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

1. 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.

2. 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.

3. 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 services, and what was left over was to be paid to the investors.

4. The Forest Company and the Milling Company were subsidiaries of Auspine Ltd (Auspine). Auspine was taken over by Gunns Ltd (Gunns) in 2008. Thereafter, the Forest Company and the Miling Company charged all their assets to secure debts owed to Gunns’ lenders.

5. After Gunns took over, it sought to raise cash to pay its debts. To facilitate that, the Trustee (so it is said) consented to the sale of the standing timber and the land on which it was grown, but failed to ensure that any part of the proceeds was retained for the benefit of investors. Likewise, the Trustee (so it is said) failed to ensure that the proceeds of timber harvests in the 2011 and 2012 financial years were paid to it for the benefit of investors.

6. The total said to have been lost to investors is of the order of $27.6 million from the sale of standing timber and land, and of the order of $16.2 million from the unpaid harvest proceeds.

7. By orders made on 15 July 2016 (and amended on 19 September 2016) at the suit of an investor, the present applicant, Mr David Kerr, was appointed as an additional trustee of the schemes. His appointment was for the purpose of investigating whether, as a result of the matters that I have briefly described, the investors had suffered loss as a result of breaches of duty on the part of the Trustee, and, if satisfied that it was appropriate to do so, to commence proceedings against the Trustee. The property vested in him is in effect the benefit of any rights that investors might have against the Trustee.

The application for judicial advice

8. Mr Kerr has completed his investigations, and has obtained the advice of Senior and Junior Counsel. He has concluded, as a result of his investigations and that advice (and I should stress that although the advice has been made available to the court on a confidential basis, Mr Kerr maintains privilege in it), that there are good arguable causes of action against the Trustee. Mr Kerr now seeks the opinion, advice or direction of the court as to whether:

1. he would be justified in commencing proceedings, the nature of those proceedings being identified by reference to a draft commercial list statement that has been tendered and marked as Exhibit PX1; and

2. he would be justified in entering into a litigation funding agreement with IMF Bentham Limited (the Funder) on the terms of an agreement dated 7 December 2016, a redacted and non-confidential copy of which is exhibit PX7 (an unredacted copy of that agreement is confidential exhibit PX4).

9. The opinion, advice or direction of the court was sought pursuant to either s 91 of the Trustee Act1936 (SA) or s 63 of the Trustee Act 1925 (NSW). I have some difficulty in seeing how this court can give advice pursuant to the former section; whether or not that difficulty is real is a matter that was not explored in the course of submissions. In any event, since Mr Kerr has made his application for advice to this court and is thus subject to its jurisdiction, it would appear to be reasonably clear that s 63 of the Trustee Act of this state is available.

10. The Trustee was a party to the proceedings last year in which Mr Kerr was appointed. The only outstanding issue in those proceedings is whether the Trustee should have its costs, out of the assets of the schemes. The parties agreed that it should. They were right to do so. The Trustee appeared on the hearing, and provided assistance to the court, without trespassing into areas where it could be seen to have had a conflict of interest.

11. The Trustee was not named as a defendant in the application for judicial advice. It sought to be added as a party. It appeared, in the course of submissions, that the real reason why the Trustee sought to be added as a party was so it could recover its costs of these proceedings also, out of the assets of the schemes. Mr Kerr did not oppose such an order. Again, the Trustee (through Mr Lockhart of Senior Counsel, who appeared for it) provided valuable assistance to the court, on questions that did not trespass upon any area of potential conflict. I am satisfied that it should have its costs.

12. Because the scope of the advice sought by Mr Kerr in relation to commencing proceedings has now been narrowed, by reference to exhibit PX1, the concerns raised by the Trustee as to the scope of that aspect of the advice need not be considered. I am satisfied, on the basis of all the material (including the advice of Counsel, which I have read and considered) that Mr Kerr is entitled to the advice sought, as to commencing proceedings.

