MJ Jacometti Pty Ltd v Boomaroo Nurseries and Wholesale Supplies Pty Ltd
[2011] VSC 612
•1 DECEMBER 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
No. S CI 2011 02617
| MJ JACOMETTI PTY LTD | Plaintiff |
| v | |
| BOOMAROO NURSERIES & WHOLESALE SUPPLIES PTY LTD | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 20 JUNE 2011; WRITTEN SUBMISSIONS FILED 1 JULY 2011 AND 5 JULY 2011 | |
DATE OF JUDGMENT: | 1 DECEMBER 2011 | |
CASE MAY BE CITED AS: | MJ JACOMETTI PTY LTD v BOOMAROO NURSERIES & WHOLESALE SUPPLIES PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 612 | |
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Trusts – Defendant trustee of Unit Trust – Procedure for transfer set out in Trust Deed – Whether transfer notice served – Proceeding commenced by unit-holder seeking declaration, injunction and reimbursement of trust fund and an order for payment of costs otherwise than from trust fund – Exemption of trustee from liability in specified circumstances – Trustee Act 1958, s 67.
Practice and Procedure – Application for summary dismissal – Whether plaintiff’s claim had no real prospect of success in light of trustee’s exemptions from liability – Civil Procedure Act 2010, ss 63, 64.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr CR Northrop | Harwood Andrews Lawyers |
| For the Defendant | Mr TJP Walker | Fitzpatrick Legal |
HIS HONOUR:
The Application
By a summons filed on 17 June 2011, the defendant, Boomaroo Nurseries & Wholesale Supplies Pty Ltd (“Boomaroo”), sought an order for summary judgment pursuant to s 63 of the Civil Procedure Act 2010 (“the CPA”), alternatively r 23.03 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”), alternatively r 23.01 of the Rules. For the reasons given below I would dismiss the application.
The Factual Background
The defendant is the trustee of the Boomaroo Nurseries & Wholesale Supplies Unit Trust (“the Unit Trust”) which was constituted by a Deed of Trust made on 1 July 1988 between the defendant, then known as Section Tower Pty Ltd,[1] as trustee and E&M Jacometti Vegetable Growers Pty Ltd as unit-holder (“the Trust Deed”). There are twelve units, of which four are now held by the plaintiff, MJ Jacometti Pty Ltd (“MJJ”) as trustee of the M&J Jacometti Family Trust, four by Jacometti Brothers Pty Ltd as trustee of the E&L Jacometti Family Trust, and four by TM Jacometti Pty Ltd as trustee of the T&M Jacometti Family Trust.
[1]Although the Trust Deed said the name was “Section Towers Pty Ltd” the ASIC search showed this name.
The defendant operates a large wholesale vegetable nursery supply business which was started by Michael Jacometti and his brother Eric. A third brother, Theo, later joined the business. The three brothers were the only directors of the defendant until 2007 when John Fillmore, a solicitor, and Kevin Leece, an accountant, were appointed. Mr Fillmore became the Chairman.
Clause 8 of the Trust Deed read as follows:
8. IF the whole or part of the transfer procedure set forth in the Third Schedule is by Part 1 made applicable to this Deed then subject to clauses 7 and 9 but without prejudice to sub-clauses (b) and (c) of clause 6, transfers of units shall only be approved of or registered by the Trustees if:-
(a)the Trustees are satisfied that there has been substantial compliance with such of the provisions of the Third Schedule as are by Part 1 made applicable to this Deed, or
(b)the Trustees have received the consent of the unit-holders to the waiver of the said transfer procedure and to the registration by the Trustees of the transfers of units in question.
Part 1 of the Trust Deed made the whole of the Third Schedule applicable. That Schedule provided as follows:
Transfer Procedure
THE transfer procedure is as follows:-
(a)A unit-holder desiring to sell or transfer a unit (called “the proposed transferor”) shall serve the Trustees with a notice (called “a transfer notice”) of his desire specifying the units which he desires to sell or transfer and the price he fixes as the fair value thereof and such notice shall constitute the Trustees his agent to sell the units at the fair value determined as hereinafter provided.
(b)A transfer notice may include several units in which case it shall operate as if it were a separate notice in respect of each unit. A transfer notice shall not be revocable except with the sanction of the Trustees.
(c)The Trustees may accept the fair value for the purpose of this Clause but if they are of opinion that it is too high or too low or if no fair value is stated in the transfer notice they may refer the question to the auditor of the Trust or to any registered company auditor to be selected by them for the determination of the fair value and the fair value as determined by such auditor shall be deemed to be the fair value of the units for the purpose of this Clause. Such auditor in making such valuation shall be deemed to be acting as an expert and not as an arbitrator and accordingly the provisions of the Arbitration Act 1958 shall not apply. The costs of obtaining the determination of the auditor shall be borne as to one-half by the person giving the transfer notice and as to the other half by the Trust.
