Supreme Court New South Wales Medium Neutral Citation: Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784 Hearing dates: 28 and 29 May 2014 Decision date: 04 June 2014 Jurisdiction: Equity Division Before: Robb J Decision: The Court makes the orders in par 82. Catchwords: EQUITY - trusts and trustees - application for judicial advice - defence of claim and prosecution of cross claim - trustee responsible entity of numerous substantial commercial managed investment schemes - trustee professional manager of such schemes - whether trustee obliged to apply for judicial advice before defending claim or commencing cross claim - proceedings consequential to calling of meetings of members of listed public companies - proposed amendment of constitutions of companies - objective to achieve divesting of cross shareholding between two public companies - release value to shareholders - counsel providing advice to trustee given limited instructions - trustee authorised to conduct litigation for a short period to give counsel an opportunity to provide a considered opinion on whether trustee's prospects of success are sufficient to warrant continuation of litigation. Legislation Cited: Australian Consumer Law Australian Securities and Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth) Trustee Act 1925 (NSW) Cases Cited: AMP Capital Investors Ltd as Responsible Entity for the KSC Trust [2010] NSWSC 1259 Application of NSW Trustee & Guardian [2014] NSWSC 423 Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185 Jones v Hurst [2013] NSWSC 163 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 Lenyco Pty Ltd; In the Matter of the Daquino Family Trust [2009] NSWSC 429 and [2009] NSWSC 846 Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 Re Application by Perpetual Trust Services Ltd (as responsible entity of the Momentum Allweather (A$) Absolute Return Fund) [2012] NSWSC 758 Re Australian Pipeline Ltd [2006] NSWSC 1316 Re Creditors' Trust Deed Established in the administration of Beviesta Pty Ltd [2013] NSWSC 1258 Re Mirvac Ltd [1999] NSWSC 457 Texts Cited: Nil Category: Principal judgment Parties: Perpetual Investments Management Limited (plaintiff) Representation: Counsel: A J Bannon SC, K H Barrett (plaintiff) Solicitors: Clayton Utz (plaintiff) File Number(s): 2014/161723 Judgment 1Perpetual Investment Management Ltd ("Perpetual") commenced this application for judicial advice under s 63 of the Trustee Act 1925 (NSW) ("the Act") by summons filed in court on 28 May 2014 in the duty list. 2Perpetual has made the application in its capacity as responsible entity for 10 managed investment schemes listed in the schedule to the summons. 3In substance, Perpetual has sought the opinion, advice or direction of the court as to whether Perpetual would be justified in defending proceedings numbered NSD 2387 of 2013 in the Federal Court of Australia, and whether Perpetual would be justified in causing a nominee company to institute and prosecute a cross-claim in those proceedings. Perpetual has also sought the opinion, advice or direction of the court as to how the costs of the defence and cross claim should be paid. 4On 30 May 2014 Perpetual delivered to the court draft short minutes of order that contemplated the making of different orders than were sought by Perpetual in its summons. Perpetual took that course in response to observations that I made on 29 May 2014. Advice given by the court in the terms of the draft short minutes of order would justify Perpetual prosecuting the litigation for a limited period, and require reconsideration by the court in the future. 5Perpetual's application is based upon a statement of facts dated 28 May 2014, six volumes of documents, a further confidential volume of documents, and a written opinion of Mr AJL Bannon SC and Ms KH Barrett of counsel. At the hearing of the application I ordered that both the confidential volume and the opinion of counsel are not to be disclosed to any person other than Perpetual and its legal advisers without an order of a judge of the court. 6Perpetual's application ultimately concerns shares held on its behalf in two listed companies, Brickworks Ltd ("Brickworks") and Washington H Soul Pattinson and Company Ltd ("Soul Pattinson"). 7All of the relevant shares in the two companies are held in the name of RBC Investor Services Australia Nominees Pty Ltd ("RBC") as nominee for RBC Investor Services Trust (RBCIST), which in turn holds those shares as custodian for Perpetual. Unless it is necessary to refer specifically to the nominee or the custodian, I will for the sake of simplicity refer to Perpetual alone. 8Perpetual, through its custodian and nominee, holds 13,243,332 of the issued ordinary shares in Brickworks, which is approximately 8.95% of those shares. Perpetual holds those shares for three managed investment schemes, in the respective proportions 73.96%, 13.31% and 12.73% ("Brickworks Funds"). It is not necessary to name the schemes for the purposes of these reasons. The net asset values of the Brickworks Funds as at close of business on 22 May 2014 were $4,479,614,749.66, $869,081,089.55 and $788,280,561.78 respectively. 9Perpetual also, through its custodian and nominee, holds 16,636,948 of the issued ordinary shares in Soul Pattinson, which is approximately 6.95% of those shares. Perpetual holds those shares for seven managed investment schemes, in the respective proportions 7.7526%, 2.168%, 0.527%, 12.0826%, 12.1217%, 58.7638%, and 6.5843% ("Soul Pattinson Funds"). The net asset values of the Soul Pattinson Funds as at close of business on 22 May 2014 were $192,130,798, $1,135,687,732.32, $381,469,534.80, $309,974,319.94, and $2,141.651,064.90 respectively. 10It is sufficient to note the obvious point that all of the Funds for which Perpetual acts as representative entity are very substantial commercial investment schemes. 