Baymill Investments Pty Ltd v Drewlock Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2019 02710

IN THE MATTER OF AN APPLICATION BY BAYMILL INVESTMENTS PTY LTD (ACN 010 225 742) (AS TRUSTEE FOR THE BAYMILL UNIT TRUST) FOR JUDICIAL ADVICE AND DIRECTIONS UNDER RULE 54.02 OF THE SUPREME COURT (GENERAL CIVIL PROCEDURE) RULES 2015 (VIC)
BAYMILL INVESTMENTS PTY LTD (ACN 010 225 742) (AS TRUSTEE FOR THE BAYMILL UNIT TRUST)	Plaintiff
v
DREWLOCK PTY LTD (ACN 010 709 485)	Defendant

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JUDGE:	SLOSS J
WHERE HELD:	Melbourne
DATES OF HEARING:	23 October 2019 and 12 November 2019 (further affidavit material filed on 2 December 2019)
DATE OF JUDGMENT:	18 December 2019
CASE MAY BE CITED AS:	Baymill Investments Pty Ltd v Drewlock Pty Ltd
MEDIUM NEUTRAL CITATION:	[2019] VSC 827

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TRUSTS – Judicial advice – Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – Unit trust – Entity registered as unit holder had charged units in favour of the trustee in its personal capacity – Where unit holder was subsequently deregistered – Defendant claimed units were transferred to it prior to unit holder being deregistered – Where uncertainty as to the ownership of units in the trust – Parties entered into a settlement agreement to resolve uncertainty as to ownership of the units – Where judicial advice sought is condition precedent to settlement agreement – Where trustee seeks judicial advice as to whether it is justified in enforcing its charge over units in the trust and amending the register of unit holders to record it or its nominee as the registered holder of the units in circumstances where there exists a potential conflict between its duties as trustee and interests as chargee

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Dr O Bigos S.C.	Arnold Bloch Leibler
For the Defendant	No appearance for the defendant

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 4

Establishment of the Baymill Unit Trust and the Broadlakes Development....................... 4
Westpac security........................................................................................................................... 7
Baymill loan(s) to Harris secured by charge(s) granted by Danesbrook.............................. 7
9 January 1992 – original loan agreement entered into.................................................. 7
31 August 1995 - deed of variation and acknowledgement entered into.................... 8
31 August 1995 - Danesbrook grants a fixed and floating charge in favour of Baymill 9

Drewlock replaces Danesbrook as trustee of the Danesbrook Trust................................... 10
Danesbrook’s receivership, liquidation and deregistration................................................. 10
Drewlock asserts an interest the 32 units in the Baymill Unit Trust originally held by Danesbrook.............................................................................................................................................. 12
First directions hearing on 20 September 2019....................................................................... 17
Settlement Deed entered into on 19 September 2019............................................................. 19
Amended originating motion filed on 26 September 2019................................................... 22
Hearing on 23 October 2019...................................................................................................... 22
Deed amending the Settlement Deed made on 4 November 2019...................................... 24
Role of ASIC................................................................................................................................. 24

Baymill’s application for judicial advice.................................................................................... 28

Further hearing on 12 November 2019.................................................................................... 28
Third Hedin affidavit filed on 2 December 2019.................................................................... 28
As there is no opposition to the orders sought, Baymill submits the Court should provide the judicial advice.................................................................................................................... 29

The Court’s power under rule 54.02............................................................................................. 31

The judicial advice sought in the present case........................................................................... 33

Judicial advice sought in respect of enforcement of the charge........................................... 38
The two registered unit holders................................................................................................ 39
The Trust Deed............................................................................................................................ 39
Baymill Loan Agreement and charge...................................................................................... 39

Conclusion......................................................................................................................................... 41

HER HONOUR:

Introduction

This proceeding concerns an application for judicial advice and directions under r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’), brought by the plaintiff, Baymill Investments Pty Ltd (‘Baymill’) in its capacity as trustee of the Baymill Unit Trust (‘the Baymill Unit Trust’).

The plaintiff initiated the proceeding by originating motion filed on 12 June 2019,[1] in circumstances where there was uncertainty as to the identity of the person entitled to be recorded on the register of unitholders of the Baymill Unit Trust as the holder of the 32 units previously issued to Danesbrook Investments Pty Ltd (‘Danesbrook’), a company associated with Mr James Aloysius Harris (‘Mr Harris’). The uncertainty arose from the following circumstances:
[1]But which erroneously bears the date 17 June 2019.

(a) At all relevant times since the Baymill Unit Trust was established, Danesbrook has been recorded on the register as the holder of 32 units, notwithstanding that Danesbrook was placed in external administration on 7 February 1997, wound up by the court on 28 April 1997, and deregistered on 21 September 1999.

(b) On 25 September 2017, Drewlock Pty Ltd (‘Drewlock’), another company associated with Mr Harris, wrote to the plaintiff and requested that it update the register of unitholders to record Drewlock (in place of Danesbrook) as the holder of the 32 units in the Baymill Unit Trust. Relevantly, Drewlock asserted that prior to Danesbrook being placed in external administration, it became the trustee of the Danesbrook Trust in place of Danesbrook on 10 January 1997.

(c) As a separate matter, Baymill was also seeking to enforce charges (that were given to it in its personal capacity) under the Baymill Loan Agreement dated 9 January 1992 and the Fixed and Floating Charge Deed dated 31 August 1995 (as read with the Deed of Variation and Acknowledgment dated 31 August 1995) over the 32 units currently recorded in the register of unitholders as being held by Danesbrook.

Accordingly, the plaintiff commenced this proceeding, naming Drewlock as the defendant, and seeking a direction from the Court pursuant to r 54.02 of the Rules as to whether Baymill (as trustee) is justified in amending the register of unitholders to record Drewlock (or alternatively, Baymill) as the holder of the 32 units previously issued to Danesbrook, or alternatively, taking such other course of action as the Court may direct. In the originating motion, the plaintiff stated that in addition to serving Drewlock, it also intended to serve a copy of the originating process on the Australian Securities and Investments Commission (‘ASIC’) and the Commonwealth of Australia (‘Commonwealth’).[2]
[2]Having regard to the deregistration of Danesbrook and ss 601AD(1A) and 601AD(2) of the Corporations Act 2001 (Cth).

Once the proceeding was commenced, a number of developments took place which necessitated further (iterative) amendment of the relief sought in the originating motion. Relevantly, on 19 September 2019 the plaintiff entered into a deed of settlement with Drewlock and Mr Harris, resolving any disputes between them. But in the deed of settlement, the operative provisions are expressed to be subject to ‘Conditions Precedent’ which effectively make the settlement conditional upon Baymill applying for, and the Court giving, directions in this proceeding to the effect sought in its further amended originating motion.

Against that background, following the hearing on 12 November 2019,[3] the position now reached is that Baymill seeks directions from the Court pursuant to r 54.02 of the Rules to the effect that it is justified in:
[3]At which counsel for the plaintiff foreshadowed further amendments to its further amended originating motion filed on 28 October 2019. Those amendments are set out in the minute of proposed order emailed to the Court by the plaintiff’s solicitors on 2 December 2019.

(a) enforcing the charges granted to it under the Baymill Loan Agreement dated 9 January 1992 and the Fixed and Floating Charge Deed dated 31 August 1995 (as read with the Deed of Variation and Acknowledgment dated 31 August 1995) over the 32 units currently recorded in the register of unitholders as being held by Danesbrook Investments Pty Ltd (ACN 010 212 861);

(b) itself or its nominee taking possession and accepting a transfer of those units; and

(c) amending the register of unitholders of the Baymill Unit Trust so as to record Baymill or its nominee, as the case may be, as the unitholder of those units and issuing a certificate for those units for the same,

in circumstances where Baymill is and has been at all relevant times, the trustee of the Baymill Unit Trust, such that there is at least a perceived conflict between its duty as trustee and its interest as chargee.

The plaintiff also seeks orders that the proceeding otherwise be dismissed and that it be indemnified in respect of its costs of this application up to 26 September 2019[4] from the trust property of the Baymill Unit Trust, but otherwise that there be no order as to costs.
[4]When it filed its amended originating motion.

The application[5], the amended application[6] and the further amended application[7] and the supporting material has also been served on both ASIC and the Commonwealth, and the liquidator of Danesbrook, Mr Trevor John Schmierer.
[5]Filed on 17 June 2019.
[6]Filed on 26 September 2019.
[7]Filed on 28 October 2019.

The orders sought by the plaintiff are consented to by Drewlock. Pacific Shopping Centres Pty Ltd (‘Pacific Shopping Centres’), the other unit holder, also consents to the orders. ASIC, which also acts on behalf of the Commonwealth, has advised that it does not oppose the proposed orders. The liquidator of Danesbrook has not responded to the correspondence from Baymill’s solicitors.

For the following reasons, I am satisfied that it is appropriate for the Court to give the directions in, or substantially in, the terms sought.

Background

The factual background giving rise to the plaintiff’s application is set out in the nine supporting affidavits upon which it relies. The first and second are the affidavits of Ms Jillian Annette Hedin, the business manager of the Pacific Group of Companies (of which Baymill is a member), affirmed on 11 June 2019 and 6 November 2019 (respectively the first and second Hedin affidavits). The third, fourth, fifth, sixth and seventh are the affidavits of Ms Juliette Betty Dreverman of Arnold Bloch Leibler, solicitors for the plaintiff, affirmed on 19 September 2019, 26 September 2019, 22 October 2019, 6 November 2019 and 7 November 2019 (respectively the first, second, third, fourth and fifth Dreverman affidavits). The eighth is the affidavit of Mr Harris sworn on 4 November 2019 (‘Harris affidavit’) and filed on behalf of the defendant. The ninth is a further affidavit of Ms Hedin affirmed on 27 November 2019 and made on behalf of Baymill, Pacific Shopping Centres and Pacific Shopping Centres Australia Pty Ltd (the third Hedin affidavit).

The relevant background is set out below.

Establishment of the Baymill Unit Trust and the Broadlakes Development

On 7 April 1981, Baymill was incorporated.[8] A trust deed was also executed on 7 April 1981 under which the Baymill Unit Trust was established and Baymill was appointed as trustee (‘Baymill Unit Trust Deed’).[9] Baymill is, and has been at all relevant times, the trustee of the Baymill Unit Trust.
[8]Hedin affidavit, exhibit ‘JH-1’. According to the copy of the ‘current and historical’ company search of Baymill exhibited to Ms Hedin’s first affidavit, the current directors of Baymill are Samuel Jonathan Alter (appointed 30 January 1989) and James Aloysius Harris (appointed 7 April 1981) and the secretary is Peter Robert Gome (appointed 1 March 2017), and Baymill has 10 issued shares of which seven shares are held by Pacific Shopping Centres and the remaining three shares are held as to one each by Mr Harris, Harold Arthur Magil and John Leslie Lyons.
[9]Ibid, exhibit ‘JH-2’.

