Hawcroft v Jamieson

[2017] NSWSC 1478

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Hawcroft v Jamieson [2017] NSWSC 1478

Hearing dates:

11 and 12 April 2017

Decision date:

31 October 2017

Before:

Gleeson JA

Decision:

(1)   Declare that the resolution of directors of Hawcroft General Trading Co Pty Ltd (the company) on 28 June 2016 adopting the terms of the chairperson proposal tabled at a meeting of directors of the company on 1 February 2016 and appointing the first defendant as the chairperson of the company is invalid and of no effect.

 

(2)   Otherwise dismiss the amended statement of claim filed 21 February 2017, except in relation to the question of costs.

 (3)   Any party seeking an order for costs different to that proposed in [290] of these reasons, and in respect of the plaintiff’s application for an order for interest on costs, such party and the plaintiff (as the case may be) shall file and serve written submissions not exceeding 4 pages and any affidavit evidence in relation to the issue of costs within 14 days of these reasons. Each other party may file and serve written submissions in reply not exceeding 3 pages and any affidavit evidence in reply within 21 days of these reasons. Subject to any application for an oral hearing in relation to costs, direct that the question of costs will be dealt with on the papers.

Catchwords:

CORPORATIONS – membership, rights and remedies – validity of resolution of directors of company – where resolution purported to appoint director as chairperson with authority and remuneration additional to that of other directors – whether chairperson resolution was beyond the power of the directors under the constitution – where constitution provided that the directors may delegate their powers to committees of such member or members of their body as they think fit – where constitution also provided that remuneration of directors be determined by the company in general meeting – whether invalid part of single resolution of directors severable.

 

CORPORATIONS – management and administration – where plaintiff is director of company and entitled to be registered as holder of one third of the shares therein as legal personal representative of her late husband who was also a former director – where defendants are the other two directors and each one third shareholders of the company – whether the plaintiff’s late husband and the defendants entered a binding agreement described as proposed preliminary protocols (Protocol) that governed the manner in which the company would be managed and operated – whether the directors qualified their assent to the document before signing – whether the directors intended immediately to be bound to the terms of the Protocol – whether subsequent conduct by the directors indicated the existence of a concluded bargain – whether plaintiff has standing to enforce agreement arising from the Protocol.

 

CORPORATIONS – where constitution of company provided for decisions by directors by simple majority -– where Protocol required a special majority of 70 percent of directors or shareholders for any variation to the way in which the company is managed or operated – whether the chairperson resolution approved by simple majority of directors was invalid - whether Protocol took effect as a resolution of shareholders and operated to alter the constitution of the company to the extent of inconsistency between the two under the doctrine of informal unanimous assent – whether the company is the proper plaintiff or should have been joined as an interested party.

  ESTOPPEL – Anshun estoppel and abuse of process – whether plaintiff is precluded from asserting that the Protocol was a valid and binding agreement – where plaintiff had earlier instituted proceedings against the company claiming proceeds of insurance policy over the life of her late husband – where in earlier proceedings the plaintiff had asserted the terms of the Protocol had evidentiary value for her claim to the insurance proceeds but did not assert that it constituted a valid and binding agreement – where the chairperson resolution was voted on after the earlier proceeding was instituted – whether unreasonable for plaintiff not to have joined additional defendants in earlier proceedings and raised the issue of the validity of Protocol.

Legislation Cited:

Acts Interpretation Act 1901 (Cth), s 15A
Civil Procedure Act 2005 (NSW), ss 98, 101(4)
Companies Act 1862 (UK), Table A, Art 68
Companies Act 1961 (NSW), Sch 4, Arts 49, 70, 85, 86
Corporations Act, 2001 (Cth), ss 9, 136, 140, 198D, 232, 233, 234, 236, 237, 249A, 249H, 249L, 251A, 1072E
Joint Stock Companies Act 1856 (UK), Table B, Art 57

Cases Cited:

Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd; Brown v Hodgkinson [2009] NSWCA 386 Agricultural and Rural Pty Ltd v Gardiner (2008) 238 CLR 570
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425
B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647
Bazos v Doman [2001] NSWCA 347
Bodikian v Sproule (2009) 72 ACSR 598
Bradbury v Morgan (1862) 158 ER 877
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 118
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251
Gibbons Investments Pty Ltd v Savage [2011] FCA 527
Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231
Hambly v Trott (1776) 98 ER 1136
Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555
Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91
Herrman v Simon (1990) 4 ACSR 81
Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68
Hussey v Horne-Payne (1879) 4 App Cas 311
Jagot v Coastalwatch Pty Ltd [2009] NSWSC 594
Johnston v Bright Star Holdings Pty Ltd [2014] NSWCA 150
Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26
Laybutt v Amoco (Australia) Pty Ltd (1974) 132 CLR 57
Ling v The Commonwealth (1996) 68 FCR 180
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
Mayne v Jacques (1960) 101 CLR 169; [1960] HCA 23
Michael Wilson & Partners Limited v Nicholls and Others (2011) 244 CLR 427; [2011] HCA 48
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1
Painaway Australia Pty Ltd v JAKL Group Pty Ltd (2011) 249 FLR 1
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Price v Murray [1970] VR 782
Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477
Re Duomatic Ltd (1969) 2 Ch 365
Re Fireproof Doors Ltd; Umney v The Company (1916) 2 Ch 142
Re George Newman & Co [1895] 1 Ch 674
Re Grundy Pty Ltd [2010] NSWSC 1432
Re NSW Leagues’ Club Ltd [2014] NSWSC 1610
Re PW Saddington & S Pty Ltd (1999) 19 NSWLR 674
Rectron Australia BV v Lu [2013] VSC 384
Reichel v McGrath (1889) 14 App Cas 665
Residues Treatment & Trading Co Ltd v Southern Resources Ltd (No 4) (1988) 14 ACLR 569
Rilgar Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632
Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65
Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149
Sheraz v Vegas Enterprises Pty Ltd (2015) 48 WAR 93
Simon v HPM Industries (1989) 15 ACLR 427
Stanhope v Stanhope (1886) 11 PD 103
Taurine Co (1884) 25 Ch D 118
Taylor v Johnson (1983) 151 CLR 422
Timbercorp Finance Pty Ltd (in liq) v Collins and Anor; Timbercorp Finance Pty Ltd (in liq) v Tomes (2016) 339 ALR 11; [2016] HCA 44
Tollhurst v Associated Cement Manufacturers (1990) Ltd [1903] AC 414
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 89 ALJR 758; [2015] HCA 28
Universal Music Australia Pty Ltd v Pavlovic & Ors; Pavlovic & Anor v Universal Music Australia Pty Ltd [2015] NSWCA 313
Vermillion Resources Pty Ltd v Gibbons Investments Pty Ltd (2011) 86 ACSR 246; [2011] FCAFC 149
Walton v Gardiner (1993) 177 CLR 378
Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689
White v Thompson [2011] NSWCA 161
Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666

Texts Cited:

Ford, Austin, and Ramsay, Company Directors – Principles of Law and Corporate Governance (LexisNexis Butterworths, 2005)

 

Ford, Austin and Ramsay’s, Principles of Corporations Law (LexisNexis Looseleaf)

  GE Dal Pont and KF Mackie, Law of Succession, 2nd Ed, LexisNexis Butterworths, 2017

Category:

Principal judgment

Parties:

Jennifer Hawcroft (Plaintiff)
Michelle Jamieson (First Defendant)
John Hawcroft (Second Defendant)

Representation:

Counsel:
Mr T Alexis SC / Ms L Coleman (Plaintiff)
Mr BA Coles QC / Mr M Sneddon (Defendants)

  Solicitors:
Jenkins Legal Services (Plaintiff)
Fox & Staniland (Defendants)

File Number(s):

2016/383547

Judgment

1. GLEESON JA: This proceeding concerns a dispute between family members in relation to the corporate governance of Hawcroft General Trading Co Pty Ltd (the company). The parties to the proceeding share a common family name – Hawcroft. Where it is necessary to distinguish between them, it is convenient to refer to them by their first names. In doing so, I intend no disrespect.

2. The plaintiff, Jennifer Hawcroft (Jennifer), was appointed a director of the company on 16 May 2012 following the death of her husband, Martin Hawcroft (Martin). He died unexpectedly on or about 30 April 2012. Jennifer is the legal personal representative of Martin’s estate. As such Jennifer is entitled to be registered as the holder of the shares in the company held by Martin: Corporations Act 2001 (Cth), s 1072E(2). However, no transfer of Martin’s shares has yet taken place.

3. The first defendant, Michelle Jamieson (nee Hawcroft) (Michelle), and the second defendant, John Hawcroft (John) are siblings of Martin and also Peter Hawcroft (Peter). Peter ceased to be a shareholder and director of the company in late August 2011. At all material times between 31 August 2011 and 30 April 2012, Martin, Michelle and John were the directors and equal shareholders in the company. The present directors of the company are Jennifer, Michelle and John.

4. The company is not a party to the proceeding.

5. The central issue in the proceeding is the validity of a resolution of directors of the company on 28 June 2016, referred to as the “chairperson resolution”. That resolution was carried by majority (comprising Michelle and John, with Jennifer dissenting). The resolution appointed Michelle to the role of chairperson of the company with certain authority additional to other directors of the company on terms which included the payment of additional remuneration to Michelle of $20,000 above the fee payable to the other directors. (The terms of the chairperson resolution, including the “proposal” the subject of that resolution are set out at [51] and [53] below).

Outline of Jennifer’s case

6. Jennifer’s case is that the chairperson resolution is invalid for two reasons.

7. First, the resolution is in breach of the terms of a “protocol” which was agreed to by Martin, Michelle and John as the then directors and shareholders of the company on 31 August 2011 (the Protocol), or alternatively on 15 February 2012 (the Amended Protocol). The Protocol relevantly provided that the vote of directors or shareholders representing at least 70 percent of the issued shares of the company is required on any decision to vary the manner in which the company is managed or operated (cl 10, Protocol, and cl 9, Amended Protocol).

8. Second, the resolution is beyond the power of the directors because it involved the payment of additional remuneration to one of the directors (relevantly, Michelle), whereas under the constitution of the company the approval of the remuneration of directors is given to the company in general meeting, not the directors, and here the shareholders have not approved the additional remuneration for Michelle.

