Supreme Court New South Wales Medium Neutral Citation: Application by Perpetual Trust Services Limited as responsible entity of the Momentum AllWeather (A$) Absolute Return Fund [2012] NSWSC 758 Hearing dates: 28 June 2012 Decision date: 29 June 2012 Jurisdiction: Equity Division - Duty List Before: Stevenson J Decision: Judicial advice given as to one matter; not given as to another Catchwords: TRUSTS - JUDICIAL ADVICE - application by trustee for judicial advice pursuant to s63 of Trustee Act 1925 - whether advice should be given as to a commercial matter - advice given as to a matter of construction Legislation Cited: Trustee Act 1925 Cases Cited: Auspac Corporate Managers Pty Limited v Jay Noble Pty Limited [2003] NSWSC 548 Harrison v Mills [1976] 1 NSWLR 42 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Dioceses of Australia in New Zealand (2008) 237 CLR 66 Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 Re Application of Perpetual Trustee Company Limited [2003] NSWSC 1185 Re Australian Pipeline Ltd (2006) 60 ACSR 625 Texts Cited: Ford and Lee, Principles of the Law of Trusts, vol 2 Category: Principal judgment Parties: Perpetual Trust Services Limited as responsible entity of the Momentum AllWeather (A$) Absolute Return Fund (plaintiff) Representation: Counsel: M Walton SC with M Cairns Solicitors: Clayton Utz File Number(s): 2012/203170 Judgment Introduction 1The plaintiff, Perpetual Trust Services Limited ("Perpetual"), is the responsible entity for the Momentum AllWeather (A$) Absolute Return Fund ("the Momentum Trust"). 2The Momentum Trust was established by a Trust Deed dated 17 October 2001 (as amended from time to time) ("the Constitution"). 3Perpetual's investment manager, so far as concerns the Momentum Trust, is Pioneer Global Investments (Australia) Pty Limited ("Pioneer Australia"). 4On 28 June 2012, in the Duty List, Perpetual sought the opinion, advice or direction of the Court pursuant to s 63 of the Trustee Act 1925 ("the Act") with respect to the following questions: - (a)whether Perpetual would be justified in instructing Pioneer Australia that the Momentum Trust will participate indirectly in the "DR Share Sale Facility"; and (b)If the answer to (a) above is no, whether Perpetual would be justified in postponing the calling in of part of the Momentum Trust by not instructing Pioneer Australia that the Momentum Trust will participate indirectly in the DR Share Sale Facility. 5I was told that it was necessary that Perpetual know whether the Court was prepared to give the advice sought by 4pm the following day, 29 June 2012. 6At 2pm on 29 June 2012: - (1)I answered the questions set out at [4]: - (a)Not answered (b)Not answered (2)I gave advice pursuant to s 63 of the Act that Perpetual would be justified in concluding that, on the proper construction of the Constitution: - (a)the reference in clauses 11.1.2 of the Constitution to "Assets of the Trust" includes the indirect interest held by unit holders of the Momentum Trust in the DR AllWeather Institutional Fund; (b)the effect of clauses 11.1.2 and 11.2(c) of the Constitution is to impose on Perpetual an obligation, subject to clause 11.3 of the Constitution, to "realise the Assets of the Trust" by the means set out in clause 11.2, including to "call in and sell the Assets of the Trust"; and (c)the phrase "any part of the Trust" in clause 11.3 of the Constitution includes the "Assets of the Trust" as referred to in clauses 11.2.1 and 11.2(c) of the Constitution. (3)I ordered that the costs and expenses incurred by Perpetual in connection with these proceedings be paid out of the assets of the Momentum Trust on an indemnity basis. 7These are my reasons for making those orders. Background 8Perpetual terminated the Momentum Trust with effect from 13 February 2009. As a result, the Momentum Trust is currently in wind up. 9By reason of clause 11.1.2 of the Constitution, now that the Momentum Trust is terminated, Perpetual must realise the assets of that trust. 10By reason of clause 11.3 of the Constitution, Perpetual: - "May postpone the sale, calling in and conversion of any part of the Trust for such time as it thinks it desirable to do so in the interest of the Unitholders and shall not be responsible for any loss attributable to such postponement." 11The Momentum Trust owns shares in a Bermuda based mutual fund company known as Momentum Institutional Performance Strategies Limited ("MIPSL"). 12Through MIPSL, the Momentum Trust has an interest in the Momentum AllWeather Absolute Return Fund ("the Underlying Fund"). 13Pioneer Alternative Investment Management Limited ("Pioneer Alternative"), as a delegate of Pioneer Australia, acts as investment manager of the Underlying Fund. 14The Underlying Fund holds shares in a share class of DR Funds Limited which is also a Bermuda based mutual fund company structured in the same way as MIPSL. That share class is known as the "DR AllWeather Institutional Fund". 