(d)Units comprised in a transfer notice shall in the first instance be offered by notice in writing to all the unit-holders (except the proposed transferor) as nearly as may be in proportion to their respective holdings of units. Where the units are divided into different classes the units comprised in a transfer notice shall in the first instance be offered to the holders of units of that class (excepting the proposed transferor) as nearly as may be proportionate to their respective holdings of units of that class.
(e)The offer to unit-holders shall state that if the same is not accepted in whole or in part within fourteen days from its receipt it shall be deemed to be declined and such offer shall also require any unit-holder who desires to purchase units in excess of his said proportion to state how many additional units he desires to purchase at the fair value.
(f)Any units not accepted from the said offer shall be used for satisfying the said request for additional units but if there shall be insufficient of the said unaccepted units to satisfy in full all such requests for additional units the said unaccepted units shall be distributed amongst the unit-holders making such request as nearly as may be in proportion to the respective holdings of units (or of units of the particular class in question as the case may be) provided that no unit-holder shall be bound to take more additional units than those he shall have offered to purchase.
(g)If and to the extent to which any offer made as aforesaid is accepted the proposed transferor shall be bound to transfer the units accepted and the unit-holder accepting the offer shall be bound to pay the fair value as aforesaid for the units.
(h)Any unit comprised in the transfer notice which has not been accepted for sale as aforesaid shall be dealt with as follows –
(i)the Trustees shall use their best endeavours to find a unit-holder or any person selected by the Trustees as one whom it is desirable in the interest of the Trust to admit as a unit-holder and who is willing to purchase the unit at the fair value thereof fixed as aforesaid;
(ii)if before the expiration of two months from the date of service on the Trustees of such transfer notice the Trustees shall find a unit-holder or person selected as aforesaid willing to purchase the units they shall give notice to the proposed transferor and he shall thereupon be bound upon payment of the purchase price to transfer the units to the unit-holder or person selected as aforesaid willing to purchase the same;
(iii)if before the expiration of the said period of two months the Trustees shall not find a unit-holder or person selected as aforesaid willing to purchase the whole of the units mentioned in the transfer notice and give notice in manner aforesaid the proposed transferor shall at any time within three months thereafter be at liberty to sell or transfer the units not so purchased to any person at the fair value.
(i)If in any case a unit-holder having become bound to transfer any units shall make default in so doing the Trustees may receive the purchase money and shall thereupon cause the name of the person accepting such units to be entered in the books of the Trust as the unit-holder thereof and shall hold the purchase money in trust for the unit-holder in default. The receipt of the Trustees for the purchase money shall be a good discharge to the person accepting such units and after his name has been entered in the books of the Trust in purported exercise of the aforesaid power the validity of the proceedings shall not be questioned by any person.
(j)The Trustees may with the consent of the unit-holders (of whatever class) vary the foregoing procedure to meet the circumstances of any particular case and in particular may give any person or persons a preferential right to acquire any units.
In an affidavit sworn on 26 May 2011 Michael Jacometti stated as follows:
4.For some time relations between the three brothers have deteriorated. On 2 March 2011 I met my brother Eric at the premises of the defendant at 105 St Andrews Drive, Lara and discussed a possible sale of the plaintiff’s units in the Unit Trust. In our discussions I said I was seeking advice in relation to the possible sale. I told him I was looking for a minimum price below which I was not prepared to sell.
5.On the same day I had a telephone conversation with my brother Theo. We discussed a possible sale of my interest in the business and I also told Theo that there was to be a minimum price.
On 11 March 2011 Michael Jacometti received a letter from Mr Fillmore in which it was alleged that in his meeting with Eric Jacometti and in his telephone conversation with Theo Jacometti on 2 March 2011 Michael Jacometti on behalf of MJJ advised that MJJ in its capacity as the trustee of the M&J Jacometti Family Trust “wished to sell its 12 [sic] units” in the Unit Trust and that “the price set for the sale of those units” by Michael Jacometti was $8 million. Mr Fillmore then stated in his letter that by the meeting and telephone attendance MJJ had “given notice of the desire to sell the units in the Trust at a value of $8,000,000.00”. He went on to say that such an offer was irrevocable without the sanction of Boomaroo. The letter continued:
Again pursuant to the terms of the Deed Boomaroo is constituted your trust’s agent for the sale of those units. A meeting of the directors of Boomaroo today formed the unanimous opinion that the value set by you as the fair value of the units is too high. Accordingly in conformity with the terms of the Deed Boomaroo shall appoint a registered company auditor to determine the fair value of the units prior to any offer being made of your units to the other unitholders again pursuant to the terms of the Deed. It is anticipated that the appointment will occur within ten days. We shall advise you of the appointment when it has been made. Please be aware that pursuant to the terms of the Deed the cost of obtaining the determination will be borne as to one-half by MJ Jacometti Pty Ltd and the other half by Boomaroo.
