New South Wales Supreme Court CITATION : Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246 HEARING DATE(S) : 20/03/08 JUDGMENT DATE : 20 March 2008 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 20 March 2008 DECISION : Declaration that plaintiff appointed new trustee in place of defendant CATCHWORDS : TRUSTS AND TRUSTEES - trust deed provides that office of trustee is "determined and vacated" if trustee, being a company, goes into liquidation - effect of such provision - trust deed provides for unit holders to appoint new trustee - whether such appointment made - old trustee reluctant to surrender trust property while it has unsatisfied recoupment claims - ability of old trustee to maintain proprietary claims after transfer to new trustee CATEGORY : Principal judgment Belar Pty Ltd v Mahaffey [1999] QCA 2; [2000] 1 QdR 477 CASES CITED : Chief Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574 Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (2002) ATPR 41-864; [2002] NSWCA 29 PARTIES : Ronori Pty Limited - Plaintiff ACN 101 071 998 Pty Ltd - Defendant FILE NUMBER(S) : SC 6163/07 COUNSEL : Mr D M Flaherty - Plaintiff Mr C Mobellan - Defendant SOLICITORS : Aubrey Brown Partners - Plaintiff Slater & Gordon - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY 20 MARCH 2008 6163/07 RONORI PTY LIMITED v ACN 101 071 998 PTY LIMITED (FORMERLY HARCORP PROPERTY GROUP PTY LIMITED) JUDGMENT 1 The defendant (then named "Harcorp Property Group Pty Limited") became a party to a deed made on 24 February 2005 by which there was constituted the Kunda Park Unit Trust. The other parties were Mr Smith (designated "settlor") and a number of persons designated "original unit holders". 2 By the deed, the defendant declared that it held an initially settled sum of $170 and accretions and after acquired property (designated the "trust fund") and the income from the trust fund upon trust for the unit holders, that is, the original unit holders and others admitted from time to time. On the evidence, the original unit holders remain the only unit holders. 3 Clause 17.2 of the trust deed specifies events in which the office of trustee "shall be determined and vacated". One such event is that described in clause 17.2 (a): "if being a company such trustee shall go into liquidation (except for the purpose of amalgamation or reconstruction or some similar purpose)." 4 Clause 17.4 says that the unit holders "shall be entitled to...appoint a trustee in place of any trustee who dies or retires or is disqualified or removed from office." 5 The defendant is subject to creditors' voluntary winding up. The date of appointment of liquidator is shown in tendered ASIC records as 26 July 2007. 6 It follows that, since 26 July 2007, the defendant has not been qualified or entitled to exercise the office of trustee of the Kunda Park Unit Trust. Although it has continued to hold the trust property, it has been under an ongoing obligation to vest that property in any new trustee appointed to replace it. Its continued holding of the property has been for that confined purpose only. 7 Action under clause 17.4 to install a new trustee in place of the defendant has been taken. It is to that that I now turn. 8 The manner of giving effect to clause 17.4, among other like provisions, is specified in clause 22, which says that any power conferred by the trustee on the unit holders may be exercised in one of two ways. There may be a resolution passed at a meeting of unit holders by a majority of unit holders holding not less than 75% of the issued units at the date of the meeting and entitled to vote at the meeting; or there may be a "written resolution" notice of which has been given to all unit holders and which is executed by or on behalf of the majority of them holding not less than 75% of the issued units and entitled to vote. 9 The evidence shows that both these courses were taken with respect to the appointment of the plaintiff as the new trustee of the Kunda Park Unit Trust following the commencement of the winding-up of the defendant. A meeting of unit holders was held on 9 September 2007 at which there was present a majority of the unit holders, accounting for more than 75% of the units. That meeting passed a resolution that the plaintiff be appointed as new trustee of the Kunda Park Unit Trust. It also passed other ancillary resolutions. 10 In parallel with this, a form of deed recording vacation of office by the defendant and appointment of the plaintiff in its place was prepared and copies were sent to all unit holders. A document in the form of the deed was signed by all but one of the unit holders. The net result of those documents must, in my opinion, be taken to be a "written resolution" within clause 22. The evidence suggests that the documents were all signed on or before 6 November 2007, and they have been dated 7 November 2007. 11 Whether one has regard to the meeting of unit holders held on 19 September 2007 or the collection of documents I have held to be a written resolution, the position today is that the unit holders have, in a manner specified in clause 22, exercised the power of unit holders under clause 17.4 to appoint the plaintiff as new trustee in the place of the defendant. That appointment must, accordingly, be regarded as effective, with the result that the court can and should make a declaration as sought, namely, that the plaintiff is now the sole trustee of the Kunda Park Unit Trust. 