Australian Securities Commission v As Nominees

Australian Securities Commission v As Nominees Limited, Ample Funds Limited, As Securities Pty Limited and Peter Grenfell Windsor [1995] FCA 1663

The object of the proceedings was to secure the removal of trustees and managers of a number of superannuation and unit trusts.

AS Nominees Ltd (“ASN”), Ample Funds Ltd (“Ample”) and AS Securities Pty Ltd (“Securities”) – were all members of a group of companies (“the AS Group”). ASN and Ample operate as trustee companies of superannuation (ASN) and unit (Ample) trusts.

Allegations were made by the Australian Securities Commission that (i) the trustee companies had been run largely at the direction of, and in some real measure for the benefit of, the founder Mr Windsor and his interests; (ii) the directors have demonstrated little appreciation both of their own responsibilities as directors and of the trusteeship obligations of their companies, with the consequence that repeated breaches of the Corporations Law s232and regular breaches of trust have occurred; (iii) trust funds have been invested recklessly and improvidently often in circumstances of blatant conflict of interest or of partiality; (iv) in one instance fraud of some magnitude has been perpetrated on investor-beneficiaries of the superannuation trusts; (v) ASN and Ample have conducted their affairs as if they were a single entity – to the extent of having a common bank account for all of their various trusts; and (vi) shrouding much of this has been deficient and defective record keeping for both the companies and the trusts.

The Standard of Care to be Expected

At paragraph 42 Finn J stated:
42. It is old and accepted law that in managing a trust business the trustee should exercise the same care as an ordinary, prudent business person would exercise in conducting that business as if it were his or her own: Speight v Gaunt (1883) 9 App Cas 1; Learoyd v Whiteley [1887] UKHL 1; (1887) 12 App Cas 727; Knox v Mackinnon (1888) 13 App Cas 753. There is an equally well accepted gloss on (or adjunct to) this in relation to trustee investments which is aptly described in Scott on Trusts as the “requirement of caution”: para 227.3. That requirement is well expressed in King v Talbot 40 NY 76 (1869) to which Scott refers:

It … does not follow, that, because prudent men may, and
often do, conduct their own affairs with the hope of growing
rich, and therein take the hazard of adventures which they
deem hopeful, trustees may do the same; the preservation of
the fund, and the procurement of a just income therefrom,
are primary objects of the creation of the trust itself, and
are to be primarily regarded.

43. To like effect are the observations of Lindley LJ in In re Whiteley; Whiteley v Learoyd (1886) 33 ChD 347at 355.

44. In these proceedings I emphasise particularly the requirement of caution. It is this which, often enough, is used to differentiate the expectations properly to be had of trustees and of directors respectively. So in Daniels v Anderson (1995) 16 ACSR 607 at 658, for example, Clarke and Sheller JJA observed that:

While the duty of a trustee is to exercise a degree of
restraint and conservatism in investment judgments, the duty
of a director may be to display entrepreneurial flair and
accept commercial risks to produce a sufficient return on
the capital invested.

45. See also on this distinction the observations of Jacobs J in Re International Vending Machines Pty Ltd (1961) 80 WN(NSW) 465at 473.

46. I would add that underlying the distinction today is, probably, not merely an historical assumption about the separate purposes of companies and of trusts, but also a generalisation about the different risks that persons who invest their assets in companies on the one hand and in trusts on the other are considered likely to have assumed: for an example of risk assumption applied to trusts see Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] UKPC 1; (1986) 1 WLR 1072.

47. Where the trustee is itself a company the requirements of care and caution are in no way diminished. And here, unlike with companies in general, these requirements have a flow-on effect into the duties and liabilities of the directors of such a company. It was early established – largely it would seem from case law on charitable and municipal corporations – that at least when, and to the extent that, directors of a trustee company are themselves “concerned in” the breaches of trust of their company, they are liable to the company according to the same standard of care and caution as is expected of the company itself: Charitable Corporation v Sutton [1742] EngR 111; (1742) 2 Atk 400; 26 ER 642; Attorney-General v Wilson (1841) 10 LJ Ch 53; Joint Stock Discount Co v Brown (1869) LR 8 Eq 381; Fouche v The Superannuation Fund Board [1952} HCA 1; (1952) 88 CLR 609.

48. To affirm such a limited coalescence in the standard of care of directors and trustees in the case of directors of trust companies is not to reignite the arid debate on whether directors are trustees: cf Re International Vending Machines Pty Ltd (1961) 80 WN(NSW) 465 at 473; L S Sealy, “The Director as Trustee” (1967) Camb LJ 83. It is merely to say that in this context the duties of trusteeship of the company can give form and direction to the common law and statutory duties of care and diligence imposed on directors, where the directors themselves have caused their company’s breach of trust: on the duty of care of directors generally, see Daniels v Anderson (1995) 16 ACSR 607; Permanent Building Society v Wheeler (1994) 14 ACSR 109; see also Superannuation Industry (Supervision) Act 1993, s52(8), (9).

49. It needs, though, to be emphasised – and this is of importance in what later is described as the “SECCU Transaction” – that the coalescence noted is only operative when the trust business itself is involved. Where the company is engaged in its own affairs – and the SECCU Transaction is an example of this – the directors’ duty of care and skill will for that reason be unaffected by trust law considerations.

50. The standard of trustee care and caution of which I have been speaking so far does not differentiate between types of trustee. It is of general application. That standard, moreover, was settled a century ago and during a period when trust corporations were not used for the trading and investment purposes that are the commonplace in this country today. There is, in my view, a substantial question now to be answered as to whether a higher standard is not to be exacted from at least corporate or professional trustees (i) which hold themselves out as having a special or particular knowledge, skill and experience and (ii) which, directly or indirectly, invite reliance upon themselves by members of the public in virtue of the knowledge etc they appear so to have.

