Framlingham Aboriginal Trust v Kirrae Whurrong Community Inc
[2011] VSC 667
•15 December 2011
| IN THE SUPREME COURT OF VICTORIA |
AT MELBOURNE
No. 6381 of 2011
| FRAMLINGHAM ABORIGINAL TRUST | First plaintiff |
| JIM BERG | Second plaintiff |
| SHIRLEY MCGUINESS | Third plaintiff |
| BRENDA CHATFIELD | Fourth plaintiff |
| VIOLET CLARK | Fifth plaintiff |
| FAY CLARK | Sixth plaintiff |
| GEOFFREY (POSSUM) CLARK-UNGLE | Seventh plaintiff |
| KYEEMA PENRITH | Eighth plaintiff |
| - and - | |
| KIRRAE WHURRONG COMMUNITY INC | Defendant |
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JUDGE: | Robson J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 December 2011 | |
DATE OF JUDGMENT: | 15 December 2011 | |
CASE MAY BE CITED AS: | Framlingham Aboriginal Trust v Kirrae Whurrong Community Inc | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 667 | |
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PRACTICE AND PROCEDURE – Freezing orders – Extension of freezing orders until the hearing and determination of the proceeding – Whether there is a real issue to be tried and the balance of convenience favours the making of the order – Freezing order extended
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | CM Scerri QC and F O’Brien SC | Donaldson Trumble Lawyers |
| For the Defendant | RA Brett QC and Dr MR Sharpe | Wisewould Mahony Lawyers |
| For the State of Victoria | Mr E Nekvapil | Victorian Government Solicitor’s Office |
HIS HONOUR:
On 1 December 2011, the plaintiffs obtained a freezing order in respect of $400,000 that was transferred to the defendant, Kirrae Whurrong Community Inc (KWCI) on or about 2 May 2011. The freezing order provides that KWCI must not cause or permit, whether by itself, its servants or agents or howsoever otherwise, the credit balance in the relevant Commonwealth Bank of Australia account to fall below the sum of $150,000 and KWCI must not expend therewith, charge, mortgage, assign, or otherwise dispose of the sum or any part thereof of the sum of $250,000 deposited by KWCI on 13 July 2011 with the Commonwealth Bank of Australia in a term deposit.
On the 7th of December 2011, I extended the freezing order to 4 pm on 15 December 2011. The summons issued in this matter seeks an order that the freezing order be extended until the hearing and determination of the proceeding.
The proceeding was commenced on 23 November 2011 by way of a generally endorsed writ. The writ claims as follows:
That the first plaintiff, Framlingham Aboriginal Trust (the Trust), is incorporated pursuant to the Aboriginal Lands Act 1970 (Vic) and the second to eighth plaintiffs sue in their capacity as members of the Trust and/or as members of the duly elected Committee of Management of the Trust.
KWCI is incorporated under the Associations Incorporations Act 1981. On 2 May 2011 the sum of $400,000, belonging to the Trust, was transferred by or at the direction of Geoff Clark to KWCI or to bank accounts controlled by and in the name of KWCI. It is pleaded that Mr Clark is, and was at all material times, a bankrupt.
Prior to being made bankrupt, Mr Clark had been a member of the Committee of Management of the Trust. As at 2 May 2011 Mr Clark was not a member of the Committee of the Management of the Trust but rather was an employee of the Trust and consequently owed it fiduciary duty. As at 2 May 2011 Mr Clark had no authority to make or cause the transfer of the funds to KWCI or any other person. No meeting of the Committee of Management for the Trust had been held on or prior to 2 May 2011, at which time a resolution was passed authorising the transfer of the funds or any part of the funds to KWCI by Mr Clark or any other person.
Mr Clark caused the transfer of the funds to be made to KWCI without the knowledge or approval of the Committee of Management of the Trust and in doing so Mr Clark breached his fiduciary duty. At all material times, Mr Clark was and remains an officer of KWCI and that KWCI knowingly assisted Mr Clark to breach his fiduciary duty or alternatively KWCI received the funds in the knowledge that the funds had been transferred to it by or at the direction of Mr Clark in breach of his fiduciary duty.