13. As to the proposed funding agreement, the Trustee raised a number of concerns. One was that the funding agreement did not appear to extend to the situation where, for whatever reason[1] , the Trustee might become entitled to recover its costs out of the schemes’ assets. The Trustee submitted that if such an order were made, it would be entitled to a full indemnity out of those assets, but the consequence would be that the assets available to investors would be diminished. The Funder has now agreed that, should a costs order be made in favour of the Trustee against Mr Kerr under which the Trustee is entitled to be recouped on the indemnity basis, it will pay all those costs. It has executed a deed poll to that effect. The Trustee accepts that this is sufficient to dispose of the question of the extent of the costs indemnity.

    1. See National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268 at 277.

14. The other concerns raised by the Trustee are that:

1. because only the redacted version of the funding agreement has been made available to investors, they have not been given all the information that they require to enable them to make an informed decision. Specifically, the Trustee submitted, the investors were not given any information to enable them to assess the percentage return (that is to say, the percentage of any damages awarded in favour of Mr Kerr) that the Funder might become entitled to be paid; likewise, the “Project Management Fee” that might become payable to it.

2. Mr Kerr had not adequately tested the market for funding, so that the court could not be satisfied that he had obtained the best deal possible in the interests of investors.

3. The funder appeared to have an excessive degree of control over the proceedings to be brought by Mr Kerr, and conversely, Mr Kerr appeared to have insufficient control.

Principles relevant to applications for judicial advice

15. Mr Sullivan of Queens Counsel, who appeared with Mr Sulan and Mr Hartford-Davis of Counsel for Mr Kerr, submitted, in relation to the funding agreement, that assistance could be gained by considering applications under ss 477(2)(B) or 479(3) of the Corporations Act2001 (Cth) [2] .

    2. Those sections appear in Division 2 of Part 5.4B of the Corporations Act. Mr Sullivan referred also to s 506(1A) (which effectively brings s 477(2A), (2B) into Division 4 of Part 5.5) and s 511.

16. Mr Sullivan submitted that the court would not generally review a liquidator’s commercial judgment or second-guess his or her decision. He submitted that the court would not intervene unless there were circumstances such as lack of good faith, error of law or principle, or some real ground for doubting the prudence of the liquidator’s decision. He referred to what Bathurst CJ said in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [3] .

    3. (2015) 105 ACSR 581 at [125].

17. Mr Lockhart referred to decisions that showed both the distinction between ss 477(2B) and 511 and the importance, for the purposes of the latter section, of evidence that a liquidator seeking approval to enter into or perform a funding agreement had properly canvassed the market for litigation funding. He referred, among other cases, to the decisions of Black J in In The Matter of 7 Steel Distribution Pty Limited (in Liquidation) (Receivers and Managers Appointed)[4] and Rares J in Australian Executor Trustees Limited v Provident Capital Limited (Receivers and Managers Appointed (In Liq)[5] .

    4. [2013] NSWSC 669.

    5. [2016] FCA 337.

18. Mr Lockhart submitted, further, that the court should not act in such a way as to displace the liquidator’s (or in this case, Mr Kerr’s) responsibility to exercise his or her commercial judgment [6] .

    6. He cited Black J in 7 Steel Distribution at [21] to [23].

19. Mr Sullivan and Mr Lockhart referred to other decisions setting out considerations, as to the approval of funding arrangements between a liquidator and a commercial litigation funder, thought to be relevant in the particular case. It is not necessary to go to the detail of the submissions or the decisions.

20. I do not think that it is of great assistance to refer to decisions setting out particular considerations thought to be important in applications, based on particular facts, made under other legislation, and to seek to proceed by way of analogy with, or to generalise from, those decisions to the present application. What is required in each case (and what is required in an application under s 63) is a consideration of all the relevant circumstances, taking into account the nature and scope of the power and the purposes for which it is given.

21. In the present case, the application is, as I have said, one to be dealt with under s 63 of the Trustee Act. As the plurality pointed out in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar [7] , there is only one jurisdictional bar to relief under s 63: there must be shown “the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument”. And further, as their Honours said[8] , there are neither express nor implied limitations on the discretionary factors that the court may consider in a particular case, nor are “some discretionary factors always more significant or controlling than others”.

