Re Pegasus Securities Limited No. Scgrg-99-457 Judgment No. S306
[1999] SASC 306
•26 July 1999
RE PEGASUS SECURITIES LIMITED
[1999] SASC 306
Civil
WICKS J In this matter the plaintiff, Southern Group Insurance Corporation Limited, seeks to have certain provisions of a debenture trust deed of which it is trustee construed by the Court.
The debenture trust deed was entered into on 27 May 1983 between Pegasus Securities Limited (“Pegasus”) as company or mortgagor and Executor Trustee and Agency Company of South Australia Limited as trustee. Since the execution of the deed, there have been a number of amendments to the document, none of which is material for the present purposes. On 19 December 1990, a receiver and manager was appointed in respect of the property secured by the debenture trust deed. The plaintiff is the present trustee in respect of the trust deed.
Under the debenture trust deed provision is made in clause 3 for the issue of security stock. Security stock is treated differently in some respects from ordinary stock. Provision has been made in the deed for security stock in order to enable banks and other lending institutions to obtain security for monies lent and other financial accommodation provided to Pegasus from time to time.
Since the receiver became involved, the trustee has managed to recover some $15 million which is now an asset of the debenture trust and is available for distribution amongst the various debenture stockholders including the holders of security stock. The total amount outstanding in respect of all stockholders is of the order of $20.5 million. The trustee now desires to proceed with the distribution of the monies in hand as quickly as possible for the benefit of stockholders.
The plaintiff has issued a summons in form 1 of the Rules of Court in which it seeks the following relief:
"For directions to determine questions arising in the administration of the trust constituted by Trust Deed dated 27 May 1983 between Pegasus Securities Ltd (Receiver Appointed) (In Liquidation) and Executor Trustee and Agency Company of South Australia Limited (now its successor, the plaintiff) namely:
1.1... the entitlement of holders of Security Stock to rank pari passu with other stockholders for interest arising after the ‘Enforcement Date’ as that term is defined in the Trust Deed; and
1.2... the date which is to be treated as the ‘Enforcement Date’ for the purposes of the Trust Deed;
1.3... as to service of the summons."
The summons states that it is brought pursuant to s 90 and s 91 of the Trustee Act 1936 (SA) and r 63.04 of the Supreme Court Rules. The summons also states that it is not intended to be served on any person. The summons was supported with an affidavit of Joseph John Ullianich sworn 19 April 1999.
This matter came before a Master of the Court on 5 May 1999 when an order was made in the following terms:
"That notice of the summons in these proceedings be served upon any person listed as the holder of security stock in the register maintained by the plaintiff by forwarding by prepaid post to the stockholders a letter explaining the nature of the summons and the directions sought by the plaintiff and giving notice of these orders."
Only one such order was made on that occasion and it referred to the holders of security stock and not the general stockholders.
On 24 May 1999, the plaintiff’s solicitors filed an affidavit deposing to the fact that a letter had been sent in a standard form addressed to the stockholders identified in an annexure to the affidavit. Looking at the annexure it is clear that the stockholders referred to were general stockholders and not holders of security stock. The letter in question was dated 19 May 1999 and appears to have been sent by the solicitors for the plaintiff to each of the stockholders to which I have just referred. In the letter the solicitors indicated that the plaintiff could apply to the Court for directions as to how it should deal with the property to be distributed to stockholders. The solicitors indicated that the plaintiff had made the application as it considered it needed to clarify the entitlements of holders of security stock. The solicitors concluded by staying:
"The purpose of this letter is to put you on notice that the trustee is making this application and to inform you of the proposed interpretation it is seeking under the terms of the Trust Deed. If you wish the Court to take into account any views that you might have on this matter, we suggest you seek legal advice, or alternatively appear before the Court at the date and time specified."
The matter was subsequently referred into the Judges’ Chamber List and came before me in chambers.
