One cool judgment is worth a thousand hasty counsels.  The thing to do is to supply light and not heat.

-  Woodrow Wilson
 

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IN THE HIGH COURT OF NEW ZEALAND           M. No. 9/2000
PALMERSTON NORTH REGISTRY
 

IN THE MATTER OF                The Unit Trusts Act 1960

AND

IN THE MATTER OF                 FLAT ROCK FORESTS TRUST

AND

IN THE MATTER OF                an application by RUTH HATCH
                                              and others to appoint an inspector
                                              of the Flat Rock Forests Trust
                                              pursuant to s 21 of the Unit Trusts
                                              Act 1960
 

Date of Hearing:       9 May 2000

Date of Judgment:    18 May 2000

Counsel:                   J.W. Maassen for Applicants
                                 No appearance for John Drage (Liquidator of
                                 of NZTIL)
                                 H.P. Kynaston for Perpetual Trustee Company Ltd
                                 S.J. Peacock for D.H. Simcock (Former director of
                                 NTZTIL)

JUDGMENT OF DURIE J

Solicitors:
Cooper Rapley, Palmerston North for Applicants
Buddle Findlay, Wellington for Perpetual Trustee Compamy Ltd
Gilbert Swan, Wellington for D.H. Simcock

The Proceeding

[1]    This is an application to appoint an inspector to investigate and report on the affairs and management of the Flat Rock Forests Trust (`FRF Trust') pursuant to s 21 of the Unit Trusts Act 1964.  Though the section has been in existence for forty years, there is no authority on its application.
 

[2]    Section 2l provides:

"(1)     One or more inspectors to investigate and report on the affairs of any unit trust and its manager may be appointed by-

(a)     The Minister; or

(b)     The High Court on application made either by one-tenth in number of the unit holders of the unit trust or by a unit holder or unit holders holding at the date of the application not less than one-tenth of the value of the interests in the unit trust then held by unit holders.

(2)     Every such inspector shall have in relation to the unit trust and its manager and affairs all the powers conferred on an inspector in relation to a company and its affairs by section 171 of the Companies Act 1955 (except subsection (3) of that section); and those provisions, so far as they are applicable and with the necessary modifications, shall apply accordingly.  The report of every such inspector who is appointed by the Minister shall be made to the Minister; and the report of every such inspector who is appointed by the High Court shall be made to that Court.

(3)     If any officer or agent of a company that is a manager of a unit trust in respect of which an inspector has been appointed under this section refuses to produce to the inspector any book or paper which it is his duty under this section so to produce, or refuses to answer any question which is put to him by the inspector with respect to the affairs of the company or unit trust, that officer or agent commits an offence and is liable on summary conviction to imprisonment for a term not exceeding 3 months or to a term not exceeding 3 months or to a fine not exceeding $200.

(4)     No such officer or agent shall be excused from answering any question put to him by an inspector with respect to the affairs of the company or unit trust on the ground that the answer may incriminate or tend to incriminate him, but no statement made by him in answer to any question shall be admissible against him in criminal proceedings, except proceedings under the Crimes Act 1961 for making a false statement upon oath."
 

[3]    The applicants are Ruth Linn Hatch and numerous others whose combined units in FRF Trust represent more than one tenth and some 70% of the value of the units as a whole.
 

Background

[4]    Though untested by cross-examination, it appears from affidavits that FRF Trust came into existence, in I989, in response to or contemporaneously with immigration policies that would provide a source of funding for such trusts.  The policy enabled high net worth, business persons from overseas to obtain permanent residence by investing a minimum amount in unlisted, New Zealand securities for a minimum term.  New Zealand Trade and Investment Limited ('NZTIL'), which was indirectly associated with the establishment of FRF Trust, is a funds management company that assisted intending business migrants with their investments having regard to immigration requirements.  It was linked, by personnel or operations, with New Zealand Enterprise Board Limited ('NZEB'), formerly called the Wellington Regional Enterprise Board which was the settlor of the FRF Trust.  The NZEB advised successive Ministers of Immigration on immigration policy.

[5]     FRF Trust was to acquire and manage a number of forests funded partly from intending migrants and partly from local subscription.  Under its trust deed, NZTIL is the trust manager and Perpetual Trust Limited ('Perpetual Trust'), is the trustee.  The Trustee and Mr Simcock, a former director of NZTIL, were separately represented at the hearing.
 

