New South Wales Supreme Court CITATION : Phoenix Lacquers & Paints Pty Ltd v Metropolitan Civil Constructions Pty Ltd [2006] NSWSC 1067 HEARING DATE(S) : 15/09/06 JUDGMENT DATE : 13 October 2006 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Order for separate determination refused CATCHWORDS : PROCEDURE - application for separate and preliminary determination of certain questions - no matter of principle LEGISLATION CITED : Uniform Civil Procedure Rules 2005, rule 28.2 Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 CASES CITED : CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 Tepko Pty Ltd v Water Board (2001) 206 CLR 1 Phoenix Lacquers & Paints Pty Limited - Plaintiff PARTIES : Metropolitan Civil Contractors Constructions Pty Limited - First Defendant John Edward Hardy - Second Defendant William Kevin Hardy - Third Defendant FILE NUMBER(S) : SC 2836/02 COUNSEL : Mr D.A. Smallbone - Plaintiff Mr R.S. Angyal SC - Defendants SOLICITORS : G.J. Gooden - Plaintiff Cutler Hughes & Harris - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY, 13 OCTOBER 2006 2836/02 PHOENIX LACQUERS & PAINTS PTY LIMITED v METROPOLITAN CIVIL CONSTRUCTIONS PTY LIMITED & 2 ORS JUDGMENT 1 By notice of motion filed on 31 March 2006 and heard by me on 15 September 2006, the defendants seek an order under rule 28.2 of the Uniform Civil Procedure Rules 2005 for the separate and preliminary determination of certain questions. 2 The proceedings concern a discretionary trust of a familiar kind created by a deed dated 28 March 1981 under which a small sum was settled upon a company, as trustee, on the footing that that sum would be supplemented by further moneys and the annual income of the fund might be paid or applied to or for the benefit for such one or more of certain named persons as the trustee might decide, failing which the income of the particular year would be held upon specified trusts. In issue is the question whether, in or in respect of certain years (or, as the trust deed calls them, "Accounting Periods"), the trustee effectively allocated income sums to the plaintiff by virtue of purported resolutions of its board of directors. 3 It is the contention of the plaintiff that there were valid and effective allocations of income to it; that the first defendant (trustee) has failed to account; and that each of the second and third defendants (a director, or sometime director, of the trustee) was knowingly concerned in the breach of trust. By a cross-claim, the defendants have joined two accountants as cross-defendants against whom are brought claims for breach of contract, breach of a duty of care in negligence and breach of fiduciary duty in relation to advice concerning the trust and the purported allocations of income. 4 The separate questions in respect of which the defendants seek an order for separate determination are as follows: "Upon the true construction and effect of the Mastero Trust deed dated 28 March 1981 (as amended) whether: (a) the trustee had power in respect of an accounting period, after the end of that accounting period, to pay apply or set aside the whole or such part if any as it should think fit of the net income of the trust fund of that accounting period; (b) the trustee was empowered to set aside the net income of the trust fund in respect of an accounting period and to determine at a later point, after the end of that accounting period, which of the general beneficiaries should participate therein and in what proportions; (c) the trustee's several powers of appointment, whether of capital or income might be exercised revocably or irrevocably at any time before the Vesting Day referred to in the Trust deed and, in particular, whether they might, with respect to the net income of the trust fund in respect of an accounting period, be exercised after the end of that accounting period; (d) given the answers to questions (a) to (c), whether the minutes dated 30 June 1993, 21 December 1993, 30 June 1994, 1 December 1994, 30 June 1995 and 29 December 1995 (annexed to this notice of motion as annexures A to F respectively) had the effect of paying or applying part of the income of the trust fund to the plaintiff; and (e) if the execution of the powers of appointment and distribution in favour of the plaintiff was defective, the defendants are nevertheless bound to give effect to the appointment and to the distributions which are alleged in the amended statement of claim in favour of the plaintiff." 5 In essence, therefore, the first four questions (i.e., (a) to (d)) are as to the efficacy of the actions purportedly taken to allocate income of three accounting periods to the plaintiff. The defendants say that if the separate questions are determined in the negative – that is, that the steps taken are found to have been ineffective in terms of the trust deed – the proceedings as a whole will thereby be resolved. If, on the contrary, the steps are found to have been efficacious, there would be a body of controversy still requiring resolution but that one question at least would be out of the way. Because of the first of these possible outcomes, the defendants say, the matter is ripe for separate determination in accordance with principles stated by Kirby P in CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at p.606: "A matter is "ripe" for separate and preliminary determination where it is a central issue in contention between the parties, the resolution of which will either obviate the necessity of litigation altogether or substantially narrow the field of controversy. Thus, where a plaintiff sues contending breach by the defendant of his duty to the plaintiff as an invitee, determination of this issue as a preliminary point would rarely, if ever, be appropriate if the plaintiff had in reserve, alternative counts framed in the duty owed to a licensee or an entrant as of contractual right or in negligence generally. To determine the one matter would leave other issues unresolved and render the preliminary procedure a needless and expensive fatuity." 6 I should refer at once and separately to question (e). It relates to a contention in the reply filed by the plaintiff (paragraph (x)) as follows: "In the alternative, [the plaintiff] says that if the execution of the powers of appointment and distribution in favour of the plaintiff was defective, the defendants are nevertheless bound to give effect to the appointment and to the distributions which are alleged in the amended statement of claim in favour of the plaintiff." 7 (The argument before me proceeded on that basis that "the defendants are" should read "the first defendant is"). 8 There are particulars to paragraph (x) to the effect that the distributions were proposed by the defendants and made by the first defendant as a "tax effective way" for them to make payments to Windreef Pty Ltd, a company controlled by the second and third defendants, "pursuant to arrangements" briefly mentioned in the particulars. 