Dealer Support Services Pty Ltd v MTAA House Pty Ltd
[2014] ACTSC 236
•22 August 2014
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Dealer Support Services Pty Ltd v MTAA House Pty Ltd; In re MTAA House Pty Ltd as Trustee for the MTAA Unit Trust |
Citation: | [2014] ACTSC 236 |
Hearing Date: | 20 August 2014 |
DecisionDate: | 22 August 2014 |
Before: | Walmsley AJ |
Decision: | See [37]-[39] |
Category: | Interlocutory application |
Catchwords: | EQUITY – Trusts and trustees – application to court for advice pursuant to s 63 of the Trustee Act 1925 (ACT) – whether proper for trustee to defend proceedings for declaration and consequential orders concerning unit trust |
Legislation Cited: | Trustee Act 1925 (ACT) s 63 Civil Law (Property) Act 2006 (ACT) s 205 |
Cases Cited: | Macedonian Community Orthodox Church St Petka Incorporated v His Eminence Petarthe Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand and Another (2008) 237 CLR 66 |
Parties: | MTAA House Pty Ltd (Applicant) Dealer Support Services Pty Ltd (Intervener) |
Representation: | Counsel Mr M. Orlov with Ms H. Roberson (Applicant) Mr C.M. Archibald (Intervener) |
| Solicitors Minter Ellison Lawyers (Applicant) HWL Ebsworth Lawyers (Intervener) | |
File Number(s): | ACTSC 153 of 2014; ACTSC 267 of 2014 |
Introduction
There are two sets of proceedings before me. By the first, on 22 April 2014, Dealer Support Services Pty Ltd (“DSS”) began proceedings (“the DSS proceedings”) against MTAA House Pty Ltd (“MTAA”) for a declaration and consequential orders concerning MTAA's position as a trustee.
By the second set of proceedings (“the advice proceedings”) commenced on 30 May 2014, MTAA has sought judicial advice under s 63 Trustee Act 1925 (ACT) concerning its defence of the DSS proceedings. MTAA has not filed a defence in those proceedings and the further progress of them awaits determination of MTAA's application for judicial advice.
After the trustee had filed its application for judicial advice, DSS was given leave to intervene on the hearing of the application.
The advice proceedings came before me for hearing on 20 August 2014. The applicant was represented by Mr M. Orlov and Ms H. Roberson of counsel, and the intervener was represented by Mr C.M. Archibald of counsel. Mr Orlov presented a bundle of documents and a statement of facts. Mr Archibald read an affidavit sworn by Mr Ian Martin Field on 14 August 2014 and tendered a bundle of documents exhibited to that affidavit which I marked IMF-1. The application for advice was opposed by DSS. For reasons which I will set out below, I consider a case has been made out for the giving of judicial advice.
The factual background
On 21 December 1990, Sir Frederick Sutton executed a deed of trust by which a unit trust called MTAA Unit Trust was created. By the deed, MTAA was appointed trustee. The trust property consists substantially of a building called MTAA House in the Canberra suburb of Barton. When the trust was created, units were issued to a number of subscribers, including to an unincorporated association called Australian Automobile Dealers Association (“AADA”).
The unit trust deed provides for pre-emptive rights. A unit holder wishing to sell units must first give notice to the trustee specifying the proposed sale price. The trustee must then either approve the sale price as the fair value or cause an auditor to fix the fair value. Once the fair value has been fixed and approved by the trustee, the proposed transferor is notified by the trustee. On notification of the transferor, the trustee becomes the agent of the transferor for three months to achieve a sale at fair value. The trustee must then offer the unit to existing unit holders at that value. If they offer to buy the units, the transferor must sell to them on payment by them of the fair value. Any units not sold in that way may then be sold to non-unit holders at the fair value. Significantly for these proceedings, rights of pre-emption do not apply where the proposed transfer does not affect beneficial ownership of the units, or if all the unit holders unanimously agree.
AADA was set up in the 1960s. In 2005 it adopted a constitution with comprehensive provisions. Paragraph 5 of the constitution provided that the president of the AADA would become the trustee for AADA and would hold in trust for AADA "the units it owns in MTAA House, Canberra." At the time when units in the trust were first issued, and consistently with a requirement of the trust deed, the trustee issued certificates to unit holders. The certificate issued to AADA described "the applicant" for those units and the "holder" of them as "John Arthur Rickus as trustee for Australian Automobile Dealers Association".
