Glover and Glover v Willert, Willert and Elderstone Pty Ltd

[1996] QCA 132

IN THE COURT OF APPEAL	[1996] QCA 132
SUPREME COURT OF QUEENSLAND	Appeal No. 222 of 1995
Brisbane
Before	Fitzgerald P. McPherson J.A. Byrne J.

[Glover v. Willert & Elderstone Pty. Ltd.]

BETWEEN:

PETER GLOVER and PAMELA GLOVER

(Defendants) Appellants

AND:

PETER WILLERT and CARMEL WILLERT

(First Plaintiffs) First Respondents

AND:

ELDERSTONE PTY. LTD.

(Second Plaintiff) Second Respondent

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 21/05/96

The circumstances giving rise to this appeal are set out in the reasons for judgment of

McPherson J.A. I am in substantial agreement with those reasons.

I feel considerable sympathy for Mr and Mrs Glover, who it has been found were misled by Mr

and Mrs Willert. If the Glovers had simply continued with what had been agreed with the Willerts and

then proceeded against them for the amount by which the debts of Elderstone Pty Ltd had been

understated, they would have recovered the damages caused by the Willerts’ misstatement simply,

quickly and cheaply; it is unnecessary to consider whether they could have brought the action in their own name or would have had to wait until control of Elderstone passed to them, when they could have

caused it to sue.

Instead, although the amount initially in dispute was only about $3,000, there have been lengthy,

complex proceedings in the Magistrates Court, an appeal to the District Court, and finally - it is to be

hoped - an appeal to this Court in which both sides were represented by senior counsel. The costs will

inevitably be out of all proportion to the amount in dispute and, although it was the Glovers who were

the victims and the Willerts who made the misstatement, most of the burden will fall on the Glovers.

Viewed most favourably from the Glovers’ point of view, both the Willerts and the Glovers

received money to which Elderstone was entitled - whatever the agreement between the Glovers and

the Willerts - from the purchasers of its business. The Willerts controlled the company and, accordingly,

were in a position to cause it to sue the Glovers, not themselves. The action was brought in the

Magistrates Court. Even if that suit and the associated preliminary steps taken by the Willerts were

an improper use of their powers as directors of Elderstone, their decisions and actions were voidable,

not void: Whitehouse v. Carlton Hotel Pty Ltd (1987) 162 C.L.R. 285, 294.

I am unable to discern how or why, in consequence, the Glovers had a defence to Elderstone’s

Magistrates Court claim for the monies which they owed it or were entitled to have the claim struck out.

With regret, I agree that the appeal must be dismissed with costs.

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered the 21st day of May 1996

This is an appeal from a judgment in the District Court which allowed an appeal and set aside

a judgment given in an action in the magistrates court. In that court the first plaintiffs were Peter Willert

and Carmel Willert and the second plaintiff was a company Elderstone Pty. Ltd. They are now the first

and second respondents to this appeal. The defendants in the action were Peter Glover and Pamela

Glover, who are the appellants in this Court.

To understand the issues in the action and on this appeal, it is necessary to begin with events

in 1990, when the Willerts and the Glovers agreed to buy and conduct a convenience store at Kangaroo

Point which was acquired by the company Elderstone. The Willerts together contributed $50,000 and

the Glovers $25,000, and shares in the company were allotted in the proportions of _rds (60 shares)

to the former and _rd (30 shares) to the latter. All four individuals became directors.

Mr Glover was put in charge of the business of the shop and was paid a weekly wage. It seems

that the business was not profitable and the parties agreed that the shop should be sold. Purchasers

named Burns agreed to buy the property. A written contract dated 8 October 1991 was executed by

Mr and Mrs Burns as purchasers and by the company as vendor. The purchase price was $58,000,

with a further $5,000 for stock in trade. An amount of $3,000 was to be retained by the purchasers

pending the granting of a cafe licence for the premises.

