Re Bullock, J.R. & Anor v Ex parte Gutteridge, A.S. & Anor
[1993] FCA 713
•21 Sep 1993
JUDGMENT No. .... 23 ..... 1 ..,?:.
IN THE FEDERAL COURT OF AUSTRALIA 1 NO. QN 1832 of 1992 GENERAL DIVISION 1 ) THE STATE OF OUEENSLAND )
RE : JAMES RAYMOND BULLOCK and
MAREE ANNE BULLOCK
(Judgment Debtors)
EX PARTE: - d GORDANA GUTTERIDGE as Trustees of the
Gutteridge Investment Trust
(Judgment Creditors)
RECEIVED
FEDERAL COURT OF
AUBiRAllA PRINCIPAL REOISTRV
MINUTES OF ORDER
: -
Drummond J
DATE OF ORDER: 21 September, 1993 WHERE MADE: Brisbane THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the costs of the respondents of and incidental to the application to set aside the bankruptcy notice.
NOTE : Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv Rules.
IN THE FEDERAL COURT OF AUSTRALIA 1 No. QN 1832 of 1992 GENERAL DIVISION 1 BANKRUPTCY DISTRICT OF ) THE STATE OF OUEENSLAND )
RE : JAMES RAYMOND BULLOCK and
MAREE ANNE BULLOCK(Judgment Debtors)
EX PARTE: ALLAN STUART GUTTERIDGE and
GORDANA GUTTERIDGE as Trustees of the
Gutteridge Investment Trust
(Judgment Creditors)
W: Drummond J PLACE : Brisbane DATE : 21 September, 1993
REASONS FOR JUDGMENT
This is an application to set aside a bankruptcy
notice on the grounds that the applicants, as judgment
debtors, have "a counter-claim, set-off or cross-demand"
duties in transferring the business assets of A & G
arising out of the judgment creditors' breach of fiduciary
Refrigeration Pty. Ltd. to a company run by them, thereby denying the judgment debtors the profits they would otherwise have received from the operation of the business. It is asserted that the judgment debtors could not have set up the counterclaim, set-off or cross-demand in the proceedings which gave rise to the debt upon which the bankruptcy notice was issued; this is conceded to be so by counsel for the respondents to the present application.
The judgment upon which the bankruptcy notice is founded was for the costs of an interlocutory application which the present applicants were ordered to pay in a Supreme Court action brought against them by the respondents. These costs were taxed and allowed in the sum of $3,778. The bankruptcy notice claims payment of a slightly lesser sum than that allowed on taxation, which is said to be due under "a final Order for Costs obtained ... in the Supreme Court of Queensland on 2nd day of April 1992. The bankruptcy notice also contains a claim for payment by Allan Stuart Gutteridge and Gordana Gutteridge in their capacity as trustees of the Gutteridge Investment Trust.
It appears from the amended statement of claim and
the amended defence filed in the Supreme Court action that
there has been a falling-out between the applicants and the
G Refrigeration Pty. Ltd.. There are allegations in the respondents, who together were involved in the business of A & amended statement of claim that the applicants acquired a house and land with company moneys and that consequently, that property belonged beneficially to the company. It is also alleged that the male applicant misappropriated a large amount of the company's funds. There are allegations in the amended defence that the male respondent paid personal debts out of
the company's funds and has failed to account to the company
with respect to such payments.The material filed on behalf of the applicants, who reside in New Zealand, comprises an affidavit sworn by their solicitor, Mr. Priddle, on information provided by the male applicant, Mr. Bullock. It appears from this material that A
& G Refrigeration Pty. Ltd., prior to September 1991, was trustee of the B & G Trading Trust. This was a unit trust, the major beneficiaries being Fentchester Pty. Ltd. as trustee of the Bullock Investment Trust and a trustee, not identified in the applicants' material, as trustee of the Gutteridge Investment Trust. I will mark as exhibit 1 the diagram showing the structure of the business that was provided to me by counsel for the applicants, without objection by the respondents. The more detailed diagram handed to me by counsel for the respondents, also without objection from counsel for the applicants, I will mark as exhibit 2. Exhibit
2 identifies the trustees of the Gutteridge Investment Trust as the two respondents, A.S. and G. Gutteridge. The applicants' material also describes the Bullock Investment Trust as a "family trust for the family of the applicants", and asserts that:
"Each of the judgment debtors were and are beneficiaries of the Bullock Investment Trust, as were (and are) their infant children."
