Hamex Corporation Pty Ltd and Anor v Latrobe Street Ventures and Ors
[2020] VSC 360
•19 June 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST – ALMOND J
S ECI 2020 01418
| HAMEX CORPORATION PTY LTD & ANOR (according to the Schedule attached) | Plaintiffs |
| v | |
| LATROBE STREET VENTURES & ORS (according to the Schedule attached) | Defendants |
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JUDGE: | ALMOND J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 May 2020 |
DATE OF JUDGMENT: | 19 June 2020 |
CASE MAY BE CITED AS: | Hamex Corporation Pty Ltd & Anor v Latrobe Street Ventures & Ors |
MEDIUM NEUTRAL CITATION: | [2020] VSC 360 |
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PRACTICE AND PROCEDURE – Application by Fourth Defendant to strike out sections of statement of claim – Application by Plaintiffs seeking leave to file amended statement of claim – Strike out application refused – Plaintiffs’ proposed amendments to statement of claim allowed – Standing question to be determined on the facts as found at trial – Supreme Court (General Civil Procedure) Rules 2015 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P.J. Bick QC, with Mr I. Thomas | Allen Burtt Legal Services |
| For the Second, Fourth, and Fifth Defendants | Mr S.W. Stuckey QC | Williams Winter Solicitors |
HIS HONOUR:
This proceeding commenced in the Federal Court of Australia and was recently transferred to the Supreme Court of Victoria pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth). At the time of the transfer, there were two extant applications: a strike out application brought by the fourth defendant, David Lester, and an application by the plaintiffs seeking leave to file and serve a fourth statement of claim.
The proceeding has a somewhat complicated history which is elaborated upon in the Federal Court decision of Charlesworth J in Hamex Corporation Pty Ltd v Latrobe Street ventures Pty Ltd,[1] which was an injunction application that preceded the transfer of the proceeding to this Court. I do not propose to rehearse that history in these reasons.
[1][2019] FCA 1717.
Suffice it to say the second plaintiff, Damian Lester, and the fourth defendant, David Lester, are both directors of the first plaintiff, Hamex Corporation Pty Ltd (‘Hamex’). David Lester is Damian’s father. David and Damian are co-executors of the deceased estate of David’s mother, Masha Lester (‘Estate’).
By her Will, Masha Lester established some testamentary trusts and provided for the net annual income of the estate to be received by six beneficiaries in specified shares. Relevantly, David is to receive 50 per cent of the income with the remaining 50 per cent distributed in 10 per cent shares to each of Damian, his brother, two nephews and a niece.
The terms of the Will provide that on the death of these beneficiaries, the income and ultimately the capital devolves to Damian’s two children, the testator’s great-grandchildren.[2]
[2]See clauses 17.2.2 and 17.2.3 of the last Will and Testament of Masha Lester, being Exhibit DRPL-11 to the Affidavit of David Richard Pelham Lester sworn 15 November 2019.
The major asset of the estate is a holding of 380 units in a unit trust known as the Latrobe Street Ventures Unit Trust (‘Unit Trust’). The units in the Unit Trust are jointly held in the names of Damian and David as co-trustees of the estate. Latrobe Street Ventures Pty Ltd (‘Latrobe’), the first defendant, is the trustee of the Unit Trust. The only asset of the Unit Trust is a multi-level car park situated at 128 Latrobe Street, Melbourne which Latrobe owns in its capacity as trustee. Eleventh Klingon Pty Ltd (‘Eleventh Klingon’), the second defendant, holds 400 units in the Unit Trust. This entity is controlled by David Lester and the fifth defendant, Cecily Lester (Damian’s mother).
Sermocon Pty Ltd (‘Sermocon’), the third defendant, holds 420 units in the Unit Trust. Mr McKnight, the sixth defendant, is a director of Sermocon .
At the time of its incorporation in 2014, Latrobe had two directors, David Lester and Mr McKnight. In October 2016, Damian Lester was appointed a director.
Hamex, Eleventh Klingon and Sermocon are the shareholders of Latrobe.
