Randa Lee Investments Pty Ltd v Ballan
[2015] VSC 178
•8 May 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2015 000117
| RANDA LEE INVESTMENTS PTY LTD (ACN 005 218 137) & ANOR | Plaintiffs |
| and | |
| CONSTANTINO ACHILLE BALLAN & ORS | Defendants |
---
JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 April 2015 |
DATE OF JUDGMENT: | 8 May 2015 |
CASE MAY BE CITED AS: | Randa Lee Investments Pty Ltd & Anor v Ballan & Ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 178 |
---
TRUSTS AND TRUSTEES – PRACTICE AND PROCEDURE – Application by Unitholder of a Unit Trust to bring proceedings in its own name – Where cause of action is generally available only to the Trustee – Where Trustee Company is in receivership and liquidation and New Trustee appointed - Whether leave is required to proceed – Whether exceptional circumstances exist – Corporations Act 2001 (Cth) ss 471B and 500(2) – Ramage v Waclaw [1988] 12 NSWLR 84 – Robert Deutsch & Ors v Erwin Deutsch & Ors [2012] VSC 227.
PRACTICE AND PROCEDURE – Whether leave should be granted to the Plaintiff as a Unitholder to proceed effectively on behalf of the Trustee Company – Whether New Trustee, receivers, managers and liquidators are willing and able to bring proceedings – Where the Plaintiff has failed to establish a reasonable prospect of success – Where pleading is defective – Civil Procedure Act 2010 (Vic) – Carpenter v Pioneer Park Pty Ltd [2008] 71 NSWLR 577.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr N Kidd SC | Levitt Robinson Solicitors |
| For the First, Second and Fourth to Eighth Defendants | Mr J L Evans | Madgwicks Lawyers |
| For the Third Defendant | Mr P B Murdoch QC with Mr A Kirby | Michael Flemming & Associates |
| For the Tenth Defendant (Receivers and Managers) | Dr O Bigos | Thomson Geer |
| For the Tenth Defendant (Liquidator) | Ms C Gobbo | Saxbys Lawyers |
| For the New Trustee | Mr D Grant | Logie Smith Lanyon |
HIS HONOUR:
A. Introduction
The main question in this application is whether the first plaintiff (‘Randa Lee’), as a Unitholder in the Marnong Unit Trust (‘the Unit Trust’), requires leave (and if leave is required whether it should be granted) to sue the directors of Marnong Pty Ltd (‘Marnong’) the former Trustee of the Unit Trust (‘the Old Trustee’), and the fifth defendant (‘Morlend’). Normally these causes of action, if available, are available only to the Trustee.
Marnong, the Old Trustee, is in receivership and in liquidation. On 1 April 2015, I appointed Michael Carrafa (‘Carrafa’) as the New Trustee, because the liquidation of Marnong disqualified it from acting as trustee of the Unit Trust. Constantino Ballan (‘Con Ballan’) and Sam Cimino (‘Cimino’), the first and second defendants respectively, were at all relevant times directors of Marnong.
Interests associated with the Chiavaroli family (‘the Chiavaroli Interests’) which include Randa Lee, hold 60% of the units in the Unit Trust. Interests associated with the Ballan and Cimino families (‘the Ballan and Cimino Interests’) hold the remaining 40%. There has been a significant falling out between the groups.
Marnong is, following a subdivision, the registered proprietor of all the lands described in the following Certificate of Titles:
(1)Volume 8774 Folio 382 (‘Back Land’);
(2)Volume 11490 Folio 147 (‘Cimino Ballan Lot’);
(3)Volume 11518 Folio 161 (‘Cimino Ballan Lot’);
(4)Volume 11490 Folio 148;
(5)Volume 11518 Folio 160;
(6)Volume 11490 Folio 150;
(collectively, the ‘Marnong Land’).
On 30 December 2013, in order to achieve a separation of their interests, a Unitholders Agreement was executed by all of the Unitholders of the Unit Trust. Pursuant to this agreement the Unitholders agreed to subdivide the land held by Marnong and thereafter grant options to purchase parts of the land to various of the Unitholders and Con Ballan. All parties were represented by solicitors.
In circumstances that are discussed more fully hereunder, Marnong granted the Ballan and Cimino Interests and Con Ballan an option to purchase in relation to the Back Land (‘the Back Land Call Option Deed’) and the Cimino Ballan Lots (‘the Cimino Ballan Lots Call Option Deed’). Marnong also granted an option to purchase to the Chiavaroli Interests in relation to the remaining lots. This, together with other terms and conditions was intended to achieve the desired separation.
Randa Lee alleges in essence that the Call Option Deeds are void, the Ballan and Cimino Interests are not entitled to specific performance, and that the Back Land and the Cimino Ballan Lots should remain with the Unit Trust as part of the Marnong Land. They allege further that as directors, Ballan and Cimino breached their fiduciary and statutory duties to Marnong. Finally they allege that, in the circumstances set out hereunder, Morlend, as financier, knew of and participated in their breaches of duty.
Randa Lee contends further that it is clear that neither Marnong (by its receivers and managers) nor Carrafa as the New Trustee are desirous of running the case and that they are entitled to sue as affected Unitholders. Randa Lee submitted that the unwillingness or inability to sue constitutes special circumstances that entitled it to commence this proceeding without leave and as a matter of right.