[6]     In terms of the Act and trust deed, the manager, NZTIL, is responsible for the day-to-day and strategic management of the trust assets, deciding on the acquisition and disposal of assets and generally having an active commercial role.  By s 24 of the Act both the manager and the trustee have a duty to exercise care and diligence in the performance of their duties and to act in the best interests of the beneficiaries but the trustee's role is more constrained.  The trustee's function is to hold the Trust assets and to monitor the manager's compliance with responsibilities under the trust deed and the Act.  By s 12(1)(c) the trustee has a limited power to veto transactions if, in the trustee's opinion, "the proposed acquisition or disposal is manifestly not in the interests of the unit holders".  The trustee advises that in practice the trustee checks that the transaction is authorised by the trust deed and is within the manager's powers, reviews the transaction documents for obvious defects or irregularities, reviews the financial information, valuations and projections and obtains independent Iegal and other expert advice where appropriate.
 

[7]    Further protection for investors were provisions in the trust deed limiting borrowing to 35% of total assets and restricting investments in other unit trusts.
 

[8]    It further appears that for the most part, the initial investments of the intending migrants, mostly or wholly Asian, were secured by redeemable preference shares in NZTIL, which in turn invested in various securities of which the FRF Trust was one.  Because of some confusion in the affidavits, it is emphasised that the FRF Trust provided for only one such investment.  NZTIL relied upon a more extensive investment pool.
 

[9]    Following a change in company law, from June 1997 all redeemable preference shareholders in NZTIL became ordinary shareholders in that company.  That gave them voting rights which would later enable them to take control of the company.
 

[10]    The principal applicant, Mrs Hatch, together with her husband, sought to migrate to New Zealand from the United States.  They were introduced to NZTIL and the investment scheme.  However, their investment, of some $500,000, was not directed to preference shares in NZTIL to be effectively spread across a number of ventures.  In January 1994, their funds were deployed directly and wholly to the acquisition of units in FRF Trust by purchase from a retiring migrant investor.  Their eggs were all in one basket.  Consequentially also, Mr and Mrs Hatch became by far the largest unit holders in FRF Trust.  This investment was also recognised by immigration authorities as falling within the appropriate business category of immigration policy enabling permanent residence provided the investment was maintained for the minimum term.
 

[11]    The asset value of the FRF Trust declined and today, the investments in that Trust are worthless.  The manager has contended, and it is argued now, that this was because the forests owned by the FRF Trust were purchased when the forestry industry was buoyant and prices were high.  At that time forestry investments were seen to be most propitious.  But log prices fell and forest values declined between 1993 and 1997 climaxing with the collapse of Korean and Japanese markets with the Asian economic crises.  The consequentially lower valuations for the forests, undermining the Trust's debt-asset ratio, caused the borrowing limit in the trust deed to be exceeded.  Reduced returns led to an inability to service debts and eventually, to receivership by the Trust's bankers.  The decline was posited as being in line with trends in the forestry industry in general.
 

[12]    Mrs Hatch disputes this.  She contends that no other entity involved in forestry investment in New Zealand suffered such a catastrophic collapse or at least that it was not an industry-wide event.
 

[13]    It further appears that as the interests of other migrant investors, represented in shares in NZTIL, were spread over several investments, the other migrant investors were not so badly affected.  While these took over NZTIL in 1998 and then opted for liquidation, Mr Simcock considers there is a proposal before the liquidators that could result in a significant pay-out to them.  The liquidators did not seek to be heard and have taken no part in the proceedings.
 

The Grounds for the Application
 

[14]    Broadly, the applicants seek an investigation upon the ground that they have a right to know what caused the loss, that the cause has never been fully inquired into or disclosed to them, and that an independent examination is called for having regard to certain suspicions.  These suspicions are said to suggest, putting it at its mildest, that to the detriment and toss of unit holders, the management of the Trust was inadequate or improper.
 

[15]     The applicants say, openly, that an inquiry may disclose grounds for some Civil action or for inviting the Court to exercise its powers under s 27 of the Act against the directors of the manager or NZTIL in liquidation.  However, I note that the power under s 27 arises from out of a winding up of a manager.  Section 27 provides:

"(1)     If, in the course of winding up any company that is the manager of a unit trust, it appears that the company has misapplied or retained or become liable or accountable for any money or property of the unit trust, or committed any misfeasance or breach of trust in relation to the unit trust, the Court may, on the application of the Official Assignee or of the liquidator or of the trustee or of any unit holder, examine into the conduct of any past or present director, manager, or liquidator, or any officer of the company who has been a party to or knowingly permitted the misapplication, retention, misfeasance, or breach of trust, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the Court thinks just or to contribute such sum to the assets of the trust by way of compensation in respect of the misapplication, retention, misfeasance, or breach of trust as the Court thinks just.

