FrederickLloyd Heming v Gordon Sutcliffe Heming

[2000] NSWSC 250

CITATION:	FrederickLloyd Heming v Gordon Sutcliffe Heming & Ors [2000] NSWSC 250
CURRENT JURISDICTION:	Supreme Court
FILE NUMBER(S):	SC 4525/93
HEARING DATE(S):	13-16 March 2000
JUDGMENT DATE:	16 March 2000
PARTIES :	Frederick Lloyd Heming v Gordon Sutcliffe Heming and Narelle Claire Heming & Ors
JUDGMENT OF:	Hodgson CJinEq at 1

COUNSEL :	P - Mr Whittle SC & Mr Titterton D - Mr Flaherty
SOLICITORS:	P - Robert C Higging & Dawson D - Brien Mullick & Associates
CATCHWORDS:	CORPORATIONS - Company giving financial assistance in connection with the acquisition of its shares - Loan from purchaser of shares replaced by loan from vendor of shares - EQUITY - Undue influence - No relationship of influence - Whether inferred - SUCCESSION - Executors leave debt due to estate from company outstanding - Liability for interest
LEGISLATION CITED:	Corporations Law ss205, 206
CASES CITED:	Jennis v Public Curator (1953) 90 CLR 113 at 118-9 Johnson v Buttress (1936) 56 CLR 113 Burton v Palmer (1980) 2 NSWLR 878 at 881-2 Darval v North Sydney Brick & Tile Co Limited & Ors (1987) 16 NSWLR 212 at 247 Tallglen Pty Limited v Optus Communications (1988) 28 ACSR 610 Charterhouse Investmment Trust Limited v Tempest Diesels Limited (1986) BCLC 1 at 10. Ramage v Waklaw (1988) 12 NSWLR 84f
DECISION:	See pars 104-108 of judgment

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HODGSON CJ in EQ
Thursday 16 March 2000

4525/93: FREDERICK LLOYD HEMING & ANOR v GORDON SUTCLIFFE HEMING & ORS

JUDGMENT

1   HIS HONOUR : The late Bessie May Heming died on 18 February 1993. On 6 November 1992 she transferred to her son Gordon, and two of Gordon's sons Gregory and Benjamin, a total of 4445 shares, being all the shares then held by the deceased in a company called Aberdeen Steam Laundry Pty Limited, which I will call the company. As a result of this transaction, the amount owing to the deceased by the company increased to $120,000. By her last will dated 26 November 1992, the deceased appointed as executors her son Gordon and a friend Kevin Morris, and apart from some specific gifts of motor vehicles divided her estate equally between her three sons, William, Frederick and Gordon.

2   Clause 7 of the will made specific provision in relation to the $120,000 owing by the company as follows:

7. I give the proceeds of the loan owed to my (sic) by ABERDEEN STEAM LAUNDRY PTY LTD of approximately One hundred and twenty thousand dollars ($120,000.00) to my said sons in equal shares as tenants in common, such proceeds being payable by the Company when financially viable only.

3   Probate of that will was granted to Gordon and Mr Morris on 16 June 1993.
4   On 5 October 1993, the deceased's son Frederick commenced these proceedings, seeking inter alia an order setting aside the transfer of the 4445 shares. He also sought an order setting aside a transfer by the deceased to Gordon for a block of land at Thirlmere, but that relief was ultimately not pursued.
5 A statement of claim was later filed showing that the basis of the claim to set aside the share transfer was alleged undue influence exercised by Gordon on the deceased. By a subsequent amendment, a claim was added to the effect that the transaction with the shares involved a breach of the then section 204 of the Corporations Law, in that the company provided financial assistance to Gordon in order that Gordon pay for the shares.
6   Late last year, the deceased's other son William joined as a plaintiff in the proceedings.
7   Towards the end of the hearing of the case, the plaintiffs sought to amend the statement of claim to seek, in the alternative, orders giving effect to their entitlement to $40,000 each out of the debt owing to the deceased by the company, plus interest on those amounts.

OUTLINE OF FACTS

8   I will commence with an outline of facts which are either not in dispute or else clearly proved.
9   The deceased was born on 22 October 1910. She married twice. The two children of her first marriage predeceased her. The three sons involved in these proceedings are the only children of her second marriage. At the time of her death, William was 48, Frederick 46 and Gordon 45.

10   The company was incorporated in 1954, and operated a laundry business at Balmain. It was run for some years by the deceased's second husband, and subsequently between about 1971 and 1976 by Frederick. There were three blocks of land at Balmain associated with this business, two apparently owned by the company and one apparently owned by the deceased, at least from some time after the death of her second husband.

11   The deceased's second husband died on 13 December 1974. At that time the share holding in the company was as follows: the deceased's second husband had 1510 shares, the deceased had 1510 shares, and each of the three sons had 300 shares. The sons had acquired their 300 shares as gifts. Each son had also, in earlier years, received as a gift from the deceased and/or her second husband a block of land at Thirlmere.
12   By his last will dated 18 October 1974, the deceased's second husband left his 1510 shares to Frederick, and purported to appoint Frederick governing director of the company.

