Cook v Benson & Ors

[2002] HCATrans 529

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M126 of 2001

PAUL JOHN COOK (As Trustee of the property of Peter Robert Benson)

Applicant

and

PETER ROBERT BENSON

First Respondent

LEGAL & GENERAL SUPERANNUATION SERVICES PTY LTD

Second Respondent

PRUDENTIAL CORPORATION AUSTRALIA LIMITED

Third Respondent

MERCANTILE MUTUAL CUSTODIANS PTY LTD

Fourth Respondent

Application for special leave to appeal

GLEESON CJ
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 DECEMBER 2002, AT 11.22 AM

Copyright in the High Court of Australia

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MR G.T. BIGMORE, QC:   If the Court pleases, I appear with my learned friend, MR M.J. GALVIN, on behalf of the applicant.  (instructed by Gadens Lawyers)

MR R.S. LANCY:   If the Court pleases, I appear on behalf of the first respondent.  (instructed by IFS Fairley)

MR M.N.C. HARVEY:   If the Court pleases, I appear on behalf of the second, third and fourth respondents in this matter.  (instructed by Clayton Utz)

GLEESON CJ:   Yes, Mr Lancy.

MR LANCY:   Your Honours, I appear on behalf of the first respondent and my view is that the judgment is impeccable.  There seems to be no discernible error.  The treatment of consideration is consistent with all the established principles.  The argument that seems to be floating in the ether is that this relationship between the trustees is in fact some sort of bare trust.  At page 155 of the Court book his Honour Mr Justice Beaumont in fact scotches that and says:

Moreover, the dealings in question involved far more than the constitution of a “bare” trust.

The relationships that exist between these two parties involve a whole series of rights and duties and responsibilities not only to manage property but to honour the terms of the trust deed to of course derive their commission.

GLEESON CJ:   Perhaps I should have asked you before you began:  is there any objection to the affidavit of Terrence Leo Gallagher?

MR LANCY:   Subject to the proposition that I found it very difficult to understand, but that is not a serious objection.

GLEESON CJ:   We have read that affidavit.  Go ahead.

MR LANCY:   The question of market value and the issues raised there are not the subject - and were never ventilated and could not have been the issue before the court in the appeal.  If I can take your Honours to the then section 120 as it stood, which is referred to in the materials provided by the applicant, it talks about the question of consideration for the disposition – tab 4.  This case really simply boils down to the question of:  did the trustees provide good consideration?  The majority say yes, they did.  There is quid pro quo.  The money is obtained.  There are a series of obligations going back to simple principles of contract law.

McHUGH J:   But is not the problem this, that three Federal Court judges have come to the opposite conclusion:  Justice Marshall, Justice Hely and Justice Madgwick in the other case.  So three out of five Federal Court judges have come to a different conclusion from which you contend and which now represents the law so far as the Federal Court is concerned.  In those circumstances, why is this a proper case to grant special leave to appeal?  You may well succeed.

MR LANCY:   With respect, firstly, Mr Justice Marshall’s judgment cannot really be counted as a reasoned analysis for the law of consideration in these circumstances.  With no disrespect to my learned friend, he simply adopts submissions.  He does not argue, he does not analyse the case law dealing with consideration.  He simply accepts that no consideration was provided.  He does not examine the relationships between the parties, the nature of the trust deed, the transaction, the doctrine of quid pro quo, the cases that Justice Beaumont examines.  He simply adopts uncritically, as does Justice Madgwick in Small’s Case – and Small’s Case has nothing to do with this.  Small’s Case is a self‑managed fund in which Trevor Small’s mind was the mind of the trust.  This is a publicly offered superannuation scheme by large and reputable commercial entities that provide to the world ‑ ‑ ‑

McHUGH J:   Yes, I appreciate that Justice Madgwick was dealing with a somewhat different situation, but did he not hold in Small’s Case that the promises and guarantees that the superannuation fund trustee provided as well as the management services were not provided as considerations for the three contributions made by Mr Small?

MR LANCY:   Superficially, yes, but it is the old incorporation point.  Mr Small is in effect the trustee because Mr Small’s mind is the mind that controls the moneys.  It is a sleight of hand trick with mirrors to dock the money over and say, “Now there’s an independent relationship between the super fund and me and the money has gone”.

