CWK Nominees Pty Ltd [2012] NSWSC 665

Supreme Court New South Wales

Medium Neutral Citation: CWK Nominees Pty Ltd [2012] NSWSC 665 Hearing dates: 13 June 2012 Decision date: 14 June 2012 Jurisdiction: Equity Division - Duty List Before: Ward J Decision: Judicial Advice given Catchwords: TRUSTS - JUDICIAL ADVICE - application by trustee for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) - HELD - judicial advice given Legislation Cited: Corporations Act 2001 (Cth) Trustee Act 1925 (NSW) Cases Cited: Karger v Paul [1984] VR 163 Macedonian Orthodox Community Church v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese (2008) 237 CLR 66 Mettoy Pension Trustee Ltd v Evans [1990] 1 WLR 1587 Re Hastings-Bass [1975] Ch 25 Texts Cited: J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006) G W Thomas, Thomas on Powers (2nd ed, 2012) Category: Principal judgment Parties: CWK Nominees Pty Ltd ACN 131 656 632 (Plaintiff) Representation: Counsel M J Leeming SC with J A C Potts (Plaintiff) Solicitors Whittens & McKeough (Plaintiff) File Number(s): 12/187352

Judgment 1HER HONOUR: This is an application by CWK Nominees Pty Limited as trustee for the CWK Incentive Option Plan Trust for judicial advice as to whether it would be justified in determining to transfer, by way of distribution in specie, various Options held by it as trustee of the said trust in the circumstances outlined in the s 63 Statement served with this application. 2Section 63(1) of the Trustee Act 1925 (NSW) permits a trustee to apply to the court for an opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. A statement of general principles relevant to applications under s 63 is to be found in Macedonian Orthodox Community Church v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese (2008) 237 CLR 66 at [54]-[75]. The High Court (at [70]-[71]) recognised that the proper purpose for seeking judicial advice includes relief aimed at resolving legitimate doubts held by the trustee as to the proper course of action and protecting the trust and those entitled to it. 3The present application is not one where the questions on which the trustee is seeking judicial advice concern the respective rights of beneficiaries or their identity; nor is it one in which there is a question raised as to the trustee's powers or the construction of the relevant trust deed. Rather, what is sought is advice as to whether the trustee (CWK) would be justified in exercising a discretionary power in a particular manner. Background 4CWK Nominees is a wholly owned subsidiary of Coalworks Limited, a company listed on the Australian Stock Exchange on 24 June 2008. At the time of its listing the stock in Coalworks traded at 20 cents; as at 13 June 2012 the stock is trading at a price of just over one dollar. 5On 20 May 2008 the shareholders of Coalworks Limited approved an Incentive Option Plan. The Rules of the Coalworks Incentive Option Plan as constituted provided (in Rule 11) that: The plan shall be in all respects administered under the direction of the Board. and went on to note that the Board of the company may make such rules for the conduct of the plan, not being inconsistent with the provisions of the plan, as it thinks fit. 6Rule 14 provided that, by applying for a grant of an Option a Member agrees to be bound by the terms and conditions (of the Plan) and that those are governed by and shall be construed in accordance with the laws of New South Wales. 7Those terms and conditions included, under Rule 2 (headed Application for and Grant of Options), a procedure for the application for and grant of Options (a procedure that is in some respects inconsistent with what appears to have been contemplated under the Trust Deed, to which I will refer shortly). 8In summary, by Rule 2, the Plan made provision (2(a)) for the application by Executives (deemed to include all staff including any person engaged in, inter alia, employment, consultancy or directorship with the company or a sub-contractor with the company) to be made to the Board (following a once yearly invitation by the Board) for "Options to be allocated to them by the Board in accordance with the [ASX Listing Rules]", within the limits therein specified. The Board then was to allocate the number of Options to be issued to an Executive or a method of calculation of the number of Options (2(b)) and once this was done the number of Shares that could be acquired pursuant to the Plan was not to exceed the number of Options allocated to the Executive. 9Rule 2(d) obliged the company to grant Options to every Executive who duly applies for them in accordance with the Plan "unless the Board considers it undesirable to grant Options to the Executive" because of one of the specified circumstances in that rule (each of those circumstances relating to the termination or proposed termination of the Executive's employment). (In passing, I note that this is an early indication of the link between the continued employment of the person to whom an Option was granted and the subsistence of the Option so granted to that person.) 10Rule 3 provided for the issue of Option Certificates and the maintenance of a register of Members (defined as Executives who are granted Options under the Plan). 