FEDERAL COURT OF AUSTRALIA

Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs are justified in causing Sandalwood Properties Ltd to perform the role of Manager and provide the Services the subject of the Lease and Management Agreement entered into by Sandalwood Properties Ltd on 4 June 2002.

2.    The plaintiffs are justified in causing Sandalwood Properties Ltd to perform the role of Manager and provide the Services the subject of the Lease and Management Agreement entered into by Sandalwood Properties Ltd on 23 June 2003.

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

REASONS FOR JUDGMENT

COLVIN J:

1    These proceedings concern two managed investment schemes. In 2002 and 2003, the schemes were established for sandalwood plantations near the Ord River in Kununurra, Western Australia. The responsible entity for the schemes was T.F.S. Properties Ltd (now Sandalwood Properties Ltd (Administrators Appointed) (Receivers and Managers Appointed). I will refer to this entity as SPL even though there were times in the chronology of events when it was known as T.F.S. Properties Ltd. The schemes were known as the TFS Sandalwood Project 2002 (2002 Project) and the TFS Sandalwood Project 2003 (2003 Project).

2    Participants in the schemes, described as Growers, paid an initial amount as well as lease and management fees (in advance, annually or on a deferred basis). Harvesting costs were to be paid when proceeds were received. The term of the investment was to be for 15 years.

3    Growers were parties to the constitution for each scheme. SPL as the responsible entity had statutory obligations to operate the scheme and perform the functions conferred on it by the scheme's constitution: s 601FB of the Corporations Act 2001 (Cth).

4    The land on which the sandalwood plantations were established is owned by SPL. SPL leased the land to a subsidiary now known as Quintis Leasing Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed).

5    Each Grower entered into a lease and management agreement (LMA) with SPL and Quintis Leasing. Entry by the Growers into the LMA was by SPL under a power of attorney granted by each Grower.

6    Relevantly for present purposes, there was no material difference between the constitutions and the LMAs for the two schemes.

7    There was a clause of the constitution for each scheme that required the responsible entity as soon as reasonably practicable after acceptance of an application by a Grower to acquire an interest in the project comprising the scheme to:

(1)    execute the LMA for itself;

(2)    execute the LMA on behalf of the Grower pursuant to a power of attorney that each applicant was required to grant to the responsible entity; and

(3)    ensure that LMA as head lessor and Quintis Leasing as head lessee execute the LMA.

8    Although for each of the two schemes the LMA is a single instrument, it expressly provides that it does not create a contract between Growers and that each Grower 'shall incur all its liabilities and obligations under this Agreement severally and independently of all other Growers': cl 28.2. Each LMA is described as being executed by SPL as attorney and agent 'for and on behalf of each several relevant Grower'.

9    Under the LMA each Grower is granted a sub-lease of an individual timber lot by Quintis Leasing. Each Grower has obligations under the sub-lease to undertake activities associated with growing sandalwood trees, such as to cultivate, maintain, undertake fire protection, control pests and comply with statutory requirements. Each Grower appoints SPL as manager to undertake those activities. The manager must also harvest the trees, arrange sale and remit the proceeds, subject to a right on the part of each Grower to collect the production and arrange separate sale: cl 15.

10    SPL sub-contracted the management obligation to another subsidiary now known as Quintis Forestry Ltd (Administrators Appointed) (Receivers and Managers Appointed).

Notices by Mr Scott

11    On 12 February 2018, one of the Growers, Mr Graeme Scott, gave notice to SPL and Quintis Leasing in respect of the LMA for each of the 2002 Project and the 2003 Project in the following terms:

I/We the undersigned being a Grower/s in the TFS Sandalwood Project 2002 ARSN 099 022 170 ('the Project') and being a party to the Lease and Management Agreement ('the Agreement') hereby give notice under clause 24.1 (b) of Part III of the Agreement to terminate Sandalwood Properties Ltd as Manager with effect from the date the Grower's in the Project pass an ordinary resolution to appoint the Sandalwood Growers Co-op Ltd as the new Manager under clause 27.1 (a) of the Agreement.

12    Sandalwood Growers Co-op Ltd (SGCL) was established on 8 November 2017 to provide support and resources to the Growers and to promote and support the development of the sandalwood industry.

13    Meetings of Growers of each of the 2002 Project and the 2003 Project were convened on 12 March 2012 and the following resolutions were passed:

2002 Project

that Sandalwood Growers Co-op Ltd be appointed as the new manager of the Project in accordance with the provisions of the Lease and Management Agreement with immediate effect.

2003 Project

that Sandalwood Growers Co-op Ltd be appointed as the new manager of the Project in accordance with clause 27.1 of the Lease and Management Agreement with immediate effect

14    There were no votes against the resolutions, which were supported by 80% (2002 Project) and 83% (2003 Project) of votes cast by Growers by proxy or in person.

15    A dispute has arisen as to whether SPL has been removed as manager under the LMA for the 2002 Project and the 2003 Project. As a result, there is an issue as to whether SPL is justified in undertaking activities as manager in the circumstances I have described.

16    Mr Shaun Fraser, one of the receivers and managers (Receivers) appointed to SPL, deposes to the following matters concerning activities under the LMA in respect of each timber lot:

17.    In order to comply with its obligations under the Scheme Documents, SPL has engaged Quintis Forestry to perform the Services, as its agent, in accordance with the terms of the Plantation Management Agreements.

18.    Quintis Forestry has been providing commercial silvicultural services for approximately 15 years. Quintis Forestry has been performing the Services under the Plantation Management Agreements in respect of the Project since the inception of the Projects.