9. In her amended statement of claim Jennifer claims declarations, that the Protocol, or the Amended Protocol, is legally binding and enforceable against each of Michelle and John in relation to the management of the company in accordance with its terms (orders 1 and 2), and that the chairperson resolution is invalid and of no force or effect (order 3). Orders are also sought seeking to set aside the chairperson resolution (order 4) and restraining Michelle from acting upon or in accordance with that resolution (order 5).

10. In oral argument, Jennifer abandoned her alternative claim that the chairperson resolution is in breach of cl 9 of an Amended Protocol, which was allegedly adopted by the directors and shareholders on 15 February 2012. Jennifer accepted that cl 27 of the Amended Protocol anticipated execution of that document, and that it had not been signed by any of the directors and shareholders. It followed that the only operative document relied upon by Jennifer was the 31 August 2011 Protocol.

Issues

11. At the conclusion of the parties’ submissions, the following issues arise for determination:

1. Whether the chairperson resolution is beyond the power of the directors under the constitution of the company having regard to the regulations contained in Table A in the Fourth Schedule of the Companies Act 1961 (NSW), in particular regs 49, 70, 85 and 86, which were adopted as part of the constitution of the company;

2. Further, whether the directors and shareholders of the company (Martin, Michelle and John) intended to create a legally binding agreement in terms of the Protocol signed by them at the 31 August 2011 meeting;

Assuming the Protocol is a legally binding agreement, the following further issues arise:

3. Whether any binding agreement the subject of the Protocol was only operative during the lifetime of Martin;

4. Whether the Protocol takes effect as a resolution of shareholders of the company and thereby operates to alter the constitution of the company to the extent of any inconsistency, in particular with reg 80 of the Table A articles;

5. Whether the chairperson resolution of 28 June 2016 contravenes cl 10 of the Protocol;

6. Whether Jennifer can enforce the alleged agreement arising from the Protocol;

7. Whether the company is the proper plaintiff or should have been joined as an interested party;

8. Whether Jennifer’s claims for relief in relation to the Protocol, are precluded by an Anshun estoppel (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 (Anshun)) because Jennifer failed to raise these claims in the earlier proceedings brought by her against the company in 2015, in which she claimed an entitlement on behalf of Martin’s estate to the proceeds of an insurance policy taken out by the company in respect of Martin’s life (the Insurance Proceedings);

Background

12. The company operates a hotel business in Newcastle known as the Quality Hotel, Noah’s On The Beach (the Hotel), and owns real property, including two residential properties in East Newcastle. Up until about 2010, the company also operated a farming business at Merriwa and a motel at Muswellbrook.

13. The founding director of the company was Mr Edward Hawcroft, the father of Martin, Peter, Michelle and John. He died on or about 7 July 2003. From that time, Martin and Peter were the directors of the company. Peter was responsible for the management and control of the cattle property at Merriwa, and Martin was responsible for the Hotel at Newcastle and the motel in Muswellbrook. It is common ground that Peter and Martin did not get on well. In September 2007, Michelle and John were appointed additional directors of the company.

14. In August 2011, arrangements were finalised in relation to Peter’s exit from the company. A directors’ meeting held on 17 August 2011 resolved to increase the share capital of the company from 100 ordinary shares to 600 ordinary shares. Following the transfer of shares between existing shareholders, the shareholding position became that Martin, Michelle and John each held 200 shares in the company. Peter resigned as a director on or about 25 August 2011.

15. On the evening of 30 August 2011, Mr Hugh McKensey, who was an accountant and acted as a consultant to the company, raised the idea of the proposed Protocol for the first time during a telephone conversation with Martin. Mr McKensey deposed in his affidavit (par 16) that he told Martin that he would put together “a set of basic rules for managing the company so that you, Michelle and John are of one mind as you start this next chapter of your relationship”. Mr McKensey said he indicated his view to Martin that following Peter’s resignation, and while the three directors were getting along, “it would be a good time to establish the basis for you to work together as directors. The rules could then be modified or amended as required.” Mr McKensey said that Martin replied that he thought that it was “a very good idea”.

16. At the conclusion of a meeting called on short notice of about 30 minutes on 31 August 2011, each of the directors signed the Protocol document. Mr McKensey also signed the document. Mr McKensey did not prepare minutes for the 31 August 2011 meeting, despite that being his usual practice.

17. A dinner to celebrate Peter’s exit from the company was held on the evening of 31 August 2011 and was attended by Martin, Michelle and John, and a number of the company’s advisers, including Mr McKensey.

The Proposed Preliminary Protocols

18. The document prepared by Mr McKensey was entitled “Proposed Preliminary Protocols for Managing Hawcroft General Trading Co Pty Ltd from 1 September 2011”. Mr McKensey said in cross-examination that he had a couple of telephone conversations with Martin about some of the provisions in the document (it seems on 30 August 2011). It is common ground that Mr McKensey first provided the document to each of the directors at the directors’ meeting on 31 August 2011.

19. The proposed Protocol comprised a three-page document containing 17 clauses. The Protocol dealt with who would be directors of the company (cl 1); the frequency of directors meetings (bi-monthly) (cl 2); minimum directors fees of $50,000 per annum for each director, but which would not be paid if franked dividends were paid exceeding $150,000 per annum (cl 3); the appointment of a chairman of all directors and shareholders meetings (cl 4); the appointment of Martin as managing director with a salary of $190,000 per annum commencing on 1 September 2011 (cl 5); Martin’s sole responsibility for the day-to-day operation and management of the Newcastle hotel (cl 7); Martin’s authorised operating expenditure limits (cl 8); annual auditing of financial accounts (cl 9); voting majorities for decisions of directors or shareholders to vary the manner in which the company is managed or operated (cl 10); the provision of new motor vehicles to each of Michelle, John and Martin (cls 12 and 13); the payment of premiums for key-man insurance in respect of Martin and the disposition of proceeds from a claim on that policy (cl 16); and a dispute resolution procedure (cl 17).

20. In addition to cl 10, it is necessary to set out in full cls 1, 3, 5, 12, 13 and 16 of the Protocol which have particular significance to Jennifer’s contract case based on alleged post-contract conduct after 31 August 2011:

(1) Martin Hawcroft (“MH”), Michelle Jamieson (“MJ”) and John Hawcroft (“JH”) will continue to be the directors of Hawcroft General Trading Co Pty Ltd (“HGT”) until they cease holding any shares in HGT or they resign.

…

(3) Directors' fees will be a minimum of $50,000 per annum for each director and may be varied from time to time by unanimous agreement of all directors. No directors fees will be payable for as long as franked dividends paid by HGT exceed $150,000 per annum.

…

(5) MH will be the managing director of HGT until he is unable to act or resigns. His salary will be $190,000 per annum commencing on 1 September 2011 plus superannuation at the minimum rate for Superannuation Guarantee purposes. The salary is to be indexed annually by changes in the Average Workers Ordinary Times Earnings index or equivalent index and reviewed to market every five years by an external recruitment company agreed to by all directors.

…

(10) Other than for requiring that HGT be placed into liquidation, at any meetings of directors or shareholders of HGT where a vote is required the vote of each director or shareholder will represent the number of shares controlled by that director or shareholder in HGT at that time and any decision of the directors or shareholders of HGT that is required to vary the manner in which HGT is managed or operates, including funding and capital expenditure, dividend policy and structure, will require the vote of directors or shareholders representing at least 70% of issued shares in HGT.

…

(12) MJ and JH will be provided with new fully found motor vehicles of their choosing to the value of the luxury car tax threshold currently $57,466 at the earlier of every five years or 150,000 kilometres.

(13) MH will be provided with a new fully found diesel motor vehicle equivalent to a Toyota Land Cruiser at the earlier of every five years or 250,000 kilometres.

…

(16) HGT will take over and continue the payment of key-man insurance on the life of MH for $2,000,000 at a cost of approximately $1,800 per month that was previously paid by HGT prior to the death of Edward Samuel Hawcroft. In the event of a claim on this policy the proceeds are to be used by HGT to employ a competent manager to prepare NOTB for sale within a maximum period of two years from the receipt of such proceeds of claim to enable the liquidation of HGT.

21. The circumstances in which the Protocol document was signed by the directors are controversial. There are a number of conflicts in the evidence. The first concerns Mr McKensey’s explanation of the document and whether he described the Protocol as a “working document” and a “road map to move the company forward”. The second concerns the discussion relating to cl 10. The third, and most important, concerns whether the directors’ expressly qualified their assent before they signed the document. My review of the conflicting evidence and factual findings are set out below: see [60] – [107]. In short, I prefer the evidence of Michelle and John to that of Mr McKensey, and find that they expressly qualified their assent to the Protocol before signing the document.

Events following 31 August 2011

22. Following the 31 August 2011 meeting, Michelle sought advice from her own solicitor, Mr Mark Hourigan. In an email to Michelle dated 12 September 2011, Mr Hourigan expressed the view that most of the terms of the Protocol were clear and self-explanatory however, two particular matters needed to be fully considered.

23. One matter was the terms of Martin’s appointment as managing director under cl 5 “until he is unable to act or resigns”. Mr Hourigan indicated that usually there would be some provision that a director could also be removed in the event of matters such as gross misconduct, acting in a manner which is seriously detrimental to the business or loss of mental capacity.

24. The other matter was cl 16 which provided that in the event of Martin’s death and a claim on his key-man insurance policy, the Hotel at Newcastle must be sold within two years. Mr Hourigan suggested that there should be a buy-out provision in favour of the surviving members using the proceeds of the policy.

25. Mr Hourigan also raised a query in relation to cl 3 concerning directors’ fees and franked dividends.

26. Both Michelle and John accepted in cross-examination that following the 31 August 2011 meeting, Martin’s salary increased from $120,000 per annum to $190,000 per annum effective 1 September 2011; that Mr McKensey was appointed as the chair of all meetings of directors and shareholders after 1 September 2011; that the directors each received $10,000 per month in directors’ fees in lieu of dividends; that Martin ordered a new Toyota (Sahara) Landcruiser in about November 2011, of which he took delivery in March 2012, and that John ordered a new Toyota Prado of which he took delivery in early 2012.

19 October 2011 – directors meeting

27. The next directors’ meeting was held on 19 October 2011. The notice of meeting dated 10 October 2011 included as Item 9 of the Business agenda: “To discuss the company protocols signed 31 August 2011”.

