Bhagat v Australian Securities Commission - [2000] NSWSC 1160

Reported Decision: [2000] 36 ACSR 394

New South Wales

Supreme Court

CITATION: BHAGAT V. AUSTRALIAN SECURITIES COMMISSION & ANOR [2000] NSWSC 1160

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 4626/94

HEARING DATE(S): 16-20 October 2000

JUDGMENT DATE: 13 December 2000

PARTIES :

Hari Bhagat - plaintiff
Australian Securities Commission - 1st defendant
Westpac Custodian Nominees Ltd. - 2nd defendant

JUDGMENT OF: Hodgson CJinEq at 1

COUNSEL : Mr. Bhagat appeared in person
Mr. N. Hutley SC with Dr. A.S. Bell for defendants

SOLICITORS: Australian Government Solicitor for defendants

CATCHWORDS: CORPORATIONS - TRUSTS - Unit trusts - Mortgage trust - Trust deed authorising assignment of proportionate shares of mortgages - Amendment of deed to authorise trustee to give priority to assignees - Approval of amendment by Corporate Affairs Commission - Whether duty ofcare to unitholders - Whether breach of that duty - Whether damages shown - Whether ASIC correct defendant - Whether ASIC has statutory defence.

LEGISLATION CITED: National Companies & Securities Commisison Act s.41(4)
Australian Securities & Investment Commission Act ss.5, 259, 262.

DECISION: See end of judgment

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORAM: HODGSON, CJ in Eq.
Wednesday 13th December 2000
NO. 4626 OF 1994
BHAGAT V. AUSTRALIAN SECURITIES COMMISSION & ORS.
JUDGMENT
1 As at March 1990, units in four of the six “Estate Mortgage” unit trusts, having a redemption value of just over $1 million, were held by the second defendant Westpac Custodian Nominees Limited in trust for the plaintiff Hari Bhagat. On or about 22nd March 1990, the Victorian Corporate Affairs Commission (CACV) as delegate of the National Companies & Securities Commission (NCSC), approved amendments to the deeds of trust relating to those unit trusts. In these proceedings, the plaintiff claims damages against the third defendant Australian Securities & Investments Commission (ASIC), as successor to the NCSC, on the basis that this approval was in breach of a duty of care owed by the CACV and/or the NCSC to unit holders, resulting in damage to the plaintiff.

OUTLINE OF FACTS

2 I will commence with an outline of facts that are either clearly proved or not in dispute. 3 Commencing in 1976, a number of unit trusts were established using the name “Estate Mortgage”: the ones most relevant to these proceedings are Estate Mortgage Income Trust No.1 (established in 1976), Estate Mortgage Investment Trust (established in 1982), Estate Mortgage Depositors Trust No.3 (established in 1988), and Estate Mortgage Depositors Trust No.4 (established in 1989). All these trusts were created to invest primarily in registered first mortgages, with income to be distributed regularly to unit holders. 4 After 1987, all the trust deeds in relation to these trusts contained a provision conferring power on the trustee to assign fractional parts of mortgages. This provision was contained in the definition of “authorised investment” in the relevant deeds, which (with immaterial variations) was in the following terms:

1.1.1 “Authorised Investment” (subject always to the provision of Clause 21.1.6 hereof) means:
1.1.1.1 a loan made…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2000] NSWSC 1160
Decision Date: 13 December 2000

CaseChat Overview and Summary

The High Court of Australia was asked to determine a dispute between Bhagat and the Australian Securities Commission. Bhagat sought damages for alleged breaches of the duty of care owed by the trustee of a unit trust, which held a portfolio of mortgages. The dispute arose from an amendment to the trust deed that allowed the trustee to give priority to assignees of unit shares in the trust. The amendment was approved by the Corporate Affairs Commission, and Bhagat claimed that the trustee breached its duty of care by amending the trust deed without proper consultation with unitholders, resulting in financial loss to Bhagat.

The court was required to decide several legal issues. Firstly, whether the trustee owed a duty of care to unitholders. Secondly, whether the trustee breached that duty. Thirdly, whether Bhagat had shown that the alleged breach caused him financial loss. Fourthly, whether the Australian Securities Commission was the correct defendant in the case. Lastly, whether the Australian Securities Commission had a statutory defence available to it.

The Court found that the trustee owed a duty of care to unitholders, but this duty was limited to the management of the trust property and did not extend to decisions about the terms of the trust deed. The Court held that the trustee did not breach its duty of care by amending the trust deed, as it had acted within its powers and had not acted negligently. The Court also found that Bhagat had not shown that the amendment caused him financial loss. Finally, the Court held that the Australian Securities Commission was not the correct defendant, as it did not owe any duty of care to Bhagat. The Court also found that the Australian Securities Commission had a statutory defence available to it, as it had not acted negligently in approving the amendment to the trust deed.

The Court dismissed Bhagat's claim and ordered him to pay the Australian Securities Commission's costs. The Court held that the Australian Securities Commission was not liable for any damages or costs arising from the dispute. The Court also held that the trustee was not liable for any damages or costs arising from the dispute, as it had not breached its duty of care to unitholders.

Orders