The Baymill Unit Trust Deed provides, amongst other things, that:[10]
[10]Hedin affidavit, exhibit ‘JH-2’.

(a) each person who becomes registered as a Unit Holder shall be deemed to have agreed to become a party to the Baymill Unit Trust Deed (clause 7(b));

(b) the trustee shall keep a register of unit holders (clause 9(a));

(c) the trustee is to issue certificates to unit holders (clause 9(b));

(d) the person whose name is entered in the Unit Holders Register is the holder of the units regardless of whether they are held on trust, and the Unit Holders Register may mark units as held on trust, although in doing so no liability shall be created by the marking and the trustee shall not be affected with notice of any trust recorded (clause 9(c));

(e) a unit holder shall not mortgage or give security over a unit without the consent of the trustee and of a majority of unit holders (clauses 14(a) and 13(f)), and a unit holder that does so without that consent is deemed to have served a transfer notice in respect of its units (clause 14(b)(xiii)); and

(f) nothing in the Trust Deed shall prevent the trustee (or any subsidiary or the directors of officers of any of them) ‘from subscribing for purchasing holding dealing in or disposing of Units’ or ‘entering into any insurance financial banking agency or other transaction with any other of them or any Unit Holder or any company whose shares form part of the Trust Fund or from being interested in any such contract or transaction or otherwise’ (clause 54).

The initial unit holders were Danesbrook (holding 32 units), Pacific Shopping Centres (holding 60 units) and Apollo Corporate Enterprises Pty Ltd (‘Apollo’) (holding 8 units). On 26 June 1987, Pacific Shopping Centres acquired Apollo’s 8 units in the Baymill Unit Trust, following which the unitholders of the trust were Danesbrook (holding 32 units[11]) and Pacific (holding 68 units).
[11]The register of unit holders in the Baymill Unit Trust records the 32 units as held by Danesbrook, but does not specifically record that those units are held by Danesbrook in its capacity as trustee of the Danesbrook Trust. It is however asserted by Drewlock that those units were in fact held by Danesbrook in its capacity as trustee: see first Hedin affidavit, exhibit ‘JH-9’ page 3.

On 7 April 1981, a discretionary trust deed was also executed under which Danesbrook was appointed as trustee of the Danesbrook Investments Trust (‘Danesbrook Trust’).[12] Mr Harris has been director of Danesbrook from its incorporation on 11 March 1981.
[12]First Hedin affidavit, exhibit ‘JH-9’ page 70.

On or about 30 April 1981, a unit holders agreement in respect of the Baymill Unit Trust was entered into between Baymill, Pacific Shopping Centres[13], Danesbrook[14], Apollo[15] and the directors of Baymill amongst others (‘Unit Holders Agreement’).[16] The recitals to the Unit Holders Agreement record that Baymill carries on the business of purchasing, developing and selling land, and - upon completion of a contract of sale dated around April 1981 - that Baymill would become the registered proprietor of a parcel of land in Queensland known as the Broadlakes Development. The Unit Holders Agreement relevantly provides as follows:
[13]In the description of the parties, the agreement stated that Pacific Shopping Centres ‘contracts for and on behalf of THE ALTER PROVIDENT TRUST … so as to bind itself and its successors in the office of trustee or trustees of the said Trust’.
[14]In the description of the parties, the agreement stated that Danesbrook ‘contracts for and on behalf of THE DANESBROOK No 1 TRUST … so as to bind itself and its successors in the office of trustee or trustees of the said Trust’.
[15]In the description of the parties, the agreement stated that Apollo ‘contracts for and on behalf of THE APOLLO TRUST … so as to bind itself and its successors in the office of trustee or trustees of the said Trust’.
[16]First Hedin affidavit, exhibit ‘JH-4’.

(a) Pacific Shopping Centres would finance the construction and development of the Broadlakes Development (clause 4); and

(b) Pacific Shopping Centres' financing of the Broadlakes Development would be secured:

(i) prior to completion of the contract of sale, by a charge in favour of Pacific Shopping Centres over the units held by Danesbrook and Apollo in the Baymill Unit Trust, to be released on completion of the contract; and

(ii) on completion of the contract of sale, by a first mortgage of the land (in the form annexed) pursuant to which 40% of [Baymill]'s obligations as mortgagor would be guaranteed by Danesbrook in addition to joint and several personal guarantees executed by, inter alia, James Aloysius Harris (clause 6).

There are two titles involved in the Broadlakes Development. The Baymill Unit Trust owns 100% of one title and The QLD Quarry Pty Ltd owns 100% of the second title. It was agreed that the costs and, ultimately, the profits of the Broadlakes Development would be split two ways, with 60% allocated to the Baymill Unit Trust and 40% allocated to The QLD Quarry Pty Ltd.

Westpac security

On 25 September 1991, Danesbrook granted a fixed and floating charge in favour of Westpac Banking Corporation Ltd (‘Westpac’) (‘Westpac security’). However, clause 4.2(a)(ii) of the Westpac security expressly excluded from its reach all assets and property of Danesbrook which could not effectively be charged, or which would become liable to forfeiture, revocation, surrender, loss or other material prejudice unless and until the prior consent of a governmental authority or another person (as applicable) was obtained. In those circumstances, it would appear that the Westpac security did not extend to the 32 units Danesbrook held in the Baymill Unit Trust, given that the prior consent of Baymill (as trustee) and Pacific Shopping Centres (as the majority unit holder) had not been obtained.[17]
[17]First Hedin affidavit, exhibit ‘JH-9’ page 146. See also Hedin affidavit, exhibit ‘JH-9’ page 2.

Baymill loan(s) to Harris secured by charge(s) granted by Danesbrook

9 January 1992 – original loan agreement entered into

On 9 January 1992, Mr Harris, Danesbrook and Merronbridge Ltd, another company associated with Mr Harris, entered into a loan agreement with Baymill, pursuant to which Baymill agreed to lend the principal sum of $23,000 to Mr Harris for a period of two years (‘Baymill Loan Agreement’).[18] The loan was secured, inter alia, by a charge granted by Danesbrook in favour of Baymill over all of Danesbrook’s right, title and interest in the 32 units held by it in the Baymill Unit Trust.[19] Under the Baymill Loan Agreement, the charge created in favour of Baymill was expressed to be ‘a first charge’[20] and the ‘events of default’ specified included matters such as Danesbrook going into liquidation either compulsorily or voluntarily or a trustee in bankruptcy being appointed to manage the affairs of Mr Harris.[21]
[18]First Hedin affidavit, exhibit ‘JH-6’.
[19]Ibid.
[20]Ibid, at cl 7.2.
[21]Ibid, at cl 6.2.

31 August 1995 - deed of variation and acknowledgement entered into

On 31 August 1995, the parties to the original Baymill Loan Agreement and others (including Pacific Shopping Centres) agreed to enter into a deed of variation and acknowledgement under which the term of the original loan was extended, the principal sum was increased to an amount of $123,000 upon Baymill agreeing to lend an additional $100,000, and a company associated with Mr Harris, named Harris Terranora Pty Ltd, covenanted to pay all sums payable by Mr Harris under the original Baymill loan agreement and be liable jointly and severally as a borrower in its personal capacity and as trustee of the Harris Terranora Trust.[22]
[22]Ibid, exhibit ‘JH-7’.

Clause 6.4 of the deed contained an acknowledgment by Mr Harris that the charge to be given by Danesbrook under clause 7 of the original Baymill Loan Agreement ‘was intended to be a first charge’ and it also recorded his ‘assert[ion]’ that Westpac Banking Corporation’s ‘charge does not extend to the Units held by Danesbrook in the Baymill Unit Trust.’

Clause 6.5 of the deed stated that:

Each of the Unitholders [being Danesbrook and Pacific Shopping Centres] consents to the creation of the charge to be given by Danesbrook in respect of its units in the Baymill Unit Trust in favour of the Lender [Baymill] under the terms of this document.

Further, clause 10, headed ‘Further Assurances’ stated:

Each party will from time to time at its own cost and expense make, do and execute and cause to be made, done and executed all acts, things, agreements, deeds, instruments, assurances and other documents as may be necessary, desirable or reasonably required by the other party to perfect or give effect to the transactions or agreements contemplated by or contained in this Agreement.

31 August 1995 - Danesbrook grants a fixed and floating charge in favour of Baymill

On 31 August 1995, contemporaneously with the execution of the deed of variation and acknowledgement, Danesbrook also granted in favour of Baymill a fixed and floating charge over all of its assets, including a fixed charge over the 32 units in the Baymill Unit Trust recorded in the register of unitholders as being held by Danesbrook (‘Danesbrook charge’).[23] In clause 2.2(a) thereof, the parties expressly ‘confirmed that the Financier [Baymill] consents to the Chargor [Danesbrook] charging the Units pursuant to this Charge’.[24]
[23]Ibid, exhibit ‘JH-9’ page 97.
[24]Ibid, exhibit ‘JH-9’ at page 104.

Pursuant to clause 3.1, the Charge secured all monies owing by Danesbrook under a ‘Relevant Agreement’, which expression is defined in clause 1.1 of the Danesbrook charge to include the original Baymill Loan Agreement and the Deed of Variation and Acknowledgment.

Clause 10.1 of the Danesbrook charge deals with ‘Events of Default’. Relevantly, for present purposes, clause 10.1(k) provides that an ‘event of default’ occurs if an ‘External Administrator’ is appointed to Danesbrook.[25] The expression ‘External Administrator’ is defined in clause 1.1 to mean:.

. . . an administrator, receiver, receiver and manager, trustee, provisional liquidator, liquidator, inspector or any other person (however described) holding or appointed to an analogous office or acting or purporting to act in an analogous capacity.

[25]Ibid, exhibit ‘JH-9’ page 116.

Clause 11.2 of the Danesbrook charge provides that after an event of default occurs, Baymill may take possession of the charged property, which includes the 32 units held by Danesbrook in the Baymill Unit Trust.[26]
[26]Ibid, exhibit ‘JH 9’ page 118.

Drewlock replaces Danesbrook as trustee of the Danesbrook Trust

On 10 January 1997, Baydale Investments Pty Ltd (the appointor of the Danesbrook Trust) and Drewlock entered into a deed pursuant to which Danesbrook was purportedly replaced as trustee of the Danesbrook Trust by Drewlock.[27] Drewlock maintains that pursuant to the fresh trustee appointment deed made on 10 January 1997, Drewlock replaced Danesbrook as trustee and all of the property held on trust by Danesbrook was transferred by operation of law to, and vested in, Drewlock.[28]
[27]Ibid, exhibit ‘JH-9’ page 90.
[28]Ibid, exhibit ‘JH-9’ pages 3-4.