Michael Jacometti stated in his affidavit that despite being a director of Boomaroo he “was not involved in any decision to send the letter or to engage a valuer”.
On 17 March 2011 Mr Fillmore advised Michael Jacometti that “we are in the process of obtaining a quote from Pitcher Partners, Chartered Accountants, to prepare a valuation of the units that have been offered for sale”.
On the same day, MJJ’s solicitor, Dan Simmonds of Harwood Andrews, wrote to Mr Fillmore refuting “the allegations made in your letter of 11 March that the conversations held with Theo and Eric Jacometti constituted a transfer notice as required by the third schedule of the trust deed” establishing the Unit Trust.
By a letter dated 22 March 2011 to Mr Simmonds, Mr Fillmore set out the following response to his letter:
1.Both Eric Jacometti and Theo Jacometti have again confirmed the clear and unequivocal statements made by Michael Jacometti in regard to both the fact that the units are for sale and the price of $8,000,000.00. This has also been confirmed from discussions that took place directly between your client and Kevin Leece;
2.The company had obtained, prior to providing the letter of the 11th March 2011, independent advice as to whether or not your client’s statements constituted notice pursuant to the Third Schedule of the Deed establishing the Boomaroo Nurseries & Wholesale Supplies Unit Trust;
3.Turning to the directors meeting, the Third Schedule of the Deed refers to the Trustees, which is on page one of the Deed defined as the company, Boomaroo Nurseries & Wholesale Supplies Pty Ltd (under its previous name, Section Towers [sic] Pty Ltd). The company’s Articles of Association provide as follows:
“4.6.1The directors may meet together for the dispatch of business adjourn and otherwise regulate their meetings as they think fit”.
On the basis of both the Deed and the Articles of Association, our view is that the meeting was valid.
Further correspondence ensued between Mr Simmonds and Mr Fillmore dealing with, amongst other matters, an unsuccessful attempt to arrange a meeting between the unitholders. Eric and Theo Jacometti were said by Mr Fillmore to only be prepared to meet once the fair value had been determined by Pitcher Partners. By a letter dated 14 April 2011 Mr Fillmore advised, in a response to a request by Mr Simmonds, that the independent advice had been provided to Boomaroo orally in conference by Mr Philip Crennan of counsel. Further questions by Mr Simmonds about who provided the instructions to counsel and to Pitcher Partners went unanswered.
On 11 May 2011 Michael Jacometti received by cc an email sent on behalf of Mr Fillmore to outside consultants which referred to a draft valuation by Pitcher Partners. As at the date of swearing his affidavit Michael Jacometti had not seen the draft valuation or received any contact from Pitcher Partners.
On 26 May 2011 the plaintiff commenced this proceeding against the defendant alleging that the defendant had breached its fiduciary obligations to the plaintiff by preferring the interests of other unit-holders over the interests of the plaintiff by its conduct in wrongly asserting that the plaintiff had given a transfer notice as stated in its letters of 11 and 22 March 2011 and by engaging Pitcher Partners to conduct a valuation of the plaintiff’s units. The relief sought by the plaintiff was:
AA declaration that the plaintiff has not served a transfer notice within the meaning of the Third Schedule of the unit trust deed.
B.An injunction (both interlocutory and permanent) restraining the defendant from taking any steps or doing any thing in purported performance of the transfer procedure described in the Third Schedule.
C.An order that the defendant reimburse the trust fund for any expenses paid from the trust fund in respect of any steps taken in purported performance of the transfer procedure described in the Third Schedule.
D.An order that the defendant pay the plaintiff’s costs of this proceeding otherwise than from the trust fund.
A summons was filed on 26 May 2011 seeking an interlocutory injunction. It was made returnable on 3 June 2011. On that day, in an effort to achieve a resolution of “the real commercial issue”, Dixon J referred the proceeding to mediation to take place on 14 June 2011. The usual undertaking as to damages was given by the plaintiff as was an undertaking by the defendant that pending the hearing and determination of the application for interlocutory injunction or further or other order, it would “not offer to sell or transfer any of the units held by the plaintiff in the Unit Trust”. The further hearing of the plaintiff’s summons was adjourned to 20 June 2011.