19.    I have set out below a description of Quintis Forestry's business and the activities that it undertakes in managing the Projects:

(a)    Quintis Forestry currently employs approximately 89 employees who specialise in the provision of commercial silvicultural services. Approximately 22 of these employees are involved in the Projects;

(b)    Quintis Forestry owns the following necessary equipment to perform the Services:

(i)    five Kubota tractors with 600 litre spray tanks;

(ii)    a Kubota tractor for boundary spraying channels and drainage works;

(iii)    a delver for channel forming;

(iv)    a drag bucket for roadway levelling;

(v)    two Terex, one feller buncher that can be fitted onto a Terex for cutting down trees and one corer fitted to remove tree stumps from the ground;

(vi)    a front end loader for the collection of tree logs after the trees have been cut down and merchantable material is identified;

(vii)    two Kubota 7040 tractors, each with a tipping trailer for collection of tree stumps once removed from the ground;

(viii)    a Mack truck and side tipper trailer for the transportation of logs;

(ix)    two service trailers;

(x)    a John Deer gator; and

(xi)    three motor vehicles.

(c)    The activities that Quintis Forestry is presently conducting in relation to the Projects and will be conducted in the coming months include the following:

(i)    infield week spraying for ground crews to gain access for harvest operations;

(ii)    infield slashing of selected inter-rows for ground staff to conduct harvest (approximately 30% of total hectares); and

(iii)    harvest operating.

20.    As the rainy season is due to come to an end shortly, weeding as referred to in paragraph 19(c)(i) above, and an aerial spray to combat fig leaf beetles are examples of Ongoing Services which need to be completed urgently to avoid any degradation in the value of the harvest.

Receivers seek directions

17    The Receivers seek judicial advice pursuant to the statutory jurisdiction of the court to give directions. Advice is sought in the following terms in respect of their obligations as receivers and managers of SPL as responsible entity of each of the two projects:

(1)    a direction that the Receivers may ignore the notice executed by Mr Scott dated 12 February 2018 which purports to terminate the appointment of SPL as manager under the LMA;

(2)    a direction that the plaintiffs may ignore the purported resolution of Growers appointing SGCL as the new manager on 12 March 2018;

(3)    a direction that the Receivers cause SPL to continue to perform the role of manager and provide the services the subject of the LMA (Services).

18    The Receivers say that it is appropriate for the directions to be made in the terms sought because there are obligations under the LMAs to provide Services and there is a need to undertake those steps to maintain the sandalwood trees. Further, SGCL has taken steps as though it is the manager and has held itself out as being manager since the meetings.

19    The Receivers accept that the directions will not bind third parties in respect of their rights as against SPL or under the LMAs or the constitution. Rather, they seek protection against liabilities such as those that may arise to their appointor, SPL and other parties with interests under securities or guarantees in respect of breach of their duties and responsibilities as Receivers if they act without obtaining direction from the court.

20    SGCL intervenes to oppose the making of the directions. It raises the following reasons as to why the court should decline to provide advice in the terms proposed:

(1)    The directions sought concern the making of a commercial decision;

(2)    It is undesirable to give the directions where they would prefer the interests of another entity over which the Receivers have been appointed (which I understand to be a reference to Quintis Forestry);

(3)    The Receivers are privately appointed and can take their own advice where it may be assumed they have an indemnity from their appointor;

(4)    The directions would place the imprimatur of the court on the decision by SPL to continue to act as manager under the LMAs and this was undesirable where the Growers had voted overwhelmingly in favour of the removal of SPL;

(5)    There may be no utility in the directions because there is a broader commercial dispute with the Growers which will not be resolved by the making of directions;

(6)    The only real issue is a matter of construction of the LMAs and the Receivers' case as to the proper construction of the LMAs is doubtful or at least there is a strong prima facie case that it is wrong;

(7)    If the directions were to be made then they should not be made in the form sought;

(8)    If directions were to be made then they should be conditioned on terms that required the Receivers to commence proceedings to determine the issue of the proper construction of the LMAs.

The power of the Court to give directions

21    Under s 424 of the Corporations Act, the court is empowered to give 'directions in relation to any matter arising in connection with the performance or exercise of any of the controller's functions or powers'.

22    There are two aspects to the provision. First, it confers a statutory authority to give 'directions'. Second, it circumscribes the matters that may be the subject of directions. In the present case, there is a dispute as to the nature and extent of orders that may be made as 'directions'. Accordingly, it is necessary to consider the nature and scope of that term as used in s 424.

23    Courts of equity have long provided directions or judicial advice to trustees, executors and administrators in the context of a suit for general administration. This led to a practice of seeking administration and then obtaining a stay of the administration after judicial advice had been given: Re Application of Macedonian Orthodox Community Church St Petka Inc (No 2) [2005] NSWSC 558; (2005) 63 NSWLR 441, 445.

24    In England, in 1859 a more summary statutory jurisdiction was enacted by s 30 of Lord St Leonards' Act. It provided for any trustee, executor or administrator to apply to a Chancery judge 'for the Opinion, Advice, or Direction of such Judge on any Question respecting the Management or Administration of the Trust Property or the Assets of any Testator or Intestate'. It also provided expressly that acting upon such opinion, advice or direction shall be deemed to be a discharge of duty as trustee, executor or administrator (save for fraud, wilful concealment or misrepresentation in obtaining the opinion, advice or direction). Statutes in Australia have conferred a similar kind of jurisdiction. However, the statutory language has not been uniform.

25    Some statutory provisions refer to 'directions', others 'opinion, advice or directions'. Also, different language is used to describe the limits of the subject matter to which the statutory jurisdiction is expressed to relate.

26    In Western Australia, any trustee may apply 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: see, the review by Edelman J of the history of the relevant provision in Western Australia in Plan B Trustees Ltd v Attorney General (WA) [2012] WASC 392.

27    In Queensland any trustee may apply upon a written statement of facts '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': s 96 of the Trusts Act 1973 (Qld).