(2)     The provisions of this section shall have effect notwithstanding that the act is one for which the offender may be criminally liable.

(3)     Where an order for payment of money is made under this section, the order shall be deemed to be a final judgment within the meaning of paragraph (d) of subsection (1) of section 19 of the Insolvency Act 1957."
 

Loss and accountability generally
 

[16]    Mr Maassen for the applicants argued that the size of the Trust's investment in forestry (some $I4m), the 35% borrowing limit and the perception of forests as comparatively low risk investments, call for an independent examination of how a total loss could have happened.  The explanation of falling log prices is insufficient, he argued, when many forests were acquired while the market was declining, and the 'catastrophic' losses sustained by unit holders was far in excess of the extent of the post- purchase decline.  The unit holders' concern was evident in the large numbers who joined in the application, he submitted, and further, the applicants were prepared to meet the investigation costs.  It was also submitted that attributing the loss to market changes was insufficient when investors in other forestry entities had not suffered similarly and when there are the particular areas of concern that are referred to below.  Mr Maassen also submitted that the FRF Trust had collapsed prior to the Asian economic crises, and that the explanation of declining markets was simply too glib.

[17]    An element of public interest was contended for in that an investigation might reveal lessons of value to investors generally in this expanding medium for investment.  Mr Pearson, a unit holder in FRF Trust and an investment advisor to other unit holders, considered an investigation to expose the causes for the Trust's demise was important.  Such accountability helped establish a strong framework for investing in New Zealand, he considered, and was important in this case where Government policy had encouraged the deposit of overseas money in investments like the present.
 

Has there been a full accounting?
 

[18]    On the question of whether there has in fact been a full accounting, Mr Maassen argued, and it was not disputed, that there are no audited accounts after 31 March 1996 following which the Trust became seriously compromised.  There had been no meeting with unit holders to discuss the reasons for the collapse.  Reference was made to a report of Price Waterhouse, commissioned by the trustee in 1997, and whether that provided a sufficient explanation.
 

[19]    I am satisfied that the Price Waterhouse report was primarily a 'where to from here' account made in the face of exigent circumstances.  It assumes but does not provide a complete analysis of what went wrong - and it flags areas deserving further investigation. On its face it does not purport to be a full review of the discharge of the manager's fiduciary responsibilities.  No other reports were referred to that provide a fuller account of the Trust's activities.  I include here a liquidator's report, to what may have been a 24 hour audit by FG Research, to information bulletins and statements at an extraordinary general meeting of unit holders in February 1997 to consider the resolutions there proposed.
 

Specific matters
 

[20]    In coming to specific areas of concern, Mr Maassen emphasised that these gave rise to suspicions based on information available, that they were not allegations, and, in his submissions, that they need not be put more highly than suspicions:

(a)    It was submitted that, without disclosure, the directors or officers of NZTIL may have benefited, directly or indirectly, from the sale or purchase of assets from the FRF Trust.  Evidence of possible conflicts of interest appears to be acknowledged in a statement in the Price Waterhouse report 1997 as follows:

"We have not conducted a detailed review of the various transactions in which the Manager and/or other related parties have been involved. It is clear however, from the work we have done that in some instances (especially Shannon) the Trust has lost significant amount of value on a forest which was purchased from parties associated with the Manager.

We have discussed this with Tony Hassed and without conducting a detailed review of all the appropriate documents we have been unable to conclude whether there are any causes of actions available to the Trustee/Unit Holders to seek a recovery of value lost."

Mr Maassen submitted that there is no evidence of unit holders giving a full and informed consent to the relevant transactions or of an accounting for any profit made.  He submitted that by s 26 of the Act, the profit is to be held for the unit trust.  Section 26 provides:

"(1)     Every person who is a director or officer of a company that is the manager of a unit trust, or of a trustee corporation or company or bank that is the trustee of a unit trust, shall be a trustee for the benefit of the unit holders of any personal profit or benefit which he gains by availing himself of his position, whether by buying or selling or joining in buying or selling investments or securities or otherwise:

Provided that nothing in this subsection shall affect the right of any such director or officer to receive and retain remuneration from the trustee corporation or company or bank of which he is a director or officer.