The defendant filed a defence and an amended defence in which it was pleaded that:
On or about 2 March 2011 the plaintiff represented to the defendant and the other unit-holders that it wished to sell its units in the unit trust for a price of $8 million.
The particulars of this allegation were the statement by Michael Jacometti of “words to the effect that the plaintiff wished to sell its units in the unit trust for a price of $8 million” in the meeting between Michael Jacometti and his brother Eric on that day, the telephone conversation between Michael Jacometti and his brother Theo on that day and a conversation between Michael Jacometti “on behalf of the plaintiff” and Mr Leece “in his capacity as a director of the defendant” on that day. It was also pleaded that the defendant took and acted upon the opinion of counsel in relation to the interpretation and effect of the third schedule provisions. The pleading then set out three different defences to the plaintiff’s claim – clause 14(t) of the Trust Deed, clause 18 of the Trust Deed and s 67 of the Trustee Act 1958. These provisions will be considered below.
On 17 June 2011, the defendant filed its summons seeking summary judgment. It was supported by an affidavit sworn on that day by Mr Fillmore. He deposed that prior to forwarding the letter on 11 March 2011, the defendant obtained advice from counsel. That advice “was initially provided in conference and then confirmed in writing”.
A copy of the Pitcher Partners’ valuation dated 6 June 2011 was provided to Michael Jacometti on 8 June 2011. It stated that “the fair value of the equity in Boomaroo at 28 February 2011” was $7.3 million, being the midpoint between $6.006 and $8.606 million. A copy of Pitcher Partners’ draft valuation dated 6 May 2011 and a copy of counsel’s written advice dated 10 June 2011 were provided to Harwood Andrews on 15 June 2011.
Counsel’s memorandum began by stating that its purpose was:
to confirm in writing my advice in conference to my instructing solicitors in March this year in relation to a notice given by Mr Michael Jacometti with regard to units in the Boomaroo Unit Trust.
In paragraphs 5 and 6 of the memorandum, counsel set out the factual basis for his advice:
On 2 March 2011, Michael stated to Eric that:
a.Michael did not want to stay in the business or participate in the new strategy or sign the new shareholders agreement and that he wanted to get his money now rather than later;
b. he intended to sell his units;
c. he set a price of $8 million on his units;
d.he had engaged a private broker, Peter Billings, to procure potential buyers for his units.
Counsel then set out that the issue for consideration was whether the third schedule required that there be a written notice. He referred to R v Shurmer[2] concerning the use of the word “serve” and concluded that it was necessary that the third schedule be construed in the context of the Trust Deed as a whole to determine the issue. Counsel then referred to other provisions in the Trust Deed where a notice or act was expressly required to be in writing (clause 6(b) “transfer in writing”, clause 9(c) “notice in writing”, clause 27(a) “consent in writing”, and significantly clause (d) of the third schedule “notice in writing” of the offer to the unit-holders of the units “comprised in a transfer notice”). Counsel also contrasted the provisions of clause 28 dealing with the method of the giving of notice by the trustee to unit-holders (such as by post) and the address to which that notice has to be sent, with the absence of any provision in the Trust Deed specifying any manner in which a notice was to be served on the trustee, and any provision identifying the address at which the trustee might be served.
[2](1886) 17 QB 323.
Finally, counsel stated that construed purposively the requirement of notice of the unit-holder’s desire to transfer units was satisfied bearing in mind that the context was not litigation but “an ongoing commercial relationship in a closely held group”. He concluded:
In the present case, a person who is a director of the trustee and of one of the unit-holders has specifically informed the executive directors of the trustee of all of the matters and information required in a transfer notice. On my instructions, the stated intention to transfer is unequivocal, the price is specified, and the intention to sell outside the group is also stated.
When the matter came on for hearing before me on 20 June 2011 the parties agreed that the defendant’s summons should be dealt with first. Although no mediation had been held (because there had been insufficient time for the valuation to be properly considered) neither side pressed for a further adjournment to allow this to occur. The defendant’s reluctance to do so was based on the fact that the litigation was between unit-holder and trustee whereas the mediation was really concerned with a possible resolution of the commercial dispute between the unit-holders outside of the legal dispute.