By summons filed 9 April 2015, the second plaintiff originally sought leave to proceed, nunc pro tunc, under s 237 of the Corporations Act 2001 (Cth) (‘Corporations Act’) and the inherent jurisdiction of the Court. At the hearing of the application the court was told that the second plaintiff no longer wished to proceed. Randa Lee however sought leave to amend the originating process and leave under ss 471B and 500(2) of the Corporations Act to proceed against Marnong.
The defendants submitted that leave is required, that a case had not been made out on the evidence for such leave to be granted, and that in any event the pleading was so fundamentally defective that leave ought not be granted.
By summons filed on the same day, that is 9 April 2015, the first, second and fourth to eighth defendants sought a permanent stay or dismissal of the proceeding. Alternatively they sought to strike out the statement of claim under rule 23.02 of the Supreme Court (General Civil Procedure) Rules 2005.
In my opinion, although not specifically sought, leave is required to commence, and in this case to continue the proceeding. For the reasons set out hereunder leave should not be granted. For obvious reasons I propose to say no more than is absolutely necessary.
B. Relevant background
A perusal of the Unitholders Agreement confirms the intention of the parties to separate their interests not only in relation to the Unit Trust but also with regard to another Unit Trust called the 428 Little Bourke Street Unit Trust (‘the 428 Trust’).
Recitals 5-7 are in the following terms —
R5.Daimleigh wishes to sell to C A Ballan and C A Ballan wishes to buy from Daimleigh the 428 Units on the terms and conditions of this Deed.
R6.The Marnong Unitholders are proposing to subdivide the Marnong Land and have reached agreement regarding:
R6.1the allocation of the subdivided parcels after registration of the plan of subdivision;
R6.2the management of the subdivision and the Marnong Land; and
R6.3allocation of expenditure and liabilities relating to the Marnong Land.
R7.The Parties have entered into this Deed to record the terms and conditions of the agreements described in recitals R5 and R6.
So far as the subdivision and allocation of the Marnong Land was concerned, the parties agreed as follows —
5 MARNONG LAND
5.1 Proposed Subdivision
5.1.1.The Marnong Unitholders each severally agree that they will use their best endeavours to subdivide the Marnong Land within 12 months from the Completion Date in accordance with the proposed plan of subdivision attached to this Deed and marked Attachment 1 (Marnong Subdivision);
…
5.1.4The Marnong Unitholders agree that after a statement of compliance is provided by the relevant municipality in respect of the Marnong Subdivision, and provided that the Marnong Land is subdivided in the manner shown in Attachment 1, the Marnong Unitholders will be entitled to exercise Control of the Marnong Land as follows:
5.1.4.1.the areas labelled “Chiavaroli” on Attachment 1 will be distributed to Empicato and West Homes (Chiavaroli Lots) or retained by the Marnong Trustee if clause 5.5.2 applies; and
5.1.4.2the areas labelled “Cimino Ballan” on Attachment 1 will be distributed to Ballan Properties, C A Ballan, Josam Investment, Josam Super and Velvet (Cimino Ballan Lots) or transferred in accordance with clause 5.5.2.
5.1.5.The Marnong Trustee shall do anything necessary to ensure the Marnong Unitholders are able to Control their respective portion of the Marnong Land as provided in clause 5.1.4.
5.1.6.After registration of the Marnong Subdivision, if a Marnong Untholder (or group of Marnong Unitholders) wish to transfer any parts of the Marnong Land from the Marnong Trustee, other than in accordance with clause 5.5, unanimous consent of the Marnong Unitholders is required and all parts comprising the Marnong Land must be transferred in the same financial year.
Clause 5.2.1 of the Unitholders Agreement provides that Peter Chiavaroli, Empicato and West Homes (being two Chiavaroli controlled entities) would be liable for 94.11% of the debt owed by Marnong in its capacity as trustee of the Unit Trust to the Commonwealth Bank of Australia (‘CBA’) and that the Ballan and Cimino Interests would be responsible for 5.89% (or $176,000). On about 31 December 2013, $176,000 was paid to CBA in reduction of the debt owed by Marnong to CBA, by the Ballan and Cimino Interests.
Clause 5.5 is critical and deals with the Transfer of the Marnong Land to the respective interests. It is in the following terms —
5.5. Transfer of Marnong Land
5.5.1. Option to purchase Back Land
Within 30 days of execution of this deed the Marnong Trustee shall enter into a call option deed with Constantino Ballan, Sam Cimino, Ballan Properties, C A Ballan, Josam Investment, Josam Super and Velvet jointly in relation to the Back Land, the essential terms of which will be:
5.5.1.1. an option fee of $100 will be payable;
5.5.1.2.the option period will commence on the date of execution of the option deed and end 60 days after the certification of the plan of subdivision in relation to the Marnong Land;
5.5.1.3.the purchase price will be $2,147,500 to be paid within 60 days of the exercise of the option (or earlier by agreement); and
5.5.1.4 a right of nomination will be included in the contract.
