Robert Mitford Rowell by Next Friend Angela Joan Rowell v Calder - [2007] WASC 144

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ROBERT MITFORD ROWELL by Next Friend ANGELA JOAN ROWELL & ANOR -v- CALDER & ORS [2007] WASC 144

CORAM: MARTIN CJ

HEARD: 12 MARCH 2007

DELIVERED : 12 MARCH 2007

FILE NO/S: CIV 1922 of 2006

BETWEEN: ROBERT MITFORD ROWELL by Next Friend ANGELA JOAN ROWELL
First Plaintiff
ANGELA JOAN ROWELL
Second Plaintiff
AND
ELIZABETH ANN MITFORD CALDER
First Defendant
ROSALIND RUTH PHELPS
Second Defendant
ROBINSON ROBERT ROWELL
Third Defendant
SHARON PHILLIPA MITFORD ROWELL
Fourth Defendant
ROWELL PTY LTD (ACN 008 678 135)
Fifth Defendant
SAUNDERS NOMINEES PTY LTD (ACN 008 781 128)
Sixth Defendant
JOANNA ELIZABETH CALDER
Seventh Defendant
BRUCE ROWELL CALDER
Eighth Defendant
SALLY CALDER
Ninth Defendant
KATHERINE EMMA IRELAND
Tenth Defendant
GEORGINA BRONTE GARDNER
Eleventh Defendant
JOHN PRESTON ROBERT GARDNER
Twelfth Defendant
ELIZABETH ROSE KYLE
Thirteenth Defendant
DAVID PETER KYLE
Fourteenth Defendant
ROBERT MITFORD ROWELL
Fifteenth Defendant
HEATHER ROWELL
Sixteenth Defendant
ALEXANDRA ROWELL
Seventeenth Defendant
JACQUELINE ROWELL
Eighteenth Defendant
SARAH KELLY
Nineteenth Defendant
THOMAS KELLY
Twentieth Defendant
THE REMOTER ISSUE by their Representative KATHERINE EMMA IRELAND
Twenty First Defendant
BLINA PTY LTD (ACN 008 678 117)
Twenty Second Defendant
BRACKENRIDGE BROS PTY LTD (ACN 008 676 319)
Twenty Third Defendant
LENNARD TRADING PTY LTD (ACN 008 684 651)
Twenty Fourth Defendant
PANTER DOWNS PTY LTD (ACN 008 742 381)
Twenty Fifth Defendant
PERTH METROPOLITAN INVESTMENTS PTY LTD (ACN 008 716 336)
Twenty Sixth Defendant
WALLAL DOWNS PASTORAL CO PTY LTD (ACN 008 668 095)
Twenty Seventh Defendant

Catchwords:

Practice and procedure - Person under disability - Application for approval of a compromise pursuant to O 70 r 10 - Whether terms of proposed compromise fair and to the benefit of person under disability

Legislation:

Corporations Act 2001 (Cth), Ch 2J
Rules of the Supreme Court 1971 (WA)

Result:

Application not adjourned

Category: B

Representation:

Counsel:

First Plaintiff     :     Mr R K O'Connor QC & Mr P J Mugliston
Second Plaintiff     :     Mr R K O'Connor QC & Mr P J Mugliston
First Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Second Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Third Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Fourth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Fifth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Sixth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Seventh Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Eighth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Ninth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Tenth Defendant     :     No appearance
Eleventh Defendant     :     No appearance
Twelfth Defendant     :     No appearance
Thirteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Fourteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Fifteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Sixteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Seventeenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Eighteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Nineteenth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twentieth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twenty First Defendant     :     No appearance
Twenty Second Defendant    :     Mr M J McCusker QC & Mr N P Gentilli
Twenty Third Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twenty Fourth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twenty Fifth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twenty Sixth Defendant     :     Mr M J McCusker QC & Mr N P Gentilli
Twenty Seventh Defendant   :     Mr M J McCusker QC & Mr N P Gentilli

Solicitors:

First Plaintiff     :     Hammond Worthington
Second Plaintiff     :     Hammond Worthington
First Defendant     :     Jackson McDonald
Second Defendant     :     Jackson McDonald
Third Defendant     :     Jackson McDonald
Fourth Defendant     :     Jackson McDonald
Fifth Defendant     :     Jackson McDonald
Sixth Defendant     :     Jackson McDonald
Seventh Defendant     :     Jackson McDonald
Eighth Defendant     :     Jackson McDonald
Ninth Defendant     :     Jackson McDonald
Tenth Defendant     :     No appearance
Eleventh Defendant     :     No appearance
Twelfth Defendant     :     No appearance
Thirteenth Defendant     :     Jackson McDonald
Fourteenth Defendant     :     Jackson McDonald
Fifteenth Defendant     :     Jackson McDonald
Sixteenth Defendant     :     Jackson McDonald
Seventeenth Defendant     :     Jackson McDonald
Eighteenth Defendant     :     Jackson McDonald
Nineteenth Defendant     :     Jackson McDonald
Twentieth Defendant     :     Jackson McDonald
Twenty First Defendant     :     No appearance
Twenty Second Defendant    :     Jackson McDonald
Twenty Third Defendant     :     Jackson McDonald
Twenty Fourth Defendant     :     Jackson McDonald
Twenty Fifth Defendant     :     Jackson McDonald
Twenty Sixth Defendant     :     Jackson McDonald
Twenty Seventh Defendant   :     Jackson McDonald

Case(s) referred to in judgment(s):