11Rule 6(c) provided for what was to happen to Options allocated to a Member in the event of termination of employment of that Member by reason of any of the circumstances therein listed (ie whether there was to be an entitlement thereafter to exercise those Options and if and when such Options were to lapse). Again, this indicates the link between the grant of Options and the employment of the person to whom they were granted. 12Rule 8 of the Plan dealt with the allotment issue or allocation of shares on the exercise of Options. Rule 8(b) provided that the company might establish a trust and fund it by way of loan or other financial assistance for the purpose of acquiring shares in the company to provide a pool of shares out of which shares might be allocated to satisfy the exercise of Options under the Plan. 13Relevantly, for present purposes, Rule 9 (headed Takeover or Change in Control of the Company) provided: In the event that a party acquires a relevant interest in the issued voting Shares of the Company which exceeds 20% of the issued capital ... resulting in a full take over or an acquisition of more than 20% of the issued capital of the Company then the Board of the Company may exempt the Member from any of the provisions hereof and issue substitute Options where appropriate. 14Amendments to the Plan (pursuant to Rule 13) were permitted by resolution of the Board with the exception that no amendment conferring an unfair benefit on the Member was to be approved unless first approved by shareholders of the company. 15Acceptance to be bound by the terms and conditions of the Rules (necessary before an application of Options was to be accepted by the Company - rule 2(c)) would thus give rise to a contract between the Member and the company. 16A Prospectus was lodged by Coalworks with ASIC on 26 May 2008, disclosing the intention of the Board to issue incentive Options. Section 10.4.2 of that prospectus made reference to the incentive Options and at section 10.4.3 the Option terms and conditions were summarised. 17On 17 June 2008, CWK Nominees was incorporated. On the same day, Coalworks issued 15,000,000 incentive Options to CWK Nominees. The ASX release issued on that day noted that the Options were issued to CWK Nominees "to hold as trustee under a trust deed entered into between the Company and CWK on or about the same date". In that announcement, the beneficiaries of the trust were identified as the directors and consultants of the Company (or their nominees) who were identified as the proposed grantees of the Options in section 10.4.2 of the Prospectus. 18The ASX announcement continued: The Trustee was issued the Incentive Options subject to the option plan rules summarised in section 10.4.2 of the Prospectus and the option terms and conditions listed in section 10.4.3 of the Prospectus. The Trustee has entered into a restriction agreement in relation to the Incentive Options in terms of which they are escrowed for a period of 24 months from the listing date of the Company. 19I am informed that the reference to escrow under a "restriction agreement" is a reference to an Appendix 9A restriction agreement required pursuant to Chapter 9 of the ASX Listing Rules, which restricts seed capitalists, vendors of classified assets, promoters, professionals, consultants and persons under an employee incentive scheme from trading their securities for a period of time after a company is admitted (or re-admitted) to quotation on the ASX. 20By Trust Deed dated 19 June 2008 between Coalworks and CWK Nominees, the trust was established. (The Trust Deed was later amended by a Supplemental Deed dated 23 November 2011.) 21The Trust Deed contains the following three brief recitals: (A) as to the establishment by Coalworks of an incentive Option Plan on 20 May 2008; (B) as to the wish of the parties to the deed "to create this trust as an interim custodian for the Options which are to be issued under the Plan"; and (C) that, at a meeting of shareholders of the company on 20 May 2008, the Incentive Option Plant [sic] was approved. 22The operative provisions of the Trust Deed provided for the appointment and establishment of the trust fund "on the terms and conditions contained herein with reference to the Incentive Option Plan" and irrevocably appointed CWK Nominees to be the trustee of the fund. Clearly, it was intended that the Trust Deed be read conformably with the Plan. 23Clause 2 contains a declaration of trust by the trustee that the Fund and any shares, Options, securities, rights or other amounts provided to the Fund "will be held on trust for the beneficiaries of the Fund for a term of 6 years after which the Fund shall vest in any remaining beneficiaries". (It is noted by Senior Counsel appearing for the trustee on this application, Mr Leeming SC, that this operates in effect to accelerate the vesting of the Options that have been issued since they are expressed to expire in December 2014, whereas the six year vesting period under the Trust Deed will expire in June 2014.) 24Clause 3 identified the persons who are beneficiaries of the Fund as "discretionary beneficiaries pending expiry from escrow of the shares Options securities or rights under the trusts herein" and provided that: ...the Trustee shall exercise its discretion to allow early distributions of Options or rights or make distributions from the trust in accordance with the Incentive Option Plan provided that no beneficiary shall be entitled to any shares Options securities rights or other assets of the Fund until the Trustee exercises its discretion. 