28    In South Australia, there is a provision whereby a trustee, executor or administrator may 'when in difficulty or doubt' apply to a judge 'for advice or direction as to matters connected with the administration of any estate, or the construction of any will, deed or document'. The same provision confers a statutory right upon any interested person who is dissatisfied with the management or administration by the Public Trustee to apply to the Court to review such conduct. If these provisions are invoked then any question of law may be referred for the opinion of the Supreme Court or for an issue to be tried or an action instituted. As to these matters: see, s 91 of the Trustee Act 1936 (SA) and s 69 of the Administration and Probate Act 1919 (SA). For the origin of the provision: see, Re Grose (dec'd) [1949] SASR 55, 59-60.

29    In Victoria, the Supreme Court (General Civil Procedures) Rules 2015 (Vic) provide for an application for judicial advice in accordance with the old Equity practice in the context of an administration action: see, r 54.02. The Rules provide for the 'determination of any question which could be determined in an administration proceeding' and includes a non-exhaustive list of such questions.

30    In New South Wales, the statutory regime provides that a trustee may apply for an opinion, advice or direction on any question respecting management or administration of the trust property, or respecting the interpretation of the trust instrument. It allows for an express mechanism by which those whose rights might be affected must be notified before the judicial advice is acted upon by transferring or distributing property from a trust. It confers an express right for those other persons to apply 'for such order or directions as the circumstances may require'. Where such a person is notified then the statute provides that the person is bound by any opinion, advice, direction or order as if made in proceedings to which the person was a party: see, s 63 of the Trustee Act 1925 (NSW). There is a similar provision in the Australian Capital Territory: s 63 of the Trustee Act 1925 (ACT).

31    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] HCA 42; (2008) 237 CLR 66, the High Court cautioned against imposing limits upon the jurisdictional power conferred by s 63 of the Trustee Act of New South Wales: at [55]-[58], [196]. The plurality applied the statement in Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc [1994] HCA 54; (1994) 181 CLR 404 at 421 that it is 'quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications of imposing limitations which are not found in the express words'. These sentiments were described by Lindsay J in Re Estate of the Late Chow Cho-Poon [2013] NSWSC 844 at [195] as a caution against the imposition of a gloss, of any description, on the text of s 63.

32    Further, in the decision of the High Court in the Macedonian Orthodox Community Church case, the plurality described the statutory jurisdiction as operating as an exception to the Court's ordinary function of deciding disputes between competing litigants. It afforded a facility for giving private advice with the function of giving personal protection to the trustee: at [64]. Once given, the advice must be adhered to by the trustee: at [66]. The mechanism in s 63 of the Trustee Act of New South Wales by which parties who might be prejudiced by a distribution of property must be notified and become bound was described as reflecting 'a compromise between a procedure for affording private advice to trustees and the need for affected persons to be given a hearing in some cases': at [65].

33    In addition, the plurality described how the application of s 63 will tend to vary with the type of trust involved. An example was given of a non-charitable private trust involving a conflict with beneficiaries as to whether there had been a breach of trust out of which the trustee was said to have profited, where the beneficiaries could fund proceedings. In that instance it may not be correct for the court to give advice. A contrasting example was given where the issue concerned a charitable trust where the issue concerned the precise terms of the purpose for which the trust exists: at [67].

34    These statements indicate a need to consider the nature of any underlying dispute and whether there is a need for the party seeking advice to be able to move quickly and before substantive rights could be determined or there is an inability for interested or affected parties to advance their position in substantive proceedings.

35    Once the jurisdictional requirement is satisfied, the Court has a discretion whether to provide advice of the kind contemplated by the section: Re Rosewood Research Pty Ltd [2014] NSWSC 449 at [30].

36    In a separate judgment in the Macedonian Orthodox Community Church case, Kiefel J (as her Honour then was) said that the proceedings provided for by s 63 'do not involve the determination of a controversy, but rather the giving of advice or direction to a trustee with respect to questions of the kind referred to in the section': at [195]. Her Honour described orders made under the section as not being determinative of parties' rights.

37    Significantly, the Court rejected the view that there was some form of jurisdictional bar against, or inappropriateness in, the Court considering whether to give judicial advice by way of directions (and the terms of any directions) where the subject matter for advice was in issue in adversarial proceedings involving third parties: at [112]-[115], [196]. The existence of such circumstances may be relevant to whether the court is willing to give directions and, if so, in what terms. However, it is not an over-riding matter that should cause the Court to decline to entertain the application or evaluate other aspects of the circumstances that may disclose good reasons for the Court to provide advice in particular terms.

38    It has been recognised that s 424 has some similarity to applications by trustees for judicial advice and as a result case law concerning trustee applications for directions has been considered in adjudicating applications under s 424: Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065 at [29]. The power in s 424 of the Corporations Act and its predecessors has been described as being 'comparable' to the provisions in the Trustee Acts: Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd (1992) 7 ACSR 245, 247.

39    However, given the reasons for decision of the High Court in the Macedonian Orthodox Community Church case, care must be taken in resorting to the trustee direction cases for two reasons. First, the High Court made clear that the jurisdiction should not be considered to be subject to implied limitations and there are some earlier cases concerning directions to trustees which adopt a narrow view as to the extent of the jurisdiction. Second, the High Court focussed upon the particular language of s 63 of the Trustee Act of New South Wales in considering the scope of the provision. As I have noted, the language used in the various provisions to describe the matters that might be the subject of judicial advice by way of directions is quite different. Likewise, the language used in s 424 of the Corporations Act is particular to a controller and should be given effect according to its terms.

40    Nevertheless, I note three matters arising from the High Court decision in the Macedonian Orthodox Community Church case that are germane to a consideration of the statutory jurisdiction conferred upon the Court by s 424 of the Corporations Act. First, as a jurisdictional provision it should not be construed as being subject to any implied limitation. Second, when a court exercises jurisdiction of the kind conferred by such a provision it is giving private advice and is not determining the rights of parties. Third, the circumstances in which the advice may be given are indicated by the language in the particular provision.