13   A dispute broke out between Frederick on the one hand and the deceased, William and Gordon on the other, giving rise to equity proceedings brought by Frederick in 1975. Those proceedings were settled by a deed dated 14 June 1976, pursuant to which Frederick transferred his 1810 shares to other members of the family, namely 1287 to the deceased, 257 to William and 257 to Gordon. The consideration for these transfers was an amount of $42 per share.

14   It is clear that Frederick was paid fairly promptly for 300 of the deceased's shares, and for the shares transferred to William and Gordon. Frederick claims he was not paid for the remaining 987 of the shares transferred to the deceased because she did not then have the money available, and that this sum of $41,454 had never been paid to him.
15   It appears that after the settlement of this litigation, Gordon managed the laundry business, and both he and the deceased lived for some time in accommodation at the Balmain property. In 1979 the company allocated 1000 shares each to the deceased and to Gordon, and in 1980 it allotted a further 200 shares each to the deceased and to Gordon.
16   It appears that in about 1980 the laundry business ceased, and that it was contemplated that the company would purchase a house and ferry business at East Hills, the house to be occupied by Gordon and his family and the ferry business to be run by him.
17   It appears that at about this time the deceased arranged with Frederick to join with him in the purchase of a house at Hunters Hill, with a view to contributing some of the proceeds of sale of the land at Balmain to its purchase and going to live with Frederick and his family at Hunters Hill. In November 1980 a house at Hunters Hill was purchased by Frederick and his wife and the deceased for $355,000. It appears that Frederick provided something like $150,000, and the rest of the purchase price was borrowed on commercial bills pending receipt of the deceased's contribution.

18   In February 1981, the company purchased the East Hills property and business. The Balmain property had still not been sold. It seems that some of the money for the purchase was provided by Gordon selling a property which he had at Minnamurra, which he had acquired from the proceeds of sale of the block of land at Thirlmere which had been given to him.

19   In fact, Balmain was not sold until January 1989. The deceased continued to live there until about that time. She made no contribution to the Hunters Hill property. Frederick did not pay interest accruing on the loans used to purchase that property, so that the debt accumulated until the property had to be sold in 1985. It was sold for $430,000, and only $78,000 was left over after paying out the mortgagee.

20   At about the same time, the deceased sold a property which she had at Coledale, and from the proceeds of sale paid $45,000 to Frederick to assist him either with the Hunters Hill property or with the purchase of a new property.
21   The Balmain property was sold in January 1989 for $950,000, of which $475,000 went to the deceased and $475,000 to the company. It seems that the company used the money it received substantially to pay off debts and to purchase a second ferry. It appears that the deceased used the money she received partly to improve a house she owned at Thirlmere, to which she moved in 1989 and where she lived until her death, apart from admissions to hospital and times when she was staying with one of her sons.
22   It appears that from the money the deceased received she also made some payments to her sons.
23   It appears that she paid about $73,000 to Frederick, apparently to compensate him for the loss he had sustained in relation to Hunters Hill and to provide him with $30,000 representing half of the profit that would have been made from Hunters Hill.

24   She paid $70,000 or $90,000 to William, to help him buy a house at Lithgow. This was apparently paid as a loan, on the basis that he pay instalments, with whatever was left to be forgiven at her death. It appears that in fact at her death William had repaid about $5,000.

25   The deceased also paid William $25,000 in return for his 257 shares in the company. Finally, it appears that she gave each of her three sons something like $25,000, or perhaps in the case of Frederick $30,000.
26   The property at Thirlmere to which the deceased went in about 1989 comprised three blocks of land. The house was built on two of those blocks, and on 2 February 1992 the deceased gave the third of those blocks to Gordon.
27   Between 13 February 1992 and 2 March 1992, the deceased was in the RPA Hospital for a leg operation. It appears that on her discharge she stayed with William for some weeks. From 7 to 9 October 1992, she was again in the RPA hospital, this time for excision of metastatic melanomas on her neck, right axilla and abdomen.
28   The transfer of shares which is challenged in these proceedings occurred on 6 November 1992. It was arranged at the home of the company accountant Moya Feledy, the only other people present being Gordon and the deceased. The consideration for the transfer of the shares was $84,628, and it was paid by reducing the amount owed by the company to Gordon by that amount and increasing the amount owed by the company to the deceased by that amount, with the result that the company came to owe the deceased $120,000.
29   The share transfers were subsequently submitted for stamping, and for stamp duty purposes the shares were valued at $38.50 each. That valuation of the shares would make the total value of the shares transfer approximately $175,000, as compared with the consideration of just over $84,000.
30   On 25 November 1992 the deceased executed her last will. Gordon took the deceased to the office of a solicitor. However, this was apparently a solicitor who had not previously been used either by Gordon or the deceased.
31   The deceased was admitted to Queen Victoria Hospital from 10 to 15 December 1992. It appears that on 18 January 1993 she went to stay with Gordon. On 28 January 1993, she was admitted to St Josephs Hospital Auburn, and she died there on 18 February 1993.
ISSUES