(2)     Any such personal profit shall be transferred to the trustee of the unit trust, and may be recovered by that trustee from the person who gained it"

Clause 7.04 of the trust deed contemplates transactions with related companies, but, it was argued, on good grounds it seems to me, that the clause did not reduce and could not reduce the requirements of the section.

In addition, based upon her inquiries, Mrs Hatch contended that Kai Iwi Forest was purchased by Mr Simcock and others and was later sold to FRF Trust at roughly twice the price for which it was acquired.  Also, based on the available information, Mrs Hatch expressed similar and further concerns in respect of Matauri Mara and Bideford-Rangitumau Forests.

(b)    Mrs Hatch claimed that upon her inquiries, Mr Simcock had an interest in Manawatu Forests at the time of its acquisition and that there was a shortfall of 94 hectares in the area described as forming part of the assets of the Trust and the areas that in fact formed part of the Trust.  Here, it is not just the fact of Mr Simcock's interest that may warrant investigation (assuming it is a fact), but the alleged discrepancy.

(c)    There were a number of forest sales and purchases for the Trust.  Mr Maassen referred to the timing of the purchases in relation to the rise and fall in log prices, as described in an appendix to the Price Waterhouse report.  It appears that six forests were acquired from I993 to 1995 though log prices were then declining.  Were the purchases based on sound forestry valuations, that took account of that fall?  The accurate valuation of a forest is no doubt fraught with difficulties but the Price Waterhouse reporters said they had a number of concerns over the overall accuracy of the forest valuations'.  Of course that may have referred to a disquiet over the accuracy of the valuation as at the date of that report, not the time of purchase, but the position was not clarified.  The applicants express concerns as to whether the valuations were accurate and truly independent at the time of acquisition.

Reference was made to the purchase of Lake Alice Forest in July 1994 for $705,106.  Price Waterhouse considered, two years later, that a sale would bring only $250,502.  Mr Maassen submitted that the decline could not be explained solely in terms of declining forest values.  The decline in log prices had been some 20% but the actual decline here was much more.

(d)    The continued acquisition of forests from and after I993, and the further call for funds for that purpose, despite falling log prices, is a further area of concern, especially considering the loss soon after the investments were made.  Mrs Hatch acquired her interests in January 1994.  Mr Maassen argued that the seriousness of the position was known to the manager from at least late 1995, evidenced by a letter from NZEB describing the non payment of director's fees and staff salaries from that time.  Nonetheless, further forests were acquired and funds were solicited from the public during 1995 and 1996.  Gong Y deposed that Dr and Mrs Akutsu acquired units (and shares in NZTIL) at about this time.  The only prospectus then available was dated 24 March I993 offering a further 3.8 million units.  To all intents and purposes, it was argued, funds were solicited on the basis of outdated information compiled at a time when forests values had reached a peak.  Mr Maassen referred to s 33 of the Securities Act 1978 requiring that a registered prospectus accompany every offer to the public of an investment security.

(e)    Further, it appears virgin land and young forests were acquired when the prospectus had indicated an intention to maintain mature forests that would provide a regular income to meet debt responsibilities and to effect distributions.  Mr Maassen argued that this was inconsistent with the prospectus, was contrary to a resolution of unit holders and was not in the interests of unit-holders.  He argued that at least, an explanation was required.

(f)    NZTIL was further involved in the establishment and management of the sibling New Zealand Forests Trust ('NZFT').  Gong Y maintains that the interests of Dr and Mrs Akutsu were transferred from that Trust to FRF Trust without consent and that no satisfactory explanation had been forthcoming.  Mrs Hatch contended that FRF Trust assets were pledged to NZFT.  In an exhibited report a forensic accountant, Mr McCallum, considered the propriety of this, having regard to the risk to FRF Trust unit holders and the benefits accruing to NZTIL and other associated entities.  On the basis of the information available to him he considered that the matter warranted further investigation.

(g)    Mr McCalIum also addressed amendments to the trust deed to facilitate cross investments with NZFT and whether they were contrary to the powers in the trust deed and were properly notified to unit-holders.  Again, after reviewing the available information, he considered there were abnormalities that justified further inquiry.
 

