Jennifer Elizabeth Low as Liquidator of Lekker Pty Ltd v Dykgraaf
[2001] WASC 332
•7 DECEMBER 2001
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: JENNIFER ELIZABETH LOW as Liquidator of LEKKER PTY LTD -v- DYKGRAAF & ANOR [2001] WASC 332
CORAM: MASTER BREDMEYER
HEARD: 28 NOVEMBER 2001
DELIVERED : 5 DECEMBER 2001
PUBLISHED : 7 DECEMBER 2001
FILE NO/S: COR 173 of 2001
MATTER :Section 479(3) of the Corporations Law
and
LEKKER PTY LTD (ACN 009 353 682)
BETWEEN: JENNIFER ELIZABETH LOW as Liquidator of LEKKER PTY LTD
Plaintiff
AND
HILDA DYKGRAAF
HENDRICUS PETRUS ANTHONIUS DYKGRAAF
Defendants
Catchwords:
Corporations - Liquidator - Application by Liquidator for direction as to equitable ownership of an asset
Legislation:
Corporations Law, s 479(3)
Property Law Act (WA), s 34(1)(a) and (b), s 34(2)
Result:
Directions given
Category: B
Representation:
Counsel:
Plaintiff: Mr A F Carles
Defendants: Mr T B Lyons
Solicitors:
Plaintiff: Carles Solicitors
Defendants: Gibson Lyons
Case(s) referred to in judgment(s):
Di Pietro & Ors v Official Trustee in Bankruptcy (1995) 59 FCR 470
MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636
Re Strathblane Estates [1948] 1 All ER 162
Secretary, Department of Social Security v James (1990) 95 ALR 615
Case(s) also cited:
195 Crown Street Pty Ltd v Hoare [1969] 1 NSWLR 193
Black v Smallwood (1966) 117 CLR 52
Coates v McInerney (1992) 7 WAR 537
Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Equity Nominees Ltd v Tucker (1967) 116 CLR 518
Northside Developments Pty Ltd v Registrar General (1990) 170 CLR 146
Phillips v Selegovitch & Anor (1922) 25 WAR 50
Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171
Richardson & Anor v Landecker (1950) SR (NSW) 250
MASTER BREDMEYER: The plaintiff is the Liquidator of Lekker Pty Ltd. The defendants are the directors of that company. The company was the owner of land at 7 Draper Place, Kewdale. The primary issue in this case is whether that land was an asset of the company in its own right, or an asset of the company in its capacity as trustee for the Dykgraaf Family Trust. This will determine whether or not the net proceeds of sale of that land of $109,484.51 are available as an asset of the company in the liquidation, or whether the sum should be paid to the Trust.
The plaintiff relies on the affidavit of Ms Low and an affidavit of Mr Carles sworn 26 November 2001, which affidavit annexes the settlement agent's file. The defendant relies on the affidavit of Mr Hendricus Dykgraaf sworn 15 November and the affidavit of Hilda Dykgraaf sworn 28 November. In addition, I heard sworn evidence from Mrs Dykgraaf, mainly cross‑examination on her affidavit.
The land at 7 Draper Place, Kewdale, then known as Lots 9 and 10 Chisholm Place, Kewdale, was purchased by the company under a contract of sale dated 8 and 30 August 1995. Settlement did not occur until a new title had issued for the consolidated lot and until services such as water, sewer, electricity and telephone, had been connected. The land was registered in the name of the company on 24 April 1996.
In between the signing of the offer and acceptance in August 1995 and the registration of the transfer in April 1996, the Dykgraaf Family Trust was established by a trust deed dated 20 January 1996. The initial trust property was $10. Lekker Pty Ltd was the trustee and Hilda Dykgraaf was the appointor of the Trust with power to replace the trustee. In about February 1996 Mrs Hilda Dykgraaf sent a letter to Tina, which is Exhibit "E" to Ms Low's affidavit. It is in these terms:
"TO WHOM IT MAY CONCERN,
ATT: TINA,
THIS IS TO CERTIFY THAT ON 08/08/95, LEKKER PTY LTD IS PURCHASING THE PROPERTIES, LOT 109 & 110 CHISOLM PLACE KEWDALE, ON BEHALF OF THE DYKGRAAF FAMILY TRUST.
REGARDS H. DYKGRAAF
Signed H Dykgraaf "
The common seal of Lekker Pty Ltd appeared under the signature.
This letter was sent in response to a telephone query from Tina, who said: "Whose name do you want the property in?" Mrs Dykgraaf replied: "The name of the Trust". Tina said: "Give me something in writing". The letter, Exhibit "E", is the result. I note that it is under seal but is not dated, not stamped, not signed by her co‑director and that there is no director's resolution to support it.
The certificate of title was registered in the name of the company on 20 April 1996. It does not say "as trustee for the Dykgraaf Family Trust" and I would not expect it to do so, as trusts are not recorded on Western Australia's registered titles: see s 55 Transfer of Land Act 1893.
