Vaughan v Duncan Vogt v Duncan

[2005] NSWSC 670

CITATION:	Vaughan v Duncan Vogt v Duncan [2005] NSWSC 670 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	5, 6,.7, 20 July 2005
JUDGMENT DATE :	21 September 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Associate Justice Macready at 1
DECISION:	Paragraph 159

CATCHWORDS:	Family Provision. Application by husband and daughter of deceased. Only asset held by a company of which deceased was the main shareholder. Half of her shares in company transferred to her son during her lifetime and other half converted on her death to valueless preference shares. Whether transfer perfected and whether full valuable consideration given. Held no prescribed transaction and therefore both summons dismissed.
LEGISLATION CITED:	Companies Act (NSW) 1936 Companies Code Family Provision Act 1982
CASES CITED:	R T Thomas & Family v Jeffries Industries Limited & Ors (1996) 14 ACLC 272 at 291-293 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 Plunkett v Bull (1915) 19 CLR 544 at 548-9 Watson v Delaney (1991) 22 NSWLR 358 at 365 Cross on Evidence (7th Australian Edition) para. 15150 Clune v Collins Angus & Robertson Publishers Pty Ltd (1992) 25 IPR 246 Wade v Harding (1987) 11 NSWLR 551 Attorney-General v Boden [1912] 1 KB 539 at 561 Maiden v Maiden (1909) 7 CLR 727 and see Richardson v Lenehan (1930) 30 SR (NSW) 457; Woods v Wolsely (1891) 12 LR (NSW) EQ 245 E.Brown Pty Ltd v Florence [1967] SASR 214 Ryan v Mutual Tontine Westminster Chambers Association Ltd [1893] 1 Ch 116 at 123 JC Williamson v Lukey (1931) 45 CLR 282 at 298 Dougan v Ley (1946) 71 CLR 142 at 154-5 Hume v Monro (No2) (1943) 67 CLR 461 at 482 Hoggart v Scoptt (1830) 1 Russ & M 293; 39 ER 113 Halkett v Earl of Dudley [1907] 1 Ch 590 Price v Strange [1978] Ch 337 at 357 and 367 Milroy v Lord 4 De GF & J 264; (1862) 45 ER 1185 Anning v Anning (1907) 4 CLR 1049 Corin v Patton (1990) 169 CLR 540 Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259 Adsetts v Hives (1863) 33 Beav. 52 (55 ER 286] Keen v Smallbone (1855) 17 CB 179 (139 ER 1038) In re Barned’s Banking Company; Ex parte The Contract Corporation (1867) LR 3 Ch App 105 The London and Provincial Bank v Roberts (1874) 22 WR 402 Outer Suburban Properties Ltd v Clarke [1933] SASR 221 Shaeffer v Shaeffer (1994) 36 NSWLR 315. Singer v Berghouse (1994) 181 CLR 201
PARTIES:	Diane Vaughan v Peter Victor Duncan Russell Keith Vogt v Peter Victor Duncan
FILE NUMBER(S):	SC 3062/2003; 3530/2005
COUNSEL:	Mr J. Atkin for Diane Vaughan Mr B.J. Burke for Russell Vogt Mr J.B. Whittle SC & Mr R.C. Titterton for defendant Mr M. Maxwell for Colin Vaughan
SOLICITORS:	McGrath Dicembre & Co for Diane Vaughan Shaw McDonald Pty Ltd for Russell Vogt Lobban McNally for defendant Turner Freeman for Colin Vaughan

LOWER COURT JURISDICTION:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Associate Justice Macready

Wednesday 21 September 2005

3062/2003 Diane Vaughan v Peter Victor Duncan
3530/2005 Russell Keith Vogt v Peter Victor Duncan & Ors

JUDGMENT

1 His Honour: This is the hearing of two applications under the Family Provision Act 1982 brought by the daughter and the second husband of the late Patricia June Vaughan who died on 25 December 2002 aged 74 years. Colin Vaughan, her son from her first marriage also survived her. During the last 20 years of the deceased’s life Colin Vaughan received a substantial interest in the deceased’s home as a result of their joint business interests.

Will of the deceased

2 The deceased’s last will was made on 5 December 2002 and under that will in the events which have happened the whole of her estate passes to her second husband, Russell Keith Vogt, and the defendant, Peter Duncan, the nephew of the deceased was appointed her executor.

The assets in the estate

3 The deceased had cash at the date of her death of $2,502 and a car worth about $7,000. Her only substantial asset was her interest in the company G R Vaughan (Holdings) Pty Limited (the company) that owns the property 11 Roslyn Gardens which property is valued now at $875,000. The property comprises a Laundromat downstairs and a residence above in which the deceased and her husband worked and lived.

4 The deceased had debts for repairs to her motor vehicle of $18,447.19, a credit card debt of $8021.92 and monies advanced to her by her husband of $53,096.83 according to the defendant.

5 The costs of the plaintiff, Russell Vogt, amount to $55,000 for a three-day trial and those of the plaintiff, Diane Vaughan, amount to $72,982. The executor’s costs are estimated at $83,000. These costs total $210,982 and do not include the costs of Mr Colin Vaughan.

6 The extent of the deceased’s interest in the company is a matter of substantial dispute in the case. Her son, Colin Vaughan, is a shareholder and he has been joined as cross defendant in order to resolve the question of the deceased’s interest in the company and determine claims in respect of notional estate. The question of liabilities of the company under guarantees it has given also needs resolution. Before dealing with these questions it is useful to set out a little history.

Family history

7 The deceased was born on 25 February 1928 and she married Colin (Fred) Vaughan in 1949. They had two children, Diane Vaughan born on 17 October 1950 who is now 54 years of age and Colin Vaughan born on 29 May 1958 who is now 47 years of age.

8 On 30 June 1958 GR Vaughan (Holdings) P/L was incorporated.

9 On 10 January 1959 Russell Vogt was born and he is now 46 years of age.

10 In November 1969 Diane Vaughan completed her HSC and on 8 September 1972 she married Robert Geldert and moved to Western Australia. She had three children and ceased work to look after her children.

11 In 1977 Colin Vaughan married Margaret and they have three children.

12 In 1985 Diane Vaughan and Robert Geldert were divorced. In 1986 Diane Vaughan commenced to live with Mark Stevenson.

13 On 22 September 1986 Colin Atherden Vaughan, the deceased's husband, died. His estate, including shares in the company, was left to the deceased. In July 1987 the deceased met the plaintiff, Russell Vogt.

14 In September 1987 the deceased incorporated Leronda Pty Ltd to own and conduct a Laundromat at 11 Roslyn Gardens, Elizabeth Bay.

15 In October or November 1987 the deceased and Russell Vogt commenced living together. Russell Vogt commenced work in the Laundromat.

16 On 8 February 1988 the deceased was appointed a director of the company. On 11 August 1988 Russell Vogt was appointed a director of Leronda Pty Ltd.

17 In 1989 Diane Vaughan and Mark Stevenson separated.

18 On 6 June 1989 Russell Vogt was appointed Secretary of the company.

19 In 1988 there was a falling out between Colin Vaughan and his mother when she accused him of mismanaging her husband’s estate. However, there was a reconciliation at the end of 1989

20 On 5 February 1990 Russell Vogt resigned as Secretary and on the same day Colin Vaughan was appointed a Director of the company. At about this time there were discussions between the deceased and her son Colin concerning a new business relationship. This involved using the deceased’s properties to finance new property ventures with Colin giving up his architectural practice and being given almost half of the equity shares in the company. It was also proposed, according to Colin’s evidence, that the shares his mother retained would become valueless on her death.

21 The first of these ventures was the purchase of the Strawberry Hills Hotel in January 1991. This venture was not a success and by 1993 it was clear that the hotel was operating at a loss. The hotel was subsequently sold and the leasehold of the Red Cow Hotel at Penrith was purchased on 18 August 1994. It was hoped that that hotel would be successful and would recover the losses incurred in the operation of the Strawberry Hills Hotel.

22 In 1992 because of the losses incurred in the Strawberry Hill Hotel the deceased sold her property at 88 City Road Chippendale. She and Russell Vogt then moved to the upstairs area of 11 Roslyn Gardens. On 24 June 1993 Leronda Pty Ltd was deregistered.

23 In May 1994 the deceased met her son Colin and his wife to discuss the loans necessary to accommodate the proposed purchase. These loans contemplated for the first time the use of Colin and Margaret’s home as security for the borrowings necessary to pay out the earlier borrowings on the Strawberry Hills hotel and the purchase of the new hotel. It meant that Colin, Margaret and the company would be guarantors for the borrowings.

24 At the meeting the deceased wanted to be sure that Margaret was happy with the proposals. She talked of the completion of the transfer of shares to Colin and the resolution to effect a change to the shares to make her shares valueless on her death. She reminded Colin to attend to these matters.

