Morgan v Morgan
[2005] WASC 217
•10 OCTOBER 2005
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MORGAN -v- MORGAN [2005] WASC 217
CORAM: MASTER SANDERSON
HEARD: 22 SEPTEMBER 2005
DELIVERED : 22 SEPTEMBER 2005
PUBLISHED : 10 OCTOBER 2005
FILE NO/S: COR 159 of 2005
BETWEEN: WAYNE CAMPBELL MORGAN
Applicant
AND
BRIAN MAXWELL MORGAN
Respondent
Catchwords:
Corporations Act - Application for leave to commence proceedings in name of corporation - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 237, s 237(2), s 237(2)(d)
Result:
Application granted
Category: B
Representation:
Counsel:
Applicant: Mr P Mendelow
Respondent: Mr A R Beech
Solicitors:
Applicant: Taylor Smart
Respondent: McCallum Donovan Sweeney
Case(s) referred to in judgment(s):
Corin v Patton (1990) 169 CLR 540
Pegrum v Fatharly (1996) 14 WAR 92
Webster v Lampard (1993) 177 CLR 598
Case(s) also cited:
Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555
Cope v Keene (1968) 118 CLR 1
Costin v Costin (1997) 7 BPR 15,167
Dean and Westham Holdings Pty Ltd v Lloyd (1991) 3 WAR 235
Johnson v Gore Wood & Co (A Firm) [2001] 2 WLR 72
Metyor Inc (formerly Talisman Technologies Inc) v Queensland Electronic Switching Pty Ltd (2002) 42 ACSR 398
Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp [1979] Ch 384
Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185
Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 138 FLR 118
Nestegg Holdings Pty Ltd v Smith & Ors [2001] WASC 227
Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146
Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313
MASTER SANDERSON: This is the plaintiff's application for leave to commence proceedings under s 237 of the Corporations Act 2001 (Cth). At the conclusion of argument, I indicated to the parties that I would grant leave and made orders largely in terms of the originating process. I indicated I would publish my reasons at a later date. These are those reasons.
The criteria for the grant of leave to bring an action in the name of a company are set out in s 237(2) of the Corporations Act. That section is in the following terms:
"The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
(e)either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied."
In this case, it was conceded by the defendant that the plaintiff met all the criteria save with respect to s 237(2)(d). The defendant said there was no serious question to be tried and if the action was brought it was doomed to fail.
Before dealing with the facts of the case, it is appropriate to say something about just what is required for a plaintiff in an application under s 237 to establish that there is a serious question to be tried. The first point to make is that the phrase "serious question to be tried" is well understood and is a frequently applied test. Perhaps the best-known application of this test is on an application for an interlocutory injunction. The explanatory memorandum to the Corporate Law Economic Reform Program Bill 1999 (pars 6.34 to 6.48) says this about the test of "A serious question to be tried":
"This criterion does not mean that the applicant, in order to be granted permission to bring proceedings, has to prove the substantive issue (for example, that a director has breached a duty). The applicant is only required to show that proceedings should be commenced. The criterion is designed to prevent frivolous claims."
In Ford's Principles of Corporations Law (11th Ed) the learned author has put the position this way (at 11.240 on page 581):
"In order to determine whether there is a serious question to be tried, the court will not normally enter into the merits of the proposed derivative action to any great degree. The applicant has the same relatively low threshold to surmount as in the case of an application for an interlocutory injunction. This means that cross-examination on the merits of the proposed derivative action will usually be permitted only with leave of the court and to a limited extent although the parties' rights of cross‑examination should not be restricted in relation to matters relevant to the criteria in s 237(2) which are in contest.
It has been said that whether there is a serious question to be tried can be answered only by reference to an infringement of some legal or equitable right or the commission of some legal or equitable wrong."