Rhodes v Swithenbank (1889) 22 QBD 577

MARTIN CJ: The application before me today, and filed on behalf of the first and second plaintiffs, is brought pursuant O 70 r 10 for approval of a compromise. The first plaintiff is a person under disability due to a variety of medical conditions associated with his advanced years, he now being 92 years of age. A medical report from Dr Kulaendra which has been put in evidence sets out the first plaintiff's current condition and expresses the opinion that his life expectancy may be anywhere from a few months to three years. The first plaintiff requires constant care which he receives from a combination of the second plaintiff, who is the first plaintiff's wife, and employed assistants.
The first plaintiff is not the only party to these proceedings who is under a disability as there are beneficiaries and potential beneficiaries of the R M Rowell Family Trust ("the family trust") who have not attained adulthood. The trustee of the trust is the sixth defendant in these proceedings. There is no claim brought by the beneficiaries and potential beneficiaries and therefore, no need for any application under O 70 r 10 in relation to them.
I have been advised by counsel for the trustee that application will be made under the Trustees Act 1962 (WA) for directions as to the manner in which the obligations created by the compromise will be satisfied in the event that it proceeds. However, that is quite a different question and no such application has yet been brought.
The proceedings commenced in the court and the proposed compromise involve claims by the second plaintiff in her own right. There is no need, nor any power, to approve the compromise of those claims under O 70 r 10 and so I will not be addressing those claims or the terms of their compromise in my decision; although I will refer to them because they may shed light on other aspects of the deed of compromise that are pertinent to my decision.
My task is limited to assessing the proposed compromise solely from the perspective of the first plaintiff and determining from that perspective, whether its terms are fair and whether the compromise is for his benefit Rhodes v Swithenbank (1889) 22 QBD 577 at 578, 579. With that task in mind, I turn to the terms of the deed of compromise. Clause 1 of the deed does not concern the first plaintiff, but it does provide that an amount of $3.5 million be paid to the second plaintiff; said to be in full satisfaction of her claim for wrong injury and illness claimed to have been suffered personally by her.
For reasons that I have given, it is not necessary for me to express any view as to the desirability of this compromise. I say no more about it other than to observe that, on its face, the amount of $3.5 million appears to be vastly in excess of any sum that could reasonably be claimed for the personal injury or illness allegedly suffered by the second plaintiff.
Clause 2 of the deed of compromise provides a full release by inter alia the first plaintiff of all defendants from any claims whatsoever and also contains a release in respect of any further distributions, dividends, capital or similar from either Rowell Pty Ltd ("the fifth defendant company") or the family trust.
Dealing firstly with the release of the claims made in the litigation it is difficult, if not impossible, to put a value on that release without trying the case. For reasons that I will endeavour to set out, the value of the claims that are made is somewhere between nil and $37 million. That is because the first plaintiff claims to be entitled to require the holders of shares in the fifth defendant company to assign those shares to him at their nominal or issued value.
That is a very valuable right having regard to the fact that the current asset backing of the fifth defendant company is around $37 million and the nominal value of the issued shares is less than $100,000. On the other hand, the defendants claim to be entitled to remove the provisions conferring that right from the constitution of the company. Those competing claims between the two camps have led to a kind of a Mexican stand‑off, with each threatening to exercise the rights which they claim, and which would defeat the rights asserted by the other. It is therefore very difficult to put a value on the most potentially valuable claim which is being foregone under the terms of the deed of compromise.
In relation to the release of any entitlement to further distributions and dividends from the trust and the company respectively, the evidence is, that in relation to the company no dividends have been received by the first plaintiff for 12 years or more of that company is now vested in the defendants.
In relation to the trust, it is a discretionary trust and control of the trust is now vested in the defendants. However, the defendants have obligations as fiduciaries to take account of the respective needs of the various prospective beneficiaries of that trust. They have exercised their discretion by allocating from the trust to the first plaintiff a sum of $220,000 in the most recent year and prior to this, $200,000 for several years. By virtue of cl 2 of the deed, the first plaintiff will forego any right to insist that the beneficiaries of the family trust consider his needs and interests in the exercise of their discretion under that trust; a right which has realised to him an amount of $220,000 before tax in the most recent year.
Clause 3 of the deed provides that the first plaintiff will transfer all his shares in the fifth defendant company to that company or agree to those shares being cancelled. No reference is made in the deed to satisfaction of the requirements of Ch 2J of the Corporations Act 2001 (Cth) relating to the buy‑back of shares or reduction of capital, but I proceed on the assumption the deed is to be read as implying an obligation to meet those requirements and any approval I would give would of course have to be conditional upon that assumption being met.
The evidence as to the value of the shares to be transferred is varied. On one view their net asset backing is approximately $750,000. The defendants assert that the shares have a value to the first plaintiff of approximately $600,000 after tax. Those valuations are of course complicated by the fact that on one view, the value of those shares could be enhanced up to almost $37 million by the exercise of the powers conferred upon the first plaintiff by the fifth defendant company's constitution.
On another view, it is asserted that being minority shares in a private company they have very little realisable value and that their only real value would be to the other shareholders in the company. Nevertheless, I think it is of some significance that the net asset backing of those shares is approximately $750,000. Apparently, this could be realised producing tax consequences such that the net benefit to the first plaintiff of realising those shares would be in the vicinity of $600,000.
Clause 4 of the deed has nothing to do with the first plaintiff and involves the defendants purchasing an interest which the second plaintiff has in a property in Kintail Road, Applecross. Similarly, cl 5 is of very little moment, as it requires the defendants to pay $6000 to the second plaintiff for the purpose of repairs to a farm property.