The scope of section 424

41    Section 424 says that an application for directions can be brought 'in relation to any matter arising in connection with the performance or exercise of any of the controller's functions and powers as controller'.

42    The language used identifies a matter (namely a matter arising in connection with the performance or exercise of the controller's functions and powers). The words 'in connection with' are broad. It is difficult to conceive of any action by a controller that would not have a connection with the performance or exercise of his or her functions or powers. It follows that the relevant matter is described in quite general terms. Directions can be sought 'in relation to' any such matter. Such terms are of the widest import and, in the absence of compelling reasons to the contrary, should not be read down: Fountain v Alexander [1982] HCA 16; (1982) 150 CLR 615, 629. They indicate that the circumstances in which directions may be sought under s 424 are not confined to actions by the controller.

43    So, where the controller has to consider the appropriate action to take in undertaking functions or exercising powers and a third party is claiming that a right, interest or entitlement of the third party must be acknowledged or respected in exercising those functions or powers, then s 424 applies. However, the controller can only seek 'directions', being the nature and extent of the jurisdictional power conferred on the Court. The Court has no power to adjudicate, determine or to provide directions that would have that consequence.

Liquidators and Administrators materially different

44    For some time, legislation concerning corporations has permitted liquidators to seek directions. However, different language has been used and, as a result, the jurisdiction extends beyond the provision of directions by way of judicial advice. Section 511 of the Corporations Act (now repealed) permitted a liquidator to apply to 'determine any question arising in the winding up' or 'to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court' where it is 'just and beneficial'. It is reflected in the following summary of the principles by Farrell J in Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323 at [36]:

a.    Similar principles apply whether the court exercises power under s 479(3) or s 511, save that under s 511 the court must be satisfied that the determination of a question in the winding up of the company or the exercise of the power will be 'just and beneficial'. That is, s 511(2) confers a discretion on the court which must be exercised by reference to whether it is advantageous to the liquidation. The term 'just and beneficial' is said to involve a similar concept to that comprised by the expression 'just and equitable'.

b.    The function served by the power of the court to give directions under s 479(3) and determine a question or exercise a power under s 511 is to give a liquidator advice as to the proper course of action to take in the liquidation. The court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to making and implementing a commercial or business decision.

c.    A direction can be made under s 479(3) in a voluntary liquidation by reason of ss 506(1)(b) and 511.

d.    If the liquidator has given full and fair disclosure to the court concerning the application, the effect of a determination under s 511 is to sanction a course of conduct by a liquidator and thereby protect the liquidator from claims that he or she has acted unreasonably or inappropriately.

e.    The power under s 511(1)(a) to 'determine any question arising in the winding up' accommodates the determination of substantive rights, although the court would not do so without affording potentially affected parties the opportunity to be heard.

f.    Where a question concerns the respective rights of beneficiaries of a trust or their identity it is generally considered inappropriate to give advice under s 63 of the Trustee Act.

45    The new provision dealing with these cases is to be found in s 90-15 of the Insolvency Practice Schedule in Sch 2 of the Corporations Act. It does not refer expressly to the making of directions, but is expressed in terms that encompass that jurisdiction. Although there are similarities in the principles to be applied when receivers seek directions to instances where liquidators seek directions it must be born in mind that the Court can go further in respect of liquidators and determine any question arising in the administration of the company.

46    Administrators can also make application in broader circumstances under s 447A: Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270, 279-280.

The nature of 'directions' on an application by controller

47    For reasons I have given, the 'directions' that may be provided under s 424 of the Corporations Act are a form of personal guidance or advice to the controller. They do not involve an adjudication of the claims, rights or entitlements of third parties. Rather, they articulate the approach or steps that the controller is justified in taking having regard to the facts and circumstances as known (including the nature and extent of any disputed or contentious aspects) and relevant legal principles.

48    The nature of the statutory jurisdiction to give directions to liquidators and administrators was described by Goldberg J in Re Ansett Australia Ltd and Korda (No 3) [2002] FCA 90; (2002) 115 FCR 409 at [44] in the following terms:

When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court. In Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674, McLelland J said at 679-680:

'The historical antecedents of s 479(3) …, the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or prohibitrary form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction.

…

Modern Australian authority confirms the view that s 479(3) "does not enable the court to make binding orders in the nature of judgments" and that the function of a liquidator's application for directions "is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation": [cases cited omitted].'

49    The above passage has often been cited and applied. In my view it accords with the views of the High Court stated in the Macedonian Orthodox Community Church case as to the nature of directions and the same approach is required under s 424. In this case, there is an issue as to the form of the directions sought. Some of the directions sought take the form of advice that the Receivers 'may ignore' Mr Scott's notice. Others take the form of a direction that the Receivers cause SPL to provide services as manager under each of the LMAs. There is an issue whether these matters mean the proposed directions go beyond the statutory power to provide directions in the sense of providing judicial advice.

50    Otherwise, the matters raised by the objectors may be reasons why there is no jurisdiction to grant advice or they may be reasons why the discretion to make the directions should be exercised against making directions. I now deal with each of the matters raised by SGCL.

Making of a commercial decision

51    In Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd, Lockhart J observed that directions should not be resorted to 'for the purpose of seeking the intervention of the court to make a commercial decision': at 247. His Honour referred to a statement by Street CJ in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 232 to the effect that the court enters upon a slippery and uncertain field if it is required to pronounce upon the commercial prudence of a transaction.

52    However, the fact that a legal question may have significant commercial consequences does not mean that it is inappropriate to give directions. In such cases the court does not give advice as to how the receiver, liquidator or administrator should act, but rather that there is legal justification in proceeding on the basis of a particular view as to the nature and extent of legal obligations in the particular circumstances.

53    The appropriate approach was expressed by Goldberg J in Re Ansett Australia Ltd and Korda in the following way (at [65]):

[T]he prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator's or administrator's unease. There must be an issue calling for the exercise of legal judgment.