Turning to the application itself, it is convenient to first identify the relevant parties. The plaintiff is a director and shareholder of Gabagin Nominees Pty Ltd ("Gabagin"). Gabagin is the company on whose behalf the plaintiff seeks to bring proceedings against the defendant. The defendant is the brother of the plaintiff and is also a director and shareholder of Gabagin. The plaintiff and the defendant are the sons of Kenneth Maxwell Morgan who is commonly known as Max Morgan. Throughout these reasons I will refer to Kenneth Maxwell Morgan as "Max". The plaintiff and the defendant have another brother, Raymond Kenneth Morgan. Throughout the evidence he is referred to as "Ray" and that is the nomenclature that I will adopt.
Much of the evidence relevant to this application is uncontroversial. It can be summarised in this way. Max inherited the farm known as "Gabagin Springs" from his father in 1959 and subsequently bought some property around it to expand the farm. Throughout the evidence the original farm, together with the additional parcel, are referred to as Gabagin Springs and defined as "the Land". In addition to the Land, Max also worked other land known as the Wongamine Road Property or Meggsies ("Meggsies"). Max transferred Meggsies to Gabagin as trustee for the K M Morgan Family Trust on 1 March 1974. The plaintiff, the defendant and Ray are all beneficiaries of the K M Morgan Family Trust.
Although it is not strictly relevant, it appears that Max ceased day-to-day involvement with the farming activities around 1985. Thereafter, the plaintiff ran the farm. In 1997 there were some discussions between the plaintiff, the defendant, Ray and Max as to what was to happen to the Land. Max indicated that he was keen to give up his interest in the Land so that it would pass on to the next generation and so that he could claim an old age pension. It appears that an agreement was reached that Max's assets (including the Land) would go into a family trust. The plaintiff and the defendant would be the beneficiaries of the trust and Gabagin would be the trustee.
In furtherance of this exercise, Max, Ray, the plaintiff and the defendant attended upon a solicitor, Mr Peter Cullen of Messrs Frank Unmack and Cullen. Instructions were issued to Mr Cullen to draw up documents to give effect to the agreement which had been reached between the parties. Up to this point the plaintiff and the defendant are in complete agreement as to what had occurred. Thereafter their version of events differ.
The plaintiff sets out his version of events in two affidavits, the first sworn 20 June 2005, the second sworn 7 September 2005. In his first affidavit the plaintiff says that he attended upon Mr Cullen on 17 March 1997 to sign the documents which Mr Cullen had drawn up. He says that Ray and Max were also present at this meeting, but he is not sure if the defendant was present. He thinks not. Either way, all relevant parties signed a document entitled Deed of Settlement, Gabagin Farm Trust, a declaration of trust and a transfer of land from Max to Gabagin. Once again, it is common ground that all of these documents were signed by all of the relevant parties. The plaintiff then says (at par 21):
"The Certificates of Title for the Land were in the bank. Prior to my attendance at Cullens, I collected them from the bank. I brought them in to Cullens and presented them to Cullen to enable the transfer of the Land."
In his first affidavit the plaintiff says that he thought nothing more about the transaction and the transfer of the Land to Gabagin until late 2000 when he realised that a rates notice for the year 1999/2000 had not arrived. He thereafter made enquiries and found that the Land had been transferred to a company named Bushpoint Enterprises Pty Ltd. The directors and shareholders of Bushpoint are the defendant and Ray. Clearly, no action was taken pursuant to the signed transfer to convey the Land from Max to Gabagin.
In opposition to this application the respondent filed an affidavit sworn 15 August 2005. The defendant does not dispute the agreement between the parties referred to in the plaintiff's affidavit, nor does he dispute that Mr Cullen was instructed to draw up the documents. He does not say whether or not he was at the meeting in Mr Cullen's office on 17 March 1997 but he confirms that he too signed all the relevant documents. But he does dispute that the plaintiff produced the title deeds to the Land to Mr Cullen at the meeting on 17 March. The defendant in his affidavit puts the position this way:
"14.However, by about mid-1997 my father told me that he had decided against leaving the Gabagin land to a trust that would benefit me and Wayne. Rather, he told me that he had decided to leave Gabagin to me. I was advised of this at some time prior to the meeting that ultimately took place at the offices of Mr Cullen on 11 November 1997.