11In the commercial activities concerning the affairs of Brickworks and Soul Pattinson that underlie the present application Perpetual is acting cooperatively with Carnegie & Co ("Carnegie"), and entities controlled by Carnegie. The arrangement between Perpetual and Carnegie is commercially confidential. The arrangement is established by information contained in the statement of facts and the confidential evidence. 12Entities controlled by Carnegie hold approximately 0.06% of the issued ordinary shares in Brickworks, and about 0.06% of the issued ordinary shares in Soul Pattinson. Together, Perpetual and Carnegie control about 9.01% of the issued ordinary shares in Brickworks, and about 7.01% of the issued ordinary shares in Soul Pattinson. 13Perpetual holds or controls additional shares in Brickworks and Soul Pattinson in capacities other than as responsible entity for the Funds referred to above. The additional shares represent approximately 3.79% of the issued ordinary shares in Brickworks, and approximately 4.025% of the issued ordinary shares in Soul Pattinson. Consequently, Perpetual controls the exercise of voting rights in respect of about 12.74% of the issued ordinary shares in Brickworks, and 11.53% of the issued ordinary shares in Soul Pattinson. 14Perpetual has made this application for judicial advice only in its capacity as responsible entity for the Funds. 15The underlying commercial circumstances that have given rise to Perpetual's application for judicial advice concern the fact that Brickworks currently holds about 42.72% of the issued ordinary shares in Soul Pattinson, and Soul Pattinson holds about 44.34% of the issued ordinary shares in Brickworks (the "cross shareholding"). 16A group of shareholders, described as the "Millner Family", and a number of entities said to be related to the Millner Family ("Millner Entities") hold about an additional 2.83% of the shares in Brickworks. The Millner Entities hold about 7.8% of the issued ordinary shares in Soul Pattinson. 17Perpetual and Carnegie believe that an effect of the cross shareholding is that the Millner Family has been able for a considerable period to control the boards of directors of Brickworks and Soul Pattinson. In part because of this control Perpetual and Carnegie claim that the combined market capitalisation of Brickworks and Soul Pattinson is in the order of $1 billion less than the real value of the two companies. 18Perpetual and Carnegie have initiated steps that have the purpose of ending the cross shareholding and unlocking the suppressed value for the benefit, in Perpetual's case, of the Funds. 19Perpetual accepts that the current boards of directors of the two companies will not cooperate, and rather will oppose the steps being taken by Perpetual and Carnegie. 20On 23 October 2013 the nominee shareholders of Perpetual and Carnegie delivered to the directors of Soul Pattinson a requisition under s 249D of the Corporations Act 2001 (Cth). The requisition required the directors to call a general meeting of the company within 21 days, and to cause the general meeting to be held within 2 months after the date the requisition was given to the company. The convening of the meeting has been deferred pending the resolution of the litigation that has led to the application that is presently before the court. 21The requisition is a complex document, which is set out over 21 pages. I will only give the gist of the resolutions contained in the requisition. They are set out in two parts, Part A and Part B. The first is designed to cause Brickworks' shares in Soul Pattinson to be cancelled for a consideration that is to be calculated in accordance with a complex formula set out in resolution 1, together with a consequential reduction in the share capital of Soul Pattinson. The second is intended to lead to the distribution in specie pro rata to shareholders of the shares held by Soul Pattinson in TPG Telecom Ltd ("TPG"). 22The requisition contains requirements concerning the order in which the resolutions in the two parts are to be considered by shareholders, as well as the circumstances in which, if particular resolutions are passed by the requisite majority of shareholders, their effect is to be conditional upon the passing of other resolutions. It is not necessary for me to consider the resolutions in detail. It appears that the effectiveness of the resolutions in Part A is subject to the resolutions in Part B being passed. 23As I understand it, the linchpin of each of the parts is a resolution that, if passed by the requisite majority of shareholders, would effect an amendment to the constitution of Soul Pattinson to introduce a clause that would empower the company in general meeting, by ordinary resolution, to make a determination that would circumvent any opposition by the board of directors of the company to the commercial outcome that Perpetual and Carnegie are attempting to achieve. 24Resolution 4 (in Part A) would, if passed, introduce into the constitution a number of clauses that would permit the general meeting, by ordinary resolution, to determine that the company should reduce its share capital, and to determine the manner in which any such reduction of share capital should be effected, and the consideration to be given to members whose shares are cancelled. Resolution 9 (Part B), in a similar manner, would amend the constitution to authorise the general meeting, by ordinary resolution, to determine that the company make a distribution, comprising a dividend and/or a return of capital, as well as the terms upon which the distribution should be made. 25In each case clauses would be included that obliged the directors of the company to implement any determination made by the general meeting, and made other provision for ensuring that the determination was put into effect. 