At a meeting of Members of Latrobe held on 9 May 2017, David Lester on behalf of Eleventh Klingon, and Mr McKnight on behalf of Sermocon, passed a resolution removing Damian Lester as a director of Latrobe.[3]
[3]Hamex v Latrobe Street Ventures [2019] FCA 1717, at [14].
On 13 February 2019, by a resolution of its directors, David Lester and Mr McKnight, Latrobe purported to issue a notice of its intention to redeem all of the units held by David and Damian Lester as co-trustees of the Estate pursuant to clause 7(2) of the Unit Trust Deed.
Clause 7(2) of the Unit Trust Deed provides:
The Trustee may at any time in its discretion redeem all or any units held by a unit holder without being requested to do so at the unit price per unit by giving one (1) month’s notice in writing to the unit holder of its intention to redeem such units provided that if the unit holder waives its right to receive such notice, then it shall not be necessary for the Trustee to give such notice.[4]
[4]Ibid, [15].
The Unit Trust Deed contained a methodology for calculation of the unit price of each unit to be redeemed.[5]
[5]Clause 7.3 calculation of unit price; Hamex v Latrobe, ibid [15].
With this context in mind, it is helpful to set out the relevant paragraphs of the proposed fourth statement of claim under the heading Redemption of units in the unit trust (omitting some of the particulars to those paragraphs, and with the addition of the proposed amendment to paragraph 91A outlined in paragraph 35 of these reasons).[6]
[6]Proposed fourth statement of claim, being Exhibit AMB9 to the affidavit of Allen Michael Burtt, dated 20 February 2020.
Redemption of units in the unit trust
91AThe claims pleaded in paragraph 92, 93, 93A, 93B and 93D are brought by Damian in his capacity as a joint trustee of the Estate which is a holder of the Units in the Unit Trust which was were the subject of the notice and as a beneficiary of the testamentary trusts.
…
Latrobe
92.As trustee of the Unit Trust, Latrobe:
92.1 was and is required inter alia:
92.1.1 to act fairly by all unitholders of the Unit Trust;
92.1.2.not to abuse its position by making it a means of profit or benefit to itself or a third party;
92.1.3.avoid a conflict between its interests and those of the unitholders of the Unit Trust;
92.1.4.to exercise any power of redemption under clause 7 of the Unit Trust Deed;
92.1.4.1. in good faith;
92.1.4.2. upon real and genuine consideration;
92.1.4.3.for the purpose for which it was conferred; and
92.1.4.4. not for an ulterior purpose.
93.The proposed redemption by Latrobe of the units in the Unit Trust held by the Trustees, as pleaded in paragraphs 57, 58 and 59 hereof, withholding of Distributions to the Trustees, payment of Fees to Klingon and Sermocom and the entering into of the Unitholders Loan:
93.1 are unfairly discriminatory against the Trustees;
93.2financially benefit Klingon and Sermocom, in which David and Keith have an interest;
93.3 are being done without full disclosure to the Trustees;
93.4 are not being pursued by Latrobe in good faith;
93.5are being pursued by Latrobe, through its directors, for an ulterior purpose, namely to benefit the directors and entities associated with them, being the other unit holders, and to deprive the Estate of its investment in the Latrobe Property and the opportunities associated with it.
Particulars
93.6The facts and matters pleaded in paragraphs 60, 61, 62, 63, 64, 64B, 64C, 64D, 64E, 64F and 64G hereof are repeated seriatim.