25Insofar as the Executives as defined in the Employee Incentive Plan are identified as discretionary beneficiaries, this would seem to be inconsistent with the allocation to them of Options under the procedure provided for in the Rules of the Plan (although it may be that what this clause was intended to indicate was that the company Executives formed the pool or part of the pool of potential beneficiaries of the Fund, depending upon the acceptance of the company of an application by them for Options and the allocation of Options in their name, at which time the Options would be held by CWK for them as trustee). 26The trustee's powers are set out in clause 4. Relevantly, the trustee is obliged to assign a reason for the exercise or failure to exercise any power (clause 4.2) and clause 4.4 provides that every power of the trustee shall be exercisable at the trustee's absolute and unconditional discretion. 27When amendments were made in 2011 to the Trust Deed by way of the Supplemental Deed, references to escrow arrangements were removed from the end of the last sentence of clause 3 (namely the words "or until after expiry of the escrow relating to any such Options or rights") and after the words "absolute and unconditional discretion" in clause 4.4 but not from the opening words of clause 3 (and nor was there any change to the recital recording the intent that the trustee be an interim custodian). (There is some doubt as to what was intended by the reference to the escrow arrangements, that escrow period in any event expiring in June 2010. It was suggested by Mr Leeming that the escrow arrangement was to meet the requirements of the Listing Rules. If so, then the purpose of that arrangement would presumably have been to preclude an Option holder from exercising a right to acquire shares under the Options until the expiry of the escrow period but not to affect the title of the trustee thereto in the interim.) 28Clause 5 (which requires the trustee to keep a register of discretionary beneficiaries) in its terms appears to contemplate that the trustee has a discretion that it may exercise pursuant to the Incentive Option Plan. 29Clause 9 contained a power of variation that was "subject to being in accordance with the Corporations Act 2001 and the Incentive Option Plan ..." as deemed necessary to vary all or any of the trusts provided that the Incentive Option Plan is not breached and that such variation alteration or addition is not in favour of or will not result in any benefit to any party other than the beneficiaries. 30On 6 October 2011, the Board of Coalworks approved an amended Executive Option Plan. At the same time it resolved that the company ratify and approve all prior issues of Options to CWK "as trustee and custodian of Coalworks incentive Options under the revised Option Plan" and that a supplementary trust deed be entered into to rectify "clerical errors" in the current trust deed. (Given that the Options had been issued to CWK prior to the revision of the Option Plan, it seems to me that this can only sensibly be read as a resolution to ratify all prior issues to CWK in the stated capacity of trustee and 'custodian' and to indicate that those are to be held henceforth having regard to the terms of the revised Option Plan.) 31It is noted by Mr Leeming that ASX Listing Rule 7.1 requires a listed company to obtain shareholder approval prior to the issue of shares or securities convertible into shares representing more than 15 per cent of the issues capital of the company in any 12 month period. ASX Listing Rule 7.2 (exception 9) provides that Listing Rule 7.1 does not apply to an issue under an employee incentive scheme if, within 3 years before the date of the issue, shareholders have approved the issue as an exception to Listing Rule 7.1. 32A resolution for the purposes of ASX Listing Rule 7.2 (exception 9) and for all other purposes to approve the re-adoption by the company of its Executive Option Plan (as amended) was put to Coalworks' shareholders at the company's Annual General Meeting on 11 November 2011. (The notice of meeting noted that 22,273,000 Options had been issued under the Plan since the date of last approval (being 20 May 2008).) 33Resolution 6, providing for approval of the revised Option Plan, was not passed by the shareholders. (Nevertheless, that does not seem to me to affect the earlier ratification and approval by the company of the issues of Options to CWK as trustee.) 34The resolution to enter the Supplemental Trust Deed was passed (removing some of the references to the escrow arrangement as noted earlier). 35In evidence before me were copies of Option Certificates issued by Coalworks in respect of the various Options. Those Options are expressed to expire on 31 December 2014. The schedule to the Option Certificates sets out the terms and conditions of the Options. I note that there are three different Options that have been issued to date - 50c, 80c and $1 Options. 