Cheung v Makmur Australasia Pty Ltd and Ors
[2002] VSC 335
•16 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 6019 of 2002
IN THE MATTER OF MAKMUR AUSTRALASIA PTY LTD (ACN 005 357 148) AND
IN THE MATTER OF MANDARIN FOODS AUSTRALIA PTY LTD (ACN 005 407 698)
| STEVEN SUI-KARK CHEUNG | Plaintiff |
| v | |
| MAKMUR AUSTRALASIA PTY LTD (ACN 005 357 148) AND OTHERS | Defendants |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 21 JUNE 2002 | |
DATE OF JUDGMENT: | 16 AUGUST 2002 | |
CASE MAY BE CITED AS: | CHEUNG v MAKMUR AUSTRALASIA PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 335 | |
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TRUSTS – Corporate Trustee majority shareholder in company operating successful business – Majority of shareholders in trustee company removed plaintiff as director and as managing director of the company operating the business – Alleged abuses of trust by corporate trustee – Application for appointment of interim receiver and manager of corporate trustee and the two discretionary trusts refused – Undertakings given by defendants.
CORPORATIONS – Application for appointment of interim receiver and manager of corporate trustee refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Archibald QC and Mr J. Moore | Minter Ellison |
| For the First Defendant | Mr S.K. Wilson QC, Mr L. Glick SC and Mr W. Lye | Clayton Utz |
| For the Third Defendant | Mr W. Lye | Piper Alderman |
HIS HONOUR:
The Application
By interlocutory process dated 17 June 2002 the plaintiff sought the following orders:
"(1)An order that the defendants grant the plaintiff access to the books and records of Makmur Australasia Pty Ltd (ACN 005 357 148) and Mandarin Foods Australia Pty Ltd (ACN 005 407 698), forthwith.
(2)An order that Colin Wight be appointed interim receiver and manager of Makmur Australasia Pty Ltd (ACN 005 357 148), the Makmur Tjangdjaja Family Investment Trust and the Makmur Tjangdjaja Family Provision Trust until the hearing and determination of the proceeding or further order".
This interlocutory application was made in a proceeding issued on the same day in which the plaintiff, Steven Sui-Kark Cheung, sought a declaration that he was entitled to inspect and copy the books of the first defendant, Makmur Australasia Pty Ltd, ("MAPL") and the second defendant, Mandarin Foods Australia Pty Ltd ("MFAPL"); an injunction preventing the third defendant, Sutiono Tjangdjaja, the plaintiff's older brother, from hindering the plaintiff in the exercise of his rights to inspect and copy the books and records of MAPL and MFAPL; an order that MAPL be removed as trustee of the Makmur Tjangdjaja Family Investment Trust ("the Investment Trust") and the Makmur Tjangdjaja Family Provision Trust ("the Provision Trust"); and equitable compensation for breach of trust.
The application was supported by a lengthy affidavit sworn on 17 June 2002 by the plaintiff. The opposition by the defendants was based on a lengthy affidavit in reply sworn on 20 June 2002 by Jakin Tjangdjaja, another brother of the plaintiff and the third defendant. There were numerous exhibits to both affidavits.
At the commencement of the hearing I was informed that the parties had reached agreement on the question of access to the books and records of MAPL and MFAPL, so that the only issue remaining was the question of the appointment of an interim receiver and manager.
The Background
Makmur Tjangdjaja was born in 1913 in China. He came from a very poor family and only attended school for approximately five years. Makmur Tjangdjaja commenced working when he was about 14, after his father died. In 1929 he migrated to Indonesia to join one of his older brothers. Makmur Tjangdjaja became a very successful businessman in Indonesia with extensive interests in the building construction, engineering, manufacturing and trading industries. He also had significant property investments.
Makmur Tjangdjaja had five sons: Sutiono Tjangdjaja (now aged 69), Bolung Djaja, who died in 1984, Steven Cheung (aged 59), Frank Cheung (aged 58) and Jakin Tjangdjaja (aged 51). There were also four daughters.
In June 1976, Makmur Tjangdjaja was granted permanent residence in Australia. Some of his family came to Australia, some remained in Indonesia. Makmur Tjangdjaja established a Chinese frozen snack food business, which now manufactures and sells to the wholesale market its own brands of Chinese frozen snack food both in Australia and overseas. That business is operated by Makmur Enterprises Pty Ltd (ACN 005 380 450) ("MEPL"). MFAPL was incorporated in 1978 and since about May 1987 it has provided, among other things, marketing, promotion and distribution services to MEPL pursuant to an agreement with MEPL.