54    There is a distinction between advice about making and implementing a business or commercial decision (which is not an appropriate matter for directions) and advice about a particular legal issue raised or where there is an attack on the propriety or reasonableness of the decision having regard to applicable legal obligations or standards (where it is appropriate to give directions): Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, 686-687.

55    The advice sought in this case does not invite the court to make a commercial decision. It concerns a legal issue, namely the proper construction of the LMAs and the nature and effect of the notices given by Mr Scott. The approach being followed by the administrators is questioned by SGCL. This is not a case where there is no jurisdiction to give directions because they concern a commercial issue in the sense identified in the authorities.

Conflict of interest

56    Where an issue may be raised about the propriety of the conduct of a liquidator due to a potential or apparent conflict of interest or duty then that is a reason why it is appropriate to seek directions: Woodings, Re Bell Group Ltd (No 2) [2016] FCA 1126 at [11]. The same applies where directions are sought by a receiver. The existence of the possible benefit to Quintis Forestry from continuing to provide management services is a reason why it is appropriate for the court to give advice, not a reason to refuse the application.

Receivers are privately appointed

57    SGCL made submissions to the effect that the fact that the Receivers were privately appointed and could take their own advice supported by the indemnity of their appointor weighed against making the directions sought. Although it was not the subject of evidence, I assume that the Receivers have an indemnity from their appointor to which there is capacity to resort if they were to cause SPL to undertake management activities and it was subsequently determined that SPL had been removed as manager.

58    However, in my view, for the following reasons the circumstances of the Receivers appointment are not relevant to the question whether to make directions. The legislature has conferred upon the Court a jurisdiction to provide judicial advice by way of directions to privately appointed receivers. In the case of a private appointment the interests to be brought to account on an application for directions may be different because the receiver is not discharging a function in the public interest. However, the fact that the appointment is under a private instrument and not by the court or statute does not bear upon the discretion.

59    The statutory conferral of power to make directions under s 424 is in respect of a 'controller' of property. The term controller is defined in terms that include within the definition a receiver or receiver and manager of property. There are provisions that affect the power of receivers, but the term itself is not defined.

60    Provisions of the kind in s 424 appear to have their origins in the report of the committee of gentlemen appointed to report on Company Law Amendment, chaired by Mr Justice Cohen. The Cohen Report was presented to Parliament in 1945: United Kingdom, Board of Trade, Report of the Committee on Company Law Amendment, (1945) Cmd 6659.

61    The Committee reported at para 67:

Doubts often arise as to the powers enjoyed by receivers and the manner in which they should be exercised. A receiver appointed out of Court has no means & obtaining the Court's directions although it may well be desirable that he should do so. We think it advisable to give him the right so to do (page 36, III). The procedure will no doubt be a matter for rules rather than statutory enactment. It would clearly be necessary that the company, a representative debenture holder and the trustees for the debenture holders (if any) should be made respondents to such an application.

62    The Committee made a recommendation (Recommendation III) that the Act be altered by adding a provision to the following effect:

A receiver appointed out of Court may apply to the Court to determine any question arising in the administration of the assets comprised in the security by virtue of which he was appointed or as to the exercise of any powers thereby or by any statute conferred on him (para. 67).

63    Acting on this recommendation, a provision was introduced as s 87 of the Companies Act 1947 (UK) and then identically reproduced as s 369 of the Companies Act 1948 (UK):

A receiver or manager of the property of a company appointed under the powers contained in any instrument may apply to the court for directions in relation to any particular matter arising in connexion with the performance of his functions, or make such order declaring the rights of persons before the court or otherwise as the court thinks just.

64    It can be seen that the provision was expressly directed to receivers appointed under instruments. It included a power to declare rights that is not to be found in s 424. A provision that referred to any receiver of property was included as s 324F of the Companies Act 1981 (Cth) and was introduced by the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1983:

A receiver of property of a company or registered foreign company appointed under the powers contained in any instrument may apply to the Court for directions in relation to any matter arising in connection with the performance of his functions.

65    Amongst other things, the Bill made changes to the provisions concerned with receivers. The Explanatory Memorandum to the Bill described how the previous provision in s 324(4) of the Companies Act 1981 (Cth) which entitled a receiver under an instrument to apply to the Court for directions would be omitted and an equivalent provision would be relocated as proposed s 324F. At the same time, amendments were made to other provisions extending them to a receiver (or any person assuming control) of property of a corporation. Section 324F was the immediate predecessor to s 424 of the Corporations Act. Therefore, the provision was introduced to benefit private receivers and without any constraint as to the circumstances of the appointment.

66    It is clear that Parliament intended to confer the ability to seek judicial guidance by directions upon all receivers, including those appointed under a private instrument. To then take into account that aspect as a matter weighing against the making of directions would be to deny the jurisdiction expressly conferred.

67    The authorities do refer to the need for receivers, in some circumstances, to make their own assessment. Receivers should not be unduly nervous and come to the Court where advice is not needed. Further, as I have noted, commercial decisions and judgments are a matter for the receivers and not the Court. However, the fact that a privately appointed receiver may have access to appropriate legal advice and the protection of an indemnity is not a reason to decline to grant relief. The best legal advice does not offer certainty. Where there is doubt and significant consequences that may follow depending upon the alternative legal positions, receivers have available the benefit of the statutory provision.