    7. (2008) 237 CLR 66 at [58] (Gummow ACJ, Kirby, Hayne and Heydon JJ).

    8. At [59]; and compare [56].

22. In Castle Hill Joinery and Interiors Pty Ltd (as Trustee for the Gladstone Trust)[9] Darke J referred to the plurality reasons in the Macedonian Orthodox Community Church case and said[10] , in words with which I respectfully agree, that:

Once the jurisdictional requirement is satisfied the Court has a discretion to provide advice of the kind contemplated by the section. The discretion is confined only by the subject matter, scope and purpose of the legislation … .

9. [2013] NSWSC 1525.

10. At [18].

Non-disclosure of relevant terms of the funding agreement

23. The terms that were redacted were:

1. the definition of “Date of Funding Commencement”;

2. the definition of “Preliminary Funding Agreement;

3. paragraphs (i) and (j) of the definition of “Project Costs”;

4. the percentage component of the definition of “Project Management Fee” (that fee is to be calculated as a stated percentage of the Total Project Costs);

5. clauses 3.3, and 3.5 to 3.8 (together with part of the heading to cl 3) which, between them, refer to and set out various provisions relating to Conditions Precedent (the definition of that expression is also redacted);

6. percentage figures referred to in cls 6.6, 6.7 and 6.8 (which set out increments to the percentages entitled to be charged by the Funder in the event that additional respondents are joined to the proceedings);

7. a figure in cl 9.3 (specifying an additional percentage in the event that there is an appeal);

8. percentage figures set out in cl 10.1.4 (which provides for increases in the funder’s percentage entitlements, depending on the time taken to achieve resolution of the proceedings;

9. clause 7.2 of Schedule 1A (setting out the amount of insurance to be held by the lawyers, and the time for which it is to be held);

10. a table set out in cl 4 of Schedule 1B (setting out the hourly rates to be charged by Mr Kerr or his colleagues); and

11. Schedule 3 (which sets out the budget for legal costs).

24. Mr Sullivan did not seek to justify the redactions on the ground of privilege[11] . The redactions were sought to be justified only on the basis that the material in question was commercially sensitive, and that the Trustee might gain some tactical advantage in any ensuing litigation, were it to become aware of the matters that have been redacted. For the reasons that follow, I do not agree.

    11. As to which, see for example Hastie Group Ltd (In Liq) v Moore [2016] NSWCA 305.

25. Further, I find it impossible to see any justification, based on commercial confidentiality, for many of the redactions. I have tried nonetheless to put out of my mind the natural human propensity to reason that over-enthusiastic, and unsupportable, claims (whether for confidentiality or otherwise) are not merely discreditable in themselves, but also tend to discredit claims that, otherwise, might be thought to have some merit [12] .

    12. Compare AP Herbert, Uncommon Law (1935), “Is it a Free Country?”: “It is like the thirteenth stroke of a crazy clock, which not only is itself discredited but casts a shade of doubt over all previous assertions.”

26. The claim to confidentiality in respect of paras (i) and (j) of the definition of Project Costs is no longer pressed.

27. I do not understand why there is such a degree of confidentiality attaching to the definitions of Condition Precedent and Date of Funding Commencement that investors (and, for that matter, the world at large) should be prevented from knowing them. Mr Sullivan submitted that if those terms (and others, in respect of which confidentiality is claimed) were made known to investors, the Trustee would, almost inevitably, come to know of them also. In those circumstances, Mr Sullivan submitted, the Trustee would gain a tactical advantage in the litigation that is to ensue. I have to say that, for the great majority of the provisions in respect of which confidentiality is claimed, I do not understand that submission.