93.7The absence of good faith and the ulterior purpose may be inferred from the following facts and matters:
93.7.1A in about November 2014 David and McKnight estimated the total value of the individual car parking bays in the Latrobe Street property to be not less than $42,000,000.00 and recognised the potential to sell the individual car parking bays in the longer term for a substantial capital profit (Sale Opportunity)
93.7.1in or about December 2016, Latrobe explored the possibility of redeveloping the Latrobe Street property by undertaking further construction in the space above the existing building, thereby creating further parking spaces and increasing the value of the Latrobe Property (the Redevelopment Opportunity)
93.7.2the directors of Latrobe were advised by Davis Lawyers that such redevelopment could not occur unless all of the members of the owners’ corporation, being all of the strata title holders, consented to amendment of the Plan of Subdivision for the Latrobe Property;
93.7.3.the directors of Latrobe have been lobbying to change the law in the State of Victoria so as to remove the requirement for all members to consent to an amendment of a Plan of Subdivision (as has occurred in New South Wales);
93.7.4should the requirement be removed, that would facilitate the redevelopment of the Latrobe Property, thereby increasing its value;
93.7.5the entities associated with the directors of Latrobe, being the unit holders apart from the Trustees, stand to benefit from such an increase in value from the Redevelopment Opportunity;
93.7.6redemption of the Trustee’s units would prevent the Estate from benefiting from the Sale Opportunity or Redevelopment Opportunity;
93.7.7David has engaged in a consistent course of conduct, as pleaded in paragraphs 22 to 31, 34 to 55 and 65 to 87 hereof, with the effect and purpose of diverting Estate assets to himself or entities associated with him, as well as excluding Damian, as trustee of the Estate, from decision-making and management of the Estate’s assets including the Latrobe Property;
93.7.7ADavid and Keith have engaged in a consistent course of conduct, as pleaded in paragraphs 64B, 64C, 64D, 64E, 64F and 64G hereof with the effect and purpose of themselves, or entities associated with them, financially benefiting from the Unit Trust to the exclusion of the trustees;
93.7.7BDavid and Keith, as directors of Latrobe, became aware of the terms of the Restraining Order on or shortly after 15 March 2019 when the Restraining Order made in the presence of counsel and solicitors for Latrobe instructed by David or Keith or either of them;
93.7.7CNotwithstanding David and Keith’s knowledge of the terms of the Restraining Order, David and Keith have conducted themselves as if the Trustees’ units in the Unit Trust have been redeemed by ceasing to make Distributions to the Trustees and by continuing Distributions to Klingon and Sermocom as pleaded in paragraphs 64B to 64E;
93.7.8notwithstanding that David is a co-trustee of the Estate, and that he, as a Director of Latrobe, knew of the possible redemption of the Estate’s units from no later than July 2018 (when Latrobe engaged valuers to value the Latrobe property in connection with the proposed redemption), David did not inform his co-trustee, Damian, of the possible redemption before service of the Notice in February 2019;
93.7.9the valuers engaged by Latrobe were not instructed to have any regard to the Sale Opportunity or Redevelopment Opportunity.
93.7.10further, David has negotiated a $4 million loan facility with BankSA in conjunction with Klingon and Sermocom granted the Unitholders Loan to assist Latrobe to redeem the Estate’s interest in the Unit Trust the terms of which are not known to Damian.
93A.Further, or in the alternative, Latrobe’s conduct in issuing the redemption notice and in seeking to redeem the Estate’s units in the Unit Trust comprises conduct in trade or commerce which is unconscionable contrary to s 20 of Schedule 2 to the Competition and Consumer Act 2010, (i.e., the Australian Consumer Law).
Particulars
93A.1The service of the Notice comprised conduct by Latrobe in trade or commerce;
93A.2For the purpose of valuing the Estate’s units, Latrobe intends to rely upon a valuation of the Latrobe property as at 31 July 2018 undertaken by Charter Keck Cramer (the CKC valuation) which:
93A.2.1 is stale;
93A.2.2 substantially undervalues the Latrobe Property, in that the valuation is based upon yields of 5.5% in the Melbourne commercial property market, compared to current yields in the order of 2% to 3%;
93A.2.3 is known by David to be based on yields of 5.5%, in circumstances where David, who is a qualified valuer and practised as such between about 1960 to 1980, and continues to refer to his as qualifications as a valuer in correspondence, knows or ought to know that current yields are in the order of 2% to 3%;
93A.2.4 values each car parking space the Latrobe property at $30,312, in circumstances where the car parking spaces in two of the three car parks identified in the CKC Valuation for the purpose of a direct sales comparison were valued at over $60,000 and over $69,000 respectively, and car parking spaces in the third comparator were valued at $36,800;
93A.2.5does not consider or take into account the Sale Opportunity or Redevelopment Opportunity.
93A.3the conduct in redeeming the Trustees’ units is unconscionable having regard to the particulars to paragraph 93 and paragraph 93A.2 above.
