Pelerman v Pelerman

[1998] QSC 21

IN THE SUPREME COURT

OF QUEENSLAND

No. 2847 of 1998

Brisbane

Before Chief Justice de Jersey

[Pelerman v. Pelerman]

BETWEEN:

VIVIENNE HARRIET JOSEPH
  First Plaintiff

AND:
  MORDECHAI YEHUDA JOSEPH
  Second Plaintiff

AND:
  DAVID JOSEPH
  Third Plaintiff

AND:
  BRETT JOSEPH
  Fourth Plaintiff

AND:
  THE PELERMAN GROUP PTY LTD
  (as Trustee for THE REUBEN PELERMAN TRUST
  and THE PELERMAN HOSPITAL UNIT TRUST)
  First Defendant

AND:
  REUBEN PELERMAN
  Second Defendant

AND:
  ROBERT PELERMAN
  Third Defendant

AND:
  BCCM PTY LTD
  Fourth Defendant

JUDGMENT de JERSEY CJ
Judgment delivered 22 April 1998

I am asked to appoint a receiver of the first defendant.

It is important first to identify the attitude of those interested in the trusts of which the first defendant is trustee.  The first defendant has two directors, the second defendant Reuben Pelerman and his son, Brian.  There is ample material that there is no relationship of trust at all between Reuben and Brian.   Reuben seeks the appointment of a receiver, although Brian opposes it.  Reuben and Brian’s company, the fourth defendant, are the only capital beneficiaries of the trusts of which the first defendant is trustee.

The other, income beneficiaries, are the plaintiffs and the third defendant.  The third defendant has played no part in the litigation.  All of the plaintiffs support the appointment of a receiver.  While the plaintiffs’ interests are discretionary, their attitude is still significant, although less so obviously than that of the capital beneficiaries in whom the trust property will vest in 2006.  In summary therefore, we see that one of the two capital beneficiaries supports the appointment of a receiver, as does the substantial majority of the discretionary income beneficiaries.

The attitude of Brian and his company, the fourth defendant, is related to events in 1997, including most significantly for the present, an agreement appointing the fourth defendant, on 18 September 1997, as manager of the trusts.  The validity of that agreement was earlier challenged in this Court.  Reuben had sought the appointment of a receiver, and contended that the agreement involved an impermissible delegation by the first defendant of its obligation as trustee.  Reuben sought a summary determination of that issue on the basis that it was one solely of construction.  Before the matter finally came before Dowsett J, the parties had agreed on mutual  undertakings designed to minimise difficulties with the fourth defendant’s continuing management of the trusts pending a speedy trial of the action.   As his Honour said, Reuben may be taken to have agreed to that in anticipation of an early determination of the validity of the management agreement.  His Honour considered, however, that the issue of the validity of the agreement should go to trial, albeit with the benefit of a speedy trial certificate.

Because Dowsett J did not apparently consider, and certainly did not rule on, the issues of management pressed before me, as grounding the application for the appointment of a receiver, and because, as he said, Reuben’s agreement to the regime established by the undertakings assumed an early determination which has not occurred, I consider that the applicants should not now be denied the opportunity to ventilate again the factual issues then raised as justifying the appointment of a receiver.

As I said, the opposition of Brian and the fourth defendant to the appointment of a receiver is plainly related to the circumstance that the fourth defendant is managing the business of the trusts.  Yet the fourth defendant’s entitlement to do that is subject to what the respondents concede to be serious questions warranting trial.  I do not propose, of course, to examine the competing merits of the challenge to the agreement, and the response: it is enough to my resolution of the present impasse to note the concession, rightly made, that there are serious questions to be tried as to the fourth defendant’s entitlement to manage the trusts.

But the substantially supporting attitude of the beneficiaries, and the existence of serious questions as to the validity of the present manager’s position, though relevant considerations, are not definitive of the need for the appointment of a receiver.  As relevant here, it is necessary for the applicants to demonstrate, in addition, that a receiver is necessary to ensure the security of the trust property: Meagher and Gummow: Jacobs Law of Trusts in Australia (6th) para 2305 and Ford and Lee: Principles of the Law of Trust (3rd) para 17410.  Compare, as to the removal of a trustee, Miller v. Cameron (1936) 54 CLR 572, 580-1 and Re Whitehouse (1982) Qd.R. 196, 206.

I am satisfied that the applicants have sufficiently established that position to warrant the appointment of a receiver.  I have sufficiently serious doubts about the propriety and competence of the fourth defendant’s management in the following areas to justify my conclusion that the trust property is in jeopardy: as to whether the fourth defendant is properly preparing budgets and cash flow documents, as to the substantial gap between forecast and actual profit levels, the circumstance of the first defendants entering into uncommercial employment agreements with two senior staff members to the detriment of the business upon their termination - notwithstanding insurance, the probable use of trust funds by Brian to secure his own legal costs, and an apparent lack of co-operation between the respondents and Reuben as to the provision of information and access to financial records.   I have naturally given careful consideration to the respondents’ responses to the applicants’ contentions in these areas.   Some may later be held sufficient.  But I am left with serious doubt as to the management to warrant my interposing an independent third party, and I am reinforced in that approach by the complete absence of trust between the two only directors of the first defendant, the existence of serious questions of validity of the very agreement on which the fourth defendant relies for its right to manage the trusts, and the substantial support of the beneficiaries.

The balance of convenience favours the appointment of a receiver.  If the fourth defendant continues its management in the present situation, losses to the beneficiaries could be substantial, and quite disproportionate to the loss to the fourth defendant through the effective suspension of its right to manage.  I have considered the particular matters raised by the respondents - the alleged threat to the Liquorland transaction, the occurrence of default under the leases and the continuance of supply - but am persuaded by the applicants’ response that, in terms of practical consequence, these risks are more imagined than real.  It is also important to note that the defendants have, since December last year, been trying to avoid a receivership, but the steps taken at this stage have not dispelled the substantial element of distrust among the parties.

Having regard to the complexity and magnitude of the businesses, I am not satisfied that damages would be an adequate remedy. 

As to the worth of undertakings as to damages, I have doubts about the worth of the undertakings offered by the plaintiffs alone, but the added undertaking from Reuben leaves the position satisfactory.  Mr Knight’s contention as to Reuben’s possible tax position post June 2000 does not dissuade me from that conclusion.

As to whether the proposed receivers be required to give security, I am prepared to relieve them from the requirement to give security, as not infrequently results from a proposed receiver as being an official liquidator (as in the case of one of the proposed appointees here) experienced in this field of work and reasonably expected to act with the competence and independence characteristic of an officer of the Court.  Compare O’Donovan: Company Receivers and Managers, para 18.670 note 2.

Since I am prepared to place the first defendant into receivership, it naturally follows that I should restrain the fourth defendant from continuing as manager pending trial.

Upon the plaintiffs and the second defendant by their respective Counsel giving the usual undertaking as to damages, I make an order for the appointment of receivers and ancillary relief in accordance with the draft presented to me, which I have initialled and placed with the papers.  I further order, as an addition to the draft, and upon the same undertakings as to damages, that the fourth defendant be restrained, pending the determination of the action, whether by itself, its servants or its agents, from exercising or purporting to exercise any powers or rights pursuant to the management agreement dated 18 September 1997 referred to in these proceedings.  I certify the action as one which ought to be tried speedily.