MAPL is a trustee company and is the trustee of the Investment Trust and the Provision Trust. The purpose of the Investment Trust is to own property , including the premises at 120-128 Murphy Street, Richmond, from where both MEPL and MFAPL conduct their business. The purpose of the Provision Trust is to distribute the profits of the business operated by MEPL.
The beneficiaries of the two Trusts are different. Initially, the primary beneficiaries of the Investment Trust were the grandsons and subsequent male offspring, down to the seventh generation, of Makmur Tjangdjaja. The discretionary beneficiaries were the primary beneficiaries, the daughters of Makmur Tjangdjaja's sons, the sons and the sons of the sons of the primary beneficiaries (being the eighth and ninth generations on the male side), the daughters of the primary beneficiaries and the male discretionary beneficiaries and the wives, while wives, and the widows, while unmarried, of the primary beneficiaries and the male discretionary beneficiaries and other trusts and corporations in which a discretionary beneficiary had an interest and charitable bodies.
Initially, the primary beneficiaries of the Provision Trust were the sons, grandsons and subsequent male offspring, down to the seventh generation, of Makmur Tjangdjaja. The discretionary beneficiaries were the primary beneficiaries, the daughters of Makmur Tjangdjaja and other trusts and corporations in which a discretionary beneficiary had an interest and charitable bodies.
In about 1993, the plaintiff, Frank Cheung and Jakin Tjangdjaja each added two corporate beneficiaries as beneficiaries of both Trusts. Neither the third defendant nor Janto Djaja, the son of the late Bolung Djaja, added a corporate beneficiary for their branches of the family.
Makmur Tjangdjaja died in 1990. The third defendant is the executor of his Indonesian estate, and the plaintiff is dissatisfied with the third defendant's performance of his duties. The plaintiff and the third defendant are the executors of the Australian estate of Makmur Tjangdjaja.
The appointors and guardians of the two Trusts are the plaintiff and the third defendant. Janto Djaja was also an appointor or guardian, until he was removed in about 1990 after a falling out with his grandfather. Until his death, Makmur Tjangdjaja decided and authorised the distributions under the Trusts. Since then, the distributions have been decided by the plaintiff and the third defendant.
The shareholders in MAPL and their shareholding are as follows:
(a) Sutiono Tjangdjaja 1,608 shares (14.62%)
(b) Steven Cheung 2,608 shares (23.71%)
(c) Frank Cheung 1,607 shares (14.61%)
(d) Jakin Tjangdjaja 1,607 shares (14.61%)
(e) Eddy Tjangdjaja 357 shares (3.25%)
(f) Rudi Tjangdjaja 357 shares (3.25%)
(g) Janto Djaja 357 shares (3,25%)
(h) Victor Cheung 357 shares (3.25%)
(i) Clinton Cheung 357 shares (3.25%)
(j) Eric Cheung 357 shares (3.25%)
(k) Clifton Cheung 357 shares (3.25%)
(l) Jason Tjangdjaja 357 shares (3.25%)
(m) Andy Tjangdjaja 357 shares (3.25%)
(n) Mark Tjangdjaja 357 shares (3.25%).
Until recently, the plaintiff and the third defendant were the directors of MAPL.
The shareholders of MEPL are MAPL, as to approximately 92.6% as trustee for the Provision Trust and approximately 6.9% as trustee for the Investment Trust, and the plaintiff, the third defendant, Frank Cheung, Jakin Tjangdjaja and Janto Djaja, as to approximately 0.1% each. Until recently, the directors of MEPL were the plaintiff; the third defendant; Robert Symons, a solicitor and partner of the firm of Deacons; and Ernest Barr, a former executive of Heinz and a professional director for a number of years.
MFAPL has only two issued shares. The shareholders are the Australian estate of Makmur Tjangdjaja, which holds one share, and MAPL, as trustee for the Investment Trust, which holds the other share. The directors of MFAPL are the plaintiff and the third defendant.