The unauthorised transfer of the funds by or at the direction of Mr Clark to KWCI was discovered by the auditors of the Trust on or about 11 November 2011. The funds were and remain the property of the Trust. KWCI holds the funds and all the income earned from the funds on a constructive or resulting trust for the plaintiffs. The plaintiffs seek an order that KWCI pay to the Trust the sum of $400,000, together with such sums that the court considers appropriate as compensation for the loss of use of the funds by the Trust.
The Freezing Order
The law on the issue before me is not in dispute. The plaintiffs must establish that there is a triable issue and that the balance of convenience favours the making of the order they seek.
There are certain issues in this matter which are not in dispute. Firstly, that the $400,000 was the property of the Trust. Secondly that on 2 May 2011 it was transferred to KWCI. Thirdly, that there is no record of the Trust authorising the transfer of the moneys. Fourthly, that unless the funds are frozen, the funds may be used to purchase an interest in an abalone licence.
There are various other issues in dispute. There is a significant dispute as to the constitution of the committee that is entitled to conduct the affairs of the Trust. That dispute is the subject of another proceeding in this court and will not be resolved for some time. The defendant also disputes the transfers of the moneys was unauthorised.
Submissions of the plaintiffs
Mr Scerri QC, who appeared with Ms O'Brien SC for the plaintiffs, took me to the affidavit of Laurence John Thorneloe, dated 29 November 2011. In that affidavit Mr Thorneloe refers to an earlier affidavit which he swore on 18 November 2011, which is in the other proceeding. In the affidavit of 18 November 2011 Mr Thorneloe sets out his qualifications and the positions he has held, including being manager of the Aboriginal Housing Service Unit in Office of Housing Victoria and his experience of the Lake Tyres Aboriginal Trust. Mr Thorneloe then says that on or about 8 November 2011 he was appointed as a consultant on at interim basis by the Committee of Management of the Trust. On 11 November 2011 he received a call from the Trust’s auditors requesting information about a sum of $400,00 which had been transferred from the Trust to KWCI. Mr Thorneloe says, amongst other things, that he made enquiries of the bookkeeper of the Trust, Ms Wendy Hernan, and was informed by her that on or about 2 May 2011 she was directed by Mr Clark, the then, but currently suspended CEO of the Trust, to transfer $400,000 of the Trust’s funds electronically from the Trust’s account to the account of KWCI.
Mr Thorneloe also says that Ms Hernan informed him that on about 2 May 2011, she was instructed by Mr Clark to create an invoice on behalf of KWCI for services allegedly provided by it to the Trust for the management and administration of ‘Deen Maar Wind Farm funding from Hydro Pacific’. He said that Ms Hernan was unable to provide any other evidence of any kind of any services having been provided to the Trust for this purpose by the entity KWCI, and he says that his searches of the records have failed to reveal any such evidence. Mr Thorneloe exhibits a copy of the invoice that was produced. He says that he was informed by Ms Hernan that the Deen Maar Wind Farm is the name of an area of land owned by the Trust at Yambuk and located between Portland and Port Fairy in the State of Victoria. Mr Scerri QC says Mr Thorneloe’s affidavit has not been challenged. KWCI has not produced an affidavit from Mr Clark disputing that evidence.
Mr Scerri QC took me to a second affidavit, that of Kyeema Penrith, dated 14 December 2011. In that affidavit, Ms Penrith deposes that she is secretary of the Committee of Management of the Trust and was elected to that position on 3 October 2011. She says that on Tuesday 13 December 2011, the Committee of Management of the Trust met to discuss the funds transferred to the KWCI on 2 May 2011, the subject of this proceeding. She says that the Committee of Management passed the following motions:
(a)The Committee of Management resolves that despite the assertions of alleged members of the former committee of management that $400,000 of Trust funds transferred to Kirrae Inc on 2 May 2011 was transferred with authority of the former committee of management, to the extent that any such authority was given, it is now revoked;
(b)Further the Committee of Management resolves that it does not wish to proceed to buy or be involved in the purchase of any abalone licence.
The plaintiffs made written submissions in respect of the issue of the balance of convenience as follows:
There is a real risk of dissipation of the Trust funds. The defendants say that they wish to spend the funds on purchasing the abalone licence. There is no adequate evidence that the licence is worth the amount proposed to be paid or that (if successful in this proceeding) the Trust will be able to recover its money through resale of the licence if the injunction is refused and the purchase price paid.