28. The minutes of the 19 October 2011 meeting record:

5.   MJ tabled a discussion regarding the company protocols 31 August 2011.

6.   All directors agree to amend point 16 in the company protocols to include incapacitated, mentally unable, etc.

7.   HMcK to prepare the variation and send through to all directors.

29. It is common ground that item 5 of the minutes of the October 2011 meeting was a reference to Michelle reading from the email she had received from Mr Hourigan dated 12 September 2011, and noting his view that cls 3, 5 and 16 of the document need to be amended. Mr McKensey deposed that Michelle asked him to prepare some variations to those three clauses along the lines suggested by Mr Hourigan and that he agreed to draft the changes and circulate a revised document. Mr McKensey did so (it seems sometime after 21 October 2011: see [30] below) and circulated an unsigned document to the directors entitled “Proposed Preliminary Protocols” dated 31 August 2011, together with a further two pages containing four proposed variations, including to cls 3, 5 and 16.

30. In an email to Mr Hourigan dated 21 October 2011 entitled “Preliminary Protocols”, Mr McKensey described the document as “nothing other than a platform on which to build” and stated that he was drafting changes to the three clauses raised in Mr Hourigan’s email to Michelle of 12 September 2011.

31. John was challenged on his affidavit evidence (par 20) that at the time of the 19 October 2011 meeting he remained dissatisfied with many aspects of the proposed protocols. He said that the directors were working their way through the document, and the agreement to amend cl 16 was one step but the document needed a lot of work. I accept his evidence.

32. John disagreed with the cross-examiner’s suggestion that after the October 2011 directors’ meeting, the only matters that required variation concerned cls 3, 5 and 16. He said that the directors were completely dissatisfied with the proposed preliminary protocols, they were going nowhere, and they had wasted enough time on the Protocol and decided to approach Moray & Agnew to get a shareholders agreement done by a lawyer. I also accept this evidence. John said that the decision to approach Moray & Agnew was probably made around February 2012.

14 December 2011 – directors meeting

33. The next meeting of directors was held on 14 December 2011. The notice of meeting dated 7 December 2011 included the following items on the Business agenda:

7.   Company protocols – Consideration of ability to exit the company in the event of one of the three wanting to exit or upon their death.

8.   To discuss the variations to the Company protocols dated 19 October 2011.

34. The minutes of meeting of 14 December 2011 record:

5.   MJ tabled a discussion regarding the company protocols variation dated 19 October 2011.

6.   HMcK to prepare a variation to the protocols dated 14 December 2011 and distribute to all directors.

35. Mr McKensey deposed (par 31) that he did not recall the precise discussion at the December 2011 meeting, but he believed it primarily concerned the provisions of the Protocol regarding the exit of one of the directors from the company and the sale of the Hotel. He said that following the December 2011 meeting, he prepared and circulated a further amended version of the Protocol. This document was headed “Proposed Preliminary Protocols for Managing Hawcroft General Trading Co Pty Ltd from 1 September 2011”. It comprised five pages with 27 clauses (the Amended Protocol). Clause 10 of the Protocol had been renumbered cl 9; this seems to have been the consequence of a change in the numbering in the earlier provisions. Clause 3 of the Protocol remained, but was no longer separately numbered. It simply followed on after cl 2. Clauses 16 to 24 dealt with the exit of any of the directors. Clause 27 provided:

This document, when signed by MH, MJ and JH is a replacement document for that of the same name signed by them on 31 August 2011.

36. Michelle deposed (par 22) that at the December 2011 meeting, she said that she was not happy with the way the protocols were written and that “as it is a legal issue we should sit down with Reg and do it properly”. (This was a reference to Mr Reg Whare of Moray & Agnew, Newcastle, the company’s solicitor.) Michelle said that Martin responded: “We should get Reg to prepare a formal shareholders’ agreement”, and that John indicated his agreement to that course. Michelle was not challenged on this evidence in cross-examination. I accept her evidence.

37. John gave evidence that at the 14 December 2011 directors’ meeting, the proposed variations to the company protocols were discussed, but they were never agreed to. He said that during the December 2011 meeting, Mr McKensey was asked to prepare some variations and distribute them and that he received a further version of the protocol containing 27 clauses. I accept his evidence.

15 February 2012 – directors meeting

38. The next directors’ meeting was held on 15 February 2012. The notice of meeting dated 13 February 2012 included as item 6 on the Business agenda:

To discuss the variations to the Company protocols dated 14 December 2011.

39. The minutes of the meeting of 15 February 2012 record:

14.   Protocols have been updated to generally reflect the variations per the determination of the board at the meeting held 15 December 2011.

40. There is a dispute as to what was said at this meeting on the topic of the Amended Protocol and whether the directors orally agreed to that document. It is common ground that this document was never signed. My review of the conflicting evidence and factual findings are set out below: at [108] – [125]. In short, I prefer the evidence of Michelle and John to that of Mr McKensey and find that the directors did not indicate their oral agreement to the terms of the Amended Protocol at this meeting.

41. Mr McKensey agreed in cross-examination that after the February 2012 meeting he did not take any further steps in relation to the proposed protocol document and that it did not come back before Board meetings. Mr McKensey agreed that the matter had been handed over by the directors to the lawyers and that he was not involved in the matter of the shareholders agreement.

42. As instructed by the directors, Moray & Agnew prepared a draft shareholders’ agreement on or about 22 March 2012. As mentioned, Martin died suddenly on or about 30 April 2012 and Jennifer, was appointed a director of the company on 16 May 2012. It seems that no further steps were taken in relation to the draft shareholders’ agreement.

29 May 2012 – directors’ meeting

43. The minutes of the directors’ meeting held on 29 May 2012 record discussion about Jennifer’s request to retain the new Toyota Landcruiser recently purchased by the company for Martin, and that Michelle and John raised the issue of that vehicle being around twice the value of the vehicles provided for their use. It was agreed, pending resolution of that issue, that Martin’s remuneration package would be continued to be paid in the same manner as it was prior to his death.

44. At this meeting, Ms Debera MacKenzie was appointed to the position of general manager of the Hotel. An organisational chart was prepared which included Jennifer’s role of working with and assisting the general manager.

24 July 2012 – directors’ meeting

45. The minutes of the directors’ meeting held on 24 July 2012 record discussion under Item 7 of Jennifer’s motor vehicle, being the Toyota Landcruiser provided to Martin. A Board report presented at that meeting by the general manager noted that there was a difference of approximately $25,000 in value between the Toyota Sahara provided to Martin, and the Toyota Prado provided to John. The general manager recommended that if any director had a vehicle worth more than the standard as set out in the company Protocols, the other directors receive a directors’ fee (to the value of the difference). The minutes record that:

• Mr McKensey informed the directors that the payment of a directors’ fee would have superannuation, payroll tax and workers compensation insurance implications;

• the directors’ fee would be reviewed annually and the payment would continue whilst ever a difference existed in the after-tax motor vehicle benefit between the directors;

• it was agreed that all directors’ motor vehicles would be eligible for replacement at the earlier of five years or 150,000 kms.

21 August 2012 – Directors’ meeting

46. The minutes of the directors’ meeting held on 21 August 2012 record under Item 3 – General Manager’s Report – that the directors had agreed to pay Michelle and John a directors’ fee in lieu of receiving a more expensive motor vehicle.

28 May 2013 – Directors’ meeting

47. The minutes of the directors’ meeting held on 28 May 2013 record discussion under Item 9 – Motor Vehicle Allowance MJ (being a reference to Michelle) – that Mr McKensey advised the directors that the agreement regarding motor vehicles made on 31 August 2011 and confirmed at the 24 July 2012 Board meeting (namely, “all director motor vehicles would be eligible for replacement at the earlier of five years or 150,000 kms”), was the current position.

Events in 2015 and 2016

48. In 2015, Jennifer commenced the Insurance Proceedings against the company claiming an entitlement to the proceeds of a life insurance policy held by the company over the life of her late husband, Martin. She succeeded at first instance: Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555. An appeal by the company against that decision was successful: Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91.

49. In or around February 2015 Mr McKensey resigned as a consultant to the company. Mr Carl Scarcella was then appointed by the directors to act as chairperson of meetings of directors.

50. Later in 2015, Michelle and John proposed that there be a designated role of Chairperson of the company and that a director be appointed to that role and given certain authority. This led to correspondence between the solicitors for the parties. It is unnecessary to refer to the detail of that correspondence.

The Chairperson resolution

51. Shortly before the 2 February 2016 directors’ meeting, Michelle circulated a proposal by email regarding the appointment of one of the directors to act as chairperson of the company. The proposal was in the following terms:

Proposal for the appointment of a Chairperson of HGT

It is proposed that there be a designated role of Chairperson of HGT, that a Director be appointed to that role from the date of this meeting until the Board resolves otherwise, and that the Chairperson be authorised to:

1.   Approve non-budgeted Company expenditure up to $5,000 for any one item and up to $50,000 in aggregate in a financial year;

2.   Act as the Company’s primary representative in dealing with external parties such as banks, professional services providers and, if and when appropriate, key suppliers;

3.   Act as the Company’s primary representative in discussions with external parties relating to any potential sale of Company assets;

4.   Attend relevant conferences and functions as a representative of the Board and the Company, with the objective of expanding the Company’s networks and centres of influence (expected to be usually in conjunction with the GM);

5.   Investigate opportunities to improve the performance of the Company and the effective and prudent management of the Company’s assets and business (including in relation to external suppliers, service providers and consultants) and make recommendations to the Board as to such opportunities;

6.   Seek such internal and external assistance as is reasonable and appropriate to perform the duties of Chairperson, provided that the cost of any such assistance in excess of the limits set out in item 1 above will be approved by the Board;

7.   Be the link between the Board and the GM by:

*   providing support and guidance to the GM;

*   being the GM’s first point of contact with the Board in between Board meetings;

*   meeting with the GM as appropriate between Board meetings to discuss key operational issues (such as quality control, customer experience, marketing and promotions) and the financial performance of the Company;

*   under advisement from the Board, undertake the GM’s annual performance review on behalf of the Board.