32 The substantial issues that have been debated in this case are as follows: first, there are a number of factual issues, particularly concerning what the deceased said at around the time of the transaction, and concerning her mental and physical condition. Second, there is the question whether undue influence has been proved. Third, there is the question whether the transaction involved a breach of section 205 of the Corporations Law. Finally, there is the question whether the plaintiffs are entitled to relief in relation to their $40,000 shares of the debt owing by the company to the deceased, and in particular, whether they are entitled to any interest on that amount.
FACTUAL ISSUES

33   In relation to factual matters, there are a number of further matters that are either not in dispute or very plainly proved.

34   As I mentioned, the shares were transferred for a consideration of $84,628. At the time, the total net assets of the company, as shown in the company accounts, amounted to something like $240,000. There were 6302 issued shares, resulting in a value per share of around $38, and thus a value of what was transferred of around $173,000.

35   The house property at East Hills was in the books of the company at $150,000, whereas its true value was around $230,000. Accordingly it would appear that the net assets of the company were in fact of the order of $320,000. They may have been even a little bit more than that, because the two ferries may have been in the books at a slight under value as well. In any event, on that analysis the value of each share would be at least $51 and the value of what was transferred would be of the order of $232,000.

36   So, plainly the transfer was at a very great undervalue. If one takes the net assets as recorded in the books of the company, what was paid was only about 49 per cent of the value of what was transferred; and if one takes the value of what was transferred in accordance with the somewhat higher value arrived at by taking account of the true value of the house, then what was paid was only about 36 per cent of the true value.

37   It is also plain that Gordon did arrange for the deceased to meet the accountant, and that he attended with her, and that he also arranged for her to meet the solicitor and took her there also to make her will. It is plain that the deceased received no independent legal advice about the share transaction. It is clear that at the time she was aged 82 years and in ill health.

38   Some time before the transaction it had become clear that she had disseminated cancer, and by the time of the transaction she was clearly dying.

39   On the other hand, it is common ground that, at least prior to her illness, she had been a very independent person. It is clear that, for example, she loved driving her two motor vehicles, one being a 1969 left hand drive Ford Thunderbird and the other being an ambulance.

40   It is common ground also that at various times the deceased expressed the wish and intention to treat her sons equally.

41   The contested matters of primary fact primarily concern the plaintiff's mental condition at the time of the transaction; the question of what, if any, pressure was actually applied by Gordon at around the time; and the actual events of the day of the transaction, and certain statements made by the deceased at around the time of the transaction.

42   The plaintiffs have put on evidence to the effect that the deceased was drinking heavily and, at times when she was affected by alcohol, and perhaps at other times also, was unable to think clearly and her thoughts were jumbled. They also claim she was hallucinating.
43   In relation to the events of the day and the relevant statements by the deceased, the following is the most relevant affidavit evidence on those matters.
44   Firstly, in Gordon's affidavit of 19 October 1994 paragraphs 13 and 14, he set out his account of the circumstances of the transaction as follows:

By October/November, 1992, the deceased knew of her terminal illness. She said to me, "I want to get my affairs in order because I do not want the company involved in any more litigation like the last time".

After the deceased said this to me. I made an arrangement for her and I to meet with our accountant, Ms Moya Feledy. We attended Ms Feledy's premises in Neutral Bay on 6th November, 1992. In the presence of Moya Feledy. the deceased said, "I want Gordon and his son to have my shares in the company and in exchange I want my loan account in the company increased to $120,000.00 so that I can leave each of my three sons $40,000.00 each. Neither Fred nor Williams are interested in the company". She also said, "I want to ensure that Gordon is looked after before I die". The deceased subsequently made her will on 25th November, 1992.

45   In paragraphs 6 - 8 of her affidavit of 27 September 1994, Moya Feledy set out her account of the circumstances of the transaction, as follows:
Sometime prior to to 6th November, 1992, I received a telephone call from Gordon Heming who made an appointment for the deceased and himself to see me at my office on that day. On 6th November they attended my office at Neutral Bay and were there for approximately one and a half hours. The deceased advised me at that time that she was "riddled with cancer". However, she appeared to me to be in full possession of her faculties. She said to me, "I want to sell all my shares in the company to Gordon and Benjamin". She later said, "Well, perhaps I should also include Greg". She said, "I want to sort this out before I die so there is not a repeat of what happened when my husband died".