25 In 1991 Diane Vaughan commenced to live with Murray Wells in Western Australia. They married on 17 December 1994.

26 On or shortly before 16 August 1994 the deceased signed a form of transfer of class F, G and H Shares in the company from the deceased to Colin Vaughan. Colin Vaughan had signed it sometime earlier. It showed a consideration of one dollar.

27 On 2 June 1995 the company gave a mortgage to Burrawong Investments over 11 Roslyn Gardens in the sum of $280,000 as collateral security for loan to Oakbar Pty Ltd a company which then held the leasehold of the Red Cow Inn. A deed of Charge was given by Oakbar and Burrawong to secure the borrowings. This was part of the general financing of the Red Cow Inn and Margaret’s practice loan.

28 In 1996 Diane Vaughan and Murray Wells separated and they have only recently divorced.

29 On 2 April 1997 there was a meeting of shareholders of the company at which was passed a resolution altering the rights attached to the class F, G and H shares in the company. The resolution had the effect of converting the rights attached to the shares from equity shares to preference shares, which did not share in any surplus on liquidation. That effect occurred on either the transfer of any of the shares by the deceased or upon her death.

30 In March 1998 Diane Vaughan commenced to live with John Lockwood and they moved to South Australia. They separated in August 2001.

31 In 1999 the deceased ceased working in the Laundromat due to ill health

32 It was on 1 January 2002 that Russell Vogt says he became sole proprietor of the Laundromat business at 11 Roslyn Gardens. On 17 February 2002 the deceased and Russell Vogt were married. Then deceased did not inform her family of the marriage. On 11 March 2002 the deceased appointed Russell Vogt as her Power of Attorney.

33 In 2002 Diane Vaughan commenced living with Peter Moyle and they continue to live together at the date of the hearing.

34 It was on 5 December 2002 that the deceased made her last will.

35 On 25 December 2002 the deceased died aged 74 years. This was a few days before a meeting of the company called for the purpose of removing Colin as a Director of the company.

36 On 18 March 2003 Colin Vaughan advised the Estate and ASIC about the Transfer of certain unidentified shares in the company dated “6 February 1990”. On the same day Colin Vaughan, as Director of the company gave a notice to Russell Vogt to quit 11 Roslyn Gardens. Russell did not vacate and continues to live in the house.

37 On 20 May 2003 Probate was granted to Peter Duncan. The Summons in proceedings 3062/03 commenced by Diane Vaughan was filed on 30 May 2003.

38 On 25 August 2003 Oakbar Pty Limited was deregistered.

39 On 22 June 2004 the Summons in proceedings 3530 of 2004 commenced by Russell Vogt was filed within time.

The deceased’s interest in G R Vaughan (Holdings) Pty Ltd

40 The company was incorporated in New South Wales in 1958 under the provisions of the Companies Act (NSW), 1936. It adopted the Articles contained in Table “A” to that Act with the modifications to the standard Articles as set out in Ex. A at pp. 36-54.

41 Thereafter the Articles appear to have been amended on various occasions as set out in the documents contained in Ex. A. The last of these Resolutions was passed on 16 December 1985. Colin Vaughan also says the Articles were further amended on 2 April 1997 (see Ex. A14) as I have set out above.

42 Without analysing the effect of the Articles in detail, it is clear that from the time of its incorporation until his death, the company was controlled by its founder, Mr G R Vaughan, as governing Director, and that thereafter similar control was exercised by his son Colin Atherden Vaughan until his death on 22 September 1986.

43 Under the Will of Colin Atherden Vaughan dated 21 September 1979 his whole estate, including his shares in the company, passed to the deceased. The question therefore arises as to what class and number of shares was comprised in Mrs Vaughan’s holdings in the company.

44 A fundamental difficulty in answering this question arises from the fact that it appears that in breach of the requirement of the various companies’ acts, which have been in force from time to time since the company was incorporated, the company does not now possess a share register.

45 The period during which the company has failed to keep a members’ register is unclear but the evidence of Colin is that any share register which may have existed could have been lost when Oakbar was locked out of the Red Cow Hotel at Penrith, of which it was licensee, and an associated management company was compulsorily wound up.

46 In the absence of such a register the Court is thrown back on evidence contained in the annual returns filed from time to time with the successive regulatory authorities.

47 The defendants helpful and detailed submissions which dealt with the share holdings which were in existence by 1989 demonstrated that the deceased held 20,010 “F” class, 10,010 “G” class and 10,010 “H” class shares in the company all of which had the rights described in the Articles 2 (7), (8) and (9) of the companies Articles (Ex. A p. 46). The rights attached to the shares included the right to participate in the surplus on winding up and thus were the equity shares in the company. The deceased also owned a number of other preference shares of little value on a winding up.

48 There was one other shareholder at this time namely a Mr Williams who held 1 “B” 5% cumulative preference share. He did not hold that beneficially. In due course that share was transferred to Colin Vaughan. There was no issue between the parties that the share holdings in the company were as I have described them in 1989.

49 It is necessary to go to the events which occurred in the late 1989 or early 1990. Colin, who was then practicing his profession of architecture, gave evidence of discussions that he had with his mother over a period of two months. At paragraph 27 of his affidavit sworn 20 June 2005 Mr Vaughan said the following conversation took place:

“Mother: I know you cannot do both at once but what I’m suggesting is that you give up the architecture and work on it full-time. I can't do it with the Laundromat and it is going so well. But maybe in the future I can get involved with the pubs. We can have a fantastic business and you can do property development and we can buy pubs.

Colin: I can't just give up my practice. Apart from anything else the boys start private school next year, Meg and I will need all income we can get.

Mother: I understand all that so what I’m suggesting is that to make up for you giving it away, I will give you half of the shares in G R Vaughan Holdings.”

50 At paragraph 27 of Mr Vaughan's affidavit sworn 20 June 2005 he said that a conversation took place on an occasion after the conversation set out above during which the following was said:

“Mother: Well I thought it would be a good idea to keep the G R Vaughan properties separate and just use them if we need to for security. Over the long term when I die I will do what Pop did and let my shares become of no value. Then you will always have an asset to use as security without interruption.

Colin: that is being very generous Mum and pretty irresistible. I am sure we could make a go of it and not drive each other mad. Give me a couple of days and I will give you a decision. I want to decide before Christmas.”

51 In due course Colin Vaughan accepted his mother's proposal and they went ahead looking for investments and finally purchasing the Strawberry Hills Hotel. As I have indicated this was not successful. An important discussion occurred between the deceased, Colin Vaughan and his wife, Margaret, in May 1994. The meeting was at the Cosmopolitan Coffee shop at Double Bay and was referred to by Margaret Vaughan in her affidavit in these terms:

“24. In May of 1994 I recall Colin and I having coffee with Tricia at the Cosmopolitan coffee shop at Double Bay. We all discussed the sale of the Strawberry Hills Hotel, the debt remaining to Westpac and the prospect of buying the leasehold of the Red Cow Inn Hotel at Penrith. I recall words to the following effect were exchanged:

Tricia: "Meg, how do you feel about using your home and your personal guarantee to secure the finance for Col and I?"

Meg: "Look, it's OK Tricia. I trust Col's judgment and if this new hotel works out it will take a lot of stress off Col. It worries me but I'm quite prepared to do it. In the long run I am aware that Col will end up owning the Elizabeth Bay property outright and that makes me more comfortable about risking my home and my personal financial position."

Tricia: “Col, have you remembered to check that the transfer of shares and the new article have been properly finalised? I want to know that’s done before Meg gets involved in all this. Promise me you’ll do it.”
Colin: “Ok. I’ll get it Tricia but it’s not high priority right now. I’ve got an awful lot to do to get this deal up and running.”

52 Completion of the purchase of the leasehold of the Red Cow Inn occurred on 18 August 1994. Two days prior to that a transfer of one half of the deceased’s equity shares was executed by the deceased. There is no doubt on the evidence that it was signed by both the deceased and Colin Vaughan. One matter that was omitted from the transfer was a statement of where the company was incorporated.

53 The transfer was not stamped until during the course of the hearing before me. There is no evidence to suggest that any entry was made in a share register of the company and indeed the absence of stamping will preclude this taking effect. See R T Thomas & Family v Jeffries Industries Limited & Ors (1996) 14 ACLC 272 at 291-293 per Giles C J of the Commercial Division. Once the transfer is stamped it obtains validity ab initio not merely from the date of stamping. See Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 384-5. A transfer of legal title to shares only takes place on the change of ownership being entered in the register of members: see Article 17 of the company’s Articles and Ford, Austin & Ramsay “Ford’s Principles of Corporation Law” para. 21.220. It is clear, therefore, that no legal title has been transferred to Colin Vaughan in respect of the shares.