93B.Further, or in the alternative, Latrobe’s conduct in issuing the redemption notice and in seeking to redeem the Estate’s units in the Unit Trust comprises conduct in relation to provision of a financial service which is unconscionable contrary to ss 12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (the ASIC Act).
Particulars
93B.1A unit in the Unit Trust is a financial product within the meaning of s 12BAA of the ASIC Act.
93B.2Redemption of the Estate’s units in the Unit Trust would involve Latrobe dealing in a financial product (i.e. the Estate’s units) within the meaning of s 12BAB(7) of the ASIC Act, and thereby providing a financial service to the Estate within the meaning of s 12BAB(1).
93B.3Latrobe’s conduct in serving the Notice and redeeming the Estate’s units comprises conduct in relation to financial services within the meaning of s 12CA and conduct in trade or commerce in connection with the supply or possible supply of financial services within s 12CB of the ASIC Act.
93B.4 Paragraph 93A.3 is repeated.
…
93DFurther, or in the alternative, David has breached his duty as a Trustee of the Estate by procuring or permitting the redemption of the Estate’s units, payment of the Fees, withholding of the Distributions to the Trustees, in agreeing Distributions to Klingon Sermocom and in failing to join Damian in taking action to restrain the redemption of the units, payment of the Fees, withholding of the Distributions to the Trustees and payment of Distributions to Klingon and Sermocom.
Particulars
93D.1David’s personal interest in the redemption (through Klingon) conflicted with his duty as a Trustee of the Estate to preserve and protect the Estate’s assets.
93D.2 Paragraph 93 above is repeated.
93D.3David placed his personal interests above his duties to the Estate by, as a director of Latrobe:
93D.3.1 agreeing to the redemption of the Estate’s units in Latrobe;
93D.3.2 executing and service the Notice;
93D.3.3 opposing the initiation and prosecution of proceedings by Damian, as co-trustee, to restrain the redemption of the units;
93D.3.4agreeing to and procuring the withholding of Distributions to the Trustees;
93D.3.5agreeing to and procuring the payment of the Distributions to Klingon and Sermocom; and
93D.3.6 agreeing to and procuring the payment of Fees.
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Part 4 – remedy sought
108.Damian seeks:
…
108.2an order under s 1324 of the Corporations Act, accordingly s 232 of the Australian Consumer Law, alternatively s 12GD of the ASIC Act, or alternatively in the Court’s equitable jurisdiction, that David and Latrobe be restrained from taking any steps to redeem the units in the Unit Trust held jointly by Damian and David as trustees for the Estate;
…
109.Further, or in the alternative to the relief sought by Damian referred to in paragraph 108 above, Hamex seeks:
…
109.3an order pursuant to s 233 of the Corporations Act setting aside the notice dated 13 February 2019 given by Latrobe to Damian;
109.4an order under ss 233 of the Corporations Act that Latrobe be restrained from taking any steps to redeem the units in the Unit Trust held jointly by Damian and David as trustees for the Estate;
…
Submissions of the fourth defendant/applicant
The strike out application is brought by the fourth defendant, David Lester. The summons names Cecily Lester, the fifth defendant, and Eleventh Klingon, the second defendant, as respondents though Cecily Lester and Eleventh Klingon joined with the fourth defendant in making submissions in support of the application.
Sermocom and McKnight (collectively McKnight interests) were also named respondents but did not take any active part in the application and did not attend the hearing.
The second, fourth and fifth defendants submit that:
(a)the second plaintiff (Damian Lester) does not have standing to bring an action as joint trustee without the concurrence of his co-trustee;[7]
(b)whilst a co-executor can act and bind the estate unilaterally this does not apply when the co-executor is acting in the role of co-trustee;
(c)the role of co-trustee is a joint role which has to be exercised jointly;[8]
(d)where there is more than one trustee, the decisions of the trustees must be unanimous unless the trust instrument provides otherwise;[9]
(e)several trustees of a trust must act unanimously or not at all;[10] and
(f)that though the terms of the Will in this case contained a provision in the case of a deadlock for the opinion of the majority to prevail, the Will is silent and there is no express provision allowing one trustee to act without the agreement of less than a majority of trustees holding the office of trustee (which is defined to include the executor or executors).[11]
[7]Second, Fourth and Fifth Defendants’ Submissions, [21].