Imprimatur of the Court

68    Submissions were advanced to the effect that views expressed by this Court might be commercially advantageous to the Receivers in their future dealings with the Growers because there would be 'an overtone of judicial approval on the course that the … [Receivers] evidently wish to take'. Reliance was placed upon a statement by Lockhart J in Deputy Commissioner of Taxation v Best & Less (Wollongong) Pty Ltd in the course of giving reasons as to why the Court declined to give directions. His Honour said at 249 'there is no doubt that the public perception of such a direction would be to regard the court as placing its imprimatur upon the purchase … and that would carry with it an overtone of judicial approval of the events that were put in train upon the acquisition of the State Bank's securities … that have led to the proposed purchase'. However, this statement must be read in the context of his Honour's earlier observation in that case that there were previous events (not the purchase itself) which, though not illegal, had been clever and cleverness and commercial morality do not march together.

69    There is no equivalent circumstance in this case. It is not suggested that there has been immoral or inappropriate conduct by the Receivers outside the subject matter of the directions that might be thought to be countenanced by the Court if it made directions.

70    Submissions for SGCL hinted at a concern that the directions might afford a protection or advantage to the appointor of the Receivers in respect of future commercial negotiations about the claims made by Growers. To the extent that this submission was based upon a view that any direction might determine or decide the nature and extent of those rights it is misplaced. The making of directions is not an adjudication of the merits.

71    Although it was said that it was a matter of strategic advantage to the Receivers to have the directions sought, the submission did not rise to a claim that this was the sole or motivating purpose of the application. To the extent that it reflected a concern that the Court may, in the course of considering the merits of the competing legal claims, that is a matter inherent in the nature of the jurisdiction.

72    I accept that the extent to which the directions concern a matter the subject of an inter partes dispute is a matter that the Court must consider in deciding whether to give the directions sought. In particular, in this instance, it must consider whether the case is one where the nature of the competing adversarial positions as to the effect of Mr Scott's notices and the subsequent meetings attended by Growers is such that the matter should proceed to determination in adversarial proceedings between the interested parties.

73    However, as the High Court has made clear in the Macedonian Orthodox Community Church case, the Court should not approach the question whether directions should be made with any view that where there is a dispute that has adversarial aspects it is not appropriate to provide directions.

74    In my view, there are a number of reasons why the fact that there is dispute between SPL and SGCL is not a reason for declining to provide judicial advice in this case.

75    First, the sandalwood trees must be cared for while the dispute is ongoing. There is a practical imperative for guidance to be provided. Second, SPL through its subsidiary Quintis Forestry has the capacity in staff and equipment to immediately provide the services that are needed. Third, no question has been raised concerning the competence of Quintis Forestry to provide the services which it has been undertaking for some time. Fourth, it is open to SGCL to seek injunctive relief and it has not done so. Fifth, SGCL has not commenced any proceedings based upon its claims. Sixth, directions will not prevent SGCL from taking further action in pursuit of the position that it asserts. Seventh, the dispute concerns competing positions as to the proper construction of the LMAs on which the Court has heard argument. It is not a case where the nature and extent of the disputed legal rights depends upon the consideration of disputed facts or expert evidence. Eighth, it is not to the point that SGCL may have the capacity to undertake the provision of the management services. They are not undertaking those services at present. Although there appears to be considerable support amongst Growers for SGCL to provide those services, the very question in issue is whether those Growers have power to remove SPL as manager. If there is not a proper legal basis for SPL continuing to act as manager then there will be no justification for the directions sought. Otherwise, the question is whether, taking account of all the circumstances including an assessment of the merits of the competing claims concerning the authority to manage, the Receivers are justified in proceeding to cause SPL to undertake management activities allowing for the possibility that there may be an adjudication at a later time that the position advanced by SGCL is found to be correct.

76    Importantly, this is not a case where a direction will result in receivers taking steps that will be difficult to unwind if it be established in future proceedings that the position advanced by SGCL is correct. This is not a case where litigation is to be compromised or assets sold to a third party. Irrespective of the resolution of the dispute concerning termination of the LMAs, the trees need to be cared for and there will be identifiable costs of doing so. If there needs to be an adjustment for any charges made for providing the Services then those adjustments can be made. I express no view as to whether there should be such an adjustment. It may well be that the benefit received from the provision of such Services must be brought to account in such an event.

77    Finally, the submission assumes that the Court in dealing with the application would need to express firm views as to the legal merits of the competing positions concerning the construction of the termination provisions in the LMAs. In the view I take, this is not necessary in this case. The legal merits are considered separately below.

Utility

78    There were issues raised between the parties concerning the validity of the resolutions by Growers and the form of Mr Scott's notices. Assuming the claims of SGCL concerning the existence of a termination right were correct, these are matters that might need to be addressed. However, the Receivers placed no particular reliance upon these additional issues. So, this matter falls away if I am satisfied that there is sufficient merit in the position advanced by the Receivers to justify them providing Services under the LMAs.

79    It was said in addition that there would be no utility because there would remain a wider dispute between the Receivers and the Growers. Further, it was said that the Receivers had placed an attenuated body of material before the Court and had not provided material bearing on the overall context of the dispute. However, no submissions were advanced to the effect that there was further material bearing upon the question of construction or the provision of Services as manager under the LMAs that was not before the Court.

80    In different circumstances where the subject matter of the directions was inextricably bound up with a wider dispute that was not explained to the Court, an incomplete statement of the nature and extent of the wider dispute may be a relevant matter against making directions. However, the subject matter of the present application is a discrete and pressing issue. Therefore, the directions will have utility in that respect.

The competing claims concerning the LMAs

81    SGCL submitted that the directions sought should not be given because the Receivers' case as to the construction was doubtful or there is a strong prima facie case that it is wrong. For the following reasons I do not accept that submission.