36Also provided to me were copies of letters that have been issued to the holders of Options outlining their rights in relation to Options allocated to them. First, by letter issued in June 2011, various Option holders were advised that the company wished to provide or had agreed to allocate particular Options to them. Those letters are expressed in terms that suggest an immediate entitlement was thereby being conferred (although some tranches of Options so allocated were subject to conditions precedent to their exercise that depended on particular "entitling events" occurring (namely, completion of certain works on developments in which the company was involved). Those conditions precedent are able to be waived by the company (the letters noting that the vesting condition applies "unless special circumstances apply and the directors of Coalworks waive this milestone"). The June 2011 letter notes that all Options shall be held by CWK and will vest in favour of the Option holder at his or her request, subject to the entitling events and provided he or she still remains employed by company (again providing a link between employment and exercise of the Options). 37Further letters were sent in December 2011 "clarifying" the contents of the earlier letter. Those confirmed an agreement by Coalworks to allocate Options to the particular addressee or his or her nominated super fund or family trust (again indicating certain tranches of Options, some exercisable without any particular event having first arisen, others on the completion of certain milestones unless waived by the directors of the company). 38The December letters stated that: The Options are held by CWK Nominees Pty Ltd's Incentive Option Trust Fund and will vest in favour of you and be transferred to you on request providing that: 1. Exercise of discretion by CWK Nominees Pty Ltd pursuant to the trust deed to confer a present entitlement to you (only after milestones or other conditions have been met). 2. The following conditions precedent being satisfied: (i) In respect of Tranche 1 Options, CWK Nominees Pty Ltd as trustee may exercise its discretion pursuant to 1), otherwise no other milestones apply. (ii) In respect of Tranche 2 Options, upon completion of the Bankable Feasibility Study for the Vickery South Mine and 3) is satisfied. (iii) In respect of Tranche 3 Options, upon breaking ground in respect of the construction of the Vickery South Mine, providing that 3) is satisfied. 3. You have remained as a Consultant [or other Executive] of Coalworks. 39The December letter set out the steps required for Options to be transferred to the addressee or his or her super fund or family trust and for Options so transferred to be exercised into shares. As to the former, this was stated to require an exercise of discretion by CWK as trustee. 40Therefore, insofar as there was a requirement for the company to exercise any discretion in relation to the transfer of Options, this letter would suggest that the company has delegated that function to CWK as trustee. Further the letter clearly acknowledges that CWK is holding the Options as trustee and that they will vest in favour of the particular Executive on the happening of any milestones (or if none was specified - Tranche 1, for example - at the discretion of CWK). 41The participants of the Plan are persons to whom Options under the Plan have been offered as an incentive to induce them to provide services to Coalworks. 42In terms of the entitling events referred to in the letters, I am informed that completion of the Bankable Feasibility Study for the Vickery South Mine is expected by about December 2012; and breaking ground at the Vickery South Mine is expected to take place at some time during 2014. (Therefore, even if the distribution in specie takes place, the earliest that the Tranche 2 Options can vest, absent waiver of milestones by the directors, is December this year.) 43The present Plan participants (most holding their interests through corporate entities/superannuation funds, and excluding participants who have no remaining Options), are: (a)Andrew Firek - CEO/Managing Director of Coalworks Limited since 2005; (b)Wayne Mitchell - Chairman of Coalworks since 2007 and has provided consulting services to Coalworks in connection with corporate affairs, coal development and marketing of coal; (c)Tony Teng - accountant- was a Director and Company Secretary of Coalworks from 2005 to 2011 and has consulted to the company in respect of corporate and commercial affairs; (d)David Smith - Head of Commercial and Corporate. Mr Smith was advisor to Coalworks while at BBY Ltd prior to joining Coalworks and has been instrumental in its growth and capital raisings; (e)Geoff Kidd - mechanical engineer. Chief Operating Officer and formerly Operations Manager. Mr Kidd joined the company in 2009 and has led the project management team for Oaklands North and participated in project management teams for Vickery South and Ferndale; (f)Steve Harper - civil engineer. Mr Harper has consulted to the Oaklands North and Vickery South projects since 2009 and is presently the Project Manager for Vickery South; (g)Ron Millard - draftsman. Mr Millard has consulted to the Oaklands North and Vickery South projects since 2009 in providing design and planning services to each project; (h)Rohanna Le - Ms Le has consulted to the Vickery South project as an engineer since 2011. (i)Matt Morgan - geologist/engineer. Mr Morgan has been consulting to Coalworks Limited since 2009 as exploration manager. (j)David Oastler - accountant. Mr Oastler has been Chief Financial Officer of Coalworks since 2009; (k)Nathan Bartrop - solicitor/chartered secretary. Mr Bartrop has been company secretary of Coalworks Limited and several of its subsidiaries since 2011; (l)Chris Hagan - solicitor. Mr Hagan has consulted to Coalworks since 2005 as an in-house solicitor and senior advisor; (m)Glenn Rosewall - Mr Rosewall was Managing Director of BBY Ltd which is a long-term Coalworks Limited advisor and has been instrumental in its capital raisings; (n)Patricia Miu - Ms Miu has been team administrator since 2009. 