When, as occurred, an additional unit was issued by the trustee to AADA on 19 April 1995, another unit certificate was issued recording that "John Arthur Rickus as trustee Australian Automobile Dealers Association" was the holder of that unit. Neither of those certificates has ever been cancelled.
The trustee was required by the trust deed to keep a register of unit holders. As will later appear, the trustee has been far from diligent in the way it has honoured that requirement.
A trust register of unit holders on 20 February 1996 recorded Mr Rickus as trustee for AADA. So did one prepared in January 2001. However, trust records changed on 6 February 2001 and the then record of unit holders showed Brian Abraham Curmi as trustee for AADA. A trust record of June 2005 also showed Mr Curmi as trustee for AADA. I infer that the trust records showed various changes of trustee for the AADA units over the years because the AADA rules required the president for the time being to hold them on trust for AADA and there were changes in presidency from time to time. However, there was no hard and fast rule about changing the name of the trustee on MTAA trust records when presidents of AADA changed. There were times when people who had held that position had ceased to hold it but remained recorded in the trust's records as the unit holder. Some presidents never held the units in their own names while they were president. Counsel for the trustee conceded to me that the trust records were a muddle.
On 18 August 2011, the then members of AADA resolved that that association be dissolved and its assets transferred to DSS once any outstanding association debts had been paid. There is no evidence about this, but it is suggested by DSS in its pleading in the DSS proceedings that its only liability when wound up was $7,107 and that by 9 February 2012 that liability had been discharged.
Also in its pleading, DSS avers that on 9 February 2012, or alternatively on 31 August 2012, the unit trust holders in the trust unanimously agreed to the transfer of the AADA units to DSS. Material presented by the trustee in these proceedings suggests that whether there was unanimity may be in doubt. The fact is that DSS did become registered on the trustee's unit register as the owner of the AADA units. However, the trustee never issued DSS with a unit certificate.
In 2013, DSS decided to sell the units. It gave the trustee notice according to the trust deed and specified a fair value. On 14 February 2014, the trustee approved the proposed price as the fair value. DSS says that the trustee thereby became its agent for the sale of the units and was required to offer them to other unit holders. According to DSS’ pleading, the trustee declined to offer the units for sale to anyone and has explained an apparent defence of its position that it has been advised that the purported transfer to DSS was ineffectual. The units, it says, are still owned by AADA's first president, so DSS has no property to sell, and although DSS is recorded on the unit register as the current owner, that record was made by the trustee in error based on a misunderstanding of the facts and the legal position. DSS avers that this conduct by the trustee in not proceeding with the sale amounts to a breach of trust and that the trustee should not be permitted any indemnity from trust assets for the costs in the DSS proceedings.
Issues to be resolved
The matters as to which advice is sought relate directly to those DSS proceedings and, in particular, whether the trustee should defend them.
It should also be observed that the unit holders in the trust are entitled to be paid distributions from trust income. Until August 2011, the trust paid distributions to AADA. After it was wound up, payments were made to DSS. But since 28 January 2014 the trustee has ceased to pay DSS the distributions, pending advice from the Court as to the rightful payee.
Thus there are issues which need resolution. First, DSS wants to sell its units. Secondly, it needs to know whether it is entitled to distributions.
DSS is entitled, in my view, to have its case proceed.
Sections 63(1) and (2) Trustee Act 1925 (ACT) provide:
(1) A trustee may apply to the Supreme Court for an opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.
(2) If the trustee acts in accordance with the opinion, advice or direction, he or she shall be deemed, so far as regards his or her responsibility, to have discharged his or her duty as trustee in the subject matter of the application, provided that he or she has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion, advice or direction.
The trustee has filed no defence in the DSS proceedings. There is good reason for that. As the plurality said in Macedonian Community Orthodox Church St Petka Incorporated v His Eminence Petarthe Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand and Another (2008) 237 CLR 66; [2008] HCA 42 at [74]:
A necessary consequence of the provisions of s 63 is that a trustee who is sued should take no step without first obtaining judicial advice about whether it is proper to defend the proceedings.
The trustee in its originating application has asked the following questions:
(1) In respect to the AADA units (as defined in the statement of claim in proceedings number 153 of 2014) brought in this honourable court by Dealer Support Services Pty Ltd (DSS) against MTAA House Pty Ltd (MTAA House) (DSS proceedings):
(a) Is DSS, Ian Field as president of Australian Automobile Dealers Association (unincorporated) or some other person the rightful holder of the AADA units and if some other person, who?
