Smoje v Hart - [2017] WASC 314

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SMOJE -v- HART [2017] WASC 314

CORAM: MARTINO J

HEARD: 13 OCTOBER 2017

DELIVERED : 10 NOVEMBER 2017

FILE NO/S: CIV 2172 of 2017

BETWEEN: JEANETTE SMOJE in her capacity as executor of the estate of the late Anto Josip Vlahov and executor of the estate of the late Andra Vlahov
Plaintiff
AND
JOYCE HART in her capacity as executor of the estate of the late Anto Josip Vlahov and executor of the estate of the late Andra Vlahov
First Defendant
ANTHONY VLAHOV in his capacity as executor of the estate of the late Anto Josip Vlahov and executor of the estate of the late Andra Vlahov
Second Defendant

Catchwords:

Trusts and trustees - Application by executor for directions

Legislation:

Trustees Act 1962 (WA), s 92

Result:

Advice given

Category: B

Representation:

Counsel:

Plaintiff:     Ms B S Giles
First Defendant              :     Mr M S Macdonald
Second Defendant         :     Mr M S Macdonald

Solicitors:

Plaintiff:     Jackson McDonald
First Defendant              :     Macdonald Rudder
Second Defendant         :     Macdonald Rudder

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

Macedonian Orthodox Community Church v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66
Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16; (2016) 241 FCR 241
Murray v Schreuder [2009] WASCA 145; (2009) 41 WAR 169
Tsaknis v Lilburne [2010] WASC 152

MARTINO J: The plaintiff, Mrs Smoje, the first defendant, Mrs Hart, and the second defendant, Mr Anthony Vlahov, are siblings and executors of the estates of their parents, the late Anto Josip Vlahov and the late Andra Vlahov. They do not agree on whether steps should be taken to access the books and records of T & A Vlahov Pty Ltd.
As a result of that disagreement Mrs Smoje has brought this action. By an originating summons filed on 14 July 2017 Mrs Smoje applies for an order that the executors of the estates of the late Mr and Mrs Vlahov would be justified in bringing an action against T & A Vlahov Pty Ltd to access its books and records. Three bases are put forward by Mrs Smoje for such an action:
(a)pursuant to the Corporations Act 2001 (Cth) as personal representatives of the late Mr and Mrs Vlahov in their capacities as shareholders in T & A Vlahov Pty Ltd;
(b)as personal representatives of the late Mr and Mrs Vlahov pursuant to deeds of declaration of trust and indemnity that each of Mr and Mrs Vlahov executed on 26 July 2004; and
(c)as personal representatives of the late Mr and Mrs Vlahov in their capacities as parties to an agreement made between them, T & A Vlahov Pty Ltd and Vermont Grove Pty Ltd in or around 2004. At the hearing of the application made by the originating summons this third basis was not pursued.

The wills

Mrs Andra Vlahov died on 26 July 2013. Her will is dated 7 December 2012. Mr Anto Josip Vlahov died on 13 December 2013. His will is dated 28 September 2005.
Mrs Smoje, Mrs Hart and Mr Anthony Vlahov are the beneficiaries of the estates. They have been administering the estates concurrently.

The Wanneroo land

The late Mr and Mrs Vlahov owned for many years approximately eight acres of vacant bushland near Wanneroo. They became registered proprietors of that land in 1961. In the 1990s Mr Anthony Vlahov built a house on the northern end of the Wanneroo land and cleared an area of land around the house. Mr Anthony Vlahov continues to live in that house.
By their wills Mr and Mrs Vlahov bequeathed to Mr Anthony Vlahov their interests in the property known as the part of the Wanneroo land on which he lived. However neither Mr Vlahov nor Mrs Vlahov owned any land near Wanneroo when they died.