51. In Bartlett v Barclays Trust Co Ltd (No 1) (1980) Ch 515 at 534 Brightman J was prepared to impose such a higher duty of care on a trust corporation:

a professional corporate trustee is liable for breach of
trust if loss is caused to the trust fund because it
neglects to exercise the special care and skill which it
professes to have.

52. This decision has been cited with apparent approval, though it was not in terms relied upon, by Gleeson CJ in Gill v Eagle Star Nominees Ltd, SC of New South Wales, 22 September 1993. It is, in its own way, consistent with observations of the Privy Council in the Australian appeal, National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd (1905) AC 373 at 381, when refusing to excuse a trust company from a breach of trust. There is an extensive United States case law affirming such a higher standard. It is conveniently explained and exemplified in Scott on Trusts para 174.1 (4th Ed); see also Fales v Canada Permanent Trust Co (1977) 2 SCR 302(Can) where the question is recognised but not answered by the Supreme Court of Canada; and see Bogert, The Law of Trusts and Trustees, para 541 (Rev 2nd Ed).

53. If it were in fact necessary for me so to do (which it is not), I would be prepared to apply to the trustee companies in these proceedings a standard of care higher than that of the ordinary prudent business person. The applicant in its submission has invited me to adopt this course.

54. I should indicate that I do not regard the observations of the High Court in Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609 at 641 on the standard of care and prudence expected of the statutory corporation in that case (ie the prudent business person standard) as precluding the adoption of a different and higher standard in the circumstances of a trustee company (a) carrying on business as such in the now established field of superannuation; (b) accepting and soliciting the utilisation by members of the public of its services as a funds manager; and (c) charging significant fees for so doing. The Board in Fouche was a body of a materially different variety. It was created by statute to administer a superannuation scheme for members of the Tasmanian public service. It did not hold itself out as conducting a trust business or as rendering professional trust services.

55. I should also add that it is unnecessary for the purposes of the present proceedings to examine the standards of care for corporate trustees of superannuation entities prescribed in the Superannuation Industry (Supervision) Act 1993, s52 and especially s52(8) and (9). That legislation even now applies only to ASN. For almost all of the period with which I am concerned those provisions were inoperative: see ibid, s2(4).

56. In the event, though, there is no need to specify a higher standard of conduct for the corporate trustees in this instance. This is because the actions alleged to constitute breaches of trust in the transactions to be referred to, characteristically fall short of even the prudent business person measure and by some distance.

57. Finally, I merely note that there is a question whether the duty of care owed by directors of a trustee company to their company is owed as well to the beneficiaries of the trust: see Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; (1995) 3 WLR 64 at 75; see also Wickstead v Browne (1992) 30 NSWLR 1; and cf Scott on Trusts, para 326.3 (4th Ed). Given the view I take of the relevance to these proceedings of the accessorial liability rule in Barnes v Addy (1874) LR 9 Ch App 244, the question is not one that need be explored here.


Accessorial Liability
82. Legal decision and scholarly opinion in common law jurisdictions are converging in the view that at least what is known as the second (“the knowing assistance”) limb of the rule in Barnes v Addy is a fault based form of accessorial liability. For present purposes that liability rule can be formulated (conservatively) as one which exposes a third party to the full range of equitable remedy available against a trustee if that person knowingly or recklessly assists in or procures a breach of trust or of fiduciary duty by a trustee: Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373; see Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; (1995) 3 WLR 64 and the cases and writings referred to therein; Wickstead v Browne (1992) 30 NSWLR 1; Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 per Kirby P; Bogert, The Law of Trusts and Trustees, para 901 (Rev 2nd Ed); Oakley, “Liability of a Stranger as a Constructive Trustee” in Cope (ed)

Equity: Issues and Trends.
83. As has long been recognised in case law in the United States – see eg Shuster v North American Mortgage Loan Co 40 NE 2d 130 (1942); Seven G Ranching Co v Stewart Title and Trust of Tucson 627 P 2d 1088 (1981); see also Scott on Trusts, para 326.3 (“Directors and officers of corporate trustee”) (4th Ed); Bogert, The Law of Trusts and Trustees, para 901 esp fn 10 (Rev 2nd Ed) – this form of liability is one of no little significance to the directors of a trust company for the very reason that, often enough, it will be their own conduct in exercising the powers of the board which causes their company to commit a breach of trust. They are, in other words, peculiarly vulnerable to this rule. Recent Australian case law is demonstrating an appreciation of this: see eg Young v Murphy (1994) 13 ACSR 722; see also Biala Pty Ltd v Mallina Holdings Ltd (1993) 11 ACSR 785 at 832.


84. It cannot be said that all of the various controversies which have beset this limb of Barnes v Addy have been stilled in Australian law – and the “knowledge” requirement is perhaps the most significant of these: see Lodge, “Barnes v Addy: The Requirements of Knowledge” (1995) 23 Aust Bus L Rev 25 and cf the observations on knowledge in the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan, above at 75. Given the particular findings later made in these reasons, none of those controversies would be enlivened in the circumstances of these two applications. In consequence the terms in which I have formulated this type of liability are in my view sufficient and appropriate for the purposes of these proceedings.

85. I should make plain that questions of accessorial liability in the transactions to be considered are not limited to the participation of directors in alleged breaches of trust by their companies. They extend to dealings by ASN and Ample with other companies in the AS Group. Their extension beyond this to “genuine” third parties has not been argued.



Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>