It is said that there is no other beneficiary of the Bullock Investment Trust apart from a company, Babgedon Pty. Ltd., in which the male applicant holds one of the two issued shares. Exhibit 2 shows that Mr. A.S. Gutteridge, the male respondent, is this company's other shareholder.
Although the applicants do not exhibit the Bullock Investment trust deed or otherwise explain what is asserted to be the applicants standing as beneficiaries of this trust, Mr. Priddle says:
"The practice of Fentchester Pty. Ltd. as trustee of the Bullock Investment Trust in the years prior to and including 1991 was to distribute the bulk of the profits earned by it from A & G Refrigeration to the judgment debtors, who were the directors of Fentchester Pty. Ltd.. Had the business of A & G Refrigeration Pty. Ltd. not been wrongly taken over by Sunstate Refrigeration Pty. Ltd. then the profits that would have been earnt and received by Fentchester Pty. Ltd. would have included distributions of nearly all of this money to the judgment debtors."
The applicants, through Mr. Priddle, assert that breach by the respondents of fiduciary duties they owe to the
their counterclaim against the respondents is based upon the
applicants. It is said by Mr. Priddle that A & G Refrigeration Pty. Ltd., in its capacity as trustee of the B & G Trading Trust "had substantial goodwill arising out of its conduct of the business known as A and G Refrigeration. This business engaged in coolroom construction, installation and maintenance and was very profitable."
Mr. Priddle also says:
"On or about 2 September 1991 Sunstate Refrigeration Pty. Ltd. took over the operations that had previously been conducted by A & G Refrigeration Pty. Ltd. It did so without the proper authorisation of the directors or members of A & G Refrigeration Pty. Ltd. This transfer of the business conducted by A & G Refrigeration Pty. Ltd. to Sunstate Refrigeration Pty. Ltd. was effected by Allan Stuart Gutteridge and Gordana Gutteridge. The said Gordana Gutteridge while not holding formal office as a director purported to act as such.
The proposed transfer of the business conducted by A
& G Refrigeration Pty. Ltd. to Sunstate
Refrigeration Pty. Ltd. was the subject of a meeting purporting to be a meeting of the directors of A & G Refrigeration Pty. Ltd.. This purported directors' meeting occurred in or about 3 February 1992. The said meeting was not a valid meeting of directors because James Raymond Bullock, the other director, did not attend it. Accordingly, no quorum was present for the meeting and any resolution purporting to authorise the transfer of the business from A & G Refrigeration Pty. Ltd. to Sunstate Refrigeration Pty. Ltd. was ineffective."
It is also said that, by reason of this set of
circumstances, the applicants suffered loss and damage. Mr
Priddle proceeds to explain how this loss occurred. The
business structure that I have referred to is described. Mr. Priddle then continues: "Since the unauthorised transfer of the business of A & G Refrigeration from A & G Refrigeration Pty. Ltd. to Sunstate Refrigeration Pty. Ltd., the B & G Trading Trust and, in turn the Bullock Investment Trust and the judgment debtors have not received any profits from those operations. That is, Sunstate Refrigeration Pty. Ltd. does not trade as trustee of a trust of which either of those entities, or the judgment debtors, are beneficiaries."
It is then said that A & G Refrigeration Pty. Ltd. earned profits in the year ended 30 June, 1991 that exceeded
$100,000 and were of the order of $200,000, and that the
earnings for the years ending June 1992 and 1993 would
likewise have been of this order had the applicants not
organised the wrongful displacement of A & G Refrigeration
Q
from the operation of the business.