(b) What, if any, amendment should MTAA House make to the register of unit holders in respect of the AADA units?
(c) Is MTAA bound to issue to DSS a unit certificate in respect of the AADA units and if not, to whom, if anyone, should MTAA House issue such a unit certificate?
(d) Is MTAA House bound to commence the pre-emption process with respect to the proposed transfer of the AADA units pursuant to clause 8.1(c) of the MTAA House Unit Trust Deed and the notice issued by DSS on 19 December 2013?
(2) Is it proper for MTAA House to defend the DSS proceedings?
(3) Should MTAA House's costs and expenses incurred in connection with this application and the DSS proceedings be paid out of the assets of the MTAA House Trust on an indemnity basis?
(4) Any other orders or directions that the court considers appropriate.
Relevant provisions of the trust deed
In the resolution of the matter it is necessary, I think, to consider some provisions of the trust deed. Clause 6.1(a) requires the trustee to keep the register of unit holders in which it enters the names, addresses and descriptions of unit holders, the number of units they hold and the distinctive numbers of such units, the date each holder's name was placed in the register, and the date a holder's name was removed. In my view, difficulties have been caused by the way the trustee has recorded changes in the presidency of AADA over the years. Records produced by the trustee do not provide a complete history of how and when changes were made to the trust unit register. I have set out above some of the changes recorded on the unit register from what the trustee’s counsel agrees is an incomplete set of records.
Clause 7.1 of the trust deed requires the trustee to issue a certificate to each unit holder evidencing entry in the register. Here, as I have observed, it has entered the name of DSS in the register, but has not issued DSS with a certificate under clause 7.1. It says it made an error in placing the name of DSS in the register. I consider that each of the trustees and DSS are entitled to have this issue resolved so that if the trustee is correct, the register may be corrected. That is, if the trustee is correct in the submissions it put to me this week, the register may be corrected, and if DSS is right, it may be issued with a certificate and have the sale of the AADA units proceed.
As I have noted, the trustee argued that there had been an error made by it in recording DSS as the owner of the AADA units. It made that submission for a number of reasons, but essentially because it says the trust deed provisions relating to changes of ownership have not been complied with.
Clause 8.1 refers to the transfer of units and (a) and (b) and the opening part of (c) provide as follows:
8.1(a) Subject to the provisions of this deed, every unit holder shall be entitled to transfer all or any of the units for the time being held by him by an instrument in writing in such form as the trustee may from time to time approve.
8.1(b) Every such instrument shall be executed by or on behalf of both the transferor and the transferee and the transferor shall be deemed to remain the holder of the units comprised therein until the name of the transferee has been registered in the register of Unit-holders as the holder of such units. Every instrument of transfer shall be duly stamped (if required by law) at the expense of the transferor or the transferee and left with the Trustee for registration accompanied by the Unit Certificate relating to the units to be transferred. Upon being satisfied that the provisions of this Deed relating to transfer of units have been complied with, the trustee shall make appropriate entries in the register of Unit-holders, cancel the Unit Certificate of the transferor relating to the units transferred, and issue a new Unit Certificate relating to these units in the name of the transferee as Unit-holder. The provisions of Clause 7 hereof shall apply in relation to the new Unit Certificate referred to in this sub-clause 8.1(b).
8.1(c) No units shall be sold or transferred except in accordance with the provisions of this sub-clause 8.1(c), and unless and until the rights of pre-emption herein contained shall have been exhausted (...)
Thereafter the pre-emption rights are set out, and they are the ones which I summarised earlier.
A further relevant provision from the trust deed appears at the end of clause 8.1 after the details of the pre-emptive rights provisions. That is sub-clause 8.1(c)(xi) which says:
Notwithstanding anything herein contained, the provisions of subsection (c) of subclause 8.1 shall not apply to the following transfers of units:
(A) a transfer in respect of which the Trustee is satisfied does not affect any alteration in the beneficial ownership of the units transferred; or
(B) a transfer made with the unanimous consent of all the Unit-holders.
Submissions from counsel
Mr Orlov submitted that the opening words of clause 8.1(b) reflect the requirements of s 205 of the Civil Law (Property) Act 2006 (ACT), the modern incarnation of the Statute of Frauds. He submitted that DSS had not complied with that section before its name was erroneously placed on the register of unit holders; nor had the trustee complied with its obligations under clause 8. For example, he submitted the trustee had not turned its mind to whether there had in fact been any alteration in the beneficial ownership of the units. He submitted there was a real issue about whether there had been a change in beneficial ownership, and although with a unanimous vote of unit holders a transfer could be registered after a change in ownership, there was doubt here as to whether that had occurred.