9 It is clear that paragraph (x) would survive and require attention if questions (a) to (d) were determined by a finding that the purported allocations of income for the years in question were not effective. It is also clear that answers to questions (a) to (d) above do not, in reality, have the potential to dispose of the proceedings as a whole. It is no doubt for that reason that question (e) has been included in the present application. 10 In supplementary written submissions handed up upon the hearing of the motion for separate determination, Mr Angyal SC submitted on behalf of the defendants that paragraph (x) is bad on its face. He referred in particular to "bound" and "arrangements" and the absence of foundation and explanation in each case. He also said that, according to authority he quoted, a trust distribution made otherwise than as the trust instrument allows is a nullity. Third, it is said that the "tax effective" label gives rise to an objection of statutory illegality or public policy. 11 Any of these, of course, might represent sound grounds for striking out paragraph (x), if made good upon a strike-out application. But despite having raised the several objections, Mr Angyal continued to press for the separate determination of question (e). Mr Smallbone of counsel, who appeared for the plaintiff, made several points. First, if the defendants consider that paragraph (x) shows no viable cause of action, they should make an application for it to be struck out rather than pressing for separate determination of question (e). Second, equity sometimes aids attempts to execute a power which are defective because of failure to comply with all the necessary steps; and that jurisdiction might be prayed in aid here. Third, if question (e) is not separately determined, the whole case will have to be tried in any event, so that there is little point in separating any questions. 12 The position ultimately reached on question (e) and paragraph (x) was a suggestion by Mr Angyal that I proceed to decide questions (a) to (d) on the papers (having been exposed to the issues in the course of the hearing of the motion for separate determination) and that the defendants submit to a direction to file an application that paragraph (x) be struck out, such application to be returnable before me. That course was opposed by Mr Smallbone. I declined to adopt it and indicated that I would deal with the present motion as it stands. 13 In my opinion, question (e) is not suitable for separate determination. This is basically because paragraph (x) might well, upon a strike out application, be found to suffer from the defects to which Mr Angyal has pointed. The question whether paragraph (x) may properly be pressed is one that should be agitated in the appropriate way. In any event, the "arrangements" aspect would no doubt open up a significant area of factual inquiry, if paragraph (x) were pursued. It would not, in my estimation, lend itself to the kind of discrete and self-contained treatment by reference to uncontroversial or agreed facts that makes separate determination appropriate: see Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 where the need for any question for separate determination to be addressed on the basis of facts as either agreed or found by the court was emphasised. If there is to be an application that paragraph (x) be struck out, that application should be brought in the usual manner. Either way, there will be no order for separate determination of question (e): if paragraph (x) is defective, it should be struck out; and if it is not defective, the question concerning it which has been formulated as question (e) is not suitable for separate determination. 14 As for questions (a) to (d), viewed separately from question (e), Mr Angyal's position is that there would still be utility in an order for separate determination. Mr Smallbone submits to the contrary. 15 Mr Angyal says, in essence, that questions (a) to (d) entail no more than construction of the trust deed and the minutes of meetings of the directors of the trustee company. That, he says, could be usefully undertaken as a preliminary matter. He refers, in that connection, to the reference by Giles CJ CommD (as he then was) in Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at p.141 to the usefulness of separate determination which will "obviate unnecessary and expensive hearing of other questions". 16 Mr Smallbone says that questions (a) to (d) may well involve disputed questions of fact. First and foremost, there is the question whether meetings took place and resolutions were passed in the terms and at the times the several minutes suggest. Also, the directors' minutes use the word "accordingly" to link what is purportedly resolved to a pre-existing circumstance and there may well be a need to show by evidence the nature of and the rationale for the link. Furthermore, Mr Angyal has indicated that reliance would be placed on certain administrative practices of the Commissioner of Taxation of a nature referred to by counsel as "a Nelsonian blind eye". That too could be a controversial factual area. 17 There is substance in what Mr Smallbone says. Questions (a) to (d), viewed separately from question (e), may well turn upon factual matters requiring investigation. There was reference, during the hearing, to a course which might see those questions addressed according to certain assumptions on factual matters. That is not a desirable course. Assumptions (as distinct from agreed facts) would put matters into a hypothetical realm which, if it turned out to be different from the real world, would mean that time and effort had been wasted, rather than saved, through the separate determination. 18 I am not satisfied that efficient resolution of these proceedings would be assisted by separate determination of questions (a) to (e) or by separate determination of questions (a) to (d). To the extent that the outcome turns upon questions of construction of the trust deed and directors' resolutions, those questions will best be addressed in the context of facts as found rather than being approached in an insulated way and on some hypothetical or assumed basis. Overall, I am of the opinion that this is one of the cases to which the following observation of Kirby and Callinan JJ in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at p.55 applies: "The attractions of trials of issues rather than of cases in their totality are often more chimerical than real." 19 The notice of motion is dismissed with costs. ********** 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. 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