[21]    It was submitted that these matters established the need for a general inquiry into the affairs of the Trust by an independent person enjoying the confidence of the unit-holders and having appropriate expertise and understanding of commercial affairs.  Mr McCallum, earlier referred to, was proposed as investigator.  Mr McCallum consents to appointment subject to payment of his reasonable costs and disbursements.  As earlier said, at this stage the applicants are prepared to bear that.
 

Responses
 

[22]    Responding for Mr Simcock, Mrs Peacock argued that the large numbers supporting the application was not a persuasive factor given the losses sustained by them, some canvassing of unit holders by Mrs Hatch and Mrs Hatch's assertions to unit holders disseminated through her web site.  I accept that some of those assertions were extravagant on the information available and that the losses sustained would have influenced unit holders to give support.  Mrs Peacock argued further, and I accept, that Mrs Hatch's reports on her inquiries, set out in her affidavits, place a complexion on many matters that are not or are not likely to be sustained on closer examination.  In other words there is a deal of undergrowth that might be readily destroyed.  I accept that but, the tall trees, identified by Mr Maassen, are more robust.  Mrs Peacock did not address these in other than a general way, protesting the time and effort required to deal with them and the unavailability of files held by the liquidators and Serious Fraud Office.  Over the last two years, the latter has been conducting an inquiry at Mrs Hatch's behest.  Instead, Mrs Peacock relied principally on an argument that an evidential threshold was required that had not been met - to which I refer later.  She also contended that Mrs Hatch was engaged on a fishing expedition, looking for someone to sue.  That matter is also considered below.
 

[23]    I interpose that off-setting criticism of Mrs Hatch are her extensive inquiries to ascertain the information in fact available to lay unit holders.  She has exhaustively detailed the extent of her inquiries.
 

[24]    Mr Kynaston for Perpetual Trust neither supported nor opposed the application but not wishing to be put to the inconvenience and cost of an investigation, argued that the appointment of an investigator was unnecessary.  In very broad terms, he referred to the standard of professionalism undertaken by the trustee and the measures taken to ensure care and diligence.  He also asserted that unit holders were sufficiently apprised of the commercial risks and that none of the evidence showed that investments were made outside the terms of the trust deed, the prospectus or other offering documents.  Both Mr Kynaston and Mrs Peacock also argued that an inquiry was premature given the work still to be completed by the liquidators and the Serious Fraud Office.  I consider however, that neither of those inquiries is likely to sufficiently canvass the issues that Mr Maassen focussed on.  I accept too that delays may prejudice the applicants in having to argue limitation defences or in recovering any interests in NZTIL that ought properly to have been held in trust for the unit holders.
 

[25]    Finally, Mrs Peacock and Mr Kynaston argued that opportunity existed and still exist for unit holders to refer specific matters to the officers or former officers of the manager, or to the trustee which would obviate the need for an inquiry.  However, while specific complaints have been made, the concern is especially with the lack of information on which questions might be grounded, and the issue is whether the concerns raised are of a type that require an independent person to consider matters.
 

Criteria
 

[26]    The key issue concerns the standard to be applied in assessing applications under s 21 of the Unit Trusts Act.  Section 21 provides no guidance to the exercise of judicial discretion except to the extent that it defines the consequences of an appointment in terms of s 171 of the Companies Act 1955.  Effectively, by the incorporation of the main elements of that section, past and present officers and agents of the manager, including bankers, solicitors, auditors and bodies corporate, must produce all books and papers, submit to examination by the inspector on oath, and become subject to Court examination for failure to comply.  Section 21 of the Unit Tiles [Trusts?] Act imposes penal sanctions.  Clearly, in view of this imposition, the time and costs involved in responding, and the impact that an order for inquiry might have on reputations, an order for an inquiry should not be gives automatically.
 

[27]    I mention at this point, as Mr Kynaston argued, that the focus of s 21 is on the manager.  The power is to direct an investigation into 'the affairs of any unit trust and its manager', the section not specifically referring to the trustee, and the inquisitorial powers provided for in subsections 2 and 3, are restricted to the officers of the manager.
 