There has been no change to the register of unit holders in the Baymill Unit Trust since 1987 when Apollo transferred its 8 units to Pacific Shopping Centres. That is to say, the register continues to record Danesbrook as the holder of the 32 units it held from the inception of the Baymill Unit Trust.[29] However, Drewlock asserts that by reason, amongst others, of the operation of s 15(1) of the Trusts Act 1973 (Qld), the 32 units originally held by Danesbrook in the Baymill Unit Trust vested in Drewlock upon its appointment as trustee of the Danesbrook Trust.[30] Accordingly, Drewlock asserts that the register of unit holders in the Baymill Unit Trust requires rectification.[31]
[29]Ibid, exhibit ‘JH-3’.
[30]Ibid, exhibit ‘JH-9’ page 3.
[31]Ibid.

Danesbrook’s receivership, liquidation and deregistration

On 7 February 1997, Peter James Hedge and Ian Richard Hall were appointed by Westpac as receivers and managers of the following assets of Danesbrook pursuant to the Westpac security:

All property of the company subject to the instrument of security other than units in the Baymill Unit Trust.

Accordingly, their letter of appointment effectively confirms that the 32 units that Danesbrook held in the Baymill Unit Trust were not encompassed within the Westpac security.[32]
[32]Ibid, exhibit ‘JH-9’ page 93.

On 25 February 1997, Danesbrook’s receivers and managers lodged a report entitled ‘Report as to Affairs’ with ASIC. This report:[33]
[33]Ibid, at [26] and exhibit ‘JH-16’.

(a) appears to have been signed by Mr Harris, as the director and secretary of Danesbrook at the time of the appointment of the receivers and managers;

(b) listed all of Danesbrook’s assets and liabilities as ‘nil’, except for amounts owing and secured by debenture or floating charge over assets which it described as ‘in dispute $420,499.73’; and

(c) in Schedule A, pertaining to ‘Interests in Land’, described Danesbrook’s interests as ‘in the Company’s own right – nil’.

On 7 April 1997, Danesbrook’s receivers and managers lodged a further report entitled ‘Report as to Affairs’ with ASIC (which bears the date 7 March 1997) which also appears to have been signed by Mr Harris. In this report, all information pertaining to Danesbrook’s assets and liabilities is omitted, with the explanation given that that ‘[t]he disclosure of this information would in the opinion of the managing controller seriously prejudice the corporations [sic] interest and/or the achievement of the objectives for which the controller was appointed.’[34]
[34]Ibid, at [27] and exhibit ‘JH-17’.

On 28 April 1999, the Supreme Court of Queensland ordered that Danesbrook be wound up, and appointed Mr Schmierer as liquidator. Mr Schmierer lodged a report as to the affairs of Danesbrook with ASIC on 2 June 1997 (which bears the date 20 May 1997) which again was signed by Mr Harris. Schedule D to this report, which pertains to ‘Assets subject to specific charges’, refers to an asset described as ‘32% equity in land known as Broadlakes Project – in Danesbrook P/L’s capacity as Trustee of the Danesbrook No 1 Trust’.[35]
[35]Ibid, at [28] and exhibit ‘JH-18’.

On 21 September 1999, Danesbrook was ultimately deregistered.[36] Baymill asserts that it was not notified of the receivership, liquidation or deregistration of Danesbrook until years later, as noted in the correspondence set out below.[37]
[36]Ibid at [16](c) and exhibit ‘JH-5’.
[37]Ibid, exhibit ‘JH-14’.

Baymill now relies upon the appointment of receivers and managers pursuant to the Westpac security as constituting an event of default under the original Baymill Loan Agreement and the Fixed and Floating Charge Deed (as read with the Deed of Variation and Acknowledgment), which Baymill (as chargee) claims entitles it to take possession of the 32 units in the Baymill Unit Trust registered in the name of Danesbrook.

Drewlock asserts an interest the 32 units in the Baymill Unit Trust originally held by Danesbrook

On 26 June 2014, Mr Harris emailed Mr Adrian Blake, the Finance and Lending Consultant at the Pacific Group of companies. In that email, Mr Harris stated that he was the sole director of Drewlock which, he asserted, ‘controls the 32 units held by the Danesbrook Trust’.[38]
[38]Ibid, exhibit ‘JH-11’.

On 25 September 2017, Mr Harris again emailed Mr Blake and stated as follows:[39]

…
Thanks for sending me a copy of the Register of Units in the Baymill Unit Trust.
As discussed recently in the Surf Club my memory was correct and I legally transferred the trustee of the Danesbrook Trust from Danesbrook Pty Ltd on 10 January 1997 before it got into trouble with Westpac. The new trustee is Drewlock Pty Ltd a.t.f. the Danesbrook Trust and it holds my 32 Units in the Baymill Unit Trust. I have attached a copy of the Deed which gave effect to the appointment of the new trustee and the retirement of the previous trustee for your records.
Drewlock Pty Ltd is a current company and I am the sole director.
I would be grateful if you could arrange for the Register of Units to be updated, showing that Drewlock Pty Ltd as trustee of the Danesbrook Trust is the holder of 32 Units in the Baymill Unit Trust and forward me a copy.
…

[39]Ibid, exhibit ‘JH-13’ (emphasis in original).

On 13 December 2017, Ms Hedin responded to Mr Harris’ email of 25 September 2017 as follows:[40]
[40]Ibid, exhibit ‘JH-14’.

Further to your email exchange with Adrian below, we are seeking to clarify the legal position in regard to the registered unit holder, Danesbrook lnvestments Pty Ltd ("DlPL") because in the event of a distribution (at some time in the future) by Baymill to Unit Holders, we expect the ATO will audit same.
…
We have asked ABL to review the position and it is their opinion that in the absence of evidence or a satisfactory explanation as to the following anomalies, the matter can only be resolved by referral to the Courts. The issues are summarised as follows:
1. As you are aware, the unit register currently shows DIPL as the holder of 32 units in Baymill. Receivers & Managers were appointed to DIPL on 7 February 1997, followed by a Liquidator on 28 April 1997. Neither Pacific nor Baymill appear to have been notified of these events. Do you have any explanation as to why notification was not provided to Pacific or Baymill, particularly in light of the information in 2. below?
2.In the Report as to Affairs provided to the Liquidator, signed by you and dated 20 May 1997, you list as an asset of DIPL a 32% equity in the Broadlakes project (refer image below). You state that this asset is held by DIPL in its capacity as Trustee of the Danesbrook No 1 Trust ("DT1"). It is also stated that Baymill is a creditor in relation to that asset and therefore should have been notified of the demise of DIPL (as noted in 1. above). What was the outcome of the liquidation of DIPL, were any assets realised by the liquidator and what was the outcome for creditors?
3.You recently provided a one page copy Deed purporting to change the Trustee of the Danesbrook Trust ('DT") from DIPL to Drewlock Pty Ltd, dated 10 January 1997. Are DT and DT1 references to the same trust or are there two trusts? If it is the same trust, why was it included in DIPL’s Report as to Affairs if DIPL had been removed as trustee 4 months prior? If there are two trusts, who is now Trustee of DT1?

In her first affidavit, Ms Hedin deposes that as at 30 April, 2019, the total sum owing by Mr Harris and his related entities to Baymill is $6,142,047.52, as recorded in the loan statements and interest schedule extracted from Baymill’s books and records and exhibited to her affidavit.[41]
[41]Ibid, at [22] and exhibit ‘JH-8’.

On 20 December 2017, Mr Harris responded to Ms Hedin’s email. He stated that because of the historical nature of the transactions he would require some additional time to respond and was in the process of retrieving records and making enquiries of his accountants and other professional advisors in order to enable to respond properly.[42]
[42]Ibid, exhibit ‘JH-15’.

On 7 February 2018, Mr Ben McTaggart of Minter Ellison–Gold Coast, solicitors for Drewlock (in its capacity as trustee of the Danesbrook Trust), wrote to Ms Hedin, addressing the queries raised in her email of 13 December 2017, and requested that Baymill take all necessary steps to update the unit register to reflect Drewlock’s ownership of the units originally issued to Danesbrook as soon as possible. In the letter, Minter Ellison set out their understanding of the background of the dealings between the relevant parties, based on their discussions with their client and their review of the relevant documentation. Under the heading ‘Further information’, the letter relevantly provides the following explanation of their client’s position with respect to the units held by Danesbrook in the Baymill Unit Trust:[43]
[43]Ibid, exhibit ‘JH-9’.

1.Our client has instructed us that Danesbrook Investments was the initial holder of the Relevant Units in its capacity as the trustee of the Danesbrook Investments Trust. Although we have not sighted a declaration of trust by Danesbrook Investments, our client's position is supported by the fact that the Danesbrook Investments Trust was settled on 7 April 1981, which is the same date on which the Baymill Unit Trust was established.
2.The reference in the Baymill Unit Holders Agreement to the ‘Danesbrook Investments No. 1 Trust’ appears to be a typographical or transcription error which is repeated in all documents prepared by Arnold Bloch Leibler (as lawyers for Pacific Shopping Centres). We did not identify any separate trust deed for a trust with this name. In the recitals of the Baymill Unit Holders Agreement, the Danesbrook Investments No. 1 Trust reference also states that the trust was established pursuant to a deed dated 7 April 1981. Accordingly, this would appear to be a reference to the Danesbrook Investments Trust.
…
5.The fact that the Unit Register does not indicate that any of the units are held by the unitholders in their respective capacities as trustees is, in our view, not relevant. Under clause 9(c) of the Baymill Unit Trust Deed, Baymill Investments is not required to recognise any beneficial ownership of the units in the Baymill Unit Trust and therefore the Unit Register is not required to include any notation regarding beneficial interests (i.e. only the legal holder of the units needs to be identified in the Unit Register).
6.The Trustee Appointment Deed validly removed Danesbrook lnvestments as the trustee of the Danesbrook Investments Trust and appointed Drewlock as the replacement trustee (as the provisions of the Danesbrook Investments Trust empowered the appointor of the trust to remove and replace the trustee from time to time). We did not sight any separate documentation to formally transfer the assets that were previously vested in Danesbrook Investments in its capacity as trustee (including the Relevant Units).
…

8.It is our view that all of the property held on trust by Danesbrook Investments for the Danesbrook Investments Trust was transferred by operation of law to, and vested in, Drewlock on 10 January 1997 pursuant to the Trustee Appointment Deed.

