Vlahos v Vlahos
[2016] VSC 824
•6 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2016 1284
| ANDREW VLAHOS | Plaintiff |
| v | |
| JAMES VLAHOS (also known as Valos) | Defendant |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 December 2016 |
DATE OF JUDGMENT: | 6 December 2016 |
CASE MAY BE CITED AS: | Vlahos v Vlahos |
MEDIUM NEUTRAL CITATION: | [2016] VSC 824 |
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PRACTICE AND PROCEDURE – application for leave to bring appeal proceedings on behalf of a company - ss 236 and 237 of the Corporations Act 2001 (Cth)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Bearman with Ms S Karabidian | DCA Lawyers |
| For the Defendant | Mr M Gronow | Klonis Kirby & Co |
HIS HONOUR:
This is an urgent application brought by the plaintiff, Andrew Vlahos (Andrew)[1] by Originating Motion dated 30 November 2016. Andrew's application is urgent because it relates to leave being granted to bring proceedings under s 236 of the Corporations Act 2001 (Cth) (the Act) and under the Supreme Court (General Civil Procedure) Rules 2015.
[1]I will adopt the same party name references as used in the Reasons for Judgment in the County Court.
The subject proposed proceedings are in the nature of an application to the Court of Appeal of this court (Court of Appeal) for leave to appeal a decision of the County Court of Victoria (County Court) and, if leave be granted, to prosecute an appeal in the Court of Appeal in respect of that decision.
The last day within which leave is able to be applied for in the Court of Appeal is tomorrow, 7 December 2016.
Andrew, in his Originating Motion dated 30 November 2016, seeks:
(a)orders granting him leave to bring proceedings on behalf of Vlahos Pty Ltd in the Court of Appeal comprising -
(i)an application to seek leave to appeal against the Orders of the County Court given 9 November 2016 effecting the Courts’ Reasons for Judgment given 30 June 2016 (reported as Vlahos v Vlahos Pty Ltd & anor [2016] VCC 2150) and
(ii)any appeal therefrom and,
(b)in the event this application is not heard and determined before 7 December 2016,
(i)leave to bring an application for an extension of time to do so, and
(ii)that those orders be made nunc pro tunc.
The background facts of this application, both in the County Court proceedings sought to be appealed from and in relation to Andrew’s steps directed to obtaining an extension of time in the Court of Appeal, are as follows:
(a) This proceeding is an application by Andrew for leave under s 236 of the Act to bring a proceeding on behalf of a company, Vlahos Pty Ltd (the company) in the nature of an appeal to the Court of Appeal of the Supreme Court of Victoria and to do so, pursuant to a preceding grant of leave by the Court of Appeal.
(b) Andrew and the defendant James Vlahos (James) are equal shareholders and each the only directors of the company.
(c) A proceeding in the County Court of Victoria was brought by James by a Writ issued on 21 October 2015 against the company and Andrew in relation to the ownership of a property at 50 Puckle Street, Moonee Ponds (the property).
(d) In the County Court proceedings below, Andrew conducted the company’s defence with the consent of the company granted to him on 6 May 2016.[2] The consent was conditional upon Andrew meeting the company’s costs.
[2]Affidavit Ashley del Corral, 29 November 2016, “ADC-1”.
(e) James was the successful party at the trial conducted between 1 to 4 August 2016. The County Court delivered Judgment on 30 August 2016[3] (“the Reasons for Judgment”). A subsequent application by Andrew and the company to reopen their case in the County Court proceedings was unsuccessful.[4] Final orders were made in the County Court on 9 November 2016.[5]
(f) Andrew is dissatisfied with the Reasons for Judgment and wishes to appeal to the Court of Appeal, pursuant to the grant of leave by the Court of Appeal under s. 74 (1) of the County Court Act 1958 (County Court Act).
(g) Time to make an application for leave to appeal expires on 7 December 2016.
[3]Vlahos v Vlahos Pty Ltd & Anor [2016] VCC 1250.
[4]Vlahos v Vlahos Pty Ltd (No. 2) (2016) VCC 1544.
[5]Affidavit Ashley del Corral, 29 November 2016, “ADC-3”.
The proceeding below in the County Court, in summary, concerned the following facts and circumstances:[6]
[6]Summary from plaintiff’s submissions, 5 December 2016, [8]-[21].
