Blue Saint Pty Ltd (ACN 087 128 550) as trustee for the Blue Saint Unit Trust v Milwal Pty Ltd as trustee for the Chester Trust

[2022] WASC 308

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

CITATION:   BLUE SAINT PTY LTD (ACN 087 128 550) as trustee for THE BLUE SAINT UNIT TRUST -v- MILWAL PTY LTD as trustee for THE CHESTER TRUST [2022] WASC 308

CORAM:   MASTER SANDERSON

HEARD:   13 JUNE 2022

DELIVERED          :   13 SEPTEMBER 2022

PUBLISHED           :   13 SEPTEMBER 2022

FILE NO/S:   COR 61 of 2022

BETWEEN:   BLUE SAINT PTY LTD (ACN 087 128 550) as trustee for THE BLUE SAINT UNIT TRUST

First Plaintiff

ADAM JAMES SIERAKOWSKI

Second Plaintiff

AND

MILWAL PTY LTD as trustee for THE CHESTER TRUST

Defendant

Catchwords:

Corporations Law - Application for leave to commence derivative action - Application to set aside statutory demand - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Leave given to bring action - Demand set aside

Representation:

Counsel:

First Plaintiff	:	NA Odorisio
Second Plaintiff	:	NA Odorisio
Defendant	:	L Christensen

Solicitors:

First Plaintiff	:	Hopgoodganim Lawyers
Second Plaintiff	:	Hopgoodganim Lawyers
Defendant	:	CX Law

Case(s) referred to in decision(s):

Blakeney v Blakeney [2016] WASCA 76

Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682

Fischer v Nemeske Pty Ltd [2016] HCA 11

Tindon Pty Ltd v Adams [2006] VSC 172

MASTER SANDERSON:

1. This is the second plaintiff's application for leave to bring proceedings on behalf of the first plaintiff pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth) (the Act).  If leave is granted, then these proceedings would also allow for determination of the first plaintiff's application to set aside the defendant's statutory demand dated 11 March 2021.  It is the defendant's position leave ought not be granted essentially because it says there are no grounds upon which the demand could be set aside.  Having these two applications heard together is unusual but not procedurally irregular.  In fact, there is considerable overlap between the two applications.

2. The second plaintiff is both a director and member of the first plaintiff and is therefore a person entitled to apply for leave to bring proceedings under s 236 of the Act. The second plaintiff needs to satisfy the five criteria for the grant of leave specified in s 237(2), namely:

   (a)it is probable that the first plaintiff will not itself bring proceedings,

   (b)the second plaintiff is acting in good faith;

   (c)it is in the best interests of the first plaintiff that the second plaintiff be granted leave;

   (d)there is a serious question to be tried; and

   (e)at least 14 days before making the application, the second plaintiff gave written notice of his intention to apply for leave and of the reasons for applying (or it is appropriate to grant leave even though this notice has not been provided).

3. The second plaintiff bears the onus of establishing that each of the matters specified in s 237(2) of the Act are satisfied on the balance of probabilities.  In fact, the defendant resists this application on two grounds.  The first it says the application is not brought in good faith and second it says there is no serious question to be tried.  The other three grounds are not in issue.  If the two grounds are made out, then the court must grant leave to bring the proceedings but can do so on terms.

4. The second plaintiff and Mr Paul Price are the only directors of the first plaintiff.  The second plaintiff and the defendant are equal shareholders of the first plaintiff and equal unit holders in the Blue Saint Unit Trust.  Mr Price is also a director and shareholder of the defendant.  It is the defendant who has served the statutory demand on the first plaintiff.  The second plaintiff is deadlocked and absent the derivative action, it has no basis to move to set aside the statutory demand.

5. The first plaintiff is a trustee company.  The first plaintiff's subsidiary, Trident Capital Pty Ltd (Trident Capital), operates a corporate finance advisory business while its subsidiary, Trident Management Services Pty Ltd (Trident Management), operates a corporate secretarial, compliance and accounting business.  The net assets of the combined group are significant and include approximately $3.8 million in share investments.  A copy of the statutory demand appears as attachment AJS‑3 to an affidavit of Adam James Sierakowski sworn 31 March 2022 and filed in support of these applications.  The amount of the demand is $368,276.  This amount is said to be unpaid unit holder entitlements.

