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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.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
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