The funds belong to the plaintiff. There is no evidence or any adequate evidence of prejudice to the defendant if the funds are preserved until trial.
The funds should be preserved until the resolution of the dispute as to the proper constitution of the Committee of Management in proceeding No 5813 of 2011.
Submissions of the defendant
Mr Brett QC, who appeared with Dr Sharpe, made a very full and well reasoned submission opposing the granting or extending of the freezing order. He contends that the plaintiffs have a very weak case. He says there is a very real issue whether the individuals who have commenced this proceeding in the name of the Trust are the proper Committee of that Trust. Mr Brett QC explained in detail the corporate nature of the Trust and that of KWCI. He explained that there is uncertainty as to the members of the Trust. Mr Brett QC also explained that use of the word ‘Trust’ may, in fact, be a misnomer. He submitted that the Trust is a body incorporated under statute with members and the word ‘Trust’ might refer to whether it holds the moneys for the benefit of the Framlingham Community or not. I do not need to resolve this issue now. Mr Brett QC also explained that KWCI was incorporated in 1988 and that it carries out business activities that otherwise, if carried out by the Trust, might prejudice its position.
Mr Brett QC pointed out that there is a significant overlap in the membership of the Trust and the members of KWCI. He took me to the affidavit of Jeremy Wayne Clark which elaborates further on these matters. Mr J Clark says that he is a member of the Trust. He became a member when his father, Geoff Clark, transferred 1900 shares in the trust to him, approximately nine years ago. Mr J Clark says that he considers himself to belong to the Framlingham Aboriginal Community. He says that he was raised on the Framlingham Aboriginal Reserve and lived there until he was 18. Mr J Clark says the Framlingham Aboriginal Community embraces not only the registered members of the Trust, but also their extended families and relatives and those who have a connection with the families who reside on the Framlingham Aboriginal Reserve, including families that were removed and are known as the Stolen Generation. He says that the affairs of the Trust have always been widely discussed within the Framlingham Community, although those members of the Community who have very close connections with people living on the Trust land usually are more aware of the Trust's activities than those who are more loosely connected.
Mr J Clark says that he has always been fully aware of the Trust’s activities, as he believes are all those who live on the Trust land. He says that between 1995 and 2005 he was an elected member of the Committee of Management of the Trust. He says that the Trust was established to hold land on trust for its members. Mr J Clark says that the Trust receives approximately $200,000 funding annually from the Commonwealth Government which, in accordance with the grant, is provided for housing and related housing services. He says that the Victorian Government also contributes some moneys for matters relating to administration of the Trust.
Mr J Clark also refers to KWCI, outlining how it was established, how it is managed, and who the Committee members are. He says that KWCI’s role, since it was first established, has been to engage in enterprise activities for the benefit of the Framlingham Community as a whole. He says that it uses the funds it generates from its income earning activities to benefit the Framlingham Aboriginal community. He says that it provides a number of services to the community, usually by way of financial assistance including funeral and cultural assistance, family support and planning, legal assistance, support in times of hardship, community events as well as employment and training programs.
Mr J Clark says that KWCI has acquired land for both economic and housing purposes. He says that KWCI generates funds from farming activities on its land and also receives funds from its enterprise activities. KWCI also manages various enterprises for the Framlingham Community, being Eumeralla Backpackers (land and accommodation), Toorum Stones (house and farmland), Industrial Shed Warrnambool, Boona Dairy Farm, McKenna’s farm and Falbala farm, and it manages cattle spread over the properties it owns. It also owns and manages a range of assets including machinery, vehicles and tractors.
Mr J Clark says that KWCI’s permanent employees from the Framlingham Community are a farm labourer, a backpacker’s manager and a family support worker (who is Violet Clark). As the need arises, KWCI employs more Community members to work on specific projects. In one instance between approximately 1990 to 2005, KWCI undertook cultural heritage work and employed up to fifteen people from the Community.
Mr J Clark exhibits the accounts for the year ended 30 June 2009, which show that KWCI had total net assets of a little over $2 million at that time. He deposes that there has been no substantial change to the net asset position since that time.