At that time, 6th November, 1992, the deceased had a loan account with the company in the sum of $35,732.00. She said, "I want to value the shares I sell to Gordon and the others to bring that up to $120,000.00". I said, "If you want to give the shares away that's your business but the Stamp Duties Office will put a value on them for stamp duty purposes". She said, "I just want to push it all up to $120,000.00 so that all three sons will get $40,000.00 each. Fred and William are not interested in the company, only in money". I then prepared the share transfers and the company documents to reflect the transfer of shares to Gordon, Benjamin and Greg and also noted the loan account of the company to show an amount owing of $120,000.

Sometime during the meeting Gordon left the room to go to his car to retrieve some documents from it. That left me alone with the deceased. She said to me, "I have helped both William and Fred to get a home and now I want to see Gordon with a roof over his head". When Gordon returned I finished preparing the transfer documents and gave copies of the company's accounts to Gordon to lodge with the Stamp Duties Office.

46   In Frederick's affidavit of 19 May 1994, paragraphs 38 and 45, he set out two conversations which he had with the deceased at around the time of the transaction, as follows:

38.Whilst I was there my mother said words to me to the following effect:

"I have sold my shares [which I took to mean the shares in the Aberdeen Steam Laundry] to Gordon for [a figure which I recollect was around $180,000]."

I said:

"Why did you do that, Mum? You said we would all be in it together."

My mother then said:

"Gordon said he wanted to buy the shares. He told me that you're not interested in the business at all and that he cannot get on with William."

I said:

"That amount sounds pretty cheap, Mum. How was that figure arrived at?"

She said:

"He's had a valuation done. I told him to get a valuation."

I said to her:

"Where is the valuation?"

and she said:

"I haven't seen a copy, Gordon or Moya will have one, you can get a copy from her."

[Moya is the company's accountant, Moya Feledy]

...

45.On about 10 December 1992, I visited my mother with my aunt Grace at Thirlmere and I spoke to my mother and said:

"Mum, I telephoned Moya as you suggested to get the valuation but Moya refused to let me have it. The amount of $180,000 for the house and two ferry boats is much less than their true value. How can that be fair?

My mother said:

"I relied on Moya's valuation as being correct and at the time I was too sick to even think about it [the amount being too low]. You and William are both shareholders so you can get the accounts and valuation from her. [In fact at the time, neither William nor myself were shareholders at all, although she had said many times to me that the shares were still mine because she had not paid for them.] I asked Gordon to get a valuation and I asked Moya to get a valuation. I told Moya that I had three boys and that I wanted to treat them all equally and would not be making fish of one and flesh of the other."

I did not pursue the matter further with her. She was too ill and I did not wish to distress her.

47   In Williams' affidavit of 23 February 2000, paragraph 24, he set out a conversation with the deceased in the following terms:
In approximately October 1992 my mother and I had a conversation in the front lounge room in my mother's house at Thirlmere:

My mother said: "Gordon wants to buy the shares in the business from me"

I said: "How much is he offering to pay for them".

My mother: "You'll both get $65,000 each before Christmas before I die".

My mother continued:

"I have decided to give one share to each of Gregory and Benjamin and sell the remainder to Gordon". (Gregory and Benjamin are Gordon's sons).

Submissions

48   Mr Whittle SC, for the plaintiffs, submitted that Gordon had conceded in cross examination that he had used every opportunity, when the subject of the shares came up, to encourage his mother to transfer the shares to him. Mr Whittle submitted that Gordon's evidence that he never made any calculation of the value of the shares, was incredible and should be rejected, and that this affected Gordon's credibility. Mr Whittle submitted that Gordon's concession that he may have suggested the wording of the will in order to prevent the company having to pay the $120,000, supports an inference that he was using undue influence.
49   Mr Whittle submitted that Frederick and William were not cross-examined as to the terms of the conversations which I have set out and that, accordingly, I should conclude that the deceased was confused about the transaction and that, in particular, she thought there had been a valuation and that the transfer consideration bore some relationship to that valuation.
50   He submitted that this was confirmed by the deceased's later statement that she was too sick to think about the matter. He submitted that Moya Feledy could have been led to believe that the deceased knew what she was doing, because the deceased was a proud person and concerned to impress people and keep up appearances.
51   Mr Flaherty, for the defendants, submitted that I should accept Moya Feledy's evidence to the effect that the deceased was in full possession of her faculties and understood well what she was doing. He pointed to the evidence that on that very day the deceased had driven herself from Thirlmere to East Hills and had later driven home. He pointed out that the notes from St Josephs Hospital showed that even when admitted to that hospital she was alert and independent. He submitted that Frederick and William conceded that she was an independent, even a fiercely independent, person. Mr Flaherty submitted that Frederick and William had been less than frank in disclosing the benefits conferred to them over the years by the deceased.
52   He submitted that although Gordon had frankly admitted that he had sought to persuade the deceased to transfer the shares to him, there was no basis for concluding that this persuasion amounted to pestering or undue pressure, and he pointed to Gordon's evidence that the occasion for this persuasion arose only rarely.
53   In reply Mr Whittle submitted that there had been a lack of frankness by Frederick and William in relation to benefits from the deceased. In relation to Hunters Hill, there was no reason to question Frederick's evidence, which if accepted meant that he got no more from the deceased than what he was entitled to.
54   In relation to William, he had been given leave to put on evidence only on limited matters.