54 The next event of importance was the passing of a Resolution on 2 April 1997. It is plain that the deceased and Colin Vaughan met together and signed a formal Resolution the terms of which were as follows:

“ MINUTES OF MEETING OF SHAREHOLDERS OF G.R. VAUGHAN (HOLDINGS) PTY LIMITED HELD AT 11 ROSLYN GARDENS, ELIZABETH BAY NSW AT 1OAM ON 2 APRIL, 1997


PRESENT: PATRICIA JUNE VAUGHAN (CHAIRPERSON) COLIN RAYMOND VAUGHAN

MINUTES: The Minutes of the previous Meeting of Shareholders was tabled and approved by the Chairperson.

GENERAL AMENDMENT TO ARTICLES OF ASSOCIATION:

BUSINESS: The Chairperson tabled a proposed amendment to the Articles of Association of the Company specifically relating to the rights attaching to Class "G", Class "H" and Class "F" Ordinary Shares held by Patricia June Vaughan for consideration by the Meeting.

IT WAS RESOLVED THAT the Articles of Association of the Company be amended by deleting Article of the Articles of Association of the Company and placing in its stead the following:-

"Article : On the transfer of any Class G, Class H and Class F Ordinary Shares by Patricia June Vaughan or on the death of the said Patricia June Vaughan, whichever shall first occur, the Class G, Class H and Class F Ordinary Shares held by the said Patricia June Vaughan, which are transferred by her or which are held by her at the date of her death, shall change to become and be known as Class G, Class H and Class F redeemable Preference Shares and, subject to prior rights of any shares on special conditions, the following rights and conditions shall be included in and attached to the said Class G, Class H and Class F redeemable Preference Shares held by the said Patricia June Vaughan, namely:-
i) the right to rank in a winding-up as regards to the return of capital paid up or deemed to be paid up at the commencement of the winding-up pari passu with all redeemable Preference Shares and subject thereto in priority to all other shares in the Company;

ii) these shares shall not carry the right to any further participation in profits or assets;

iii) the Company shall be at liberty at any time after the said transfer or death as aforesaid to redeem the said Preference Shares by returning the said capital paid-up or deemed to be paid-up thereon at any time prior to the winding-up of the Company or the issue of Debentures or Notes of the Company to the holder or holders thereof pending such payments.”

55 The Minutes contained the signatures of the deceased and Colin Vaughan. As these were the only two shareholders in the company at the time it is plain that the Resolution would be effective as a Special Resolution to amend the Articles of Association. The effect of the Resolution obviously was to make the shares valueless on the deceased's death. A question, which will arise, is whether such an effect will apply to the whole of the shares registered in the deceased name or only to such shares as were beneficially held by the deceased at the time of passing the 1997 resolution.

56 Before moving to the legal bases, which were advanced on Colin Vaughan's behalf, it is necessary to consider whether the Court should accept the conversations given in evidence by Colin and his wife Margaret. The defendant submitted that:

“The defendant/cross-claimant’s general submission is that when the alleged conversations with the deceased and the document which is Ex. A17 are considered in the light of the other available evidence the Court will not be satisfied that the conversations took place or that Ex. A17 was executed by the deceased with the intention of transferring any shares in GRVH to the cross-defendant. This submission is based on the evidence relating to:
(a) the conversations themselves;
(b) the lack of any contemporary document which supports the cross-defendant’s account of those conversations;
(c) the cross-defendant’s poor memory of other matters he might reasonably be expected to recall;
(d) the existence of a number of documents executed by the cross-defendant and his mother which are inconsistent with the conversations or the transaction apparently embodied in Ex. A17; and
(e) the cross-defendant’s lack of general credit and his conduct in the proceedings before and during the trial (including the giving of false evidence).”

57 I am mindful that many authorities have stressed that in assessing the evidence of such an agreement the Court must “scrutinize the evidence very carefully” in view of the unavailability of one party to give her account of the relevant events: see Plunkett v Bull (1915) 19 CLR 544 at 548-9 per Issacs J, applied in Watson v Delaney (1991) 22 NSWLR 358 at 365 per Meagher JA; Cross on Evidence (7th Australian Edition) para. 15150 and the cases there cited especially Clune v Collins Angus & Robertson Publishers Pty Ltd (1992) 25 IPR 246 at 253.29. In that case Wilcox J. said:

“… it is trite to say that evidence of conversations between a living witness and a dead person should be scrutinised with care, especially where there was no occasion for the dead person to record his version of them before his death. Of course, that is not to say that such evidence cannot be true; it obviously may. But it does mean that any matter adversely affecting the credit of the witness has special importance; the witness cannot be refuted in the usual way.”

58 I turn to deal with the various matters raised on this aspect.

The conversations

59 The submissions pointed out the obvious difficulty with witnesses recall in relation to conversations which took place 15 years ago. Of importance in this section is the submission as to what was said to be tailoring of Colin Vaughan’s evidence. In paragraph 53 of the submissions the defendant submitted:

“The account of the conversations given is extraordinarily well-suited to proving the cross-defendant’s case and explaining the non-disclosure of the transaction to any known third party. As a tribunal of fact the Court should be wary of accepting evidence which could be described as too perfect. For example:
(a) he deposes that the deceased said “I don’t want to discuss my business dealings with Russell or Diane … Can we just keep all the business discussions to ourselves? (“Background Affidavit”, para. 27, page 8.9);
(b) he deposes that the deceased said (Trish) Then don’t show it on the return … Later I reluctantly agreed with my mother’s request (“Background Affidavit”, para. 27, page 9.2);
It is submitted that this is not the only occasion where evidence of the cross-defendant may well have been tailored to answer potential problems which arose in his case. For example, in para. 60 of the “Background Affidavit”, he deposed that “whenever my mother signed a mortgage or a guarantee, I ensured that she knew precisely the reason for the document and understood its content”. ”

60 The suggestion that there should be no showing of the effect of the transfer on details in the annual return of the company was certainly put into practice as it is plain that the annual returns from 1990 until the death of the deceased did not reflect what Colin Vaughan said was a transfer of half of the shares to him.

61 Although the deceased is not here to answer what has been said it is possible that that she may have wanted to present a different story to the person with whom she was living. She may well have been reluctant to disclose to him that she had in fact decided to benefit her son by entering into the business dealings with him in the manner suggested by Colin Vaughan. Human nature, being what it is, this is not an uncommon occurrence.

The lack of any contemporary document which supports the cross-defendant’s account of those conversations

62 Exhibit A1 consists of copies of correspondence between Colin Vaughan and Lane and Lane solicitors. It is perfectly plain from this correspondence and the proposed Resolution drafted by the solicitors at that stage that Colin Vaughan had obtained advice to put into effect the matters which had been discussed with his mother at the end of 1989. The correspondence includes a draft of a Resolution which obviously was the basis for the Resolution which was signed in 1997.

63 Appropriate transfers to put into effect the share transfers were drafted by the solicitors and sent to Colin Vaughan for signature and then returned to the solicitors. The transfers included a transfer to Colin Vaughan from Mr Williams of one “B” share. There is no reference to an agreement between Colin Vaughan and the deceased but it is plain that the very basis of what the solicitors were doing at the time was premised upon the existence of such an agreement. In my view the correspondence substantially corroborates the evidence given by Colin Vaughan.

The cross-defendant’s poor memory of other matters he might reasonably be expected to recall

64 It is plain that Colin Vaughan did have difficulty remembering all the things that happened over the years including matters such as who typed up the share transfer and how the company came to be deregistered in 1994. It became clear to me that in the witness box Colin Vaughan was trying to give an accurate account of his evidence and I found him to be an impressive witness in this respect notwithstanding the matters referred to by the defendant in this submission.

The existence of a number of documents executed by the cross-defendant and his mother, which are inconsistent with the conversations, or the transaction apparently embodied in the transfer (Ex. A17)

65 This is a reference to the annual returns to which I have already referred. As the defendant points out all of these returns without exception declare that the deceased was the holder of all shares issued in the company except for one held by Colin Vaughan. Further, they all declare, again without exception, that the deceased held all her shares beneficially. In a number of instances this declaration has been added by hand suggesting the relevant minds were specifically directed to the question. The explanation Colin Vaughan gives for these documents is that he and the deceased agreed to file false returns.

66 Just as important as the annual returns, in the defendant’s submission, was the letter the cross-defendant sent to the cross-claimant’s solicitor in March 2003: Ex. 2 on the voir dire. While this asserts (for the first time to a third party) that the deceased had transferred shares in the company to the cross-defendant, the transfer is said to have been by a document dated 6 February 1990. The cross-defendant could give no explanation of how that date appeared in the letter if the date in the transfer was true. The letter is even more inexplicable as the cross-defendant admitted he had the transfer available to him at the time he wrote the letter and got it out when he did so.