Mr J Clark says that although funds provided to the Trust by government can only be used for limited purposes the Trust has itself, in the last ten years, been able to generate revenue by leasing land for the use of a wind farm and from grazing. All these funds are used for the benefit of the Framlingham Community. They are usually made available by being channelled to the entity providing the relevant service as the need arises and in accordance with the decisions of the Committee of Management of the Trust. He says that KWCI has received funds from the Trust in this manner on many occasions over the last twenty years.
Mr J Clark says there are also occasions on which the Trust is loaned moneys from the other entities, including KWCI, to meet its short term obligations when funding from government sources has been delivered late. In those instances, the Trust repays the moneys without interest, once it receives the funds from government. KWCI receives no government money and totally relies on self-generated revenue of its enterprises and the self-generated funds of the Trust.
Mr J Clark also deposes in relation to the abalone fishing licence. He refers to the affidavit of Chris Stakis sworn on 30 November 2011. Mr Stakis is a solicitor with Wisewould Mahoney (I note that in his affidavit Mr Stakis states that he is acting for the plaintiff in this matter. In fact, Mr Stakis and his firm are acting for KWCI, the defendant).
In Mr Stakis’ affidavit he deposes that Jeremy Clark informed him that KWCI had been negotiating on behalf of its members with a consortium of other indigenous groups for the past two years to purchase an abalone licence from Indigenous Business Australia (IBA) for the purpose of operating an abalone business with an indigenous brand out of premises in Port Fairy, Victoria. Mr Stakis says that Jeremy Clark informed him that KWCI had engaged a consultant called Philip Kerr from Victoria Indigenous Seafood Licensing to negotiate the purchase on its behalf.
Mr Stakis says that on 29 November 2011, he spoke to Mr Philip Kerr by telephone and Mr Kerr informed Mr Stakis that he was engaged by a consortium of indigenous groups including KWCI to negotiate the purchase of the abalone licence from IBA. Mr Kerr told Mr Stakis that IBA agreed to sell the licence two years earlier for $650,000, provided at least 51 per cent ownership is retained by the indigenous community. Mr Brett QC clarified that to mean that IBA had indicated it was willing to sell but that it had not actually entered into a binding contract.
Mr Kerr informed Mr Stakis that the current market price of a licence is approximately $1.1 million. Mr Kerr advised Mr Stakis that there is a meeting on 21 December 2011 to finalise a shareholders agreement for the consortium of indigenous groups, with the expectation that the purchase of the licence would immediately follow upon the provision of funds. Mr Kerr informed Mr Stakis that the shares and the licence would be issued in proportion to the amount each group of the consortium invests.
Mr Kerr also advised Mr Stakis that the negotiations for the licence have included a business plan to develop an indigenous marketing brand to operate out of Port Fairy which will require additional investment of about $400,000 from the licence holders. Mr Kerr informed Mr Stakis that the expected return from the abalone business is about twenty per cent annually on investment. Mr Kerr told Mr Stakis that if KWCI does not agree to subscribe to the purchase of shares in the indigenous consortium to buy the abalone licence at the meeting on 21 December 2011 another group will most likely take the subscription and that KWCI will lose the opportunity to subscribe to those shares.
Mr Stakis says that Jeremy Clark informed him that KWCI anticipates investing approximately $400,000 to purchase shares in the abalone licence and to make a contribution to the proposed operating plant at Port Fairy. Mr J Clark believes that the licence will provide significant economic benefit to the Framlingham Aboriginal Community by delivering profits and providing job opportunities to members of that Community.
Mr J Clark, in his affidavit, says that the information provided to Mr Stakis by Mr Kerr accurately represents KWCI’s involvement in negotiating to purchase a share in an abalone licence. He says that Mr Kerr prepared a report in 2011 commissioned by the Australian government for the development of an aquiculture farm in south west Victoria with Aboriginal communities. The report was presented to the Australian government. Mr J Clark says that he has only been able to obtain a draft of the report, but that draft is very close if not identical to the final report. He exhibits that report.
Mr J Clark says that, as described in the report, the Victorian Indigenous Seafood Corporation (VISC) was established as a vehicle for indigenous groups to engage in seafood enterprises, and the Framlingham Community was partly responsible for its establishment. He says that it is through the VISC that KWCI became involved in discussions to buy into the abalone licence that was being offered IBA.