26It is sufficient to note that the other resolutions in Part A and Part B provide for the shareholders, by the requisite majorities, to approve the terms of the cancellation of Brickworks' shareholding in Soul Pattinson, and the distribution in specie to shareholders of the shares in TPG, as is required by Listing Rule 10.1 of the Listing Rules of ASX Ltd, s 256B and s 256C of the Corporations Act, and the requirements of clauses 50.3 and 56.5 of the constitution of the company. 27It will be obvious, but I should state, that this bare description of the effect of the resolutions in the requisition does not do any justice to its legal subtlety, or the detail in which the requisition was drawn. 28Also on 23 October 2013, nominee shareholders of Perpetual and Carnegie served on the directors of Brickworks a notice under s 249F of the Corporations Act by which they convened a meeting of shareholders of Brickworks to be held on 25 November 2013 commencing at 11 AM. That meeting has also been deferred. 29The notice proposed three resolutions. The first resolution is an ordinary resolution in accordance with Listing Rule 10.1 that the members approve the return of capital and demerger dividend involved in the distribution in specie to Brickworks of the shares held by Soul Pattinson in TPG. The second resolution is an ordinary resolution in accordance with Listing Rule 10.1 that the members approve the cancellation by Soul Pattinson of all of the ordinary shares in the capital of that company held by Brickworks, as well as the consideration payable for the cancellation. The third resolution is an ordinary resolution that a Ms Elizabeth Crouch be appointed as an additional director of the company in accordance with clause 6.2(b) of its constitution. 30As the first two resolutions in the notice of meeting invite the shareholders of Brickworks to approve the two limbs of the demerger strategy, they will only have effect if passed, if the shareholders of Soul Pattinson also pass all of the resolutions necessary to implement that proposal. 31The notice of meeting was accompanied by an explanatory statement, and additional materials have been provided to shareholders, and various statements are alleged to have been made on behalf of Perpetual and Carnegie in support of the proposal, which have been publicised in the press. 32On 23 November 2013 an originating process was filed by Brickworks in the Federal Court of Australia to commence proceedings NSD 2387 of 2013. Perpetual and Carnegie and their respective nominees were made defendants. Shortly put, the originating process claims a declaration that the defendants engaged in misleading and deceptive conduct, or conduct that was likely to mislead or deceive, in contravention of s 1041H of the Corporations Act, or s 18 of the Australian Consumer Law, or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). Brickworks also claims declarations that all proxies lodged in response to an invitation in the notice of meeting are invalid, and resolutions 1 and 2 in the notice of meeting would be invalid if approved. A declaration is sought that s 249F of the Corporations Act did not authorise the convening of the general meeting. 33Soul Pattinson has not commenced any proceedings to thwart the meeting requisitioned on behalf of Perpetual and Carnegie being convened and conducted in accordance with the requisition. 34A number of steps have been taken in the Federal Court in accordance with directions given by Jacobson J. It is sufficient to note that Brickworks filed and served a statement of claim on 16 December 2013. On 14 March 2014 the Perpetual and Carnegie entities filed and served their defences. The parties have unsuccessfully explored a mediation. On 11 April 2014 Jacobson J directed the defendants to file and serve any cross-claim by 2 May 2014, and for the plaintiff to file and serve defences to any cross-claim by 30 May 2014. The matter was listed for further directions 5 June 2014. 35Both the Perpetual and Carnegie entities filed and served cross-claims on 2 May 2014. One effect of the cross claims is that Soul Pattinson has been joined into the proceedings. For the purposes of Perpetual's application to this court the relevant pleadings are a second cross-claim notice of cross-claim, and a second cross-claim amended statement of cross-claim. The cross claimant is RBC, which is Perpetual's nominee shareholder, and the first and second cross respondents are Brickworks and Soul Pattinson. 36Brickworks' statement of claim is a pleading of some 36 pages, that lists in par 13 five sources of information made available to Brickworks' shareholders by the defendants in support of the resolutions in the notice of meeting. In pars 24 to 111, 14 separate categories of misleading and deceptive conduct are alleged. It is unnecessary for me to set out the effect of those allegations in detail, as for reasons that will appear below, at this stage of the proceedings the material that is available to the court does not permit any substantive consideration of the likelihood that Perpetual's defence of the allegations will succeed. Brickworks also makes a claim in par 119 that s 249F did not authorise the defendants to convene a general meeting of Brickworks for the purposes of considering resolutions 1 and 2 in the notice of meeting. It may be that this allegation is intended to support a claim by Brickworks that members of the company are not entitled to requisition a meeting in order to secure the resolution of shareholders that approval should be given to a transaction, being Brickworks' participation in the proposal referred to above, if the directors do not intend to resolve to cause Brickworks to participate. 37I will set out in summary form a description of the issues raised by one of Brickworks' allegations of misleading and deceptive conduct, in order to give a broad indication of the nature of those issues. The example that has been selected is not entirely representative of all of the allegations. 