Minter Ellison’s letter then goes on to specifically address the three questions raised in Ms Hedin’s email of 13 December 2017, as follows:[44]
[44]Ibid.

1.Question 1 [i.e., Do you have any explanation as to why notification was not provided to Pacific or Baymill?]
(a)Our client believes that the failure by Danesbrook Investments to formally notify Baymill or Pacific Shopping Centres of the fact that it had become subject to external administration was an honest oversight having its nexus in our client's assumption that the external administrators would have taken (and did take) steps to notify all secured creditors of Danesbrook Investments of their appointment.
(b)In any event, our client did not believe that the appointment of external administrators to the assets of Danesbrook Investments would have had any adverse effect on Baymill (or the other unitholders) given the Relevant Units were explicitly carved-out of Westpac's security and therefore the Relevant Units were not an asset capable of being realised for distribution to secured creditors.
(c) Further, Danesbrook Investments was not the trustee of the Danesbrook Investments Trust at the time external administrators were appointed to the assets of Danesbrook Investments.

2.Question 2 [i.e., What was the outcome of the liquidation of DIPL, were any assets realised by the liquidator and what was the outcome for creditors?]
(a)Our client agrees that Baymill was a secured creditor of Danesbrook Investments by virtue of the Baymill Charge. To the best of our client's recollection, the information that was provided to the liquidator in Schedule D of the report as to affairs (a copy of which is reproduced in your email) set out the correct information regarding the security which was created by the Baymill Charge (i.e. at the time the security was granted to Baymill, Danesbrook Investments was the trustee of the Danesbrook Investments Trust). It is clear that the Relevant Units ought not to have been included in the report as to affairs in light of the fact that ownership of the Relevant Units had earlier been transferred to Drewlock.
(b)Our client does not believe that this error had any material adverse effect on Westpac's position as a secured creditor because the Relevant Units did not, at any time, form part of the bank's secured property.
(c)To the best of our client's knowledge, the liquidator did not distribute any funds to Westpac or any other secured creditor upon completion of the liquidation because Danesbrook Investments had no material assets. Subsequently, Westpac sought the bankruptcy of Jim Harris by way of sequestration order, but the matter was fully and finally settled by the payment of $100,000.00 to Westpac by Jim Harris (and Mr Harris was not made bankrupt).

3.Question 3 [i.e., Are DT and DT1 references to the same trust or are there two trusts? If it is the same trust, why was it included in DIPL’s Report as to Affairs if DIPL had been removed as trustee 4 months prior? If there are two trusts, who is now Trustee of DT1?]
(a)As noted above, all references to the ‘Danesbrook Investments No. 1 Trust’ appear to be in error. The error may have been caused by our client's accountants or another party, but it does appear in all documents prepared by Arnold Bloch Leibler.

(b)Our client believes that all references to the ‘Danesbrook Investments No.1 Trust’ should be references to the Danesbrook Investments Trust and cannot recall ever sighting a copy of a trust deed for the ‘Danesbrook Investments No. 1 Trust’.

In response to Minter Ellison’s letter of 7 February 2018, Mr Justin Vaatstra of Arnold Bloch Leibler, solicitors for Baymill (in its capacity as trustee of the Baymill Trust) wrote to Mr McTaggart on 5 June 2019, to inform him that ‘our client considers it appropriate to seek the Court’s guidance on the ownership of the Relevant Units (being the units that had been issued to Danesbrook Investments Pty Ltd)’.[45]
[45]Ibid, exhibit ‘JH-19’.

Against that background, Baymill commenced this proceeding by originating motion filed on 12 June 2019. The originating motion named Drewlock as the defendant and sought a direction pursuant to r 54.02 of the Rules as to whether Baymill (as trustee) is justified in amending the register of unitholders to record Drewlock (or alternatively, Baymill) as the holder of the 32 units previously issued to Danesbrook, or alternatively, taking such other course of action as the Court may direct. Baymill also sought a declaration that the person entitled to the 32 units previously issued to Danesbrook is Drewlock, or alternatively Baymill, or alternatively such other person as the Court may direct. In the originating motion, Baymill indicated that in addition to serving Drewlock, it also intended to serve a copy of the originating process on ASIC and the Commonwealth.[46]
[46]Having regard to the deregistration of Danesbrook and ss 601AD(1A) and 601AD(2) of the Corporations Act 2001 (Cth).

Drewlock filed an appearance on 9 July 2019. A directions hearing in the matter was scheduled to take place on 9 August 2019, but at the request of the parties it was adjourned to 28 August 2019, and then further adjourned at their request to 20 September 2019.

First directions hearing on 20 September 2019

Prior to the first directions hearing, the solicitors for the plaintiff emailed to my Chambers (and copied to the defendant’s solicitor) on the evening of 19 September 2019, the first Dreverman affidavit, together with an amended originating motion, signed consent orders and a short outline of submissions, and sought leave to file those documents. In her affidavit, Ms Dreverman outlined (and produced copies of) the correspondence that had recently been sent by the plaintiff’s solicitors to the liquidator, ASIC and the Australian Government Solicitor (‘AGS’) (on behalf of the Commonwealth) and the responses received. In the case of ASIC, she stated that ASIC ‘does not object to the orders sought, does not wish to be heard and does not wish to be joined as a party to the proceeding,’[47] and that Drewlock, ‘[t]he only other party that has shown an interest in the 32 units’ has ‘consented to the consent orders exhibited at JBD-1.’[48]
[47]First Dreverman affidavit, at [6], exhibit ‘JBD-2’.
[48]First Dreverman affidavit, at [7].

At the directions hearing held on 20 September 2019, counsel for the plaintiff informed the Court that as signed consent orders had been provided to the Court, the solicitors for Drewlock would not be appearing. He informed the Court that the matter has been resolved between the parties in accordance with the consent orders that have been provided. He submitted that it was appropriate that judicial advice be given because there was uncertainty about who claims the units, which have been vested in ASIC following deregistration of Danesbrook. He also informed the Court that ‘[t]he trustee seeks to enforce a charge and take the units for itself’, but because the charge was granted ‘potentially in an apparent conflict of interest’, the trustee seeks judicial advice ‘as a matter of prudence’, and ‘to ensure that it doesn’t face any personal liability’.[49] Counsel then effectively sought orders on the papers for judicial advice to be given in the terms set out in the (proposed) amended originating motion. The Court declined to do so and listed the matter for hearing on 23 October 2019, and required any additional materials to be filed in a timely way in advance of the hearing.
[49]Transcript 20/09/19, at page 5 (Dr Bigos SC).

Following the directions hearing, Baymill’s solicitors filed an amended originating motion[50] and a second affidavit of Ms Dreverman on 26 September 2019. In her affidavit, Ms Dreverman deposed that on 19 September 2019, Baymill, Drewlock and Mr Harris had executed a deed of settlement dated 19 September 2019 (‘Settlement Deed’) in relation to the matters the subject of the proceeding, a copy of which was exhibited as ‘JBD-1’.[51]
[50]Relevantly, the amended originating motion sought (only) a direction pursuant to r54.02 of the [Rules] that the plaintiff (as trustee of the Baymill Unit Trust) is justified in:
(a)enforcing its charge over the 32 units currently recorded in the register of unitholders as being held by Danesbrook;
(b)itself or its nominee taking possession and accept a transfer of those units; and
(c)amending the register of unitholders of the Baymill Unit Trust so as to record the plaintiff or its nominee, as the case may be, as the unitholder of those units and issuing a certificate for those units for the same.
[51]Second Dreverman affidavit, at [2].

Settlement Deed entered into on 19 September 2019

The parties to the Settlement Deed were Baymill, acting both in its own capacity and as trustee for the Baymill Unit Trust, and Drewlock and Mr Harris.[52] The deed recited, by way of background, a summary of relevant historical events including the deregistration of Danesbrook on 21 September 1999, and then continued, stating:

. . .
KThere are events of default under the Baymill Loan Agreement, the Deed of Variation and Acknowledgment and the Fixed and Floating Charge. The charges under the Baymill Loan Agreement, as varied by the Deed of Variation and Acknowledgment, and the Fixed and Floating Charge, are enforceable and continue to attach to the 32 units which Danesbrook had previously held in the Baymill Unit Trust.
LAs at 31 August 2019, the total Debt is $6,249,258.84.
MDisputes (as defined below) have arisen between the parties.
NThe parties have agreed to resolve the Disputes on the terms set out in this Deed without any admission of liability by any Party.

[52]See second Dreverman affidavit, exhibit ‘JBD-1’.

The expression ‘Disputes’ is defined in clause 1.1. to mean:

… all and any Claims that Harris, Drewlock and their Related Bodies Corporate and Related Entities have or may have had (a) in relation to the 32 units previously held by Danesbrook in the Baymill Unit Trust, (b) in relation to the assets of the Baymill Unit Trust, including any future development of the assets, and/or (c) against Baymill, the Baymill Unit Trust or the Pacific Group of Companies.

The operative provisions of the Settlement Deed, set out in clauses 3 (Enforcement of Charge), 4 (Settlement Sum), 6 (Release) and 7 (Indemnity), are expressed to be subject to ‘Conditions Precedent’ set out in clause 2, as follows:

Clauses 3, 4, 6 and 7 are conditional upon Baymill applying for and the Supreme Court of Victoria giving directions in the Proceeding that, or to the effect that, Baymill is justified in:
(a)enforcing Baymill’s charge over the 32 units currently recorded in the register of unitholders as being held by Danesbrook;
(b)itself or its nominee taking possession and accepting a transfer of those units; and
(c)amending the register of unitholders of the Baymill Unit Trust so as to record itself or its nominee, as the case may be, as the unitholder of those units and issuing a certificate for the same.

Clause 3, headed ‘Enforcement of Charge’ deals with ‘Acknowledgment and validity’, ‘Enforcement of the charges’ and ‘Relinquishment of any right’, as follows:

3.1 Acknowledgment and validity
Drewlock and Harris acknowledge and represent that:
(a)the Baymill Loan Agreement, the Deed of Variation and the Charge are valid, binding and enforceable and continue to operate in accordance with their terms;
(b)events of default have occurred under the Baymill Loan Agreement, the Deed of Variation and the Charge, entitling Baymill to enforce them;
(c)the charges granted to Baymill under the Baymill Loan Agreement, the Deed of Variation and the Charge, over the 32 units currently recorded in the register of unitholders as being held by Danesbrook, are first-ranking fixed charges;
(d)apart from those charges, the 32 units currently recorded in the register of unitholders as being held by Danesbrook, are unencumbered.