Mr J Clark says that the proposition (in relation to the licence) has now been thoroughly investigated and the matter has now reached an advanced stage. Mr J Clark exhibits a presentation made to VISC by Mr Kerr relating to the proposal as well as a copy of the business plan. Mr J Clark seeks to keep that business plan confidential and I have ordered that be so.
Mr J Clark goes on to say the abalone licence proposal has been widely discussed within the Framlingham Community. He says that a community meeting was held in mid-2011 at Framlingham at which Mr Kerr presented a detailed proposal to the Community. He says that he was at that meeting and he estimates that approximately 15 people were present. The meeting was held as an open forum which allowed people to contribute and raise any issues. There was wide ranging discussion about the possible benefits of the proposal. Mr J Clark says that as it was a promising proposal the majority of the people in attendance were in support of it and he does not recall anyone objecting to it. He says that at the meeting of the Committee of Management of the Trust held on 1 September 2011 Mr Kerr again presented his proposal and the Committee endorsed the plan formally. Mr J Clark exhibits a copy of the minutes of that meeting. The minutes say that the fishing report presented by Phil Kerr at the earlier community meeting and the business plan study outlining potential investment opportunities were accepted and endorsed.
Mr J Clark says the sum of $400,000 transferred from the Trust to KWCI in May of 2011 was transferred in anticipation that it would be used to fund KWCI’s participation in the abalone licence joint venture. He says that part, being $250,000 was placed on term deposit in the meantime to earn interest.
Mr J Clark says that he does not recall if the transfer was specifically authorised by the Committee of Management of the Trust or not, but that it would not be unusual if there was no specific authorisation. He says:
I note that in minutes of the committee meeting held on 6 May 2011 that are part of Appendix A to the Sinclair Wilson report that is referred to in paragraph 6 of this affidavit, the item ‘fund transfers’ refers to the frequent transfers of funds between the Trust, KWCI and other committee entities. Transfers were always recorded in the books and records of the relevant entities and were ultimately reflected in the annual accounts of those entities. However because the control of all the entities was more or less identical, and because their administration was always carried on at the Trust offices, the committees of management or boards of directors often did not formally resolve to make the transfers.
Mr J Clark says that there is to be a meeting on 21 December 2011 to finalise the participation of the various interested parties in the abalone licence venture. He says that he will be attending the meeting on behalf of KWCI. He says that he does not believe that any money will need to be paid at that time. The parties will meet to discuss and agree upon the numbers of shares they will take up in the licence, and to finalise the terms of the shareholders’ agreement. In order to participate properly in the meeting, KWCI needs to be able to commit itself to pay a certain amount of money to acquire shares. He says that if the injunction currently in force remains in force, then KWCI will not be able to do so, as the injunction would prevent it from meeting whatever commitments it makes. He says that he believes the actual payment of the committed amounts will be required as early 2012 as is possible, once the agreements reached at the meeting have been documented.
Mr J Clark says that if KWCI, on behalf of the Framlingham Community, is not able to participate in the abalone licence, he believes a valuable commercial opportunity is likely to be lost, and that this will be to the detriment of the Community. He says that seafood enterprises are a means by which the Framlingham Community has been working to improve conditions for its members for many years. He says that the abalone licence is an important part of that work and its acquisition has been generally agreed to by the Framlingham Community.
Conclusion
The plaintiffs have satisfied me that there is a real issue to be tried as to whether the funds of the Trust are held by KWCI on trust for the Trust. In other words, is KWCI free to invest the moneys in the abalone licence or must it account for that money to the Trust? The balance of convenience, however, raises more difficult issues.
After considering all of the evidence very carefully and taking into account the submissions made by both counsel, I am satisfied that unless a freezing order is made the money will most likely be invested in the abalone licence and that such an investment would be difficult to realise if KWCI was required by court order to ultimately repay the moneys. If the plaintiffs succeed in their action, there is, in my view, a real risk that they will not be able to recover all the Trust’s moneys.
I am satisfied therefore, on the balance of convenience, that it is appropriate to extend the freezing order until the hearing and determination of the proceeding, and I so order. I will reserve the costs.
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