Allsop Investments Pty Ltd v Jerkovic [2020] NSWSC 113

Supreme Court New South Wales

Medium Neutral Citation: Allsop Investments Pty Ltd v Jerkovic [2020] NSWSC 113 Hearing dates: 14 February 2020 Decision date: 14 February 2020 Jurisdiction: Equity Before: Ward CJ in Eq Decision: 1. Dismiss the plaintiff's notice of motion filed 2 September 2019 with costs. Catchwords: CIVIL PROCEDURE — Separate determination of questions — whether appropriate Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth), s 1317H Supreme Court Rules 1970 (NSW) Trustee Act 1925 (NSW), s 63 Uniform Civil Procedure Rules 2005 (NSW), r 28.2 Cases Cited: Idoport Pty Ltd v National Australia Bank Ltd (No 15) [2000] NSWSC 1215 In the application of NSW Trustee & Guardian [2014] NSWSC 423 Kearns v Hill (1990) 21 NSWLR 107 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 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; [2008] HCA 42 Southwell v Bennett [2010] NSWSC 1372 Tallglen v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 Category: Procedural and other rulings Parties: Allsop Investments Pty Ltd (Plaintiff) Joe Peter Jerkovic t/as LJ Hooker Riverwood (First Defendant) Gina Jerkovic (Second Defendant) Mortdale Estates Pty Ltd (Third Defendant) Representation: Counsel: G Loupos (Solicitor) (Plaintiff) R Tregenza (Defendants)

Solicitors: George Loupos & Associates (Plaintiff) Jemmeson & Fisher (Defendants) File Number(s): 2018/00349182 Publication restriction: Nil