It seems to me that in this matter the trustee must elect whether it will seek advice and direction under s 69 of the Administration Probate Act 1919 and s 91 of the Trustee Act 1936 on the one hand or pursue the matter by way of a summons for construction under r 63.04 of the Supreme Court Rules on the other. In The Estate of Hunter Deceased [1957] SASR 194, Napier CJ addressed this question at pp 1995-196 as follows:
"It seems to me that these two forms of proceeding ought not to be joined in this way. The Administration and Probate Act preserves the jurisdiction formerly given by Sir George Turner’s Act ... Under that procedure the affidavit, filed in support of the application, is equivalent as a case, stated for the opinion of the Court, in which the trustee vouches for the accuracy of the facts which he has put into the Court, and asks for advice and directions. The direction given to him protects and indemnifies the trustee against any claim for breach of trust, provided always that the facts have been fully and fairly disclosed, but it leaves the question open as between beneficiaries who have not been cited to see the proceedings. The application under the Supreme Court Act and Rules [equivalent to r 63.04] is a proceeding inter partes. It enables the Court to do what it could formerly have done in the course of an action for administration by the Court ... and leads to a final determination of the rights of the parties. "
Proceedings under s 91 of the Trustee Act are in the nature of a case stated. As was pointed out by Mayo J in Re Grose deceased (1949) SASR 55 at p60:
"The protection given by the section will only be available when all material and relevant facts are substantially as submitted upon the application. If there are omitted circumstances, that are material and relevant, which, if proved, would have altered the advice or direction given, the order may be no defence to the trustees. Trustees are protected even against interested persons not represented, provided the facts submitted are true and complete. Parties represented upon the application will be bound by the judicial advice and direction, but with them, too, the order may not conclude the matter, if material facts are omitted from the case presented by the trustees as against parties not represented (if any)."
The procedure for advice and direction is inappropriate where the question in issue involves the construction of the trust instrument or where the question concerns the respective rights of beneficiaries (in this case, creditors). In such a case, proceedings should be instituted under r 63.04 of the Supreme Court Rules so that all parties are served and have the opportunity to be heard. As I have already indicated, such a proceeding would lead to a binding declaration of right amongst all parties to the action including those brought in under a proper representation order. See generally Jacobs’ Law of Trusts in Australia 5th Edition para 2134 and Re Kirkegaard deceased (1950) St R Qd 144. I do not know why reference was made to s 90 of the Trustee Act.
There seem to be a number of difficulties with the Master’s order. First, the order only refers to security stockholders and secondly, the letter only refers to ordinary stockholders. In the circumstances and in view of the conclusions to which I have come in this matter as to the appropriate procedure to be adopted, I do not propose to consider the Master’s order or the letter which followed any further.
In the present matter, the plaintiff seeks to have the Court construe the debenture trust deed in certain respects. As a question of construction is involved, in my opinion it would be inappropriate for the matter to proceed under s 91 of the Trustee Act. Rule 63.04 of the Supreme Court Rules provides the proper procedure to be adopted in this case. If proceedings under s 91 of the Trustee Act are pursued further, the Court should decline to make an order.
Rule 7.05 provides a procedure whereby an ex parte summons can be converted to an inter partes summons. There are only three security stockholders involved and there would appear to be no hardship in making arrangements to have them joined as defendants. So far as I am aware, all the debenture stockholders (other than the holders of security stock) have a common interest and could all be represented by one of their number. Rule 34.08 and r 34.09 would be applicable in this case. A person would have to be selected as representative. Such person would need to consent to act, would need to file an affidavit giving consent and also dealing with any matters under r 34.08 and r 34.09 which the court needs to know about before making an appointment. In particular, the Court would need to know that the representative consents to act and that he or she has no interest adverse to stockholders he or she represents. It would also need to know the number of ordinary stockholders. The form of order attached is intended as a guide to the form the order for the appointment of a representative in this case. The exact form the order should take is a matter for further consideration.