12 There is then the matter of vesting the trust assets in the new trustee. Appointment as a new trustee in place of a displaced trustee does not of itself cause trust assets to pass from one to the other. In the present case, the trust deed contains relevant provisions. Clause 17.5 says that a trustee shall on retirement or the termination and vacation of the office of trustee "take such action as is necessary to vest the trust fund or cause it to be vested in any new trustee or trustees and shall deliver to such new trustee or trustees all books, documents, records and other property relating to the trust fund." 13 It is incumbent upon the defendant to give effect to and obey clause 17.5. There is, however, reluctance on the defendant's part to do so because of concerns it has (or rather its liquidator has) about ability to recover and recoup out of the trust property the proper due of the defendant as former trustee. That raises questions about the rights of a trustee in respect of the trust property and the protection or recognition of those rights where a new trustee is appointed so as to replace that trustee. 14 It is axiomatic that a trustee has a right to be indemnified out of trust assets against personal liabilities incurred in the due and proper performance of the trust. Furthermore, the trustee has a beneficial interest in the trust assets to the extent of that right. The interest is a proprietary interest. So much was recognised in the judgment of Sheller JA in Chief Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574 at 586 in a passage expressly approved by the members of the High Court when the matter went on appeal: see Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at CLR 247. 15 In the present case, therefore, the former trustee continues to enjoy a beneficial interest in the trust property commensurate with its right of indemnity out of that property. Although the trustee's right to resort to trust property is sometimes described as a lien, it is not essential for the enjoyment and effectuation of the right that possession of the trust property be retained. The right entails, as I have said, a beneficial interest in the property. It is not in the nature of a possessory security. 16 Where there is a change of trustee, the former trustee's interest remains enforceable against the trust property. It is relevant, in this connection, to quote a passage from the joint judgment of Thomas JA, Shepherdson J and Jones J in Belar Pty Ltd v Mahaffey [1999] QCA 2; [2000] 1 QdR 477 (at [19] to [21]): "In conducting the business of the trust, the trustee becomes personally liable for debts incurred. 'However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets.' [ Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367] That is a reference to trust assets in the trustee's possession. When there is a change of trustee with the trust assets being vested in the new trustee, the former trustee no longer has direct access to such assets, and should make the necessary claim for indemnity against the trustee who represents the trust. The trustee's right of indemnity out of the trust assets is in the nature of a charge or lien in favour of the trustee and as such takes preference or priority over claims by the cestuis que trust. But of course when the assets have passed out of a trustee's possession the necessary claim for a trustee's indemnity should be made against the new trustee. An unco-operative new trustee who declined to exercise the powers to recover trust property in the hands of the beneficiaries could be made a defendant, and orders could be made which would in effect permit the former trustee to exercise such powers by subrogation. There is ultimately a right to proceed directly against the beneficiaries but that right depends upon exhaustion of any remedy against the personal representative." 17 This passage was expressly approved by Spigelman CJ in Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd (2002) ATPR 41-864; [2002] NSWCA 29 at [2]. 18 It is thus clear that, even though the trust assets have passed out of the former trustee's possession, the vindication of that person's beneficial interest remains available by way of an appropriately constituted claim against the new trustee. There need therefore be no concern on the part of the court about recognising immediately the right of the new trustee to have the trust property vested in it. 19 I have already mentioned clause 17.5 of the trust deed which requires the old trustee to take action to vest the trust property in the new trustee and to deliver all books, documents, records and other property relating to the trust fund. My inclination is to defer consideration of any application for a vesting order for a short time, in order to give the defendant an opportunity to comply with clause 17.5. If it should appear that there is no compliance, then the application for a vesting order may be renewed. 20 I make a declaration that the plaintiff is the trustee of the Kunda Park Unit Trust (constituted by the deed dated 24 February 2005) in succession to and in substitution for the defendant. 21 I stand over the proceedings to 9.30am on 4 April 2008 in the expectation that the defendant will, in the meantime, implement and give effect to clause 17.5 of the trust deed in recognition of the declaration just made. 22 The plaintiff as new trustee is entitled to resort to the trust fund to reimburse itself for the costs of these proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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