3.2 Enforcement of the charges
Pursuant to the Baymill Loan Agreement, the Deed of Variation and the Charge, Baymill exercises its right to:
(a)enforce the charges granted to it by the Baymill Loan Agreement, the Deed of Variation and the Charge over the 32 units currently recorded in the register of unitholders as being held by Danesbrook;
(b)take possession and accept a transfer of those 32 units;
(c)appoint a nominee to take possession and accept a transfer of those 32 units;
(d)amend the register of unitholders of the Baymill Unit Trust so as to record Baymill or its nominee, as the case may be, as the ultimate holder of those 32 units; and
(e)issue a certificate for those 32 units to Baymill or its nominee, as the case may be.

3.3Relinquishment of any right
Drewlock and Harris irrevocably relinquish any right, title, interest or claim they have or have had to the 32 units currently recorded in the register of unitholders as being held by Danesbrook.

Clause 4 provides for payment of a ‘Settlement Sum’ by Baymill, as follows:[53]

Baymill agrees to pay to Drewlock the sum of $400,000 (including GST) (“Settlement Sum”) in full and final settlement of the Disputes.
The Settlement Sum will be paid within 21 days of the date on which the Court gives directions as described in paragraph 2 above, by telegraphic transfer to the following bank account:
. . .

[53]The provisions of the deed do not identify whether any of the rights, duties or obligations thereunder are undertaken in one or other or both capacities. However, in her second affidavit, Ms Hedin deposes, relevantly, that the settlement sum to be paid to Drewlock in full and final settlement of the Disputes ‘will be paid by Baymill personally and not out of the trust funds of the Baymill Unit Trust.’ (See the second Hedin affidavit, at [6]).

Clause 6 provides for mutual releases by the named parties and related others, thereby foreclosing Baymill from pursuing the balance of the debt, as follows:

6.1Baymill and the Pacific Group of Companies irrevocably and unconditionally release and forever discharge Drewlock, Harris and their Released Persons from all or any Claims which Baymill or the Pacific Group of Companies has or but for the execution of this Deed may have had against Drewlock, Harris and their Released Persons in relation to the matters the subject of the Debt, the Disputes or the Baymill Unit Trust, except for the obligations set out in this deed.
6.2Harris, Drewlock and their Related Bodies Corporate and Related Entities irrevocably and unconditionally release and forever discharge Baymill and the Pacific Group of Companies and their Released Persons from all or any Claims which Harris, Drewlock and their Related Bodies Corporate and Related Entities have or but for the execution of this Deed may have had against Baymill and the Pacific Group of Companies and their Released Persons in relation to the matters the subject of the Debt, the Disputes or the Baymill Unit Trust, or the Pacific Group of Companies, except for the obligations set out in this deed.

Clause 7 then provides for an indemnity from Drewlock and Harris and their Released Entities to Baymill and its Released Persons, as follows:

7.1Drewlock, Harris and their Released Persons, both jointly and separately, irrevocably and unconditionally indemnify and hold harmless Baymill (in its personal capacity and as trustee for the Baymill Unit Trust) and its Released Persons from all or any Claims in relation to any interests or benefits of Drewlock, Harris and their Released Persons (whether now or in the future) in any of the Pacific Group of Companies , including but not limited to Baymill.
7.2The indemnity given in clause 7.1 above is continuing and will remain in full force and effect, and not be extinguished by payment of the Settlement Sum.

In Annexure A to the Settlement Deed, which contains a listing of the companies within the Pacific Group of Companies, Baymill is shown as being one of the Pacific Group companies.

Amended originating motion filed on 26 September 2019

On 26 September 2019, the plaintiff filed its amended originating motion. Therein, the relief sought was framed in terms of whether the plaintiff (as trustee of the Baymill Unit Trust) is justified in enforcing its charge over the 32 units currently recorded in the register as being held by Danesbrook, taking possession and accepting a transfer of those units, and the register of unitholders being amended to record the plaintiff, or its nominee as the holder.[54] No longer did the plaintiff seek any additional declaratory relief.[55]
[54]Amended originating motion filed on 26 September 2019.
[55]In its originating motion, the plaintiff had sought declaratory relief, as follows:
2.A declaration that the person entitled to the 32 units previously issued to Danesbrook Investments Pty Ltd (ACN 010 212 861) is:
(a)the Defendant [Drewlock]; or
(b)alternatively, the Plaintiff; or
(c)alternatively, such other person as the Court may direct.

Hearing on 23 October 2019

In advance of the hearing, on 22 October 2019 the plaintiff’s solicitor filed a revised outline of submissions and a third affidavit of Ms Dreverman (addressing service of the additional materials on Drewlock and the other interested persons or entities).

At the hearing, counsel for Baymill commenced by formally reading the affidavits and taking the Court through the constituent documents for the Baymill Unit Trust and the relevant charges sought to be enforced, and referring briefly to the Settlement Deed. When the Court sought clarification as to the judicial advice that was being sought, counsel referred to the potential for a conflict of interest to arise, citing the trustee’s concern that by enforcing a charge in its personal capacity it might be said to be acting in conflict of interest. He then sought to re-frame the relevant question respecting the management or administration of the trust as being ‘is it proper for Baymill, which is the trustee of the Baymill Unit Trust, to also enforce a charge in its personal capacity over units in the Baymill Unit Trust such that it becomes or its nominee [becomes] the holder of the units.’ But, as counsel acknowledged, neither the question posed in Baymill’s amended originating motion nor that formulated during the course of oral submissions mentioned any potential for a conflict of interest or breach of trust to arise. Nor was the issue one that was raised in its revised outline of submissions. In those circumstances, the Court stood the matter down for a short time to allow counsel to re-formulate the question for judicial advice.

Upon resuming, counsel for Baymill provided his re-formulated version of the proposed relief. He also confirmed that the issues now raised for judicial advice do not concern the respective rights of beneficiaries, or their identity, which might otherwise preclude the Court from giving the judicial advice sought. At that juncture, the Court invited counsel to file a further revised outline of submissions addressing the potential conflict of interest issues raised in its proposed further amended originating motion, and any other additional matters. The Court indicated that if, following the delivery of the revised submissions any further hearing should be necessary, it would be listed to take place on 22 November 2019. Subsequently, in consultation with the parties, the Court adjusted that date to 12 November 2019, and requested that any revised outline be filed by 7 November 2019.

On 4 November 2019, an affidavit of Mr Harris was filed on behalf of Drewlock, exhibiting a deed amending the Settlement Deed. On 6 November 2019, the plaintiff’s solicitors filed the second affidavit of Ms Hedin (confirming that Pacific Shopping Centres consents to the relief sought in the further amended originating motion and that the settlement sum payable to Drewlock will be paid by Baymill personally and not out of the trust funds of the Baymill Unit Trust) and the fourth affidavit of Ms Dreverman (deposing to service of the further amended originating motion on Drewlock, ASIC, AGS and the liquidator).

On 7 November 2019, the plaintiff’s solicitors filed the fifth affidavit of Ms Dreverman. Therein Ms Dreverman deposes that on 7 November 2019, ASIC emailed Baymill’s solicitors and informed them that pursuant to section 8(6) of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’), ASIC is authorised to represent the Commonwealth in this proceeding. Accordingly, ASIC requested that no further correspondence be sent to the AGS.[56]
[56]See the fifth Dreverman affidavit, at [3], exhibit ‘JBD-1’.

Deed amending the Settlement Deed made on 4 November 2019

As noted above, on 4 November 2019, the parties to the Settlement Deed entered into a deed amending the Settlement Deed so as to reflect the revised form of relief sought in Baymill’s further amended originating motion. The relevant amendment, which affected clause 2.1 of the Settlement Deed, dealing with ‘Conditions Precedent’ was set out in Schedule 1, as follows:[57]
[57]Harris affidavit, affidavit, at [5], exhibit ‘JAH-2’; second Hedin affidavit, at [7], exhibit ‘JH-1’.

2Conditions Precedent
2.1Clauses 3, 4, 6 and 7 are conditional upon Baymill applying for and the Supreme Court of Victoria giving directions in the Proceeding that, or to the effect that, Baymill is justified in:
(a)enforcing ~~Baymill’s~~ its charges under the Baymill Loan Agreement dated 9 January 1992 and the Fixed and Floating Charge Deed dated 31 August 1995 (as read with the Deed of Variation and Acknowledgment dated 31 August 1995) over the 32 units currently recorded in the register of unitholders as being held by Danesbrook;
(b)itself or its nominee taking possession and accepting a transfer of those units; and
(c)amending the register of unitholders of the Baymill Unit Trust so as to record itself or its nominee, as the case may be, as the unitholder of those units and issuing a certificate for the same,

in circumstances where the Plaintiff is and has been at all relevant times, the trustee of the Baymill Unit Trust, such that there is at least a perceived conflict between its duty as trustee and its interest as chargee.

Role of ASIC

As will be apparent from the foregoing, ASIC has been provided with copies of all documentation relevant to Baymill’s application. Baymill’s solicitor, Ms Dreverman, deposes that on or about 18 September 2019 she received a letter from ASIC dated 12 August 2019, which stated that ASIC does not object to the orders sought by Baymill, and does not wish to be heard or joined as a party to the proceeding.[58]
[58]Ms Dreverman’s affidavit affirmed on 19 September 2019 (‘first Dreverman affidavit’), at [6]; exhibit ‘JBD-2’.

In its letter, ASIC confirmed that Baymill was deregistered on 21 September 1999, and then went on to explain that:

. . . Ordinarily as a result of deregistration:
(a)all property the company held on trust at deregistration belongs to the Commonwealth
(b)all non-trust property the company owned at deregistration belongs to ASIC
(c)ASIC is the only party legally able to deal with the company’s property.

In a footnote appended at the end of the above passage, ASIC noted that:

There are exceptions e.g. secured parties are entitled (under their security) and Land Titles Registrars have some powers (under their State legislation), to deal with the company’s property despite deregistration.

The observations made by ASIC accord with what is stated in ss 601AD(1A), 601AD(2) and 601AD(3) of the Corporations Act 2001 (Cth), which relevantly provide as follows:

601AD Effect of deregistration
. . .
Trust property vests in the Commonwealth
(1A)On deregistration, all property that the company held on trust immediately before deregistration vests in the Commonwealth. If property is vested in a liquidator on trust immediately before deregistration, that property vests in the Commonwealth. This subsection extends to property situated outside this jurisdiction.

Other company property vests in ASIC
(2)On deregistration, all the company’s property (other than any property held by the company on trust) vests in ASIC. If company property is vested in a liquidator (other than any company property vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction.

Rights and powers in respect of property
(3)Under subsection (1A) or (2), the Commonwealth or ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, the Commonwealth or ASIC takes the property subject to that interest or claim.