It is further proposed that:

8.   Carl Scarcella would continue to act as meeting chairman for Board meetings of the Company until further notice;

9.   In consideration of the additional time to be spent in performing the Chairperson role, the director’s fee payable to the Chairperson will be increased to $20,000 per annum above the fee payable to the other directors, and the Chairperson will be entitled to utilise Noah’s accommodation and services at the Company’s expense when performing the Chairperson role.

It is noted that nothing in the above resolutions is intended to:

*   limit the provision of information to the Board;

*   limit the ability of the Board to govern and monitor the Company’s business or to set the strategic direction for the Company;

*   limit the authority of the Board to make decisions;

*   change the reporting line of the GM to the Board;

*   limit the authority of the GM in the performance of her role;

*   imply or require that the Chairperson be involved in the day to day operation of Noah’s or in the direct management of hotel staff.

52. Following discussion of the proposal at the 2 February 2016 meeting, it was agreed that Michelle and Jennifer would email their respective positions on the matter, including the rationale behind those positions to all directors and the chairperson (Mr Scarcella) prior to the next meeting, for a decision at that meeting.

53. At the directors’ meeting held on 28 June 2016, the following resolution concerning the chairperson proposal was carried by majority (with Jennifer dissenting):

3(c)   Chairperson proposal

i.   The directors discussed and it ws resolved, with Jen H dissenting, to adopt the proposal tabled at the February 2016 Board meeting (and attached to these minutes) for MJ to be appointed Chairperson of Hawcroft Trading Co Pty Ltd. The proposal is to be amended to include an obligation for the Chairperson to report at each board meeting on activity she has undertaken in that role each month. The directors requested the GM review the proposal. The directors confirmed the GM continues to report directly to the Board.

54. At a subsequent directors’ meeting held on 13 December 2016, the directors discussed what were referred to in the minutes of that meeting as the “Preliminary Protocols”. Jennifer maintained her position that the protocols were valid, while Michelle and John maintained they were invalid. Mr Hourigan joined the meeting and following a discussion the directors resolved, (again with Jennifer dissenting), that the protocols did not apply to the company.

Assessment of the witnesses

55. Each of Mr McKensey, Michelle and John, gave affidavit evidence and were cross-examined about what was said at the meeting on 31 August 2011, and at subsequent directors’ meetings, and also the conduct of the directors after 31 August 2011.

55. To anticipate what follows, there is a direct conflict in the evidence concerning the discussions at the 31 August 2011 meeting and the circumstances in which Michelle and John, as well as Martin, signed the Protocol. That evidence is founded on their recollection of the discussions. The only contemporaneous document is the Protocol itself. For reasons that he could not adequately explain, Mr McKensey did not prepare any minute of the directors’ meeting of 31 August 2011, as was his usual practice. Accordingly, the credit and reliability of recollection of the three principal witnesses is critical to the determination of the factual issues in dispute.

56. There is also a dispute in relation to what occurred at the February 2012 directors’ meeting. Again, this raises issues of credit and reliability.

57. Mr McKensey was an independent witness in the sense that he does not have any interest in the company, and is no longer a consultant to the company. However, his recollection and perception of events was coloured by what he was subjectively intending to achieve at the time in his own interests as the chairperson of meetings of directors, and what he perceived (from his perspective) to be in the best interests of the company at that time. Mr McKensey’s recollections were also affected by his somewhat dismissive view of Michelle and John as directors. This was reflected in the way in which he dealt with them at the time and also when giving his evidence. While I accept that he was trying to give truthful evidence, some parts of his evidence were unimpressive and cannot be accepted, and important parts of his evidence are unreliable.

58. Michelle and John both have an interest in the outcome of the proceeding. I find that they were each honest witnesses who attempted to give their best recollection of what occurred nearly six years earlier, unassisted by any written record of the 31 August 2011 meeting. Given the passing of time, it is not surprising that they each made some concessions in cross-examination as to their respective recollections of what occurred, and there were some mistakes in their evidence. Nonetheless, on the critical issues, I consider their evidence to be reliable. Overall, where the evidence of Michelle and John conflicts with the evidence of Mr McKensey on the critical matters identified below, I prefer their evidence to that of Mr McKensey, unless indicated.

The evidence

31 August 2011 – directors’ meeting

60. The directors’ meeting on 31 August was held on short notice of about half an hour in one of the function rooms at the Hotel. Martin, Michelle and John, attended the meeting, as did Mr McKensey, Ms Nicole Cooke and Ms Kellie Wright. Ms Cooke was the company’s internal accountant and Ms Wright was an accountant from Forsythes, the company’s external accountants. Unlike previous directors’ meetings, no notice of the meeting was given to the directors and there was no agenda for the meeting.

61. At the beginning of the meeting, Mr McKensey provided each of the directors with a copy of the proposed Protocol. He proceeded to take the directors through each of the 17 clauses line by line. At the end of the meeting the three directors signed the document, as did Mr McKensey.

62. In cross-examination, Mr McKensey agreed that there was not any discussion at the meeting between directors which might be characterised as designed to produce an agreement. Rather, he did most of the talking. No-one was taking minutes and Mr McKensey did not take any notes of the meeting. His evidence of what occurred at the meeting was totally reliant upon his memory.

63. Mr McKensey disagreed with the cross-examiner’s suggestion that he did not subsequently draw up any minutes of the meeting because no decision was made at the meeting. Yet when asked why he did not make a minute of the meeting, Mr McKensey gave an unresponsive answer: “I did not”. I find this evidence unimpressive. That Mr McKensey could not explain why he did not prepare a minute of the meeting, as was his usual practice, is telling as to the likelihood that the directors gave their unqualified assent to the terms of the proposed Protocol, which is what Mr McKensey was seeking to achieve at that meeting. The absence of the formality of minutes prepared by Mr McKensey, is also difficult to reconcile with the assertion in his affidavit (par 22) that after the directors signed the document he commented that “this could be the most significant moment of your lives” and that he congratulated the directors on “reaching this agreement”. Further, the absence of this formality, like the absence of an agenda, is consistent with the evidence of Michelle and John (referred to below) concerning Mr McKensey’s description of the Proposed Protocol as a “working document” and a “road map”.

64. Turning to the conflicts in the evidence as to what occurred during the meeting, the first concerns Mr McKensey’s explanation of the document.

Mr McKensey’s description of the Protocol

65. Mr McKensey gave affidavit evidence (par 18) that at the beginning of his explanation of the document, he said to the directors:

I have prepared some basic, fundamental rules for managing the Company now that there are only three directors. It is important to establish the basis upon which you will all work together going forwards, and to do that now while you all love and trust each other. It is critical that you fully understand and accept the document that I have prepared. I will take you through it line by line, clause by clause until you are satisfied that you understand and accept this. These protocols can be changed at any time with the agreement of all three of you.

66. Both Michelle and John disputed this part of Mr McKensey’s evidence. Michelle deposed in her affidavit (par 15) that when Mr McKensey circulated the document at the meeting he said words to the following effect:

In order for us to move forward, we need to have a set of protocols for the operation of the company.

67. Michelle adhered to her affidavit evidence in cross-examination. She denied that Mr McKensey said that, “the protocols can be changed at any time with the agreement of all three of you”. She said that Mr McKensey did not say that there were going to be any binding conditions put into the document.

68. John deposed in his affidavit (par 17) that shortly after the meeting commenced, Mr McKensey said words to the effect:

I have prepared this document for you all to look at. It is a working document, a road map to move the company forward.

69. John disputed in his affidavit (par 50) that Mr McKensey said words to the effect set out at [65] above, but agreed that Mr McKensey took the directors through the document point by point.

70. I accept that it is likely that at the beginning of the meeting, Mr McKensey gave an outline of the nature of the document consistent with its terms. I do not accept that he had a precise recollection of the exact words he used. His evidence was a reconstruction of what he thought he would have said, consistent with the terms of the document and what he was seeking to achieve at the meeting.

71. I find that during the meeting Mr McKensey described the document as a “set of protocols for the operation of the company” and as a “working document, a roadmap to move the company forward”. In addition to finding the evidence of Michelle and John on this aspect more persuasive, the inherent probabilities are that Mr McKensey spoke in these terms. Mr McKensey was not a lawyer. He was addressing directors of a family company. It would have been natural for him to speak in non-technical terms. His desire (as expressed to Martin) was to establish some “basic fundamental rules” for managing the operations of the company following the departure of Peter as a director and shareholder. It is inherently likely that he described the document as a “working document” and a “road map to move the company forward” when none of the directors had been provided with a copy of the proposed Protocol in advance of the directors’ meeting.

Discussion of clause 10

72. Mr McKensey deposed (par 19) that when he came to cl 10 he said words to the following effect:

Clause 10 of the document protects you all, because it means that you all have to agree on any important operational decisions. In any relationship where there are three people involved, there is a risk of two people ganging up on the third. We need to make sure that does not happen.

73. In cross-examination, Michelle accepted that Mr McKensey may have said that cl 10 “protects you all” and that was because it means that “you all have to agree” on any important operational decisions. She also agreed that she understood that cl 10 would obviate the risk that two people might gang up on the third.

74. John deposed that if Mr McKensey had given an explanation of cl 10 in terms of par 19 of Mr McKensey’s affidavit (as set out at [72] above), he would have challenged him, because Martin, Michelle and he were family members and had always sorted out any differences by talking with each other, and he did not consider there was any risk of any of them ganging up on each other. I find this aspect of John’s evidence to be a reconstruction, influenced by how he now believes he would have responded at the time.

75. John disagreed that Mr McKensey said that “clause 10 protected you all because it means that you all have to agree on any operational decisions”. He also disagreed that there was ever any question of people ganging up on anybody, although he could not recall whether Mr McKensey identified that as a risk he wanted to protect against.

76. Given Michelle’s concession in cross-examination as to what Mr McKensey said concerning cl 10 (see [73] above), I accept Mr McKensey’s affidavit evidence of what he said in relation to cl 10. There is no apparent reason why Mr McKensey would withhold expressing to the directors what he was seeking to achieve.

77. Michelle also deposed (par 88) that when Mr McKensey read through cl 10, she responded with words to the effect:

Well what if Martin is not performing properly as managing director, if he is not doing a proper job managing the hotel, there is no way of getting him to stand down as he would need to vote himself out. What if Martin becomes sick and can no longer do his job?

