Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 (25 February 2011)

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Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 (25 February 2011)

Last Updated: 27 May 2011

Supreme Court New South Wales

Case Title:	Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd
Medium Neutral Citation:	[2011] NSWSC 134
Hearing Date(s):	25 February 2011
Decision Date:	25 February 2011
Jurisdiction:
Before:	Rein J
Decision:	PILT Nominees Pty Ltd to be removed as trustee of the Prime Indexed Lease Trust and Baltarna Pty Ltd to be removed as trustee of the Baltarna Trust. Liquidators of Valofo Pty Ltd to be appointed as trustees of the Prime Indexed Lease Trust and the Baltarna Trust. The fourth defendant's notice of motion dated 25 February 2011 is dismissed. First, second, and third defendants to pay the plaintiff's costs of the proceedings. Fourth defendant to pay the plaintiff's costs of the fourth defendant's notice of motion.
Catchwords:	EQUITY - trusts and trustees - whether liquidators of a corporate beneficiary can be appointed trustees of the trust - whether there is a conflict of interest in appointing the liquidators of a sole beneficiary as trustee - whether the retiring trustees have an interest in the identity of the new trustees and whether they should be heard on the appointment PROCEDURE - costs - whether the defendants should pay the plaintiff's costs of the notices of motion
Legislation Cited:	Trustee Act 1925 (NSW)
Cases Cited:	Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd [2006] FCA 135; (2006) 227 ALR 623 Cooper v Federal Commissioner of Land Tax [1941] HCA 34; (1941) 65 CLR 320 Dreiberg v Bettles and Carter as Liquidators of Corindi Beach Developments Pty Ltd [2007] NSWSC 1204 Fung Ping Shan v Tong Shun [1918] AC 403 In the matter of PILT Nominees Pty Ltd - Londish v Seller & ors [2011] NSWSC 74 Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 Wells v Wily [2004] NSWSC 607; (2004) 183 FLR 284
Texts Cited:
Category:	Principal judgment
Parties:	Valofo Pty Ltd (Administrators Appointed)(plaintiff) PILT Nominees Pty Ltd (first defendant) Baltarna Pty Ltd (second defendant) Ross Seller (third defendant) Peter Londish (fourth defendant)
Representation
- Counsel:	Counsel: F Gleeson SC; D Sulan (plaintiff) D Raphael (first, second and third defendants) T G Hartmann (solicitor for the fourth defendant)
- Solicitors:	Solicitors: O'Neill Partners - Commercial Lawyers (plaintiff) Atanaskovic Hartnell (first, second and third defendants) Hartmann & Associates Solicitors (fourth defendant)
File number(s):	SC 2009/291650
Publication Restriction:

EX TEMPORE Judgment

1. The Court is concerned today with two notices of motion. One is an application by the liquidators of Valofo Pty Ltd ( "Valofo" ), Mr John Sheahan and Mr Ian Russell Lock, by which they seek firstly that the current trustee of the Prime Indexed Lease Trust ( "PILT Trust" ), PILT Nominees Pty Ltd ( "PILT Nominees" ), be removed and replaced by themselves; and secondly that the current trustee of the Baltarna Trust, Baltarna Pty Ltd ( "Baltarna" ), be removed as trustee and be replaced by themselves.
   
2. Mr F Gleeson SC appears with Mr D Sulan of counsel for the liquidators of Valofo; Mr D Raphael of counsel appears for PILT Nominees, Baltarna and a director of PILT Nominees, Mr Seller, who are the first, second and third defendants respectively; Mr T G Hartmann, solicitor, appears for Mr Peter Londish who is the fourth defendant; Mr B Jones of counsel sought leave to appear for the Deputy Commissioner of Taxation, which leave I granted.
   
3. The Deputy Commissioner of Taxation supports the application made by the liquidators, both as to removal of the current trustees, and the appointment of the liquidators, Mr Sheahan and Mr Lock, as trustees to the PILT Trust and the Baltarna Trust. The Australian Taxation Office (" the ATO ") is, or claims to be, a creditor of Valofo in an amount of in excess of $3 million. As I understand the position, the liquidators do not dispute that debt.
   
4. The second notice of motion is one brought by Mr Londish to have appointed as trustees, in place of PILT Nominees and Baltarna, Mr Martin Thompson of Wong and Mayes and Mr Neil Wickenden of HLB Mann Judd. That application, as I shall explain, was withdrawn in the course of the hearing.
   