The investigations by the executors

In her search of her late parents' records Mrs Hart found an unexecuted copy of a Development Agreement between T & A Vlahov Pty Ltd as trustee, Mr and Mrs Vlahov as beneficial owners and Vermont Grove Pty Ltd as developer by which Vermont Grove Pty Ltd was appointed as developer to subdivide and sell the Wanneroo land. The sole director and the company secretary of T & A Vlahov Pty Ltd is Mr Andrew Vlahov, the son of Mr Anthony Vlahov. There are three paid shares in T & A Vlahov Pty Ltd, one is owned by Mr Anthony Vlahov and the other two were owned by each of the late Mr and Mrs Vlahov and are now part of their estates. Mr Andrew Vlahov is the sole director, the company secretary and the sole shareholder in Vermont Grove Pty Ltd.
The solicitors who prepared that Development Agreement have informed the solicitors for the executors that they do not have an executed copy of the Development Agreement. The solicitors have however provided copies of deeds of declaration of trust made on 26 July 2004 by Mr and Mrs Vlahov by which Mr and Mrs Vlahov transferred their interest in the Wanneroo land to T & A Vlahov Pty Ltd to hold the land on trust for them.
The unexecuted Development Agreement provided for three categories of lots from the Wanneroo land - sale lots, remainder lot and family lots. Those lots were defined by reference to annexures to the Development Agreement. There were no annexures to the unexecuted form of Development Agreement which Mrs Hart located. Mrs Hart has located in the late Mr and Mrs Vlahov's papers a plan of subdivision which may have been part of an annexure to the Development Agreement, but it was not attached to the unexecuted Development Agreement when she found it.
The unexecuted Development Agreement appears to have been prepared in 2004. That is the year that appears on the face of the document and the document's footer on the first page includes the date 12 July 2004.
Mrs Smoje has endeavoured to obtain an executed copy of the Development Agreement with its annexures but she has not been able to do so.
The unexecuted Development Agreement provided that the sale lots were to be sold. After payment of development and financing costs Mr and Mrs Vlahov were to be paid $1,700,000 and the balance was to be paid to Vermont Grove Pty Ltd as a development fee. The remainder lot appears to be the part of the Wanneroo land on which Mr Anthony Vlahov resides. The unexecuted Development Agreement did not provide for how the family lots were to be dealt with.
On 5 July 2016 the executors of the estates of Mr and Mrs Vlahov executed authorities and directions directing T & A Vlahov Pty Ltd to transfer to them that part of the Wanneroo land on which Mr Anthony Vlahov resides. The executors have transferred that land to Mr Anthony Vlahov.
Mrs Smoje recalls that her mother told her that she and her father had received two payments, an initial part payment from the trustee and a second payment of the balance.
Mrs Hart recalls that at a family gathering in or about 2003 or 2004 Mr Andrew Vlahov said in the presence of the late Mr and Mrs Vlahov that he was going to buy the Wanneroo land other than the part on which Mr Anthony Vlahov lived for $1,700,000. The late Mr and Mrs Vlahov acted in a way that made it clear to Mrs Hart that they were happy to sell the land to him.