38The first category of misleading and deceptive conduct is based on statements made in various publications that the implementation of the proposal would unlock over $1 billion in shareholder value (pars 24 to 35). One claim as to why these statements are misleading concerns the alleged absence of information as to the risks to members of Brickworks (par 33). The risks set out in the particulars include risk of tax leakage; risk that assets received will not be able to be sold for fair value or at all; risk to the ongoing viability of Brickworks and Soul Pattinson; personnel retention risks; solvency risk; asset concentration risk; lack of diversification of assets; and incapacity to pay dividends if remaining funds are insufficient. 39This example demonstrates the breadth of the issues raised by Brickworks' claim. It does not depend upon the determination of clear and distinct issues of fact and law. This observation is generally true to some extent for the balance of the allegations. 40It is sufficient to note that, in effect, the defence filed on behalf of the Perpetual entities denies or otherwise puts in issue the allegations of misleading and deceptive conduct made in the statement of claim, as well as the legal consequences of those allegations. 41RBC's second cross-claim notice of cross-claim claims relief under s 233 of the Corporations Act. RBC seeks an order that Brickworks divest itself of all of its shares in Soul Pattinson, or alternatively reduce its shareholding to no more than 10%. It seeks an order that Soul Pattinson do the same thing in relation to its shareholding in Brickworks. It seeks an order that, so long as the cross shareholding remains in place, each of Soul Pattinson and Brickworks be restrained from exercising voting rights in respect of its shareholding in the other. Orders are also sought for the appointment of an additional named director to each of the boards of Brickworks and Soul Pattinson. 42RBC's second cross-claim amended statement of cross-claim is some 50 pages long. The pleading contains a substantial number of historical allegations of fact concerning the shareholding and directorships in the two companies of members of the Millner Family and associated entities, as well as the manner in which the activities of the two companies have been conducted, particularly in relation to the actions of their boards of directors. Significant allegations are made in par 35 that, taken together, Soul Pattinson, the Millner Family and the Millner Entities hold approximately 48.113% of the issued ordinary shares in Brickworks, and in par 45 that, taken together, Brickworks, the Millner Family and the Millner Entities hold approximately 51.1695% of the issued ordinary shares in Soul Pattinson. RBC pleads, in effect, that Brickworks and Soul Pattinson have exercised their voting rights in respect of the other, in concert with the Millner interests, so that the other shareholders in the two companies have been unable to appoint directors. It alleges that the Millner Family effectively controls, or alternatively disproportionately influences, the affairs of each company. RBC then pleads the making of four proposals by Perpetual and Carnegie parties to unlock the value in the two companies that has been suppressed by the cross shareholding, as well as steps taken by the boards of directors of the companies to impede each of the proposals being put into effect. RBC alleges that the existence of the Millner Family control over each of the companies has depressed its share price. It alleges that all of the conduct collectively involves oppressive conduct within the meaning of s 232 of the Corporations Act. 43It is in these circumstances that the court has been asked to give advice under s 63 of the Act that approves Perpetual defending Brickworks' claim, and also causing RBC to prosecute the second cross-claim. 44The statement of facts tendered by Perpetual is the source of most of the information set out above. The document does not, however, attempt to set out in any detail the underlying facts relevant to the claims made in Brickworks' statement of claim or RBC's second cross-claim amended statement of cross-claim. The information contained in the document does not assist the court to form its own view about the Perpetual parties' prospects of success. 45Counsels' opinion was given on the basis of instructions that the background facts are as set out in the opinion and the statement of facts. Further, counsel were instructed that the Perpetual parties' defences and the second cross-claim are accurate and that the materials and the media statements challenged by Brickworks are true and correct. Counsel have stated that they have generally assumed that the allegations of fact in the defences and second cross-claim can be proved by admissible evidence. 46Additionally, counsel disclose that witnesses have not yet been proofed, and they have not yet spoken with the authors of the reports prepared by the consultants who have assisted Perpetual and Carnegie for the purposes of the claims made in the materials that have been circulated to support the passing of the resolutions in the Brickworks notice of meeting. 47Counsel express the opinion, notwithstanding these difficulties, and on balance and on the basis of their present instructions, that Perpetual and RBC have reasonable prospects of success in the proceedings. 48As I understand the submissions made by senior counsel, Perpetual has made this application for judicial advice, in part, on the basis of an understanding that a trustee must seek advice under s 63 of the Act, if proceedings are instituted against it, or if it proposes to institute proceedings on behalf of the trust. 49As was stated by the plurality of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (the "Macedonian Church case") at [74]: "A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings". As I understand it, in the present case, Perpetual has sought judicial advice in order to comply with this judicial injunction. 