[28]    Mrs Peacock argued for a threshold test analogous to or stricter than that in the Companies Act 1955.  Section 168 of that Act, not repeated in the current Act provides:

"(1)    The Court may appoint one or more competent inspectors to investigate the affairs of a company and to report thereon in such manner as the Court directs -

(a)     In the case of a company having a share capital, on the application either of not less than 200 members or of members holding not less than one-tenth of the shares issued:

(b)     In the case of a company not having a share capital, on the application of not less than one-fifth in number of the persons on the company's register of members.

(2)    The application shall be supported by such evidence as the Court may require for the purpose of showing that the applicants have good reason for requiring the investigation, and the Court may, before appointing an inspector, require the applicants to give security, to an amount not exceeding $300, for payment of the costs of the investigation."
 

[29]    In re The Mercantile Finance Company (1894) 12 NZLR 248 provides guidance as to what constitutes 'good reason' for the purposes of that section.  There following the collapse of a company, an inquiry was sought mainly on grounds of fraud on the part of the promoters and fraudulent misstatements in the prospectus.  Section 90 of the Companies Act 1882, which then applied, set the same 'good reason' threshold.  Having regard to the large inquisitorial powers that the Act conferred, Denniston J considered the mere fact of ruinous loss was not enough and there had to be 'evidence of suspicion of grave misconduct or mismanagement' or 'some definite allegation of misconduct'.  However he also commented on the right of shareholders to be informed:

"When their application was first made I intimated my opinion that the shareholders in such circumstances were entitled to the very fullest particulars of the affairs of the company, and adjourned the matter till over the next general meeting.  At that meeting an exceptionally full report was furnished by the directors.  It showed every loss in detail, with particulars, and alleged cause of loss.  It gave full details, and analysis of charges and preliminary expenses accounts.  There is nothing to show that these accounts are incorrect, or that an examination of the books would show other results.  There is no suggestion of fraud, embezzlement, or misappropriation of funds.  There are no charges in the petition of mismanagement, except such as is implied in the heavy losses sustained." (p 250)
 

[30]    Reference was also made to Lamborn v Northern Wairoa Co-operative Dairy Co Ltd (1989) 3 BCR 344.  That case was under s 169(1) of the Companies Act 1955.  Section 169(1)(a) provides that the Court shall appoint an inspector if the company by special resolution or the Court by order declares that its affairs 'ought to be investigated'.  Section 169(I)(b) enables investigations on the application of persons other than members of the company where there are circumstances suggesting intent to defraud creditors, fraudulent or unlawful purpose, fraud, misfeasance or other misconduct, or simply 'that its members have not been given all the information with respect to its affairs that they might reasonably expect'.  In Lamborn, it was found that the matters in issue could be dealt with on the evidence supplied upon the application and accordingly, an inquiry was not needed.  However, Fisher J put matters more highly than in the Mercantile case in commenting as follows:

"As to the discretion itself, I accept the submission of Mr Alderslade that the appointment of an inspector is a step which should not be countenanced in the absence of grave and pressing reasons.  This involves not only a sufficient indication of serious matters requiring further investigation but also a consideration of the ultimate benefit to the company, its members, its creditors and the public at large.  This a broad topic and one which must be looked at in the light of current circumstances - not merely as they existed at the time of the alleged misconduct." (p 354).
 

[31]    As I see it, the Unit Trusts Act 1960 was introduced to control the predicted burgeoning of unit trust investments (see 1960 NZPD 1923, 3086).  When Parliament made no express reference to the thresholds in sections 168 or 169 of the Companies Act 1955, while yet incorporating other provisions of that Act as to the powers of an inspector, it must be taken to have intended that the Court's discretion should not be so circumscribed.  Some justification for this is that applications for the appointment of an inspector under the Unit Trusts Act are restricted unit holders.  No provision compares with the Companies Act 1955 whereby creditors or other persons may also apply.  (The only gloss on this is that the Minister of Commerce may appoint inspectors.)  It may also have been considered that the interests of unit holders are not the same as those of shareholders in a company, especially in the case of single purpose unit trusts like the present, that focus on a particular venture like forestry.  Shareholders have an interest in the company but no direct interest in its particular assets.  Unit holders have a proprietary, beneficial interest in the particular assets of the Trust, creating a more direct interest in the way that those assets are managed.  The assets are managed on behalf of unit holders and the fundamental thrust of advancing the interests of the unit holders permeates the Unit Trusts Act.  That must also heighten the fiduciary responsibilities of managers, to deal with the assets to the optimum benefit of unit holders, aligning responsibilities more closely to Trusts under the Trustee Act where there is an automatic right to a full accounting.
 