[8]George Attenborough & Son v Solomon [1913] AC 76 82-84, 85.
[9]In the Estate of William Just (1973) 7 SASR 508, 513.
[10]Skye v Body (1970) 92 WN (NSW) 934, 935; Beath v Cousal [2010] VSC 24, [18]-[19].
[11]Exhibit DRPL-11 to the Affidavit of David Richard Pelham Lester sworn 15 November 2019 (the last Will and Testament of Masha Lester).
It is submitted that in the absence of a unanimous resolution by both trustees to challenge the redemption, Damian Lester does not have the power to pursue the issue unilaterally.
In essence, the applicants contend that, to the extent that the proposed amendments purport to allow Damian to advance his claim unilaterally as co-trustee, the statement of claim should be struck out.
Submissions of the plaintiffs/respondents
The plaintiffs/respondents submit that:
(a)the strike out application must be dealt with on the text of the pleading and not on other material;
(b)the power to strike out a pleading as disclosing no cause of action should only be exercised in plain and obvious cases;
(c)difficult issues of law should not be determined summarily in a strike out application;
(d)rule 9.03 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Supreme Court Rules’) permits a joint trustee to bring proceedings provided the other joint trustee(s) is joined as a defendant if the person is unwilling to be joined as a plaintiff;
(e)the existence of r 9.03 of the Supreme Court Rules disposes of the standing point, alternatively, enables the point to be argued at trial;
(f)it is not always easy to determine when the role of an executor changes to the role of trustee of a testamentary trust;
(g)the rule that joint trustees must act jointly or not at all has relevant exceptions, namely where a co-trustee has acted in breach of trust (citing Young v Murphy[12]);
(h)if the trusts are testamentary trusts (as submitted by the fourth defendant), then Damian as a beneficiary has the rights of a beneficiary including the right to take action against a defaulting trustee or trustees or to take action to require the due administration of the trust; and
(i)permitting the case to proceed to trial would allow the Court to act of its own motion, if it found there was no standing, but nevertheless thought it fit to intervene – as the Court did in In the Estate of William Just[13] - where the Court substituted itself in place of the trustees and exercised the relevant powers.
[12][1996] 1 VR 279.
[13](1973) 7 SASR 508, 514.
Analysis and disposition
This application, having been transferred from the Federal Court of Australia to the Supreme Court of Victoria, is governed by the Supreme Court Rules.
The application was issued in the Federal Court pursuant to r 16.21 of the Federal Court Rules 2011 (Cth). Though there is no exact equivalent, the like rule in the Supreme Court Rules, r 23.02, allows a strike out application to be made on the basis that the pleading does not disclose a cause of action.
In applications under r 23.02, the Court is confined to an examination of the pleadings.[14]
[14]Rule 23.04(2).
It was common ground that co-trustees of a private trust occupy a joint office and must act unanimously if they are to act at all, unless the trust instrument provides otherwise.[15] There is no disagreement on these principles, but recourse to the principles alone does not answer the question of whether Damian, an individual trustee has standing on the facts as pleaded in the Proposed Fourth Statement of Claim (‘PFSOC’).
[15]Luke v South Kensington Hotel Co (1879) 11 Ch D 121, 125 (Jessil MR); Skye v Body & Anor Ibid 935G-936A; In the Estate of William Just (1973) 7 SASR 508, 513. In the case of charitable or public trusts, the majority of trustees may act (Re Whiteley; Bishop of London v Whitely [1910] 1 Ch 600, 608).
In my view, it is premature to determine the question of standing at this time for the following reasons.
First, it is evident that David and Damian Lester were appointed joint trustees of the estate pursuant to the terms of the Will.[16] The Will was exhibited to an affidavit of David Richard Pelham Lester, the fourth defendant, sworn on 15 November 2019.[17] Notwithstanding the objection by senior counsel for the plaintiff to the relevance of affidavit material in a strike out application under r 23.02 of the Supreme Court Rules, I examined the exhibit given the incorporation by reference of clause 1 of the Will in the PFSOC at paragraph 16.
[16]PFSOC [16], clause 1 of the Will.
