Perpetual Trustee Company Limited v Shambrook

This case concerned the management of funds held on trust by Perpetual Trustee Company Ltd. Various issues arose, including whether the applicant was validly made the trustee of the fund under s 601WBJ Corporations Act 2001 (Cth), whether the trustee was empowered to transfer part of the fund into superannuation, and whether the trustee had a conflict of interest. The decision includes a detailed consideration of the position of a trustee when dealing with related entities.

Applegarth J

30 May 2024

Tyson Burns (“Tyson”) suffered cerebral palsy at birth due to medical negligence. [1]. Tyson is unable to make decisions about financial and other matters. [1]. In 2009, the court sanctioned a compromise of a damages claim made by Tyson’s litigation guardian. [2]. The compromise resulted in the State of Queensland paying a total of $4,750,000 to Perpetual Trustees Queensland Ltd (“PTQ”) as trustee for Tyson. [2]. The funds were applied for Tyson’s benefit in various ways, including a payment of $4,250,000 into a superannuation fund of which Perpetual Trustee Superannuation Ltd (“PTSuper”) was the trustee. [8]. PTSuper was related to PTQ in that they shared a parent company, as does the present trustee Perpetual Trustee Company Ltd (“PTCo”). [9]. Four issues arose.

First, under Part 5D.6 of the Corporations Act 2001 (Cth), ASIC may make a determination that there is to be a transfer of estate assets and liabilities from one company, called the “transferring company” to another company called the “receiving company”. [14]. The receiving company becomes the successor in law of the transferring company in respect of the estate. [4], [14]. A determination had been made by ASIC by which PTQ was to transfer assets to PTCo. [16]. The parties were in agreement that this determination had the effect of making PTCo the trustee of Tyson’s fund. [17]–[18]. The court accepted that that was the position, noting that the legislation need not use language such as “vests” for it to have the effect of a vesting order. [18]–[20].

Second, an issue arose as to whether the trustee was empowered to transfer money into superannuation. In the case of Perpetual Trustee Company Ltd v Cheyne (2011) 42 WAR 209, Edelman J held that under the Trustees Act 1962 (WA), a trustee company did not have the power to invest trust funds into super. [24]. That was because, under that statute’s equivalent to s 17 of the Trusts Act 1973, payment into super was not an “investment”. [24]. That was because, an investment involves expending something from which a return or profit is expected. [24]. The trustee will see no return from an investment in superannuation. [24]. Justice Applegarth noted that there was no relevant difference between the provisions in the Western Australian and Queensland legislation. [29]. Cheyne was “a carefully-reasoned decision of an eminent judge”, and His Honour reasoned that it should be followed. [29].

However, the order appointing PTQ stated that PTQ was empowered to “apply such monies for the maintenance benefit and support of the applicant”. [31]. The court held that these words extended the scope of the trustee’s investment power, and allowed payments to be made into super. [34]–[36].

Third, the court considered whether PTQ was in a position of conflict in selecting a super fund operated by a related entity. PTCo provided several reasons as to why the investment with PTSuper was made. First, because PTQ and PTSuper are related entities, the funds were managed by the same officers, relying on the same financial advice, such that there was consistency in the strategy. [49]. Second, PTSuper charges Tyson in accordance with its advertised rates, but then rebates the full amount. [49], [98]. There would be significant fee savings as a result. In fact, the evidence of PTCo was no other superannuation products were considered because they would have fees. [102]. Third, PTSuper has a good investment record. [49]. Fourth, there was no evidence that the decision to invest with PTSuper was motivated by any benefit that may result in benefit to the parent company. [49]. Fifth, the decision was regularly reviewed. [49].

The Court noted that there is a conflict where there is a “real or substantial possibility” of conflict between the interests of the fiduciary and their duty to the beneficiary. [61]–[68]. The interests of the fiduciary need not be pecuniary interests. [84]. The question of whether there is a conflict is assessed objectively. [86]. The relationship between members of a corporate group “carries the danger of the fiduciary being swayed by loyalty to the corporate group, rather than a duty to the beneficiary”. [86].

In addition, “the strictness of the no-conflict rule means that no question is allowed to be raised as to the fairness or unfairness of the contract”. [91]. One should not be affected by the fact that the investments made by PTSuper performed very well. [92].

Justice Applegarth noted that the choice of super fund would require a weighing of expected returns, fees, and security. [95]. Here, “[i]n theory, additional fees might have been justified if the alternative superannuation providers offered investments that were likely to yield an overall net benefit.” [102]. “[I]t might be argued that there was an unconscious breach of the no-conflict rule because the favourable fee arrangement with a related entity swayed the trustee to not consider alternatives”. [102]. However, in the present case, there was no evidence that any other fund would have provided a superior return on investment after fees. [106]. In fact, the evidence indicated that there were benefits in investing with PTSuper as a result of the lower fees and the consistency in investment strategy. [106]. On that basis, the court held that there was no conflict of interest. [109].

L Inglis