Avoiding a crime when changing trustees – Application of MLC Investments Ltd
The recent decision of Application of MLC Investments Ltd (ACN 002 641 661)1 discussed the relevance of a corrupt purpose to s.249E of the New South Wales Crimes Act 1900 (the Crimes Act). This section outlines when the giving and receiving of a benefit upon changes to ‘a person entrusted with property’ will constitute a criminal offence and applies to trustees, executors and administrators of deceased estates, attorneys and financial managers. Similar legislation exists in Queensland, Victoria and Western Australia. In advising clients, practitioners Australia‑wide ought to be mindful of the decision to avoid the inadvertent commission of an offence.
MLC Investments Ltd (MLC) sought to retire as the responsible entity of 19 registered managed investment schemes and the trustee of 18 unregistered managed investment schemes in favour of Channel Investment Management Ltd (Channel), upon the recommendation of the investment advisor for each of the schemes, JANA Investment Advisors Pty Ltd (JANA). The proposed course was thought to be in the best interests of the scheme members as Channel had lower costs, more flexibility in its investment options and improved technology, leading to faster enactment of instructions. To implement the proposal, MLC would incur costs to third parties of approximately AUD560,000–600,000 (the Implementation Expenses). Although MLC was entitled to be indemnified for the Implementation Expenses from the scheme property, JANA intended to reimburse MLC to avoid the cost burden falling on the scheme members. Additionally, Channel would provide various indemnities to MLC (the Indemnities) under an implementation deed and a deed of retirement and appointment between MLC, Channel and JANA. The Indemnities related to defined ‘claims’ that were limited in scope as MLC already had a right of indemnity out of the scheme assets. MLC apprehended that s.249E of the Crimes Act might prohibit the proposed course.
Section 249E of the Crimes Act
The critical part of s.249E of the Crimes Act provides:
‘(2) Any person who offers or gives a benefit to a person entrusted with property, and any person entrusted with property who receives or solicits a benefit for anyone, without the consent—
(a) of each person beneficially entitled to the property, or
(b) of the Supreme Court,
as an inducement or reward for the appointment of any person to be a person entrusted with the property, are each liable to imprisonment for 7 years.’
For the purposes of the section, ‘a person entrusted with property’ includes trustees, executors and administrators, attorneys under a power of attorney, persons with a power of appointment under a power of attorney, and persons managing or administering property under the NSW Trustee and Guardian Act 2009.2 Further, the ‘appointment of a person’ within the section includes joining or assisting in the appointment.3 MLC applied to the Supreme Court of New South Wales (the Court) under s.249E, seeking the Court’s consent to the soliciting and receiving by MLC, and the offering and giving to MLC by Channel and JANA, the benefit of the Implementation Expenses and the Indemnities.
Application of S.249E
Stevenson J found the proposed conduct did fall within the ambit of s.249E4 and constituted an ‘inducement or reward’ for the appointment of Channel as the new responsible entity and trustee.5 Ultimately, the Court gave its consent to the Implementation Expenses being paid and the Indemnities being provided, and it was satisfied that the proposed course was in the best interests of the beneficiaries.6 However, the Court’s consideration of the mens rea of the offence is noteworthy. In the context of s.249E, this was ‘a specific intent to offer, give, receive or solicit a benefit without consent as an inducement or reward for the appointment of any person to be entrusted with property’.7 However, the question arose as to whether it is also a feature of the offence for the purpose to be ‘dishonest or corrupt in some way’.8 His Honour attributed weight to the fact that the word ‘corruptly’ appears elsewhere in the Crimes Act but is not present in the body of s.249E.9 Further, under s.249E(4), proceedings for an offence cannot be commenced without the consent of the Attorney General. His Honour found that the absence of this caveat elsewhere in the Crimes Act suggested s.249E is ‘intended to operate broadly and capture conduct which may not necessarily warrant prosecution’.10 Moreover, His Honour noted it would not be possible for beneficiaries or the Court to consent, as contemplated by the section, to corrupt conduct.11 As such, Stevenson J found that a corrupt purpose is not an element of the offence.12
Implications of the decision
If a corrupt purpose is not a feature of s.249E, then arguably any change to ‘a person entrusted with property’ that includes, for example, indemnities to an incoming trustee, or expense reimbursement to an outgoing trustee, will require the consent of each person beneficially entitled to the trust property or the Court to avoid the commission of an offence. Accordingly, indemnities and costs coverage which are commonly provided for in, for example, deeds of retirement and appointment of trustee, may be captured by the section even if seemingly innocuous. The case has a potentially broad ambit due to the wide definition of ‘a person entrusted with property’, which encompasses not only trustees but also, for example, legal personal representatives of deceased estates and attorneys under a power of attorney. Further, it may have a bearing on future decisions in Queensland, Victoria and Western Australia where similar legislation exists.13 At the time of writing, STEP Australia has made a submission to the Attorneys General of New South Wales, Queensland, Victoria and Western Australia raising its concerns about the effect of the decision.14 It remains to be seen whether this will translate into legislative reform. In the meantime, practitioners across Australia must be careful to advise clients appropriately in the circumstances contemplated by the relevant legislation and, where necessary, obtain the consent of all those beneficially entitled to the trust property or the Court, to avoid the inadvertent commission of an offence.
This article first appeared in STEP Australia Newsletter Issue 22, June 2023. To read the newsletter, click here.
1  NSWSC 1541
2 Crimes Act 1900 (NSW), s.249E(1)
3 Crimes Act 1900 (NSW), s.249E(3)
4 Application of MLC Investments Ltd (ACN 002 641 661)  NSWSC 1541, 
5 Id, 
6 Id, 
7 Id, 
9 Id, 
10 Id, 
11 Id, 
12 Id, 
13 See Criminal Code Act 1899 (Qld) Sch 1s 442F; Crimes Act 1958 (Vic), s.180; and Criminal Code Act Compilation Act 1913 (WA), s.535
14 See www.stepaustralia.com/wp-content/uploads/2023/01/ Letter-The-Hon.-Mark-Speakman-SC-MP_25.01.23.pdf
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.