JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : RE HISCOX; EX PARTE RONALD WILLIAM THOMAS HISCOX and NAOMI JEAN PLANE as Joint Plenary Administrators for PATRICIA ADELAIDE HISCOX [2005] WASC 121 CORAM : MASTER SANDERSON HEARD : 27 MAY 2005 DELIVERED : 30 MAY 2005 PUBLISHED : 9 JUNE 2005 FILE NO/S : COR 59 of 2005 EX PARTE
RONALD WILLIAM THOMAS HISCOX and NAOMI JEAN PLANE as Joint Plenary Administrators for PATRICIA ADELAIDE HISCOX
Plaintiffs
Catchwords:
Corporations Act 2001 (Cth) - Application to reinstate Company and for Company to be wound up - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 601AA
Result:
Company reinstated
Winding up order refused (Page 2)Category: B Representation:
Counsel:
Plaintiffs : Mr B H Taylor
Contradictors : Mr J L H Formby
Solicitors:
Plaintiffs : Talbot & Olivier
Contradictors : Formbys
Case(s) referred to in judgment(s):Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 2 WLR 475Cochrane v Cochrane (1985) 3 NSWLR 403Octavio Investments Pty Ltd v Knight & Anor (1979) 144 CLR 360Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319Case(s) also cited:
ANZ Banking Group Ltd v Barns (1994) 13 ACSR 592Australian Competition & Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688Greenfold Holdings Pty Ltd v ACB Human Resources Pty Ltd [2003] NSWSC 1184Holli Managed Investments v Australian Securities Commission (1998) 160 ALR 409Kingjade Holdings Pty Ltd v Pineridge Nominees Pty Ltd, unreported; SCt of WA; Library No 970295, 12 June 1997Knox v Gye (1872) 42 LJ Ch 234Newham v Australian Securities and Investments Commission (2000) 35 ACSR 147Payne v Wizard Industries Pty Ltd (1997) 24 ACSR 277Re Bleriot Manufacturing Aircraft Co (Ltd) (1916) 32 TLR 253(Page 3)Re Prosperine Pty Ltd [1980] 1 NSWLR 745Re Timothy's Pty Ltd [1981] 2 NSWLR 706Re Waldcourt Investment Co Pty Ltd (1986) 11 ACLR 7Re Williams United Mines Pty Ltd (1992) 8 ACSR 627Scott v Janniki Pty Ltd (1994) 14 ACSR 334Speight v Gaunt (1883) 9 App Cas 1Walker v Wimborne (1976) 137 CLR 1Wheatley v Bower [2001] WASCA 293Young v Murphy [1996] 1 VR 279 (Page 4)1 MASTER SANDERSON: This is the return of two applications. The first in time is an originating process pursuant to which the plaintiffs sought to have reinstated a corporation styled Hiscox Farms Pty Ltd ("the Company") and for an order that the Company be wound up. On 26 May 2005, the plaintiffs lodged an interlocutory process seeking to have Ronald William Thomas Hiscox, Naomi Jean Plane and Stephen William Whitson, the executors of the estate of the late Gordon William George Hiscox, joined as second plaintiffs to these proceedings. There being no objection to this application, I indicated that I would make the necessary order. I will explain later in these reasons why it was appropriate for the order to be made. 2 At the conclusion of the hearing on 27 May I indicated I would reserve my decision until the morning of 30 May. Thereafter I would publish reasons for my decision. These are those reasons.
3 It is convenient at the outset to identify the various persons involved in and concerned with this litigation. Gordon and Patricia Hiscox were husband and wife and for some 50 years prior to August of 1999 they were farmers at Gabbin in Western Australia. Gordon and Patricia had six children, Carolyn Ruth Bower (nee Hiscox), Lindsay Harold James Hiscox, David Lionel George Hiscox, Ronald William Thomas Hiscox, Phillip Arnold Hiscox and Naomi Jean Plane (nee Hiscox). Coralie Jean Hiscox is the wife of Phillip Hiscox. In August 1999 Patricia's health had deteriorated to the point where she required full-time care and took up residence in a nursing home in Rossmoyne. At the same time, Gordon became resident at a retirement village located adjacent to the nursing home. Gordon passed away on 17 April 2003. On 1 August 2002, the plaintiffs were appointed joint plenary administrators of Patricia's estate under the Guardianship and Administration Act 1990 (WA).
4 The first-named applicant, Ronald Hiscox, has sworn an affidavit dated 17 January 2005, in support of this application. He sets out the background to this application. Much of what he has to say is uncontroversial and can be summarised quite succinctly.
5 Gordon, together with his father and brother (all of whom are now deceased) for many years conducted their business as farmers in partnership and traded under the name of Hiscox & Son. The farming enterprise was primarily concerned with livestock and cereal crops. Patricia, as Gordon's wife, acquired an interest in the partnership, but she never took any active role in the business, nor in the financial decisions of Hiscox & Son. Gordon had primary control of the farming business.