28. The definition of Conditions Precedent simply refers the reader to the relevant clause of the agreement. The definition of Date of Funding Commencement simply says when it is that the lender agreed to commence to fund Mr Kerr. Even if those matters could be described, in some way, as confidential, it is impossible to understand how knowledge of them could give the Trustee any, let alone any illegitimate, tactical advantage.

29. Likewise, the definition of Preliminary Funding Agreement simply tells the reader what was the agreement under which or pursuant to which the Funder agreed to fund Mr Kerr’s initial investigations. Again, I do not see how the Trustee could be given some, let alone any illegitimate, advantage by knowing what in any event it can infer, from having been a defendant in the proceedings whereby Mr Kerr was appointed.

30. Essentially the same point applies to the redactions to cl 3. They make the obvious point that there are conditions precedent, say what those conditions precedent are, and set out rights that the parties have in respect of them.

31. I pass over, for the moment, the various percentage entitlements (and augmentations thereto) and move to the rates to be charged by Mr Kerr and his colleagues. How can it be said that knowledge of what a senior and respected insolvency practitioner, and a senior employee of his (or his partnership) will charge gives the Trustee any, let alone any illegitimate, tactical advantage? Mr Sullivan’s submissions did not answer this question.

32. I can understand that a litigation budget might be privileged, if there could be gleaned from it the content of any advice or other relevantly protected legal services provided, or to be provided, by Mr Kerr solicitors and counsel. But the budget does not do this. It sets out, in an orthodox way (as is often seen on applications for security for costs), the steps that are expected to be taken, and the costs that are expected to be incurred in respect of each of them. The budget reveals, not surprisingly, that Mr Kerr has every reason to think that the total costs will be very substantial. But with the greatest of respect to those who claimed that the budget ought be protected, that news could hardly come as a surprise to anyone with the slightest experience of complex commercial litigation.

33. I am prepared to accept that at any given stage, the amount of costs that each party has incurred (or may be assumed to have incurred) would be something that bears upon a decision whether to attempt to resolve the dispute by negotiation. But again, the precise quantum of costs is not the relevant consideration; what is important is, as anyone with any experience of complex commercial litigation knows, that costs mount very substantially as the case progresses towards trial. That is hardly an earth-shattering secret; far less a secret that need be protected.

24. The redaction of details as to the amount and duration of the professional indemnity insurance to be held by the lawyers is puzzling. What is the element of confidentiality to be protected? What benefit could knowledge of those details give the Trustee? The submissions for Mr Kerr provided no answer to these questions. The crazy clock comes to mind once more.

25. Conversely, all the matters that I have discussed so far are matters that the investors were entitled to know, before making whatever decision they did, and signified to the trustee. Whether or not those matters, individually or collectively, would have had any impact on the decisions that any individual investor made, I do not know. It may be thought, perhaps, that investors would not be concerned with the minutiae of the funding agreement. They might perhaps be concerned with the amount of costs likely to be recovered. They would certainly, I think, be concerned to know how much of any recovery ultimately achieved (whether by settlement or by litigation) would flow through to them. And that leads to the category of redactions that I passed over: those bearing on the amount of the Funder’s entitlements.

26. There are at least two ways of looking at this. One is that the investors cannot make an informed decision unless they know how much (in percentage terms) of any recovery is likely to flow through to them. The other is that, from the perspective of investors, it is all upside and no downside, because at present they have nothing, and in the future they may acquire something without further expense on their part. It may perhaps be that there are intermediate positions as well.

27. That having been said, Mr Kerr has proceeded to date on the basis that the investors are entitled to make an informed decision, and that he should take into account the views that they express. I do not see how the investors could make an informed decision unless they are given the means of knowing what, in percentage (if not dollar) terms is likely to be the benefit to them of giving their approval to the institution of proceedings.

28. In this context, I note that Mr Kerr’s affidavit sworn 2 March 2017 deals with the steps taken by him to inform investors of what he was doing and contemplating doing. He said[13] that, among other things, he has “launched a website… for the purpose of informing Covenantholders of the proceedings and providing updates with all the relevant information including… the Litigation Funding Agreement”. In fact, what was made available was the redacted version to which I have referred. It follows that Mr Kerr has not in fact made “all the relevant information” available, because he has not given the investors the financial details of his arrangements with the Funder. The result, as I have said, is that the investors have not been able to ascertain, from the material provided to them, what in percentage terms they are likely to achieve from any recovery.