5.5.2 Option to transfer the Cimino Ballan Lots
Within 30 days of execution of this deed the Marnong Trustee shall enter into a call option deed with Constantino Ballan, Sam Cimino, Ballan Properties, C A Ballan, Josam Investment, Josam Super and Velvet jointly in relation to the Cimino Ballan Lots, the essential terms of which will be:
5.5.2.1 an option fee of $100 will be payable;
5.5.2.2.the option period will commence on the date of execution of the option deed and end 60 days after the certification of the plan of subdivision in relation to the Marnong Land;
5.5.2.3.the transfer price will be the market value at the date the option is granted to be paid by way of an exchange of units in the Marnong Trust within 60 days of the exercise of the option (or earlier by agreement); and
5.5.2.4. a right of nomination will be included in the contract.
5.5.3 Option to transfer the Chiavaroli Lots
Within 30 days of execution of this deed the Marnong Trustee shall enter into a call option deed with Empicato, West Homes and Peter Chiavaroli jointly in relation to the Chiavaroli Lots, the essential terms of which will be:
5.5.3.1. an option fee of $100 will be payable;
5.5.3.2the option period will commence on the date of execution of the option deed and end 60 days after the certification of the plan of subdivision in relation to the Marnong Land;
5.5.3.3.the transfer price will be the market value at the date the option is granted to be paid by way of an exchange of units in the Marnong Trust within 60 days of the exercise of the option (or earlier by agreement); and
5.5.3.4. a right of nomination will be included in the contract.
As at 1 July 2014, the CBA’s loan facility to Marnong stood at $2,824,000 (following payment of $176,000 by the Ballan and Cimino Interests on about 31 December 2013). The CBA facility was due to expire on 31 July 2014. Each of Con Ballan and Cimino were guarantors of the CBA facility, each limited to $600,000. Under the terms of the Unitholders Agreement as referred to above (clause 5.2.1) the Ballan and Cimino Interests had no liability to the CBA in respect of Marnong’s debt to CBA; the Chiavaroli Interests were wholly responsible for it.
Con Ballan and Cimino became increasingly concerned about the Chiavaroli Interests’ ability to pay their share of the loan, and their exposure as guarantor of a debt, which essentially had nothing to do then with them. They were further concerned about their exposure as a guarantor increasing as Peter Chiavaroli had said on a number of occasions that he wished to increase the CBA borrowings.
Given these concerns Con Ballan and Cimino decided that they would not agree to the roll-over of Marnong’s CBA facility unless the bank would release their personal guarantees in respect of the CBA facility. Cimino then contacted Mr Stipanic of the CBA in July 2014 in respect of the release of their personal guarantees. Mr Stipantic noted that the bank may have some issues in respect of releasing the guarantees. Some of the correspondence in this regard was copied to Damian Chiavaroli.
On 10 July 2014, Marnong granted the plaintiffs (save for Empicato) and Con Ballan an option to purchase the Back Land, being the land described in the Certificate of Title Volume 8774 Folio 382.
On the same day a payment of $100.00, being the call option fee, was paid to Marnong by the plaintiffs (save for Empicato) and Con Ballan in respect of the Back Land Call Option.
On 10 July 2014, Marnong granted the plaintiffs (save for Empicato) and Con Ballan an option to purchase the Cimino Ballan Lots, being the land described in Certificates of Title Volume 11490 Folio 147 and Volume 11518 Folio 161.
On the same day a payment of $100.00, being the call option fee, was paid to Marnong by the plaintiffs (save for Empicato) and Con Ballan in respect of the Cimino Ballan Lots Call Option.
On 12 August 2014, Cimino called Mr Stipanic who told Cimino words to the effect that the Marnong file had been transferred to ‘credit management’, and that he should contact them to discuss any further roll-over or refinance.
Cimino again spoke to Mr Stipanic on 13 August 2014, who in that discussion stated to Cimino words to the effect that the CBA was no longer willing to roll-over the Marnong facility and its preference was for the loan to be paid out. Cimino confirmed the contents of that conversation with Mr Stipanic in an email to Mr Nugent.
On about 19 August 2014, Cimino received, at Marnong’s registered office, Level 2, 428 Little Bourke Street, a letter from Madgwicks dated 18 August 2014 addressed to Marnong, which enclosed a Notice of Assignment of the CBA facilities to Con Ballan (‘the Assignment’).
On 20 August 2014, Cimino received an email from Adam Ballan, also addressed to Damian Chiavaroli and Leigh Chiavaroli, relaying a request for all the Unitholders to meet to discuss the refinance of the CBA facility (now assigned to Con Ballan), the proposed purchase of the Back Land, and the dissolution of the Unit Trust. No meeting was arranged, despite this request.
On 26 September 2014, and with full knowledge of the position of CBA and the consequent Assignment to Con Ballan, the parties to the Unitholders Agreement and the Call Option Deeds entered into a Deed of Variation of Call Option Agreements (‘Deed of Variation’) by which the date for exercising the options under each of the Back Land Call Option Deed and Cimino Ballan Lots Call Option Deed (‘the Call Option Deeds’) was effectively extended to 30 November 2014. All parties agreed and were once again represented by solicitors.