(Page 5)Over the years, and at various times, David and Phillip have been partners of Hiscox & Son. Neither of the two named plaintiffs ever had an interest in the farming business or the partnership. In or about 1990, David retired from the partnership, leaving Phillip and Gordon in partnership until Gordon's retirement from Hiscox & Son on 30 June 1999.
6 In 1972, Gordon and Patricia formed a company styled Aloma Holdings Pty Ltd ("Aloma"). Although the precise function and operation of this company does not emerge from the evidence, Ronald says that it was "considered to be a family company". He also says that, during his lifetime, Gordon purchased several large lots of property in Gabbin which presumably found their way into Aloma. An ASIC company search reveals that Gordon and Patricia were directors of Aloma from the date of its incorporation to 9 July 1992 and 24 February 1999 respectively. Phillip became a director in July of 1992 and Coralie became a director in February of 1999. Ronald says that, from time to time, he and his brothers, including Phillip, have been shareholders in Aloma, but the majority shareholding was held by Gordon and Patricia. 7 In March of 1996, Gordon and Patricia transferred several of their farming properties to Phillip under the terms of a written contract of sale. These properties collectively comprised the farm upon which Hiscox & Son ran its business. Pursuant to the terms of the contract Gordon retained ownership of a half interest in only one of the properties and lodged caveats against the other properties. These properties were known to the family and collectively referred to as Aloma. The caveats were lodged to secure the payment of $120,000. In or about March of 2001, Phillip sold Aloma, and in April paid the $120,000 owing to Gordon.
8 On or about 29 December 1999 Gordon and Patricia transferred their shares in Aloma to the Company. As at that date Patricia held 7333 shares in Aloma in three separate classes. The consideration for her transfer of these shares was $119,183.25. At the same time Gordon transferred 3333 shares of two classes to the Company. The consideration for this transfer was $54,171.25. Thus, as at 29 December 1999, the Company owed to Gordon and Patricia a total of $173,354.50.
9 The Company was deregistered on 9 June 2002. Deregistration took place under s 601AA of the Corporations Act. In line with s 601AA(2) of the Act the then directors certified that the Company had assets worth less than $1000 and that it had no outstanding liabilities. It is the plaintiffs' position that the Company had at the time of deregistration, and still has,
(Page 6)an outstanding liability to Gordon's estate and to Patricia. It is on this basis that they seek to have the Company reinstated and wound up.
10 Phillip has sworn an affidavit, dated 2 May 2005, in opposition to this application. The affidavit is expressed to be of both Phillip and Coralie . In fact, it is only the affidavit of Phillip Arnold Hiscox. Phillip does not dispute that the share transfer as set out by Ronald between Gordon and Patricia and the Company took place. But he does deny that there is any debt owing by the Company to Gordon and Patricia. He explains the position in this way (pars 29 to 31 of his affidavit):
"29. Coralie and I agree with Gordon that in return for the transfer of the shares to the Company we would support Gordon and Patricia in their retirement and until their death. In the terms of that agreement we and entities controlled by us made payments totalling $106,176.44 on behalf of Gordon and Patricia. 30. The agreement with Gordon was not concluded in any particular conversation or on any particular date. Gordon and I discussed what was to happen on many occasions and the discussions continued from around 1996, approximately, until after Gordon moved to Sherwin Lodge. What we agreed was that Coralie and I would meet Gordon and Patricia's reasonable living expenses so far as they could not pay for them out of their income. We contemplated their income to be dividends from shares and an age pension if they become eligible for one and it was agreed this income would be used to meet their living expenses. We discussed the shares owned by Gordon and Patricia and it was agreed they would not be sold to meet the living expenses of Gordon or Patricia unless that could not be avoided.
31. We continued to make payments on behalf of Gordon and Patricia until the Applicants repudiated the agreement I reached with Gordon."
11 On an application such as this, I am not in a position to make a determination as to whether or not there is any amount owing by the Company to Gordon and Patricia. What I can say is that the position is arguable. There are obvious difficulties with the explanation offered by Phillip. It may be that, with a full hearing on the question of what, if any, (Page 7)liability exists between Gordon and Patricia and the Company, those difficulties will be overcome. But I am satisfied that there is a serious question to be tried as to whether or not the Company is indebted to Gordon and Patricia.
12 At all material times, the Company was the trustee of the Hiscox Family Trust. In his affidavit Phillip says that the Trust ceased to exist as at 30 June 2001 when the Company, acting as trustee of the Trust, vested the Trust. A copy of the financial report for the year ended 30 June 2001 appears as annexure D to Phillip's affidavit. The balance sheet year ended shows that, as at 30 June 2001, the Trust actually had no assets to vest. Nonetheless, there appears to be no reason why the vesting should not have taken place. There certainly is no reference in the accounts to any liability of the Company to Gordon and Patricia. 13 Against this background it is evident that the proper course is to reinstate the Company. The plaintiffs have established that there is a serious question to be tried as to whether or not the Company is indebted to Gordon and Patricia. If it was found that the Company was so indebted, then the Company, as a trustee, would have a right of indemnity against the Trust property: see Octavio Investments Pty Ltd v Knight & Anor (1979) 144 CLR 360 at 371. Counsel submitted that it was of no consequence that the Trust had vested. Even assuming that the decision to vest the Trust was effective if there were debts outstanding to Gordon and Patricia (and counsel for the plaintiffs did not concede this was the case), it was said that the plaintiffs would have resort to the equitable remedy of tracing. All of that may be right. But it is a question for another day. At the moment, all I need to determine is whether or not the Company ought be reinstated. I am satisfied that it should.