Note: See also subsection 601AE(3)—which deals with liabilities that a law imposes on the property (particularly liabilities such as rates, taxes and other charges).
(3A)The Commonwealth has, subject to its obligations as trustee of the trust, all the powers of an owner over property vested in it under subsection (1A).

Note: Section 601AF confers additional powers on the Commonwealth to fulfil outstanding obligations of the deregistered company.
(4)ASIC has all the powers of an owner over property vested in it under subsection (2).

Note:    Section 601AF confers additional powers on ASIC to fulfil outstanding obligations of the deregistered company.
. . .
601AE What the Commonwealth or ASIC does with the property
Trust property vested in the Commonwealth
(1)If property vests in the Commonwealth under subsection 601AD(1A), the Commonwealth may:
(a)       continue to act as trustee; or
(b)       apply to a court for the appointment of a new trustee.

Note: Under paragraph (1)(a), the Commonwealth may be able to transfer the property to a new trustee chosen in accordance with the trust instrument.
(1A)If the Commonwealth continues to act as trustee in respect of the property, subject to its obligations as trustee, the Commonwealth:
(a)in the case of money—must credit the amount of the money to a special account (within the meaning of the Public Governance, Performance and Accountability Act 2013); or

(b) otherwise:
(i) may sell or dispose of the property as it thinks fit; and
(ii)if the Commonwealth does so—must credit the amount of the proceeds to a special account (within the meaning of the Public Governance, Performance and Accountability Act 2013).

Note: ASIC may, for and on behalf of the Commonwealth, perform all the duties and exercise all the powers of the Commonwealth as trustee in relation to property held on trust by the Commonwealth (see subsection 8(6) of the ASIC Act).
Property vested in ASIC
(2)       If property vests in ASIC under subsection 601AD(2), ASIC may:
(a)       dispose of or deal with the property as it sees fit; and
(b)       apply any money it receives to:
(i)defray expenses incurred by ASIC in exercising its powers in relation to the company under this Chapter; and

(ii) make payments authorised by subsection (3).

ASIC must deal with the rest (if any) under Part 9.7.

Obligations attaching to property vested in the Commonwealth
(2A)For the purposes of subsection (3), if any liability is imposed on property under a law of the Commonwealth immediately before the property vests in the Commonwealth under subsection 601AD(1A), then:
(a)immediately after that time, the liability applies to the Commonwealth as if the Commonwealth were a body corporate; and
(b)the Commonwealth is liable to make notional payments to discharge that liability.

Obligations attaching to property
(3)Any property that vests in the Commonwealth or ASIC under subsection 601AD(1A) or (2) remains subject to all liabilities imposed on the property under a law and does not have the benefit of any exemption that the property might otherwise have because it is vested in the Commonwealth or ASIC. These liabilities include a liability that:
(a) is a security interest in or claim on the property; and
(b) arises under a law that imposes rates, taxes or other charges.

Extent of Commonwealth’s and ASIC’s obligation
(4)The Commonwealth’s or ASIC’s obligation under subsection (2A) or (3) is limited to satisfying the liabilities out of the company’s property to the extent that the property is properly available to satisfy those liabilities.

. . .

Baymill’s application for judicial advice
Further hearing on 12 November 2019

At the further hearing on 12 November 2019, counsel for Baymill provided a (Further Revised) Outline of Submissions on which it relies. In essence, Baymill contends that ‘the charge’ (which is a reference to the charge conferred by the original Baymill Loan Agreement and the Fixed and Floating Charge Deed (as read with the Deed of Variation and Acknowledgment)) is a security interest which survived the deregistration of Danesbrook: s 601AE(3) of the Corporations Act 2001.[59] Baymill submits that its ‘entitlement to the 32 units, in enforcement of the charge, means that there is no longer any need to determine the competing claims to the units’, citing, by way of example, the claim by Drewlock to the units by reason of it having replaced Danesbrook as trustee of the Danesbrook Trust.[60]
[59]Baymill’s (Further Revised) Outline of Submissions, at [18].
[60]Ibid.

Accordingly, Baymill now seeks to exercise its (personal) right to enforce the charge by taking possession of the 32 units currently recorded in the register of unitholders as being held by Danesbrook, accepting their transfer and (as trustee) amending the register of unit holders so as to record Baymill or its nominee as the unitholder and issuing a new certificate for those units. But Baymill acknowledges that in circumstances where it is, and has been at all relevant times, the trustee of the Baymill Unit Trust, there is at least a perceived conflict between its duty as trustee and its interest as chargee. This ‘perceived conflict’ is now raised squarely in its further amended originating motion, a copy of which has been provided to the defendant, Drewlock, and to the other unit holder, Pacific Shopping Centres, as well as to ASIC, the Commonwealth and the liquidator of Danesbrook.

Third Hedin affidavit filed on 2 December 2019

Following the hearing on 12 November 2019, the plaintiff filed the third affidavit of Ms Hedin on 2 December 2019, to address several matters that had been raised by the Court during the course of the submissions made at the hearing on 12 November 2019. Therein Ms Hedin confirmed that she is a company secretary of Baymill, as is Ms Melinda Lim Choo Ch’ng also, and that they respectively signed the Settlement Deed and the amended and restated Settlement Deed in that capacity.

Ms Hedin also deposes that on 19 September 2019, being the same date as the Deed of Settlement was signed, Mr Harris provided to Baymill a letter of resignation as a director of Baymill,[61] and a signed share transfer form to transfer his one share in Baymill to Pacific Shopping Centres.[62] Further, she explained, in accordance with a letter from Baymill’s solicitors to Drewlock’s solicitors,[63] Baymill holds the letter of resignation and the share transfer form, and has agreed not to submit them for lodgment with ASIC until such time as orders are made giving the relief sought in the proceeding. In those circumstances, Ms Hedin states that she does not believe there is potential for there to be any ongoing conflict of the kind raised by the Court at the hearing on 12 November 2019 because:[64]
[61]Third Hedin affidavit, at [6] and exhibit ‘JH-2’.
[62]Third Hedin affidavit, at [7] and exhibit ‘JH-3’.
[63]Third Hedin affidavit, at [8] and exhibit ‘JH-4’.
[64]Third Hedin affidavit, at [10]-[11].

10.If the Court gives Baymill the judicial advice sought, then Baymill proposes to:
(a)transfer Harris’ one share in Baymill to Pacific [Shopping Centres] as its nominee; and
(b)amend the unitholders’ register to record Pacific Australia [i.e. Pacific Shopping Centres Australia Pty Ltd] as the holder of the 32 units previously recorded in the register of unitholders as being held by Danesbrook.

11.Baymill intends for the transferred units to be held beneficially by Pacific Australia as Pacific Australia had provided the majority of the funding secured by the charge. That way, Baymill will not retain any beneficial interest in the transferred units.

As there is no opposition to the orders sought, Baymill submits the Court should provide the judicial advice

Pacific Shopping Centres, which owns 68 units in the Baymill Unit Trust consents to the orders sought.[65] In the case of the 32 units currently recorded in the register of unitholders as being held by Danesbrook, ASIC – the only other party legally able to deal with the property of the deregistered company, and as the authorised representative of the Commonwealth – has stated that it neither consents to nor opposes the relief sought, and the liquidator of Danesbrook has not responded. Furthermore, Drewlock – the only other person who claims to have had an interest in the units – consents to the orders sought. In addition, the Settlement Deed has been amended so as to incorporate the amended form of direction Baymill now seeks from the Court[66] and clause 3.12 of the deed made on 4 November 2019 amending the Settlement Deed (the ‘Amending Deed’) records the agreement of the parties that they:[67]

(a)have had a full and proper opportunity to consider the terms of this Deed;
(b)have sought and obtained independent legal advice in respect of the terms of the Deed prior to its execution; and
(c)have freely entered into this Deed.

[65]Second Hedin affidavit, at [5].

[66]Clause 2 of the Settlement Deed (as amended) provides:

2.1Clauses 3, 4, 6 and 7 are conditional upon Baymill applying for and the Supreme Court of Victoria giving directions in the Proceeding that, or to the effect that, Baymill is justified in:

(a)enforcing its charges under the Baymill Loan Agreement dated 9 January 1992 and the Fixed and Floating Charge Deed dated 31 August 1995 (as read with the Deed of Variation and Acknowledgment dated 31 August 1995) over the 32 units currently recorded in the register of unitholders as being held by Danesbrook;

(b)itself or its nominee taking possession and accepting a transfer of those units; and

(c)amending the register of unitholders of the Baymill Unit Trust so as to record itself or its nominee, as the case may be, as the unitholder of those units and issuing a certificate for the same,

in circumstances where the Plaintiff is and has been at all relevant times, the trustee of the Baymill Unit Trust, such that there is at least a perceived conflict between its duty as trustee and its interest as chargee.

[67]Harris affidavit, at [5] and exhibit ‘JAH-2’.

In the premises, Baymill submits that the Court should provide the judicial advice and give the directions sought. Baymill observes that it is a condition precedent under the Settlement Deed (as amended) (clause 2) that the Court gives judicial advice to Baymill in or to the effect of the directions sought in its further amended originating motion. In that regard, counsel for Baymill referred to cases such as Re Timbercorp Securities Ltd (in liq) (No 3),[68] Re Timbercorp Securities Ltd (in liq) (No 4)[69] and Re Elders Forestry Management Ltd[70] as instances of cases where judicial advice was a condition precedent for a transaction.
[68](2009) 74 ACSR 626, at 631 [25].
[69][2009] VSC 530, at [61].
[70](2012) 90 ACSR 573, at 579 [26].

The Court’s power under rule 54.02

Rule 54.02 of the Rules confers on the Court the power to give directions to trustees. The rule reflects the long-standing practice that ‘[w]here an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do.’[71]
[71]Re Atkinson, deceased [1971] VR 612, at 615 (per Gillard J). The long history of courts of equity giving advice to trustees was the subject of the 2018 Harold Ford Memorial Lecture given by Chief Justice Susan Kiefel at Melbourne Law School on 14 September 2018: see Chief Justice Susan Kiefel, Judicial Advice to Trustees: Its Origin, Purposes and Nature (2019) 42(3) Melbourne University Law Review (advance).

More recently, in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand,[72] the High Court has emphasised the importance of a trustee in doubt seeking judicial advice as to the correct course of action, and made clear that the only jurisdictional bar is that an ‘applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.’[73]
[72](2008) 237 CLR 66 (‘Macedonian Orthodox Church’).
[73]Ibid, at 89-90 [58] (Gummow ACJ, Kirby, Hayne and Heydon JJ).