15.I recall that on 11 November 1997 my father, Wayne, Ray and I met at Peter Cullen's offices in Fremantle. I remember I drove Wayne down to the meeting and he produced at that meeting the title deeds that he had obtained from the Northam bank.
16.I also remember at that meeting that my father signed a new will and signed an enduring power of attorney appointing Ray as his attorney.
17.I remember during the meeting that my father said to Peter Cullen that he wanted the Gabagin property to be transferred for my benefit. I also remember my father saying to Wayne that he could have Meggsies. I remember Wayne saying 'I do not want that'.
18.I recall that Wayne, from his demeanour and silence, appeared to be particularly angry after the meeting but he did not speak about any of the issues specifically. He did not discuss the matter with me at all in the car when I drove him back to his home.
19.Wayne told me that he was angry with my father's decision when we returned to the Gabagin farm."
It is the defendant's position then that the plaintiff produced the titles to the Land at the meeting on 11 November 1997 and not at the meeting on 17 March 1997. It is also his position that at the second meeting - that held on 11 November 1997 - it was made plain to the plaintiff that the gift would not proceed and that the Land would not be transferred to Gabagin. In other words, it is the defendant's position that despite the signing of various documents including the transfer of the Land, the gift of the property would not proceed.
In his affidavit of 11 August 2005, Max confirms the defendant's version of events. He does not dispute that the relevant documents were signed on 17 March 1997. He says (at pars 31 ‑ 32):
"31.The title deeds to the Gabagin farm were held in a safety deposit packet at the Westpac Bank in Northam. The signatories to the safety deposit packet were me and Wayne. Wayne still resided at the Gabagin farm and was therefore much closer to my bank than I was, as I was residing in Mandurah. I deny the claim made in paragraph 16 of Wayne Morgan's affidavit that he had 'control' of the titles.
32By March 1997 I had instructed Wayne to ensure that the transfers of my properties were effected so as to ensure that the five year period that I had to wait after transferring the properties in order to obtain a pension could commence to run."
Max goes on to say that during mid 1997 he changed his mind about gifting the Land to Gabagin. He recalls a meeting with Mr Cullen and his sons on 11 November 1997 but he says that he does not have a specific recall of what was discussed: see par 42. He does say that he has "no doubt" that during the meeting he stated his intention. Max then goes on to detail the circumstances which lead to the Land being transferred to Bushpoint Enterprises Pty Ltd.
Two further affidavits of relevance have been filed on behalf of the defendant. Ray has filed an affidavit sworn 12 August 2005. In large measure, Ray confirms what the defendant says took place at the meeting with Mr Cullen, his brothers and father on 11 November 1997. An affidavit of Peter Bruce De Barran Cullen sworn 12 August 2005 has also been filed. Once again, Mr Cullen largely confirms the version of events put by the defendant. Importantly, Mr Cullen confirms that he did not receive copies of the certificates of title on 17 March 1997. He says that on 6 June 1997 he wrote to Max requesting the titles. A copy of that letter appears as annexure "O" to his affidavit. That letter did not produce a satisfactory result and he wrote again to Max on 25 June 1997. A copy of that letter is annexure "P" to Mr Cullen's affidavit. A further letter was written on 28 August 1997 and that letter appears as annexure "Q" to Mr Cullen's affidavit. Mr Cullen says he eventually received the certificates of title on 11 November 1997. He produces as annexure "R" a copy of the receipt issued by his firm and signed by him for the relevant titles. In my view, whatever else may be said about the evidence in this case, there can be no doubt that the titles were first produced to Mr Cullen by the plaintiff at Mr Cullen's offices on 11 November 1997.
In his second affidavit the plaintiff concedes - or appears to concede - that he delivered the titles to Mr Cullen at the meeting in November of 1997. He says (par 5):
"Although I originally thought that I collected the titles to the Gabagin farm from the bank and took them to the original meeting in March 1997, having now read the matters deposed to in Mr Cullen's Affidavit it is possible that I took them to the later meeting in November 1997. I note the receipt therefor annexed to Cullen's Affidavit."