By the conclusion of the hearing it had become clear that in order for the Court to properly consider the issues, the plaintiff had to deliver its reply. I therefore directed that the reply be filed and served by 28 June 2011. I reserved liberty to the defendant (if so advised) to file brief written submissions concerning the issues raised by the plaintiff’s reply by 1 July 2011 and reserved liberty to the plaintiff (if so advised) to file brief written submissions in response by 5 July 2011. Accordingly, I reserved my decision on the defendant’s application for summary judgment. The further hearing of the plaintiff’s application for an interlocutory injunction was adjourned to a date to be fixed and the cross undertakings were continued.
The plaintiff delivered its reply as directed and both parties took the opportunity to file written submissions.
Consideration of the Issues
I turn then to consider the defendant’s application for summary judgment in the light of the submissions made at the hearing and the subsequent written submissions.
As stated above, the defendant’s application for summary judgment was brought pursuant to s 63 of the CPA, alternatively various provisions of the Rules. Mr Walker of counsel, who appeared for the defendant, referred me to the decision of Dixon J in Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd[3] where his Honour considered an application by defendants for summary judgment under s 63 of the CPA. His Honour summarised the principles which he considered now applied to such an application. They were as follows:
[3][2011] VSC 222.
(1)If a proceeding or defence, or any particular claim, cause of action or ground of defence (“claim”) is hopeless, untenable, bound to fail, or could not possibly succeed, then it ought be summarily dismissed. In other words, a claim which ought be dismissed under the old test will be dismissed under s 63.
(2)Section 63, however, is less stringent. It does not direct an inquiry into whether a certain and concluded determination could be made that the proceeding, or a claim, would necessarily fail. What is required is a practical judgment by the court as to whether a claim has more than a “fanciful” prospect of success.
(3)The court’s discretion whether to exercise the power of summary dismissal is very wide. Section 64 of the Act expresses that the power is based in a consideration of the interests of justice. The Act provides direction in Part 2.1.[4] The discretion is to be exercised to facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute between the parties. The court’s powers in furthering the overarching purpose are facilitated by having regard to the objects and matters set out in s 9 of the Act.
(4)The court may be satisfied, on an interlocutory application, that there is no real prospect of success in a civil proceeding but nevertheless consider the dispute to be of such a nature that only a full hearing on the merits is appropriate. Whether a full hearing on the merits is appropriate is a relevant discretionary consideration in the circumstances of each proceeding.
(5)The power to order summary dismissal is to be exercised with great care, as a trial upon evidence of issues raised is the well-settled approach to the determination of litigation. When proceeding on a summary application to assess the prospect of success, a judge ought to feel confident that an assessment can properly be made of whether the overarching purpose is facilitated on dismissal of the impugned claims.
(6)That argument directed to the issues relevant on the application, perhaps even extensive submissions, may be necessary to demonstrate that the case of the plaintiff has no real prospect of success is not ordinarily a relevant consideration.
[4]Sections 7-9.
Mr Walker informed the Court that he was content for the defendant’s application to be determined on the basis that all of the facts pleaded in the statement of claim were true because, he submitted, the plaintiff still could not succeed in its proceeding as the defendant was exempted or absolved from legal liability on three different grounds. Therefore, the application was argued on the assumption that, contrary to the advice of counsel, the transfer notice had to be in writing.
Even if that assumed basis had not been conceded, it seems to me that it was strongly arguable that the third schedule required the transfer notice to be in writing. First, “serving” a notice certainly suggests that the notice is in writing. Secondly, it is the defendant which has to be served, not a unit-holder. Whilst service on a director of the defendant might be sufficient, I consider that it would be a matter for the trial whether the conversations between the brothers were between them as unit-holders or in their capacities as directors of the plaintiff and the defendant. Moreover, there was no admissible evidence of any relevant conversation between Michael Jacometti and Mr Leece. Thirdly, the purposive construction might well lead to the conclusion that the notice had to be in writing so that there would be no dispute, as there was in this case, about just what had been said in the conversations between the brothers.
The first of the defendant’s grounds was that the defendant was exempted or absolved from legal liability by the provisions of clause 14(t) of the Trust Deed. The introduction to that clause stated that the trustees had the following powers in addition to the powers otherwise conferred by law. Sub-clause (t) was a power:
(t)To take such action as the Trustees shall think fit for the adequate protection of any part or parts of the Trust Fund and to take and act upon the opinion (given in writing) of an attorney at law or Counsel practising in any country where the Trust Fund or any part thereof may for the time being be invested in relation to the interpretation or effect of these presents or any other document or statute or as to the administration of the trusts hereof without being liable to any of the persons beneficially interested in respect of any act done by the Trustees in accordance with such opinion provided that nothing in this provision shall prohibit or impede the Trustees from applying to any Court if they shall think fit or prohibit any of the unit-holders from so doing and to do all such other things as may be incidental to the exercise of the powers and authorities conferred on the Trustees by these presents.