Recitals A–D of the Deed of Variation is in the following terms —
A.The parties entered into the Deed of Agreement between Unitholders dated 30 December 2013 (Unitholders Agreement);
B.As contemplated under the Unitholders Agreement the parties entered into the Call Option Agreements on 10 July 2014;
C.The grantees under the Cimino Ballan Call Option Deed exercised the call option prior to the date of this Deed;
D.It is agreed to vary the Call Option Agreements in the manner and on the terms contemplated by this Deed.
Clause 2 confirmed the Call Option Deeds and is in the following terms —
2. Confirmation of Call Option Deeds
(a) the parties each confirm and ratify the Call Option Deeds;
(b)the parties acknowledge that the Call Option Period as currently defined under each of the Call Option Agreements expires on the date being 60 days from the certification of the Plans of Subdivision (as defined in the Call Option Agreements).
Clause 3 terminated the exercise of the options by the Ballan and Cimino Interests and clause 5 varied the terms of the Call Option Deeds by extending the option period to 30 November 2014. Clauses 3 and 5 are in the following terms —
3. Termination of Cimino/Ballan Exercise of Option
(a)the grantees under the Cimino Ballan Lots Call Option Deed exercised their option on 25 September 2014;
(b)in consideration of and subject to Peter Chiavaroli, West Homes and Marnong Trustee entering into this Deed on prior to 27 September 2014, the parties agree that the exercise of the option under the Cimino Ballan Call Option Deed is withdrawn and/or terminated effective from the date of this Deed.
(c)for the avoidance of doubt all of the grantee’s rights under the Cimino Ballan Call Option Deed are preserved.
…
5. Variation of Call Option Agreements
The parties agree that each of the Call Option Agreements are hereby varied as set out below:
(a)Schedule 1 in each of the Call Option Deeds is varied by replacing Item 6 with the following:
“Item 6 — Call Option Period —from the date of execution of this Deed and terminating on the Expiry Date”.
(b)Schedule 1 in each of the Call Option Deeds is varied by replacing Item 7 with the following:
“Item 7 — Expiry Date — 30 November 2014”.
In all other respect the parties confirm that the Call Option Agreements remain unchanged.
On 28 November 2014, the plaintiffs (save for Empicato) and Con Ballan exercised the options for the Back Land and the Cimino Ballan Lots.
The Chiavaroli Interests have, despite their agreement, refused to recognise the Call Option Deeds and deny that the Cimino and Ballan Interests had the right to exercise the respective options.
On 30 January 2015, proceeding 435 of 2015 was issued by the Ballan and Cimino Interests, the Grantees of the Call Option Deeds (‘the 435 proceeding’), seeking amongst other things, orders for specific performance of the two call options over the Back Land and the Cimino Ballan Lots. Randa Lee is a defendant to that proceeding.[1] Orders and directions were made on 1 April 2015.
[1]For the purpose of seeking the removal of a caveat lodged by Randa Lee over the Back Land and the Cimino Ballan Lots. The application by summons filed 13 April 2015 is still to be heard.
On 19 February 2015, Morlend Finance Corporation (Vic) Pty Ltd (‘Morlend’), which is a secured creditor of Marnong, having taken an assignment from Con Ballan, appointed Hamish MacKinnon and Michael Quin as receivers and managers over the whole of the assets and undertaking of Marnong, including the Marnong Land and also appointed Glenn Jeffrey Franklin (‘Franklin’) and Jason Stone (‘Stone’) as Joint and Several Administrators of Marnong. Franklin and Stone are now Liquidators.
C. Is leave required?
In my opinion, it is clear from a review of the authorities that leave is required. Where, as in this case, a cause of action is truly that of another party, namely a Trustee, special and exceptional circumstances must be shown before a unitholder is permitted to proceed. In my view, and despite certain authority to the contrary as submitted by Randa Lee (referred to below), it must be established prior to the issue of proceedings, or at the time of issue, that the party that otherwise does not have standing should be permitted to proceed because the party that does have standing is unable or unwilling to do so. There is no point in doing this at the end as part of the case. Issues of standing are fundamental and foundational and must or should be addressed first. Finally, although the position of a shareholder and unitholder may differ, in the context of the present discussion they are similar. Both seek to agitate a cause of action of another party. Logic, principle and of course authority suggest that leave must be sought.
In Joseph HayimHayim and Anor v Citibank N.A. and Anor,[2] Lord Templeman, after a review of the authorities concluded as follows —
These authorities demonstrate that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owned by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.[3]
[2][1987] 1 AC 730 (‘Hayim’s case’).
[3]Ibid 748.
The earlier authorities referred to by Lord Templeman supported the proposition that a mere refusal to sue on the part of a trustee was not enough.
In Ramage v Waclaw,[4] a New South Wales case decided before Hayim’scase, Powell J referred to the Old English authority referred to by Lord Templeman and said —
[4][1988] 12 NSWLR 84 (‘Ramage v Waclaw’).
The true position appears to be accurately stated in Jacobs' Law of Trusts in Australia, 4th ed (1977) where the following passages appear (ibid at 531):
“The beneficiaries, or any one of them, may institute proceedings to compel the trustee to perform his duty or to protect their beneficial interest in the trust property even although that interest is only contingent. A failure by the trustee to carry out any particular duty will, of course, be a breach of trust, giving rise to a right of action against him by a beneficiary, and, if sufficiently serious, will afford grounds for his removal as trustee and the appointment of a new trustee in his place.