Decision

55   I do not think any witness gave evidence before me otherwise than honestly and attempting to tell the truth to the court. However, I think it is fair to say that the four main witnesses were, in various ways, partisan witnesses. Moya Feledy had no direct financial interest in the matter, but she did display very strong views as to who should win the case, and I think I would give her evidence perhaps less weight than if it had been given as an entirely dispassionate and disinterested witness.
56   However, I have no doubt that she was giving her evidence honestly and with reasonable recollection, and I believe that she was able to make a reasonable assessment of the deceased's understanding of the transaction and did so. Her evidence if accepted makes it unlikely that the deceased was really confused into thinking that there had been a valuation, and that the consideration bore some relationship to that valuation.
57   Moya Feledy gave evidence also that Frederick had telephoned her on 23 November 1992 and said words to the effect:
I want to know about the share transfers by my mother. I do not think they were properly valued.

.
58   If that evidence is correct, it seems unlikely that Frederick had a conversation with the deceased substantially as set out in Frederick's affidavit.
59   Having regard particularly to Moya Feledy's evidence, I am not satisfied that conversations occurred precisely as set out by Frederick and William. In particular, in the light of her evidence and other evidence concerning the deceased's mental abilities, I do not think the deceased was confused into thinking that there had been a valuation and that the consideration was somehow related to that valuation.
60   If it be the case that the deceased did not give an accurate impression of the transaction to Frederick and William, it may possibly be that she thought they would not be happy about the transaction and she wanted to avoid a confrontation at that time.
61   I accept, as I have suggested, Moya Feledy's evidence as to the circumstances of the transaction as she knew then. I accept that Gordon's evidence is substantially accurate. I do not think it wholly implausible that he would not have considered the value of the shares. I think it understandable that his mind, like the deceased's, would have been directed to his wish to maintain his house and livelihood, and the provisions the deceased wished to make in relation to the debt which became owing by the company to her.
62   I do accept to some extent the evidence from Frederick and William that the deceased sometimes drank to excess and that on those occasions her thinking would be less clear. However, I do not accept that that situation applied on the occasion of this transaction. I accept also that there were occasions when the deceased spoke of talking to her late husband, but I think those occasions were sufficiently rare and particular not to cast any doubt over her general mental capacity.
UNDUE INFLUENCE

Submissions

63   Turning to the question of whether undue influence should be inferred, Mr Whittle referred me to Jennis v Public Curator (1953) 90 CLR 113 at 118-9:
The jurisdiction of a court of equity to set aside a gift or other disposition of property as, actually or presumptively, resulting from undue influence, abuse of confidence or other circumstances affecting the conscience of the donee is governed by principles the application of which calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the donor. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed, no better illustration could be found of Lord Stowell's generalisation concerning the administration of equity: "A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case": The Juliana (1822) 2 Dods. 504 at p522 [165 E.R.1560, at p1567].

64   He submitted that, in circumstances where the deceased had expressed a wish and intention to treat her sons equally, and where this transaction was so far from equality, one could, combining this with the other circumstances of the case, infer that undue influence had been exercised on her. There was no attempt to have her consider whether this transaction was for a proper price or whether it would achieve substantial equality for her sons and there was no attempt to suggest she might get independent advice in relation to it.

65 Mr Flaherty referred me to Johnson v Buttress (1936) 56 CLR 113, and in particular the following passage at page 134:
The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of judgment ion reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act.

66   Here, there was no suggestion of any antecedent relationship from which undue influence would be presumed, and Mr Flaherty submitted that the evidence fell far short of what would be required to infer the exercise of unfair influence on this particular occasion. He pointed out that the transaction was not improvident so far as the deceased was concerned. She was near death herself, and in any event had ample other property to provide for her remaining months. He submitted that it was reasonable for the deceased to have regard to the different situations of her sons, and the different benefits that had been given to them in the past, and to the previous litigation.