15The DR AllWeather Institutional Fund together with all the other share classes of DR Funds Limited are collectively known as the "DR Funds". The DR Funds hold an interest in 26 underlying hedge funds. 16The DR AllWeather Institutional Fund's interest in those hedge funds represents 57 per cent of the Momentum Trust's assets as at 1 May 2012. 17Prior to 4 June 2012, Perpetual received a document entitled "DR Funds Secondary Market Transaction - May 2012" from Pioneer Alternative, which: - (a)notified shareholders of DR Funds Limited of "the opportunity to participate" in a potential secondary market sale process which was said to offer "liquidity options" to the DR Shareholders (this is the "DR Share Sale Facility" referred to in [4] above); (b)stated that the deadline by which DR Shareholders must give notice to DR Funds Limited to participate in the DR Share Sale Facility was 29 June 2012; and (c)advised DR Shareholders that if they did not wish to participate in the DR Share Sale Facility, any future secondary transactions would need to be privately arranged and that Pioneer Alternative would not be involved in initiating any such future transactions. 18In substance, what was being proposed was that DR Shareholders sell their interest in the Underlying Fund for cash, but at a discount to the Net Asset Value of the DR Funds. 19Pioneer Australia informed Perpetual that: - (a)it would not instruct the Underlying Fund to participate in the DR Share Sale Facility unless all unit holders of the Momentum Trust requested that the Momentum Trust participate in the DR Share Sale Facility; and (b)it would not provide unit holders of the Momentum Trust with any recommendation in relation to the DR Share Sale Facility. 20On 4 June 2012 Perpetual wrote to the five unit holders in the Momentum Trust seeking instructions from them as to whether they wished to participate in the DR Share Sale Facility. 21Perpetual stated that: - (a)if all unit holders responded and provided an instruction to participate in the DR Share Sale Facility, it expected Pioneer Australia would ask the Underlying Fund to participate in the DR Share Sale Facility; and (b)if unit holders of the Momentum Trust did not agree unanimously to participate in the DR Share Sale Facility, Perpetual would consider whether the Momentum Trust would nonetheless participate in the DR Share Sale Facility. 22The deadline provided to the unit holders to respond to Perpetual was 27 June 2012. 23As at 29 June 2012: - (a)one unit holder (with a 43 per cent interest in the Momentum Trust) had indicated that it wished to participate in the DR Share Sale Facility; (b)one unit holder (with a 20 per cent interest in the Momentum Trust) had said (after the deadline referred to above) that it is "unable to participate in the DR Sale Facility"; and (c)the three remaining unit holders had not indicated to Perpetual whether they wished to participate in the DR Share Sale Facility. 24On 12 June 2012, Perpetual received an email from Pioneer Australia attaching a letter from Pioneer Australia to Perpetual dated 7 June 2012, which stated "we are not aware of any further plans to achieve liquidity". 25On 21 June 2012, Clayton Utz provided a written advice to the board of directors of Perpetual in which was set out considerations said to be relevant to the decision of the board ("the Board"). 26On 25 June 2012, Perpetual took the advice of Senior and Junior Counsel, in conference. 27On 26 June 2012, the General Manager, Trust & Fund Services of Perpetual, and the Acting Business Unit Manager, Fund Compliance Services of Perpetual provided written advice to the board of directors of Perpetual ("the 26 June Memorandum"). 28The 26 June Memorandum contained "further information" about the offer that Perpetual was "currently considering". It described that offer as being "at USD$72.5, for 63.6% of the 31.03.2012 NAV". 29The document concluded: - "The vast majority of the DR Portfolio seems to be trading as money good [sic] and likely to pay out within the next 2-3 years. With return expectations across most asset classes expected to remain at relatively low levels over the short-medium term, the analysis completed suggests that an investor without pressing liquidity requirements should bias themselves towards holding this portfolio through to a full orderly liquidation, rather than paying what essentially amounts to be a >30% liquidity premium. These observations do not take into account the risk or liquidity appetite of the Funds unit holders." (Emphasis in original). 30On 27 June 2012, the Board resolved: - "1. If, by 5.00 pm (Sydney time) on 27 June 2012: (a) all unitholders in the trust known as the Momentum AllWeather (A$) Absolute Return Fund ARSN 106 742 410 (the Momentum Trust) have notified the company as to whether they wish the company to instruct Pioneer Global Investments (Australia) Limited (Pioneer Australia) in relation to the Momentum Trust's indirect participation in the DR Share Sale Facility; and (b) the wishes of all unitholders in that respect are the same, then the company will either instruct or not instruct (as the case may be) Pioneer Australia in relation to the Momentum Trust's indirect participation in the DR Share Sale Facility, consistently with the unitholders' wishes. 