78. It was suggested to Michelle in cross-examination that this part of her evidence was mistaken and that she first raised the subject of Martin’s performance at the subsequent October 2011 directors’ meeting, after receiving advice from her solicitor, Mr Hourigan, in relation to the document. Michelle responded that she had thought about “the subject of Martin’s performance” before the October 2011 meeting and had raised it at the 31 August meeting.

79. I find that Michelle’s evidence is mistaken. It seems to me that Michelle conflated her consideration before the October 2011 directors’ meeting of cl 5 of the Protocol (having regard to Mr Hourigan’s advice on that topic) with what occurred at the 31 August 2011 meeting. Michelle received advice from Mr Hourigan on 12 September 2011 concerning Martin’s appointment under cl 5 “until he is unable to act or resign”. Given that Michelle had not received advance notice of the Proposed Protocol, it is more likely that she first raised the topic of Martin’s performance and cl 5 of the Protocol at the October 2011 directors’ meeting, after receiving advice from Mr Hourigan on 12 September 2011.

Did the directors qualify their assent to the Protocol?

80. Mr McKensey deposed (par 21) that when he had finished explaining the terms of the Protocol, the directors each expressed their acceptance of the Protocol in words to the following effect:

• Michelle said: “I am not really happy about this, but I will sign it and I understand it”;

• Martin said: “I understand these protocols and I am happy to sign them”; and

• John said: “I understand these protocols and I will sign them”.

after which they each signed the Protocol in his presence.

Mr McKensey further stated (par 22) that he then wrote on the last page of the document the words “SIGNED IN THE PRESENCE OF HUGH S McKENSEY” and signed the document, and then congratulated the directors by saying to them:

This could be the most significant moment of your lives. Congratulations on reaching this agreement.

81. Both Michelle and John disputed Mr McKensey’s evidence as to what they each said before signing the document. Michelle deposed (par 16) that at the end of the meeting Mr McKensey said words to the following effect:

I don’t want anyone to leave the room until this document has been signed by all of you.

and that she responded:

Okay, but I’m only signing it as a draft and a work-in-progress.

Michelle said that at that point, the directors each signed the document.

82. Michelle also deposed (par 89) that she did not say the words attributed to her by Mr McKensey (set out at [80] above), and that she did not hear Martin and John say the words attributed to them by Mr McKensey. (The reference in par 89 of Michelle’s affidavit to “Hugh”, rather than “Martin”, when read in context, is plainly an error.)

83. John deposed (par 19) that towards the end of the meeting, after Mr McKensey finished his review of the contents of the document, the following conversation took place:

Hugh:    Everyone will need to sign this document before we leave the meeting.

Me (John):   I don’t want to sign, I want to take advice.

Hugh:   We don’t want to get in to the same situation we had with Peter. These protocols will make it crystal clear how things will be managed. It’s up to you. The only way the company can move forward is by having this document signed. It is a working document. We’re not leaving this meeting until the document is signed.

Me (John):   I’m only signing it as a draft and a working document.

Michelle:   On that basis, I’m happy to sign it as a draft.

84. In cross-examination, Mr McKensey said he could not recall either of the above statements by John and Michelle at the meeting. He did not deny John’s evidence.

85. John also gave evidence in his affidavit (par 52), that Martin did not say the words or words to the effect that Mr McKensey attributed to him, that he understood the protocols and was happy to sign them (see [80] above). Significantly, John was not challenged on this paragraph of his affidavit.

86. Although Michelle did not mention wanting to obtain advice in her affidavit, when pressed by the cross-examiner she said that she did say at the meeting that she wanted to get advice. (That was a reference to Mr Hourigan, her personal solicitor.) She could not offer an explanation as to why she had not included that in her affidavit.

87. I find that, at least, John mentioned before signing the document that he wanted to obtain advice. On balance, I think that Michelle conflated what she was thinking at the meeting (that she needed to obtain advice) with what she said at the meeting. This part of her evidence seems to me to be a reconstruction.

88. When asked in cross-examination why she signed the document if she did not agree with cl 10, Michelle responded that she signed the document as a “work in proposed [sic] preliminary protocol” (I think the transcript should be corrected to “work-in-progress preliminary protocol”), and that she said at the meeting “I’m only signing it as a proposed preliminary protocol”. When pressed by the cross-examiner that those latter words did not appear in her affidavit, Michelle responded:

Well, that’s the same thing, isn’t it? A proposed preliminary protocol, and it’s a draft in progress.

89. When asked by the cross-examiner what was the point of signing the document as a draft, Michelle responded:

I didn’t want to sign it, Hugh would not let us leave the room without signing it, and he was very, very insistent, and so, when I signed it I said, “I’m signing it as a proposed preliminary approach protocol”, and it wasn’t until we all signed it that Hugh brought out this stamp and stamped it, and I thought that was a bit – over the top, but that’s sometimes – how he was, but I just think – I signed it not as a protocol, but as a proposed preliminary protocol.

90. Michelle agreed with the cross-examiner’s proposition that if she did not want to sign the document she could have left the meeting, but said “it was very difficult” to leave the meeting, explaining that Mr McKensey kept “badgering”. Michelle denied the proposition that she well-understood the reference in the document to the “proposed preliminary protocol” was an agreement that was to be reached. I accept that evidence.

91. When asked why she did not write the word “draft” before she signed the document to make clear that it was not an operative document, Michelle responded that she wished she had, but she had made her position very clear, and that Martin and John understood, if Mr McKensey did not, exactly what she was saying. When pressed again that she could have refused to sign the document, Michelle responded:

I could have, but I was badgered and badgered, and that’s why I signed it, as a proposed preliminary protocol.

92. When asked to explain how she was “badgered” by Mr McKensey, Michelle gave the following evidence:

He said I couldn’t – we couldn’t leave the meeting, “It’s absolutely imperative that you sign this”, and I was shaking my head, and I thought, “right”, you know it’s a – sorry, it’s a proposed preliminary protocol. You know you want me to sign it to say I’ve sighted it, but I’m not going to sign it – I only signed it on that reasoning, that it was a proposed preliminary, and just a work in progress. I couldn’t understand it myself why he was so adamant, unless it was signed as the proposed, and I said, I was signing it as a proposed preliminary protocol.

93. Michelle denied that she well-understood that by signing the document she was agreeing to the document having operative force in relation to the management of the company going forward. I accept that evidence.

94. John generally adhered to his affidavit evidence in cross-examination. He was adamant that Mr McKensey did not say that “it is critical that you fully understand and accept the document I prepared”. John reiterated his affidavit evidence that Mr McKensey said that the proposed preliminary protocols was a working document and that Mr McKensey described the document as a road map to move the company forward.

95. John adhered to his affidavit evidence that before he signed the document he said he needed to obtain advice before signing it off. When asked in cross-examination why he signed the document if he wanted to get advice, John said that in response to Mr McKensey having advised that it was a document prepared to move the company forward, and that it was a working document, he (John) said to Mr McKensey:

If it’s a working document, I’m happy to sign it as a draft.

96. When asked why he didn’t add the word “draft” on the document to make his position clear, John said that he probably wanted to go home after so many hours of sitting down at a meeting. He added that he did not think it necessary to add the word “draft” or “working document” next to his signature because Martin, Michelle and himself were brother and sister and at that stage “we had a complete trust in Hugh McKensey”.

97. The cross-examiner put to John that he was content with what had been prepared, but understood that there was going to be further work done on the document and that any amendment could be done with the agreement of everyone. John said that there were things in the document that needed work and that it was not finalised.

98. In answer to the suggestion that he understood a “working document” to mean a document that worked in the sense of regulating how things were going to be managed in the company going forward, John responded that he understood those words to mean a document that was not finalised and was still being worked on.

99. In answer to the suggestion that he could have left the meeting at any time, John said that it would have been very difficult for him to do so as he was sitting in a room with his brother and sister and Mr McKensey, in whom they had placed their trust at the time.

96. Mr McKensey agreed in cross-examination that he was insistent that the directors sign the document at the meeting. He accepted that he said to the directors: “I don’t want anyone to leave the room until this document has been signed”. He was quick to explain why, without being asked. He said that he wanted the directors to “be bound by their agreement”. I find this evidence unimpressive. It was self-serving and a reconstruction, based on what Mr McKensey subjectively considered was in the company’s best interests.

97. Mr McKensey denied the cross-examiner’s proposition that the “urgency” to produce an agreement was generated by him. He said he wanted to avoid what had previously happened during the period when he had acted as chairman. When pressed by the cross-examiner that there was no basis for supposition that there would be any enmity or difficulty between Martin, Michelle and John, Mr McKensey said that he could not answer that, before asserting that he had already given an explanation for why there was an urgency. Again, I did not find this response impressive.

98. In re-examination, Mr McKensey said there had been a great deal of dysfunctionality between the directors and shareholders. Objection was taken to this answer. The question and answer were allowed. Mr McKensey said that he used the word “dysfunctional” to describe the abuse between the parties he saw at meetings of the company. He referred to verbal abuse between the parties; physical confrontation between two of the directors; and “a lack of disharmony [sic] on many matters”. The reference to physical confrontation between two of the directors can be taken to be a reference to Peter and Martin. Mr McKensey did not give any evidence of abuse or disharmony or physical confrontation between Martin, Michelle and John.

99. I find, contrary to Mr McKensey’s evidence, that the “urgency” in terms of procuring the directors’ signatures was generated by Mr McKensey given the short notice of the meeting which he suggested should occur, the absence of an agenda, the lack of prior notice of the contents of the document and Mr McKensey’s insistence that the document be signed at the meeting. Contrary to the impression that he sought to convey in response to cross-examination, Mr McKensey was extremely keen to have the directors sign the document he had prepared before Martin embarked on his new position as managing director of the company.

100. Mr McKensey accepted in cross-examination that Michelle had said at the meeting that she was not really happy about the document and that she wasn’t happy to sign the document. Mr McKensey gave evidence that if John had said, “I don’t want to sign, I want to take legal advice”, he would not have had the document signed. I do not accept this evidence. Mr McKensey also gave evidence that if John had said, “I’m only signing it as a draft and a working document”, he would have asked him what he meant by the reference to “draft” because he would have believed that John might not have understood what he (John) meant by “draft”. I consider this explanation to be a reconstruction. This evidence was also an example of Mr McKensey’s dismissive attitude to John’s ability as a director. I do not accept this part of Mr McKensey’s evidence. I prefer the evidence of John.