In his affidavit, the plaintiff said that he had worked full time in the business conducted by MEPL since 1979. He deposed that he was the General Manager of MEPL from December 1979 until May 1990 and that when his father died he was appointed by the Board of MEPL to be the Managing Director of MEPL. He referred to written service agreements dated in or about 1987, 21 December 1990, 17 November 1994 and 21 June 1996. The plaintiff said that he had also been the managing director of MFAPL since May 1990. He had turned it from a loss making operation into a profitable business.
Jakin Tjangdjaja in his affidavit disputed some of this historical evidence. He deposed that the plaintiff was appointed General Manager of MEPL by resolution of the Board dated 9 May 1981 and exhibited a resolution of the directors to this effect. He also asserted that he had been unable to locate any minute of the Board of Directors recording the appointment of the plaintiff as Managing Director and that he knew of "no agreement or formality that he was to be so appointed". However, I note that in other exhibits produced by Jakin Tjangdjaja, for example the minutes of a meeting of directors of MEPL held on 19 June 2001 and 20 November 2001, being Exhibits "JT15" and "JT7" respectively, the plaintiff is referred to as the "Managing Director".
The plaintiff received a salary as Managing Director of MEPL, but did not receive a salary from either MFAPL or MAFL. He also received income as a beneficiary of the Provision Trust. The evidence of both parties established that the plaintiff had received substantially more than any of his brothers by way of distribution from that Trust. According to a spreadsheet exhibited to the affidavit of Jakin Tjangdjaja, between 1990 and 2001, the plaintiff's family had received distributions in excess of $3.2 million from the Provision Trust compared with approximately $1.7 million for the third defendant's family, $1 million for Frank Cheung's family, $830,000 for Jakin Tjangdjaja's family and less than $30,000 for Janto Djaja. Although the plaintiff's family also received the largest amount of distributions from the Investment Trust during the same period, the discrepancy was not as great and the amounts distributed were much less. According to Jakin Tjangdjaja, the third defendant agreed with the plaintiff receiving higher payments from the Provision Trust on the basis that he had a greater input in the running of the business, but that the third defendant was not aware of the plaintiff's remuneration package from MEPL or the additional "benefits" the plaintiff was causing MEPL to provide.
According to the plaintiff, the third defendant had not taken an active role in the management or development of MEPL. It was said that he did not attend meetings of the directors of MEPL on a regular basis. On the other hand, Jakin Tjangdjaja said that the third defendant was the Chairman of MEPL, that during the seventies, eighties and nineties he had attended directors' meetings when he was in Melbourne and that he had attended board meetings more frequently in the last three to four years. Jakin Tjangdjaja also said that the third defendant had informed him that there had been many disagreements between the plaintiff and the third defendant and that the third defendant's point of view was invariably ignored by the plaintiff so that the third defendant had been largely excluded from the management of MEPL.
Recent Developments
On 12 May 2002, a majority of the shareholders of MAPL, comprising the plaintiff's brothers Sutiono, Frank and Jakin and his nephews Eddy Tjangdjaja, Rudi Tjangdjaja, Eric Cheung, Clifton Cheung, Jason Tjangdjaja, Andy Tjangdjaja and Mark Tjangdjaja, passed resolutions removing the plaintiff as a director of MAPL and appointing his brothers Frank and Jakin and Sutiono's sons, Eddy and Rudi, to be directors of MAPL. The plaintiff complains that proper notice was not given of this meeting. He says that no notice of the meeting was received by him, his sons Victor and Clinton, and his nephew Janto Djaja.
On 13 May 2002, all of the shareholders of MEPL apart from the plaintiff and Janto Djaja, being MAPL, the third defendant, Frank Cheung and Jakin Tjangdjaja, purported to pass resolutions removing the plaintiff as a director of MEPL and appointing his brothers Frank and Jakin to be directors of MEPL. Again, the plaintiff complains that no proper notice was given of that meeting.
The plaintiff said that, on 15 May 2002, he was prevented by a security guard from entering the premises in Richmond. Later that day, he received a letter from MEPL, sent to his solicitors, advising that his employment with the company had been terminated. On 27 May 2002, the plaintiff commenced proceedings against MEPL for wrongful dismissal.
On 24 May 2002, MAPL, as the majority shareholder in MEPL, passed a resolution removing Robert Symons as a director of MEPL. Again, the plaintiff says that no notice of the proposed resolution was received by him or Janto Djaja. Jakin Tjangdjaja said that the Board of MEPL took the view that Robert Symons was "in a position of conflict."