In due course the contract of sale was settled. In the ordinary way, the company as vendor

would have received all the purchase moneys. However, the contract contained a handwritten special

condition cl.5, which provided that at settlement the Willerts were to receive a bank cheque for

$45,000, with the balance of purchase moneys being payable to the company. Mr Willert had insisted

on this condition as part of an agreement reached with the Glovers, the effect of which was that he and

Mrs Willert would, on completion of sale of the shop, transfer their shares and resign their directorships,

leaving the Glovers as sole shareholders and directors of the company.

To distribute to shareholders in this way the only assets of the company without the formality

of a winding up, a reduction of capital, or even a declaration of dividends, is, of course, contrary to

settled principles of company law (see Australian Oil Exploration Ltd. v. Lachberg (1958) 101

C.L.R. 119, 133-134), the more so as it left some creditors of the company unpaid; but, in approaching the matter in this way, the parties had the advice of an accountant and solicitors, and it was the course

they adopted. As regards creditors, there had been discussions before the contract was signed in which

Willert assured Glover that the only outstanding company debts were those owed for gas, electricity and

telephone, amounting in all to about $300 or $400. Glover was to pay those debts and to keep the

security deposit of $1,500 held by the SEQEB. Consistently with the policy of ignoring the separate

corporate personality and interests of the company, he and Mrs Glover were to receive the balance of

the corporate assets, which were expected to amount to $12,000. The sum of $3,000, retained by the

purchasers pending the grant of the cafe licence was, when it was received, to be divided in the

proportion _ to _rd; that is, $2,000 of that sum was to be paid to the Willerts, and the remaining $1000

to the Glovers bringing their total to $13,000. This explains why on settlement, the Willerts received

a bank cheque for only $43,000 instead of $45,000 mentioned in special condition 5.

In the result, Glover discovered after the event that matters were not as Willert had said they

were. There were other unpaid debts in addition to those identified by Willert, and there were also

cheques drawn by the company which had not been presented or paid by the time of settlement. The

effect was to reduce the net amount of $13,000 which the Glovers had expected to receive. On legal

advice, Glover opened a fresh bank account in the name of Elderstone Pty. Ltd., on which only he had

authority to draw, into which the balance amount of $13,000 from the purchase moneys was paid,

together with the total of $3,000 representing the retention money when it was recovered from the

purchasers on the granting of the cafe licence.

In the action in the magistrates court, the Willerts as first plaintiffs sought to recover their $2,000

share of the retention money, while the company as second plaintiff claimed the amount of $13,000 as

moneys had and received to its use. The Glovers as defendants counterclaimed against the Willerts for damages for deceit or negligent misstatement concerning the amount of the unpaid debts and liabilities

of the company. As to that, the magistrate accepted Glover's version of the discussion; and having

found that the corporate liabilities in fact amounted to $3,014.72, he held that the Glovers were entitled

to recover that amount, and that the Willerts were entitled to the sum of $2,000 of the retention sum.

He then set off the two amounts to produce a net balance in favour of the Glovers of $1,014.72 for

which judgment was entered. As to the company's claim for the amount of $13,000, the magistrate

dismissed that plaintiff's action, essentially on the ground that it had been instituted and conducted by

the Willerts in the corporate name but without proper authority. It was this part of the decision that was

reversed on the appeal to the District Court, where judgment was given for the company on that claim.

