Equititrust in its own capacity, subject to a number of reservations of rights.

(9)    Accordingly, the liquidators have caused Equititrust to seek directions to the effect that Liberty is to take responsibility for the conduct of the proceeding on behalf of Equititrust in its own capacity.

Order 2

(10)    The liquidators have published the orders to be sought in the Amended Interlocutory Application to the website that they ordinarily use to communicate with the unitholders of the EIF. They have received no comment from the unitholders.

(11)    There are more than 1,609 unitholders of the EIF, and personally serving each of them would be impractical and expensive.

(12)    Accordingly, the liquidators have caused Equititrust to seek directions to the effect that it is not necessary to serve the Amended Interlocutory Application on the unitholders of the EIF.

Order 3

(13)    To avoid any doubt that the liquidators have formally passed responsibility for the defence of the proceeding on behalf of Equititrust in its own capacity to Liberty, the liquidators seek determinations to the effect that:

(a)    they have the power to delegate the responsibility to defend Equititrust in its own capacity to Liberty; and

(b)    they would be justified in making that delegation.

SCHEDULE OF PARTIES