101. Mr McKensey accepted that he would not have thought it unreasonable if the directors had said they wanted to get legal advice on the document, but added again, somewhat dismissively, that he considered advice was not necessary. Mr McKensey explained that, “You don’t get legal advice on everything you do”. When the cross-examiner suggested that one would normally get legal advice for “everything important”, Mr McKensey disagreed and offered the example of buying a car as an important decision not requiring legal advice. Mr McKensey later denied in cross-examination that one or more of the directors said that they would like to get legal advice on the document. I do not accept this part of Mr McKensey’s evidence. He sought to justify his position that none of the directors said they would like to get legal advice on the document, by rationalising why legal advice would not be necessary. Yet seeking advice would be the natural response of directors confronted without advance notice with the terms of such a significant document. Mr McKensey’s exchange with the cross-examiner about buying a car was argumentative and highlighted the self-justificatory character of this aspect of his evidence.

102. I accept Michelle’s evidence that she expressly qualified her acceptance of the document by stating before signing words to the effect that she was not happy with the document, and that she was only signing it as a draft and a work-in-progress. I also accept that, in response to Mr McKensey’s insistence that the directors not leave the meeting without signing the document, Michelle said words to the effect that she was signing it as a proposed preliminary protocol.

103. I also accept John’s evidence that before signing the document he stated that he was only signing the document as a draft and a working document. I find that there is no evidence that Martin accepted the document before signing it, as asserted by Mr McKensey.

15 February 2012 – directors’ meeting

108. There is a further factual dispute concerning what occurred at the directors’ meeting held on 15 February 2012 in relation to the Amended Protocol prepared by Mr McKensey. It is necessary to deal with this dispute, at least insofar as Jennifer relies upon the directors’ conduct at this meeting as subsequent communications and conduct consistent with the existence of an earlier immediately binding agreement in terms of the Protocol.

109. Mr McKensey deposed in his affidavit (par 33) that he said to the directors at the February 2012 directors’ meeting:

You have all seen the Amended Protocol, which includes all of the variations that were discussed and agreed at the directors’ meeting in December. Are you all now generally satisfied with the protocols as they currently stand subject to a final version incorporating provisions covering the exit of a shareholder being completed? [emphasis added]

110. Mr McKensey gave evidence that each of the directors replied, “Yes”, however, the document was not signed by the directors at that meeting or any subsequent time.

111. Michelle denied in her affidavit that Mr McKensey said the words set out at [109] above at the February 2012 meeting. Michelle deposed (par 95) that at the time of the February 2012 meeting, she and the other directors had decided to engage Moray & Agnew to prepare a shareholders’ agreement, rather than continue with the Proposed Preliminary Protocols. She said that she had made an appointment for this meeting with Moray & Agnew for the following day, 16 February 2012, prior to attending the directors’ meeting on 15 February 2012. Michelle also denied that she agreed to the Amended Protocol at the 15 February 2012 meeting.

112. John accepted in his affidavit (par 58) that at the February 2012 meeting, Mr McKensey addressed the latest changes to the protocols. John said that he was not sure which version of the document was discussed at the February 2012 meeting because there were so many versions of the proposed protocol “going around by this stage”. He disputed that Mr McKensey asked him whether he was generally satisfied with the protocols as they currently stood. At that time, he still held a number of concerns with many aspects of the document. He considered that the time spent discussing the development of the protocols was unnecessary in circumstances where the directors were all family members and close to each other. He added that at this stage the directors had arranged to attend a meeting with Mr Whare from Moray & Agnew to look at preparing a shareholders’ agreement instead of continuing with the Proposed Preliminary Protocols.

113. John adhered to his affidavit evidence in cross-examination. He said that he did not think he would have said “yes” to the version of the company protocols which contained new provisions dealing with the buyout of another shareholder, if any of the directors ceased to be a director for any reason (cls 16-24). He said that the time periods referred to in those provisions gave “a very short time to come up with a lot of money”.

114. In his oral evidence in chief, Mr McKensey corrected his affidavit evidence (par 33) and said that the italicised words (set out at [109] above) were said by him at the 14 December 2011 directors’ meeting, not the 15 February 2012 meeting. Mr McKensey explained that he realised the error in his March 2017 affidavit on the weekend prior to the hearing, because it was at the December 2011 meeting that he was requested to update the Protocol to include provisions dealing with the exit of shareholders, and that by the February 2012 meeting, that had already been done. Mr McKensey said that he had accessed the hard drive of the document, which showed that he prepared the last version incorporating the provision dealing with the shareholder exit at 4.26pm on 14 December 2011. Mr McKensey said that the mistakes in his March 2017 affidavit were a result of him being in hospital at the time, heavily drugged, having broken his femur on 12 February 2017.

115. Mr McKensey was then taken to an earlier affidavit he had sworn on 24 April 2015 in the Insurance Proceedings (Ex A). In par 36 of his April 2015 affidavit, Mr McKensey deposed that, following Peter’s exit from the company (in August 2011) he was advising Martin, Michelle and John regarding the ongoing management of the company and he circulated the proposed Protocol. In par 38, Mr McKensey deposed that there were several changes to the protocols discussed by him with the directors over the following months and that:

A final draft was accepted by them at a directors’ meeting on 15 February 2012 reflecting variations “per the determination of the Board at the meeting on 15 December 2011.

116. In par 39 of his April 2015 affidavit, Mr McKensey deposed:

At the directors meeting on 15 February 2012 I asked the directors:

Are you all now generally satisfied with the amended draft protocols as they currently stand subject to a final version incorporating provisions covering the exit of a shareholder being completed?

The directors each said:

Yes.

117. In cross-examination, Mr McKensey said that he had also made a mistake in his April 2015 affidavit because “the timing is such that it was wrong”.

118. Accepting that there was a mistake by Mr McKensey in both affidavits (sworn two years apart), there remains a material difference between pars 38 and 39 of the April 2015 affidavit and par 33 of the March 2017 affidavit. In his April 2015 affidavit, Mr McKensey described the document he presented at the December 2011 directors’ meeting as “the amended draft protocols as they currently stand” and similarly described the document presented at the February 2012 meeting as a “final draft”. Those qualifications relating to the “draft” nature of the document do not appear in Mr McKensey’s March 2017 affidavit.

119. In cross-examination, Mr McKensey accepted that the document presented at the February 2012 directors’ meeting was accurately described as a “final draft”; yet this significant qualification did not appear in his March 2017 affidavit. He did not explain this omission. Mr McKensey also accepted that he asked the directors at the February 2012 meeting whether they were generally satisfied with the “amended draft protocols as they currently stand”.

120. The minutes of the 15 February 2012 directors’ meeting record:

Protocols have been updated to generally reflect the variations per the determination of the Board at the meeting held 14 December 2011.

121. The minutes do not corroborate Mr McKensey’s evidence that each of the directors signified their oral assent to the Amended Protocol at the February 2012 meeting.

122. I find Mr McKensey’s evidence concerning the February 2012 meeting unreliable. First, he did not satisfactorily explain the material differences between his April 2015 affidavit and his March 2017 affidavit. It would ordinarily be expected that his recollection was more likely to be better in April 2015 than two years later in March 2017, particularly given his explanation that at the time of his March 2017 affidavit he was heavily affected by medication.

123. Second, I accept Michelle and John’s evidence that they did not signify their oral affirmation of the Amended Protocol at the February 2012 meeting. That would have been inconsistent with their then state of mind and their contemporaneous conduct. Not only did the directors not sign the Amended Protocol at the February 2012 meeting, but they had already arranged to meet with the company’s solicitor the following day for the purposes of giving instructions in relation to the preparation of a shareholders agreement, rather than pursue further consideration of the proposed Amended Protocol.

124. Third, accepting that the last version of the document was prepared by Mr McKensey at 4:26pm on 14 December 2011 (after the conclusion of the directors’ meeting on that day at 1:30pm), I find that Mr McKensey described the document presented to the February 2012 meeting as a “final draft” and the “amended draft Protocols as they currently stand”, yet he omitted those words (without explanation) from his March 2017 affidavit.

125. I do not accept Mr McKensey’s evidence that each of the directors affirmatively agreed to the amended Protocol at the 15 February 2012 meeting. I prefer the evidence of Michelle and John that the directors did not signify their assent orally to the Amended Protocol at the February 2012 meeting.

Validity of the chairperson resolution

Issue 1: Is the chairperson resolution beyond power under the constitution of the company?

126. It is convenient first to address the validity of the chairperson resolution by reference to the powers of the directors under the constitution of the company. (In this case, the articles of association of the company adopted the Table A articles in the Fourth Schedule of the Companies Act 1961 (NSW), with some qualifications which are not presently relevant). The following analysis does not depend on whether the Protocol is legally binding.

127. The following provisions of the Table A articles adopted by the company were referred to in argument:

Art 49

The chairman, if any, of the board of directors shall preside as chairman at every general meeting of the company, or if there is no such chairman, or if he is not present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their number to be chairman of the meeting.

Art 70

The remuneration of the directors shall from time to time be determined by the company in general meeting. That remuneration shall be deemed to accrue from day to day. The directors may also be paid all travelling, hotel, and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the company or in connection with the business of the company.

Art 85

The directors may elect a chairman of their meetings and determine the period for which he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is not present within ten minutes after the time appointed for holding the meeting, the directors present may choose one of their number to be chairman of the meeting.

Art 86

The directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors.

128. Reference should also be made to Corporations Act, s 198D, which provides:

(1) Unless the company’s constitution provides otherwise, the directors of a company may delegate any of their powers to:

(a) a committee of directors; or

(b) a director; or

(c) an employee of the company; or

(d) any other person.

Note: The delegation must be recorded in the company’s minute book (see section 251A).

(2) The delegate must exercise the powers delegated in accordance with any directions of the directors.

(3) The exercise of the power by the delegate is as effective as if the directors had exercised it.

The parties’ submissions

129. Jennifer contended that the chairperson resolution is invalid because it is beyond the powers of the directors under the constitution of the company. Initially Jennifer relied on Art 85, dealing with directors’ meetings, and Art 49, dealing with general meetings.