On 4 June 2002 Clayton Utz, the solicitors for the corporate defendants, sent a facsimile to Minter Ellison, the solicitors for the plaintiff, stating that they were instructed by MAPL that there were "irregularities" in the accounts of MFAPL and proposing that it was in the best interest of the shareholders of MFAPL that it be wound up immediately. Both statements were rejected by Minter Ellison. The plaintiff has continued as the managing director of MFAPL.
On 7 June 2002, Minter Ellison sent a facsimile to Kenneth Tie, the solicitor then acting for the third defendant, proposing that MAPL be removed as trustee of the Trusts and that an independent trustee be appointed or that a receiver be appointed to MAPL to protect the interests of all beneficiaries pending the resolution of the disputes. On 11 June 2002, Kenneth Tie replied to Minter Ellison stating that as appointor and guardian of the Trusts, Sutiono Tjangdjaja denied that MAPL would not "act in the best interests of the Trusts and all beneficiaries."
Also on 11 June 2002, Clayton Utz sent a facsimile to Minter Ellison stating:
"MAPL is fully cognisant of its duties in respect of the Trusts and its obligations to all primary and discretionary beneficiaries of the Trusts.
…
The Trustee agrees that there should be a distribution by 30 June 2002. However, before proceeding with a distribution, our client requires your response within 48 hours in respect of the two matters raised in this letter."
The two matters raised in the letter were a request that Minter Ellison particularise the allegation that MAPL had breached its duties to the Trusts and that Steven Cheung explain the "unfair and unequal distributions" between 1990 and 2001.
It was not until the plaintiff received the affidavit of Jakin Tjangdjaja in opposition to this application that he became aware that, on 12 June 2002, the directors of MAPL had purported to pass a resolution pursuant to which the beneficial interests in the Provision Trust vested. MAPL's 92.6% shareholding in MEPL was said to be accordingly held on fixed trust for the seventeen primary beneficiaries in equal shares. These seventeen beneficiaries consist of the four surviving sons, the ten living grandsons and the three living great-grandsons of Makmur Tjangdjaja. The three great grandsons were said to be two sons of Eddy Tjangdjaja, who is a son of the third defendant, and a son of Janto Djaja. Jakin Tjangdjaja said that the vesting of the Property Trust meant that each of the 17 beneficiaries would receive an equitable share of the assets and that it avoided the abuses to which the discretionary trust was open and which, he asserted, occurred while it was under the plaintiff's effective control.
At the same meeting, the directors of MAPL also resolved that the income of the Provision Trust for the financial year ended 30 June 2002 available for distribution to beneficiaries be paid as follows:
(a) 13.41% to Sutiono Tjangdjaja;
(b) 8% to Eddy Tjangdjaja;
(c) 8% to Rudi Tjangdjaja;
(d) 23.53% to Frank Cheung and/or his nominee;
(e) 31.38% to Jakin Tjangdjaja and/or his nominee; and
(f) 15.68% to Janto Djaja.
It was anticipated that this distribution would total approximately $640,000.
The Plaintiff's Concerns
In his affidavit, the plaintiff asserted that his management was necessary if the business was to be run successfully. He said that his personal relationships with MEPL's clients and suppliers over the 23 years he had been in charge, had been critical to the success of the business. He did not believe that the new management would be able to maintain the business successfully. He was concerned that poor management would devalue the company in the longer term.
The business certainly appears to have been successful. According to figures set out in the affidavit of Jakin Tjangdjaja, turnover increased from $5.8 million in 1986 to $9.9 million in 1990, when Makmur Tjangdjaja died. For the next eight years, turnover remained around the $10 million mark. Since then, the business has experienced significant growth. Turnover was approximately $12.5 million in the year ended 30 June 2001 and the forecast for the financial year just ended was $15 million. According to the plaintiff, the net assets of MEPL in January 2002 totalled approximately $5.9 million.
