Court Approval: Don’t take it for granted

September, 2017

By Michael Chapman, Senior Associate, Jacqueline Wang, Senior Associate and Sheridan Handley, Lawyer

Two recent decisions of the Supreme Court of Victoria have shown that the Court’s approval should not be taken for granted when seeking approval of settlement of a proceeding or seeking judicial advice or direction of the Court on a matter of administration or management of a trust, even where approval appears to be relatively straightforward.

The recent decisions, outlined below, emphasise that parties should not pre-empt the willingness of the Court to hear an application for judicial advice or approval of a settlement without first considering the range of alternatives – such as seeking approval from a committee of inspection in a liquidation scenario – and ensuring that any application is made without delay, rather than expecting the advice will be given immediately.

 Re AGW Funds Management Limited

 On 24 March 2017, the Supreme Court of Victoria (VSC) published its reasons for declining to give a trustee, AGW Funds Management Limited (AGW), the advice or direction it sought under r 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).

The VSC referred to the recent case of Smoel v Morris [2013] VSCA 11 and the seminal case of Macedonian Church[1] in affirming the view that the purpose of provisions such as r 54.02 is to provide trustees with a mechanism through which they can apply to the Court for directions on matters of administration or management, or as to the construction of a trust instrument, without the need to commence separate proceedings and incur delay and costs.

On this occasion, AGW sought direction or advice from the Court in its capacity as responsible entity of the three managed investment schemes, that it was justified in accepting an offer from its parent company, Webster Limited (Webster) to purchase the schemes’ aggregate 2017 walnut crop (Purchase Offer).

The key issue with AGW’s application was that it sought the advice of the Court on the eve of the expiry of the Purchase Offer, with the full knowledge that the offeror would not be in a position (for practical and commercial reasons) to extend the time for acceptance. The Court declined to give the advice or directions sought primarily for this reason. Sifris J stated (at [23]):

‘First and most importantly, I am unable and unwilling to give the advice in the time frame sought, that is instanter or overnight. Some careful reflection is needed in cases of this kind, particularly where there is opposition.’

The Court also noted that given the serious allegations made by the scheme members, it may be best that the usual adversarial process be followed instead of being dealt with by a quick and summary evaluation of the issues. On this point, and again referring to Macedonian Church, Sifris J confirmed the notion that while the existence of an inter partes dispute between a trustee and beneficiaries is not a ground sufficient in and of itself to give judicial advice, in appropriate cases, it may be so.

AGW was left to consider the commerciality of the offer by Webster in light of its fiduciary duties as a trustee, without the comfort of the Court’s advice. It transpires that AGW went ahead and accepted the Purchase Offer.

Key takeaway – Seek direction or advice without delay. If a trustee considers it is likely that a dispute will arise in relation to the exercise of one or more of its duties or powers, it should seek timely judicial advice under r 54.02, as the Court will not go out of its way to assist a trustee who burdens it with an expectation that direction or advice be provided without delay, even in circumstances where there is extreme urgency surrounding the lapse of a commercial deal.

Primary Securities Ltd v Willmott Forests Limited & Ors [2017] VSC 375

On 27 June 2017, the VSC published its reasons granting approval to the liquidators of Willmott Forests Limited (receivers and managers appointed) (in liquidation) (WFL) to enter into a Deed of Settlement and Call Option under which WFL agreed to sell land encumbered by several large forestry plantations, predominately located in the Bombala region of New South Wales, to Primary Securities Ltd, the responsible entity of a registered forestry managed investment scheme, over a period of approximately 18 months.

The Deed of Settlement brought to an end over 6 years of sometimes acrimonious litigation between the parties following the collapse of the Willmott Group in 2010, including four Supreme Court of Victoria proceedings, two Court of Appeal hearings and one proceeding before the full bench of the High Court of Australia.

The Deed of Settlement was expressed in terms that that made its terms subject to Court approval.

After settlement had been reached, the liquidators make an application for approval, nunc pro tunc, to enter into the Deed of Settlement and Call Option. Approval was sought because performance would not be completed within three months. Section 477(2B) of the Corporations Act 2001 (Cth) requires the obligations under any agreement entered into by liquidators to be discharged within three months of that agreement, except with the approval of the Court, or the committee of inspection, or of a resolution of creditors.

Judd J noted in his reasons that Courts do not automatically accede to an application by a liquidator to approve or authorise conduct and not every compromise agreed between litigants, and requiring Court approval, is approved. The parties should not pre-empt the willingness of the Court to hear an application for approval (by, for example, requiring Court approval in a Deed of Settlement) without a sufficient explanation or by considering the range of options other than Court approval that may be available.

Looking at section 477(2B), Judd J noted that the liquidators had a range of options that should have been incorporated in the Deed of Settlement, without automatically assuming that Court approval was the only course. Notwithstanding this, His Honour accepted that the context and subject matter made it appropriate for the Liquidators to seek approval from the Court in this instance. In doing so, he noted both parties pressed for its approval and the settlement had occurred at “the commencement of what promised to be a long an acrimonious trial, extending over a number of weeks, coupled with serious allegations of impropriety made against the liquidators.

His Honour further noted that the liquidators had published their application on their website and copies had been delivered to the WFL Committee of Inspection, with no objections being received before the application was heard.

In light of the context of the application and the actions taken by the liquidators to notify it to WFL’s creditors, His Honour granted the orders sought by the liquidators and approved the settlement.

Key takeaway – If there are other options for approval of settlement, ensure those range of options are expressed in the deed of settlement. Parties to terms of settlement should not assume that Court approval can automatically be obtained without at least first exploring alternative options.

[1] Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] 237 CLR 66.

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