Normally this remedy will provide adequate protection to a beneficiary. But where a trustee refuses to institute proceedings against a debtor or to recover trust property, the beneficiary may wish to institute proceedings himself, either in his own name or in the name of the trustee. The rule here is that a beneficiary may sue in his own name only where the relief sought is in the equitable jurisdiction of the court and even then only where the circumstances are exceptional. If they are not exceptional, or if the proposed action is to be commenced in the common law jurisdiction, the beneficiary's remedy is to sue the trustee for the execution of the trust and then to apply for the appointment of a receiver and for leave to sue in the name of the trustee or of the receiver.…
Where there are special circumstances and the relief sought is in the equitable jurisdiction of the court a beneficiary may take proceedings in his own name, the trustee and other beneficiaries being added as defendants.”
Although it would appear that, in the early stages, the only circumstances
which might be regarded as “exceptional”, or “special”, were collusion
between the trustee and debtor, or insolvency of the trustee, a consideration
of the authorities will, I believe, demonstrate, that “exceptional”, or “special”,
circumstances are not now to be regarded as limited to such categories of
case. …
Earlier in the judgment Powell J referred (as did Lord Templeman in Hayim’scase) with approval to the decision of Sir WM James LJ in Sharpe v San Paulo Railway Co.[5] His Lordship said —
… other considerations seem to me quite conclusive upon the demurrer to this bill. I am of the opinion that the Plaintiffs are not the persons entitled to sue. The case is that there is an equitable demand by the Plaintiffs. That equitable demand they have assigned to the Baron de Maua and Mr Howard upon trust for the Baron principally, and then as to the rest upon trust for the Plaintiffs and for a great number of creditors…. Is it to be permitted that every one of the persons who has an interest in a thing assigned to a trustee … should file a distinct bill in a distinct branch of this Court against the debtors to the estate? I had lately occasion to consider that question, and I came to the conclusion, very clearly, that a person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but that if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realization of the trust fund, and then to obtain the proper order for using the trustee’s name, or for obtaining a receiver to use the trustee's name, who would, on behalf of the whole estate, institute the proper action, or the proper suit in this Court. That view I still adhere to, and I say it would be monstrous to hold that wherever there is a fund payable to trustees for the purpose of distribution amongst a great number of persons, every one of those persons could file a separate bill in equity, merely on the allegation that the trustee would not sue.[6]
[5](1873) LR 8 Ch App 597.
[6]Ibid 609–610, cited in Ramage v Waclaw, 90.
In the recent case of Robert Deutsch & Ors v Erwin Deutsch & Ors,[7] Hargrave J said —
[7][2012] VSC 227 (‘Deutsch’).
Where a trustee refuses, fails or is unable to initiate proceedings involving the rights or property of the trust, beneficiaries of the trusts may in exceptional circumstances bring a claim in their own name to protect their beneficial interests in the property or right. Lamru Pty Ltd v Kation Pty Ltd and Ors(1998) 44 NSWLR 432, 436-437; Ramage v Waclaw(1988) 12 NSWLR 84, 91-92; Lidden v Composite Buyers Limited(1996) 67 FCR 560, 563; Wood & Jack v McLean[2011] VSCA 37, [7]. For example, exceptional circumstances have been held to exist where:
(1)the plaintiff is most materially interested in due enforcement of the claims, or would be most seriously prejudiced if they were abandoned or not duly prosecuted; Ramage v Waclaw(1988) 12 NSWLR 84, 92, citing Stainton Carron Co 155-156, 62.
(2)it is alleged that assets have been handed over to a third party ‘hastily, improvidently, and not in conformity with their duty’; Ramage v Waclaw (1988)12 NSWLR 84, 91 citing Consett v Bell (1842) 1Y & CC 569; [1842] EngR 639; 62 ER 1020.
(3)there exists a substantial impediment to the trustee prosecuting the proceedings; Highland v Labraga (No 2)[2005] NSWSC 1212, [161].
(4)it can be shown there exist recoverable assets which would ‘probably be lost to the estate’ but for such a suit; Ramage v Waclaw(1988) 12 NSWLR 84, 92, citing Stainton v Carron Co 159; 63.
(5)the decision by the trustee not to institute proceedings was made by a party against whom the claim may lie; Lidden v Composite Buyers Ltd(1996) 67 FCR 560 and
(6)due to ‘the nature of the assets or the position of the personal representative, it would be either impossible, or, at least, seriously inconvenient for the representatives to take proceedings’. Ramage v Waclaw(1988) 12 NSWLR 84, 93, citing Hilliard v Eiffe(1874) LR 7 HL 39, 44(n). [8]
[8]Ibid [40].
Accordingly, I am of the opinion that Randa Lee requires leave to pursue its claims. The remaining issue is when leave needs to be obtained.
Although I am firmly of the view that leave must be obtained at the outset, and respectfully disagree with authority to the contrary,[9] it is not necessary to finally resolve this issue, because the issue has, in this case, been raised at an early stage in the context of the plaintiffs’ application for leave to amend and leave to proceed. Having been raised it should be dealt with. Further, in my opinion the Civil Procedure Act 2010 (Vic) (‘the CPA’) effectively compels the determination of this issue at the earliest possible stage.