[32]    I am mindful of Mrs Peacock's submission that the standard must be stricter because unit trusts are more controlled than companies through the continual monitoring of a trustee operating separately from the manager.  I think that must be seen as an additional constraint that the legislature intended.  It should also not be overly emphasised.  The trustee's responsibility is to veto only where a proposed transaction is 'manifestly not in the interests of the unit holders' (s 12(1)(c) with emphasis added).  It is consonant with that, that inquiries under s 21 are directed to managers, not trustees, in my view, and accordingly trust officers cannot be compelled to submit to examination.
 

[33]    Having regard to the lack of words in the Unit Trust Act indicating a threshold test, and that the purposes for which an inquiry may be sought are not restricted, I think the proper course is to consider matters upon a balancing of relevant factors.  The following are particularly relevant in this case:

(1)    The consequences of an inquiry for current or former directors or officers of the manager.  Here, officers are exposed to an inquiry that is likely to involve them in time and cost over and above the inspector's costs which are to be borne by the applicants.  In his affidavit, Mr Simcock deposed that officers have already undertaken work without pay in an endeavour to keep the Trust solvent.  The observations in Mercantile are relevant in recognising the burden of an inquisition as a factor against the making of an order, but the weight to be given to that is not necessarily of the order prescribed in that case.  Under the Unit Trusts Act an inquiry could be ordered without a suggestion of misconduct.  Conceivably it could be ordered where there is a large loss not adequately explained by market trends or otherwise, though no particular misconduct is pointed to.  The fact that the Minister may order an inquiry also suggests that such an inquiry, without evidence of misconduct, may be considered appropriate in the public interest or because it may be instructive for unit trusts as a whole.  in this case, suggestions of misconduct or mismanagement have been carefully prefixed by saying that such are mere suspicions on the information currently available.

There is also merit in Mr Maassen's submission that persons accepting managerial positions have a social responsibility to submit to examination where a loss is sustained which, on the face of the available information, appears disproportionate to market downturns.  That appears to be the case here.

Damage to reputation from the mere fact of an inquiry is another consideration but here it is offset by the fact that the legislature has not insisted upon misconduct as a prerequisite to jurisdiction.  An inquiry may serve also to relieve officers from the clamour of unit holders who have suffered loss, and from any public accusations that may have been made.

(2)    The level of accounting.  I have already referred to this.  There are particular concerns that the available information does not adequately address and unit holders have cause to consider that an independent, expert examination is necessary.

(3)    The extent of support for the inquiry is another factor, though here discounted for reasons that Mrs Peacock gave and to which I have referred.

(4)    The element of `fishing' is pertinent but I agree with the comments of Denniston J in Mercantile when he s aid:

"If grounds for investigation were otherwise shown, it would be no objection that such investigation might incidentally suppiy materials for an action against the promoters."

That must apply equally to others.  In this case the grounds for seeking the inquiry are to be informed of the cause of the loss and to assess compliance with the trust deed in circumstances where, in my view, the available information gives grounds to suspect misconduct or mismanagement.

(5)    While in this case, I would not give weight to evidence that Government policy encouraged investments from overseas in this particular security or securities of this nature, the Attorney-General being not served.  It is more relevant that for lack of knowledge of local circumstances, investors may have depended more heavily on local advice than ordinary investors, thus heightening the manager's fiduciary responsibilities.
 

[34]    In this case the extent of loss, with grounds for considering that the attribution of loss to market vagaries is disproportionate to the level of loss sustained, and the specific concerns enumerated on the available information, justify an inquiry, in my view, the factors against an inquiry being insufficiently compelling.
 

[35]    In adopting the above approach I have substantially accepted the arguments advanced by Mr Maassen.
 

Conclusion
 

[36]    For those reasons an order appointing an inspector is judged as appropriate, subject to the applicants satisfying the inspector that they will meet his reasonable costs and disbursements but with leave to apply further on that matter.  However, both Mrs Peacock and Mr Kynaston objected to the proposal to appoint Mr McCallum for the reason that he had acted earlier in advising Mrs Hatch.  I do not think that objection is necessarily fatal to the application if no other suitable person can readily be found.  Counsel should confer on the appointment of an alternative and file a memorandum.

I make no order as to costs.

                                            [Signed]

                                             Durie J

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