67 The only explanation is, as the cross-defendant suggests, an inexplicable mistake or that, as at the date of his letter, the transfer did not bear the date now contained in it. If the Court were to make the latter finding, it was submitted that it would inevitably mean the cross-defendant’s account of the alleged conversations he had with the deceased and of the execution of transfer would be false and should be rejected.

68 The only excuse the cross-defendant could give was as follows:

Q. So, in other words, the best explanation you can give
is that you have no explanation for the date you've given
in your letter?
A. I can only speculate on how it came about.

Q. You can't give an explanation as to how you put that
date in the letter?
A. The explanation, if you press me would be that there
were a lot of documents across my desk at the time that I
did the letter. I did another letter at the same time. I
don't know how the date got so wrong. All I can say is
that's how it was. I was being quite careful, I knew the
letters I was writing were very important letters. I took
a lot of care with them. I can't explain why I put the
wrong date in.

Q. It was quite important the letters you were writing on
that very day, weren't they?
A. That's what I said.

Q. Because on the same day, weren't you, on 18 March
2003, you wrote a letter to Mr Russell Vogt giving him 4
weeks to vacate the property at Roslyn Gardens?
A. That's correct.

69 If some of the other documents that were across his desk on that day included the correspondence with Lane and Lane and others which he had in his personal files then that may have been a reference which he picked up from those documents as it was 12 February 1990 that he wrote returning to Mr Williams the share transfers and other documents which had been forwarded to him for signature.

70 It is plain from the account of the deceased’s comments to Margaret Vaughan that the transfer of shares and the new Article may not have been properly finalised. I found Margaret Vaughan to be a good witness in that she gave her evidence accurately and because of the importance of the matters she was able to clearly recollect the conversation. She said it was a conversation that was fixed in her memory as a result of the many occasions when she had to service the loans. Accepting, as I do, that the conversation between the deceased and Margaret Vaughan occurred, it is very likely that if the transfer of the shares had not been properly attended to, it would have been attended to before the completion of the purchase.

The cross-defendant’s lack of general credit and his conduct in the proceedings before and during the trial (including the giving of false evidence)

71 There were a number of matters raised but I am satisfied that the only matter which tends to go against the credit of Colin Vaughan was the fact that he was prepared to sign false annual returns at the request of the deceased. The suggestion that he misled the Court about his wife’s ability to give evidence on 8 July 2005 was incorrect given the timing of events. The debate about the first paragraph of his affidavit of 4 July and earlier legal advice tries to sidestep the gravamen of what was being dealt with in the paragraph, namely, the admissibility of the earlier evidence of discussions. The witness appreciated the difference. In general I found that Colin Vaughan was not argumentative or unresponsive and did his best during a detailed and comprehensive cross-examination to give his evidence accurately and truthfully.

72 The Lane and Lane documentation provided perfect corroboration for the whole structure of the arrangement made between the deceased and her son. The further discussions in 1994 show that the matter had not been fully implemented whether because documents were lost, or not available, or for some other reason. In my view there is no reason to doubt that the deceased executed the transfer and that in 1997 she signed the Minutes of the General Meeting.

73 It was suggested that an inference should be drawn in respect of the failure to call Mr Williams, the solicitor from Lane and Lane. It is clear that he is equally available to be called by both parties but it is difficult to see precisely what evidence might be lead from him which could be said would be not likely to assist the case of Colin Vaughan. Having regard to the documentation that was available and the way this clearly corroborated what was proposed, I do not see it as natural for Mr Williams to have been called by Colin Vaughan and accordingly no adverse inference should be drawn.

74 It is now necessary to address the legal consequences of the arrangement that was reached between the deceased and her son.

The claims of Colin Vaughan

75 Colin Vaughan was joined in the action as a cross defendant in order to resolve the question of the ownership of the shares which he alleged had been transferred to him. In his defence to the cross claim he sought to raise some question of standing which was misconceived and was abandoned during the hearing. He also denied that the shares formed part of the estate of the deceased and referred to the fact that the shares were transferred prior to any relevant period for the purposes of notional estate. He made no alternative claim under the FamilyProvisionAct for provision out of the Estate of the deceased in the event that his claim concerning the ownership of the shares failed.

76 In his submissions at the conclusion of the hearing he raised the following three matters:

1. The transaction was a contract for full valuable consideration creating an equitable interest and was a specifically enforceable contract.

2. The transfer took place in the form of a valid assignment, which took effect when the equitable interest passed and thus became subject to a constructive trust.

3. Promissory or Equitable Estoppel

77 The last matter was not raised in the defence to the cross claim and objection was raised to it being argued as there were areas which needed to be explored in cross examination if it had been known that this was to be raised. No application to amend or to recall witnesses was made and accordingly it cannot be considered.

78 The effect of the 1997 Resolution to amend the Articles has to be considered as part of the process for determining what is the value of the Estate of the deceased.

79 I am satisfied that the parties intended to create a legal relationship as they proceeded to document it although this was not ultimately completed. Normally a contract for value to assign legal property effects an equitable assignment when the consideration is paid or executed. This is because equity regards as done that which ought to be done. The effect of a valid equitable assignment of the legal interests in the property after payment or execution of the consideration is to constitute the assignor a trustee of the property for the benefit of the assignee. In the case where the consideration has not been paid or executed, an equitable interest can only arise if the contract is one of a kind of which specific performance might be ordered.

The transaction was a contract for full valuable consideration creating an equitable interest and was a specifically enforceable contract

80 Having regard to my acceptance of Colin Vaughan’s evidence it is clear that there was an agreement struck in 1990 under which:

(a) The deceased would transfer one half of her equity shares to her son.

(b) Together with her son the deceased would procure a change of the Articles of Association to give effect to her promise to make her remaining shares valueless on her death, and

(c) Colin would give up his practice of architecture and would work with his mother in their new investment projects which would use the assets held by the company as a means of providing the necessary capital.

81 The maters which arise for consideration are as follows:

(a) Was the assignment for value?

(b) Was the consideration to be provided by Colin Vaughan paid or executed?

(c) If the consideration was not paid or executed was the contract specifically enforceable at the suit of Colin Vaughan?

(d) Was there a lack of mutuality?

82 I will deal with each of these matters.

Was the assignment for value?

83 The question is whether or not Colin Vaughan gave value or consideration? There is a useful discussion of this concept in Wade vHarding (1987) 11 NSWLR 551 a case in which Young J considered the meaning of that expression in s 22 of the Family Provision Act. At 554-555 he reviewed the authorities in these terms:

“One usually commences consideration of these words by looking to the view of Hamilton J in Attorney-General v Boden [1912] 1 KB 539 at 561 where his Lordship said:

"... Whether the consideration for this property was full or not is a question of fact. Furthermore, the question whether full consideration was given or not may no doubt be solved by putting a value on the property which passed on the one side, and weighing against it the money value of the obligations assumed on the other; but that is not the only method of solving the question. Another method is by looking at the nature of the transaction and considering whether what is given is a fair equivalent for what is received."

In Attorney-General v Earl of Sandwich [1922] 2 KB 500 at 517, Lord Sterndale MR said:

"... That it was very valuable consideration, is I think, clear, and the first question is whether it is money's worth. It is clearly not money. I am not sure what is the accurate definition of money's worth. It was an expression originally introduced to exclude marriage as a consideration, and the learned counsel for the appellants defined it as any valuable consideration not being marriage. I do not intend to decide whether this is an accurate and complete definition, but I think that at any rate money's worth includes the kind of benefit accruing to the defendant in this case from the possession of the estates and freeing of it from the claims and powers of the Earl and the Admiral. This is in accordance with the view of Hamilton J in Attorney-General v Boden [1912] 1 KB 539 at 563, where that learned judge held that covenants to attend to a business constituted a consideration in money's worth. The only remaining question is whether this consideration for money's worth was full consideration."

His Lordship then approved of the test in Attorney-General v Boden set out above and said:

"... I think this is correct, and looked at in that way, I think what the defendant received was a fair equivalent for what he gave, and that he received full consideration according to the terms of the section."

This line of authority was followed by the Court of Appeal in Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (Horderns' case) (1970) 72 SR (NSW) 453; 92 WN 163. Jacobs JA said (at 458; 168):

"... There must be full consideration for the disposition, but this is to be distinguished from a requirement that there be an exact equivalent in value between the property disposed of and the property received. Consideration is the price paid for a bargain. Full consideration is a full price. For a disposition to be characterized as consideration there must be present the element of bargain, but provided that this element is present then the best bargain, the best price, will be a full consideration; and when a disposition of property is the consideration, as in the present case, there will be money's worth."