    13. At [15].

29. It may be assumed, although I do not decide, that the remuneration agreements made between Mr Kerr and the funder (that is to say, the arrangements for the funder’s remuneration) could be described as commercially confidential. But even making that assumption, the simple fact is that they go to the heart of the investors’ interest: the extent to which any recovery of (and augmentation to) trust property will flow through to them. I do not accept that whatever commercial confidentiality may attach to those arrangements provides any justification for keeping investors in the dark.

30. Nor do I accept that the Trustee is likely to gain any tactical advantage in the litigation that may ensue, if it becomes aware that the fee payable to the funder is X percent, rising by increments as time passes, and enhanced by further increments in the circumstances described in cls 6.6 to 6.8 and 9.3. Even without knowledge of the precise figures, their general import – that the level of risk grows as more respondents are added, or if the matter goes on appeal, and that the level of exposure grows as time passes and costs mount – could hardly come as a surprise to anyone in the position of the Trustee, or any competent legal adviser to it.

31. In short, I do not consider that such commercial confidentiality as the relevant figures may have provides any justification for withholding them from investors. Nor do I think that the risk (be it merely risk, merely or near-certainty) that the Trustee will come to know of them provides any justification for keeping investors in the dark.

32. For those reasons, I conclude that:

1. the relevant financial provisions that have been redacted do not have such confidentiality as to warrant their being withheld from investors;

2. if the investors are to make an informed decision, they must know what those figures are;

3. the prospect that revelation of those figures to the investors will lead to their being passed on to the Trustee provides no justification for withholding those figures from investors; and

4. even if the Trustee does become aware of the detail of those figures, it will not obtain any illegitimate tactical advantage thereby.

43. Having so concluded, I am not at present prepared to advise Mr Kerr that he would be justified in entering into the funding agreement.

44. I am conscious that the commercial reality is that proceedings will not be commenced unless a funding agreement of some sort is in place. Unfortunately, I am not yet satisfied that it is appropriate to give the advice sought in respect of the funding agreement, in light of the way that what I consider to be important information has been withheld from investors.

Inadequate canvassing of the market?

45. Mr Kerr accepts that he has not canvassed the market. His answer is that the charges that the Funder proposes to levy are, as it were, “within the range”. Mr Kerr is an experienced insolvency practitioner. He has sworn, although as I have said in conclusory terms, that he does not think that it would be worthwhile to canvas other funding options[14] :

32.   I have not canvassed other funding options because:

32.1   I consider it is unlikely that I would be able to achieve materially better commercial terms from a competitor of IMF Bentham. In my experience funders adopt broadly identical risk parameters in their assessment of claims and accordingly the funding commission charged by litigation funding businesses are all within a similar band;

32.2   Introducing a new funder to the matter at this stage would most likely cause delay and additional costs in the pursuit of Covenantholders’ entitlements.

14. Affidavit sworn 23 December 2016, at [32].

46. Mr Lochart criticised the conclusory nature of that evidence. However, he did not seek to cross-examine Mr Kerr on it. It may be said that, as the Trustee was not a party, Mr Lockhart had no right to cross-examine. If that objection were taken, it is likely that I would have joined the Trustee, on the basis that the court should have as much information as possible before coming to a decision, and technical objection should not stand in the way of that course. But as I have said, the evidence was unchallenged.

47. I do accept that if Mr Kerr were required to seek other funding options, there would be delay and additional cost. I accept, further, the point made by Mr Sullivan in submissions that it was at the very least unclear who would pay for the costs of canvassing other options. It may confidently be predicted that the Funder is unlikely to do so.