Clause 6 provides that $5 million worth of shares held by the fifth defendant company in public companies is to be set aside by the company and held by an independent trustee company to be agreed by the parties, or failing agreement, with Perpetual Trustees Pty Ltd, with the first plaintiff to have a life interest in those shares. The effect of the clause therefore would be to effectively provide an annuity to the first plaintiff in the form of the dividends to be received by the fifth defendant company on those shares.
The last time the matter came before me I raised a question as to whether such a step was within the powers of the fifth defendant company under its constitution. Since then, I have received an affidavit annexing the company's articles of association and referring me to article 75. It is clear that article 75(6) and (7) authorises the fifth defendant company to enter into a transaction of this kind in return for the surrender or return or cancellation of the shares held by the first plaintiff in the fifth defendant company.
There are a number of affidavits before me which set out the shares that would be set aside to fulfil this obligation, including the affidavit of Elizabeth Calder, the first defendant, sworn 8 March 2007. She deposes that the fifth defendant company would set aside shares in Australian Foundation & Investment Company with a value of approximately $3.6 million, shares in BHP Billiton Ltd with a value of just under $1 million and shares in Djerriwarah Investments Ltd to the value of just over $400,000 giving a total value of around $5 million.
Her evidence is that she estimates the dividends received in 2006 from those shares was an amount of just over $154,000. She does not give any evidence in relation to the question of whether those dividends would carry with them imputation credits and who is to receive the benefit of any imputation credits. The deed makes no provision for what is to happen in relation to any imputation credits that might accompany those dividends.
I have also been provided with an affidavit of William Teesdale Chambers sworn 9 March. He estimates that the shares to which I have referred would be likely to realise dividends in the year ending 30 June 2007 in an amount of $165,422. He observes that it is not clear to him how the first plaintiff would be entitled to any imputation credits attached to the dividends declared on those shares. I infer from that that he is referring to the fact that as the shares are held by the fifth defendant company and the dividends will be paid to them, any imputation credits would ordinarily accrue to the fifth defendant company.
Mr Chambers then does a number of calculations both with and without the benefit of the imputation credits. With the benefit of the assumed imputation credits being attributed to the first plaintiff, the net benefit to him after tax of the dividends on those shares for the year ending 30 June 2007 is estimated by Mr Chambers to be in the vicinity of $126,000. Mr Chambers compares that to the after‑tax benefit to the first plaintiff of the trust distribution in the amount of $220,000 received by him. If that dividend were received by him in the year ending 30 June 2007, the net after‑tax benefit would be almost $118,000.
Accordingly, the difference between the two arrangements is a net amount of approximately $8000 per annum. However, Mr Chambers goes on to observe that if the first plaintiff is not entitled to the imputation credits associated with the dividend stream, the net benefit to him of the dividend income stream would reduce to an amount of just under $77,000. This amount is almost $40,000 less than the net benefit to the first plaintiff from the distributions that he has been receiving from the family trust.
I again observe that the deed makes no provision whatsoever for the accrual of the benefit of any imputation credits to the first plaintiff and I also observe that it is not possible to predict with any certainty just what those imputation credits will be. Clearly, they will depend upon the taxation position of the companies declaring the dividends.
Before I return to the terms of the deed of release, these figures also need to be put in the context of the evidence given as to the first plaintiff's needs and I refer in that regard to an affidavit of the second plaintiff sworn 14 February 2007. In that affidavit she refers to the costs of professional care for the first plaintiff. She deposes that the costs for the year ending 30 June 2005 were $156,000 per annum and for the year ending 30 June 2006 the cost was $122,500 per annum.
The second plaintiff deposes that she estimates the cost of professional care for the current year will be an amount of $130,000; that is to say, an amount which exceeds the amount that the first plaintiff would receive from the dividend stream from the shares referred to even if he were to receive the full benefit of imputation credits in relation to that dividend stream.
However, the second plaintiff also deposes to other needs and expenses that are incurred in relation to the first plaintiff on an annual basis including maintenance of the house and domestic services, food, clothing, ongoing maintenance costs relating to disposable hygiene items, entertainment, utilities and so forth. I have not done the precise mathematics but it seems clear from the affidavit that those amounts are in the vicinity of $85,000 to $90,000 per annum.
She also deposes to a need for capital in order to install a lift at the family home; to make alterations to the Quindanning farm homestead to cater for the first plaintiff's wheelchair and, in particular, to make alterations or additions to the family home to accommodate a live‑in carer couple in a room above the garage; the painting of the house; and so forth. Those capital sums are in the vicinity of $600,000. No reference is made in any of the material provided to me in support of this application as to how those capital needs would be met under the terms of the compromise proposed.
Returning then to cl 6 of the deed, it can be seen that under the terms of that clause the first plaintiff will receive for as long as he lives a maximum amount of $126,000 net after tax or quite possibly an amount of just under $77,000 after tax in return for surrendering shares which have a net asset backing of $750,000 and which are estimated to have an after‑tax capital value of $600,000 and in return for also foregoing all his claims in the proceedings.
From cl 6 of the agreement, if the first plaintiff were to live for, say, three years, the net after tax benefit he would derive would, on the most optimistic view, be approximately $380,000 or perhaps as little as $225,000 or thereabouts. The capital value, or at least the net asset backing, of the shares he would be surrendering is substantially in excess of that amount. He would, of course, also forego all the other claims which he advances in these proceedings.
Moving then to cl 7 of the deed, that clause provides that each party is to bear their own costs of the action. I have no evidence as to what those costs are or how they would be satisfied in the case of the costs incurred by the first plaintiff. Clause 8 provides that the proceedings in the State Administrative Tribunal are to be discontinued with no order as to costs. Those proceedings involve a challenge by the defendants to the enduring power of attorney granted by the first plaintiff in favour of the second plaintiff. I have no way of knowing whether the termination of those proceedings is to the benefit of the first plaintiff because I could only form that view if I were able to form a view as to their likely outcome.