6. The plaintiffs say an unpaid present entitlement is not traditionally considered to create a loan or other debt relationship between a trustee and a beneficiary:  See Tindon Pty Ltd v Adams [2006] VSC 172. No action at common law for money had and received lies against a trustee in respect of its equitable obligations even if those obligations extend to the payment of money. It is only when nothing remains for the trustee to do except pay over money to the beneficiary, or when the trustee has admitted the debt, that an action for money had and received might lie at the suit of the beneficiary against the trustee. Otherwise, at law, the trustee is treated as the absolute owner and the beneficiary's remedy is exclusively equitable: See Fischer v Nemeske Pty Ltd [2016] HCA 11. The plaintiffs say in the affidavit in support of the statutory demand, the defendant has failed to confirm the precise nature of its claim against the first plaintiff and, in particular, that it is absolutely entitled to the amounts being claimed.

7. Further, the plaintiffs say the first plaintiff is unquestionably solvent.  This appears not to be disputed by the defendant.  The plaintiffs concede solvency is not of itself a ground for setting aside a statutory demand.  However, it may be easier to conclude that a dispute about a debt or an offsetting claim is genuine when raised by a solvent company than in other cases:  See Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682.

8. Turning to the debt itself, the defendant points to the financial statements of the Blue Saint Unit Trust which appear as attachment AJS‑8 to the second plaintiff's affidavit.  The defendant's unpaid present entitlements are listed as a liability.  The defendant says this is clear evidence which is not anywhere contradicted that the first plaintiff is indebted to the defendant.

9. A copy of the Blue Saint Unit Trust Deed appears as attachment AJS‑5 to the second plaintiff's affidavit.  For present purposes, cl 9.2.1 and cl 18 are relevant.  Clause 9.2 reads as follows:

   9.2Each income unit shall have the rights and be subject to the restrictions and be differentiated from other units in the following manner:-

   9.2.1Pursuant to clause 18, the Trustee may pay, apply or set aside such part of the net income of the Trust Fund of each accounting period to or for the benefit of any one or more of the holders of income units as the Trustee thinks fit AND the payment, application or setting aside may be to or for the holders in respect of one or more income units to the exclusion of or an amount different from that paid, applied or set aside to or for the holders of other income units AND the expressions 'units' and 'unit holders' contained in clauses 18.1 and 18.2 shall except as provided in this provision refer only to ordinary units and to the holders of ordinary units respectively.

10. Clause 18 reads as follows:

    18.1In each accounting period until the Vesting Day the Trustee, subject to any special rights or restrictions in relation to units of any class, shall pay, apply or set aside the whole of the net income of the Trust Fund of that accounting period other than such amount otherwise referred to in clause 9.2 of this Deed to or for the benefit of the unit holders in proportion to the number of units respectively held by them at the end of that accounting period.

    18.2The Trustee may make one or more interim distributions of income during any accounting period and subject to any special rights or restrictions in relation to units of any class the interim distributions shall be made among the unit holders in proportion to the number of units respectively held by them at the time.

    18.3The Trustee may create a separate income account (called 'the attributive income account') in respect of a particular nature, type, character or source of income, whether dividends, capital gain or net capital gain or otherwise and, upon receipt of that particular nature, type, character or source of income, pay it into the attributive income account.  At any time before the expiration of any accounting period, the Trustees with the consent of the Unit Holders may determine with respect to all or any part of any attributive income account for that accounting period:-

    18.3.1to pay, apply or set aside all or part of the attributive income account to or for any one or more of the Unit Holders living or in existence at the time of the determination; or

    18.3.2to accumulate all or part of the attributive income account,

    AND the payment, application or setting aside may, in the absolute discretion of the Trustee, be either part of the determination provided for in this clause or in a separate determination which shall be deemed, for all purposes, to be paid, applied or set aside from that account only PROVIDED that such of the total of the net income of the Trust Fund for that accounting period distributable in respect to ordinary units shall be distributed in proportion to the number of ordinary units respectively held by the unit holders at the time or times of the distributions.

    18.4If the Trustee has made no effective determination pursuant to this clause in respect to any part of the income of any account period immediately prior to the end of the last day of that accounting period, the Trustee shall hold that income in trust for the unit holders in proportion to the number of units respectively held by them at the end of that accounting period.

    18.5In making any determination to pay, apply or set aside any amount (including an amount of a particular nature or character from a particular source) and for any other purposes of this Trust, the Trustee may:-

    (a)treat as Income of the Trust Fund any profit, gain, receipt or any other amount which is assessable income for the purposes of the Income Tax Assessment Act 1936 including without limitation any profit pursuant to section 26AAA, any capital gain pursuant to section 160Z or any net capital gain pursuant to section 160ZO of that Act;

    (b)treat any expenditure as expenditure against income of the Trust Fund payment, loss or any other amount which is an allowable deduction for the purposes of the Income Tax Assessment Act 1936;

    (c)distinguish between income of a particular nature or from a particular source as defined or referred to in the Income Tax Assessment Act 1936 and deal with income of a particular nature or from a particular source in one manner and income of any other nature or character or from any other source in a different manner; and

    (d)determine the income (within the meaning given in this clause) against which any loss (including any capital loss pursuant to section 160Z or any net capital loss pursuant to section 160ZC of the Act) outgoing, expenditure or payment which is a deduction for the purposes of the Income Tax Assessment Act shall be set off.