Mrs Hart recalls taking her mother to the bank to deposit a cheque for $1,200,000 she had received from Vermont Grove Pty Ltd and to deposit a second cheque of $500,000. Mrs Hart has deposed that her mother used the second cheque to pay $250,000 to Mrs Hart and $250,000 to Mrs Smoje.
Mrs Hart deposes that Mr Vlahov was fully competent intellectually at all times until shortly before his death and that Mrs Vlahov remained sharp and mentally competent until the end of her life. The only evidence that Mr and Mrs Vlahov expressed any complaint about the arrangements with respect to the development of the land is that Mrs Smoje has deposed that she recalls Mrs Vlahov saying on more than one occasion that she was waiting for Andrew to give the title back to them, which Mrs Smoje understood to refer to the title to the property on which Mr Anthony Vlahov lived.
Mrs Hart has also deposed that the main asset of each of her parent's estate was a debt owed to it by 'the TA Vlahov Family Trust'. She has deposed that by deed dated 10 June 2015, to which Mrs Smoje is a party, Djeca Holdings Pty Ltd was appointed trustee of this trust. The trust owns a block of residential units worth about $3,000,000. They are not strata titled and more than half are without a tenant. The TA Vlahov Family Trust paid the debt of $1,050,000 it owed to Mrs Vlahov's estate. It cannot pay the debt of approximately $1,500,000 it owes to Mr Vlahov's estate until the land is sold. I understand the land to which Mrs Hart refers is the block of residential units.
Although Mrs Smoje has not been able to obtain a copy of the annexures to the Development Agreement, she has obtained from Landgate a copy of the deposited plan for the subdivision of the Wanneroo land. From searches at Landgate it would appear that what may have been the family lots from the Wanneroo land were transferred by T & A Vlahov Pty Ltd to Mr Andrew Vlahov or to Mr Andrew Vlahov and his mother Mrs Wanda Vlahov jointly for no consideration. The consideration shown on the transfers from T & A Vlahov Pty Ltd is 'natural love and affection'.
In 2016 Mrs Smoje's solicitors Jackson McDonald endeavoured to obtain documentation and information from T & A Vlahov Pty Ltd's accountants PKF Lawler. On 20 October 2016 Mr Ross Brough of PKF Lawler informed Jackson McDonald by email that on the instructions of the company director he had been precluded from providing any information in respect of the company. Emails from Jackson McDonald to Mr Brough of 4 November 2016 and 22 November 2016 have not been replied to.
On 12 December 2016 and 10 February 2017 Mrs Smoje's solicitors, Jackson McDonald, wrote to Mr Andrew Vlahov in his capacity as the sole director and the company secretary of T & A Vlahov Pty Ltd informing him of the results of Mrs Smoje's enquiries and that Mrs Smoje needed further information and documentation from T & A Vlahov Pty Ltd to ascertain the assets of the estates of Mr and Mrs Vlahov. On 20 February 2017 Mr Andrew Vlahov replied by saying that T & A Vlahov Pty Ltd did not have a copy of the executed Development Agreement or any assets, bank account or cash and that it had nothing to provide. The email was entitled 'without prejudice' however no offer of compromise was made in it and it is not a privileged document.
On 28 February 2017 Jackson McDonald wrote to Mr Andrew Vlahov pointing out that T & A Vlahov Pty Ltd had undertaken a significant development and was likely to have records of that development, which may be held by its lawyers and its accountants. The letter requested a reply within seven days, but no reply has been received.