Mr Walker submitted that the protection of clause 14(t) applied as the letters of 11 and 22 March 2011 were clearly acts taken upon the opinion of counsel in relation to the interpretation or effect of the third schedule provisions. The same applied to the engaging of Pitcher Partners to carry out the required valuation. Mr Walker further submitted that clause 14(t) did not require that counsel’s written opinion precede such acts, provided that the acts were done relying on the oral opinion and that the opinion was subsequently confirmed in writing.
Mr Walker pointed out that the plaintiff alleged in the statement of claim breach of fiduciary obligations and that the defendant had improperly incurred the expense of the valuation. He submitted that the plaintiff was therefore seeking to make the defendant “liable” to a person beneficially interested, the plaintiff, in respect of acts done in accordance with counsel’s opinion.
Mr Northrop of counsel, who appeared for the plaintiff, submitted that clause 14(t) did not apply because the opinion of counsel was based on false instructions, which the defendant knew or ought to have known. The only admissible evidence of what was said on 2 March 2011 was what Michael Jacometti said occurred. That meant that the conversations could have been between the brothers as unit-holders, and not as directors, in a permissible attempt to see whether agreement could be reached without the need to resort to the procedure laid down in the third schedule. Further, the evidence of Michael Jacometti as to what was said in the conversations did not support counsel’s conclusion that all of the necessary matters required to be included in a transfer notice had been stated. Mr Northrop therefore submitted that at the very least it was arguable that the defendant trustee could not rely on clause 14(t) if it had knowingly given false instructions to counsel in respect of which he was to provide his opinion.
Mr Northrop also submitted that clause 14(t) was not relevant because:
(a)any advice sought from counsel was sought not by the defendant but by one of the directors of the defendant, John Fillmore, without authority from the defendant; and
(b)counsel’s written opinion did not come into existence until after the challenged acts were performed, namely, the decision of the board of directors at a meeting on 11 March 2011 (without notice to Michael Jacometti) to treat the conversations as constituting a transfer notice and invoking the third schedule procedure for the transfer of the plaintiff’s units, including obtaining the Pitcher Partners’ valuation.
Mr Northrop further submitted that, in any event, clause 14(t) did not apply to the present situation. What the plaintiff was seeking in this proceeding was a declaration that no transfer notice had been served by the plaintiff. That was the primary relief being sought. The injunctive relief (both interlocutory and permanent) was subsidiary to the declaration, simply to ensure that success on the primary matter of the declaration was not rendered nugatory. There was no claim for damages against the trustee. Therefore, the plaintiff was not seeking to make the defendant “liable” to a person beneficially interested for any acts done in accordance with counsel’s opinion. Rather, it was seeking to restrain the defendant from doing acts in the future for which it had no authority in the absence of a transfer notice.
This had to be correct, Mr Northrop submitted, because clause 14(t) itself stipulated that it was not to “prohibit or impede” any of the unit-holders from “applying to any Court”. This was just the sort of situation contemplated by that qualification in clause 14(t) – an application to the Court was required to stop the trustee from acting invalidly or outside the powers given to it in the Trust Deed. But this was not a matter of making the defendant “liable” for its wrongful act.
Mr Northrop next submitted that the protection provided by clause 14(t) was in respect of action taken by the trustee upon the opinion of counsel for “the adequate protection of any part or parts of the Trust Fund”. That had nothing to do, he submitted, with the procedure laid down in the third schedule for the transfer of units.
Mr Northrop finally submitted that the allegations of breach of fiduciary duty were not critical to the question of whether the third schedule procedure had been activated. They only related to the relief sought that legal costs be paid otherwise than from the assets of the Unit Trust. He submitted that even if the plaintiff failed to establish breach of fiduciary duty, this did not mean it could not seek to restrain invalid or unauthorised acts by the defendant. Further, even if clause 14(t) exempted the defendant from liability for past breaches, this did not mean that the plaintiff could not restrain future breaches, such as offering the plaintiff’s units to other unit-holders without authority under the Trust Deed to do so.
In my opinion, all of the points raised by the plaintiff concerning clause 14(t) are sufficiently arguable for it to be held that this ground of defence does not justify summary dismissal of the plaintiff’s claim. It does not lead me to conclude that the plaintiff’s claim has “no real prospect of success”. As the dispute will be determined at trial, it is not appropriate for me to say anything further about this issue.