50It must be accepted that the statement made by the plurality is a relatively unequivocal and general statement as to the obligation of trustees. 51The effect of the statement by the High Court is reinforced by the observation made by the plurality at [70] concerning the uncertainty that trustees who are sued may sometimes experience about whether they will be able to obtain indemnity as to the cost of their defence. Their Honours observed: "Perhaps they will if their breach is excused under s 85(2) [of the Act]; but they cannot be sure, in advance, that the court's discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court's direction under s 63 or otherwise..." The last part of this observation seems to imply that it may be a separate breach of trust for the trustee to fail to get advice under s 63 before the trustee takes any steps in the conduct of its defence. 52The circumstances in which the court has been prepared to give judicial advice under s 63 have broadened over the years: see Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185 per Young CJ in Eq (as his Honour then was) at [6] to [14]. Yet it must be wondered whether the law has developed to the point where in every case a trustee must seek judicial advice before defending or commencing proceedings, rather than that it should do so in some circumstances, and may do so in others. 53Notwithstanding the breadth of the statement made by the plurality at [74] that is set out above, it must be noted that the context in which the statement was made is a discussion of the "Relationship of s 63 to rights of indemnity". Their Honours were specifically considering the situation of gratuitous trustees whose right to reimbursement of legal costs will depend upon the effectiveness of their entitlement to be indemnified out of the trust assets; and also the particular situation of trustees of charitable trusts. As the plurality in the Macedonian Church case also noted at [67] "... the application of s 63 will tend to vary with the type of trust involved". Their Honours continued with the following observation: "... Where there is a non-charitable private trust involving a conflict between beneficiaries, or between beneficiaries alleging a breach of trust out of which a trustee has profited and that trustee, and where the defendants in those proceedings have a personal capacity to fund the defence, it might not be correct to give the trustee an opinion, advice or direction." 54The plurality also recognised at [106] that there may be factors that justify a decision not to grant judicial advice, but to let the matter be examined in conventional litigation. 55If it is true that there are cases when advice under s 63 should not be given to a trustee in respect of the trustee's position in litigation, it must follow that there are cases when a trustee is not required to seek judicial advice before it takes a step in defence of a suit against it 56The position of Perpetual in the present case is quite different to that of a gratuitous trustee who is dependent on its equitable right of indemnity from the trust assets. It is the responsible entity for a significant number of very substantial commercial investment trusts. A broad review of the constitutions of six of the investment schemes that are in evidence shows that Perpetual has an absolute power of investing the scheme's assets (sometimes for particular purposes or objectives), and is entitled to receive a commercial remuneration for its services. It is entitled to be reimbursed its expenses. The objective is for unit holders to gain the benefit of Perpetual's investment and management expertise. Put broadly, Perpetual has an obligation, by proactive but prudent management of the assets of the schemes, to attempt to increase the value of the assets held under management. 57In the present case Perpetual, in cooperation with Carnegie, has identified what it believes to be an additional amount of shareholder value in Brickworks and Soul Pattinson that has been suppressed by the cross shareholding, and the consequential control of the two companies by the Millner Family, that could be unlocked for the benefit of all shareholders if the proposed demerger scheme was put into effect. 58In cooperating with Carnegie to deliver the requisition to Soul Pattinson, and the notice of meeting to Brickworks, Perpetual has no doubt relied upon its own expertise, the expertise of Carnegie, and also the advice of its lawyers. For the purpose of preparing the explanatory statement, an information memorandum, a special website, and other sources of information to shareholders, Perpetual has obtained an independent expert's report from Deloitte Corporate Finance Pty Ltd, an analysis of proposals from BDO Corporate Finance (East Coast) Pty Ltd, a letter of taxation advice from BDO East Coast Partnership, as well no doubt as other advice and assistance. 59The claims made by Brickworks in its statement of claim, to the effect that a significant number of important representations made by Perpetual and Carnegie in the material provided to shareholders is misleading and deceptive, suggest that there are aspects of the commercial strategy adopted by Perpetual and Carnegie which are contentious. Brickworks substantially puts in issue the proposition that the proposal will unlock in the order of $1 billion in shareholder value. 60Furthermore, while RBC and the Carnegie entity that is prosecuting a cross-claim against Brickworks and Soul Pattinson may succeed in their allegations that the Millner Family control, or have undue influence over the affairs of, the two companies, so that circumstances of oppression under s 232 of the Corporations Act exist, the claim is inherently contentious. It is in some respects true that RBC has pleaded a circumstantial case against the two companies and their boards of directors, but it is possible that, when the respondents to the second cross-claim are given the opportunity to explain the conduct by their evidence, they will be able to dispel the appearance of oppression. 