The question of whether or not the enduring power of attorney is for the benefit of the first plaintiff would be one of the issues in those proceedings. I note that counsel who has been briefed to provide an opinion in relation to the proposed settlement, expresses the view that termination of those proceedings would be to the benefit of the first plaintiff. I do not know that I could form that view, but one thing is clear, however, and that is that termination of those proceedings is obviously to the benefit of the second plaintiff because it removes any prospect of challenge to her capacity to use the enduring power of attorney to fully access and utilise all the assets of the first plaintiff.
Clause 9 of the deed provides that the second plaintiff is to make no claim to set aside or vary the will of the first plaintiff. Viewed from the perspective of the first plaintiff, that provision would appear to be neutral. Clause 10 provides that the defendants will not challenge the grant of the enduring power of attorney in favour of the second plaintiff. The comments I have made above in relation to the discontinuance of the proceedings in the State Administrative Tribunal are equally applicable to that clause.
Clause 11 provides that the defendants are to have reasonable unsupervised access to visit the first plaintiff at least once per week and I assume and conclude that that clause will be of benefit to the first plaintiff. Clause 12 provides that the agreement is to be legally enforceable; notwithstanding the death of the first plaintiff or the second plaintiff at a time before the payment of the amount payable under the agreement. That is a clause which inures entirely for the benefit of the second plaintiff. Clause 13 simply provides that three days' notice must be given to the office before access is granted to the farm.
Counsel's advice in relation to the proposed settlement has been obtained from Queen's Counsel. I will not set out the terms of that advice other than to observe that counsel canvasses a number of the issues that I have addressed but does not appear to value, at least explicitly, those things that are being foregone by the first plaintiff pursuant to the deed of compromise as compared to the benefits to be derived by him under that deed.
Rather, counsel seems to take the approach that the question is best assessed by reference to the adequacy of the sums available to the first plaintiff from all sources to meet his needs and expenses for the rest of his life. While that is one possible view, it is my view that, under O 70 r 10 of the Rules of the Supreme Court1971 (WA), I am required to analyse whether the terms of this compromise are in fact in the best interests of the first plaintiff and are to his benefit. Counsel concludes his opinion with a paragraph in the following terms:
"In light of all of the foregoing, it is my opinion that the compromise reached by the parties has the advantage of terminating the present litigation on terms which will enable Mr Rowell to live his final days in comfort commensurate with his established standard of living without any assistance from Mrs Rowell‑and [sic] in much greater comfort and enjoyment of life with her assistance and support. I do not regard the terms of compromise as overly favourable to Mr Rowell, though in light of my understanding that Mr Rowell's Senior and Junior counsel are of the view that the terms of compromise are the best that can be achieved, I regard them as satisfactory."
I would observe that that view falls well short of an expression of the view that the compromise is in the best interests of the first plaintiff and to his benefit. In particular, that view falls short of any express or explicit assessment of the value of those things that have been foregone by the first plaintiff in the compromise as compared to the benefit of the things to be derived by him under those terms.
Summarising the various aspects of the deed to which I have referred, it is clear from the terms of the compromise that it is very favourable indeed to the second plaintiff. She is to receive a capital sum of $3.5 million and all challenges to the enduring power of attorney which is granted in her favour are to be dropped.
However, looked at from the perspective of the first plaintiff, the situation is somewhat different. Under the terms of the deed he would forego all the claims that he has advanced in the action, including the substantive claim to the entitlement to exercise a clause under the articles of association which could conceivably derive a benefit for him of an amount of some $37 million.
He is also to forego any claim to an entitlement to a dividend in the fifth defendant company and any claim to the exercise of the discretion of the beneficiaries of the family trust in his favour. In the past, that entitlement has realised him an annual sum of $220,000 in the last year prior to the commencement of these proceedings and in the years prior to that, an amount of $200,000.
He is also being asked to surrender shares which have an asset backing of approximately $750,000 and which apparently could realise an after-tax benefit of some $600,000; although acknowledging that there would be a limited market for those shares. In return for all of that, the first plaintiff only receives is an annuity which, on the most favourable view of the effect of the deed, would provide him with an amount only slightly greater after tax than the amount he has previously received from the trust and which on another view of the deed, would produce for him an amount which is significantly less after tax than the amount he has received from the trust.
On the most favourable view of the effect of the deed, the benefit to the first plaintiff under the terms of the deed for one year would be $126,000. If he lives for three years, the amount he would receive would be a maximum of about $380,000. Those amounts are without allowance for the costs of the arrangement with respect to the provision of dividends and there is an open question as to whether costs of trustee companies would be incurred as the deed provides for a trustee company to be engaged. On the evidence, the costs of the engagement of such a company would vary between $13,000 and $18,000 per year, depending on which company is engaged.
Therefore, the amounts to be derived by the first plaintiff under the annuity which he is to receive are on one view, only slightly better than the amount he has been deriving under the family trust and on another view, substantially less than the amount he has been deriving on the family trust.
Either way, the amounts to be realised by the first plaintiff during the remainder of the likely length of his life are less than the net asset backing of the shares he would forego under the compromise. Therefore, even without bringing to account any value for the first plaintiff's claims, it can be seen on these figures that the compromise is not for the benefit of the first plaintiff. Consequently, I conclude that the terms of the compromise are not fair and reasonable from the perspective of the first plaintiff, nor for his benefit, and I therefore decline to approve the compromise under O 70 r 10.