Decision
67   In my opinion, if undue influence is to be inferred in this case, it must be from the circumstances, which include the gross undervalue at which the shares were transferred and the consequent lack of equality in the treatment of the sons, particularly in the light of the expressed wish for equality, and the lack of any consideration being given to those questions. Other circumstances that could assist in drawing such an inference include Gordon's admission that he sought to persuade the deceased to transfer the shares to him; the opportunity which he had to exercise influence; the inference that may be available that he did influence her in an attempt to make the $120,000 irrecoverable; and the circumstance that he arranged for the deceased to attend the office of the accountant and subsequently the solicitor.
68   However, it is plain that the deceased did not consider that her general wish for equal treatment necessarily involved identical treatment. In 1989 she had in effect given William $70,000 or $90,000, and also bought his shares at an overvalue which appears to be in excess of $10,000. It is true that, on Frederick's version which I have no reason to question, the deceased had failed to pay him $40,000 for his shares in the company, which were transferred to her in 1976, and paid to him no more than what he was entitled to in relation to Hunters Hill. Nevertheless the fact remains that the deceased did pay him about $118,000 in connection with the Hunters Hill venture, giving him a profit from the venture of $30,000 in addition to the five years rent-free accommodation which he had, and this involved her in a straight-out loss of around $118,000. She may well have considered the original arrangement whereby she agreed to contribute at least one half to the purchase of the property, which was to be occupied by Frederick and his family along with her, amounted to a contribution for Frederick's benefit.
69   I think in those circumstances the deceased could reasonably have believed, as she said to Moya Feledy, that she had helped both William and Frederick to get a house.
70   Accepting as I do that she believed that, she could quite reasonably have taken into account that Gordon depended upon the company for both his home and his livelihood, and that if when she died her shares went equally between her sons, there could be disputes which could have the effect that Gordon would lose both his home and his livelihood.
71   Although the deceased did not obtain a valuation or, so far as the evidence goes, give any careful consideration to questions of value, it appears that she must have realised that her shares amounted to something over 70 per cent of the shares in the company, and that the assets of the company included a house and two ferry boats. One would think she must have realised that the house must have been worth at least $200,000, and that accordingly her shares must have been worth well in excess of $85,000. Nevertheless, having regard to the circumstance that it appeared that William and Frederick each had a house, whereas Gordon's house depended upon the control of the company, it is understandable that the deceased may have taken the view that it would be treating the sons with substantial equality if each son ended up getting $40,000 from the company, and Gordon was able to retain his home and his livelihood.
72   Having regard to those considerations and the other findings I have made, I do not infer that the transaction was other than the free act of the deceased carried out with a reasonable understanding of its implications. I do not infer that it was the result of undue influence.
CORPORATION LAW s205

73 The next issue in the case concerns section 205 of the Corporations Law, as it existed at the time of the transaction. The relevant provisions are sections 205(1) and (2) and 206(4) and (5) which are as follows:
(1) [Prohibition]. Except as otherwise expressly provided by this Law, a company shall not:

(a) whether directly or indirectly, give any financial assistance for the purpose of, or in connection with:

(i) the acquisition by any person, whether before, or at the same time as, the giving of financial assistance, of:

(A) shares or units of shares in the company, or

(B) shares or units of shares in a holding company of
the company, or

(ii) the proposed acquisition by any person of:

(A) shares or units of shares in the company, or

(B) shares or units of shares in a holding company of
the company.

(b) whether directly or indirectly, in any way:

(i) acquire shares or units of shares in the company, or

(ii) acquire or purport to acquire shares or units of shares in
a holding company of the company; or

(c) whether directly or indirectly, in any way, lend money on the security
of:

(i) shares or units of shares in the company; or

(ii) shares or units of shares in a holding company
of the company.

(2) [Giving of financial assistance]. A reference in this section to the giving of financial assistance includes a reference to the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the forgiving of a debt or otherwise.

206(4) [Court's powers] Where:

(a) a company makes or performs a contract, or engages in a transaction

(b) the contract is made or performed, or the transaction is engaged in, in contravention of section 205 or the contract or transaction is related to a contract that was made, or performed, or to a transaction that was engaged in, in contravention of that section, and

(c) the Court is satisfied, on the application of the company or of any other person, that the company or that other person has suffered, or is likely to suffer, loss or damage as a result of:

(i) the making or performance of the contract or the engaging in of the transaction;

(ii) the making or performance of a related contract or the engaging in of a related transaction;

(iii) the contract or transaction being void by reason of section 205 or having become void, or becoming void, under this section,; or

(iv) a related contract or transaction being void by reason of section 205, or having become void, or becoming void under this section;

the Court may make such order or orders as it thinks just and equitable (including without limiting the generality of the foregoing, all or any of the orders mentioned in subsection (5)) against any party to the contract or transaction or to the related contract or transaction, or against the company or against any person who aided, abetted, counselled or procured, or was, by act or omission, in any way, directly or indirectly, knowingly concerned in or party to the contravention.

206(5) [Examples of orders] The orders that may be made under subsection (4) include:

(a) an order directing a person to refund money or return property to the company or to another person;

(b) an order directing a person to pay to the company or to another person a specified amount not exceeding the amount of the loss or damage suffered by the company or other persons; and

(c) an order directing a person to indemnify the company or another person against any loss or damage that the company or other person may suffer as a result of the contract or transaction or as a result of the contract or transaction being or having become void.