[17]Exhibit DRPL-11.
By clause 1 of the Will, Masha Lester appointed David and Damian, among others, ‘to be executors of this my Will and trustees of my estate’ and she directed that in the interpretation of the Will, the expression ‘my trustees’ shall mean and include the executor or executors and the trustee or trustees of…’.
Accordingly, it is at least arguable that the expression ‘joint trustees of the estate’ can be taken to include the executor or executors.
Despite the passage of time from the date of death of Masha Lester on 2 March 1997,[18] this distinction may have relevance to the contentious claims pleaded in paragraphs 91A and following with respect to the redemption of units in the Unit Trust. The appointment of David and Damian as trustees and executors of the Estate is referred to indirectly in the particulars to paragraph 20A of the PFSOC.
[18]PFSOC [12].
It is plain from the matters alleged in paragraph 22 of the PFSOC that there is a continuing duty to administer the estate by, among other things, keeping financial books and records and paying the income beneficiaries under the Will, which will continue until relevant life interests have come to an end.
At the time that David is alleged to have done things to prefer his own interests with the effect of depriving the Estate of its investments in the Latrobe project and the opportunities associated with it,[19] David and Damian still had an active role as co-executors. It is uncontroversial that an executor in dispute with a co-executor may unilaterally bring proceedings against the co-executor in connection with issues concerning the Estate.[20]
[19]PFSOC [93.2, 93.5].
[20]John v John; John v John [2010] NSWSC 937 at [19]-[20].
As co-executor, Damian has standing to bring proceedings on behalf of the Estate. In this case there will doubtless be argument as to whether the circumstances of the alleged conduct in relation to the Latrobe project engages the role of co-executor in this case or the role of joint trustee or both. In my view, this can only be determined on the facts as found at trial.
Further, there is no question that a joint trustee has standing to sue for breach of trust. In Young v Murphy,[21] Brooking J said:
The standing of a trustee to take proceedings to have a breach of trust redressed against a trustee or former trustee or a stranger who has become liable to redress a breach of trust is well recognised. Not only may a trustee take such proceedings but he runs the risk of himself committing a breach of trust if he fails to do so…His obligation to take the proceedings (unless they would be futile) is part of his duty to get in the trust estate, which includes rights of action against co-trustees or former trustees and strangers for breach of trust. This is clear as a matter of both principle and authority. Moreover, since the trustee will take the proceedings for breach of trust for the benefit of the beneficiaries, he can sue even if he was a party to the breach of trust or some other breach of trust.[22]
[21][1996] 1 VR 279.
[22]Young v Murphy ibid [281]-[282] (omitting citations) (J D Phillips J (with whom Brooking J and Batt J agreed)).
It is enough for present purposes to observe that it is recognised that there are some situations in which a joint trustee can take action against a joint but defaulting trustee. Whether there has been any relevant breach to support an argument that David is a defaulting trustee which would therefore give Damian standing on this basis in this case is also a matter of fact to be determined at trial.
In the course of argument, counsel for the applicant plaintiffs introduced a proposed amendment to paragraph 91A of the PFSOC to introduce an additional basis upon which the claim was made by Damian, namely, as a beneficiary of the testamentary trusts. I was informed that this was the first time that Damian had purported to make the claims pleaded in that capacity in the contentious paragraphs.
There is no dispute that Damian has standing to make a claim as a beneficiary of the testamentary trusts.
For all of these reasons, I have decided to allow the application for the proposed amendments. It is preferable in this case to determine any relevant question of standing at trial if that should be necessary. It follows that I refuse the strike out application.
SCHEDULE OF PARTIES
HAMEX CORPORATION PTY LTD
First plaintiff
and
DAMIAN RICHARD ROHAN LESTER
Second plaintiff
and
LATROBE STREET VENTURES PTY LTD
First defendant
and
ELEVENTH KLINGON PTY LTD
Second defendant
and
SERMOCOM PTY LTD
Third Defendant
and
DAVID RICHARD PELHAM LESTER
Fourth Defendant
and
CECILY JOSEPHINE LESTER
Fifth Defendant
and
KEITH MCKNIGHT
Sixth Defendant
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