The company went into administration on 12 December 2000 and into liquidation on 16 January 2001. It was a voluntary liquidation. Ms Low was appointed the liquidator. She had formerly been the administrator. She seized the Kewdale property and sold it in February 2001. After payment of the mortgage and the expenses of sale, $109,484 remains. That money is in dispute. The plaintiff says it belongs beneficially to the company and is thus available for creditors. The defendant says it is beneficially owned by the Dykgraaf Family Trust.
There is nothing in the contract of sale which would help determine this question. Mr and Mrs Dykgraaf signed it. They stated the purchaser as "Hendricus Petrus Anthonius Dykgraaf and Hilda Dykgraaf or nominee". The special conditions to the contract (Annexure 'A') state that the nominee "shall be Lekker Pty Ltd". It does not say "as trustee". It would be unlikely to do so as the Trust had not at that time been created.
A trust over land can be expressly created or it can be a resulting or constructive trust. I quote s 34 of the Property Law Act:
"34. Instruments required to be in writing
(1)Subject to the provisions hereinafter contained in this Act with respect to the creation of interests in land by parol –
(a)no interest in land is capable of being created or disposed of except by writing signed by the person creating or conveying the interest, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law;
(b)a declaration of trust respecting any land or any interest therein shall be manifested and proved by writing signed by a person who is able to declare the trust or by his will;
(c)a disposition of an equitable interest or trust subsisting at the time of the disposition shall be in writing signed by the person disposing of the interest, or by his agent thereunto lawfully authorized in writing or by will.
(2)This section does not affect the creation or operation of resulting, implied or constructive trusts."
I now consider the defendants' argument that this land is held under an express trust. The relevant section is s 34(1)(b) and not (1)(a). That has been decided clearly by case law. See, for example, Di Pietro & Ors v Official Trustee in Bankruptcy (1995) 59 FCR 470. That is a Full Court decision of the Federal Court. In that case Jenkinson J quoted, with approval, a long passage of law from Lee J in Secretary, Department of Social Security v James (1990) 95 ALR 615 at 620 – 622, who in turn quoted, with approval, a passage from Kennedy J in a Western Australian case. At the end of the long quotation Jenkinson J said that he adopted that statement of the law on s 34 of the Property Law Act and he noted that that statement of the law had also been accepted by Meagher, Gummow and Lehane in their textbook.
I do not consider that Exhibit "E" manifests or evidences a trust over the land for a number of reasons. Firstly, I think it is inadmissible as not stamped under s 27 of the Stamp Act. When the contract of sale was signed in August 1995, the company gained an equitable interest in the land. If "E" was valid to create a trust, it would transfer the beneficial ownership of that equitable interest from the company to the Trust as from the date of that document. Its purported backdating is invalid. The Trust was not in existence on 8 August 1995. That transfer of beneficial ownership would attract ad valorem stamp duty under items 19 and 4 of the Second Schedule of the Stamp Act. By s 27 of the Stamp Act, an unstamped document cannot be put in evidence or used in any way. I was not impressed by the defendants' argument that the creation of the Trust in January 1996, which Trust was empowered to acquire land, meant that this land by that Trust Deed became held on trust by the company. The company was in existence for some years prior to the date of the Trust Deed. The Trust Deed was only stamped $10, whereas a declaration of trust, conveying an interest in the land from the company in its own right to the company as trustee, attracts ad valorem duty.
If Exhibit "E" is dutiable, the defendants have undertaken to pay the stamp duty. That is an important matter, but in view of the conclusions to which I come later, it is not necessary for me to call upon that undertaking.
Secondly, I consider the document does not create an express trust because it needs to have been signed by both directors or both need to have signed some paper approving, or evidencing, the trust. For example, both could have signed and passed a resolution of directors to say that the land is held on trust. By s 34(1)(b) of the Property Law Act the Trust needs to be "manifested and proved by writing signed by a person able to declare the trust". I consider that the person, in the case of this company, able to declare the trust are two directors or a director and secretary. I consider the company, in order to create or evidence a trust over land, needs to comply with s 84(2) of Table A of the Articles of Association, which read:
"The seal shall be used only by the authority of the directors, or of a committee of the directors authorised by the directors to authorise the use of the seal, and every document to which the seal is affixed shall be signed by a director and be countersigned by another director, a secretary or another person appointed by the directors to countersign that document or a class of documents in which that document is included."
This was not done. Exhibit "E" was sealed with the company's seal but signed by one director only. There was no resolution of directors approving the affixing of the seal.
Mr Lyons, for the defendants, said that execution by one director was good enough. He relied on s 182(1) and s 182(7) of the Corporations Law as it stood in 1996, and I quote:
"SECTION 182 – CONFIRMATION OF CONTRACTS AND AUTHENTICATION AND EXECUTION OF DOCUMENTS
182(1) [Power to make, vary or discharge contracts] So far as concerns the formalities of making, varying or discharging a contract, a person acting under the express or implied authority of a company may make, vary or discharge a contract in the name of, or on behalf of, the company in the same manner as if that contract were made, varied or discharged by a natural person.
...
182(7) [Authentication by signature of officer] A document or proceeding requiring authentication by a company may be authenticated by the signature of an officer of the company and need not be authenticated under the common seal of the company."