The court's jurisdiction to give directions

The availability of the court's jurisdiction under s 92(1) of the Trustees Act 1962 (WA) and as a court of equity to enable a trustee to seek directions from the court including judicial advice as to whether or not to commence proceedings is well established and there are no implied limitations that automatically preclude the court from giving advice: Tsaknis v Lilburne [2010] WASC 152; Macedonian Orthodox Community Church v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66.

Consideration of whether to give directions

I have reservations about the prospects of success of an action to access the books and records of T & A Vlahov Pty Ltd in the executors' capacity as shareholders in the company. On the application by a member of a company the court can, if satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose, authorise the member or the member's representative to inspect books of the company: s 247A Corporations Act. The principles to be applied in an application under s 247A were summarised in Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16; (2016) 241 FCR 241 [22]. The requirement that the application be made in good faith and for a proper purpose is a composite requirement. 'Proper purpose' means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company.
It is arguable that the purpose of Mrs Smoje's desire to inspect the books and records of T & A Vlahov Pty Ltd is not connected with the estates' rights as shareholders but is connected with the possibility of the estates making claim against the company for breach of trust. That is because on the information presently available the only matter that warrants investigation is the conduct of T & A Vlahov Pty Ltd as trustee. In the final paragraph of her affidavit in support of her application Mrs Smoje has deposed that she wishes to determine the value of her late parents' shareholding in the trustee. However, there does not appear to be any evidence that the trustee company T & A Vlahov Pty Ltd holds any assets beneficially. Mrs Smoje's concerns are as to the assets that the company held on trust.
I therefore do not consider it appropriate at this stage to advise that the executors would be justified in bringing an action under the Corporations Act to access the books and records of T & A Vlahov Pty Ltd.
However it appears to me that the claim of the executors of the estates of the late Mr and Mrs Vlahov to the trust documents and accounts of T & A Vlahov Pty Ltd in their capacities of beneficiaries of a trust of which the company was a trustee is a strong one. Except where the beneficiary is seeking disclosure of documents 'in the air' the beneficiary of a trust has a right to inspect trust documents and accounts: Murray v Schreuder [2009] WASCA 145; (2009) 41 WAR 169 [71] ‑ [76] (Buss JA). I do not consider that the executors' claim would be regarded as 'in the air'. Mrs Smoje has established that there is uncertainty as to whether or not all of the assets of the trust have been accounted for to the beneficiaries. The issue of whether the transfer of land by T & A Vlahov Pty Ltd to Mr Andrew Vlahov and to Mrs Wanda Vlahov for no consideration was a proper exercise of T & A Vlahov Pty Ltd's powers as trustee is a matter that appears to warrant investigation.
I bear in mind that there is little evidence of Mr and Mrs Vlahov expressing any dissatisfaction as to the arrangements for the development of the Wanneroo land. However that does not necessarily mean that they agreed to what has occurred. At this stage the advice that is being sought is advice as to an action to obtain access to documents and accounts. If that access is obtained a decision can be made as to whether to commence an action to make claims for breach of trust and, if necessary, further advice from the court can be sought.
Mrs Hart and Mr Anthony Vlahov submit that Mrs Smoje could pursue the claim to the documents and accounts as beneficiary of the estates of Mr and Mrs Vlahov. However the claim to the documents and accounts is a claim of the estates, not of the beneficiaries to the estates.
Where there is a non‑charitable private trust involving a conflict between beneficiaries it might not be appropriate to give advice: Macedonian Orthodox Community Church v His Eminence Petar [67]. I have considered whether, as the estates are not charitable trusts, I should decline to give advice. I have decided that I should not decline to give advice. The reasons for that conclusion are that the claims of the estates to the documents and accounts seem to be strong, there are good reasons to seek access to them, the claims are claims of the estates, not claims of Mrs Smoje, and the executors of the estates have not been able to reach agreement on whether or not to seek them.
Action to access T & A Vlahov Pty Ltd's documents and accounts would be futile if the company has no records as Mr Andrew Vlahov asserts. However there is a sound basis to conclude that the company would still have records. The development was a significant one. The correspondence from Mr Brough might be regarded as being inconsistent with there being no records.

Conclusion

In summary, it is my view that it is appropriate to advise Mrs Smoje that the executors of the estates would be justified in taking action against T & A Vlahov Pty Ltd to access the trust documents and accounts as personal representatives of the late Mr and Mrs Vlahov. I have reached that conclusion by reason of the following matters:
(i)the claim of the executors of the estates for access to the trust documents and accounts of T & A Vlahov Pty Ltd seems to me to be strong;
(ii)there are good reasons for the executors of the estates to seek access to those documents and accounts to investigate whether or not substantive claims for breach of trust exist;
(iii)the claims to access to the documents and accounts are claims of the estate, not of Mrs Smoje;
(iv)the executors have not been able to reach agreement on whether or not to seek access to the documents and accounts; and
(v)it appears likely that the action to access the documents and accounts would not be futile.
I give advice that:
(i)the executors of the estate of the late Anto Josip Vlahov would be justified in bringing an action against T & A Vlahov Pty Ltd to access trust documents and accounts pursuant to their rights as personal representatives of the late Anto Josip Vlahov in his capacity as beneficiary of a trust of which T & A Vlahov Pty Ltd is trustee pursuant to a deed of declaration of trust and indemnity dated 26 July 2004; and
(ii)the executors of the estate of the late Andra Vlahov would be justified in bringing an action against T & A Vlahov Pty Ltd to access trust documents and accounts pursuant to their rights as personal representatives of the late Andra Vlahov in her capacity as beneficiary of a trust of which T & A Vlahov Pty Ltd is trustee pursuant to a deed of declaration of trust and indemnity dated 26 July 2004.