Submissions

74   Mr Whittle submitted that the company did give financial assistance to the purchase of its shares because it entered into a contract by which it became indebted to the deceased for an additional sum of around $85,000. This is not negatived by the circumstance that in the same transaction a liability to Gordon in the same amount was discharged. As a matter of commercial reality, Mr Whittle submitted, the liability to the deceased would be called upon very soon when the deceased died, whereas there was little likelihood that the liability to Gordon would have to be repaid.

75   Mr Whittle referred to the cases of Burton v Palmer (1980) 2 NSWLR 878 at 881-2; Darval v North Sydney Brick & Tile Co Limited & Ors (1987) 16 NSWLR 212 at 247; Tallglen Pty Limited v Optus Communications (1988) 28 ACSR 610; and Charterhouse Investment Trust Limited v Tempest Diesels Limited (1986) BCLC 1 at 10.
76 Mr Whittle then submitted that the plaintiffs had suffered loss as a result of the transaction, as beneficiaries of the deceased's estate which had been diminished by the transaction. Accordingly, they had standing under section 206(4) to apply for relief. The appropriate remedy, he submitted, was to set aside the transaction, or alternatively to order that the plaintiffs be paid the amount of their loss, which in each case would be one-third of the loss to the estate.
77   He submitted that, even if I were to hold that the making of the deceased's will was part of the transaction, I could nevertheless infer that the plaintiffs in effect lost one third of the loss to the estate by the transaction, having regard to the expressed intention of the deceased to treat her sons equally and having regard to the rights on intestacy.
78   Mr Flaherty submitted that there was no financial assistance given by the company to the acquisition of its shares. There was no diminution of the company's financial resources, where it had merely paid a debt or received money as a loan, thereby giving rise to a liability to the lender or where one creditor is simply substituted for another. There was no sufficient difference in commercial reality from the position before the transaction to that after the transaction to justify a conclusion that the financial resource of the company had been diminished.
79   In any event, Mr Flaherty submitted, the plaintiffs had not proved that they had suffered loss. If one considered the making of the deceased's will as part of the transaction, the plaintiffs had not proved what the position would have been but for the making of that will. The evidence had suggested that an earlier will had been made in 1972, and that had not been tendered in evidence.

80 In any event, he submitted, there was no loss or likelihood of loss, in circumstances where without undue influence the deceased had got exactly what she bargained for. It was not, in those circumstances, just and equitable that any order be made. He submitted that sections 206(13) and 138(18) of the Corporations Law confirmed no order should be made unless it was just and equitable to make such an order.
Decision

81   In my opinion it is conceivable that the substitution of one creditor for another could, as a matter of commercial reality, diminish a company's financial resources, if it was plain that the original creditor would not have claimed payment of the debt, whereas the substituted creditor would do so.

82   However, I need not come to a firm opinion whether or not that could in some circumstances be the case, because I do not think that is the situation here. But for the transaction, on the death of the deceased Gordon would have been entitled to about 52 per cent of the shares of the company, and William and Frederick between them to about 48 per cent. In those circumstances, I do not think the commercial reality is that the debt to Gordon would not have to be paid. In fact, I think it is more likely that the working out of matters between the three brothers, as would have to have occurred after the deceased's death, would have involved the payment of Gordon's debt.
83   Accordingly, I do not think there is a sufficient difference in the position of the two different creditors to justify a conclusion that, as a matter of commercial reality, the financial resources of the company have been diminished and that accordingly financial assistance has been given.
84   In any event, I am not satisfied that the plaintiffs did suffer loss from the transaction. In my opinion, the will was part of the whole transaction, and the plaintiffs have not discharged the onus which would lie on them to show what the situation would have been but for the making of the will. The plaintiffs bore the onus, and chose not to tender the 1972 will. It seems to me that at the very best there might have been the loss of a chance that a will providing for substantial equality might have been made some time prior to the death of the deceased.

85   Furthermore, in circumstances where the deceased did get exactly what she bargained for, and where undue influence has not been shown, I am not satisfied that it would be just and equitable to make any order for any compensation to the plaintiffs.

$40,000 LEGACIES

86   The final issue to be considered concerns the legacy of the share of the $120,000 debt from the company to the deceased. In the result, there has been no dispute before me that the qualification provided by the will concerning the liability of the company is legally ineffectual. It is common ground, I think, that this is void for uncertainty,with the result that each son is entitled, without qualification, to one-third of this debt either pursuant to the specific gift or, if that were to fail because of the uncertainty of the qualification, by reason of their entitlement to one-third of the residue.