The applicants submit that the respondents are thus liable to them for the denial of the applicants' expectation of receiving distributions of the profits that would have been received by the Bullock Investment Trust in 1992 and 1993 as a result of the activities of A and G Refrigeration Pty. Ltd., by reason of the conduct of the two respondents in wrongfully transferring A & G Refrigeration's business to Sunstate Refrigeration. It is said that the respondents, as directors of A & G Refrigeration Pty. Ltd., thereby breached the fiduciary duties they owed to the applicants as beneficiaries of the Bullock Investment Trust, itself one of the
beneficiaries of the trust of which A & G Refrigeration Pty. Ltd. was trustee. It is alleged by Mr. Priddle that the male respondent was a director of A & G Refrigeration Pty. Ltd. and, as such, effected the transfer of that company's business to Sunstate Refrigeration. It is also said, without any explanatory detail, that the female respondent, by involving herself in that transfer, purported to act as a director. It is then said, in reliance on Hurley v BGH Nominees Ptv. Ltd. (1984) 10 A.C.L.R. 197, that Mr. Gutteridge as a director of A
& G Refrigeration, and Mrs. Gutteridge as a de facto director of that company, owed a fiduciary duty to the applicants for
breach of which an action for damages lies against them.
In Hurley, the Full Court in earlier proceedings had held that a minority shareholder/director of company A had standing, under an exception to the rule in Foss v Harbottle, to sue the majority shareholder/director of the company and that director's family company B, to recover property from company B for company A. The majority shareholder/director controlled company A and it was alleged that company B had acquired the property as a result of that director's fraudulent breach of his fiduciary duty to company A. The major shareholder/director argued in the Full Court proceedings that he could be under no fiduciary duty to company A in respect of the property in question, since company A was merely trustee for the interests of the two shareholders and had no beneficial interest in that property;
but the Full Court declined to determine this point, assuming
that such a duty to company A with respect to the property
could exist, and holding that the minority shareholder had standing to sue for the benefit of company A: see 6 A.C.L.R. at 795-796.
At the subsequent trial, it was again argued that the majority shareholder/director could be under no fiduciary duty to company A in respect of property, in which company A had no beneficial interest, it being a mere trustee for others. It was said that if there was any breach of fiduciary duty by the majority director, the remedy lay with the beneficiaries of the trust, of which company A was trustee, not with the plaintiff as minority shareholders in company A.
Walters J rejected this argument, saying at 10
A.C.L.R. 206:
"[Tlhe fiduciary responsibility of Mr Heath, as a director of the company, to take into account the interests of the shareholders of the company, is sufficient to support the action brought by the shareholders, without the intervention of an action by the beneficiaries of the trust. Thus I conclude that the plaintiffs have locus standi to bring the action".
Hurley is thus a case which involves only the question whether a shareholder in a corporate trustee has standing, under recognised exceptions to the rule in Foss v Harbottle, to enforce the fiduciary duty owed to that trustee
company by one of its directors. However, in the course of his reasons, Walter J said at page 205:
"[lit seems to me that a director must not disregard the interests of members of his company, or the interests of beneficiaries who are not shareholders but who are entitled to receive a benefit from the company's activities as a trustee of the relevant trust. I think it would be entirely unreal if a director were allowed to address his mind simply to the interests of the company and not to the additional consideration whether the transaction sought to be impugned was for the benefit of the
shareholders or, indeed, the beneficiaries of a
trust of which the company is trustee."
In v (1990) 8 A.C.L.C. 943, OIBryan J at
949 saw in this statement in Hurlev:
"[Aluthority for the proposition that the directors of a corporation owe fiduciary duties to the beneficiaries of a trust of which the corporation is trustee".
His Honour however declined to apply the principle to the facts of that case, holding at 950 that:
"No breach of duties to the beneficiaries was involved on the part of the directors of the company in making and carrying into effect a certain agreement between them providing for the partitioning of the company's assets between their respective family interests."
The nature of the Bullock Investment Trust has not
been revealed by the applicants in the material they have put
before me. If the Bullock Investment Trust is in fact a
discretionary trust, it is doubtful whether the nature of the interest that a potential beneficiary under such a trust has in the subject matter of the trust prior to the exercise of the trustee's discretion in that person's favour, would be sufficient to give that person standing to sue here, even accepting what is said in Hurley and m. However, it is unnecessary to pursue this particular matter further.