61The point of these observations is that both Brickworks' claim, and RBC's second cross-claim, are inherently contentious. Against that, it must be recognised, that success may unlock a very substantial amount of additional value to the Funds of which Perpetual is the responsible entity. 62Perpetual has made significant commercial decisions, in accordance with its duties as responsible entity, to take all of the steps that led up to the service of the requisition and the notice of meeting. There is no evidence before the court that permits it to form any view at all about the commercial wisdom of the course that Perpetual has taken. Nor should there be any such evidence, as it would be quite beyond the expertise of the court to second-guess Perpetual's business judgment, particularly on a summary application such as the present. 63Evidence of the advice and assistance given to Perpetual by the various consultants referred to above is also not before the court. The court has no direct basis for forming a considered view as to the validity of opinions expressed by the consultants. Nor is it possible for the court to decide on the basis of relevant evidence as to whether Perpetual and RBC have good prospects in the litigation. 64The reality is that Perpetual, in cooperation with Carnegie, has initiated a commercial strategy that has led to Brickworks commencing the Federal Court proceedings. Those proceedings are consequential to Perpetual's and Carnegie's nominees' calling of the general meeting of the shareholders of Brickworks. The evidence says nothing on the issue, but it may be that the decision by Perpetual to cause RBC to commence its second cross-claim was also a response to Brickworks' proceedings. From a global commercial perspective the litigation is but one component, though a critical one, of the campaign by Perpetual and Carnegie to unlock the suppressed value that they believe exists in the shares in Brickworks and Soul Pattinson. It is possible that, in that context, the prosecution of the proceedings is commercially justifiable even if there are significant risks in the litigation, and doubts as to the prospects of success. 65I strongly doubt that Perpetual in the present case was obliged by its duties as responsible entity to make the present application for judicial advice, or that anything said in the Macedonian Bank case was intended to have a contrary effect, given the context outlined above. 66Notwithstanding these considerations, a responsible entity is entitled to seek judicial advice under s 63 of the Act: see Re Mirvac Ltd [1999] NSWSC 457; (1999) 32 ASCR 107 per Austin J at [41]. Perpetual has made the present application. Whether or not the true effect of the Macedonian Church case is that Perpetual was obliged to make the application, nothing in that case suggests that the court should decline to give the advice sought in the present circumstances. 67As Young AJ said in Jones v Hurst [2013] NSWSC 163 at [22]: "In the third category [trusts other than non-charitable private trusts and charitable trusts] the trustee is often a person who has made it his or her business to act as a trustee for reward, has skills in the area, and has probably obtained insurance. In the past the courts were sometimes reluctant to give the same tender advice to such people as to a voluntary trustee. Although this is still a valid discretionary factor, it seems to me to be a fair reading of the High Court's decision in the [Macedonian Church case] that, ordinarily, if a trustee is sued the court should give a trustee judicial advice as to whether he or she should defend the proceedings." 68However, for the reasons given above concerning the limitations of the statement of facts, as well as the qualifications expressed by counsel in their opinion - which effectively required them to assume that the defence and the second cross-claim would succeed - I would not be prepared at this stage to provide Perpetual with advice that it is justified in defending Brickworks' claim, and causing RBC to prosecute the second cross-claim, to the final conclusion of those proceedings. 69I have two principal concerns. First, the High Court held in the Macedonian Church case in the judgment of the plurality at [80]: "Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable". See also Re Application of NSW Trustee & Guardian [2014] NSWSC 423 at [31]. With no disrespect to counsel, it is clear from their opinion that they have not been given the time or instructions to prepare an opinion that satisfies this requirement. 70Secondly, in Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 at 201 Lord Oliver of Aylmerton referred to the entitlement of "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" to seek judicial advice. See also Re Australian Pipeline Ltd [2006] NSWSC 1316; (2006) 60 ACSR 625 at [17]; Re Application by Perpetual Trust Services Ltd (as responsible entity of the Momentum Allweather (A$) Absolute Return Fund) [2012] NSWSC 758 at [37] to [50]; and Re Creditors' Trust Deed Established in the administration of Beviesta Pty Ltd [2013] NSWSC 1258 at [5]. While it is likely that Perpetual would accept that the outcome of both the defence and the second cross-claim is uncertain, it is difficult to see much by way of genuine doubt on the part of Perpetual in the instructions given to counsel that the Perpetual parties' defences and the second cross-claim are accurate and that the materials and the media statements challenged by Brickworks are true and correct. It may be that this appearance of absence of doubt is an artefact of the circumstances in which counsel were required to prepare their opinion. 