It is only with that claim for $13,000 that we are now concerned, the other matters having been

left to lie where they fell. To understand the point at issue, it is necessary to return to the sequence of

events following settlement of the contract to sell the shop. When disputes arose, the Willerts, who by

and large seem to have had the better of the available legal advice, convened an extraordinary general

meeting of the company to be held on 10 December 1992. Notice (ex 4) was given to the Glovers,

but they did not attend the meeting at which, according to the minutes (ex 5), Mr Glover was, under

cl.67 of the articles of association, removed as director of the company. It was further resolved by

those present, who were Mr and Mrs Willert, that under cl.65 of the articles, the number of directors

be reduced to three. The general meeting was followed on the same day by a meeting of directors, at

which, again according to the minutes (ex 6), it was resolved that the no. 2 bank account, opened by

Glover in the name of the company, be closed and the proceeds deposited in the credit of the original

or no. 1 bank account of the company; and that proceedings be instituted by the company against the Glovers in respect of the no. 2 account which had been opened without authority. It was, of course,

the account to which the sum of $13,000 from the purchase moneys had been paid by Glover.

It was not suggested that, assuming it to be valid, the resolution passed at the directors' meeting

was not a sufficient authority for instructing solicitors on behalf of the company to institute the action

brought by it as second plaintiff in the magistrates court. Mrs Glover, who was and is still a director,

did not attend the meeting on 10 December 1992; but the minute of that meeting (ex 6) records that

correspondence was tabled indicating that she would not be attending. The minute (ex 6), which was

tendered without objection at the trial, is prima facie evidence of the proceedings to which it relates:

Corporations Law, s.258(2). That being so, and until the contrary is proved, the meeting is by

s.258(3) deemed to have been duly convened and held, and all proceedings recorded in the minutes

as having taken place at the meeting place are deemed to have duly taken place. Authorising solicitors

to institute proceedings on behalf of the company is something that is ordinarily within the powers of

those having authority to manage the affairs of the company: cf. John Shaw & Sons Salford Limited

v. Shaw [1935] 2 K.B. 113, 134,142-143; Omega Estates Pty. Ltd. v. Ganke (1962) 80 W.N.

(N.S.W.) 1218, 1222.

The submission advanced on behalf of the Glovers is, however, that they and the Willerts had

agreed that, once the contract to sell was settled, the Glovers would become sole "owners" of the

company. The magistrate accepted Glover's evidence to that effect, and, in consequence, held that "the

Willerts had no authority in the name of Elderstone Pty. Ltd. to take action against the Glovers". He

accordingly dismissed the claim of that company as second plaintiff on the footing that those proceedings

were instituted without proper authority.

The reasoning of the magistrate is in my opinion not capable of being sustained. Before 10

December 1992, both the Willerts and the Glovers were shareholders and directors of the company.

They all continued to be shareholders and directors then and thereafter until something happened to

alter that state of affairs. In fact, nothing took place that in law affected their status as shareholders or

members of the company. In law, the Willerts could have been replaced only by removing their names

from the register of shareholders, in consequence of the registration of a valid transfer of their shares to

the Glovers and the entry of the names of the transferees on the register. To remove them from office

as directors, it would have been necessary then to hold a general meeting of the company and to pass

a resolution removing Mr and Mrs Willert from office.

That was, of course, exactly what had been done to remove Glover; but nothing of the same

kind was attempted in the case of the Willerts, who consequently remained shareholders and directors

of the company after, as they were before, the agreement with the Glovers. The magistrate seems to

have considered that it was nevertheless possible to give effect to the agreement or intentions of the

parties that the Glovers should become owners of the shares. On the appeal before us it was sought

to support that approach to the question on the basis that, once the contract to sell was completed, the

Willerts ceased to be beneficial owners and became trustees for the Glovers of their shares and of their

powers as directors. It is not possible to accept that submission. Equity regards a vendor under a valid

contract for sale of land as in substance a trustee for the purchaser of the estate sold even before

transfer has taken place : see Shaw v. Foster (1872) L.R. 5 H.L. 321, 338; Lysaght v. Edwards

(1876) 2 Ch.D. 499, 505. The principle has been treated as applicable by analogy to a contract for

the sale and transfer of shares in a company: Musselwhite v. C.H. Musselwhite & Son Ltd. [1962]

Ch. 986. But its operation is subject to two requirements or conditions which must be fulfilled. The first is that the contract is specifically enforceable: Moore v. Dimond (1929) 43 C.L.R. 105, 123-124;

Brown v. Heffer (1967) 116 C.L.R. 344, 349; the second is that the court possesses the necessary

equitable jurisdiction: see Foster v. Reeves [1892] 2 Q.B. 255; Moore v. Dimond (1929) 43 C.L.R.