44CWK Nominees maintains an Options register showing the allocation of incentive Options under the Plan to each participant and whether the Options have or have not vested in favour of the participant. (There is no issue as to any variation of the allocations as shown on the register.) 45The application by CWK Nominees for advice as to the proposed exercise of discretion to vest the employee Options (by transferring them in specie to the employees) has been precipitated by the receipt of enquiries from participants in the Plan about the status of their Options following the announcement of an off-market takeover offer from Whitehaven Coal Holding Pty Limited for $1 per share. (I have been provided with a copy of the bid statement and by the response from the company. I understand that the offer has not yet been confirmed as unconditional and that unless extended, the offer will close on 26 June 2012.) 46The bid is opposed by two of the three directors of Coalworks (Dr Firek and Mr Mitchell). The third director, Mr Ian Craig, is a nominee of Boardwalk Resources Pty Ltd, that company being a subsidiary of Whitehaven Coal Limited (the parent company of Whitehaven Coal Holding Pty Limited, which made the Takeover Offer). 47Dr Andrew Firek is the sole director of CWK Nominees. He is also a Plan participant though a corporate entity controlled by him. He recognises that there may be a conflict of interest in exercising the discretion of the trustee in these circumstances. Accordingly, on 13 June 2012, Mr Tony Chappel was appointed as an alternate director of CWK Nominees for Dr Firek. I understand that this was with the intention of Mr Chappel seeking judicial advice about the exercise of the trustee's discretion in response to enquiries from participants as to their Option entitlements. (Mr Chappel is an in-house lawyer employed by Coalworks Limited and a solicitor admitted in New South Wales. Mr Chappel is not a participant under the Plan and is not being paid for his work as an alternate director, although he has received an indemnity from CWK and Coalworks Limited.) 48CWK Nominees has informed Plan participants that it is inclined to exercise its discretion and now to vest such of those Options held in the trust as have been promised to the participants. It has formed this view, having regard to the possibility that if the Takeover Offer is successful a change of control could mean that the beneficiaries are disentitled by the new owner of Coalworks. In this regard, I have been taken to parts of the statements issued by the bidder which demonstrate that the bidder is aware of the existence of the Options but reserves its right to accept or cancel those Options. 49At 11.1 of the bid statement, reference is made to the Options and it is said: This Offer extends to Shares that are issued on the exercise of Options during the period from the Register Date to the end of the Offer Period. Whitehaven Coal Holdings does not presently intend to make any separate offer to acquire (or cancel) the Options but reserves the right to do so. However, if Whitehaven Coal Holdings has relevant interests in at least 90% of the Shares during or at the end of the Offer Period, it may seek to acquire (or cancel) any outstanding Options or, if possible, to seek to compulsorily acquire (or cancel) [sic] any outstanding Options under Part 6A.2 of the Corporations Act. Whitehaven Coal Holdings may consider making separate offers to acquire (or cancel) the Options depending on its voting power in Coalworks and other relevant circumstances following the end of the Offer Period. 50At 8.1, the bidder notes that if holders of all Options on issue at the date of the statement exercised those Options and accepted the offer then the additional consideration payable in respect of the Shares resulting from such exercise would be approximately $21.7 million and in the event of the exercise of all Options on issue Coalworks would receive approximately $17.7 million in cash proceeds. The funding arrangements are overviewed at 8.3 and it is confirmed that the funds available are "more than sufficient" to fund the maximum consideration payable pursuant to the offer. 51Moreover, as vesting of the Options is dependent on continued employment (consultancy or similar role) with the company, there is a concern that staffing changes may deprive those who have previously been advised of an allocation of Options of their ability to have the Options vested in their favour and to exercise those Options. 