New South Wales Supreme Court CITATION : Metro Motor Inns Hotels & Motels Pty Ltd v Strathaven Holdings Pty Ltd [2000] NSWSC 1004 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3866/2000 HEARING DATE(S) : 13/10/2000 JUDGMENT DATE : 13 October 2000 Metro Motor Inns Hotels & Motels Pty Limited (P) PARTIES : Strathaven Holdings Pty Limited (D1) Blarney Holdings Pty Limited (D2) Western Plaza Hotel Corporation Pty Limited (D3) JUDGMENT OF : Young J COUNSEL : G Sirtes (P) S Archer (D3) SOLICITORS : Henry Davis York (P) Clayton Utz (D3) CATCHWORDS : EQUITY [125]- Trusts- Removal of trustee- Trading trust- Interim order made for administration under supervision. Bridgewater v Leahy (1998) 194 CLR 457 CASES CITED : Maclean v Burns Philp Trustee Co Ltd (1985) 2 NSWLR 623 Monty Financial Services v Delmo [1996] 1 VR 65 Titterton v Oates (1998) 143 FLR 467 DECISION : See para 16 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG J FRIDAY 13 OCTOBER 2000 3866/00 - METRO MOTOR INNS HOTELS & MOTELS PTY LIMITED v STRATHAVEN HOLDINGS PTY LIMITED JUDGMENT 1 HIS HONOUR: This is an application to give interim relief in respect of two trading trusts: the Palace Hotel Unit Trust and the Rundle Adelaide Unit Trust, which run what are called "theme pubs" in Sydney and Adelaide respectively. 2 The first defendant is the trustee of the Palace Hotel Unit Trust; the second defendant is the trustee of the Rundle Adelaide Unit Trust. Both trustees have appeared and the argument is between the plaintiff, which holds 51% interest in each of the trusts, and the third defendant, which holds between 23.59% of the Palace Hotel Unit Trust and 28.2% of the Rundle Adelaide Unit Trust. 3 There are eight unit holders in the Palace Hotel Unit Trust and nine in the Rundle Adelaide Unit Trust; the other unit holders were not parties to the suit. It may be that the suit is demurrable at the moment, but no-one has taken that point. 4 The trusts are Western Australian trusts and the Western Australian law applies as Western Australian companies are involved even though the businesses are run in Sydney and Adelaide. Both hotels are at the moment being managed by the third defendant. 5 The plaintiff's suit seeks, amongst other things, to remove the third defendant as manager and there is a cross-claim. 6 I endeavoured to broker the situation whereby an interim arrangement could be put in place and the suit heard in the next four weeks, but that is not possible because it is thought it will take some time for interrogatories, etc. Thus the probability is that the suit will be heard some time in the next 18 months either here or in Western Australia. The question arising is whether interim relief should be given. 7 On the pleadings it is admitted that "The boards of directors of the first and second defendants are deadlocked and unable properly to manage the affairs of those companies" (para 39 of the statement of claim). However, at 3.15 pm today the resignation of Mr Pearce as director of the trustees, who represents the third defendant in many respects on the boards of the trustees, will become effective. At that time Mr McEvoy, who controls the plaintiff, will virtually be in sole control of both trustees. 8 Mr Sirtes, who appears for the plaintiff, says that at that time the deadlock will vanish because Mr McEvoy will be in sole control. Mr Sirtes submits Mr McEvoy knows and, indeed, it is in his affidavit, that he has general law and statutory duties to be fair, and that he will observe these duties and has no intention to take actions harmful to the interests of the trustees of the trusts. However, it is significant that Mr McEvoy does not go further and say that he has no intention to take any actions harmful to the interests of the third defendant. He appears to have deliberately chosen not to say that, and the fact that his company has mounted these proceedings appears to be something that he probably would not say. 9 We have, accordingly, a situation where there are two trading trusts which were to be a joint venture, which at 3.15 pm today will be under the sole control of a person who has not given any undertakings that would be of comfort to holders of 49% of the beneficial interests in the trusts. Should the Court give some protection? 10 The High Court in Bridgewater v Leahy (1998) 194 CLR 457 made it quite clear that Equity Courts in this century are here to administer practical equity. Equity is not beyond the age of child bearing and must adjust its attitude to changing commercial scenarios. The fact that trading trusts of this nature have been growing in popularity over the last ten years has meant that equity has had to make orders of a type not known since before trading trusts ceased to be popular in about 1840 to preserve peoples' rights. 11 I indicated in Maclean v Burns Philp Trustee Co Ltd (1985) 2 NSWLR 623 that, in such situations, the Court would permit ready access to the Court to administer trusts under a scheme which used to operate last century. Jacobs on Trusts 6th Edition at para [2306], says that this decision goes further than most others, but its learned authors did not actually criticise it as not being in accordance with the principle. I believe it is the duty of this Court to protect the beneficial interests in administering such trusts where there is a commercial breakdown, at least on an interlocutory basis. 12 This interlocutory application is an ambit one to remove the trustees. As Mr Sirtes has submitted the Court does not ordinarily do this on an interlocutory application, apart from the very exceptional case. 13 Mr Archer, for the third defendant, submits that the application is made under s 77 of the Western Australian Trustee Act 1962 which is the rough equivalent of s 70 of the New South Wales Trustee Act 1925. 14 In the Supreme Court of Victoria in Monty Financial Services v Delmo [1996] 1 VR 65, 76 and in the Supreme Court of the ACT in Titterton v Oates (1998) 143 FLR 467, 475 it was said that the statutory power does not cover the present situation. I will assume that is correct. Whether it is or not there is always inherent power in the Court to control all trusts. Essentially, that power is in the Western Australia Supreme Court, but, as both parties are actively litigating here, they must have consented to this Court exercising its inherent powers. 15 It seems to me that as the matter cannot be fixed for final hearing in the near future I should make some orders to make sure that the basis on which these trusts were founded is preserved. That basis is that there would be joint venture trusts with roughly equal participation by the two protagonists before the Court. It would be wrong to allow a substantial period of time to go by with the trusts controlled by one party in the absence of any undertaking without preserving the status quo. [His Honour then indicated the type of orders he had in mind and stood the matter down for discussion amongst the parties] 16 AT 3 PM HIS HONOUR: I formally make the following orders as I indicated at lunchtime: 1. The Court orders that the trusts known as the Palace Hotel Unit Trust and the Rundle Adelaide Unit Trust are to be administered under the control of this Court. 2. All decisions of the first and second defendants (the trustee companies) made otherwise than in the ordinary course of the ordinary business of those trusts or either of them are to be made subject to the approval of the Court or its appointee. 3. The Court appoints Kevin Richard Shirlaw as the person who may give such approval on behalf of the Court. 4. The Court's appointee is not to be taken as a director of either of the trustee companies for any purpose. 5. The Court's appointee is to be remunerated by the trustee companies at an hourly rate to be agreed upon or fixed by the Court. 6. The Court gives liberty to the parties and to Mr Shirlaw to apply to a Master for directions on 48 hours' notice. 7. The proceedings are stood over for mention before the Registrar on Thursday 26 October 2000 at 9.30am. 8. The costs of the interlocutory application are reserved. 9. These orders may be taken out forthwith. 17 I will note that the Court does not decide to remove the trustee companies at this stage. 18 The exhibits should remain for the time being. oOo Last Modified: 11/01/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.