The advice of the Court is often sought where a trustee is uncertain as to the proper construction of the relevant trust instrument. A recent case has shown that this advice may not be forthcoming if the matter in question is substantially commercial in nature.
Section 63 of the Trustee Act provides that a trustee may apply to the Court for an opinion or advice for direction on any question in respect of the management or administration of the trust property, or in respect of any interpretation of the trust instrument. Trustees often avail of themselves of this option, the benefit of which is that the trustee will be deemed to have discharged its duty as trustee in respect of the subject matter (provided the trustee is not guilty of any fraud or willful concealment or misrepresentation in obtaining the opinion, advice or direction).
The case of Application by Perpetual Trust Services Limited as responsible entity for the Momentum AllWeather (A$) Absolute Return Fund involved a trustee that was in doubt as to how it should discharge its obligations.
Background
Perpetual Trust Services Limited was a responsible entity for the Momentum AllWeather (A$) Absolute Return Fund (the Momentum Trust).
Momentum Trust had an interest in another fund known as All Weather Absolute Return Fund which in turn held a share class of DR Funds Limited (DR Fund).
A proposal was put that the DR Funds shareholders sell their interest in this underlying fund for cash, but at a discount to the net asset value of the relevant fund.
Application by Perpetual Trust Services Limited
In its application to the Supreme Court of NSW, Perpetual indicated it had doubt in respect of three areas in the exercise of its responsibilities as the responsible entity for the Momentum Trust. It was seeking judicial advice to clarify whether:
- the Momentum Trust's indirect interest in the DR Fund constituted "assets of the Trust" so that Perpetual was obliged to realise those assets,
- Perpetual had the power to postpone the sale of those assets if it thought it desirable to do in the interests of unit holders, and
- it was open to Perpetual (acting consistently with its duties as trustee under general law and statute) to determine that it is desirable in the interest of the unitholders to participate in the sale.
The Court considered the comments of Barrett J in the case of re Australian Pipeline Limited (2006) 60 ACSR 625 who in turn referred to the comments of Lord Oliver in the case of Malley v Mutual Security Merchant Bank & Trust Co Limited (1991) in considering the options of a trustee in doubt in the exercise of his fiduciary duties and discretions. Specifically, Lord Oliver said "a trustee in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek professional advice and, if so advised, to protect his position by seeking the guidance of the Court".
The Court noted from the previous decision that there was no implied limitation of the power to give advice nor on the discretionary factors relevant to the giving of advice. In effect, the procedure under section 63 operated as an exception to the Court's ordinary function of deciding disputes between competing litigants.
Outcome
In this instance, the Court regarded the doubt Perpetual had as a commercial investment matter (whether the asset should be sold into a secondary market for cash at a substantial discount) and noted it would normally be inappropriate for the Court to give advice about a matter that is substantially commercial in nature. The Court felt ill equipped forming any view about this matter and declined to answer the question posed by Perpetual.
In light of this outcome, trustees considering seeking clarity from the Court with regards to the exercise of their responsibilities should consider whether the matter might be considered substantially commercial and so fall outside of the Court's purview.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