87   Also, as I understand it, there is no dispute that the Court can in these proceedings make orders to ensure that the plaintiff's share of this debt is paid promptly after the resolution of these proceedings.
88   The only dispute has concerned whether such order should or should not make some provision for interest up to today. Again, as I understand it, there is no real dispute that interest may be provided for from today onwards.
Submissions

89   Mr Whittle submitted that the executors should have got the debt from the company within a year after the death of the deceased or, at worst, within a year after probate. Even if they had believed that the qualification was legally effectual was that Gordon in each annual report of the company had declared that the company was able to pay its debts as they fell due, so that the qualification should not have prevented payment of the debt.
90   The company, and thus in substance Gordon, have had the benefit of the use of this money for six years longer than it should have, and the plaintiffs have been without it for the same period. In those circumstances interest should be payable.
91   Mr Flaherty submitted that, though the qualification to the gift was without legal effect, it had some relevance to the reasonableness of the conduct of the executors. He submitted that the executors were justified in doing nothing about that legacy when the plaintiffs were challenging the transaction and where, if that challenge was successful, the result would be that no debt would then be owing by the company.
92   These proceedings were started soon after the grant of probate, and have been brought to a conclusion only now, and the amendment to claim the legacy was sought only on the last day of the hearing. He submitted that the executors could not now obtain interest from the company in respect of the past six years, so that if any interest was awarded to the plaintiffs the executors would be out of pocket.
93   In relation to the nature of the present claim by the plaintiffs, he referred me to the case of Ramage v Waklaw (1988) 12 NSWLR 84f.
Decision

94   In my opinion ,the existence of these proceedings did not relieve the executors of the obligation to claim the money from the company, in circumstances where there was no agreement by the company to pay interest, which meant that the estate could substantially lose if the money was claimed some years later. Unless and until the transaction was set aside, the debt was owing in circumstances where the estate could lose if the debt was simply left outstanding.

95   Furthermore, because the debt was left outstanding the company, and therefore in substance Gordon, has had the benefit of the use of this money for six years. The plaintiffs have been without it for the same period.
96   In those circumstances, in my opinion interest should be awarded from a date, say one year after probate, at 5 per cent. In my opinion, because Gordon through the company, has had the benefit of not having to pay this amount, as between Gordon and Mr Morris Gordon should bear the burden of having to pay interest.
97   I would be minded to order that interest continue at 5 per cent for some time into the future, perhaps a month or two, and that if the legacy is not paid within a month or two, that interest should thereafter accrue at schedule rates.
98   There is a question as to what credits should be given against the legacy, particularly in the case of William. $3,000 was paid, it seems, as part payment of the $40,000 legacy, and it seems clear that that should be taken into account in calculating interest as well as in calculating the principal amount still to be paid to William.
99   There is also a document recording an arrangement between William and Gordon, entered into with the approval of Frederick, to the effect that William would take Gordon's one-third share of the deceased's jewellery, at a valuation of $38,740, and that should be treated as a part payment to William of his share in the estate. The deed is expressed as applying on distribution of the assets referred to in clause 1.2 of the document, being the jewellery and the proceeds of the loan account in the company. I do not have any evidence as to exactly what has happened to the jewellery. However, on the material before me it would seem to me to be appropriate to treat this amount as being paid to William as part of the payment of $40,000, when such payment is made.
CONCLUSION

100   I have heard argument on costs. Mr Whittle has submitted that the plaintiff's success in relation to the legacy means that there should be some reduction in the amount of costs payable to the defendant. In my opinion, when one has regard to the circumstance that the amendment was made very late and added very little to the length of the proceedings, that matter does not justify any order other than an order that the plaintiffs pay the defendants' costs.
101   However, I have decided that I will not attempt to make any provision in the declarations and orders I made for a set off of the costs payable to the defendant, which would prevent interest accruing on the legacy. I will provide that the interest continue to accrue at 5 per cent for six months, and that it then accrue at Practice Note rates.
102   I do not think at present it would be necessary to make an order for the payment of the legacies, but I will reserve liberty to apply for such an order, if there is unreasonable delay in paying them.
103   For those reasons, I make the following orders:
104   I declare that, subject to the adjustment to which I will refer in the case of William, each plaintiff is immediately entitled to receive $40,000 in respect of the debt due to the deceased from Aberdeen Steam Laundry Pty Limited, plus interest at 5 per cent on that amount as from 16 June 1994. Such interest to continue to accrue at 5 per cent per annum from six months from today, and thereafter to accrue at schedule rates until the amounts are paid.
105   I declare that, as between Gordon Heming and Kevin Morris, the amount of interest is to be paid by Gordon Heming.
106   I declare that there should be off set against William Heming's entitlement to the legacy and to interest the sum of $3,000 and interest attributable to $3,000 from the date when that sum was paid to him; and $12,913 to be treated as part of the ultimate payment of the amount of principal and interest to William.
107   Otherwise I dismiss the statement of claim.
108   I order that the plaintiffs pay the defendants' costs of the proceedings.

109   I give liberty to the plaintiffs to apply on two days' notice for an order for the payment of the above amounts.

110   I order that the exhibits may be returned after 28 days if there is no appeal.
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Last Modified: 09/25/2000