84 In this case the consideration given by Colin Vaughan comprised two matters. The first was his agreement to cease his architectural practice and the second was his undertaking to the deceased to work full-time in the business. The fact that he ceased practice may have benefited someone other than the deceased is irrelevant as it is only necessary that the consideration be provided by the person seeking to enforce the promise and it need not necessarily be to the promisee. However, the extent of consideration must be gauged to see whether there is a fair equivalent given by Colin Vaughan.

85 Colin Vaughan’s architectural practice provided him with an income for the 1989 tax year of $98,805. Plainly he had a number of projects he was working on and he referred to these when he discussed the matter with the deceased. The evidence shows that once he made the agreement with the deceased he started to wind down his practice. In due course he ceased practice altogether and thereafter worked full time in the joint enterprise. Clearly he gave away an income and a career which he had followed for many years.

86 The other aspect of the consideration given by Colin Vaughan was his promise to attend to the joint venture as a full time occupation. This came about because the deceased was busy with the Laundromat business and she did not have the time to devote to the new proposal for joint investments. In Attorney-General v Boden, which I have mentioned above, Hamilton J (at 563), held that covenants to attend to a business constituted consideration in monies worth. The agreement to give up an existing architectural practice and undertake a new business venture on the basis that one would now receive half of the company whose capital would be used for the purpose of the venture and later after the deceased’s death the remaining half is, in my view, full consideration and is a fair equivalent to what was received.

Was the consideration to be provided by Colin Vaughan paid or executed?

87 Plainly at the time the agreement was made the consideration was not paid or executed by Colin Vaughan. The agreement did not contain terms as to its duration but clearly, given the personal nature of the venture and the relationship between the two parties, it could not be considered to have extended beyond their joint lives. Indeed, the part of the agreement that provided for the deceased’s shares to become valueless on her death indicates that death would have been at least one determinate of the relationship. The venture ceased having investments after the Red Cow Inn at Penrith was finally sold in August 2001. In any event, the term of the venture, having regard to the death of the deceased, has now come to an end. It is therefore necessary to consider, for the purposes of deciding whether there was an equitable assignment completed by execution of consideration, what is the time that position must be considered. Certainly it did not occur at the time of the formation of the contract but the question is whether, on the death of the deceased or some time shortly before that, consideration had been fully provided by Colin Vaughan. On the evidence before me I think that the consideration was only fully paid or executed on the death of the deceased.

If the consideration was not paid or executed was the contract specifically enforceable at the suit of Colin Vaughan?

88 As I have indicated, if the consideration is not paid or executed then the equitable interest or trust can arise only if the contract is one of a kind of which specific performance might be ordered. In the case of this contract there is an immediate problem in that the contract is for the provision of personal services by Colin Vaughan.

89 Normally if a substantial part of the consideration for a sale of land is the performance of some personal services, specific performance will be refused. See Maiden v Maiden (1909) 7 CLR 727 and see Richardson v Lenehan (1930) 30 SR (NSW) 457; Woods v Wolsely (1891) 12 LR (NSW) EQ 245 cf E.Brown Pty Ltd v Florence [1967] SASR 214. The first of these cases was a suit for an injunction to restrain trespass with a counterclaim for specific performance. The defendant alleged that the plaintiff (his mother) had orally agreed to sell him a farm. Part of the consideration for the sale was said to be the son’s services as manager of the farm. It was held that, because of the nature of the consideration, the son was not entitled to specific performance of the alleged agreement.

90 This rule is complemented by the rule that provides that when a Court cannot compel specific performance of the contract as a whole it will not interfere to compel specific performance of part of the contract. See Ryan v Mutual Tontine Westminster Chambers Association Ltd [1893] 1 Ch 116 at 123. See also “Equity: Doctrines and Remedies”, Meagher Gummow & Lehanne paragraph 20-130, 20-135.

91 In the circumstance that the consideration was not fully executed until the death of the deceased the contract was not specifically enforceable before that time. This defeats this aspect of the claim.

Was there a lack of mutuality?

92 The principle has been referred to in many cases and in JC Williamson v Lukey (1931) 45 CLR 282 at 298 Dixon J said:

“The doctrine of the Court of chancery was against decreeing one party to perform specifically obligations which the contract imposed upon him, if it was unable to secure to him the performance by the other contracting party of the conditions upon which those obligations depended, and could only leave him to his action of damages at law in the event of the conditions being unperformed.”

93 A relevant consideration is whether or not mutuality exists at the time of the hearing.

94 In Macaulay v Greater Paramount Theatres Ltd (1921) 22 SR (NSW) 66, Harvey J granted specific performance of a contract under which the plaintiff was subject to obligations of which the court would have refused specific performance. Thus, mutuality was lacking at the time when the contract was entered into. But those obligations of the plaintiff had been performed before the time when suit was brought. There was then mutuality, and that was sufficient. The same conclusion was reached by Williams J in Dougan v Ley (1946) 71 CLR 142 at 154-5 and in Hume v Monro (No2) (1943) 67 CLR 461 at 482. See also Hoggart v Scoptt (1830) 1 Russ & M 293; 39 ER 113, Halkett v Earl of Dudley [1907] 1 Ch 590, Price v Strange [1978] Ch 337 at 357 and 367.

95 It would seem to me that it is only necessary for there to be mutuality at the hearing and in this case it would seem that the lack of mutuality is not a defence.

The transfer took place in the form of a valid assignment, which took effect when the equitable interest passed and thus became subject to a constructive trust

96 This claim concentrates upon the form of the transfer that was executed by the parties and the fact that, at the time it was executed and delivered, the transferee had not provided full consideration. In this sense the transfer is voluntary. The basic rule for the recognition in equity of voluntary assignments of legal property where title has not yet passed at law was stated by Turner LJ in Milroy v Lord 4 De GF & J 264; (1862) 45 ER 1185. The rules that he enunciated were as follows (at 1189):

(1) In order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him; and

(2) If the settlement is intended to be effected by a particular mode or form (for example, direct assignment, declaration of trust, or direction to trustee), the court will not give effect to it by applying another form. An imperfect assignment will not, for example, be held to be a declaration of trust.

97 It is the first limb that is relevant in this case and the concern is to see whether the assignor to affect the transfer of the legal title has done everything necessary to be done. Debate in the cases in this matter has been dealt with at length in “Equity: Doctrines & Remedies” paragraphs 6-090 and following. In short, the current view springs from what was said by Griffiths CJ in Anning v Anning (1907) 4 CLR 1049. Griffith CJ expressed this view (at 1057):

“… in the case of shares in a company which are only transferable by an instrument of transfer lodged with the company, I think that the donor has done all that is necessary on his part as soon as he has executed the transfer.”

98 In Corin v Patton (1990) 169 CLR 540 Mason CJ and McHugh J agreed with the test proposed by Griffith J in Anning v Anning (1907) 4 CLR 1049, and stated (at 559):

“So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity. ‘Necessary’ used in this sense means necessary to effect a transfer. From the viewpoint of the intending donor, the question is whether what he has done is sufficient to enable the legal transfer to be effected without further action on his part.”

99 Their Honours also noted that the Griffith test:

“…implicitly recognises that the donee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete as far as the donor is concerned”.

100 Deane J came to a similar conclusion but described the test as a twofold one (at 582):

“It is whether the donor has done all that is necessary to place the vesting of legal title within the control of the donee and beyond the recall or intervention of the donor. Once that stage is reached and the gift is complete and effective in equity, the equitable interest in the land vests in the donee and that being so, the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title”.

101 In the present case it is clear that a share transfer has been signed by both parties and that the transfer has been delivered to Colin Vaughan. The questions which then are said to arise are whether the relevant share certificates have been handed to Colin Vaughan and whether the transfer is in an appropriate form to be lodged with the company for registration.

102 So far as the share certificates are concerned it seems clear that at the time of execution of the transfer no share certificate was handed over by the deceased to Colin Vaughan. At page 150 the evidence given was as follows:

“Q. When your mother signed that transfer, did she give to
you any kind of share certificate relating to the shares
she was transferring to you?
A. At the time of executing, no.

Q. Did she give one to you at any time after that time?
A. No.

Q. Had she given to you any share certificate relating to
any shares held by her in class F, G and H in G R Vaughan
Holdings at any time prior to the signing of the transfer
which she gave to you?
A. I dont know.

Q. When you say you dont know, are you saying you dont
recall?
A. No, I am saying at the time I got, I went back into
business with my mother around 89/90, she gave me a whole
lot of the company records she had I had given her after I
had been executor of my fathers estate and there were
documents going back, a whole bundle of things there, she
gave those back to me in 1990 when we got involved again,
et cetera. So what I am saying is, there may have been.
In the bundle of documents she gave me something, but I
don’t recall seeing them.

