Mavromatis, A.P. v Haspaz P/L

[1993] FCA 331

ANTHONY PETER MAVROMATIS; POPPY MAVROMATIS and GRATELAND PTY LIMITED v. HASPAZ
PTY LIMITED; AAG CORPORATION PTY LIMITED; TEFBAP PTY LIMITED; DOJIK PTY
LIMITED; JOHN ANDRONICOS and HARRY MAVROMATIS
No. G3193 of 1992
FED No. 331
Number of pages - 4
Corporations Law
(1993) 10 ACSR 473
(1993) 11 ACLC 574

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J(1)

CATCHWORDS

Corporations Law - application to prevent use by company of trust funds for legal defence to application for winding up - company as trustee - whether conduct of company affairs was oppressive.

Corporations Law - s.260

HEARING

SYDNEY, 5 April 1993

#DATE 21:5:1993

Counsel for the applicants: M. Oakes

Solicitor for the applicants: Briggs Paul Dowding

Counsel for the respondents: C.E. Adamson

Solicitors for the 1st, 2nd,
3rd, 5th and 6th respondents: A.G. Robinson Creais

ORDER

THE COURT ORDERS THAT:

The motion be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DAVIES J This interlocutory application seeks to prevent oppression in relation to the affairs of Haspaz Pty Limited, which is alleged to be occurring in relation to these proceedings.

1. Section 260 of the Corporations Law provides, inter alia:-
   

"(1) An application to the Court for an order under this

section in relation to a company may be made:

(a) by a member who believes:

(i) that affairs of the company are being

conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or

members, or in a manner that is contrary to the interests of the members as a whole; ..."

1. The first applicant, Anthony Peter Mavromatis, is a member of the first respondent, Haspaz Pty Limited, but only, I think, in his capacity as a trustee of the shares for the third applicant, Grateland Pty Limited.

2. The first applicant and the fifth and sixth respondents are related by blood or marriage. Their family companies are the third applicant and the third and fourth respondents, each of which is a trustee for a family trust. In 1980, a unit trust, the Haspaz Trust Fund, was established by deed dated 15 April 1980. The first respondent, Haspaz Pty Limited, was constituted as the original trustee of the unit trust. Haspaz Pty Limited has since carried on business as the operator of two hotels. One of the hotels, the CB Hotel, has now been sold. The remaining major asset of the trust is the Westend Hotel. Each of the third applicant and the third and fourth respondents holds one-third of the units issued in the Haspaz Trust Fund.

3. It is alleged by Mr Anthony Mavromatis that, until mid-1992, he was the manager of the business which Haspaz Pty Limited conducted as trustee of the Haspaz Trust Fund. In mid-1992, following a meeting of the Board of Directors of Haspaz Pty Limited, Mr Harry Mavromatis became the manager of the business and Mr Anthony Mavromatis claims that he was thereafter excluded from a management role.

4. A second amended statement of claim dated 25 March 1993 claims, first, that Haspaz Pty Limited owes $150,000 plus interest to Mr Anthony Mavromatis, secondly, that Haspaz Pty Limited should be wound up on the ground that it is unable to pay its debts and on the ground that a winding up would be just and equitable. Thirdly, it is claimed that the Haspaz Trust Fund should be wound up and that its net assets should be vested in the second and third respondents and the third applicant in equal shares as tenants-in-common. The proceedings are complex, for they raise many matters relating to the Corporations Law, yet the principal issues arise with respect to the trust. Simply as a company, Haspaz Pty Limited has no significant capital or assets. It was formed for the purpose of, and has carried on business as trustee of the Haspaz Trust Fund. The assets which it holds are trust assets.

5. The present application is brought on the footing that Haspaz Pty Limited is using funds of the Haspaz Trust Fund to defend the proceedings. This is alleged to amount to oppression against the applicants.

6. However, Haspaz Pty Limited is the trustee of the Haspaz Trust Fund and was so constituted by acceptance of the trust under the deed of trust made 15 April 1980. As trustee, the duty of Haspaz Pty Limited is to maintain and protect the Trust and its assets. Haspaz Pty Limited is under a duty to fulfil that role while it remains trustee. Clause 22 of the Trust Deed, which provides for retirement, reads:-
   

"The Trustees covenant as follows:-

.1 that they will act continuously as Trustees under the trusts herein set forth until such trusts are

determined as herein provided or the Trustees have

retired from the trusts in the manner herein provided: .2 that they will retire or procure the retirement from the Trust of any Trustee in any of the following

events, namely:-

.21 if being a company such Trustee shall go into liquidation (except for the purpose of

amalgamation or reconstruction or some similar purpose) or if a receiver shall be appointed of the undertaking of the Trustee or any part

thereof:

...

.4 any Trustee may provided he has obtained the unanimous consent of the Unit Holder to his so doing, retire at any time provided further that he shall first appoint or secure the appointment of a substitute Trustee."

None of the events provided for in Clause 22 have occurred. Haspaz Pty Ltd must discharge its duties so long as its character as trustee subsists.

1. Accordingly, the applicants cannot, by reliance on s.260 of the Corporations Law, prevent Haspaz Pty Limited from doing that which it has a duty as trustee to do. There being no evidence that Haspaz Pty Limited is acting otherwise than as a trustee should, no interlocutory order should be made preventing it from paying funds to protect the Haspaz Trust Fund from the orders sought by the applicants.

2. Haspaz Pty Limited should, of course, act fairly as between its beneficiaries. If it fails to do so, any improper preference of one beneficiary over another will be corrected on the taking of accounts. But that is not a matter with which we are now concerned.

3. This application seeks that Haspaz Pty Limited be precluded from using the trust funds to pay the legal costs incurred in defence of the applicants' claims. The application is ill-founded.

4. Even if the existence of the trust was ignored and the matter considered as simply an issue raised under Corporations Law, it is a novel proposition that a company, which has an arguable defence to an application that it be wound up, should not expend its funds in financing that defence or that its directors should not authorise that expenditure. Counsel for the applicants was unable to point to any case in which an order such as that sought has been made.

5. The motion will be dismissed with costs.