14 Counsel for the contradictors opposed reinstatement on two grounds. First, he submitted that the explanation offered by Phillip as to why there was nothing owing by the Company to Gordon and Patricia should be accepted. I have already indicated that I am satisfied that there is a serious question to be tried on that issue. Counsel then submitted that there was no utility in the reinstatement. He submitted that as the Trust had vested any liability that the Trust might have had to Gordon and Patricia is now a liability that the holders of the Trust property have to Gordon and Patricia. In support of this proposition, he referred to the Octavio Investments case cited above. In essence, counsel submitted that the right of a trustee to an indemnity out of the Trust assets is subrogated to the creditor on the trustee ceasing to act. Thus, counsel submitted, there was no need to reinstate the Company. The plaintiffs could simply
(Page 8)sue directly the beneficiaries of the Trust in whom the Trust property had vested. He submitted that this was an altogether simpler and more preferable option than reinstating the Company.
15 With respect to counsel, I can find nothing in the Octavio Investments decision which supports the proposition advanced. Nonetheless, it is true that there is a view that subrogation is available as a remedy which can be fashioned to the facts of a particular case so as to prevent unjust enrichment: see The Law of Restitution (6th ed), editor E D G Jones - Lord Goff of Chievely and G Jones at 3-009. In England, this view has the support of the House of Lords. In Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] 2 WLR 475 Lord Hoffmann said (at 487 - 488):
"It is important to remember that, as Millett LJ pointed out in Boscawen v Bajwa [1996] 1 WLR 328, 335, subrogation is not a right or cause of action but an equitable remedy against a party who would otherwise be unjustly enriched. It is a means by which the court regulates the legal relationships between a plaintiff and a defendant or defendants in order to prevent unjust enrichment. When judges say that the charge is 'kept alive' for the benefit of the plaintiff, what they mean is that his legal relations with the defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched."
16 There appears to be no decision in Australia applying the principles espoused by the House of Lords in Banque Financiere de la Cite v Parc (Battersea) Ltd. The principles underlying subrogation in Australia were considered by Kearney J in Cochrane v Cochrane (1985) 3 NSWLR 403. His Honour stated what he saw as the fundamental basis of subrogation (at 405):
"This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive."
(Page 9)17 It is clear that creditors of a trust run by a trustee company will not have direct access to assets of the trust but will be subrogated to the executor's right of indemnity. This was established by the High Court decision of Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319. This case concerned an executor of a deceased debtor who, with no authority under the Will and with authority only a proportion of the time under an order of the Court, carried on the deceased's business. The question at issue in the case was the ranking of certain creditors. In the course of his judgment Dixon J (as he then was) put the position in this was (at 335 - 336):
"But, if the executor has acted under some authority binding upon those who otherwise would be entitled to the assets, their claims are subject to his right to be indemnified out of the assets in respect of liabilities he has incurred in the proper performance of his duties or exercise of his powers. He has a lien over the assets which takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation. But the claims of creditors of the deceased, whose rights are, of course, independent of his will, cannot be postponed so as to rank behind this lien, except by their own act or conduct. Although the executor's creditors to whom he has become indebted in the course of carrying on the business have no direct claim upon the assets, because they deal with him on the footing of his personal liability, yet in equity they may be subrogated to his right of indemnity or lien. The principle is stated in a few words by TurnerLJ in Ex parte Edmonds:
'The executor or trustee directed to carry on the business having the right to resort for his indemnity to the assets directed to be employed in carrying it on, the creditors of the trade are entitled to the benefit of that right, and thus become creditors of the fund to which the executor or trustee has a right to resort.'"
18 The learned authors of Jacobs Law of Trusts in Australia (6th ed) discuss creditors' rights of subrogation. They conclude (at 639):
"The better view then is that subrogation should be enforced only in proceedings to which the creditor, trustee and beneficiary are parties and it is not appropriate to allow the creditor to proceed directly against the trust assets without joining the trustee."
(Page 10)19 The learned authors do not quote any authority for this proposition. The comment occurs in the context of when it is possible for a creditor to proceed directly through a right of subrogation against the trust. The learned authors make the point that there may be cases where the debt has not been incurred by the trustee in the proper performance of his duties; or where the debt can be met out of the assets held by the trustee. Neither of those two situations apply here. It is not suggested that the Company has any debts other than those owed to Gordon and Patricia.