AUSTRUST LTD (Formerly Known as Elders Trustee and Executor Co Ltd) v YSF PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, MEAGHER and CRIPPS JJA 28 April 1993, 26 May 1993 [1993] NSWCA 12 Public unit trust formed to facilitate public participation in a pig farming operation — trust manager ordered pig food — seller not paid — did the manager order the stock as agent for the trustee as principal. Held: Upon proper construction of the deed the manager's covenant to manage, maintain and supervise the fund's real and personal investments (ie manage the piggery) included the authority to purchase stock feed to keep the pigs alive despite no express authority to pledge the credit of the trustee. Mahoney JA I agree with the judgment of Cripps JA. Mr Cotman's submissions were or included that, whilst the manager was authorised to manage the piggery, it could not incur liabilities without the prior approval of the trustee. Ido not think that that submission should be accepted. Whatever be the extent of the power to manage the piggery, it included, in my opinion, the power to buy food for the feeding of the pigs from day to day. I agree with the orders proposed. Meagher JA I agree with Cripps JA. Cripps JA The GGI Rural Income and Growth Trust was established by deed dated6 August 1984. Elders Trustee and Executor Co Ltd (later to become Austrust Ltd) was the trustee and Golden Grove Industries Ltd the settler and manager. The Trust was a public unit trust formed to facilitate public participation in what was described as "an intensive pig farming operation". During 1984 and 1985 the manager ordered from YSF Pty Ltd stock feed to the value of $82,515.96 to feed the pigs. YSF Pty Ltd was not paid. It sued Austrust Ltd in the District Court at Young. Later the proceedings were transferred to the Supreme Court and on 22 April 1991 Young J entered Judgment for YSF Pty Ltd in the sum of $173,314.58 (being the amount outstanding together with interest). The Trustee appealed. The only issue before Young J was whether, on a proper construction of the eighty two page Trust Deed, the Manager ordered the pig feed as agent for the Trustee as principal. Young J held it did. I am of the opinion he was correct. Ordinarily, one would expect resolution of such an issue to be immediately evident upon a reading of the Trust Deed. However, in the present case, the issue is complicated by the circumstance that the Trust Deed was an adaptation, apparently, of another Trust Deed establishing a unit trust for purposes unassociated with rural activities. What is clear, however, is that the land, the equipment and the pigs were, at all relevant times, owned by the Trustee. The Manager covenanted to manage and supervise all real property investments and personal property investments 2 UNREPORTED JUDGMENTS comprised in the Fund (CL38(1)) and to use its best endeavours to conduct its business to ensure that any authorised enterprise was conducted in a proper and efficient manner. The Manager covenanted to manage the piggery. The piggery was owned by the Trustee. Bearing in mind that the debt the subject of the litigation was incurred to keep the pigs alive, it is not hard to see why Young J held the food was purchased on behalf of the Trustee. However, Mr Cotman, on behalf of the Trustee, has submitted that in the absence of express permission authorising the Manager to pledge the Trustee's credit, there is no basis, as a matter of construction of the Trust Deed, for concluding that the Manager had the relevant authority. He pointed to the fact that it was required to be an "approved deed" and to contain appropriate covenants according to law and submitted that these circumstances are relevant to take into account when determining the extent, if any, of the Manager's authority. He submitted that to construe the Deed to permit the Manager to pledge the Trustee's credit for an unlimited amount would frustrate the role of the Trustee under the Deed which was to ensure that investments did not exceed 60% of the Gross Assets of the Fund (CL36(9)) and to ensure that expenses did not exceed income. However, against that broad submission, it must be steadily borne in mind that the debt was incurred to feed the pigs to keep them alive. That, it was submitted, was not authorised under the Trust Deed without the Trustee's express authority. It is the Trustee's submission, if I understand it correctly, that although the Manager's duties were to manage the piggery, it had no authority to pledge the credit of the Trustee - the purpose of which was to keep the pigs alive. It was submitted that the Manager, in the absence of express authorisation in a particular case, could not require the attendance of a veterinary surgeon if a pig needed it. It could not, for example, arrange with Telecom to install a telephone and send the account to the Trustee. The Trustee's submission went so far as to suggest that if the Manager removed a dead pig without express authorisation, it would be guilty of conversion. As Young J said: "[I]n this day and age it is very difficult indeed to say that the authority to maintain the pigs and to manage them did not extend to obtaining the food on normal trading terms, such as a thirty or sixty day account..." The pigs were part of the Trust property. It was necessary to feed them to keep them alive. In my opinion, his Honour was correct when he said: "T think CL38 of the deed, whilst not precisely covering the situation, gets close to it. CL38(1) provides that the manager is to use its best endeavours to ensure that the investments are kept in good repair. Although feeding pigs is not usually brought under the phrase 'keeping the investments in good repair', it seems to me that it is covered by this sort of terminology. The trustee is to pay under CL39(2) out of gross income of the funds all outgoings which are a necessary or desirable incident of the investment or administration of the fund." I am not unmindful of the fact that the Deed defines "personal property investment" not to include the purchase of livestock or the purchase of fodder. Nonetheless, CL39 makes it clear (as does CL45) that the parties agreed the Manager would manage the piggery for the Trustee. The circumstance that the Manager's principal function was to manage and the Trustee's to attend to the supervision of financial matters does not deny to the Manager the authority to pledge the Trustee's credit to preserve the Trustee's assets. URIBTRUST LTD (Formerly Known as Elders Trustee and Executor Co Ltd) v YSF PTY LTB (Cripps JA) In my opinion, Young J was correct in concluding that, in the circumstances of the case, the Manager was acting as the Trustee's agent and that the Trustee was liable for the debts the Manager incurred to YSF Pty Ltd. I would propose that the appeal be dismissed and the appellant pay the respondent's costs. 1. Appeal dismissed. 2. Appellant to pay respondent's costs. Counsel for the Appellant: N Cotman Instructed by: Madgwicks Counsel for the Respondent: I Wales Instructed by: Carmody Crampton