105, 111, 124.

In my opinion, neither of these conditions was satisfied in this instance so as to make the Willerts

trustees for the Glovers of their shares or of their powers as directors of Elderstone Pty. Ltd. For

reasons I have already given, it is difficult to suppose that any court would grant specific performance

of a contract so plainly at odds with the settled principle of company law recognised in Australasian

Oil Exploration Ltd. v. Lachberg (1958) 101 C.L.R. 119; see also ANZ Executors & Trustee

Company v. Qintex Australia Ltd. (1990) 2 ACSR 676, affirming (1990) 2 ASCR 307. It is said

that the point was not relied on in the courts below; but it clearly emerges from the form of the

agreement relied upon and is not one that can simply be ignored where, as here, it is sought to treat the

agreement as specifically enforceable. Among its other weaknesses, the argument for the appellants

proceeds on two assumptions. One is that the directors hold and must exercise their powers not for

the benefit of the company but solely in the interests of the shareholders or a section of them; the other

is that, if those powers are exercised improperly, the result is that their decision, and any consequent

action taken in reliance on it, is void rather than voidable. Both assumptions are contrary to authority:

Bamford v. Bamford [1970] Ch. 212; Winthrop Investments Ltd. v. Winns Ltd. [1975] 2

N.S.W.L.R. 666, 679-680, 689; and Whitehouse v. Carlton Hotel Pty. Ltd. (1987) 162 C.L.R.

285, 294. On any view of the matter, it is not possible to conclude that the motive of the Willerts as

directors in authorising the institution of proceedings by the second plaintiff was so thoroughly improper as to invalidate their decision altogether. There is no finding to that effect in the decisions given below

in either court.

In addition, it is doubtful, to say the least, whether the magistrates court had jurisdiction to give

effect to the proposition advanced by the appellants. Magistrates courts in Queensland have only a

limited jurisdiction over equitable claims and defences. The second plaintiff's claim in this action in that

court was not an equitable claim of that nature, but a straightforward common law claim for moneys had

and received. The defence raised against it was not an equitable plea or defence but was one which

asserted that, because of the agreement between the Willerts and the Glovers, the resolution of the

Board of directors authorising institution of the proceedings by the company was invalid. The

jurisdictional point evidently troubled the magistrate because in his reasons he said that his finding about

the agreement "as to the disposal of the company" was "not binding on the parties, as I have no

jurisdiction to make such an order regarding ownership of the company". By "such an order" in this

context he meant the claim that Glover was no longer a director of the second plaintiff company. He

does not seem to have appreciated that, in order to reach the conclusion that the Willerts as directors

had no power to authorise proceedings by the company, it was necessary to find a specifically

enforceable agreement binding on the Willerts to transfer their shares to the Glovers and to resign from

office as directors of the company. In my opinion, that was something which, while the agreement to

that effect remained wholly executory and unperformed, the magistrate had no jurisdiction to determine

as an indispensable step in deciding that the second plaintiff's action was not authorised by an otherwise

apparently valid resolution of the board.

The question whether Glover's action in opening the no.2 account and paying the balance proceeds of sale into it constituted in law to a conversion of the company's money was not the subject of submissions before us. The account was opened in the name of the company; but only Glover had

authority to draw upon it, and on legal advice he evidently refused to exercise that power in favour of

the company. Having regard to the attitude taken up by both parties on this appeal, it may be accepted

that his conduct amounted to a conversion entitling the second plaintiff to recover in an action for

moneys had and received.