2. If, by 5.00 pm (Sydney time) on 27 June 2012, not all unitholders in the Momentum Trust have notified the company as to whether they wish the company to instruct Pioneer Australia in relation to the Momentum Trust's indirect participation in the DR Share Sale Facility (or alternatively, all unitholders in the Momentum Trust have notified the company in that respect but the wishes of all unitholders are not the same), then the company will seek to obtain judicial advice under the Trustee Act 1925 (NSW) (Trustee Act) as to: (a) whether the company would be justified in instructing Pioneer Australia that the Momentum Trust will participate indirectly in the DR Share Sale Facility; and (b) if the advice of the Court is to the effect that the company would not be justified instructing Pioneer Australia that the Momentum Trust will participate indirectly in the DR Share Sale Facility, whether the company would be justified in postponing the calling in of part of the Momentum Trust by not instructing Pioneer Australia that the Momentum Trust will participate indirectly in the DR Share Sale Facility. 3. If, by 4.00 pm (Sydney time) on 29 June 2012, the company has obtained judicial advice under the Trustee Act to the effect that the company would be justified in instructing Pioneer Australia that the Momentum Trust will participate indirectly in the DR Share Sale Facility, the company will instruct Pioneer Australia in relation to the Momentum Trust's indirect participation in the DR Share Sale Facility, because the Board has formed the view that it is desirable to adopt that course in the interest of the unitholders. 4. Failing such judicial advice, the company will not instruct Pioneer Australia in relation to the Momentum Trust's indirect participation in the DR Share Sale Facility. 5. The Board notes that: (a) the company will seek confirmation from Pioneer Australia that no Pioneer group company or associate is a bidder in respect of the DR Share Sale Facility; and (b) that request for confirmation and any response from Pioneer Australia will be brought to the attention of the Court if the company seeks judicial advice in accordance with paragraph (2) above." (Emphasis in original). 31In passing these resolutions, the Board took into consideration, amongst other things, the advice from Clayton Utz and Counsel, and the 26 June Memorandum referred to at [27 - 29] above. 32On 29 June 2012, Senior and Junior Counsel provided a Joint Opinion summarising the advice given in conference. Consideration 33Section 63 of the Act is, relevantly, in the following terms: - "(1) A trustee may 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. (2) If the trustee acts in accordance with the opinion advice or direction the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction." 34Section 85 of the Act provides that the Court may relieve a trustee for a breach of trust. Subsection 85(2) provides: - "The relief may not be given unless it appears to the Court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach". 35Section 63 was recently considered in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Dioceses of Australia in New Zealand (2008) 237 CLR 66. 36In that case the Court stated that: - (a)there were no implied limitations on the power to give advice, nor on the discretionary factors relevant to the giving of advice. The description of the Court is confined only by the subject matter scope and purpose of the legislation and may be exercised whenever a question arises concerning "the management or administration of the trust property" or "the interpretation of the trust instrument" (at [56-59]); (b)the procedure under s 63 is summary in nature (at [61]); and (c)procedure operates as "'an exception the Court's ordinary function of deciding disputes between competing litigants'" and affords a facility for getting "'private advice'" (at [64] approving the words of Palmer J at (2005) 63 NSWLR 441 at [23], however, the Court is not bound to give advice (Harrison v Mills [1976] 1 NSWLR 42 at [45]; Auspac Corporate Managers Pty Limited v Jay Noble Pty Limited [2003] NSWSC 548 per Gzell J at [20], Re Application of Perpetual Trustee Company Limited [2003] NSWSC 1185 per Young CJ in Eq at [8]). 37The Court also said at [36]: - "The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused from its failure to seek s 63 advice." (Emphasis added). 38In Re Australian Pipeline Ltd (2006) 60 ACSR 625 at [17], Barrett J (as his Honour then was) cited Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 where Lord Oliver of Aylmerton said (at page 201): - "A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court." 