52The urgency of the present application is that an extraordinary general meeting of Coalworks has been convened for 15 June 2012. That meeting was requisitioned by Macquarie Bank Limited pursuant to s 249D of the Corporations Act 2001. Macquarie, which owns a relevant parcel of the shares of the company, has put forward resolutions that, if passed, would result in the removal of Dr Firek and Mr Mitchell as directors of Coalworks and their replacement by nominees of Macquarie. (Dr Firek would still remain the sole director of the trustee, CWK.) 53The proposed exercise of the discretion by CWK Nominees would not vest the Options in time for any person exercising them to be able to vote shares converted at the extraordinary general meeting and so will not affect the outcome of any resolution at that meeting. If the 50c Options are vested I understand this will add marginally (less than 1%) to the cost of the bid and that the bidder has in any event confirmed funding for the bid on the assumption that all Options might vest (and therefore it is difficult to infer any attempt to obstruct or hinder the bid process in the decision to vest the Options). Vesting of the Options subject to milestones would in any event be subject to the decision of the Board whether to waive those milestones. 54On 7 June 2012, CWK Nominees wrote to Plan participants asking whether they wished the trustee to exercise its discretion to vest their Options. It has received responses from nine participants asking that the trustee vest the Options (including Dr Firek and Mr Mitchell). As the vesting may have tax consequences for participants in whom the Options vest, the trustee proposes to exercise its discretion and vest Options only in those people who have asked for the discretion to be exercised (and any other participants who have similar entitlements under the trust in accordance with the Plan and who request it so to do). Question for determination 55The question posed for determination in light of the above is whether, in the circumstances, the trustee would be justified: (a) in determining to transfer, by way of distribution in specie, the 50c Options to those persons listed in paragraph 27 above (and any other Participants who expressly request distribution); and (b) in the event that the directors of Coalworks Limited waive (including by a majority resolution) the milestones relating to the 80c and $1.00 Options, in determining to transfer, by way of distribution in specie, those Options to those persons listed in paragraph 27 above (and any other Participants who expressly request distribution). Advice 56This application came before me in the duty list and I was unfortunately not able to prepare written reasons within the time available. Accordingly, I gave the advice and short oral reasons on 14 June 2012 and I now publish the reasons for the judicial advice then given. 57As noted earlier, the advice sought is as to the proposed exercise by the trustee of a discretionary power as to the distribution in specie of Options held by it as trustee pursuant to the terms of the Trust Deed (as amended), which themselves require reference to be made to the terms and conditions of the Incentive Option Plan (in its original form). I note that in Jacobs' Law of Trusts in Australia (7th ed, 2006) at [1606], the learned authors considered in relation to the exercise of purely discretionary powers by trustees: The court will not control trustees in the exercise of their purely discretionary powers unless they are acting mala fide, or have misconceived the nature of their discretion and acted on that misconception. In the case of a duty the trustees commit a breach of trust if they fail to do or refrain from doing the thing prescribed; in the case of powers, they commit a breach of trust if they fail honestly to exercise their judgment as to whether they should do the particular act or not. and following at [1608]-[1609]: What, then, are the duties of trustee with a discretionary power? Their first duty is to act honestly and in good faith. There is no distinction between 'honestly' and 'good faith'. Moreover, mere carelessness or honest blundering will not negative 'good faith'. Nor need they observe the rules of natural justice: they may exercise a power to the disadvantage of a beneficiary without seeking that beneficiary's views. Their second duty is to act ' upon genuine consideration', that is, to take an informed view of whether or not to exercise their discretion, and not to act irresponsibly, capriciously or wantonly. Their third duty is to exercise their power with due consideration for the purpose for which it was conferred, and not for some ulterior purpose. While it is irrelevant whether or not their decision proves beneficial or prudent, and equally irrelevant whether the court would exercise the power in the same way, a grotesquely unreasonable result may be evidence of a miscarriage of duty. Conversely, it may be asked what is meant by mala fides in this context? It obviously includes fraud, but is much wider than that. It also includes a refusal to recognise that the discretion exists, and a refusal to make an informed decision. It also includes making a decision for an ulterior motive or purpose; for example, where a trustee exercised a power of advancement with the real object of benefiting the cestui que trust's father. It also includes the taking into account of irrelevant considerations, as where the trustees' discretion was not to pay an annuity if it was 'unnecessary, inexpedient and impracticable' but they had declined to pay it for reasons which had nothing to do with those criteria. It also includes a refusal to take relevant considerations in account. 