Much expense has already been incurred in these proceedings over what is, on any view of it,

a comparatively small amount. It is to be hoped that the Willerts will carry out what seems to be, and

to have been found as, their agreement with the Glovers, by transferring their shares and resigning their

directorships, without the need for further litigation.

The appeal to this Court should be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 222 of 1995

Brisbane

[Glover v. Willert & Elderstone Pty. Ltd.]

BETWEEN

PETER GLOVER and PAMELA GLOVER

(Defendants) Appellants

AND

PETER WILLERT and CARMEL WILLERT

(First Plaintiffs) First Respondents

AND

ELDERSTONE PTY. LTD.

(Second Plaintiff) Second Respondent

Fitzgerald P.
McPherson J.A.

Byrne J.

Judgment delivered 21/05/96

Separate reasons for judgment by each member of the Court, all agreeing as to the order.

APPEAL DISMISSED WITH COSTS.

CATCHWORDS	CORPORATIONS LAW - Removal of Directors - Directors' Meetings - Whether board of directors had authority to institute legal proceedings on behalf of the company.
CONTRACT LAW - EQUITY - Agreement to sell shares - Whether vendor directors held shares as trustees for purchaser directors - Whether contract is specifically enforceable - Whether the Magistrates' Court possesses the necessary jurisdiction.
Counsel:	J.D.M. Muir Q.C. & K. Holyoak for the appellants
P.R. Dutney Q.C. & A.P.J. Collins for the first & second respondents
Solicitors:	D.C. McKelvey for the appellants Neumann & Turnour for the first & second respondents
Hearing Date:	8 May 1996

REASONS FOR JUDGMENT - BYRNE J.

Judgment delivered : 21/05/1996

The facts are mentioned by McPherson JA.
The resolution concerning the litigation against Mr and Mrs Glover was adopted at a

duly convened meeting of the Board. In terms, that resolution authorised the prosecution of the case against the Glovers. At trial and on appeal to the District Court, the validity of the resolution was not challenged in reliance on some such contention as that an improper purpose significantly contributed to the decision to litigate. So there was no investigation of the Willerts' motives in causing the company to sue. As the evidence suggests that a desire to put the company in funds to pay its debts influenced the decision, the omission is unsurprising.

Accordingly, as the case was fought, the Glovers could not have resisted the claim unless the agreement for the sale of the shares prevented the Board from effectually authorizing the proceedings. The defence was that the Board had no power to launch the case because the Glovers were beneficially entitled to all the shares. It comes to this: that in seeking the $13,000, the directors necessarily exceeded their powers just because the tortfeasors were entitled to be registered as owners of the entire issued capital.

One obstacle to the defence is posed by the implications of the distinction between the existence of a power and the propriety of its exercise: cf. ANZ Executors & Trustee Company Limited v. Qintex Australia Limited (Receivers and Managers Appointed) [1991] 2 Qd R 360, 370. If only impropriety were made out, the resolution would be voidable, not void. However, assuming that mere abuse of the Board's powers in authorizing the litigation could have justified dismissal of the claim, that the Glovers would have been prejudiced by the litigation does not mean that the Board exceeded its powers in attempting to recover compensation for the loss caused to the company.

The Board manages this company, and directors are not obliged to act on the direction of all shareholders in general meeting: Black White and Grey Cabs Limited v. Fox [1969] NZLR 824, 836, citing Gramophone and Typewriter Ltd v. Stanley [1908] 2 KB 89, 105. Moreover, directors must exercise their powers for proper purposes and, put shortly, in the

interests of their company. They must not act in a way which could only be contrary to the company's interests (as by giving its property away), even on the instruction of every shareholder: Qintex at 367-368; Ford's Principles of Corporation Law para 7.120, p. 7070. These fundamental principles cannot be reconciled with the notion that, despite a concern to get in funds to pay creditors, the Board was duty bound to prefer the Glovers' interests and to refrain from litigating to recover the company's money.

The appeal should be dismissed with costs.