5. Until Wednesday of this week, the current trustees, PILT Nominees and Baltarna, refused to retire. I was informed by Mr Raphael that they had offered to retire on Wednesday. Mr Gleeson asserted that the offer made on Wednesday had been conditional on persons other than the liquidators being appointed as trustees of the trusts.
   
6. Mr Raphael indicated this morning that the current trustees would retire and that their agreement to do so would be unconditional. Mr Raphael wished to be heard on the identity of the new trustees to be appointed. His clients initially supported Mr Londish's motion for the appointment of Mr Thompson and Mr Wickenden, and opposed the appointment of the liquidators (see T5.10-16).
   
7. Subsequently, in the course of the morning, Mr Raphael withdrew his clients' support for Mr Thompson and Mr Wickenden (see T23.44-T24.7). Subsequently, Mr Hartmann withdrew the application for their appointment, after Mr Gleeson had forcefully detailed the matters which made it inappropriate for them to be appointed as trustees, and Mr Hartmann had indicated that he was confident that Mr Thompson and Mr Wickenden, whilst willing to act as trustees, would not wish to seek appointment or proceed with an appointment if their appointment was opposed, as it most clearly was.
   
8. I then enquired of Mr Raphael the basis upon which the retiring trustees could claim a right to be heard in relation to the identity of the new trustees to be appointed, and he said he did not assert such a right, but would only make submissions if the Court thought it would be of assistance.
   
9. The Court does not usually invite or permit submissions from parties who have no interest in the outcome of the application before the Court. In this case, Mr Raphael's clients have a reason to be interested in the outcome, and that is, it is abundantly clear from the material put before the Court (see Exhibits A1, A2, A3, C and D) and Mr Gleeson's submissions, both written and oral, that the liquidators of Valofo believe that there are significant aspects of the administration of the trusts by the retiring trustees which could lead to substantial claims against them and other persons.
   
10. There is an exceedingly obvious conflict of interest between the interest of the retiring trustees and that of the beneficiary, in a context where the Valofo liquidators have outlined a series of concerns about the management of the trusts and quite specifically enumerated those concerns, and where, as I understood it, the essential factual matters asserted are not disputed, but only the conclusions to be drawn from them. This is precisely the reason why resignation was sought from the retiring trustees and was surprisingly resisted, but finally, as I have noted, was proffered. It is in the interests of Mr Raphael's clients that there be no investigation of the claims or potential claims, and that there be no proceedings brought against them. This interest does not, in my view, provide the retiring trustees with a legitimate basis to be heard, and as I have noted, Mr Raphael did not in the end assert that they did, and I saw no reason to hear from them through their counsel.
    
11. The reasons advanced by the liquidators in support of their appointment were:
    
    • (1) that they have extensive involvement in the affairs of Valofo, and Valofo's only significant asset is its entitlement under the PILT Trust. Valofo is the sole beneficiary under the PILT Trust and effectively the sole beneficiary under the Baltarna Trust;
      
    • (2) they have an extensive grasp of the affairs of the PILT Trust and the Baltarna Trust, and have investigated the matters which are identified in the court book. They have been involved in the litigation which is more extensively described in Ward J's judgment which was handed down yesterday, ie In the matter of PILT Nominees Pty Ltd - Londish v Seller & ors [2011] NSWSC 74;
      
    • (3) their appointment will involve a saving of time and hence cost, and is the practical, efficient way of dealing with the problem arising because of the necessary retirement of the current trustees;
      
    • (4) there was no conflict of interest between themselves as liquidators and as trustees of the trusts identified or in respect of which evidence was advanced;
      
    • (5) that the ATO supports the appointment of the liquidators as trustees of the trusts; and
      
    • (6) the opposition of the former trustees is opposition based on self-interest.
      
12. I accept these submissions made on behalf of the liquidators.
    
13. So far as the opposition of Mr Londish to the appointment of the liquidators as trustees is concerned and although he is entitled to be heard as a creditor of Valofo, it appears that he is not motivated by any concern as a creditor of Valofo because the claim is small, that is, $25,000, and will not be paid unless Valofo receives benefits from the PILT Trust. Valofo will not obtain funds out of which it can pay Mr Londish the debt claimed (assuming it to be a valid claim) unless the PILT Trust is able to recover from the former trustees and others, and then pay the net assets to Valofo. Some of the matters under investigation by the liquidators involve payments to Davlon Management Pty Ltd ( "Davlon" ), the justification for which are matters that are likely to be challenged. Davlon is a company controlled directly or indirectly by Mr Londish. To the extent that Mr Londish or companies associated with him are required to meet claims that may be made against him or the companies by the trustees, it is not in the interest of Mr Londish or his companies that the trustees of the PILT Trust pursue such claims.
    