The plaintiff's expressed concern is that without him in charge there will be no effective management. He said that the third defendant has no business experience in Australia and the business he ran in Indonesia was in a different industry. Frank Cheung is an architect. He was said by the plaintiff to have very little up-to-date knowledge of MEPL's business, although he had been deputy general manager, responsible for manufacturing and production, during the early 1980s. According to the plaintiff, he has no experience on the marketing and sales aspects of MEPL. Jakin Tjangdjaja trained as an electrical engineer. According to the plaintiff he has no knowledge of the day-to-day workings of MEPL. Various other critical comments were made by the plaintiff about the experience and ability of his brothers.
The plaintiff accordingly sought the appointment of a receiver and manager to MAPL and the Trusts. In his affidavit, he stated that he was concerned that MAPL had:
"breached its duties to the Trusts and to the beneficiaries and that MAPL will not act in the best interests of the Trusts and the beneficiaries in the future."
The breach of duty included the termination of the plaintiff's employment by MEPL, which was said not to be in the best interests of MEPL or the Trusts.
The Defendants' Response
In his affidavit, Jakin Tjangdjaja disputed that the plaintiff had "some irreplaceable knowledge of the factory and machinery, training and engineering and market knowledge." He said that Frank Cheung had played a much greater role in the establishment and operation of MEPL than acknowledged by the plaintiff. Jakin Tjangdjaja stated that since the new Board of Directors had taken over "production runs have gone according to plan and marketing/sales are performing in accordance with forecast results."
More importantly, Jakin Tjangdjaja made the point that, with the exception of the plaintiff, the existing management remained in place. At the request of the Board, Ernest Barr had prepared recommendations in respect of the management structure pending the recruitment of an independent chief executive officer. The authority, responsibility and accountability of the three senior executives, being the factory manager, the sales and marketing manager and the financial controller, remained unchanged.
Jakin Tjangdjaja said that he and his brothers, Sutiono Tjangdjaja and Frank Cheung, decided to consider removing the plaintiff as a director of MEPL as a result of finding out about the plaintiff's service agreement with MEPL and the plaintiff's continual failure to respond to any requests by the third defendant for information about the business. The defendants say that the plaintiff was validly removed as a director of MEPL and MAPL under the respective Articles of Association of each company.
Further, the defendants now allege that a preliminary investigation by an accountant, Mr Allan Tan, had revealed apparent irregularities in the financial affairs of MEPL, particularly in relation to the remuneration of the plaintiff and the benefits paid to or on behalf of his direct family members. It was said numerous personal expenses of the plaintiff had been claimed against MEPL. It was also alleged that there may have been tax avoidance which had exposed MEPL to investigation or audit by the Australian Tax Office. Consequently, the directors had engaged Mr Greg Meredith of Ferrier Hodgson to investigate and report on these issues. This report was not available when I reserved my decision on the plaintiff's application. After the report became available, the defendants sought leave to refer to this and other more up to date financial information. The plaintiff opposed this course and after hearing argument on the matter I refused the application to adduce further evidence.
The Law
There is no doubt that the Court has jurisdiction to appoint a receiver. Section 37(10) of the Supreme Court Act 1986 empowers the Court to appoint a receiver when it is "just and convenient" to do so. By r.39.02(1) of the Supreme Court Rules, the Court may appoint a receiver at any stage of a proceeding. In addition, pursuant to s.1323 of the Corporations Act 2001, the Court may, in a civil proceeding commenced or brought against a person under that Act, where the Court considers it necessary or desirable to do so for the purpose of protecting the interests of an aggrieved person to whom the company is liable, on the application of the aggrieved person, appoint a receiver and manager of the property of the company.
The legal principles applicable to the appointment of a receiver of the assets of a trust were considered in some detail by Warren J in An Infant Yunghanns vCandoora No.19 Pty Ltd[1] and Martyniuk v King[2]. There was no disagreement between the parties concerning these principles as the plaintiff's counsel referred me to a number of statements by her Honour in the first of these two cases and the defendants' counsel referred me to virtually identical statements by her Honour in the second case. In these circumstances, I need only state briefly the applicable principles before applying them to the particular facts of this dispute.
[1][2000] VSC 300
[2][2000] VSC 319
The Court may appoint a receiver of trust property where that step is necessary for "the well-being of the trust"[3] or "the safety of the trust property"[4]. Thus as Warren J said, citing Kerr on Receivers[5]:
"The general legal principle is that if misconduct, waste, or improper disposition of assets can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver …"[6]
[3]Ford and Lee: Principles of the Law of Trusts, 3rd ed at [17450]
[4]Meagher and Gummow: Jacobs' Law of Trusts in Australia, 6th ed at [2305]
[5]Kerr on Receivers, 17th ed at pp.13-14
[6]An Infant Yunghanns v Candoora No.19 Pty Ltd [2000] VSC 300 at [64]. See also Martyniuk v King [2000] VSC 319 at [14].