Application should be made to the Court under r 7.05 directing that a summons in accordance with r 7.04 be substituted for the summons presently on file and that the proceedings continue thereafter as if they had been instituted under r 7.04. Application should also be made to join each of the security stockholders as a defendant and also to join the representative as a defendant and to make the representation order. If any ordinary stockholders decide to be separately represented, they should be excluded from the representation order and joined separately as defendants. Persons separately appearing may be at risk as to costs.
A careful review should be made of the affidavits to ensure that all material facts are before the Court on the hearing of the summons. It seems to me that the loan agreements existing between Pegasus and the security stockholders need to be made exhibits to an affidavit in the proceedings. In particular, the Court should be aware of the contractual arrangements which exist between Pegasus and security stockholders for the payment of monies (or in particular - interest) secured under the Debenture Trust Deed.
A copy of the summons under r 7.04 and the supporting affidavits would need to be served personally on the security stockholders, on the representative for ordinary stockholders and on any ordinary stockholders outside the representation order. In the present case, this can doubtless be achieved by the parties concerned appointing solicitors to accept service on their behalf and to enter an appearance.
Suggested forms of order for consideration are attached.
Once the procedural aspects of this matter are attended to, I would see no reason why an order could not be made in the very near future to the effect that the matter proceed to trial. I would be prepared to make myself available to ensure that the necessary procedural orders in this matter are made expeditiously so that the issues can be resolved with the minimum of delay.
I will hear the parties further as to the steps to be taken to have this matter proceed.
ORDERS AS TO PARTIES
That pursuant to Rule 7.05, the plaintiff issue a summons in this action in accordance with Rule 7.04 in substitution for the summons dated 20 April 1999 issued under Rule 7.03 naming as defendants [here set out the names of the security stockholders] and that the action continue thereafter as if it had been instituted pursuant to Rule 7.04.
Note: The representative will be made a defendant by the representation order which will be made after the substitute summons under Rule 7.04 has been issued. He should be described as:
AB on his own behalf and
as representative of
ordinary stockholders
Any ordinary stockholders who elect not to be represented should be joined as defendants as a third step.
REPRESENTATION ORDER
That [representative name and address] be served with a copy of the summons in this action, the affidavit of Joseph John Ullianich and the exhibits thereto and this order to the intent that the said [representative] shall appear and represent the holders of debenture stock (other than security stock) (“the ordinary stockholders”) under a Debenture Trust Deed dated 27 May 1983 between Pegasus Securities Limited of the first part and Executor Trustee and Agency Company of South Australia Limited of the second part (such debenture trust deed as amended from time to time being hereinafter referred to as “the Debenture Trust Deed”) and, subject to him entering an appearance in manner aforesaid and to the liberty hereinafter reserved for any ordinary stockholder to apply for separate representation, he is hereby constituted to represent, for these proceedings, his own and the interests of all ordinary stockholders with the exception of [set out the names of any stockholders not represented].
That on entering an appearance in this action the said [representative] be joined as a defendant.
That a copy of this order be served by ordinary post by the plaintiff on each of the ordinary stockholders (except those not represented by this order) under cover of a letter in a form settled by a Judge or Master of this Court explaining the nature of this action, the relief claimed and the nature of this order and its implications and drawing attention in particular to the liberty hereinafter reserved to any ordinary stockholder to apply for separate representation should that ordinary stockholder not be prepared to be represented by the said [representative].
That any ordinary stockholder if so advised be at liberty to apply within 21 days of the date of service upon him or her or it of a copy of this order for an order for separate representation should he, she or it not be prepared to be represented by the said [representative].
That unless the court otherwise orders, the legal costs of the said [representative] of and incidental to this action and any judgment or order made thereon be taxed as between solicitor and own client and be paid out of the assets of the trust fund constituted by the Debenture Trust Deed.
That the costs of this application and order be costs in the cause.
And any party may be liberty to apply.
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