14. In any event, Mr Hartmann, on behalf of Mr Londish, in opposing the appointment of the liquidators as trustees stated in his final submissions, submits that his only concern now was that the appointment of Messrs Sheahan and Lock would be one in which they are both the trustees of the PILT Trust and liquidators of Valofo, and that they would have difficulty in keeping these roles separate with a potential merging of their two roles. However, Mr Hartmann appeared to accept that this was not an insurmountable problem.
    
15. There is no doubt that, in considering whether a trustee should be removed, whether pursuant to s 70 of the Trustee Act 1925 (NSW) or pursuant to the Court's inherent power, the dominant considerations are the interests of the trusts, and more particularly, the welfare of the beneficiaries: see Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 .
    
16. Administration of the PILT Trust and the Baltarna Trust is an important aspect of ensuring that Valofo's interests as beneficiary are protected, and obviously, if there is a clear conflict between the interests of a proposed trustee and the interests of the trusts and beneficiaries, that person is not an appropriate person to be appointed. The issue of conflict in relation to liquidators of a corporate trustee is discussed in Wells v Wily [2004] NSWSC 607; (2004) 183 FLR 284 at [32]- [38] per Austin J; Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd [2006] FCA 135; (2006) 227 ALR 623 , a decision of Siopis J, particularly at [26]; and Dreiberg v Bettles and Carter as Liquidators of Corindi Beach Developments Pty Ltd [2007] NSWSC 1204, particularly at [5]-[7] and [14]. In each of these cases, liquidators of a corporate trustee were appointed as trustees in their personal right. Here the liquidators are liquidators of the sole beneficiary not the corporate trustee so the utility of appointing the liquidators is even more obvious, and the cases to which I have referred make it clear that the Court is not concerned with theoretical or hypothetical conflicts.
    
17. No conflict is perceived by the ATO, which as I have noted, is the only significant creditor of Valofo and it supports the appointment of the liquidators. Given that the original purpose of the PILT Trust and the Baltarna Trust ended some time ago, and the question of why PILT Nominees sought to pursue new activities is one of the issues which has been ventilated by the liquidators, the principal activity required of the trustees would appear to be now investigation, and if appropriate, pursuit of the first, second, third defendants and others, including Davlon.
    
18. In these circumstances, there can be no doubt that the interests of practical efficiency support the appointment of the liquidators who are well acquainted with the matters relevant to these claims.
    
19. It would be incongruous for a natural person to be appointed as trustee of a trust of which he was sole beneficiary, since the equitable estate would very likely merge with the legal estate: see Fung Ping Shan v Tong Shun [1918] AC 403 at 411 (although a person can be trustee of a trust of which he is one of the beneficiaries: see Cooper v Federal Commissioner of Land Tax [1941] HCA 34; (1941) 65 CLR 320 ), but I do not think there is a conceptual difficulty when liquidators of a beneficiary are appointed trustees. This is because the liquidators, being persons, are not and cannot be the same as Valofo, the beneficiary, whose affairs they control. If they are appointed as trustees, they, and not Valofo, will be the trustees.
    
20. Thus the only question is whether in wearing two hats, one as liquidators of Valofo and one as trustees, there is an identifiable potential conflict of interest. As I have noted, no practical or even theoretically discernible basis of conflict has been identified here. In my view, it is appropriate to make the orders sought by the plaintiffs in the proposed short minutes of order, subject only to dealing with the question of costs.
    

Costs

21. On the issue of costs, Mr Hartmann accepted that his client should pay the plaintiff's costs of his client's motion. Mr Raphael resisted an order for costs from Wednesday on the basis that his clients had unconditionally offered to resign on Wednesday. Exhibit 1 is the letter by which the offer was made and I do not accept the characterisation placed on it by Mr Raphael. Paragraphs 4, 5 and 6 of Exhibit 1 need to be read together and the position of Mr Raphael's clients in the letter was tied to acceptance of their contention that persons other than the liquidators should be appointed. Mr Raphael supported the appointment of Mr Thompson and Mr Wickenden and even today had sent up many pages of written submissions as to why the liquidators should not be appointed. Mr Raphael opposed Mr Jones being heard (see T1.24-T2) and see also T5.10-16, T7.50-T8.24 and T23-T24 which demonstrate that his was not a submitting appearance. The first, second and third defendants must pay the costs of the liquidators of the liquidators' notice of motion up to and including today.
    

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