39Perpetual submitted that "doubt" arose in three respects: - (a)did the Momentum Trust's indirect interest in the DR Funds constitute "Assets of the Trust" under clause 11 of the Constitution so that Perpetual is obliged under clause 11.1.2 to realise those assets; (b)did the words "any part of the Trust" include such "Assets of the Trust" so that Perpetual has the power under clause 11.3 to postpone any sale of those assets if "it thinks it desirable to do so in the interest of the Unitholders"; and (c)was it open to Perpetual (acting consistently with its duties as trustee under general law and statute) to determine that it is desirable in the interests of the unit holders for the Trust to participate in the DR Share Sale Facility and not to postpone that sale under clause 11.3. 40The "doubt" expressed as to the matters in (a) and (b) concerns the proper construction of the Constitution. 41The Court's advice is often sought, and given, where a trustee is uncertain as to the proper construction of the relevant trust instrument: see Ford and Lee, Principles of the Law of Trusts, vol 2 at [17.200]. 42I did not see any reference in Perpetual's records (particularly the board resolution of 27 June 2012) to it having any "doubt" about the matters referred to at [39(a)] and [39(b)]. 43However, Counsel submitted: - "Although [Perpetual's] 'doubt' is not expressly recorded in the board resolution, [Perpetual] in making its resolution subject to an application for judicial advice is evidencing the doubt it had, based on the legal advice it was receiving". 44Having considered that submission, the question of construction posited, and the Joint Opinion of Counsel, I gave the advice referred to at [6(2)] above. 45Different issues arise in relation to the "doubt" referred to at [39(c)] above. 46In my opinion, that "doubt" relates to a commercial matter, namely what decision Perpetual should make as to the continuing (albeit indirect) investment of the Momentum Trust in the DR Fund. What was being considered was whether Perpetual should give Pioneer Australia instructions to enter the DR Share Sale Facility and thus exit the DR Fund. That would result in the relevant asset being sold into a secondary market for cash, and at a substantial discount. 47The Court is not bound to give advice: see Re Application of Perpetual Trustee Company Limited [2003] NSWSC 1185 per Young CJ in Eq at [8]. 48And it would normally be inappropriate for the Court to give advice about a matter that is substantially commercial in nature: Re Application of Perpetual Trustee Company Limited at [13]. 49I appreciate that the Court is not asked to give advice as to whether Perpetual should enter into the relevant transaction. It is asked to advise whether it is open to Perpetual (acting consistently with its duties as a trustee under the general law and statute) to determine that it is desirable in the interest of unit holders to enter the transaction. 50Nonetheless, the fact remains, in my opinion, that what the Court is asked to opine on is a purely commercial investment matter peculiarly within the remit of Perpetual, as trustee. 51The Court is ill equipped to form any view about this matter. 52Perpetual sought the opinion of the five unit holders of the Momentum Trust as to whether those unit holders wished Perpetual to enter the transaction. It informed unit holders that even if they did not all agree that Perpetual enter the relevant transaction, it might nonetheless do so (see [21] above). 53Around that time Ms Tetley (one of the authors of the 26 June Memorandum) wrote to the Board: - "To be able to make this decision, if we don't receive unanimous directions from all unitholders, we are proposing to utilise internal expertise by requesting that Michael Blayney and his team assist in the analysis of the offer." 54Although Perpetual did not receive "unanimous direction from all unitholders" there is no material before the Court to reveal what analysis "Michael Blayney and his team" made of the matter. 55The only analysis before the Court dealing with the competing merits of liquidating or retaining the relevant investment is in the 26 June Memorandum. 56That analysis suggested that the relevant transaction should not be entered into. 57The 27 June 2012 board resolutions (see [30] above) make clear that Perpetual had no "doubt" that it should direct Pioneer Australia that the Momentum Trust would participate in the DR Share Sale Facility if all unit holders agreed. Nor did Perpetual have any "doubt" that it would not give such direction to Pioneer Australia if all unit holders were against the proposal. Perpetual only had a "doubt" about the matter if the unit holders were divided on the question. This despite the fact that Perpetual had earlier told unit holders it might participate in the DR Share Sale Facility, regardless of unit holders' views (see [21] above). 58The material before me does not reveal whether such "doubts" arose because of the views expressed in the 26 June Memorandum. 59In the light of all of these matters, my opinion was that the Court should decline to answer the questions posed by Perpetual. ********** 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. Decision last updated: 06 July 2012