[9]In Ramage v Waclaw and to some extent in Deutsch, as matters unfolded, the leave was considered at the trial of the proceeding as part of the issue of standing. Other decisions like Carpenter v Pioneer Park Pty Ltd [2008] 71 NSWLR 577 suggest either expressly or implicitly that leave be obtained first. This is certainly the position in relation to leave applications to sue in the name of a company under s 237 of the Corporations Act. In my opinion and in context there is no relevant distinction. In Chahwanv Euphoric Pty Ltdtrading as Clay & Michael & anor [2009] NSWSC 805 , Brereton J held at [33]–[34] that it was not necessary to first obtain leave.
D. Should leave be granted?
I am of the opinion that at present and on the evidence before me, Randa Lee should not be permitted to proceed with the contemplated proceeding for four reasons.
First, Randa Lee has failed to demonstrate a case of sufficient strength or prospects of success.
Second, it has not been demonstrated to my satisfaction that the Trustee has refused to take action.
Third, the pleading is sufficiently defective and should not be permitted to proceed in such form.
Fourth, from a case management and procedural point of view and bearing in mind the CPA and issues relating to costs and proportionality, multiplicity of proceedings is so far as is possible to be avoided. In other words do we really need another case?
Although each ground may well suffice, taken together it is not desirable or appropriate that the matter proceed. I will deal with each matter in turn.
Reasonable prospects of success
Having taken the view that leave is not required or not required at this stage,[10] it is not surprising that Randa Lee did not put on all relevant evidence demonstrating that the case had real prospects of success and some benefit to the Unit Trust. The other Unitholders put on substantial relevant and uncontradicted evidence. Randa Lee did not seek to adjourn the hearing of the application in order to respond to this material which was filed the day before the proceeding. Mr Kidd of Senior Counsel for Randa Lee simply submitted that the evidence was not complete and I was in any event not required to resolve factual disputes.
[10]Other than the usual somewhat formal orders under ss 471B and 500(2) of the Corporations Act, because Marnong is in liquidation.
However, the onus is on Randa Lee and it has failed to establish, as it must, that it has reasonable prospects of success.
In Carpenter v Pioneer Park Pty Ltd,[11] a shareholder sought leave to proceed in the name of a company in liquidation.[12] Barrett J held that the court had inherent jurisdiction to grant such leave. According to Barrett J, the court was required to exercise a discretion and three matters were relevant: first whether the proceedings have a solid foundation and reasonable prospects of success, secondly the attitude of the liquidator and finally practice considerations relating essentially to costs.[13]
[11][2008] 71 NSWLR 577 (‘Carpenter’).
[12]Leave was originally granted to bring proceedings at first instance, but the case concerned leave to prosecute appeal proceedings on behalf of the company. Because the company was in liquidation the provisions of s 237 of the Corporations Act did not apply and the matter fell to be dealt with by reference to the inherent jurisdiction of the Court.
[13]Carpenter 586–587 [34].
In relation to the first matter, and after referring to Sharpe v San Paulo Railway Company, Hayim’s case and Ramage v Waclaw, Barrett J said —
The principles applying to action by a beneficiary where the trustee does not act have been held to be applicable in a winding up. It was said by the Privy Council in Lloyd-Owen v Bull[1936] 4 DLR 273 at 276 that “the judicial attitude towards such an application is well understood”:
“A judge in winding-up is the custodian of the interests of every class affected by the liquidation. It is his duty even if it be in a voluntary liquidation that opportunity offers to see to it that all assets of the company are brought into the winding-up. In authorizing proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where, as in the present case, they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company’s name under his authority is not vexatious or merely oppressive.”
The part of this passage requiring the court to see that any action is “not vexatious or merely oppressive” was quoted with approval by McLelland J in Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250. His Honour then proceeded on the basis that the court “should satisfy itself that any action to be taken in the company’s name by Mr Aliprandi is not vexatious or merely oppressive, or in other words that it has some arguable foundation”.
The Privy Council’s observations were also quoted by the Full Court of the Supreme Court of South Australia in Russell v Westpac Banking Corporation[1994] SASC 4479; (1994) 13 ACSR 5 at 9. The court there said:
“The learned Master, after examining the statement of claim, an opinion of counsel, and the affidavits, concluded that the action was not vexatious or oppressive for want of merit. I have considered the arguments advanced by counsel on the appeal, but I see no reason to disagree with the Master. As the merits of the action will have to be canvassed at trial in due course, I think that it is undesirable to discuss them further.”