Mr Archibald submitted, among other submissions, that DSS was the incorporated successor of AADA and the trustee had been aware of that and had recorded it as the new unit holder. It had only changed its attitude to proceeding with the pre-emptive requirements when DSS became associated with a competitor of a company associated with the trustee. That attitude had been taken for purposes extraneous to its obligations as trustee.
Mr Archibald submitted I should decline to give advice on the precise points raised in the DSS proceeding, which are more aptly dealt with in the DSS proceedings. He submitted it would be unfortunate if the DSS were bound by my advice on these matters, and the DSS would wish to raise matters in its reply such as estoppel and might not be able to do that unless I qualified my advice. He submitted that Mr Richard Dudley, who at relevant times had held significant executive positions with the trustee, had not given evidence on the application. He submitted that the claims by DSS were not appropriate for summary determination, and that the trustee had not provided any advice from counsel although such an advice is usual with these applications. He submitted it would be, in effect, in bad faith for the trustee to defend the DSS proceedings and to defend allegations of breaches of trust, and that although there might have been some failures on the trustee's part in performing its obligations under clause 8.1, the relevant requirement had been for the trustee to be satisfied that the deed's transfer provisions had been complied with, and I must conclude and infer that it had been so satisfied because it had, after all, registered his client's name as the current owner of the units.
Mr Archibald submitted that the trustee should not have its costs indemnity as it had not performed in good faith and had been dilatory and negligent in its duties. (The word "negligent" is my word and not his.) If I accept the invitation to advise, he submitted, I should only do so to a limited extent, and that is to permit the trustee to defend the proceedings.
Consideration
The jurisdiction under section 63 is wide. I referred earlier to the Macedonian case. The plurality judgment at [58] to [59] refers particularly to the great width of the jurisdiction.
I have earlier said that I accept Mr Orlov's submission that this is an appropriate case in which to give judicial advice. I do so because there is, as I see it, a real issue about whether the trustee is obliged to continue with the pre-emption provisions of the deed. The facts before me suggest that there was a change of beneficial interest in the AADA owner units when the members of the former unincorporated association purported to assign them to DSS. Where there is a change of beneficial ownership in units, the pre-emptive rights clause must be complied with unless all the unit holders agree to dispense with it. Material from the trustee suggests that if the trustee did obtain unanimity for the transfer, it did not apply its mind to the possibility that there was to be or had been a change in beneficial ownership. It must then be questioned whether the deed's requirements were complied with.
Next, there is material from the trustee which suggests that if there was a change of beneficial ownership in the units, there was no compliance by the transferor with section 205 of the Civil Law (Property) Act 2006, although there was, on its face, an obligation to comply.
Finally, and in addition, the trustee has not yet issued a certificate to DSS as the assignee. The fact that it has recorded DSS as the holder does not necessarily give DSS the right to have a certificate issued to it if the trustee has made the record in error, as it asserts.
These are not concluded views about these matters, but in my view there appears to be sufficient doubt about them so as to offer caution to the trustee about complying with DSS's request until all the facts have been explored. That exploration would, I think, be done best in the DSS litigation.
Although the trustee did not file its originating application for advice as soon as it became aware there might be a dispute about its obligations, the delay, I think, was relatively short.
Although the parties before me are in dispute in the DSS litigation, the fact that there is litigation concurrently underway does not preclude the giving of advice in an appropriate case. It is, I consider, important, however, not to foreclose any decisions the trial judge may make, and the orders that I propose to make are designed to reflect that.
Mr Archibald submitted, as I have observed, that the trustee lacked bona fides in declining to assist further with the sale process because AADA had recently become associated with a group in competition with a company close to the trustee. But there is limited material before me about that, and the material there is is also consistent with the proposition that when the trustee declined to take the next step of offering the units to the other unit holders, that was after it had for the first time obtained legal advice about its obligations.
Further, counsel for the trustee in the course of his submissions to me told me that the trustee wished to assist with the assignment provided this could be done in a way where it was assured the transfer was consistent with its obligations, even if that meant having Mr Rickus execute a transfer on behalf of the members of the former unincorporated association, or by having amendments made to the trust deed.
Mr Archibald argued that the trustee had not made proper disclosure of what had gone on with the register, but I do not consider the material before me supports that. Appropriately for a section 63 application, there was no evidence. Rather there was a statement of facts and a bundle of documents. They persuade me that the trustee has done what it reasonably could.