In Ballard v Attorney-General,[74] Kyrou J observed that r 54.02 ‘confers on the court very broad powers’ and ‘enables a trustee to seek an order of the court either to approve a transaction or to direct that an act be done in execution of the trust.’[75] Further, his Honour stated, ‘[i]f a trustee enters into a transaction approved by the court or performs an act in accordance with the court’s direction, he or she is protected from any claim by a beneficiary or creditor arising from that transaction or act.’[76]
[74](2010) 30 VR 413.
[75]Ibid, at 421 [41].
[76]Ibid.

Importantly, however, as was confirmed by the recent decision of the High Court in Federal Commissioner of Taxation v Thomas,[77] the power to give judicial advice is not a vehicle for the attainment of purposes extraneous to the protection of the trust estate and the trustee, and rarely will it be appropriate for the court to grant declaratory relief. In Thomas, the primary judge acceded to the trustee’s request and gave declaratory relief in relation to franking credits, framed in terms which expressed a view about the operation of the relevant taxation legislation. In later proceedings, between the trustee and the Commissioner of Taxation, the trustee relied on the earlier decision of the High Court in Executor Trustee & Agency Co of South Australia Ltd v Deputy Federal Commissioner of Taxes (SA),[78] and argued that the Commissioner was obliged to act on the basis of the interests as declared by the court in the judicial advice application. But the High Court rejected that view, observing that directions made under the judicial directions power ‘do not bind’ the Commissioner in the application of the taxation laws,[79] because it is no part of such an application for the court to determine how the taxing acts operate.[80]
[77](2018) 264 CLR 382 (‘Thomas’).
[78] (1939) 62 CLR 545 (‘Executor Trustee’).
[79](2018) 264 CLR 382, at 408 [55] (Kiefel CJ, Bell, Keane, Nettle, Gordon and Edelman JJ)
[80]Ibid, at 408-409 [57] (Kiefel CJ, Bell, Keane, Nettle, Gordon and Edelman JJ).

It is also clear that the court is not bound to give advice, and generally advice will not be given about a matter that is substantially commercial.[81] For example, in Edwards v Attorney-General (NSW),[82] the court declined to give advice to a trustee who was the director of a company by reason of the trust’s shareholdings because he was seeking advice as a director and not as a trustee.[83] Similarly, in Re Camperdown Prime Pty Ltd,[84] where a trustee of a unit trust sought judicial advice regarding the commercial choices which it may adopt, Pembroke J refused to give advice because his Honour was of the view that the questions posed depended upon commercial or practical considerations rather than legal considerations.
[81]See Re Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185, at [15] (Taylor CJ in Eq).
[82](2004) 60 NSWLR 667.
[83]Ibid, at 687 [107] (Young CJ in Eq).
[84][2018] NSWSC 106.

Further, the role of judicial advice is not to determine what the trustee can or cannot do. Rather, as Kunc J pointed out in Re Application of NSW Trustee & Guardian, on such an application:[85]

. . . it is not it is not the function of the Court to order, or even just to tell, the trustee what to do. The order is permissive and not mandatory, hence it is usually in the form that the trustee "is justified" in acting in a particular way.
In applying to the Court for judicial advice, the trustee is not abrogating or delegating its obligation to apply its own judgment in deciding whether to do (or not do) something in execution of the trust. The trustee must actively and honestly bring its mind to bear on any particular problem confronting it. Where necessary, it is entitled to do so with the benefit of such legal or other advice (for example, accounting, actuarial or valuation) as the trustee thinks appropriate.
[85][2014] NSWSC 423, at [24]-[25].

The judicial advice sought in the present case

In the present case, judicial advice is sought in relation to the management or administration of the Baymill Unit Trust in circumstances where:

(a) there is uncertainty as to the ownership of the 32 units recorded in the register of Unit Holders in the name of Danesbrook; and

(b) the course of action that the trustee proposes to adopt raises the possibility of at least a perceived conflict between its duty as trustee and its personal interest as chargee.

The form of relief which Baymill as trustee seeks is directed to the issue of whether it is justified in proceeding in the administration of the Baymill Unit Trust in a particular way, acknowledging that in so doing it is ‘wearing two hats’ – one, as chargee enforcing a security over units in the Baymill Unit Trust granted to it in its personal capacity, and the other, as trustee of the Baymill Unit Trust – and that the course proposed raises at least a perceived conflict between the trustee’s duty as trustee and its personal interest.

Courts have regularly seen fit to provide judicial advice to trustees in circumstances where there is a perceived conflict between the trustee’s duty as trustee and its personal interest. Recently, in In the matter of the Salvation Army (Victoria) Property Trust,[86] the plaintiff, a charitable purposes property trust, sought judicial advice from the court in circumstances where it proposed entering into certain transactions involving the voluntary transfer of 34 of its properties from itself to a company limited by guarantee of which the plaintiff was the sole member, and without consideration other than the forgiveness of loans. The trustees of the plaintiff sought judicial advice under r 54.02(2)(c)(i), both as to its powers to effect such transactions and whether it would be acting in accordance with its obligations insofar as it proposed making the transfers without consideration other than the forgiveness of loans. In giving the judicial advice sought and approving the proposed transactions, Sifris J held:[87]

it is in my view entirely appropriate that the Court make an order approving the Proposed Transactions. It should also be noted and is of significance that the Defendant [Attorney General for Victoria] submitted that the Plaintiff does indeed have such power and did not oppose the application.

[86][2017] VSC 553.

[87]Ibid, at [43].

Similarly, under the statutory counterpart provisions concerning the giving of judicial advice or directions to liquidators, the courts have often given advice to liquidators in situations where they were required to represent interests that conflicted.

In Re Timbercorp Securities Ltd (in liq) (No 2),[88] the liquidators, who were facing potential conflicts of interest in fulfilling the role of liquidators for multiple Timbercorp Group Companies, proposed to appoint a special purpose conflict liquidator to assist with managing those conflicts in and around a sale process to be undertaken by them. On an application for directions pursuant to s 511 of the Corporations Act 2001, the liquidators sought a direction that they were justified in entering into the agreement with the special purpose conflict liquidator. It was a condition subsequent to the agreement that if the court did not give a direction by a specified date then either party may terminate the retainer.
[88][2009] VSC 411.

Robson J gave the proposed direction sought by the liquidators, noting that the liquidators are placed in a difficult position, and he considered it prudent that they appoint the special purpose conflict liquidator as they have done. In so doing his Honour stated:[89]

[31]In this case there is a challenge to the decision of the liquidator to engage Mr Carson [the special purpose conflict liquidator] by the Timbercorp Growers’ Group. The liquidators do not face merely a commercial decision in appointing Mr Carson, but the matter raised for directions goes to how the liquidator should handle a potential conflict of interest where the liquidators have to represent interests that conflict.
[32]In my view, the approach of the liquidators is sensible. The restriction on obtaining legal advice seems prudent in the circumstances.

[89]Ibid, at [31]-[32].

Similarly, in Re Timbercorp Ltd (in liq),[90] Judd J gave judicial advice to liquidators who, in their role as liquidators of the companies, were undertaking or participating in an informal liquidation of a managed investment scheme. Following a judicial mediation of an insurance claim and entry into a compromise, the liquidators sought approval of the compromise under s 447(2A) of the Corporations Act 2001 and approval under s 511 for their proposed distribution of funds. In making orders authorising the liquidators to enter into the terms of settlement and disburse the proceeds from the insurance policy in the manner proposed his Honour stated:[91]

[19]The liquidators also sought approval under s 511 of the Act for their proposed distribution of funds to the seven investors. The alternative course would have been to place the proceeds in a fund for allocation between all members of the 1999 scheme. In their role as liquidators of the companies, the liquidators were undertaking or participating in an informal liquidation of the scheme. As such, they assumed obligations to company creditors and scheme investors. When dealing with scheme property they had conflicting duties.
. . .
[21]In the circumstances of this liquidation, the liquidators had an additional conflict; the interest of the scheme members as a whole against the interest of the seven members with insured wood lots. I am of the opinion that the liquidators were prudent in seeking court approval of the settlement and the proposed distribution. I am also satisfied that the liquidators were entitled to act as they did, relying upon the advice of counsel to assist their own commercial judgment to compromise the proceeding on the basis for the Terms of Settlement.
[22]The liquidators’ proposal to distribute the proceeds paid to TL and TSL to the seven investors, after deducting their costs and expenses, is supported by logic and equity. . . .

[90][2011] VSC 189.

[91]Ibid, at [19] and [21]-[22].

More recently, in Re Gunns Plantations Ltd (In Liquidation) (Receivers & Managers Appointed)[92] on an application for directions under s 511, Judd J acknowledged the difficult task that liquidators face in circumstances where there are conflicting interests. His Honour commenced by outlining the court’s function in giving directions under s 511, stating:

[48]. . . By giving directions under s 511, the court is providing the liquidator with protection against claims that he or she acted inappropriately or unreasonably by entering into or performing the agreement.[93]
[49]It is not the function of the court to review the commerciality of the decisions made by the liquidators, or to substitute its own commercial judgment.[94] The court’s role is supervisory, to consider whether there may be some legal impediment to what is proposed, or whether there may be some impropriety or other good reason which might indicate that the liquidators may be acting inappropriately or unreasonably if they were to permit the land and assets to be sold, unencumbered, because they terminated grower rights.[95] The court will not exercise the power to give a direction merely to validate the making of a business or commercial decision. There must be some aspect to the decision that justifies the application. But in the present case, there is the additional feature that a condition for settlement is the termination of grower rights by GPL.

[92][2014] VSC 239.

[93]Re Ansett v Mentha (2001) 39 ACSR 355, 370; Re Timbercorp Securities Ltd [2009] VSC 590, at [2]; Re Gunns Plantations Limited (No 1) [2012] VSC 655, at [159].

[94]Re Timbercorp Securities Ltd [2009] VSC 590 at [4]; Re Ansett v Mentha (2001) 39 ACSR 355, at 371; Re Timbercorp Securities Ltd [2011] VSC 24, at [3]; Re Timbercorp Securities Ltd (No 4) [2009] VSC 530, at [30]-[31]; Re Timbercorp Securities Ltd [2011] VSC 83, at [32].

[95]Re Timbercorp Securities Ltd [2009] VSC 590, at [4]; Re Spedley Securities Ltd (1992) ACSR 83, at 85–6; Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, at 118.

His Honour then turned to address the particular facts of the case, and expressed the view that the liquidators were justified, on the basis of a conflict of interest alone, in approaching the court for judicial advice so as to allow them to proceed with their difficult task in the face of that conflict. He stated:[96]
[96]Ibid, at [60], [64] and [66]-[68].