EX TEMPORE Judgment 1. HER HONOUR: This is an application, by notice of motion filed 2 September 2019, by the plaintiff seeking an order pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the separate hearing and determination of particular questions. 2. The particular questions are as follows: (i) Was the Trustee of the Mortdale Estate Unit Trust required to obtain judicial advice under section 63 of the Trustee Act 1925 before taking action to defend the claim commenced by the Plaintiff and before commencing a cross claim against the Plaintiff as a unit holder of the Unit Trust? (ii) Were the units created in the Mortdale Estate Unit Trust pursuant to clause 3.1.1 of the said Trust Deed issued to the "Original Unit Holders" including the Plaintiff, at a par value of $1.00 each and were those units fully paid or partly paid? (iii) If the said units that were issued to the Plaintiff were fully paid, was the Trustee entitled to make a call on those said units pursuant to clause 3.6.1 of the Trust Deed and was the Trustee entitled to forfeit the Plaintiff's units in the said Unit Trust if the Plaintiff, in the first case, never received any notice of forfeiture from the Trustee and in the second case, received a notice of forfeiture from the Trustee prior to the Trustee forfeiting the Plaintiff's units. (iv) Were the financial contributions made by the Plaintiff to the Mortdale Estate Unit Trust over and above its initial subscription for units in the Trust, contributions of capital or loans to the Unit Trust repayable by the Trustee on demand by the Plaintiff. (v) Is the Trustee of the Unit Trust entitled to cross claim in damages against the Plaintiff if the Plaintiff did not comply with Trustee's Call Notice issued by it pursuant to 3.6.1 of the Trust Deed if clause 3.1.2.4 of the Trust Deed limited the liability of the Unit Holders including the Plaintiff to an amount if any unpaid on its units. 1. In support of that application the plaintiff has read two affidavits sworn by Jeremy Allsop, a director of the plaintiff, being affidavits sworn 4 May 2019 and 2 December 2019 respectively, and has tendered a number of documents in the volume that has been marked Exhibit A on this application. Within that volume of documents I have been taken to various portions of the relevant trust deed. 2. I have also been taken to various portions of the pleadings that have been filed in these proceedings. The latest iteration of the statement of claim in these proceedings is an amended statement of claim filed 3 June 2019 by the plaintiff. A verified defence to that was filed on 21 June 2019. A reply was filed on 27 June 2019 and a cross‑claim was filed on 20 December 2018. 3. The background facts, insofar as they emerge from the materials to which I have been taken (and by reference to the respective submissions that have been served by each of the parties), include the following. A unit trust, The Mortdale Estate Unit Trust, was created on or about 23 January 2009 by trust deed. A copy of the trust deed establishing the Mortdale Estate Unit Trust is part of Exhibit A. The trustee of the unit trust is the third defendant in these proceedings, Mortdale Estate Pty Ltd. It is said that the trustee of the unit trust, namely, the third defendant, is controlled by the first and second defendants through their majority shareholding in the trustee and as related holders of the majority of units issued in the unit trust. 4. The pleadings filed by the defendants contend that the trust was established with a view to acquiring and conducting a rent roll; namely, a real estate franchise in the Sydney suburb of Mortdale. 5. The units in the trust have been issued to various unitholders. Those unitholders include the plaintiff, who is recorded in the second schedule to the trust deed as the holder of 12 ordinary units in the trust, the application price for which is noted as being $12. 6. The underlying dispute between the parties relates, amongst other things, to alleged breaches of fiduciary duty by the defendants in relation to steps taken pursuant to which one or more calls were made on the units of the trust and the trustee forfeited, or purported to forfeit, the plaintiff's units in the trust for failure to meet the calls. 7. There is an allegation made in the amended statement of claim at [9] that the defendants caused trust assets and trust income belonging to the trust to be diverted to the first and second defendants and/or to associated persons for their own benefit and gain. The particulars to that allegation assert that the defendants caused assets, including the rent roll, cash, sales and rental commissions belonging to the trust, effectively to be diverted to a similar business conducted by the first and second defendants known as "LJ Hooker Riverwood". 8. The statement of claim seeks, amongst other things, damages (including equitable damages and exemplary damages), compensation orders pursuant to s 1317H of the Corporations Act 2001 (Cth), a refund of the loan made to the unit trust in the sum of $32,720, and further, or in the alternative, an order that an account be taken as between the plaintiff and the defendants to determine the extent of the defendants' liability to the plaintiff by reason of the matters set out in the amended statement of claim. 9. The defence to the amended statement of claim alleges, among other things, that any transfer or forfeiture of the plaintiff's units in the trust occurred in accordance with the trust deed ([10]). The defendants further allege that there was, in or about 2009, an agreement between the "Original Investors" (which term includes the plaintiff – see [7](a)), to purchase the real estate franchise at Mortdale for the price of $35,000 and to contribute to running costs as necessary to meet the deficiency of running costs as against revenues until it commenced deriving sufficient income to cover running costs (see [10](a)). 10. The defence then alleges that the third defendant caused the "Trust" to enter into a contract on 14 October 2010 to purchase the business assets, including the rent roll and goodwill, of another business (see [10](e)). The defence also makes assertions as to the funding of the purchase price for that business by a loan and as to an agreement (see at [10](g1) of the amended defence) said to have been reached (in consideration of the first and second defendants agreeing to obtain or otherwise provide finance to the third defendant for the whole or part of the purchase price of the rent roll, and the third defendant accepting the provision of such finance) for the payment by the plaintiff and the "Mellersh Interests" (as defined) to pay their respective proportionate contributions for the purchase price together with the financing costs and interest thereon as moneys otherwise unpaid on their units pursuant to the trust deed, when called upon to do so by the third defendant. The particulars to that paragraph include that the agreement was oral and implied and there is reference to "the course of several meetings" in relation thereto. 11. The cross‑claim claims an amount by way of debt allegedly owing by the first and second defendants. (The plaintiff says that the cross‑claim makes inconsistent allegations in relation to the loan for the purchase of the business (see [17]-[18] of the cross‑claim) to the allegations in the defence.)

