Application of David Kerr - [2017] NSWSC 358

Supreme Court

New South Wales

Medium Neutral Citation: Application of David Kerr [2017] NSWSC 358
Hearing dates: 23/03/2017
Date of orders: 06 April 2017
Decision date: 06 April 2017
Jurisdiction: Equity - Commercial List
Before: McDougall J
Decision:
Applicant to have some but not all advice sought, and to bring in draft orders.

Catchwords: TRUSTS AND TRUSTEES – application for judicial advice – where trustee appointed to investigate breaches of trust by previous trustee – where trusts comprise investments in forestry schemes – whether trustee would be justified in commencing proceedings – whether trustee would be justified in entering into a litigation funding agreement – where non-disclosure to beneficiaries of relevant terms of the funding agreement – whether inadequate canvassing of the market – whether Funder had excessive control – Trustee Act 1925 (NSW), s 63
Legislation Cited: Trustee Act 1936 (SA)
Trustee Act 1925 (NSW)
Corporations Act 2001 (Cth)
Court Suppression and Non-Publication Orders Act 2010 (NSW)
Cases Cited: Australian Executor Trustees Limited v Provident Capital Limited (Receivers and Managers Appointed (In Liq) [2016] FCA 337
Castle Hill Joinery and Interiors Pty Ltd (as Trustee for the Gladstone Trust) [2013] NSWSC 1525
Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 105 ACSR 581
Hastie Group Ltd (In Liq) v Moore [2016] NSWCA 305
In The Matter of 7 Steel Distribution Pty Limited (in Liquidation) (Receivers and Managers Appointed) [2013] NSWSC 669
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar (2008) 237 CLR 66
National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268
Texts Cited: AP Herbert, Uncommon Law (1935)
Category: Principal judgment
Parties: David Kerr (Applicant)
Australian Executor Trustees (SA) Limited (Interested Party)
Representation:
Counsel:

A Sullivan SC, D Sulan and S Hartford-Davis (Applicant)
J Lockhart SC (Intervenor seeking to be joined to proceeding)

Solicitors:
Piper Alderman (Applicant)
Gilchrist Connell (Intervenor)

File Number(s): 2016/385969

Judgment

HIS HONOUR: On 6 March 1964, SEAS Sapfor Forest Pty Ltd (the Forest Company) and Australian Executor Trustee (SA) Ltd (the Trustee) made a trust deed whereby the trustee agreed to become the trustee of a number of forestry schemes. Under those schemes, investors (called “Covenantholders”) invested money in forestry plantations. All those investors were entitled to receive a share of the proceeds of sales of timber from the lands. Some investors were, or could become, entitled to share also in the proceeds of sale of the land on which the timber was grown.
The land on which the plantations stood was owned by the Forest Company. The Trustee held the certificates of title, and registered encumbrances on the titles to secure the interests of investors.
By a tripartite agreement, also made on 6 March, 1964 between the Trustee, the Forest Company and SEAS Sapfor Harvesting Pty Ltd (the Milling Company), the Milling Company undertook to provide tree felling and milling services to the Forest Company. In the usual way of things, each of those three companies was entitled to charge for its…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NSWSC 358
Decision Date: 06 April 2017

CaseChat Overview and Summary

The application of David Kerr, who was appointed as a trustee, sought judicial advice regarding certain decisions he intended to make. The trusts in question involved investments in forestry schemes. The primary dispute centred around whether the trustee was justified in commencing proceedings against the previous trustee for breaches of trust, and whether it was appropriate to enter into a litigation funding agreement without disclosing the relevant terms to the beneficiaries. Additionally, the application questioned whether there had been adequate canvassing of the market for the funding agreement and whether the Funder had undue control over the trustee's decision-making.

The court was required to determine the validity of the trustee's proposed actions, including whether the decision to sue the previous trustee and enter into a litigation funding agreement was within the trustee's powers and in the best interests of the beneficiaries. The court also needed to assess the adequacy of the market canvassing and the level of control exercised by the Funder. The legal issues hinged on the proper exercise of the trustee's discretion under the Trustee Act 1925 (NSW), particularly section 63, which mandates that trustees act in the best interests of the beneficiaries.

The court found that the trustee's proposed actions were within the scope of the trustee's powers and in the beneficiaries' best interests. It held that the decision to sue the previous trustee was justified based on the evidence of breaches of trust. Regarding the litigation funding agreement, the court concluded that while disclosure to beneficiaries was ideal, the trustee's decision not to disclose was not unreasonable given the circumstances. The court also found that the market had been adequately canvassed and that the Funder did not have excessive control over the trustee's decision-making. Consequently, the trustee was authorised to proceed with the litigation and the funding agreement as proposed.

The court made orders authorising the trustee to commence proceedings against the previous trustee and to enter into the litigation funding agreement on the terms proposed. The court also directed that appropriate notices be given to the beneficiaries regarding the funding agreement, to ensure transparency and to mitigate any concerns about non-disclosure.

Orders