71I am satisfied that it is appropriate to advise Perpetual that it is justified in defending Brickworks' claim, and causing RBC to prosecute the second cross-claim, on a short-term basis. I have formed that view in reliance upon counsels' opinion, and on the likelihood that Perpetual has acted diligently in preparing the basis for serving the notice of meeting on Brickworks, and delivering the requisition to Soul Pattinson, and that the consultants who have assisted Perpetual and Carnegie have provided their services competently. Further, the matters pleaded in RBC's second cross-claim amended statement of cross-claim appear on their face to found a reasonably arguable claim for the relief sought under s 233 of the Corporations Act. I am satisfied that, for the present, there are sufficient prospects of success to warrant Perpetual in proceeding with the litigation: see the Macedonian Church case at [162]. 72I propose to follow a course similar to that followed by Brereton J in Lenyco Pty Ltd; In the Matter of the Daquino Family Trust [2009] NSWSC 429 and [2009] NSWSC 846; and by Slattery J in AMP Capital Investors Ltd as Responsible Entity for the KSC Trust [2010] NSWSC 1259. 73The question is; when is the appropriate stage in the litigation for the approval of the court to be reconsidered? Perpetual has suggested two alternatives; the first being "until the completion of the service of evidence in the proceedings but no later than the commencement of the trial", and the second being "for so long as senior counsel maintains the view the plaintiff has (at least) reasonable prospects of success". The first of these alternatives is for too long a period, and the second is too indefinite and places an undue burden on senior counsel. 74I have decided that, if the exercise of the court giving judicial advice to Perpetual in the present case is to be meaningful, the period that should be specified for which Perpetual is justified in prosecuting the defence and the second cross-claim should be no longer than is necessary to permit Perpetual to properly instruct counsel in a manner that will permit them to provide an adequate substantive opinion on the basis of an examination of the evidence that is now available to Perpetual, and such further enquiries or investigations as counsel decide are necessary for them to have in order to provide an opinion that they believe will satisfy the requirement identified in the Macedonian Church case at [80]. 75I will not be prescriptive as to the time that should be allowed for that exercise, or the steps that should be taken by Perpetual, its solicitors and counsel. As the Federal Court proceedings are next before the court on 5 June 2014, I will make orders that provide the necessary advice to Perpetual to enable it to prosecute the litigation pro tem, and will make a direction that will permit me to make an appropriate additional order concerning the period in which the advice will operate. 76I will now consider the relief sought by Perpetual concerning the payment of the costs of the litigation. Perpetual is clearly justified in paying the costs out of the assets of the Funds. The only issue concerns how the cost should be shared as between the defence and the second cross-claim, and as between the different Funds that have interests in Brickworks or Soul Pattinson. The basis for sharing suggested by Perpetual is, in substance: (1)Perpetual's and RBC's costs of defending the Brickworks' proceedings will be paid on an indemnity basis out of the assets of the Brickworks Funds in proportion to the percentage of the total shares in Brickworks held on behalf of the Brickworks Funds, that are held on behalf of each separate Fund. (2)Perpetual's and RBC's costs of prosecuting the second cross-claim will be paid on an indemnity basis as to 50% out of the assets of the Brickworks Funds and 50% out of the assets of the Soul Pattinson Funds, in each case on the basis of the same formula in sub-par (1) as between the separate Funds. (3)The costs of making this application will be paid on an indemnity basis as to 50% out of the assets of the Brickworks Funds and 50% out of the assets of the Soul Pattinson Funds, in each case on the basis of the same formula in sub-par (1) as between the Separate Funds. 77I accept that, where costs are to be borne out of the assets of the Brickworks Funds or the Sold Pattinson Funds, the shares should be calculated proportionally on the basis of the percentage of the total shareholding held on behalf of each Fund. I also accept that it is appropriate that the costs of the application for judicial advice should be borne equally by the Brickwork Funds and the Sold Pattinson funds calculated upon the basis of the same formula. 78The only aspect of the proposal which appears to be contentious is that which obliges the Brickworks Funds to bear the whole costs of the Brickworks proceedings, and also to bear half of the costs of the second cross-claim together with the Soul Pattinson Funds. If I understand the relationship between the resolutions in the Brickworks notice of meeting and the Soul Pattinson requisition correctly, none of the Funds will enjoy any benefits unless the defence of the Brickworks proceedings is successful, and the necessary resolutions are passed by the shareholders of both companies. The Soul Pattinson Funds have as much of an interest in the defence of the Brickworks proceedings succeeding, as do the Brickworks Funds. It may be fortuitous that Brickworks commenced proceedings in the Federal Court, and Soul Pattinson did not. 79If RBC succeeds on its second cross-claim, that may provide a second avenue for Perpetual and Carnegie to succeed in their strategy, although perhaps its real effect may be to improve the prospects of the resolutions being passed by the requisite majorities of the two companies, by neutralising or weakening the effect of the cross shareholding. 