Determination 1. In Idoport Pty Ltd v National Australia Bank Ltd (No 15) [2000] NSWSC 1215 (Idoport) at [7] Einstein J summarised the applicable principles when considering an application for the separate determination of an issue. His Honour noted that the power of the Court is a discretionary power which must be exercised judicially but cannot otherwise be fettered, but that the Court is enjoined to give effect to the overriding purpose of the Supreme Court Rules 1970 (NSW), now, relevantly, the Civil Procedure Act 2005 (NSW), namely, to facilitate the just, quick and cheap resolution of the real issues in the proceedings; and that the Court begins with the proposition that it is ordinarily appropriate that all issues in a proceedings should be disposed of at the one time and thus it is for the party who wishes to have a question separately determined to show that it is desirable for this to occur. 2. At [7] Einstein J said: … Without being exhaustive, the separate determination of an issue may prove to be an appropriate procedure in at least the following sets of circumstances: (a) where the resolution of that separate issue will have the effect of resolving the entirety of the litigious controversies or of substantially narrowing the field of litigious controversy: CBS Productions Pty Ltd v O'Neil [1985] 1 NSWLR 601 at 606 per Kirby P, Dunstan v Simmie & Co Pty Ltd (supra, at 671 per Young CJ and Jenkinson J); (b) where the resolution of that separate issue carries with it a strong prospect that the parties will thereafter be able to resolve their dispute themselves and thus avoid further litigation: Tallglen v Pay TV Holdings (supra, at 141 - 142 per Giles CJ in Comm D); (c) where there is a clear demarcation between that issue and all other issues in the case, including issues going to the credit of witnesses: CBS Productions Pty Ltd v O'Neil (supra, at 606 per Kirby P), Tallglen v Pay TV Pty Ltd (supra, at 142 per Giles CJ in Comm D), Rajski v Carson (1988) 15 NSWLR 84 at 88 per Kirby P and Hope JA. 1. During the course of oral submissions on the present application, I invited submissions from the plaintiff as to in which of the above categories the present issues which are sought to be the subject of an order for separate determination would fall. 2. Einstein J also set out, conversely, the circumstances in which the separate determination in issue would rarely be an appropriate procedure. Those include where: there are intertwined areas (issues of fact or law) such that the determination of the separate question would not have any substantial effect on the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation; where there is a commonality of witnesses and issues of credit; and where there is a possibility that the resolution of the separate issue will not finally determine the issue, but merely result in an appeal from the decision in relation to that separate issue creating a multiplicity of proceedings, interruptions to the Court, and undesirable fragmentation of the proceedings. 3. His Honour said that the experience of courts "suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings as anticipated, but often has the reverse effect, merely causing added delay and expense to the resolution of the litigation" (at [7](6)]. Thus his Honour considered that, before an issue is to be separately determined, it must be possible clearly to see that it will facilitate the quicker and cheaper resolution for proceedings. His Honour cited, amongst other decisions, that of Tallglen v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at [142]. 4. In the present case, of the questions sought to be the subject of separate determination, the first stands in perhaps a somewhat different category to the remaining questions. The first question (as set out above) is: Was the trustee of the Mortdale Estate Unit Trust required to obtain traditional advice under s 63 of the Trustee Act 1925 before taking action to defend the claim commenced by the plaintiff and before commencing a cross‑claim against the plaintiff as a unitholder of the unit trust? 1. The solicitor appearing for the plaintiff concedes that generally speaking, there is not a requirement, for a trustee to seek judicial advice (although it is submitted that in the present case where there are allegations of breach of trustee's duty, and allegations of fraud on the part of the trustee, and fraudulent behaviour by the controllers of the trust, it would have been "advisable" for the defendant to have taken that course). 2. It is submitted that, had the defendant taken that course, then this might have led to the proceedings not having been pursued, or that this might have led to a different position in relation to the litigation (as I understand the submissions that have here been made). However, the pleading does not allege any breach of trust on the part of the trustee arising from the fact that no judicial advice was sought prior to the defence of the proceedings or the lodgement of the cross-claim. 3. Reference is made by the plaintiff to what was said in the oft-cited case of 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; [2008] HCA 42. In that case, s 63(1) of the Trustee Act 1925 (NSW) (Trustee Act) was considered in the context of proceedings in which an incorporated association, which held property subject to a charitable trust, was sued for breach of trust. It was noted in that case that, to the extent to which judicial advice may determine substantive rights in contested proceedings, this may be relevant to the exercise of the discretion whether to grant the advice sought. 