On the other hand, in National Australia Bank Limited v Bond Brewing Holdings Limited[7], the Appeal Division of the Supreme Court of Victoria sounded a clear warnng by stating as follows:
"The drastic nature of the power to appoint a receiver is emphasised in the decisions mentioned in 65 American Jurisprudence 2d, para. 20, where authority is cited for the propositions that the power is a drastic, harsh and dangerous one and should be exercised with care and caution, that receivership is a drastic course allowed only under pressing circumstances and granted only with reluctance and caution and that the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised."
[7][1991] 1 VR 529 at 541 per Kaye, Murphy and Brooking JJ
The Submissions
The first principal ground relied on by Mr Archibald QC, who appeared with Mr Moore of counsel for the plaintiff, was that the trust property was in jeopardy because of the alleged improper vesting of the trust property of the Provision Trust and the exclusion of the plaintiff from a distribution from that Trust for the financial year ended 30 June 2002. Mr Archibald advanced a powerful argument that the act of vesting the trust property in the Provision Trust represented a breach of trust and that the exercise by MAPL of the discretion to vest the trust property would be set aside by the Court. However, that is not the question I have to decide on this application. Accordingly, it is preferable that I say as little as possible about the merits of the vesting issue. It is sufficient to note Mr Archibald's argument that the exercise of the discretion by MAPL to vest the trust was influenced by the ongoing dispute between the plaintiff and his brothers. He referred to the fact that five days after the plaintiff's solicitors, Minter Ellison, wrote to the solicitor for the third defendant proposing that MAPL be removed as trustee of the Trusts, the newly appointed Board of Directors of MAPL vested the trust property of the Provision Trust (see paragraph 26 above). Moreover, Mr Archibald emphasised that this step was taken on 12 June 2002, despite assertions in correspondence the day before that the third defendant would act "in the best interests of the Trusts and all beneficiaries" and that MAPL was "fully cognisant of its duties in respect of the Trusts and its obligations to all primary and discretionary beneficiaries of the Trusts" and despite a request by Clayton Utz in its letter dated 11 June 2002, for a response "within 48 hours" to two matters raised by them "before proceeding with a distribution." (See paragraphs 26 and 27 above).
Mr Archibald submitted that the vesting of the trust property of the Provision Trust, coupled with the stance that it was now too late to appoint a receiver because the trust property had vested, showed a fundamental misapprehension by the directors of MAPL of its duties as a trustee. It was, he submitted, a clear abuse of power. Further, Mr Archibald submitted that the decision on the current distribution was also an abuse of power, as it was made for all the wrong reasons. Because the trust was a discretionary one, he could not base his complaint simply on the fact that the plaintiff had been excluded from receiving any part of that distribution. Mr Archibald described these steps as deceitful in that they were taken without the plaintiff's knowledge and were then "kept under wraps" until Jakin Tjangdjaja's affidavit was served the night before the hearing. Mr Archibald therefore submitted that the only way to be sure that there would not be further abuses of power was to have some independent impartial person in control.
A related ground relied on by Mr Archibald was that the trustee had abdicated its duties. He submitted that for Jakin Tjangdjaja, as a director of the trustee, to assert in his affidavit that "there is no real function" for the receiver to perform now that the trust property in the Provision Trust had vested (paragraph 105) and that in light of that vesting "there is no point in removing the Trustee" (paragraph 115) disclosed that MAPL entirely misconceived, and had abdicated, its duties. In my opinion, the criticism of those statements was warranted.