After referring to both these last-mentioned cases, Austin J, in Vouris as liquidator of Cadima Express Pty Ltd v Deputy Commissioner of Taxation[1999] NSWSC 1143; (1999) 33 ACSR 527 at [44] rejected a submission that the court should make its decision solely on the basis of the draft pleading (a like submission was rejected by Miles CJ in Gahahan Pty Ltd v Advance Bank of Australia Ltd[2001] ACTSC 118 at [26]). His Honour continued at [45]:
“[45] The better view is that the court should consider whether the cause of action asserted in the pleading, together with such evidence as is relied on in the application, demonstrates an arguable case for the relief which the proposed litigation would seek. Thus in Aliprandi, McLelland J (at 253) inquired as to whether there was an arguable case in support of the claims which the applicant wished to make, concluding that there was no arguable case except in one instance. He made his inquiry by reference to the material which was placed before the court by the parties to the application, not by reference to a draft pleading. In Magarditch v Australia and New Zealand Banking Group Ltd (1999) 32 ACSR 367 at 377, 383–384, the Full Federal Court approved McLelland J's formulation and also referred to Vagrand Pty Ltd (in liq) v Fielding(1993) 41 FCR 550 at 556-557; 113 ALR 128 at 134 ; 10 ACSR 373 at 380 where it was said that an applicant for leave to proceed against a company in liquidation was required to satisfy the court that the claim had a solid foundation and would give rise to a serious dispute, although it was not necessary for the applicant to establish a prima facie case in the accepted sense. Although the test formulated in Vagrand is not quite the same as McLelland J's test in Aliprandi, the Full Federal Court's view was that in practice it may be that there is very little to distinguish the two approaches. I respectfully agree.”
The criterion originally expressed by the words “not vexatious or merely oppressive” should today be regarded as involving more than a barely arguable case. The Privy Council, in Lloyd-Owen v Bull (above), said that the court assessing the proposed proceedings should satisfy itself “as to their probable success”. The concept is, I think, one of “solid foundation”, as Austin J called it, indicating, as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect.[14]
[14]Ibid 584–585, [26]–[30].
After referring to the evidence in support of the application Barrett J said —
On the present application, I have nothing before me upon which I could base any independent finding about the prospects of success or the strength of Pioneer Park’s case on appeal. The notice of appeal merely sets out the grounds of appeal in summary form. Beyond that I have a mere snippet gathered from the judgment of Basten JA in the Court of Appeal in the security for costs matter. His Honour said (at [61]):
“[61] Third, the Bank places some weight upon the contention that the appeal has ‘very limited prospects’ of success. However, in circumstances where it has not been demonstrated that the appeal is unlikely to proceed in the event that security is ordered, an assessment of its likely prospects, given the complexity of the issues involved, need not be undertaken. It is sufficient to assume for present purposes that it is brought bona fide (there being no suggestion to the contrary) and that it is reasonably arguable.”
It thus appears that the ANZ Bank is of the opinion that the appeal has “very limited prospects” of success; also that, as assessed by the Court of Appeal itself, the issues involved are “complex”. Given the complexity thus indicated and the apparent view of the ANZ Bank, how can the court be satisfied that the appeal exhibits such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success?[15]
[15]Ibid 588, [42]–[43].
In Chahwan v Euphoric Pty Ltdtrading as Clay & Michael & anor,[16] Brereton J said —
Having failed to obtain leave to bring the proceedings in the name and on behalf of Bycoon, Mr Chahwan, as I have foreshadowed, seeks now to sustain them in the “exceptional circumstances” jurisdiction [as to which see Ramage v Waclaw(1988) 12 NSWLR 84 (Powell J); see also Hayim v Citibank NA[1987] AC 730, [1987] 3 WLR 83; Ishac v David Securities Pty Limited (No 9), 5 June 1992, Young J unreported; Alexander v Perpetual Trustees WA Ltd [2004] HCA 7, (2003) 216 CLR 109 [55]]. In this jurisdiction, equity will permit a beneficiary who can establish exceptional circumstances to sue on a cause of action against a third party which belongs to the trustee, if the trustee fails to sue to protect the trust property. Young CJ in Eq, as his Honour then was, summarised the position in Shang v Zhang[2007] NSWSC 856, as follows:
[11]As is said in Ford and Lee, Principles of the Law of Trusts (Loose-leaf edition) [1790] at p 1-10055 of Update 28:
If the trustee does not sue to protect the trust property, the beneficiary may in ‘exceptional circumstances’ ... sue to enforce the trustee’s right of action against the third person for injury to the trust property, joining the trustee as defendant in the proceedings.[17]
[16][2009] NSWSC 805 (‘Chahwan’).
[17]Ibid [16].
Brereton J proceeded to assess the evidence before him which included the cross‑examination of the appellant and concluded that in the circumstances of the case before him, the matter should proceed.
In the present case, the evidence does not demonstrate that there are reasonable prospects of success. The Call Option Deeds were agreed to by all Unitholders, the options were validly exercised, pursuant to the Deed of Variation. There was on the evidence not a word of dissent at the relevant time. Further, similar options were granted to the Chiavaroli Interests.
It cannot be concluded, on the present state of the evidence before me, that the directors of Marnong, Con Ballan and Cimino breached their fiduciary or statutory duties to Marnong in relation to the Call Option Deeds as alleged. Rather, they acted entirely consistently with the agreements executed and implemented by all parties without demur. Further, even if they did breach their duties, it is questionable whether any action is available against the former directors for the breaches alleged. The better view is that there is not.[18]
[18]Young and Others v Murphy and Another; Swinbank and Others v Murphy and Another [1996] 1 VR 279. Action is available against the defaulting trustee. It is only available against the directors for participation or aiding and abetting. However, the Court of Appeal considered that a breach of fiduciary duty by the directors (unlike a breach by the Trustee) was not trust property.