4. Gummow ACJ, Kirby, Hayne and Heydon JJ, who gave the joint judgment in the above proceedings, considered that 'a necessary consequence of s 63 is that a trustee who is sued should take no step in the defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings', but their Honours also noted that judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings. In that case, their Honours opined (at [74]) that: In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings. 1. The defendant notes that there is no cause of action for failure to seek judicial advice, nor is any such allegation pleaded in the pleadings. It is noted (and the plaintiff accepts) that s (63)(1) of the Trustee Act does not require a trustee to apply for judicial advice, but provides that it may apply. It is further noted in the defendants' submissions that the consequences of seeking judicial advice may offer a degree of protection to the trustee, but that it would not have an effect on the overall disposition of the substantive issues in dispute in the proceedings (similarly, the practical consequences of failing to see judicial advice would not have an effect on the overall disposition of the proceedings). It is noted that Kunc J summarised the position in relation to the seeking of judicial advice in the case In the application of NSW Trustee & Guardian [2014] NSWSC 423 at [3]. 2. I fail to see how the answer to question one could possibly assist in the determination of the resolution of the issues in the proceedings or fall within the categories of case identified by Einstein J in Idoport as appropriate for a separate determination. 3. If the question, posed as it is, is whether the trustee was required (as a matter of legal obligation) to obtain judicial advice under s 63 of the Trustee Act before taking action to defend the claim, rather than as to whether it would have been advisable for it to do so, the question must surely be answered in the negative – there is no legal obligation for it as trustee to do so (and I was taken to no contractual obligation of that kind in the present case). The consequence of failing to take what might well be said to be an advisable step is a different matter altogether. 4. The balance of the questions in respect of which separate determination is here sought go to the construction of the unit trust deed and as to the characterisation that is to be placed on the calls that have been made and on contributions made by the plaintiff to the trust deed over and above its initial subscription for units in the trust, and go to whether the trustee is entitled to cross-claim in damages in relation to the fact that the plaintiff did not comply with the trustee's call notice. Those issues all go to issues that are substantive issues in the proceedings and will give rise, it would seem inevitably, to contested factual issues and disputes that will likely involve the credit of particular witnesses. 5. In the submissions put forward by the defendants on the current application, reference is made to the decision of Hallen AsJ, as his Honour then was, in Southwell v Bennett [2010] NSWSC 1372 as to the relevant factors and considerations in the exercise of the discretion. Those are similar to the issues that were referred to by Einstein J in the Idoport proceedings to which I have already referred. 6. In my view, it is inappropriate separately to determine questions two to five in advance of the hearing of the proceeding as a whole. While the defendants concede that it may be appropriate for the question of damages to be "hived off", so to speak, from the balance of the questions in the proceedings, there is no such application at this stage; and insofar as the plaintiff is seeking to have an account taken in respect of the trust, that would ordinarily be taken separately. 7. The plaintiff appears to press for a separate determination of questions two to five on the basis of the plaintiff's view that the arguments put forward by the defendants are untenable; that the construction of the unit trust deed is beyond doubt; and that the defendant's interpretation is not correct or a proper construction of the clause. It is said that the defendants' argument is so devoid of merit and has no reasonable prospect of success, such that the amended cross‑claim could not be allowed. 8. Reference is also made by the plaintiff (in the context of the defendants' defence based on an alleged agreement as to a call under the trust deed) to what was said by Meagher JA in Kearns v Hill (1990) 21 NSWLR 107 as to the power to vary or amend any provisions in the trust deed. 9. In my view, the application for separate determination of the issues in the present case is misconceived in circumstances where the matters sought to be raised by the defence in the cross-claim, whether or not they ultimately are shown to have merit, will involve consideration of factual issues in dispute, and will likely raise issues of credit. It is not appropriate in those circumstances for there to be a separate determination of those questions (having regard to the factors identified in Idoport and Southwell). 10. In those circumstances, the application for an order for separate determination of the questions is refused and I will dismiss the plaintiff's notice of motion filed 2 September 2019. 11. In relation to the costs of the application, in the ordinary course costs follow the event. The plaintiff seeks an order simply that costs be reserved, on the basis that there was no ill-intention in bringing the application and that, had the application been successful, it would have resulted in a saving of costs. 12. The making of costs orders in relation to such an application is not punitive. There is no suggestion that a costs order has been sought or would here be ordered on a special basis. Rather, costs orders are compensatory in purpose, as explained in Latoudis v Casey (1990) 170 CLR 534 at 243; [1990] HCA 59. 13. This is an application that was brought by the plaintiff. It is a discrete application. It has been dealt with efficiently and expeditiously. The plaintiff has been unsuccessful. It was an application that, on the face of it, was misconceived (at least as to question one) but, in any event, I consider that costs should follow the event and I will, therefore, dismiss the notice of motion with costs.

Orders 1. Dismiss the notice of motion with costs.

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