Nevertheless, whatever one might say about this conduct by MAPL, I am not satisfied that the plaintiff has established on these grounds that it is necessary to appoint a receiver to protect the trust property. Mr Wilson QC, who appeared with Mr Glick SC and Mr Lye of counsel for the first defendant, volunteered undertakings on behalf of the first defendant that, until the trial of this proceeding or further order, it would not take any step as trustee to vest the Investment Trust in whole or in part, and would not pay any further dividend or make any further distributions to shareholders or beneficiaries (including the actual payment of the distributions, the subject of the resolution of its directors on 12 June 2002) without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so. These undertakings would, in effect, freeze the ability of the directors of MAPL to change the status of the Investment Trust and to make any distributions to beneficiaries of either Trust, including the actual payment of the current distributions from the Provision Trust which had excluded the plaintiff. In those circumstances, I consider that the plaintiff is adequately protected in respect of these particular concerns by the giving of the proposed undertakings and that the appointment of a receiver is not required.
The second principal ground relied on by Mr Archibald was that the trust property was in jeopardy because the business conducted by MEPL had been left without an experienced senior manager as a result of the termination of the plaintiff's employment. Mr Archibald acknowledged that MAPL itself did not conduct any business. However, he submitted that the commercial reality was that MAPL, as the 99.5% shareholder, had the ability and right to control MEPL's business. Therefore, the appointment of a receiver to MAPL, he submitted, would enable steps to be taken to ensure that the business of MEPL was properly managed.[8]
[8]See the approach of Mandie J in Vinci v Imperial Bourke Nominees Pty Ltd [2000] VSC 172
Mr Archibald referred to the affidavit material which, he submitted, established both the importance of the plaintiff's role in the successful operation of MEPL and the inexperience of the third defendant in performing the same role. He also pointed out the apparent conflict between the defendants on the one hand saying that the existing management of MAPL could run the business effectively and on the other hand saying that they were seeking a new chief executive officer. Mr Archibald also referred to the interdependence of MEPL and MFAPL and to the difficulties resulting from the plaintiff remaining as managing director of MFAPL and the third defendant now being in charge of MEPL. He submitted that, in the circumstances, it was "impossible for the business to operate synergistically". Mr Archibald also submitted that the proposal by the third defendant to wind up MFAPL was perverse and showed a desire to gain control of all aspects of the business by ousting the plaintiff from any role in the operations of the business, to the detriment of the beneficiaries of the Trusts.
Again, I am not convinced that the trust property is in jeopardy. The business of MEPL apparently operated satisfactorily in the period between the plaintiff's termination of employment on 15 May 2002 and the swearing of his affidavit in support over a month later. What little material there is before me on this point indicates that this is the case. Certainly, the plaintiff has not been able to identify any particular problem in the operation of MEPL's business or in the relationship between MEPL and MFAPL, which would suggest that the profitability of the business is threatened. I am quite sure that I would have heard about such matters if problems had already been encountered. Instead, the plaintiff's complaint was limited to more general expressions of concern about the successful management of MEPL in his absence. Whilst not downplaying the importance of these concerns, I consider that there is substance in Mr Wilson's submission that the plaintiff is using the application for a receiver as a possible means of restoring him to the position of manager of MEPL. Indeed, Mr Archibald was quite open in submitting that an independent person should "decide whether the plaintiff's employment by MEPL should be resumed, if only temporarily, to enable a continuity of suitable management." As I have said, I am not persuaded that this step is required.
Mr Archibald relied on the use of the term "executive directors" in Jakin Tjangdjaja's affidavit (see, for example, paragraphs 106 and 108) as permitting the inference that the directors of MAPL have appointed themselves to salaried executive positions in MEPL. Mr Wilson did not dispute that submission. On the contrary, he volunteered an undertaking by MEPL that it would not pay the third defendant, Frank Cheung and Jakin Tjangdjaja for working in an executive capacity in addition to any existing directors' fees, a salary fixed at a rate of more than $60,000 each per annum.
Mr Archibald submitted that there was a dual vice in this development. First, there was the self-appointment without recent appropriate experience. Secondly, he submitted that in that context one could have no confidence that a truly independent chief executive officer would be appointed. I do not accept these submissions. The plaintiff was paid a salary as an executive director/the managing director of MEPL. The exact amount of his salary package prior to termination was not disclosed. Control of MEPL has now passed to other members of Makmur Tjangdjaja's family. At this stage, I see no reason why, if the Board of MEPL considers it appropriate and can justify the decision, one or more of the plaintiff's brothers should not be employed in an executive capacity by MEPL, at least until the new chief executive officer is engaged.