McHUGH J:   There is no doubt that the questions involved in this case are of very great importance.  As I put to you again, why should not this Court determine the matter finally?

MR LANCY:   Firstly, because the legislation upon which the matter was based has changed considerably.  Section 116 now refers specifically to these super funds.  That was not the case when the facts of this case came to the Federal Court.  That is the first point.  Section 120 has also changed very radically.  There is no reference to market value in the old 120.  There is an exhaustive analysis now of what is to be taken into account in determining the consideration or otherwise of ‑ ‑ ‑

GLEESON CJ:   Is this not addressed by paragraphs 4 and 5 of the affidavit of Mr Gallagher?

MR LANCY:   That seems a very speculative proposition.  If it were not market value, then it could be challenged under the new 120, but that cannot resolve the question of what happened in Mr Benson’s case, which was the exchange of moneys in the publicly offered subscription for the three respondents.  That, with respect, cannot – if the Benson Case were overturned, if there was a finding that there was no consideration given by the trustee companies, it will not address that point.  They do not meet, with respect.

The key to all of this, I think, and where the confusion arises is the distinction between a bare trust where the trustee does nothing more than hold something and does nothing more with the item.  For example, in the cases handed up again by the applicant, the case of Corin v Patton is the case referred to on page 2 of the additional material.  That case has to do with the purported transfer of a half an interest in a specific joint tenancy for nothing more than an attempt possibly to split the joint tenancy.  There is no obligation on the trustee to do anything.  No colourable consideration changes hands.  It is a specific item in which only the title purports to move.  That is a bare trust.

If you go to the case before that, the New South Wales case, Gosper v Sawyer, it is a completely different analysis by the High Court on page 569 of the relationships of these superannuation trusts which are not bare trusts, as Mr Justice Beaumont points out.  If I could take your Honours to midway down the page, the second paragraph:

It is not, however, possible to isolate the provisions of the trust deed in their operation with respect to Mr Sawyer from the same provisions in their operation with respect to the other members of the Fund.  There is but one fund which is held upon the one set of trusts contained in the one trust deed.  It is not possible to divide the fund or the provisions of the trust into a separate fund or a separate set of trusts for each individual member.

So, once the money goes into the coffers of the respondents two to five, in specie it is lost.  It merges into the whole pool of funds managed by the respondents.  They, in exchange for the money offer a set of rights and undertake a set of duties to manage and behave as trustees of the fund.  That is not a bare trust.

With respect, Mr Justice Marshall does not examine any of those matters at first instance.  He simply accepts there is no consideration.  He does not analyse the doctrine of consideration that these things have to be looked at in their commercial context.  He accepts uncritically submissions by my learned friend.  When it comes to the Full Federal Court, they look at it and they say, “What is the nature of this transaction?”.  There is a series of relationships, there is a commercial context, retail funds publicly offered in which a series of obligations are undertaken by the three respondents in exchange for the money provided – wholly distinct.

Mr Justice Hely’s argument seems to be that this is again just a bare trust but it is quite clear the money is lost in specie.  It is not identifiable.  The money itself cannot be retrieved.  In return for the money, a series of other obligations and rights and duties may be awarded to ‑ ‑ ‑

McHUGH J:   Justice Hely did not make the mistake of regarding this as a bare trust.  He said they were more than bare trustees.

MR LANCY:   Your Honour, with respect, he seems to say that they are settled; there is settlement of the moneys.

McHUGH J:   Look at 176 line 16:

Here the trustees are more than bare trustees ‑ ‑ ‑

MR LANCY:   Yes, and he goes on:

But the rights of the appellant and the obligation of the trustee in that respect flow from the terms of the deeds by which the trusts are constituted.  The terms of those deeds may provide the explanation for the settlement of the life policies on the trustees, without necessarily amounting to the provision of valuable consideration for that settlement.

So if it is more than a bare trust, again there does not seem to be any tackling of the doctrines that Justice Beaumont relied upon from In Re Pope’s Case, the provision by the wife of the release from the divorce action, and the same analysis undertaken by Justice Kiefel that you analyse the whole transaction, you look at it in a commercial sense.