The cogency of the case which a judgment debtor must show, in order to set up a cross-demand equal to or exceeding the amount of the judgment debt, sufficient for the purposes of S. 40(l)(g) of the Bankru~tcv Act, was discussed by the High Court in v The Union Trustee CO of Australia Limited (1960) 104 C.L.R. 346 at 350:
"The appellant cannot satisfy the Court that a cross-demand exists by showing no more than that she propounds one and states how she suggests that she can make it out. ...
Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross-
demand. "
In my opinion, even if it be accepted that the directors of the corporate trustee of a trust owe a fiduciary duty not to misappropriate trust assets, the breach of which will give rise to an action for damages recoverable by the beneficiaries of the trust for themselves, the applicants have
of cogency that they do have such a cross-claim or failed to make out a case that possesses this requisite degree cross-demand against the respondents. If the applicants here are to make out a prima facie case that they have a cross-demand against the respondents as judgment creditors, they must show that they have a well- founded expectation that, but for the alleged misappropriation by the respondents of the business, Fentchester Pty. Ltd. as
trustee of the Bullock Investment Trust would have received payments from the profits of A & G Refrigeration after 1991 and also that, in that event, the applicants would have received payments by Fentchester Pty. Ltd. from those payments.
To do nothing more than describe the Bullock Investment Trust as a "family trust" and to assert that the trustee's practice, for an unidentified period up to 1991, was to distribute the bulk of the payments received by it from A & G Refrigeration to the applicants, provides, in my view, an insufficient basis for concluding that that practice would have continued. The careful language used by Mr. Priddle in his affidavit suggests that the practice relied upon does not reflect a legal obligation on Fentchester Pty. Ltd. to favour the applicants, rather than the other beneficiaries, their infant children. This being so, there would I think have to be something more than the mere assertion that the practice would have continued. There would have to be some exposure of facts that would make it likely that the practice would have
continued in the years 1992 and 1993, but for the respondents'
alleged misappropriation of the business of A & G
Refrigeration. In the absence of evidence that, for example, the personal financial position of the applicants was not then so bad as to make it likely that the prior practice of benefiting them rather than their children would have continued in 1992 and 1993, there is in my view no justification for accepting what Mr. Priddle says in this regard as sufficient to show a prima facie case of a good cross-demand.
Counsel for the applicants also submitted that there was insufficient evidence to show that the judgment was in truth obtained by the respondents in their capacity as trustees, rather than on their own personal behalf. He did not, however, contend that if I was against him on this, the fact that the respondents obtained the judgment as trustees would not be sufficient of itself to defeat the claim by the applicants to the cross-demand against the respondents personally for breach of fiduciary duty.
The order awarding the respondents' costs was in
terms an order that:
"The Applicants do recover against the Respondents their costs of, and incidental, to the Application".
The title to the order describes the applicants as the Gutteridge Investment Trust". I have already referred to
"Allan Stuart Gutteridge and Gordana Gutteridge as trustees of
the fact that the respondents, by the bankruptcy notice itself, demanded payment to them of the judgment debt only as trustees of the Gutteridge Investment Trust, and not on their own personal account. I think there is thus sufficient material before me to show that the judgment debt was obtained by the respondents as trustees and not on their own personal behalf.
In McDonald Henrv and Meek, in paragraph 203, it is
said that:
"A claim against a man personally is not a counter- claim etcetera in respect of a bankruptcy notice issued by him as trustee."
I therefore think that the applicants have failed on this ground also to show that they have a cross-demand within S. 40(l) (g) of the Bankru~tcv Act that equals or exceeds the judgmentdebt referred to in the bankruptcy notice.
I therefore dismiss the application.
I certify that this and the preceding
12 pages are a true copy of the
reasons for judgment herein of the
Honourable Mx. Justice Dxummond. , - '
Associate:
Date : 21 September, 1993
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