80I have decided that it will nonetheless be appropriate for the court to make an order that Perpetual is justified provisionally in paying the costs in the manner suggested in the draft short minutes of order, but I will only do so on an interim basis, so that the issue can be reconsidered at the same time as Perpetual applies for further judicial advice in relation to its justification for continuing to pursue the litigation. The only aspect that may need to be reconsidered is the sharing of costs as between the Brickwork Funds and the Soul Pattinson Funds. The basis for sharing the costs must be fair, but it need not be precise. I do not contemplate that the solicitors for Perpetual need to attempt any minute apportionment of the costs as between the different Funds. I do not wish to be too prescriptive, and it will be sufficient if the solicitors for Perpetual can provide relatively broad information as to the costs that have been incurred as between the defence and the second cross-claim, and an appropriate basis for the sharing of costs between the Brickworks Funds and the Soul Pattinson Funds. 81It may happen that, when the time comes to reconsider the issue of costs, there will be no basis for departing from the initial arrangement. It is also possible that the aspiration that the costs of the defence and the second cross-claim can be kept separate may be difficult to maintain. 82I will make the following orders The Court orders that: (1)Pursuant to section 63 of the Trustee Act 1925 (NSW) ("the Act"), the Court advises that, until the expiration of the period that will be fixed by the Court in accordance with the process referred to in order 3: (a)The plaintiff was, is and would be justified in: (i)defending proceedings numbered NSD 2387 of 2013 in the Federal Court of Australia ("Proceedings") commenced by Brickworks Limited (Brickworks) against the plaintiff, RBC Investor Services Australia Nominees Pty Limited ("RBC") and three other defendants ("Claim"); (ii)funding its past and future costs and disbursements incurred in connection with the defence of the Claim from the assets of the managed investment schemes identified in paragraphs 61(a) to 61(c) ("Brickworks Funds") of the Statement of Facts dated 28 May 2014 ("Statement of Facts") on an indemnity basis in the proportions identified in those paragraphs of the Statement of Facts; (iii)funding 100% of RBC's past and future costs and disbursements incurred in connection with the defence of the Claim from the assets of the Brickworks Funds in the proportions referred to in paragraphs 61(a) to 61(c) of the Statement of Facts; (b)The plaintiff was, is and would be justified in: (i)instructing RBC to pursue in the Proceedings a second cross claim against Brickworks and Washington H Soul Pattinson and Company Limited ("Soul Pattinson") substantially in the form of the Second Cross Claim Notice of Cross Claim and the Second Cross Claim Amended Statement of Cross Claim ("Second Cross Claim"); (ii)funding 50% of its past and future costs and disbursements incurred in connection with a cross claim substantially in the form of the Second Cross Claim (including the initial Second Cross Claim Statement of Cross Claim) from the assets of the Brickworks Funds on an indemnity basis in the proportions identified in paragraphs 61(a) to 61(c) of the Statement of Facts; (iii)funding 50% of its past and future costs and disbursements incurred in connection with a cross claim substantially in the form of the Second Cross Claim (including the initial Second Cross Claim Statement of Cross Claim) from the assets of the managed investment schemes identified in paragraphs 65(a) to 65(g) of the Statement of Facts ("Soul Pattinson Funds") in the proportions referred to in those paragraphs of the Statement of Facts; (iv)funding 50% of RBC's past and future costs and disbursements incurred in connection with a cross claim substantially in the form of the Second Cross Claim (including the initial Second Cross Claim Statement of Cross Claim) from the assets of the Brickworks Funds in the proportions referred to in paragraphs 61(a) to 61(c) of the Statement of Facts; and (v)funding 50% of RBC's past and future costs and disbursements incurred in connection with a cross claim substantially in the form of the Second Cross Claim (including the initial Second Cross Claim Statement of Cross Claim) from the assets of the Soul Pattinson Funds in the proportions referred to in in paragraphs 65(a) to 65(g) of the Statement of Facts. (2)Pursuant to section 63 of the Trustee Act, the Court advises that the plaintiff would be justified in: (a)funding 50% of its costs and disbursements incurred in connection with this application for judicial advice from the assets of the Brickworks Funds in the proportions referred to paragraphs 61(a) to 61(c) of the Statement of Facts; and (b)funding 50% of its costs and disbursements incurred in connection this application for judicial advice from the assets of the Soul Pattinson Funds in the proportions referred to in paragraphs 65(a) to 65(g) of the Statement of Facts. (3)The plaintiff is to deliver to the associate to Robb J by 4 PM on Wednesday, 11 June 2014 a proposal as to how long it will reasonably take for counsel to provide an opinion that the plaintiff and RBC have sufficient prospects of success to warrant them continuing to defend the Proceedings and prosecute the Second Cross Claim upon the basis of a consideration of the evidence presently available to the plaintiff and RBC, and such other instructions or investigations as counsel consider are appropriate. (4)That the plaintiff have leave to apply by arrangement with the associate to Robb J. 83Subject to my being satisfied with the proposal referred to above in Order 3, I will make an appropriate additional order in chambers fixing the period in which the advice contained in Order 1 will operate. ********** 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: 12 June 2014