Although Mr Archibald submitted his client might be bound in the DSS proceedings by orders or advice I make or give here, I do propose to craft my advice in such a way as to ensure the orders may be revisited by another judge. In the end, I took Mr Orlov to concede that that would be appropriate.
Although Mr Archibald argued that there was sufficient compliance with clause 8.1 when the trustee had been satisfied of certain matters, I consider it would be open in the DSS proceedings, (although this is a matter for the trial judge), for the trustee to attempt to show that it had not brought its mind properly to bear on the issue of the obligation to agree to the assignment, as it had failed to consider there might have been a change in beneficial interest in the units. Thus it would be open to the trustee to attempt to show it had been in error in placing DSS's name on the register.
Although Mr Archibald argued that the trustee should not have its costs paid from the trust property, I consider it should. Its delay in beginning these proceedings for advice was not lengthy and it is an open question as to whether it was motivated in any way by mala fides. As I have observed, I do not see that the evidence supports that, and it would be better to leave that matter for the trial judge to decide. If the decision not to proceed with offering the units to other unit holders ultimately does reflect poorly on the trustee, it would be open to the trial judge to revisit the order that I propose to make concerning costs.
I take into account too that the trustee has been a poor administrator of trust documents and that such conduct may well be found to have been at least in part responsible for the litigation. That also is a matter the trial judge may take into account when dealing ultimately with the question of costs.
Although, as Mr Archibald put to me, an advice from counsel is usual in these applications, I see no reason why I should decline to give advice for the lack of one here.
Although Mr Archibald drew attention to Mr Dudley's position in not having given evidence, I do not see that there is anything sinister about that given the way these applications are usually run.
Mr Archibald submitted that if I do accede to the application to give advice, I should only give the trustee advice to defend the litigation. As will be seen, the orders I propose do permit the trustee to defend the litigation by DSS and to preserve the status quo pending the outcome of those proceedings.
Mr Archibald submitted I should restrict the trustee to defending on particular grounds, however, I decline to accept that submission. It is relatively early in the life of the DSS proceedings and the trustee has not filed a defence or been required to, and I would be reluctant to close it off from relying on defences which may be legitimate but not yet apparent. Further, as Mr Orlov observed, it is possible that DSS may wish to amend its statement of claim at some stage.
It will be open to the trial judge to judge ultimately whether the trustee will have been justified in raising particular defences and to make costs orders appropriate to any finding that defences were not properly raised or maintained. Obviously, the trustee would be expected to defend principally on the basis of the arguments put to me on Wednesday by Mr Orlov.
Thus, notwithstanding the significant arguments put to me by Mr Archibald, I am persuaded that I should give the advice. The advice is as follows:
Advice under s 63 of the Trustee Act 1925 (ACT)
The following refers to the questions asked in the originating application of 20 June 2014.
(i) I decline to give the advice requested in questions 1(a), (c) and (d) as they are questions better determined in the DSS proceedings.
(ii) I decline to give the advice requested in question 1(b) as I consider it is not possible to decide what, if any, amendments to the trust deed will be required until resolution of the matters in 1(a), (c) and (d).
(iii) I advise that until further order, it is proper for the trustee to defend the DSS proceedings.
(iv) I advise that until further order, the trustee's costs and disbursements incurred in connection with this application and the DSS proceedings should be paid out of the assets of the MTAA House Trust on an indemnity basis.
Further directions
Directions in SC 153 of 2014:
(i) DSS is to file any amended statement of claim by 5 September 2014;
(ii) MTAA House Pty Ltd is to file its defence by 19 September 2014;
(iii) Any application to have the plaintiff’s solicitors cease acting for the plaintiff is to be filed by 26 September 2014;
(iv) The matter is referred to the Master for further directions on 26 September 2014.
Directions in 267 of 2014:
(i) I note that the intervener DSS makes an application for its costs incurred in connection with this application to be paid out of the assets of the MTAA House Trust on an indemnity basis;
(ii) The intervener DSS is to file any written submissions in connection with its costs application by 5 September 2014;
(iii) MTAA House Pty Ltd is to file any written submissions in reply by 12 September 2014;
(iv) The intervener DSS is to file any written submissions in reply to MTAA House Pty Ltd’s submissions by 19 September 2014.
| I certify that the preceding fifty-three [53] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Walmsley. Associate: E.Sutton Date: 15 September 2014 |
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