I consider s 182(1) does not apply in this case because Exhibit "E" is not a contract. The section empowers an agent of the company to bind the company to a contract. It provides that a person acting on the express or implied authority of the company may make the contract on behalf of the company. Also, s 34(1)(b) does not permit an agent to sign the writing manifesting the Trust on behalf of the company. In this regard it is different from s 34(1)(a). I also consider that s 34(1)(b) and the company's Articles of Association require the document creating or evidencing the trust needs to be signed by both directors, or by one director and a secretary. Mrs Dykgraaf cannot sign as agent for the company. Had the two directors signed a letter saying that the land was held on trust for the company, even without a seal on it, that would suffice, or, had the two passed a resolution to that effect at a directors' meeting and both signed it, that would have sufficed for the section.
Under s 34(1)(b) the writing manifesting or evidencing the trust need not be before, or at the time, the trust was said to be created. It can come afterwards: see Di Pietro, above, at 478 and Ford and Lee, "Principles of Trusts" (looseleaf edition), par 6100. An example is given in that text, namely, Re Strathblane Estates [1948] 1 All ER 162. In that case, a company which owned freehold properties held an extraordinary general meeting and passed a resolution that it be wound up and the property returned to the shareholders. It was agreed that the properties be distributed in equal shares between the shareholders. The company paid off all its debts and dissolved itself but did not distribute the properties to the shareholders. It was held that the resolution passed at the extraordinary general meeting evidenced a trust. I assume that the minutes of that meeting were not under seal. The court enforced that trust and ordered the properties to be sold and the proceeds distributed to the shareholders.
The defendants rely on MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636 as authority for the proposition that only one director need sign a deed on behalf of the company. In that case a deed of company arrangement was prepared for a company in administration. It had to be signed by the company within 21 days. By its articles it should have been signed by two directors. It was signed by one only. A creditor tried to avoid the impact of the deed by saying that it had been improperly signed. As stated, it was signed by one director only. The other director was overseas. Before he left for overseas he discussed the deed with the first defendant by phone and they agreed that the first defendant would sign all documents. It was held that telephone discussion was the equivalent of a directors' meeting and the execution was valid under s 187(1). It was held that the deed of company arrangement was a contract and one director could sign and that s 182 applied. That is a relevant case but can be distinguished. It was not concerned with s 34(1)(b).
That case did not involve the creation of a trust and the requirement of writing under s 34(1)(b) of the Property Law Act. That section requires the writing, or maybe several writings which are connected, to be signed, I consider, by both directors.
I turn now to consider the question of fraud. There are several ways in which equity will overlook the strict requirements of writing imposed by s 34(1)(b). One of these is where the legal owner of the land is using s 34(1)(b) to cloak a fraud; that is, the legal owner knows that the property is held on trust but denies that for his own gain. The fraud exception is put this way in Ford and Lee, at par 6090:
"A legal owner against whom it is alleged that he took on an oral trust may be prevented from denying the trust under the equitable principle that the statute must not be used to cloak a fraud."
I think that is the situation here on the facts. In speaking of fraud, I refer to equitable fraud which is different from common law fraud and the layman's understanding of fraud. I am not suggesting that the liquidator acted dishonestly or from bad motives or for personal gain.
Exhibit "E" is clear evidence of an intention to put the land in the name of the Trust. I accept Mrs Dykgraaf's evidence on the circumstances of how the document came to be prepared. It was her intention as a director of the company that the land be put in the name of the Trust. I accept her evidence that the Trust was created for that reason. The land was to be its main asset.
I also accept her husband's evidence in his affidavit that the Trust was set up for that purpose. He and his wife left it to the accountant to take the necessary steps to achieve that goal. Mr and Mrs Dykgraaf are not lawyers, and neither was their accountant, Mr Quarles. They all thought that goal had been achieved. That is why the Family Trust accounts showed the land and buildings as a Trust asset and why rent was paid to the Trust by the company for the use of this Trust asset.
All this was done in 1996 and following years in relation to the accounts, that is before the Liquidator was appointed in early 2001. These steps were not taken to deprive the Liquidator and the creditors of a company asset. In the circumstances, I think it would be an equitable fraud to allow the Liquidator to assert that the Trust does not exist for non‑compliance with s 34(1)(b) and I propose to find for the defendants.
I want to say something about a resulting trust. The defendants argued that, even apart from Exhibit "E", the court should find a resulting trust on the basis that the money to purchase the land had been provided by the Trust and not by Lekker Pty Ltd per se. A resulting trust, by s 34(2) need not be in writing.
What is the evidence that the Trust provided the money? There is no evidence on that in the defendants' affidavits. The Trust did not provide the deposit. It was not in existence when the contract of sale was signed in August 1995 and the deposit paid. The rest of the money, so far as I know, came from the National Bank. $320,000 was borrowed in the name of the company and the loan was later switched, and possibly increased, to the Commonwealth Bank. The interest on the loan was paid by the company. In the year ended 30 June 1999 it came to $40,381.
For the reasons given earlier, on cloaking the fraud point, I find for the defendants that the money is held by the Dykgraaf Family Trust.
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