The second of the defendant’s grounds was that the defendant was exempted or absolved from legal liability by the provisions of clause 18 of the Trust Deed. This clause provided that:
18. NO Trustee shall be responsible for –
(a)any loss or damage occasioned by the exercise of any discretion or power hereby or by law conferred on the Trustee or by failure to exercise any such discretion or power; OR
(b)any breach of duty or trust whatsoever unless it shall be proved to have been committed made or omitted in personal conscious fraudulent bad faith by the Trustee charged to be so liable.
All persons claiming any beneficial interest in over or upon the property subject to this Trust shall be deemed to take the same with notice of and subject to the protection hereby conferred on the Trustees.
Mr Walker submitted that the opening words of sub-clause (b) covered the alleged breaches of fiduciary obligations and submitted that as the trustee was not to be “responsible” for any breach of duty or trust, it could not be sued in respect of the alleged breach of fiduciary duty. He further submitted that it had not been alleged, let alone proved, that they had been “committed made or omitted in personal conscious fraudulent bad faith”. He submitted that this phrase meant a deliberate, knowingly or recklessly dishonest act by the trustee without the interests of the beneficiaries in mind but with some other ulterior purpose in mind. Mr Walker referred to a passage from the judgment of Millett LJ in Armitage v Nurse[5] in support of the submission that even if the assumed breaches had been committed deliberately, they would not have been committed fraudulently because they were not committed dishonestly. His Lordship, with whom Hutchinson and Hirst LJJ agreed, said:
[5][1998] Ch 241.
Breaches of trust are of many different kinds. A breach of trust may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers; it may consist of a failure to carry out a positive obligation of the trustees or merely of a want of skill and care on their part in the management of the trust property; it may be injurious to the interests of the beneficiaries or be actually to their benefit. By consciously acting beyond their powers (as, for example, by making an investment which they know to be unauthorised) the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they are acting in the interest of the beneficiaries their conduct is not fraudulent. So a deliberate breach of trust is not necessarily fraudulent … The expression “actual fraud” in clause 15 is not used to describe the common law tort of deceit. As the judge appreciated it simply means dishonesty. I accept the formulation put forward by Mr Hill on behalf of the respondents which (as I have slightly modified it) is that it
“connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not”.
It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not the less dishonest because he does not intend to benefit himself.
In my judgment clause 15 exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly.[6]
[6][1998] Ch 241, 251.
It was the issue of whether or not, and if so how, bad faith was being alleged that led to the decision not to determine the defendant’s application until the plaintiff had delivered its reply. As Mr Northrop had indicated, in its reply the plaintiff pleaded that if the plaintiff was seeking to make the defendant responsible for breaches (whether present or future), the breaches had been, and would in the future be, committed in bad faith within the meaning of clause 18(b).
The defendant’s counsel also referred to the following passage from the judgment of McLure JA in Wilden Pty Ltd v Green in respect of what was said to be a similar form of trust deed:
The trial judge erred in concluding that any failure to comply with an obligation enforced by a court of equity constitutes bad faith. Bad faith connotes conscious wrongdoing that is knowingly or recklessly inconsistent with the interests of the beneficiaries. Further, the words 'conscious fraudulent bad faith' in cl 13.4 are intended to be conjunctive not disjunctive. The clear but clumsily stated intention is that there only be liability for actual fraud not its equitable equivalent. Actual fraud in this context means dishonesty or bad faith (Armitage at 251).[7]
[7](2009) 38 WAR 429, [162] (Pullin and Newnes AJA agreed with McLure JA on this issue).
The defendant’s counsel emphasised that there was no express allegation of “fraud” or “dishonesty” anywhere in the reply, not even in the particulars of the allegation of “bad faith” within the meaning of clause 18. Whilst the defendant’s counsel accepted that it was not necessary to use those words if the facts which make the conduct complained of fraudulent are pleaded, it was submitted that if the facts pleaded are consistent with innocence it was not open to a court to find fraud.[8] It was submitted that the plaintiff did not allege fraud and dishonesty clearly and with particularity and did not clearly allege a deliberate misuse of power, or acting with an ulterior purpose. It was further submitted that if the plaintiff had intended to allege actual fraud or dishonesty (as opposed to constructive fraud or equitable fraud) it was incumbent on the plaintiff, in the circumstances of the present case, to do so expressly and in terms. Counsel finally submitted that the matters alleged in the particulars of “bad faith” would not support a finding of actual fraud.
[8]Armitage v Nurse [1998] Ch 241, 256 (Millett LJ) referring to Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, 268 (Buckley LJ).