58Thomas on Powers notes the tension between the considerable and seemingly unlimited width of an absolute and uncontrolled discretion (of the kind here conferred on CWK Nominees) and the duties that a trustee has when exercising fiduciary power (at [10-02]). The duties of a trustee in such a position include the duties recognised above. Thomas notes the principle expressed in Re Hastings-Bass [1975] Ch 25, in the context of a power of advancement, applied in Mettoy Pension Trustee Ltd v Evans [1990] 1 WLR 1587 at 1622-1626, namely that: Where by the terms of a trust a trustee is given a discretion as to some matter under which he acts in good faith, the Court should not interfere with his action notwithstanding that it does not have the full effect which he intended unless 1 what he has achieved is unauthorised by the power conferred upon him or 2 It is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account; or (b) had he not failed to take into account considerations which he ought to have taken into account. 59In Karger v Paul [1984] VR 163, McGarvie J, considering the exercise of an absolute and unfettered discretion, similarly noted that the Court will not review the exercise of discretion if it has been in good faith upon genuine consideration and in accordance with the purposes for which the discretion is conferred and not some ulterior purpose. 60The above authorities and academic writings indicate the manner in which the trustee should approach the task of considering the exercise of discretion: in good faith and upon real and genuine consideration in accordance with the purpose for which the power was conferred. Those principles therefore guide the determination of whether, in the present case, the trustee would be justified in exercising the discretion conferred under the Trust Deed (and confirmed by Coalworks in its 2011 communications with the Executives to which it has allocated Options) in order now to transfer the Options, by distribution in specie to the various persons to whom they have been allocated. 61There is no doubt that CWK Nominees is currently the legal owner of the Options in question. All issues of Options to it were ratified and confirmed by Coalworks at the time the Board approved entry into the Supplemental Deed. True it is that the Board resolution referred to the issue of the Options to CWK Nominees as "trustee and custodian", but that would be consistent with a reference to the basis on which the initial issue was made (apparently for purposes of compliance with listing rule requirements) pursuant to an escrow condition and the description in the Recitals to the Trust Deed of CWK Nominees as an "interim custodian". It does not seem to me to affect the position that CWK Nominees is presently holding the Options as trustee. 62There are, as Mr Leeming pointed out, a number of instances where there is some disconformity (or 'disconnect') between the provisions of the Trust Deed and the Rules of the Incentive Option Plan, to which the trustee is directed under the Trust Deed to have regard and conformably with which it must exercise the discretions conferred on it as trustee. I have referred to those above. Nevertheless, what is clear is that the Board has ratified the holding of the Options by CWK Nominees as trustee and Coalworks has, by the issue of the various Options Certificates and the allocation of Options to various Executives, nominated to whom Options are to be allocated and in what amount. Therefore, insofar as the Trust Deed nominates the class of beneficiaries of the Fund as discretionary beneficiaries, the company has itself already determined the allocations of Options to be made in relation to those beneficiaries (and this is recorded in the Options register). In that sense, the issue of Options Certificates would appear to represent a direction that the trustee hold those particular Options on trust for the nominated Executives (and it would not seemingly be open to the trustee, without a further direction from the company, say, to determine to transfer the Options to a different person within the class of discretionary beneficiaries). 