130. Michelle and John responded that Arts 85 and 49 are irrelevant because they only deal with the procedures at meetings of directors and general meetings respectively. They submitted that the chairperson resolution was authorised by either Corporations Act, s 198D, or the delegation of power in Art 86.

131. Jennifer accepted in reply that, while Art 86 would potentially permit delegation of the directors’ powers to a committee of only one director, the chairperson resolution did not purport to delegate any particular role to a committee of only one director, but rather created an office of executive chairperson and importantly also provided for remuneration. It was submitted that the directors cannot authorise the payment of remuneration to Michelle as chairperson, either under s 198D or Art 86, because under Art 70 only the general meeting can authorise the payment of remuneration to directors.

132. Jennifer also submitted that the chairperson resolution was not severable because the invalid part dealing with remuneration was intimately connected with the other parts of the resolution. Michelle and John did not direct any submissions to the question of severance.

Analysis

133. The starting point is to observe that Arts 49 and 85 are both irrelevant to the present question, as counsel for Jennifer ultimately conceded in oral argument. Article 49 deals with who shall preside as chairperson of general meetings of the company. Article 85 deals with the appointment of a chairperson at meetings of directors of the company. The subject matter of the chairperson resolution did not deal with either matter, nor did it purport to alter the existing arrangement between directors and shareholders, namely that Mr Scarcella would act as chairperson of meetings of directors and at general meetings of the company. As mentioned, Mr Scarcella had taken over that role, following Mr McKensey ceasing to be a consultant to the company in February 2015.

Delegation of directors’ powers – Art 86

134. Article 86 permits the directors to delegate their powers to a committee of only one director. Articles in the form of Art 86 have a long history. The power of delegation of the directors’ powers to a committee consisting of “such member or members of their body as they think fit”, includes a committee of only one director: Re Fireproof Doors Ltd; Umney v The Company (1916) 2 Ch 142; Taurine Co (1884) 25 Ch D 118.

135. Re Fireproof Doors Ltd concerned Art 91 of Schedule 1 to the Companies (Consolidation) Act 1908 (UK), also known in that legislation as Table A. That article also allowed the directors to delegate their powers to a committee consisting of “such member or members of their body as they think fit”, as did predecessor provisions, such as Art 68 of Table A to the Companies Act 1862 (UK) and Art 57 of Table B to the Joint Stock Companies Act 1856 (UK). As counsel for Jennifer ultimately conceded, Art 86 permits delegation of the powers of directors to a committee of only one director.

136. The same position pertains under the Corporations Act, s 198D(1)(b), which allows the directors to delegate any of their powers to a single director, unless the company’s constitution provides otherwise. It was not submitted that there was any contrary provision here in the constitution of the company.

246. Similarly, the passage in GE Dal Pont and KF Mackie, Law of Succession, 2nd Ed, LexisNexis Butterworths, 2017 at [12.15], to which Jennifer referred, concerned the executor’s responsibility for discharging the contractual obligations of the deceased.

247. That is not to say that an executor or administrator cannot enforce contracts made by the deceased. The principle is stated in Law of Succession at [12.13] as follows:

As an executor or administrator ‘represents’ the estate, he or she is ordinarily the proper plaintiff to pursue proceedings on behalf of the estate, as part of a duty to get in the entire estate.

254. Thus, in Mayne v Jacques, where a trustee in bankruptcy died without his remuneration having been fixed either by the creditors or the court, his right to remuneration devolved as a right of property upon his legal personal representative for the benefit of his estate and an action was available to the executrix of his estate to apply to the court to fix the remuneration if the creditors did not fix it.

255. In the present case, Jennifer’s standing to enforce cl 10 of the Protocol needs to be examined from two perspectives. First, plainly the office of director held by Martin was not transmissible to Jennifer as the legal personal representative of his estate. Nor was it suggested that Jennifer had standing as executrix of Martin’s estate to enforce the (assumed) contractual rights of Martin qua director in relation to the Protocol, specifically; the special majority required by cl 10 of the Protocol for votes of directors within their capacity relating to changes in the manner in which the company is “managed or operates”.

256. Second, that the executrix is ordinarily the proper plaintiff to pursue proceedings on behalf of the estate, does not put the executrix in a better position than the deceased when a defendant raises the proper plaintiff rule in respect of wrongs done to the company. Nor does it avoid the need to join all necessary parties to proceedings in which they are interested.

257. As explained above when dealing with Issue 1 (see [153]), the proper plaintiff rule does not apply if the directors’ conduct directly affects the rights or interests of individual shareholders to have the company and its directors act in accordance with the relevant articles of association. Here Jennifer’s claim is that Martin’s rights qua shareholder are transmissible to her as executrix and include Martin’s contractual right to enforce cl 10 of the Protocol (assuming it is binding, including after Martin’s death, and effectively amends Art 80 of the Table A articles under the Duomatic principle).

258. In view of the conclusions above concerning the Protocol, it is not necessary to determine these issues. Nonetheless, I would briefly indicate my views.

259. I would incline to the view that the directors’ conduct in passing the chairperson resolution contrary to the arrangement specifically agreed in cl 10 of the Protocol (assuming a binding agreement, including after Martin’s death, and the Duomatic principle applies such that cl 10 of the Protocol effectively amends Art 80 of the Table A articles), directly affects the rights or interests of individual shareholders (such as Martin’s estate, represented by Jennifer) to have the company and its directors act in accordance with the relevant articles of association as amended by the Protocol, cl 10.

260. Further, ordinarily, the company would be a necessary party to any claim to enforce the constitution (here, relevantly, Art 80 of the Table A articles, as amended by the Protocol, cl 10, relying on the Duomatic principle), since the alleged amendment to the constitution affects the statutory contract between, among others, the company and each member, and between the company and each director: Corporations Act, s 140(1).

261. If Jennifer had otherwise been successful on her contractual claim, I would have been minded to defer making final orders pending an application by her to join the company as a defendant. In circumstances where all shareholders are before the Court, it is unlikely that Michelle and John could have successfully opposed the late joinder of the company as a defendant on the ground of prejudice, particularly as they had raised the absence of the company in their defence.

Issue 8: Anshun estoppel

262. Michelle and John pleaded defences based on issue estoppel and Anshun estoppel. The defence of issue estoppel was abandoned at the hearing.

263. The defence of Anshun estoppel asserted that Jennifer is precluded from claiming the relief sought in this proceeding because she failed to raise the enforceability of the Protocol in the earlier Insurance Proceedings against the company. As mentioned, the Insurance Proceedings concerned a claim by Jennifer as executrix of Martin’s estate to the proceeds of the insurance policy which the company had taken out over the life of her late husband, Martin Hawcroft. Jennifer’s claim against the company was ultimately unsuccessful on appeal: Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91.

264. In oral argument, junior counsel for Michelle and John acknowledged that the defence of Anshun estoppel is not directed to Jennifer’s claim for relief in relation to the chairperson resolution – orders 3 and 4 in the amended statement of claim. Counsel confirmed that the Anshun estoppel is only directed to Jennifer’s claim for relief in order 1, which seeks a declaration that the Protocol is legally binding and enforceable against Michelle and John. That narrow reliance upon Anshun estoppel recognised that the question of the validity of the chairperson resolution did not arise until after judgment had been given in the Insurance Proceedings by the trial judge (Young AJ) on 5 May 2016: Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555.

265. Nevertheless, once it is accepted (as it should be) that no Anshun estoppel arises in relation to Jennifer’s claim for relief in relation to the chairperson resolution; it is difficult to see any room for the defence of Anshun estoppel in relation to Jennifer’s claim for declaratory relief with respect to the Protocol. That is, there is a tension in the bifurcated approach taken by Michelle and John to the defence of Anshun estoppel, since one of the arguments relied upon by Jennifer to challenge the validity of the chairperson resolution is that the Protocol is legally binding and enforceable against Michelle and John.

266. Having regard to the conclusions above, it is not necessary to determine this issue. Nonetheless, in deference to the argument advanced by junior counsel for Michelle and John, I will briefly indicate my reasons why the defence of Anshun estoppel should be rejected.

Relevant principles

267. It is necessary first to say something about the nature of an Anshun estoppel.

268. In Timbercorp Finance Pty Ltd (in liq) v Collins and Anor; Timbercorp Finance Pty Ltd (in liq) v Tomes (2016) 339 ALR 11; [2016] HCA 44 the plurality (French CJ, Kiefel, Keane and Nettle JJ) stated at [27] with reference to earlier authority, that Anshun estoppel “will preclude the assertion of a claim or of an issue of law or fact if the claim or issue was so connected to the subject matter of the first proceeding as to make it unreasonable, in the context of the first proceeding, for the claim or issue not to have been made or raised in it”.

269. Anshun estoppel has been treated in Australia as a “true estoppel” and not a form of res judicata in the strict sense. Accordingly, considerations similar to those which underpin this form of estoppel may support a preclusive abuse of process argument: Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [22].

270. Anshun estoppel requires consideration of the practicalities, that is, the reasons why a party may have justifiably refrained from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings. As Gibbs CJ, Mason and Aickin JJ, explained in Anshun at 602:

There are a variety of circumstances why a party may justifiably refrain from litigating an issue in one proceeding but wish to litigate the issue in other proceedings, eg, expense, importance of the particular issue, matters extraneous to the actual litigation, to mention but a few.

271. For this reason, the authorities emphasise that a “mechanical approach” to identifying common facts in proceedings said to give rise to an Anshun estoppel should be avoided: Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 at [3] (Allsop P); [52] (Giles JA); Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 118 at [23] (Meagher JA, McColl and Leeming JJA agreeing).

272. Further, it is well accepted that shutting out a claim that a party wishes to pursue, without determination of its intrinsic merit, on the ground that it ought to have been raised in earlier litigation is a serious step not to be exercised except after careful examination of all the circumstances: Conference & Exhibition Organisers at [24] citing Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [85] (McColl JA, Giles JA and Campbell JA agreeing); Ling v The Commonwealth (1996) 68 FCR 180 at 182 (Wilcox J, Whitlam and Sundberg JJ agreeing); and Bazos v Doman [2001] NSWCA 347 at [45] (Stein JA, Priestley and Beazley JJA agreeing).

Application of principles to the present case

273. The propositions stated above direct attention to the subject matter of the Insurance Proceedings, which can be taken from the reasons of the trial judge (Young AJ): [2016] NSWSC 555 at [1]-[7].