82    The key provision in the LMAs is cl 24 which confers a right to terminate. It is expressed in the following terms:

24.1    Grower's Right to Terminate

Notwithstanding clauses 2.1 or 10, by written notice to the Manager and the Lessor, the Grower may terminate this Agreement at any time after any of the following events:

(a)    breach (of a substantial nature) by the Manger or the Lessor of their respective obligations or covenants in this Agreement or any part of them and, if the breach is capable of remedy, failure by the Manager or Lessor (as the case may be) to remedy the breach within twenty eight (28) days after receiving written notice from the Grower to do so; or

(b)    the Manager or the Lessor committing an act of bankruptcy or going or being placed into liquidation (otherwise than solely for amalgamation or reconstruction) or in official management or if there are any meetings, arrangements or compositions with creditors or if a receiver, or a receiver and manager, is appointed over any part of the Manager's or the Lessor's assets or undertaking and is not removed or withdrawn within 30 days of the appointment; or

(c)    the Manager being removed as responsible entity under the Constitution.

24.2    Default by Lessor or Manager

The Grower's right to terminate this Agreement applies even if the default is committed by or in respect of only one of the Manager or the Lessor.

83    Clause 27.1 provides:

27.1    Appointment

By ordinary resolution, the Growers may appoint some other corporation or person as the new manager of the Project if the Manager:

(a)    is removed pursuant to clause 24.1; or

(b)    retires pursuant to clause 26.

Until the appointment is complete, the Manager must perform the Services and exercise all the powers conferred on the Manager under this Agreement.

27.2    New manager to execute deed

The corporation or person appointed as new manager must execute a deed whereby it undertakes to the Growers all obligations of the retiring Manager pursuant to this Agreement and the Constitution. The new manager may then exercise all the powers and enjoy all the rights and will be subject to all the duties and obligations of the Manager under this Agreement as fully as though such new manager had been originally named as a party to this Agreement and the Constitution.

84    As noted above, the LMAs comprise both the grant by Quintis Leasing to the Grower of a sub-lease of an individual timber lot and the appointment of SPL as manager to perform the obligations of the Grower under the sub-lease to care for the sandalwood trees on the timber lot.

85    Each LMA is structured with headings that refer to Part II: Sub-Lease of Leased Area and Part III: Management Agreement (although headings have been inserted for convenience only). There is a definition of the term Agreement which says that it 'means this Lease and Management Agreement'. There is a definition of Lease, but not Management Agreement. Both LMAs begin by referring to 'THIS LEASE AND MANAGEMENT AGREEMENT'. Therefore, the term Lease and Management Agreement used in the definition of Agreement appears to be a reference to the compendious phrase used by the parties to describe the LMA in its entirety. The definitions apply, unless the contrary intention appears.

86    SGCL says that the reference to Agreement in cl 24.1 means (a) Lease, or (b) Management Agreement (a term that, as I have noted, is not separately defined or used elsewhere in the LMA) or (c) the LMA in its entirety. Therefore, a Grower can give a notice terminating just the 'Management Agreement'.

87    Throughout the LMA there are a number of provisions that refer to the Agreement and termination of the Agreement. They are to be found in both the Lease and the Management Agreement parts of the LMA.

88    SGCL claims that a notice may be served by a Grower under cl 24 which terminates only the Management Agreement part of the LMA and that is what occurred when Mr Scott served his notices.

89    In its written submissions, SGCL said that cl 24 conferred a right to terminate the Management Agreement on any Grower. The consequence of that submission would be that a notice given by a single Grower would affect the rights of all Growers. A maverick or disaffected Grower could bring to an end the appointment of the Manager in circumstances where all other Growers were entirely satisfied with the performance of the Manager. Whereas it is logical that a single Grower might be able to terminate (as to that Grower) the LMA as a whole and withdraw from the whole project and avoid future obligations, a termination right that applied only to the 'Management Agreement' and affected all other Growers and required them appoint a new manager is quite uncommercial.

90    Significantly, there was no dispute that the provisions of the LMAs require there to be a single Manager for each project. Individual Growers had a right to collect produce from their timber lot, but otherwise they were all to appoint SPL as Manager and in the event that there was to be a new Manager it was to be a Manager for all Growers. A right of an individual Grower to terminate the Management Agreement as to its timber lot only and leave the sub-lease intact would be fundamentally inconsistent with this structure.

91    In oral submissions for SGCL it was said that a notice under cl 24 would only effect a termination if there was a subsequent resolution of Growers removing the Manager. So, the notice provided a trigger which could be confirmed by an ordinary resolution of Growers in accordance with cl 27.

92    However, the difficulty with that submission is the language in the relevant provisions of the LMAs.

93    First, cl 27.1 refers to appointment if the Manager 'is removed pursuant to clause 24.1'. This indicates that the removal is effected under cl 24.1, not by resolution of the Growers under cl 27.1.

94    Second, cl 27.1 states that until the appointment is complete, the Manager must perform the Services and exercise the powers conferred on the Manager under the LMA. A provision of this kind is only needed if cl 24.1 can operate to end the term of the Manager. If, as SGCL contends, a notice of termination under cl 24.1 is only a trigger that has no effect unless and until there is a resolution under cl 27.1 then there would be no need to provide for the Manager to have to continue to perform the Services.

95    Third, cl 24.1 refers to a Grower being able to terminate the Agreement if the Manager is 'removed' as the responsible entity under the constitution. Significantly, the power to appoint a new manager under cl 27.1(a) does not arise if the Agreement is terminated by a grower, but rather if the Manager is 'removed' pursuant to cl 24.1 (or retires pursuant to cl 26). The use of the term removed in cl 24.1(c) and cl 27.1(a) supports the submission advanced for SPL that cl 27.1(a) only contemplates the Growers appointing a new manager of the project if the Manager is removed as the responsible entity or retires. This would mean that the event of a Grower giving a notice of termination does not enliven the power of appointment under cl 27.1. It simply terminates the LMA as between that Grower and the sub-lessor and the Manager so it no longer has a sub-lease of its individual timber lot and therefore no need for a Manager (and no reason to appoint a new one).

96    On such an approach, if the Manager is removed as responsible entity then two separate matters arise. First, the Growers can resolve to appoint a new Manager, but the existing Manager must continue to perform the Services until that happens. Second, an individual Grower may terminate the LMA as it applies to that Grower and withdraw from the whole project. This does not trigger any need for a new manager because the termination does not operate as to other Growers.