63Coalworks, again in its communications with the persons to whom Options have been allocated, has confirmed that the discretion as to vesting of the Options is to be exercised by the trustee. In the case of those Options not subject to a milestone event occurring (Tranche 1 Options), there seems no basis on which it would not be open to the trustee at any time to accede to a request by the particular Executive for those to be transferred to it. In the case of the Tranche 1 and 2 Options, what is in effect being sought is a transfer in advance of the time at which the Option would be exercisable by the Option holder. The transfer of those Options at this stage will not enable the holders to call for a transfer of the shares the subject of the Options unless and until either the relevant entitling event has occurred or the Board of the company (as then constituted) waives the milestone(s) in question. If there is a change in the composition of the Board following the meeting scheduled for today, then that may of course determine whether there is a waiver of any of the milestones but that is not relevant for present purposes (other than to note that the transfer in specie of the Options will not of itself affect the time at which the Options Holders can call for the shares in question). (Similarly, since the record date for voting purposes for today's meeting closed at 7pm on 13 June 2012, a decision by CWK Nominees along the lines the subject of the present application, following the judicial advice I gave yesterday, would not affect the voting entitlements at the meeting today.) 64What then are the considerations that have led to the preparedness of the trustee to transfer by way of distribution in specie those of the Options in respect of which Executives have confirmed a wish for this to happen? Mr Leeming notes that the trustee's position is that the take-over offer constitutes special circumstances that trigger the possibility of the trustee exercising its discretion to vest the Plan participants (but only those who confirm that they who wish it to do so) with the Options immediately. 65On the evidence before me, the decision has been reached having regard to the fact that the Options were allocated (as is evident from the terms of the Plan and, in particular, the conditions for their exercise) as part of an incentive scheme for employees, consultants and officers of the company (and, it might be inferred, in recognition of their efforts on behalf of the company) and there is a concern on the part of at least some of those persons that if the take-over bid is successful they may be unable to obtain the benefit of those Options (whether because the bidder moves to cancel the Options or to acquire compulsorily the shares if it acquires the requisite level of shares in the company or because there may be staffing cuts following a change in management of the company). 66The Plan itself contains provision for the issue of substitute Options in the event of a take-over or change of control of the company, which indicates an intention that the benefits of the incentive plan in that regard were intended to continue. 67As noted above, the consequence of the transfer of the Options will be (in the case of the 50c Options) to increase by less than 1% the bid price (in circumstances where the bidder has already acknowledged its awareness of the Options and has confirmed that it has funding available to meet the price even if all the existing Options were to be vested and exercised). There is nothing to suggest that the effect of the decision to transfer (or its intended purpose) is in any way to frustrate or obstruct the bidder in its attempt to acquire the shares of the company. The board of Coalworks has made plain that the discretion in relation to the transfer of Options is a matter within the discretion of the trustee and has ratified the previous issues of Options to CWK Nominees as trustee. Those to whom Options have been allocated by the company and in whose name (or the name of their superannuation fund or family company) Options Certificates have been issued would have a legitimate expectation (if not indeed a contractual right) to call for the transfer of the Options (whether now or after the milestones have been completed or waived - and in the case of the Tranche 2 Options this is forecast for December this year). Further, it will remain open to Coalworks board (however that may from today be constituted) to determine whether any milestones in relation to the Tranche 2 and Tranche 3 Options are to be waived. 68In all those circumstances, I consider that there is nothing to suggest that the trustee's decision now to transfer by way of distribution in specie the Options as proposed has been anything other than a decision reached honestly and in good faith in the interests of the Executives but also in the interests of the company (in circumstances where those Executives may have rights to call for the company to honour its representations in relation to the Options). Nor does it appear that the decision has been motivated by considerations that would be likely to render it an improper exercise of the discretion reposed in CWK Nominees. The Plan itself contemplates that there may be a proper purpose in issuing substitute Options in the event of a take-over. 69Accordingly, I gave the following judicial advice based on the material before me and made orders accordingly: The Plaintiff Trustee would be justified : (a) in determining to transfer, by way of distribution in specie, the 50c Options to those persons listed in paragraph 27 above (and any other Participants who expressly request distribution); and (b) in the event that the directors of Coalworks Limited waive (including by a majority resolution) the milestones relating to the 80c and $1.00 Options, in determining to transfer, by way of distribution in specie, those Options to those persons listed in paragraph 27 above (and any other Participants who expressly request distribution).