Q. But those company documents you are talking about were
given to you essentially for safe keeping?
A. Yes.

Q. And those are principally the documents which you told
us yesterday in your evidence went missing when the Red
Cow Hotel, possession of that hotel was taken back by the
landlord?
A. That is not the full story about it, but certainly
this document would form a very small part of the
documents. Hotels produce huge amounts of paper because
they are licensed so when we sold the Strawberry Hills
Hotel there were lots and lots of boxes of items went to
the Red Cow Inn and I lost a hell of a lot because were
locked out but also some of the papers I had at home
because there was a receiver and then a liquidator
appointed to the operating company of the hotel. I had to
send a lot of documents as my obligations for them to
examine all sorts of documents, now I have never got those
documents back either. I have been pretty well stripped
of a lot of my business documents over those two events
over a long period of time, which makes it difficult for
me to prepare a case.

That company that went into liquidation, what was its
name?
A. Red Cow Inn Investments, I think it was called.

Q. Quite a different company from G R Vaughan Holdings?
A. Yes it is.”

103 There were further questions asked in re-examination at page 195 when the following evidence was given:

“MAXWELL: Q. Mr Vaughan, you were asked some questions
relating to company records that you passed over to your
mother, that is the G R Vaughan Holding records that you
passed back to your mother, do you recall that?
A. No, sorry.

Q. Do you recall being asked some questions about the
company records that you received from your mother then?
A. Yes, I understand. Yeah, I received them, I didn't
give them to her, yeah.

Q. I'm sorry, I misunderstood your evidence. I thought
you had given them back to her after you had been involved
in the estate?
A. Oh, back in the estate. Yes, I'm sorry. Back when I
was executor of my Dad's estate. Yes, when it was all
wrapped up I gave her, she said to have all the company
documents. They were left in my father's old study.

Q. That was the question I was going to ask you. Where
were those records?
A. In my dad's study.

Q. Were all the records that you had passed back to your
mother?
A. Yeah, they were his - because I was only the executor
so they stayed in his study.

Q. Were they again substantially all the records that you
got back when you came back on board?
A. Pretty well, yeah.

Q. The records that you got back, this is around about
1990 I assume?
A. Yes, in 1990.

Q. Do you have any recollection as to what they
comprised?
A. Oh, there were all sorts of things. There were all
the old - it was old memo and arts. There were old minute
books, stuff from my grandfather's time in the 50's,
ranging through there. All manner of bits of paper, and
then there were returns that my father had had done.
There were old share scripts and there was a whole lot. I
mean it was quite a lot, it had accumulated and sort of
got passed along. I couldn't say what every one of them
were.”

104 It seems that the company was in the habit of issuing share certificates. There are no records to show whether or not share certificates were issued following upon the transfer of shares to the deceased after her first husband’s death. However having regard to the statutory duty to issue certificates under the Companies Code I would infer that they were issued.

105 The articles of the company adopt the Regulations in Table A in Schedule 2 to the Companies Act 1936 with some changes. Article 19 of Table A which deals with the power of directors to decline to register a transfer of shares included the common provisions that the Directors could decline to register the transfer if it was not accompanied by the relevant share certificate.

106 That Article was not adopted and instead a substituted Article was included which did not include such a requirement. Thus there was no requirement for the production to the company of the share certificate. No doubt it was the common use of articles such as Article 19 in Table A that led to the requirement adverted to by the cases for the handing over of the share certificate.

107 In this case there is no requirement for the production of the certificate and thus the transferor at the time of handing over the transfer has done all that is necessary to place the vesting of title within the control of the donee and beyond the recall or intervention of the donor. The donee, of course, still has the risks associated with the company’s absolute right to refuse a transfer but that is not relevant to this question.

108 Having regard to this conclusion the question of whether or not Colin Vaughan could obtain a fresh certificate after the destruction of the company’s records, is probably not relevant but I will mention them.

109 Article 5 of the Articles of the company provides as follows:

“5. If a share certificate, letter of allotment, transfer receipt or any other document of title to shares is lost, defaced or destroyed, a duplicate thereof may be issued by the company upon the conditions set out in section one hundred and eighty-two of the Act applicable thereto.”

110 The circumstances of the loss of the documents, which were recounted by Colin Vaughan, would certainly justify an application to the company for the replacement of the lost share certificate. Presumably this would overcome the difficulty.

111 I turn to the next problem, which is the question of the form of the share transfer. The submission made is that because the form of transfer did not show the jurisdiction of incorporation of the company concerned it was not a proper transfer.

112 As at 16 August 1994 s.1091 of the CorporationsLaw (Cth) provided:

“(1) Notwithstanding anything in its articles or in a deed relating to debentures or interests, a company shall not register a transfer of shares, debentures or interests unless a proper instrument of transfer has been delivered to the company.
(1A) An instrument of transfer is not a proper instrument of transfer for the purposes of sub-section (1) unless:
(a) …
(b) in any case – it shows the jurisdiction of incorporation of the company concerned.”

113 It was submitted that the instrument is not a “proper” transfer within the requirements of any relevant statutory transfer provision. This is because it will be seen on the face of the document that it fails to nominate the jurisdiction of incorporation of the company. This was a mandatory requirement under sub-section 1091(1A) of the Corporations Law (Cth) and remains a mandatory requirement under s.1071B (3) of the Corporations Act 2001 (Cth) and Corporation Regulation 7.11.22 made there under. The requirement for the jurisdiction of incorporation to be stated was apparently inserted in the statutes because stamp duty on off market transfers is governed by different State and Territory revenue enactments: See Ford, Austin & Ramsay op. cit. paragraph 21.240.

114 The requirement that the jurisdiction of incorporation be stated in a transfer first came into effect under the CorporationsLaw on 18 December 1990 and there may be an inference open that the partially completed form presented by the cross-defendant to the deceased had been prepared before that time. However, as it is clear that the deceased did not sign the transfer until 1994 it is not necessary for the court to decide this point.

115 It follows that absent any endorsement required by the Act, the transfer document cannot be registered and therefore the transferor has handed over an inappropriate transfer.

116 What the sections require is that the transfer show the jurisdiction of incorporation of the company concerned. No doubt a statement to that effect could be added by the present holder, Colin Vaughan, but this raises the question of what effect would such an alteration have on the efficacy of the transfer given that it was not there at the time the deceased signed the form of transfer.

117 This raises the question of whether it would be a material alteration. A material alteration to a document is a substantial or significant alteration to a document made by one party without the consent of the other. To be material, the alteration should affect the contractual obligations of the parties to it: see Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259.

118 In that case Bray CJ, with whom Mitchell and Walters JJ agreed, found that there were two categories or types of cases that determine the materiality of alterations (at 277). These were where the “formal document in question embodies a previous agreement in fact between the parties, so that in a proper case a court of equity would rectify it to make it conform to that previous agreement, and a case where the document itself for the first time puts the parties into a contractual relationship” (at 277). Bray CJ found that in the first type of case, depending on the facts, there was an implied authority from one party to the other to do whatever necessary to make the document legally effective (at 278-279). Further, that “where … an agreement has been reached between the parties and one of them subsequently executes the formal document and hands it over to the other, I think he will readily be regarded as having conferred on that other implied authority to fill up blanks … and to alter the document if necessary to make it conform to the common contractual intention where by mistake it does not do so” (at 277, see also – Adsetts v Hives (1863) 33 Beav. 52 (55 ER 286), Keen v Smallbone (1855) 17 CB 179 (139 ER 1038), In re Barned’s Banking Company; Ex parte The Contract Corporation (1867) LR 3 Ch App 105, and The London and Provincial Bank v Roberts (1874) 22 WR 402). Bray CJ stated that in the second type of case there may be not implied authority to supplement the document after one party had signed it (at 277, see Outer Suburban Properties Ltd v Clarke [1933] SASR 221). On the facts of Armor an alteration to the date on a mortgage did not invalidate the document.

119 On the facts of the present case the alteration now required to make the transfer a proper instrument would be the insertion of the jurisdiction of incorporation of the company; this would not affect the contractual obligations of the parties. The transfer is the embodiment of the previous oral agreement to transfer the shares. Thus it falls into the first type of case outlined by Bray CJ, and the transferee would have authority to make the necessary alterations to the document.

Conclusion as to the share transfer

120 The transfer was valid and effectual such that there was a constructive trust in favour of Colin Vaughan at the time of transfer.