Further the evidence does not establish any breach associated with a failure to roll-over the CBA facility. Given the arrangements between the parties and the attitude of the CBA it is entirely unsurprising that the Ballan and Cimino interests took the course that they did. They wanted to avoid a default and Con Ballan paid out the CBA facility and took an assignment of the CBA Securities. Despite a submission to the contrary there is no evidence[19] of any unconditional offer from any financier. Finally, there is no evidence that the further assignment to Morlend constituted some sort of a sham, breach or improper conduct.
[19]The affidavits of Albert Anthony Callegher and Anthony John Ivelja both sworn 13 April 2015 do not depose to any unconditional offer capable of acceptance, that does not include Con Ballan and Cimino as guarantors.
The pleaded breaches of statutory and fiduciary duties are essentially as follows —
•Conflict of interest as directors of Trustee and purchasers.[20]
•No valid resolution of ‘The Board of the Trustee’.[21]
•Cimino Ballan Call Option Deed was beyond powers of Trustee to repurchase units in the Unit Trust as contained in clause 13 of the Trust Deed.[22]
•Failure to roll-over CBA Facility which expired on 31 July 2014 for a further year thereby causing a default by trustee.[23]
[20]Statement of Claim paragraphs 18 and 23.
[21]Ibid paragraphs 19 and 24.
[22]Ibid paragraph 25.
[23]Ibid paragraph 30.
Additional matters were pleaded[24] but they are either confusing, irrelevant, unintelligible, or relate to the Trustee.
[24]Ibid paragraphs 31–36 for the most part.
Each of these matters, which have in any event been inadequately pleaded, is without substance and in many cases self‑evidently so. Any conflict of interest was fully disclosed, agreed and ratified and there is no suggestion of any undervalue. There was an effective resolution of the directors of the Trustee and the unanimous assent of all parties. Not all units were being repurchased in relation to the Cimino Ballan Call Option Deed and clause 13 should be construed accordingly as submitted by the defendants. Finally, in the circumstances there was no obligation to roll-over the CBA Facility. The allegations are fanciful and to some extent extravagant. There is no real prospect of success.
Trustees refuse to take action
This is also a critical threshold issue.
In my opinion, and despite appearances on behalf of the Receivers and Managers, the Liquidators and the New Trustee, it has not been demonstrated to my satisfaction, that at this stage Marnong or the New Trustee are unable or unwilling to bring a proceeding.
Presumably Marnong, under the control of the Receivers and Managers is the relevant party that has the ability to proceed. There was no suggestion to the contrary.
Although the Receivers and Managers did not take a position at the hearing of the application, there has not been, as might be expected, a chain of correspondence ventilating the issue. In an affidavit sworn 22 April 2015, Cassie O’Bryan of Madgwicks, the solicitor representing the Ballan and Cimino Interests, deposes to the fact that, upon enquiry being made, neither the Receivers and Managers, nor the Liquidator or the New Trustee, has been contacted or approached by Randa Lee in relation to the relief claimed in the Originating Process. The Trustee has filed a defence in the 435 proceeding and may well take a position.
In all of the circumstances, including the speed with which these matters have been dealt with, it is too early to conclude that there is no-one to look after all Unitholders, including Randa Lee, which is the jurisprudential basis underpinning the application.
The Pleading
The proposed Amended Statement of Claim is self-evidently defective, substantially for the reasons given by the defendants. It cannot proceed in this form.
Putting to one side the substantive matters associated with the proposed causes of action (which I have found, at this stage on the available evidence, and in relation to the proposed claim against the directors, has no real prospects of success), the pleading is deficient.
First, as the pleading does not contain any or any adequate particulars of knowledge and other relevant matters, it is defective.[25] The fact that this may be cured does not affect the defective nature of the pleading.
[25]See for example paragraphs 38, 45, 46, 58, 62.
Secondly, the rolled up nature of the pleading in various respects is deficient.[26]
Civil Procedure Act
[26]See for example paragraphs 27, 37 and 58.
The CPA has a significant effect on civil litigation in the State of Victoria. The limits of the CPA are far from settled.
Significantly and relevantly, the CPA, through various techniques and principles requires and encourages, first, that only those cases with real prospects of success be permitted to continue, and secondly, that those matters that do proceed are dealt with effectively and efficiently and in the most cost‑effective manner having regard to issues of proportionality.
There is no reason why this matter should proceed. It is misconceived and in any event of questionable utility. Disputes between shareholders or unitholders in relation to operational or management issues — which normally create a deadlock — are usually dealt with by the appointment of an independent and neutral party to deal with such issues. In the current case, there are Receivers and Managers, Liquidators and a New Trustee. Why should, it is asked rhetorically, a disgruntled unitholder be permitted to proceed at this stage or at all. It is not suggested that the purchase price following the exercising of the Call Options was at an undervalue. No reason has been given as to why the land rather than cash should remain in the Unit Trust.
E. Disposition
For all of the reasons given, it is not desirable that this matter proceed at this stage, if at all. I propose to simply strike out the statement of claim and stay the proceeding until further order. I will not grant a permanent stay. If necessary and desirable the proceeding can be revisited at a later stage after the various other matters have been determined.
7
2
0