274. In broad outline, Jennifer sought an order that the company pay the proceeds of the life insurance policy to Martin’s estate in compliance with cl 2 of an indemnity deed entered into by Jennifer and the company on 20 May 2014. In the alternative, Jennifer sought a declaration that Martin was, at the time of his death, the beneficial owner of the policy on the basis of an equitable assignment, or alternatively, a constructive or implied trust, such that the company held the proceeds of the policy on trust for the estate of Martin. Before Young AJ, Jennifer succeeded against the company solely on cl 2 of the indemnity deed. As I have said, the company succeeded on appeal in setting aside that decision.

275. The pleadings in the Insurance Proceedings reveal that Jennifer pleaded the terms of the Protocol, cl 16 and also the Amended Protocol, cl 15 (together the Protocols) in support of her contention that Martin had been paying the premiums on the policy prior to 31 August 2011, and that it was intended that the company would take over the policy from Martin under the Protocols. The basis for invoking those documents was to support Jennifer’s contention that from and after 2005 there had been an equitable assignment of the policy to Martin. The Protocols were relied upon for their asserted evidentiary value as corroborating the alleged (earlier) equitable assignment of the policy to Martin, because the Protocols “assumed” that Martin was the beneficial owner of the policy.

276. Young AJ rejected that contention (at [112]) finding that Martin knew what was needed to effect a formal assignment and had not taken such steps; that Martin had paid the premiums because Peter was objecting to the premiums being paid by the company; and that the company’s attitude to the policy changed from time to time. In reaching that conclusion, Young AJ noted that Jennifer submitted that the Protocols assumed that Martin was the beneficial owner of the policy (at [108]). His Honour also noted, but did not resolve, the disputed evidence given by Mr McKensey on behalf of Jennifer and by Michelle and John on behalf of the company as to whether or not the Protocols were adopted on 15 February 2012 (at [110]-[111]).

277. Having regard to the different subject matter of Jennifer’s claim in the Insurance Proceedings, I do not consider it was unreasonable of Jennifer to have refrained from raising her present claim as to the enforceability of the Protocol in the Insurance Proceedings. The enforceability of the Protocol was a claim in respect of which Michelle and John would need to have been joined as parties. It was not unreasonable of Jennifer not to join additional parties to the Insurance Proceedings in 2015 (and thereby incur additional cost and expense) to raise a different issue concerning the enforceability of the Protocol. That it was not unreasonable not to do so is reinforced by the fact that the issue of the enforceability of the Protocol did not crystallise until after the determination of the Insurance Proceedings by the trial judge.

278. There is an additional reason for rejecting the Anshun estoppel argument. Michelle and John’s argument seems to assume that there was privity of interest between them and the company who was a party to the Insurance Proceedings.

279. The relevant principles are stated by the High Court in Tomlinson v Ramsey Food Processing Pty Ltd where the plurality said at [33]:

…..a party to a later proceeding (“A“) can be privy in interest with a party to an earlier proceeding (“B“) on either of two bases. One basis is that A might have had some legal interest in the outcome of the earlier proceeding which was represented by B, or that B has some legal interest in the outcome of the later proceeding which is represented by A. The extent to which the representation by A or B will be sufficient to bind the other is the critical issue which will be explored later in these reasons. The other basis is that, after that earlier proceeding was concluded by judgment, A might have acquired from B some legal interest in respect of which B would be affected by an estoppel which A then relies on in the later proceeding.

280. In relation to the first category, the interest of the privy must be a legal interest. Their Honours stated that “an economic or other interest on the part of A in the outcome of the earlier proceeding is insufficient” and that “absent a legal interest, such influence as A might have had over the conduct of the earlier proceeding is irrelevant even if that influence amounted to control” (at [35]).

281. In relation to the second category, their Honours stated:

[40] Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding. To those traditional forms of representation can be added representation by a representative party in a modern class action. Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding. (footnotes omitted)

282. In the present case there was not, on either basis, any privity of interest between Michelle and John on the one hand and the company on the other hand in respect of Jennifer’s unsuccessful claim against the company in the Insurance Proceedings. As to the first basis, Michelle and John did not have any legal interest in the outcome of the Insurance Proceedings, they being concerned at that stage solely as directors and shareholders in the company: Tomlinson v Ramsey Food Processing Pty Ltd at [35]. As to the second basis, none of the traditional forms of representations were enlivened, nor was the Insurance Proceedings a class action.

Abuse of process

283. One further matter should be mentioned for completeness, although not referred to in terms by Michelle and John. It may be accepted that mutuality of parties is not an answer to a defence of estoppel based on the extended principle in Reichel v McGrath (1889) 14 App Cas 665 at 668 and Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198, or abuse of process: Walton v Gardiner (1993) 177 CLR 378 at 393; Sheraz v Vegas Enterprises Pty Ltd (2015) 48 WAR 93 at [11] and [120]. As the High Court explained in Michael Wilson & Partners Limited v Nicholls and Others (2011) 244 CLR 427; [2011] HCA 48 at [94], Rippon v Chilcotin Pty Ltd is a case directed principally to the application of the doctrines of preclusion and, in particular, an extension of that species of preclusion dealt with in Anshun.

284. In White v Thompson [2011] NSWCA 161, Handley JA (Basten and Young JA agreeing), after referring to the principles in Reichel v McGrath, continued at [53]-[57]:

[53] The relevant principles were reviewed in Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 1981. The purchasers of a business sued the vendor for misrepresentation and breach of warranty as to the profits of the business in the accounts for the last full financial year before the sale. Their claim for misrepresentation failed because they had relied on the warranty in the contract and not on any representations by the vendor, and they only recovered modest damages for the breach of warranty.

[54] The purchasers then sued the accountants for misrepresentation in the same accounts. The accountants were not parties to the earlier proceedings and were not privies of the vendor, and could not rely on res judicata estoppel.

[55] In the first action the purchasers failed to prove that they had relied on the vendor’s representations. Their second action could only succeed if they could prove that they relied on the accountants’ representations about the same profits. This was an attempt to relitigate what, in substance, was the same issue against a different party. It was therefore an abuse of process. This court ordered summary dismissal, and the High Court refused special leave.

[56] The decision in MCC Proceeds Inc v Lehman Bros International (Europe) [1988] 4 All ER 675 CA is another example. The litigation arose from the collapse of the corporate empire of the late Robert Maxwell. In the first action a Maxwell company unsuccessfully sued a Lehman company to recover shares in another public company. The second action, brought in respect of the same shares, by the successor in title of the original plaintiffs against the subsidiary of the original Lehman defendant was struck out as an abuse of process.

[57] Mummery LJ, who delivered the principal judgment, held (at p 694) that the successor of the original plaintiff was not entitled to relitigate the issues relating to the shares. At p 696 he said:

… the substantial issue raised … (ie title to the Berlitz shares) has already been decided … in the first action in circumstances which preclude the parties in this action from attempting to litigate that issue again.

285. In the present case the substantial issue, title to the proceeds of the life insurance policy over Martin’s life, was litigated in the Insurance Proceedings, and Jennifer does not seek to re-litigate that question. The substantial issue in the present proceeding is whether the Protocol is binding and enforceable. That was not in issue in the Insurance Proceedings. As I have said, the Protocols were relied upon by Jennifer as corroborating the alleged (earlier) equitable assignment of the policy to Martin in or after 2005, because (it was said) the Protocols “assumed” that Martin was the beneficial owner of the policy.

286. In my view, the present proceeding by Jennifer is not precluded by the extended doctrine in Reichel v McGrath, or the doctrine of abuse of process.

Costs

287. Section 98 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of court, costs are in the discretion of the Court, including by whom, to whom and to what extent costs are to be paid. UCPR r 42.1 provides that if the Court makes any order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order. As the authorities make clear, the “event” may be characterised in more than one way: Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [24]-[26], [54]-[60] (cited with approval in Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15].

287. Here, Jennifer has succeeded on her claim that the chairperson resolution is invalid on the single ground that it is beyond the powers of the directors of the company, specifically Art 70 of the Table A articles adopted as part of the constitution of the company. Jennifer failed to establish her wider claim that the Protocol is legally binding and enforceable against Michelle and John, including her claim based on the Duomatic principle. Michelle and John have failed on their defence of Anshun estoppel.

288. Although the enforceability of the Protocol was not an entirely severable issue – it was raised as an alternative argument to the validity of the chairperson resolution, and as the basis of a separate claim for declaratory relief - it seems to me that there should be some reduction in the costs awarded to Jennifer as the successful party, to take into account the amount of the court’s time and submissions that were directed to the issues on which Jennifer failed.

289. My preliminary view is that Jennifer’s mixed success in the proceeding, whilst not overlooking the outcome in terms of setting aside the chairperson resolution, should be reflected in an order that Michelle and John pay 60 % of Jennifer’s costs of the proceeding.

290. However, since the parties have not had an opportunity to address the question of costs in light of the outcome of the proceeding, it is appropriate to afford the parties an opportunity to make submissions on that question. Those submissions should also address Jennifer’s claim that Michelle and John pay interest on her costs of the proceeding pursuant to s 101(4) of the Civil Procedure Act 2005 (NSW).

Orders

292. Accordingly, I make the following orders:

1. Declare that the resolution of directors of Hawcroft General Trading Co Pty Ltd (the company) on 28 June 2016 adopting the terms of the chairperson proposal tabled at a meeting of directors of the company on 1 February 2016 and appointing the first defendant as the chairperson of the company is invalid and of no effect.

2. Otherwise dismiss the amended statement of claim filed 21 February 2017, except in relation to the question of costs.

3. Any party seeking an order for costs different to that proposed in [290] of these reasons, and in respect of the plaintiff’s application for an order for interest on costs, such party and the plaintiff (as the case may be) shall file and serve written submissions not exceeding 4 pages and any affidavit evidence in relation to the issue of costs within 14 days of these reasons. Each other party may file and serve written submissions in reply not exceeding 3 pages and any affidavit evidence in reply within 21 days of these reasons. Subject to any application for an oral hearing in relation to costs, direct that the question of costs will be dealt with on the papers.

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Amendments

03 November 2017 - Typographical errors

01 November 2017 - Amendments to Legal Representatives and other typographical errors

Decision last updated: 03 November 2017