The effect of the resolution of 1997

121 It will be seen from the form of the Minutes that they assume there is a particular article which will be deleted and replaced by another article. This does not fit the form of the Articles of Association. In the original Articles, Article 2(b)(1) provided the capital was $100,000 shares including…33,303 class F shares 33,302 class G shares and 33,302 class H shares. In contrast to other forms of shares also referred to in the Article where the rights were spelt out no other additional rights were spelt out in respect of these shares and hence they are obviously ordinary shares entitled to participate on a winding up in the surplus. Article 2(b) (7) (8) and (9) provided for a right to issue further shares ranking pari passu with the respective numbers of F, G and H shares.

122 On 16 December 1985 the Articles were altered deleting sub-clause (1) of Article 2b and substituting a fresh sub-clause (1) in these terms:

“(1) The capital of the company is $300,010.00 divided into 150,005 shares of $2.00 each including 5 “A” 5% Preference Shares, 25 “C” Redeemable Preference Shares, 33,302 Class “M” shares, 50,000 “I” Redeemable Preference Shares, 10 “J” Redeemable Preference Shares, 2,000 “K” Redeemable Convertible Preference Shares and 5 “L” 5% Preference Shares.

123 It will be noted that the G class shares are omitted probably by mistake. It was not submitted that this meant that these shares ceased to exist and I do not think that this would be so given the returns showing the prior existence of the issue of the G shares. What this does demonstrate though is that there is really no particular Article that the Resolution had in mind to be replaced.

124 Having regard to the blanks in the resolution it is hard to conclude that it replaced any Article that already existed and effectively all the Article did was to place, in an unnumbered Article, additional conditions on class G, H and F ordinary shares held by the deceased.

125 There is no doubt that the Article can operate to change the rights of shares and the Article is a common form of article used in the estate duty planning practices which existed until the late 1970s. See the comments of Handley JA in Shaeffer v Shaeffer (1994) 36 NSWLR 315.

126 Plainly, given the assets of the company, any conversion of the rights of ordinary shares in this company to preference shares not entitled to participate on the surplus would lead to the increase in value of any other ordinary shares entitled to participate in a surplus on winding up if there were such shares held by some other person.

127 It should also be noticed, of course, that the Article operates upon a transfer of shares by the deceased. The Resolution dealing with this matter uses the words “which are transferred by her or which are held by her at the date of her death”. Both the transfer of shares in August 1994 and the agreement to transfer in 1990 pre-date the amendment. I would have thought that the Article would not apply to shares of which there was an equitable assignment or, because of the doctrine in Milroy v Lord, were held upon trust for the transferee prior to the date of the Resolution.

128 In these circumstances the deceased’s remaining shares were converted by the Resolution on her death to preference shares and accordingly were of little value. At the date of death Colin Vaughan thus held in equity the only shares which carried a right to participate on a surplus in a winding up. Effectively he owned the whole of the equity shares in the company.

Eligibility

129 The plaintiffs are eligible persons. In applications under the Family Provision Act, the High Court in Singer v Berghouse (1994) 181 CLR 201 has set out the two-stage approach that a Court must take. At page 209-210 it said the following:

"The first question is, was the provision (if any) made for the applicant “inadequate for [his or her] proper maintenance, education and advancement in life”? The difference between “adequate” and “proper” and the interrelationship which exists between “adequate provision” and “proper maintenance” etc. were explained in Bosch v Perpetual Trustee Co Limited . The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance etc. appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty.
The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant. In saying that, we are mindful that there may be some circumstances in which a court could refuse to make an order notwithstanding that the applicant is found to have been left without adequate provision for proper maintenance. Take, for example, a case like Ellis v Leeder where there were no assets from which an order could reasonably be made and making an order could disturb the testator's arrangements to pay creditors."

130 I will consider the situation in life of the relevant parties.

The situation in life of Diane Vaughan

131 Diane Vaughan is 54 years of age. She and her partner, Peter Moyle, live in Kapunda in South Australia. They jointly own the property 14 Harriet Street, Kapunda which is valued at $300,000. They also own an adjoining property at 5 Hancock Road, Kapunda which has a value of $125,000. The properties secure a loan of some $340,000. Peter Moyle owns a 1991 Hyundai motor vehicle worth between $3,000 and $4,000. They have minimal superannuation and the joint bank account has a balance of $20,000.

132 Peter Moyle works as a property salesman on a commission basis earning approximately $60,000 to $80,000 per annum. Diane works one day a week at a nearby resort earning $80 to $100 a week. They have no children but they care for three foster children. They receive a foster carer’s allowance of approximately $795 a fortnight.

133 Apart from the mortgage over their home of $340,000 Diane and her partner have credit card debts of about $16,200 and Diane owes her children, Andrew and Miranda (from her first marriage to Robert Geldert) $4,000.

134 When Diane was young she received from her grandfather a 25% interest in the company. This was probably in the 1960s and she also received a sum of $20,000 when she turned 25 years. In about 1980 her father acquired her 25% shareholding in the company for $320,000. However, having regard to the difficulties which she has had over the years with marriage and relationship breakdowns and with subsequent property settlements, it is not surprising that she has little of this money left at this stage. She has raised three children from her first marriage and had to cease work for most of that time.

135 No reference was made in the will of the deceased to why no provision was made for Diane. It is apparent that the last the occasion the deceased visited Diane was in 1994 when she married Murray Wells in Western Australia. It seems clear that the relationship between Diane and the deceased was stormy from time to time but the relationship seemed to continue notwithstanding these difficulties. It is clear that Diane would visit the deceased in Sydney very 12 months or so and her last visit was probably in October 2002. Although they had disagreements, I do not think they would lead me to make any reduction in any claim by Diane.

136 It is necessary to see how Diane said she has been left without adequate and proper provision for her maintenance, education and advancement in life. There are a number of matters that have been raised by her which are as follows.

(a) She would like a second car, which is a particular need in a country town.
(b) She would like to establish a business from home doing patch working and quilting. She would like to purchase a gammil machine at a cost of $20,000 to $30,000 that is used for quilting.
(c) She would like to renovate the old shed on the property so she can operate the business from there.
(d) She and her partner would like to renovate the adjoining cottage at a cost of some $50,000 which could ultimately be rented to provide some security for them.
(e) She and her partner would like to adopt their three young foster children. If they adopt the children they will not receive Government support and accordingly they would like to receive a sum to supplement their income in order to have the financial capacity to allow them to do this.

The situation in life of Russell Vogt

137 Russell Vogt is 46 years of age, single and has no dependents. He is currently living at the property 11 Roslyn Gardens, Elizabeth Bay and operates the downstairs Laundromat at those premises.

138 Russell Vogt’s assets comprise a car valued at $35,000, cash and bank deposits of $73,831, miscellaneous personal property $20,000 and washing machine and dryers valued at $12,000. He has liabilities on credit cards and other matters of some $35,757.12. In addition over the years he advanced the deceased funds and in particular in recent years since her death he has made payments on account of the loans the company, Burrawong Investments, has guaranteed. These amounts, including contributions to costs, are $155,676.

139 In this case it is plain that there will be no actual estate from which these loans can be recovered and, accordingly, Russell will be unable to receive payment from the estate. It is, of course, relevant that he has made these payments to the deceased and it is a matter to take into account when considering any appropriate orders on his claim. His claim is brought on the basis that if the Court holds that the estate does not own the shares in the company, or that the shares have no value, then he would seek to claim on notional estate.

140 Russell’s income from the Laundromat for the year ended 30 June 2004 showed on his tax return an income of $55,286. After expenses the Laundromat operated at a loss of $1,046. He says that his living expenses are $641 a week. As his cash reserves had not greatly depleted this raised the question of what was his real income. It was difficult to get an accurate picture of what had been the amount which he had received from the Laundromat and what were his assets.

141 The starting point for these questions was his affidavit of 4 July 2005 where he claimed to have paid:

(a) Advances to the deceased before her death in December of $60,000.

(b) Advances to the deceased’s estate including mortgage payments in 2003 of $53,800.

(c) Advances to the deceased’s estate including mortgage payments in 2004 of $71,712.

(d) Advances to the deceased’s estate in 2005 of $18,900

142 As his sole income was from the Laundromat on its reported figures he could not have made such payments as he had no other source of income.

143 Cross-examination demonstrated that between 1990 and 2000 he received funds as needed from the deceased. He operated the Laundromat on his own account thereafter.

144 Russell Vogt said that in 1992 he had received cash from his grandfather’s estate of $30,000. This was the only outside receipt of capital. In April 2002 he acquired a BMW motorcar for $65,000 and by December 2002 he had made advances on behalf of the deceased of $60,000. In cross-examination he suggested that by the time of the deceased’s death he had $100,000 to $150,000 in cash stored in his home in a photographic bag. He said that his present cash resources were $73,831.

145 This evidence does not reconcile with the recorded performance of the Laundromat as shown in the tax returns in recent years and explains his vagueness in his answers to question in this area. Plainly Russell Vogt has been receiving a substantial income from the Laundromat over the period.