These are retail providers of funds.  In a commercial sense it is arm’s length.  There is no doubt that they are bona fide transactions - I think that is a concession – at arm’s length between reputable commercial entities.  The controlling mind of the fund is not, as in Small’s Case, Trevor Small; it is not Mr Benson.  The fund is now administered by trustees together with all the other moneys provided, and that is exactly as the Full Federal Court hold.  That provision of commerciality and the exchange of rights and obligations falls to the resolution of the standard doctrine of quid pro quo.  It is not a bare trust.

The three judges who look at the point do not really analyse the relationship in the trust deed between Mr Benson and the three respondents.  In any event, if it were heard now and if it were overturned, there would be a very, very small number of cases that this could be relevant to because it deals with a bankruptcy that occurred in 1992, I believe was the date of the actual bankruptcy, which was governed by legislation which is substantially different, so it cannot really.  Mr Gallagher’s concerns, with great respect to him, cannot really affect any – it is hard to imagine that those old provisions would catch modern bankruptcies more than 10 or 12 years after this particular bankruptcy which was caught by very different legislation.  That is in respect of Mr Gallagher’s point.

The other issue of course is market value was not mentioned in the appeal.  It was not relevant to anything that was before the court.  A very simple point:  when the moneys from Mr Benson were provided to the three respondents, did they provide good consideration as a matter of law?  Justice Marshall said no.  The Full Court said yes, they did in a commercial sense because of the doctrine of quid pro quo.  They take upon themselves a series of obligations.  There was an exchange of promises, choses in action, elementary contract law.  There is a detriment, promise.  They have changed their position.  They are obliged to administer the fund.  According to the terms of the deed, there is consideration.  That was the end of the point.  There was no question about market value.

McHUGH J:   I know, but Mr Gallagher – and, after all, he is the Inspector‑General of Bankruptcy – is fearful that it is a possible consequence of this decision that property up to $1 million will be able to be transferred and unable to be brought back in under sections 120, 121 of the Act.

MR LANCY:   With respect, your Honour, the Act now in force addresses those matters by providing the RBL limit and the doctrine of whether proper consideration has been afforded or not.  Even if Benson were overturned, if there was a finding that there was no consideration, if Mr Justice Marshall was right, the same issue is still before the Court.  It does not change anything.  It then becomes very problematic as to what a superannuation company does in a situation where it takes money on trust in a publicly offered fund – very quizzical indeed.

It may be a matter for legislation but, with respect, it is not a decision about superannuation as such; a decision about the nature of consideration.  What is consideration in law?  It is well established principles referred to by Mr Justice Beaumont that there has to be a quid pro quo in the normal sense, an obligation, an exchange of a chose in action, and he finds that there was such, as Justice Kiefel does.  With respect, Mr Justice Hely seems to say that again he sees the benefit accrues under the terms of the trust, but the trust is part of the exchange between the parties.  That represents an exchange of obligations.  It must create a mutuality of relationship.

It cannot be the case that if you went back to the trust company and said, “I’ll have this money back as moneys paid on the consideration that has wholly failed”, the money is gone.  The money is in a fund to be administered.  If it is lost in specie, there can be no equitable tracing of the money. 

So, with respect, your Honour, I do not see that the concerns that Mr Gallagher has can be ventilated by the granting of special leave on one particular case.  It is fact‑specific.  It has to do with Mr Benson and his company and his own bankruptcy and the transfer of those moneys by his financial adviser into the three respondents.  It does not address the nature of market value.  It does not address the RBL.  They were not the law at the time.  The law at the time was under section 120.  Have the companies provided consideration?  The Full Federal Court says yes, they have given in return for the money a series of promises and obligations and choses in action.  That is a very simple point and even if it went up on special leave and that was found to be in error, it will not change anything under the current law.  The current law was not in force.  None of those matters were agitated, the nature of market value.

So, with respect, I say three things.  Firstly, it is fact‑specific; it is decided on the basis of legislation which has changed radically since that date; and, thirdly, that there is no error in the analysis provided by the Full Federal Court.  I do not think I can take it much further than that, your Honours.

GLEESON CJ:   Thank you.  Yes, Mr Harvey.

MR HARVEY:   Your Honours, in relation to the last times we have appeared in this case, our view is simply to abide by the decision of this Court and render any assistance if the Court seeks that.  If the Court pleases.

GLEESON CJ:   Thank you.  In this matter there will be a grant of special leave to appeal. 

We will adjourn for a short time to reconstitute.

AT 11.40 AM THE MATTER WAS CONCLUDED