[60]In dealing with the third party landowners, the liquidators have properly identified a conflict between their duty to the landowners as creditors of GPL, and duty to the growers, whose trees are on the third party land. They have recommended to the third party landowners that they seek independent advice.
. . .
[64]As to whether the exercise of the power will be just and beneficial, the question is whether it will be of advantage in the liquidation.[97] In my opinion, the circumstances in which approval is now sought to negotiate and reach agreement with the third party landholders are unique. The position in which the liquidators find themselves must be put in context. In relation to the AFP Trust negotiations, the liquidators had only limited scope to negotiate. They did not control the substantive asset, the land on which the trees were located. They negotiated with the receivers, who were contending that growers had no claim to the trees, and were not entitled to any allocation of value. While the liquidators have more control over the scope of the negotiations with third party landowners, they appear to maintain the same position as the receivers. The landowners remain exposed, of course, to the risk that an application for relief against forfeiture might be made and succeed.
. . .
[66]The particular circumstances of this case, including the magnitude of the liquidators’ task, the risk to growers and third party landowners, and the impracticality of waiting until all contracts are signed before seeking court approval of termination, justifies the liquidators’ application at this time and the exercise of the jurisdiction under s 511 of the Corporations Act. The liquidators must deal with a variety of arrangements that might be necessary to resolve every claim and counterclaim for rent. Some landowners will enter into new leases, some have terminated, some have acquired trees, and others are yet to make an offer.
[67]There is also the conflict between the liquidators’ duty to the growers, and the landowners as creditors. While the conflict has been disclosed, and the landowners advised to seek independent advice, the liquidators are, in my view, justified on that basis alone in approaching the court under s 511 of the Corporations Act to, in effect, allow them to proceed with their difficult task in the face of the conflict.
[68]The unique facts of the present case justify the exercise of the jurisdiction under s 511 to facilitate the negotiations by the liquidators to finalise the relationships between GPL and the third party landowners, while attempting to obtain some benefit for the growers. It is in the best interests of the liquidation and, in my view, the best interests of growers that these matters be finalised, and finalised promptly.

[97]Dean Willcocks v Soluble Solution Hydroponics (1997) 42 NSWLR 209, at 212; Re Wilmott Forests Ltd (No 2) [2012] VSC 125, at [55].

In the present case, the plaintiff as trustee faces the difficult task of administering the Baymill Unit Trust in circumstances where there is uncertainty as to the ownership of the 32 units recorded in the register of Unit Holders in the name of Danesbrook. On that basis alone, in my view, it was appropriate for the trustee to seek judicial advice under r 54.02. In seeking to pursue that application and administer the trust in the face of that uncertainty, however, the course of action that the trustee proposes to adopt has itself raised the possibility of at least a perceived conflict between its duty as trustee and its personal interest as chargee. In my view, the potential for conflict having now been raised, also renders the matter one about which it is appropriate for the trustee to seek judicial advice.

Judicial advice sought in respect of enforcement of the charge

Baymill has informed the Court that it proposes to take possession of the 32 units by enforcing a charge that was granted to it in its personal capacity, thereby acquiring a beneficial interest in the trust fund, while at the same time acting as trustee of the Baymill Unit Trust. In furtherance of its proposal, Baymill has entered into the Settlement Deed (as amended) with Mr Harris and Drewlock, which provides, inter alia, for Baymill to enforce the charge in respect of the debt, and not to pursue the balance.[98]
[98]The Settlement Deed also provides for a payment to be made by Baymill, but that payment is to be made by Baymill in its personal capacity and it is not the subject of the judicial advice sought from the Court.

The course of action proposed by the plaintiff has been propounded on notice to all affected persons, and is embodied in the settlement that has been reached by the respective parties in circumstances where each acknowledges that they have freely entered into the Settlement Deed (as amended) having had a full and proper opportunity to consider its terms and sought and obtained independent legal advice in respect of them prior to its execution. Implementation of the settlement is, however, expressed to be conditional upon the Court giving directions in or to the effect sought. Absent the implementation of the course of action proposed by the plaintiff, the uncertainty as to the ownership of the 32 units will persist, rendering it difficult for Baymill (as trustee) to adequately administer the Baymill Unit Trust.

The two registered unit holders

There are two registered unit holders, Pacific Shopping Centres (as to 68 units) and Danesbrook (as to 32 units). Both Pacific Shopping Centres and Baymill are related companies, each being a company within the Pacific Group of Companies. Because Danesbrook has been deregistered, however, it is not feasible for Baymill to seek the beneficiaries’ consent so as to alleviate any conflict.

The Trust Deed

The Trust Deed for the Baymill Unit Trust does not prevent the trustee ‘from subscribing for purchasing holding dealing in or disposing of Units’ or from entering into any transaction with ‘any Unit Holder or any company whose shares form part of the Trust Fund or from being interested in any such contract or transaction or otherwise’.[99]
[99]Clause 54.

Baymill Loan Agreement and charge

The charges that Baymill (in its personal capacity) proposes to enforce are those that were granted by Danesbrook under the Baymill Loan Agreement dated 9 January 1992 and the Fixed and Floating Charge Deed dated 31 August 1995 (as read with the Deed of Variation and Acknowledgment dated 31 August 1995) over the 32 units currently recorded in the register of unitholders as being held by Danesbrook.

Under the Baymill Loan Agreement entered into in 1992, Baymill agreed to lend monies to Mr Harris, the principal of Danesbrook, and Danesbrook agreed to charge all its right, title and interest in the 32 units which it held in the Baymill Unit Trust, as security for the repayment of the principal sum and interest and its observance of covenants and obligations under the agreement.

When the Baymill Loan Agreement was varied on 31 August 1995, by the Deed of Variation and Acknowledgment, the term of the original loan was extended, and the principal sum was increased to an amount of $123,000 upon Baymill agreeing to lend an additional $100,000. Clause 6.5 of that deed expressly recorded that:

Each of the Unitholders [being Danesbrook and Pacific Shopping Centres] consents to the creation of the charge to be given by Danesbrook in respect of its units in the Baymill Unit Trust in favour of the Lender [Baymill] under the terms of this document.

Contemporaneously with the execution of that deed, Danesbrook also granted in favour of Baymill a fixed and floating charge, including a fixed charge over the 32 units in the Baymill Unit Trust. Clause 10.1 of the Danesbrook charge provided that an event of default occurs if an ‘external administrator’ is appointed to Danesbrook. On 7 February 1997, Westpac appointed receivers and managers over certain assets of Danesbrook, on 28 April 1999, the Supreme Court of Queensland ordered that Danesbrook be wound up, and appointed Mr Schmierer as liquidator, and on 21 September 1999 it was deregistered. Clause 11.2 of the Danesbrook charge provides that after an event of default occurs, Baymill may take possession of the charged property, which includes the 32 units held by Danesbrook in the Baymill Unit Trust.

Ms Hedin deposes that the debt owed by Mr Harris (and his related entities) is in excess of $6 million. By its terms, the charge over the 32 units is enforceable because amongst other things Danesbrook went into external administration, thereby constituting an event of default under the Danesbrook charge.

Under clause 11.2(a) of the Fixed and Floating Charge, Baymill (in its personal capacity) has a right to enforce the charge by taking possession of the 32 units. Once that right is exercised, under clause 11(a) of the Trust Deed it may request the trustee to register a transfer of the 32 units so as to record Baymill or its nominee as the unit holder, whereupon the trustee shall issue a certificate for those units, pursuant to clause 9.

Conclusion

On the material before the Court, the plaintiff has demonstrated a proper basis for Baymill (in its personal capacity) to enforce the charge by taking possession of the 32 units and, upon request being made to register a transfer of the 32 units, for Baymill (as trustee) to record Baymill or its nominee as the unit holder, and to issue a certificate for those units to the transferee.

Mr Harris, on behalf of Drewlock, has deposed that he consents to the orders contained in the further amended originating motion being made by the Court.[100] Pacific Shopping Centres, the other unit holder, also consents to the orders. ASIC, which also acts on behalf of the Commonwealth, has advised that it does not oppose the proposed orders. The liquidator of Danesbrook has not responded to the correspondence from Baymill’s solicitors.
[100]Harris affidavit, at [4].

Additionally, by operation of clause 6.5 of the Deed of Variation and Acknowledgment to the Baymill Loan Agreement, Danesbrook and Pacific Shopping Centres, the two registered unit holders in the Baymill Unit Trust as at the date of the execution of that document on 31 August 1995 (and which remain the only two unit holders recorded in the register of unit holders), consented to ‘the creation of the charge to be given by Danesbrook in respect of its units in the Baymill Unit Trust in favour of [Baymill] under the terms of this document’. The provision of that consent may be regarded as operating as an effective ratification by the unit holders of any potential conflict arising between the duties of Baymill as trustee and its interests as chargee.

Against that background, with the settlement having been reached, it might be thought that no judicial advice is necessary because there is no realistic possibility of a claim being made against the trustee it if adopts the course which it proposes to take. But in circumstances where the settlement is expressed to be conditional upon the Court giving directions in or to the effect sought, and ‘non opposition’ rather than actual consent has been forthcoming from ASIC, and the liquidator has not responded, in my view, it is prudent for the trustee to continue to seek directions from the Court so as to protect the trust estate and the trustee.

In the premises, I am satisfied that it is appropriate for the Court to give judicial advice by way of directions in, or substantially in, the form sought.

As to costs, at the further hearing on 12 November 2019 counsel for the plaintiff referred to the decision of McMillan J in Re Chomley,[101] which was a ‘self-dealing’ case. Therein, her Honour referenced, with approval, ‘the longstanding authority that, where a trustee approaches the Court for leave to purchase the trust property in such circumstances, it is the trustee who seeks an indulgence, and must pay the costs of the application, whether successful or otherwise.’[102] Counsel informed the Court that, following the settlement, ‘[h]aving reflected on that passage and the similarities between what’s sought to be obtained through the judicial advice application now’,[103] the plaintiff now seeks to be indemnified only in respect of its costs of the proceeding up to 26 September 2019,[104] and that otherwise there be no order as to costs.[105] Accordingly, the orders as to costs will be:

(a) the plaintiff be indemnified in respect of its costs of the proceeding up to 26 September 2019 from the trust property of the Baymill Unit Trust; and

(b) otherwise there be order as to costs.

[101][2014] VSC 220.

[102]Ibid, at [27].

[103]Transcript 12/11/19, at p. 23 (Dr Bigos S.C.).

[104]It was on 26 September 2019, following entry into the Settlement Deed, that the plaintiff’s solicitors filed the amended originating motion seeking, for the first time, judicial advice in relation to the enforcement of the charges.

[105]Transcript 12/11/19, at pp. 23-24 (Dr Bigos S.C.).

As I am of the opinion that the relief sought by the trustee should be granted, I will hear from the parties as to the precise terms of the orders to be made by the Court.

[2019] VSC 827

18 December 2019