Mr Northrop submitted that the authorities relied on by the defendant did not apply to the circumstances of this case. He pointed out that Millett LJ in Armitage had emphasised the significance of the expression “actual fraud” in the trust deed in that case:
“Actual fraud” means what it says. It does not mean “constructive fraud” or “equitable fraud”. The word “actual” is deliberately chosen to exclude them.[9]
[9][1998] Ch 241, 250.
As Mr Northrop submitted, the Trust Deed in the present case used the adjective “fraudulent”, not the expression “actual fraud”. He submitted that the adjective was apt to include both constructive and equitable fraud and to include the exercise of a power to benefit one beneficiary over another or to benefit a third party.[10]
[10]Hooke v Robson [1962] NSWR 606, 609 (Jacobs J).
Mr Northrop further submitted that it was only in the context of “actual fraud” that Millet LJ spoke of “fraud” in the common law sense and of “dishonesty”. Even so, his Lordship identified a number of obligations which he described as irreducible:
I accept the submission made on behalf of [the beneficiary] that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient. As Mr Hill [for the trustees] pertinently pointed out in his able argument, a trustee who relied on the presence of a trustee exemption clause to justify what he proposed to do would thereby lose its protection: he would be acting recklessly in the proper sense of the term.[11] [Emphasis added]
[11][1998] Ch 241, 253-254.
In this case, Mr Northrop submitted, the defendant was seeking to rely on clause 18 to justify what it proposed to do. This, he submitted, it could not do.
Mr Northrop also submitted that if it was shown, for example, that the defendant knew, through the knowledge of its directors Eric and Theo Jacometti, that what was said on 2 March 2011 was not, on any view, an expression of a desire to sell for a particular price, then to instruct counsel on a contrary basis and to act on counsel’s subsequent opinion that there had been a transfer notice served, could be evidence of bad faith.
Mr Northrop further submitted that clause 18 did not apply to the present circumstances. He referred again to the submission referred to in paragraph 38 above that even if the plaintiff failed to establish breach of fiduciary duty, this did not mean it could not seek to restrain invalid or unauthorised acts by the defendant. He pointed out that in Wilden Pty Ltd v Green the parties conceded that the trustee could not use the exemption clause to prevent a beneficiary from challenging actions not authorised by the terms of the trust. As McLure JA stated:
However, it is accepted by the appellants and the respondents that cl 13.4 relates only to the trustees’ personal liability for loss or damage not liability to have a relevant transaction set aside.[12]
[12](2009) 38 WAR 429, [163].
Once again, in my opinion, the points raised by the plaintiff concerning clause 18 are sufficiently arguable for me to conclude that this is not a claim that has “no real prospect of success” and therefore that it should not be summarily dismissed.
The third of the defendant’s grounds was that the Court’s power under s 67 of the Trustee Act1958 to absolve the trustee ought to be exercised, in circumstances where the trustee has at all times acted honestly and reasonably. Section 67 of the Trustee Act provides as follows:
67 Power to relieve trustee from personal liability
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.
Mr Walker acknowledged the strength of the argument that, given that the Court’s jurisdiction under s 67 depended on certain findings of fact, it would not be appropriate to exercise the power on an interlocutory basis. He submitted, however, that this consideration was not relevant to an application for summary judgment under the CPA.
Mr Northrop submitted that as s 67 required a decision as to whether the trustee had acted honestly and reasonably and ought fairly to be excused, at the very least further evidence was required of why the defendant did what it did. He made various criticisms of the defendant’s actions which, he submitted, would result in the conclusion that the defendant had not acted reasonably. For example, it had not asked Michael Jacometti to attend the directors’ meeting to say whether he intended to serve, or whether he thought he had served, a transfer notice. Mr Northrop also submitted that the defendant bore the onus of establishing the necessary elements under s 67.
I am not persuaded that on the material presently before the Court I should conclude that the plaintiff’s claim has “no real prospect of success” because the defendant should be relieved from personal liability for a possible breach of trust.
My conclusions with respect to the grounds of defence relied on by the defendant mean that it is not necessary to consider Mr Northrop’s final submission that even if the test of “no real prospect of success” under s 63 of the CPA had been met, nevertheless the Court should exercise its discretion under s 64 of the CPA and refuse the application. He submitted that there were matters that needed to be investigated about the events of 2 March 2011 so that the dispute was “of such a nature that only a full hearing on the merits” was appropriate.[13]
[13]Civil Procedure Act 2010, s 64(b).
Orders
Accordingly, I will order that the defendant’s summons filed on 17 June 2011 be dismissed. I will hear from the parties on the question of costs and on what orders should be made on the plaintiff’s summons filed on 26 May 2011.
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