The plaintiff then goes on to deal with the meeting at Mr Cullen's office on 11 November 1997. He says:
"14.At the meeting was myself, Max, Ray, Brian, and Cullen. Later, another man entered to witness the power of attorney, but that man wasn't there when we discussed matters.
15.Cullen put forward a proposal that I would get Meggsies and Brian would get Gabagin, and I would continue to live in the Gabagin house.
16.Cullen was not saying, 'you will have this'. Cullen was saying, 'what do you think of this'.
17.I said, 'no, I won't have it, it's not going to change. It's ridiculous'. I got quite heated.
18.Cullen just looked at my father. Cullen didn't say anything like, 'it's your father's, he can do with it what he likes', as alleged by Ray in paragraph 24 of his Affidavit.
19.Max looked at me, put his hands in the air and said, 'no, we'll leave it as it is'.
20.I don't recall Brian or Ray saying anything at all. Very little was said.
21.That was when the other bloke came in to witness the power of attorney. That was the end of the meeting.
22.The meeting took about half an hour.
23.Nothing else was discussed at that meeting regarding changing the position from that agreed to in March 1997. The issue had already been settled, and we were going back over old ground."
The submissions put by counsel for the defendant can be summarised in this way. If proceedings are commenced by the company, the action will fail because the company is seeking to have equity perfect an imperfect gift. Both counsel directed considerable attention to the question of when a gift was effective in equity. For present purposes, it is enough if I quote from the decision of Mason CJ and McHugh J in Corin v Patton (1990) 169 CLR 540. Their Honours said (at 558):
"The rationale for refusing to complete an incomplete gift is that a donor should not be compelled to make a gift, the decision to give being a personal one for the donor to make. However, that rationale cannot justify continued refusal to recognise any interest in the donee after the point when the donor has done all that is necessary to be done on his part to complete the gift, especially when the instrument of transfer has been delivered to the donee. Just as a manifestation of intention plus sufficient acts of delivery are enough to complete a gift of chattels at common law, so should the doing of all necessary acts by the donor be sufficient to complete a gift in equity."
That then leads to this question - what in this case were all necessary acts to be done by Max to complete a gift in equity of the Land to Gabagin? Both counsel were agreed that it was necessary for Gabagin to be in possession of a registrable transfer and the title deeds to the Land to allow registration to be effected. Both counsel were also agreed that it was not strictly speaking necessary for the transfer to actually be lodged with the registrar for registration. Where counsel differed was whether or not in this case all that was necessary to be done by Max to gift the property to Gabagin had in fact been done.
Before dealing with the evidence and the submissions of both parties, I should make some comment about the way that the evidence has to be approached. In a case such as this it is not possible on the basis of affidavit evidence to make any findings of fact. So the principles to be applied are the same as those that would be applied on a summary judgment application. That is to say the version of events most favourable to the plaintiff must be assumed. It may well be at trial that the defendant's version of events will be accepted. But unless the version of events put by the plaintiff is inherently incredible, then that version must be accepted for the purposes of the application and the question of whether or not there is a serious question to be tried must be measured against that test: see generally Webster v Lampard (1993) 177 CLR 598.
The practical effect of that approach in this case is that the plaintiff's version of events which took place at the meeting in Mr Cullen's office on 11 November 1997 must be accepted. Counsel for the defendant did not cavil with that principle. It was his submission that even accepting the version of events put by the plaintiff, not everything that was necessary to perfect the gift had been done.
Counsel for the defendant submitted that the evidence clearly established that Mr Cullen was the agent of Max and was not acting for and therefore was not the agent of Gabagin. This question of fact has important ramifications. If the submission is correct, then the delivery by the plaintiff of the title deeds to the Land to Mr Cullen meant that those title deeds then passed out of his possession. Furthermore, the signed transfer was always in the possession of Mr Cullen. That never passed to the plaintiff. Therefore it was submitted that the gift was never complete because the plaintiff was never in a position to say that all that needed to be done to effect the transfer had been done. The situation would have been different had the plaintiff himself had in his possession, with the consent of Max, both the signed transfer and the title deeds. Then it could well be said that the gift had been perfected.