146 The deceased and Russell Vogt met in July 1987 and they commenced to live together in October or November of that year. They were married on 17 February 2002.

Consideration of the plaintiffs’ claims

147 Having given consideration to the value of the shares which the deceased had in the company and concluding that half are held by the Estate on trust for Colin Vaughan and the other half have been rendered virtually valueless, it is plain that there is little actual Estate. The Estate has liabilities to Russell Vogt for motor vehicle repairs of $18,447.10 and there is an American Express card account of $18,021.92. In addition to this at the date of death Russell Vogt had advanced the deceased some $53,097.23 most of which was to cover mortgage instalments paid to Burrawong Investments Pty Ltd. Since the date of death and up until April 2005 he made further advances to the estate of $102,579.53.

148 The deceased and Colin Vaughan each held one share in the company, Oakbar Pty Ltd. Oakbar purchased the freehold of the Strawberry Hills Hotel, Elizabeth Street, Surry Hills and the leasehold of the Red Cow Inn at Penrith. In the course of these transactions Oakbar borrowed $280,000 from Burrawong and this was supported by mortgages given by Colin Vaughan and his wife, Margaret Vaughan, over their house and the company over the premises at Roslyn Gardens. Mr and Mrs Colin Vaughan and the company are guarantors for that loan. The period of the loan has expired and what has happened is that the loan remains outstanding with Russell Vogt paying the interest. The amount payable is $762.92 a week.

149 No doubt following upon this case the property at Roslyn Gardens will have to be sold and this will cause the loan to be repaid. Alternatively, the company might seek repayment, which it could do at any time. In these circumstances there is an additional liability in the Estate to repay the loan of $280,000. Having regard to the fact that the company and Colin and Margaret Vaughan are co-guarantors the Estate could recover from Mr and Mrs Vaughan at least one half of the amount paid on the discharge and to this extent there is an asset in the Estate to set off against these liabilities of $280,000.

150 Mr and Mrs Colin Vaughan own their home at 129 Riverview Road, Clareville, which is valued at $2 million. Without going into the details of their financial position it is clear that they also owe the ING Bank $1,300,000 substantially as a result of the ventures with the deceased since 1990. In these circumstances the right the Estate has to recoup against Mr and Mrs Vaughan is real and no doubt could be enforced. I mention that of the $1,300,000 only the sum of $120,000 was advanced for the benefit of Mr and Mrs Vaughan personally. This was because Mrs Vaughan’s practice loan as a doctor was consolidated into the loan in 1994. That practice loan was for an amount of $120,000.

151 If one considers the claim of Russell Vogt it is plain that he and the deceased had a 15-year relationship during which time they lived together as man and wife. Shortly before her death, he and the deceased were married. It is also clear from the evidence that he helped the deceased when she became ill in the last years of her life. The last year was particularly demanding for Russell when the deceased was in a wheelchair.

152 Russell Vogt has made substantial contributions to maintain the Estate during the lifetime of the deceased and since the date of her death. If he had not met the mortgage payments the property would have been sold some time ago. To an extent this was in his interest but at this stage he has no means of recovering the amounts he has advanced to the Estate.

153 Having regard to these circumstances, Russell Vogt, has a substantial claim against the estate or notional estate of the deceased. So far as the claim by Diane Vaughan is concerned, I have earlier set out the way in which she says that she has been left without adequate and proper provision. The claim which she makes is somewhat removed from that of the plaintiff, Russell Vogt, in the sense that his claim would normally take priority if one gets to that position. Diane clearly needs some moneys to give her relief from her somewhat difficult situation at the present time. Assuming that one were dealing with an Estate of approximately the amount of the potential notional Estate in this Estate I would have thought that, notwithstanding the substantial claim of Russell Vogt, that she would have a claim for a small legacy out of the notional Estate.

Notional estate

154 The Court is able to designate as notional estate certain property in respect of certain prescribed transactions. Section 23 of the Family Provision Act 1982 provides:

23 Notional estate—prescribed transactions
On an application in relation to a deceased person made by or on behalf of an eligible person, if the Court is satisfied:
(a) that an order for provision ought to be made on the application, and
(b) that, at any time before death, the deceased person entered into a prescribed transaction:
(i) which took effect within the period of 3 years before death and was entered into with the intention, wholly or in part, of denying or limiting, wholly or in part, provision for the maintenance, education or advancement in life of that or any other eligible person out of the deceased person’s estate or otherwise,
(ii) which took effect within the period of 1 year before death, and was entered into at a time when the deceased person had a moral obligation to make adequate provision, by will or otherwise, for the proper maintenance, education and advancement in life of that or any other eligible person which was substantially greater than any moral obligation of the deceased person to enter into the prescribed transaction, or
(iii) which took effect or is to take effect on or after the death of the deceased person,
the Court may, subject to sections 26, 27 and 28, make an order designating as notional estate of the deceased person such property as it may specify, being property which is held by, or on trust for the disponee or, where there is more than one disponee, any of the disponees, whether or not that property was the subject of the prescribed transaction.

155 I am satisfied that an order for provision ought to be made on the application of the two plaintiffs. The relevant prescribed transaction is that referred to in s 23 (b) (iii) as the result of the operation of the 1997 resolution. In Shaeffer v Shaeffer (1994) 36 NSWLR 315 the Court held in circumstances which include the Articles of Association with which I am here concerned that such a resolution effecting the conversion of the ordinary shares into preference shares constituted a prescribed transaction for the purposes of the Act. Because of the circumstances involved in that case it did not deal with all the relevant provisions of s 22 but only whether or not the conversion of the deceased’s ordinary shares in the capital of the company to preference shares on her death in accordance with the Articles of Association fell within s 22 (1) (a) (i) and s 22 (4) (e). In order to understand the matters which arise it is necessary to have regard to the various provisions of s 22. The relevant provisions are as follows:

“22 Prescribed transactions
(1) A person shall be deemed to enter into a prescribed transaction if:
(a) on or after the appointed day the person does, directly or indirectly, or omits to do, any act, as a result of which:
(i) property becomes held by another person (whether or not as trustee), or
(ii) property becomes subject to a trust, whether or not the property becomes in either case so held immediately, and
(b) full valuable consideration in money or money’s worth for the first mentioned person’s doing, or omitting to do, that act is not given.
(2) Except as provided in subsections (5) and (6), a prescribed transaction referred to in subsection (1) shall, for the purposes of this Act, be deemed to take effect at the time property becomes held by a person or subject to a trust as referred to in subsection (1) (a).
…………..
(4) In particular and without limiting the generality of subsection (1), a person shall, for the purposes of subsection (1) (a), be deemed to do, or omit to do, an act, as a result of which property becomes held by another person or subject to a trust if:
…………….
(e) being, on or after the appointed day, a member of, or participant in, a body (corporate or unincorporated), association, scheme, fund or plan, the person dies and, as a result of the person’s being such a member or participant and of the person’s death or the occurrence of any other event, property becomes held by another person (whether or not as trustee) or subject to a trust (whether or not the property becomes in either case so held immediately), or
…………………..
(5) Except as provided in subsection (6), a prescribed transaction involving the doing of, or omitting to do, an act as referred to in subsection (4) (paragraph (f) excepted) shall be deemed to be entered into immediately before, and to take effect on, the death or the occurrence of the other event referred to in that subsection in relation to that act or omission.
(6) Where:
(a) a prescribed transaction involves any kind of contract, and
(b) valuable consideration, although not full valuable consideration, in money or money’s worth is given for the disponer’s becoming a party to the contract, the transaction shall, for the purposes of this Act, be deemed to be entered into and to take effect at the time the contract is entered into.
……………….”

156 What is immediately apparent from a consideration of sub-section (1) of s 22 is that not only does there need to be an appropriate act in sub-section (a) but there is a cumulative requirement that full valuable consideration in money or monies worth was not given for the deceased’s doing of that act. It is also apparent from sub-section 6 that a distinction is drawn between valuable consideration and full valuable consideration. The purpose of this no doubt in a case where there is only valuable rather than full valuable consideration is to move the prescribed transaction from one falling within 23 (b) (iii) into either 23 (b) (i) or (ii) which have different time periods. An appropriate intention or comparison must also be found or drawn by the Court in these circumstances.

157 The consequence of my finding earlier that full consideration was given for the dual promise in relation to the transfer of shares and the passing of the resolution effectively means that in the circumstances of this case there is no prescribed transaction.

158 Accordingly, as there is no Estate which can be declared notional Estate the Court cannot make orders in favour of the applicants.

159 Accordingly, I dismiss each plaintiff’s summons. I also dismiss the cross-claim filed on behalf of the Executor.

160 I will hear submissions on costs.

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