48. There is one matter of concern. The preliminary funding agreement provided that if Mr Kerr were to proceed using another litigation funder, the Funder could recover its Project Cost plus interest out of any settlement. That agreement was varied. It now provides that, if Mr Kerr proceeds using another litigation funder, the Funder would be able to recover its Project Cost plus interest immediately. The effect of the amendment is, if not to lock in the Funder as the only funder for litigation, at least to give it a position of very considerable commercial advantage.

49. Mr Kerr has not explained why that variation was thought to be desirable. Equally, he was not cross-examined on it. The commercial result is that his ability to canvass the market (perhaps more accurately, the commercial likelihood that canvassing the market will produce any better outcome) has been adversely affected. Although I do not regard that as decisive on the present application, it is a matter of some concern, and must be weighed in any ultimate decision that the court makes.

50. However, accepting that problem, I am nonetheless satisfied, on the basis of Mr Kerr’s evidence, that his decision not to canvass the market would not of itself justify withholding the advice sought in respect of the funding agreement.

The Funder’s degree of control

51. In my view, this is a non-issue. It is quite clear that the Funder will have the day to day control of any litigation that is commenced. That is perhaps unsurprising, given its substantial financial stake (both as to outlays and as to return) in the proceedings. However, Mr Kerr has the ultimate right of control. I set out cls 11.3 and 11.4 of the Funding Agreement:

11.3   IMF will give day to day instructions concerning the Claims and the Proceedings, however the Trustee may override the instructions given by IMF by the Trustee giving instructions to the Lawyers.

11.4   Except in relation to settlement, which is dealt with below, if the Lawyers notify IMF and the Trustee that the Lawyers believe that circumstances have arisen such that they may be in a position of conflict with respect to any obligations they owe to IMF and those they owe to the Trustee, the Trustee and IMF agree that, in order to resolve that conflict the Lawyers may:

11.4.1   seek instructions from the Trustee, whose instructions will override those that may be given by IMF;

11.4.2   give advice to the Trustee and take instructions from the Trustee, even though such advice and instructions are, or may be, contrary to IMF’s interests; and

11.4.3   refrain from giving IMF advice and from acting on IMF’s instructions, where that advice or those instructions are, or may be, contrary to the Trustee’s instructions.

52. I am confident that Mr Kerr’s legal advisers (who of course are officers of the court) would be cognisant of the potential for conflict, and would be alert to advise Mr Kerr if, in their opinion, a position of conflict arises or is likely to arise. I see no reason to think that, having been given such advice, Mr Kerr would be derelict in his duty as trustee. On the contrary, I think, if he were satisfied that there was a position of conflict which required him to exercise his rights under cl 11.4, he would do so.

Conclusion and orders

53. For the reasons I have given, I am satisfied that it is appropriate to give Mr Kerr advice that he would be justified in commencing and prosecuting proceedings against the Trustee in respect of the subject matters identified in the draft commercial list statement. I am also satisfied that it is appropriate to appoint him as an additional trustee to do so, and to direct that the choses in action vested in him already be held by him for that purpose.

54. I am not presently satisfied that it is appropriate to advise Mr Kerr that he would be justified in performing the funding agreement. Nor am I satisfied that a suppression order should be made[15] in respect of that funding agreement. Further, I am satisfied that the confidentiality order already made in respect of it should be lifted.

    15. Pursuant to s 7(b) of the Court Suppression and Non-Publication Orders Act 2010 (NSW).

55. It is appropriate to provide, also, that costs (of Mr Kerr and the Trustee) to date be paid out of the assets of the schemes, and to reserve for further consideration the question of advice in respect of the funding agreement. That last order would require the matter to be adjourned to some date by when (if it is to happen), Mr Kerr can communicate to investors, in whatever way he thinks fit, the unredacted terms of the funding agreement, and obtain their responses.

56. The only orders I make at this stage are:

1. direct the applicant to bring in draft orders to give effect to these reasons.

2. stand matter over to 10:00am on 7 April 2017 before me for the making of orders and for directions.

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Endnotes

Decision last updated: 06 April 2017