In my view, there is a clear dispute of fact as to whether or not Mr Cullen was the agent of Gabagin. He himself in his affidavit says he was not: see par 4. But the question of whether a solicitor is retained by a particular party in a commercial transaction where he is drawing documents which affect a number of parties, is a question of fact to be determined on the evidence. In Pegrum v Fatharly (1996) 14 WAR 92 Anderson J put the position as follows (at 102):
"When both parties to a transaction consult the same solicitor and together give him the information needed to prepare the documents in which their respective rights and obligations are to be set out and the solicitor accepts responsibility to prepare the documents without any indication that he cannot fully discharge his professional duties to them both there is a strong bias towards finding that the solicitor tacitly agrees to act for both parties and to undertake the usual professional responsibilities to them both: see Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp (1979) Ch 384 esp at 396. In the absence of a clear indication by the solicitor that the solicitor does not accept one of the parties as his client it is natural in such a case to assume both are relying on him for professional advice and assistance. This follows from the mere fact that both have consulted him."
In my view, there is clearly a serious question to be tried as to whether or not Mr Cullen was acting for Gabagin. I accept there is evidence that he was not. Moreover, there is nothing in the documentary evidence or indeed in the evidence of the plaintiff that suggests Mr Cullen was acting for Gabagin. But the fact remains that Mr Cullen was preparing documents which affected the rights and interests of Gabagin. Nowhere is it suggested that he made it plain to the plaintiff or anyone else that he was not acting for Gabagin. There is a dispute of fact on this question which cannot be resolved on the affidavit material. That means, consistent with what I have said above, that the state of affairs most favourable to the plaintiff must be assumed. In other words, it must be assumed that Mr Cullen was acting on behalf of Gabagin at the time that the meeting of 11 November 1997 took place and thereafter.
It was counsel for the defendant's submission that even allowing for this dispute of fact and assuming for the sake of this application that Mr Cullen was acting for both Gabagin and Max, still not all that needed to be done to perfect the gift had been done. It was counsel's submission that when all of the individuals concerned left Mr Cullen's office on 11 November 1997 that it was open to Max to change his mind and effectively recall the gift. Counsel for the defendant conceded that the position would have been different had the plaintiff taken with him to the meeting in Mr Cullen's office a solicitor who represented Gabagin and who took possession of both the transfer and the title deeds at the meeting. But it was submitted that the fact that Mr Cullen was acting for both Gabagin and Max (again making that assumption only for the purposes of this application) meant that the gift was not effected.
The difficulty with this proposition is that it involves assumptions about the nature of Mr Cullen's retainer. If the plaintiff's version of events which occurred on 11 November 1997 is accepted, did the retainer as between Gabagin and Mr Cullen require Mr Cullen to lodge the documents with the registrar to effect the transfer? Or was it the case that the respective positions adopted by the plaintiff and Max meant that as a matter of fact Max had given up the right to recall the transfer? These are matters which, in my view, can only be explored at the trial of the action.
Having said all of that, it must also be remembered that what I am required to determine on an application such as this is whether or not the proposed action is frivolous. What counsel in fact undertook was a detailed analysis of the affidavit material and the law and that, I think, is beyond the scope of a hearing such as this. It is clear that the proposed action is not frivolous and that is enough to dispose of the matter.
I should also mention one further aspect of the potential claim. In the notice given by the plaintiff to the defendant as is required by s 273, reference is made to an alleged breach of fiduciary duty by the defendant with respect to Gabagin. This is not an aspect of the claim which was developed at all in argument. It would seem, however, that what the plaintiff alleges is that in facilitating a transfer of the Land into the name of Bushpoint Enterprises Pty Ltd, the defendant had breached his fiduciary duties as a director of Gabagin. As I have said no argument was directed to this question and I would not offer any views on the merits or otherwise of such a cause of action. I would, however, make the comment that it is possible to see how in the circumstances of this case Gabagin might put a claim against the defendant for breach of his duties as a director.
For all of these reasons I granted the application. I ordered that the costs of the application be costs in any proceedings brought by Gabagin.
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