Mr Wilson submitted that there was no proper basis for the appointment of a receiver to what was "a fully performing, solvent and indeed profitable business undertaking." He accepted that the appointment of a receiver to MAPL would affect the operation of MEPL and submitted that there was no evidence of any threat to the ability of MEPL to continue trading in its ordinary and profitable way. Moreover, he submitted that the handing of control of the business to a receiver could damage the business. In order to avoid what he described as "the draconian effect" of the appointment of a receiver, Mr Wilson volunteered further undertakings by MEPL to allay any concerns about what would happen to the income and profits of MEPL. Mr Lye, who appeared for the third defendant, volunteered similar undertakings by the third defendant in his capacity as a director of MFAPL.
Mr Archibald's response to the proffered undertakings was that it was impossible in advance to cover all eventualities and that the only way to be sure that future decisions were properly taken was to have the receiver's independent judgment brought to bear on them. However, for the reasons given above, I am not satisfied that the problems with running the businesses are as acute as suggested.
In all the circumstances, I consider that the suggested undertakings are adequate protection and that it is not necessary to go to the expense of appointing a receiver to the 99.5% shareholder of a solvent and financially successful business.
Another ground relied on by Mr Archibald was the removal of Mr Symons as a director of MEPL. He submitted that the suggested justification for this step was vague and weak. Even leaving aside the question of the validity of the grounds, he emphasised that it removed an independent voice from the affairs of MEPL. Whatever one might think about the suggested justification, I do not consider that the removal of Mr Symons from the Board of MEPL could justify the appointment of a receiver to MAPL.
Finally, Mr Archibald submitted that there was deadlock in that the two appointers of the two Trusts, the plaintiff and the third defendant, cannot agree on the exercise of their right to appoint a different trustee. However, Mr Archibald conceded that the trustee, MAPL, was not deadlocked and was able to make the necessary decisions. In the circumstances, I consider that, on its own, the deadlock between the appointers is not sufficient to justify the appointment of a receiver to MAPL.
Conclusion
For the reasons given above, I am not satisfied that it is appropriate to appoint a receiver to MAPL and the two Trusts. Subject to hearing further from counsel, I would propose that the plaintiff give the usual undertaking as to damages and that there be the following undertakings:
A.The first defendant by its counsel undertakes that until the trial of this proceeding or further order:
(i)it will not pay any further dividend or make any further distributions to shareholders or beneficiaries (including the actual payment of the distributions, the subject of the resolution of the Board of the company made 12 June 2002, such resolution being Exhibit JT-27 to the Affidavit of Jakin Tjangdjaja sworn 20 June 2002) without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed dividend or distribution, as the case may be, to be set forth in such notice; and
(ii)it will not take any step as trustee to vest the Makmur Tjangdjaja Family Investment Trust in whole or in part.
B.Makmur Enterprises Pty Ltd by its counsel undertakes that until the trial of this proceeding or further order:
(i)it will not pay any further dividend or make any further distributions to shareholders or beneficiaries without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed dividend or distribution, as the case may be, to be set forth in such notice;
(ii)it will not engage in any extraordinary expenditure or loans (save for the payment of its legal costs and other professional costs) without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed expenditure or loan, as the case may be, to be set forth in such notice;
(iii)it will not pay the third defendant, Frank Cheung and Jakin Tjangdjaja for working in an executive capacity, in addition to any existing directors' fees, a salary fixed at a rate of more than $60,000.00 each per annum; and
(iv)it will continue to use its existing bank accounts for the purpose of receiving and paying monies in the ordinary course of its business and will not open any new bank accounts without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed bank accounts to be set forth in such notice.
C.The third defendant, as a director of the second defendant, by his counsel undertakes that until the trial of this proceeding or further order:
(i)the second defendant will not engage in any extraordinary expenditure or loans (save for the payment of its legal costs and other professional costs) without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed expenditure or loan, as the case may be, to be set forth in such notice; and
(ii)the second defendant will continue to use its existing bank accounts for the purpose of receiving and paying monies in the ordinary course of its business and will not open any new bank accounts without giving the plaintiff and his legal representatives 14 days' written notice of an intention to do so with the specifics of the proposed bank accounts to be set forth in such notice.
Subject to the giving of those undertakings, the orders I propose are that:
1. The plaintiff's summons filed 17 June 2002 be dismissed.
2. The costs are reserved.
3. There is liberty to apply.
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