97    Fourth, cl 24.1 provides that the Grower 'may terminate this Agreement'. If there was an intention that breach by the Manager might allow for termination only of the 'Management Agreement' aspects of the LMA then given the overall context it would be expected that cl 24.1 would use language other than 'terminate this Agreement'.

98    Fifth, two of the specified events in which a notice of termination may be given are 'breach (of a substantial nature) by the Manager or the Lessor' (cl 24.1(a)) and a specified insolvency event occurring in respect of 'the Manager or the Lessor' (cl 24.1(b)). Therefore, the clause itself differentiates between the Manager and the Lessor in specifying when there could be termination, but still uses the term Agreement in describing what could be terminated. This immediate context supports the conclusion that the only right of a Grower is to terminate the Agreement as a whole.

99    Sixth, cl 24.2 states expressly that the Grower's right to 'terminate this Agreement applies even if the default is committed by or in respect of only one of the Manager or the Lessor' (emphasis added). The existence of this provision supports the conclusion that there can be termination of the Agreement as a whole by notice.

100    Finally, cl 24.1 refers to termination by 'the Grower' and cl 27.1 refers to resolution by 'the Growers'. In the context of an agreement that applies severally to each Grower and the constitution providing for an LMA to be executed with each Grower, these differences are significant. The LMA as it applies to each Grower is likely to provide for a right of termination that can be exercised by an individual Grower. It is uncommercial for an individual Grower to be able to terminate the LMAs of other Growers.

101    These matters are sufficient to provide considerable support for the position of SPL. It is not the case that its construction is doubtful or likely to be wrong.

102    SPL advanced further contextual matters to support its position. It also claimed that if its construction was correct then the form of Mr Scott's notices was such that they purported to terminate for all Growers when his only right was to terminate as to his participation in the LMAs. Having reached the view that I have about the construction of cl 24 and cl 27 it is not necessary to consider the effect of the notices. SPL's position finds sufficient support in the terms of the LMAs that, in all the circumstances, it is justified in continuing to act as Manager given the need for steps to be taken to provide the Services.

Directions conditioned on proceedings being commenced

103    I am not satisfied that the directions should be conditioned on SPL commencing proceedings for declaratory relief. There is no suggestion that SGCL with the support of the Growers as its members would not be able to bring proceedings if it wishes to pursue its claim concerning termination. The Receivers should be free to decide whether there is a need to commence such proceedings.

The form of directions

104    In support of the directions to the effect that the Receivers can ignore Mr Scott's notices and the resolutions considered at the Grower's meetings, counsel for the Receivers did not point to any authority in which that form of direction had been made. However, counsel relied upon the form of order made in White v Huxtable [2006] FCA 559, which used the language 'it is not unlawful solely by reason of [certain specified matters] … for the plaintiffs to enter into the contract of sale': at [47]. This form was adopted after concern was raised by Young J as the limits on the court's power to give directions and consideration of the form of orders in other cases: at [22]-[28]. As Young J explained, it is a form that has been adopted by other judges.

105    I have some concern that a direction to the effect that particular conduct is not unlawful may be construed as having an effect beyond the provision of directions by way of judicial advice which, as the High Court has since explained in the Macedonian Orthodox Community Church case, does not determine matters beyond the steps that are appropriate for the person seeking the advice to take. In any event, in the circumstances of this case it would not be appropriate to provide advice in those terms. The lawfulness or otherwise of SPL in continuing as Manager under the LMAs is a matter in dispute and I do not consider that is a matter about which I should express a concluded view.

106    In my view, the concern is even greater where the form of directions sought is that the Receivers may ignore the notices of Mr Scott and the resolutions of the Growers. A direction in those terms tends to suggest that both the notices and the resolutions are empty acts of no significance at all. The Growers, in large numbers, have supported the resolutions. That is not a matter to be ignored in every respect. The notices given by Mr Scott and the resolutions of the Growers are not matters to be ignored in any dealings to resolve the dispute between the parties. Further, it is a matter for SGCL and the Growers as to whether they wish to take steps to enforce the claims that they have made as to the effect of the notices and the resolutions. If there was no pressing issue as to whether SPL should tend the trees, there would be much greater force in the submissions advanced for SGCL that this is a matter where no advice should be given and the parties should be left to resolve their dispute in the usual way.

107    Accordingly, I decline to make directions to the effect that those matters may be ignored.

108    As to performing the role as Manager under the LMAs, the form of direction sought is that the Receivers cause SPL to continue to perform the role of Manager. I have two difficulties with this form of direction. First, it is not expressed in terms that the Receivers would be justified in taking that course. Rather, the form suggests that the Court is directing that course to be followed. As I have indicated, the power of the Court under s 424 is confined to making directions in the form of judicial advice. Care must be taken in considering 'advice' cases on applications by liquidators or administrators or by trustees under the different provisions that apply. Some of those provisions confer a jurisdiction to go beyond simply providing advice (as did the provision under the Companies legislation in the United Kingdom concerning receivers). However, s 424 is confined to giving directions.

109    Second, by using the words 'continuing to perform' it adopts a form that could be construed to be continually speaking in the context of different circumstances that might arise in the future. I am not persuaded that the direction should be expressed in those terms. It should be clear that the direction is given in the context of the circumstances presented to the Court at this time. It would follow that if that continues to be the position then the direction would apply. However, it would not extend to materially different circumstances that might arise in the future that are of a kind that affect the legal position in relation the LMAs.

110    The form of direction that I will make is to the effect that the Receivers are justified in causing SPL to continue to perform the role of Manager and provide the Services under the LMAs.

111    I will hear from the parties as to the appropriate order as to costs.

Associate:    

Dated:    20 April 2018