    18.6A determination to pay, apply or set aside any income for a unit holder may be effectually made and satisfied:-

    (a)by placing the amount to the credit of the unit holder in the books of account of the Trust Fund;

    (b)by drawing a cheque for the amount made payable to or for the credit or benefit of the Unit Holder;

    (c)by paying the amount over to or for the benefit of the unit holder in such manner and to such person on behalf of the unit holder as the Trustee thinks fit;

    (d)by a resolution of the Trustee that a sum out of or a portion of the net income of the Trust Fund or the net income as defined in section 95 of the Income Tax Assessment Act 1936 of the Trust Fund for the accounting period be paid, applied or set aside to or for the unit holder or otherwise dealt with for the benefit of the unit holder AND any resolution of the Trustee as provided in this sub‑paragraph shall be irrevocable;

    (e)notwithstanding the provisions of clause 22 by an oral declaration, written statement or a resolution of the Trustee whether or not published to any person; or

    (f)by issuing additional units to the unit holder as provided in clause 10.

    18.7Notwithstanding the preceding provisions of this clause, the Trustee, with the consent of the unit holders and subject to any law in force at the time in relation to this Deed so permitting, may accumulate all or any part of the income arisen or arising during an accounting period and that accumulation shall be dealt with as an accretion to the Trust Fund BUT the Trustee may at any time or times resort to that amount and pay or apply the whole or any part of that amount as if it had not been accumulated but was current income of the Trust Fund.

    18.8If at the end of any accounting period the amounts in respect of which determinations have been made pursuant to this clause exceed the net income of the Trust Fund for that accounting period, the amount·of the excess·shall be deducted from the amounts which the Trustee has determined to accumulate and only the balance of the amounts shall be accumulated and if any deficiency remains the Trustee shall be deemed to have applied the capital of the Trust Fund to the extent of the deficiency.

    18.9Any amount set aside for any unit holder pursuant to this clause shall cease to form part of the Trust Fund and shall be held by the Trustee as a separate trust fund on trust for that unit holder absolutely with power to the Trustee pending payment over to the unit holder to invest, apply or deal with the whole or any part of the fund or any resulting income from it in any manner authorised by this Deed in respect of the Trust Fund.

1. Properly viewed, what these clauses do is oblige the trustee to pay, apply or set aside the net income of the trust for the benefit of the unit holder.  So the trustee is not actually obliged to make payment.  At its discretion, it can set aside amounts to which a unit holder is entitled and if it wishes it can invest the funds.  In that sense, at least, a unit holder does not have a present entitlement.  Eventually any funds will be paid out.  But it is arguable, at least, that there is no obligation to make a distribution when called upon to do so by a beneficiary.

2. It is not my role to make any final decision on this issue.  But I am satisfied the plaintiffs' position is arguable.  Given that the first plaintiff is solvent (in a sense that any trustee company is solvent) it would not be in the interests of justice were it to be wound up.  It is not difficult then to conclude the second plaintiff is acting in good faith.  He is entitled to say that it is arguable the defendant is not entitled to demand payment of monies held in trust and it is right and proper that action should be taken to preserve the status quo.

3. The leading authority on the question of when leave should be granted to bring a derivate action is the Court of Appeal decision of Blakeney v Blakeney [2016] WASCA 76. While that decision provides guidance in most cases, it does not really inform a decision here. Blakeney turned on a question of what was in the best interests of the company.  One of the prime considerations has to be the extent to which the company will be at risk as to costs if the derivative action proceeds.  Here that is not a consideration because of the way the matter has proceeded.  This is a case where it is not difficult to conclude it is in the best interests of the company to take action.  Moreover, the merits of the action are such that the statutory demand ought be set aside.

4. On publication of these reasons, the parties should confer as to the appropriate form of orders.  If no agreement can be reached, each party should file a minute of proposed orders.  Subject to any submissions the parties may have, costs should follow the event and the defendant should pay the plaintiffs' costs, including reserved costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

AH

Associate to Master Sanderson

13 SEPTEMBER 2022