(a) The company was registered on 20 January 1981.[7]
[7]Reasons, [2]; Affidavit Ashley del Corral, 2 December 2016, “ADC-10”.
(b) On 11 February 1981, a family discretionary trust known as the S Vlahos Family Trust was settled by deed.[8] At all times thereafter, the company acted as the trustee of that trust.[9]
[8]Reasons, [2].
[9]Affidavit Andrew Vlahos, 29 November 2016, “AV-1”.
(c) Amongst others, relatives of Andrew and James’ late father, Stefhanos Vlahos,[10] were defined as beneficiaries of the trust.
[10]Reasons, [2], [11].
(d) Around June 1990, James and his late father discussed the further acquisition of a property by the trust and whether James would contribute to the purchase of that property.[11] James agreed to contribute over $100,000.[12]
[11]Ibid [3], [26].
[12]Ibid [25].
(e) On 5 July 1990, James entered into a contract of sale to purchase a commercial property at 50 Puckle Street, Moonee Ponds in his name (or that of a nominee) for $590,000 with a 10 per cent deposit and a 30 day settlement.[13]
[13]Ibid [4]; Affidavit Ashley del Corral, 5 December 2016, “ADC-12”.
(f) On 9 July 1990, James nominated the company as the purchaser of the property.[14]
[14]Reasons, [5]; Affidavit Ashley del Corral, 5 December 2016, “ADC-12”.
(g) On 15 July 1990, James and his wife, Viki Vlahos, were appointed Directors of the company.[15]
[15]Reasons, [6]; James remains a Director: Reasons, [6]; Viki Vlahos ceased to be a Director on 4 December 1990: Reasons, [9].
(h) On 13 August 1990, a transfer was executed transferring the property from the vendor to the company.[16]
[16]Reasons, [7].
(i) James contributed $110,000.00 plus $31,600 stamp duty towards the purchase price.[17] At that time, James was a solicitor practising as the sole principal of a firm. James’ firm conducted the conveyancing for the purchase, which James personally supervised.
[17]Ibid [43].
(j) James’ principal case before the County Court was that, because his contribution represented 22.57% of the purchase price including stamp duty, the company held that percentage of the property for him “on a purchase price resulting trust”. The trial Judge did not make a finding as to when James first asserted his entitlement.
(k) On 28 June 2008, James’ brother, Andrew, became a Director of the company. Andrew gave evidence that he first became aware of the claim to an interest in the property in mid-2010.[18]
[18]Ibid [64].
(l) Around late November or early December 2011, James and Andrew orally agreed to subdivide the property into a downstairs retail premises, and an upstairs residential unit.[19] They agreed that James would discharge his claim to an interest in the property in return for the upstairs unit.[20]
[19]Ibid [17]. The trial Judge found that the agreement did not encompass a car park for the upstairs unit, [74].
[20]Ibid [74].
(m)In December 2011 James and Andrew, as Directors of the company, each executed a Minute of Meeting dated 8 December 2011 (the Minute), which was prepared by the company’s accountant, Mr Graeme Joe.
(n) At trial, James claimed specific performance of the oral agreement,[21] reflected in the Minute[22] and contended that, although the agreement concerned a disposition of land,[23] the Minute was an adequate written instrument for the purposes of the Statute of Frauds, as enacted in Victoria by s 126(1) of the Instruments Act 1958, and s 53 of the Property Law Act 1958. James further contended that the agreement had been sufficiently part performed.[24]
[21]Ibid [75].
[22]Ibid [69]; Affidavit of James Vlahos, 5 December 2016, Exhibit “C”.
[23]Ibid [78].
[24]Ibid [86].
(o) The trial Judge found that the alleged agreement did not satisfy the requirements of the Statute of Frauds.[25] Relying on Regent v Millett,[26] the trial Judge further found that there were no unequivocal acts of part performance.[27] The trial Judge held that the oral agreement could not be enforced.
[25]Ibid [80]-[82], [99].
[26]Ibid [95]-[96]; Regent v Millett (1976) 133 CLR 679.
[27]Ibid [97]-[98].
(p) James’ final claim at trial was that the said Minute itself was specifically enforceable. The trial Judge held that the Minute was enforceable on the basis that the only reason the minute of meeting came into being was to give effect to the agreement made by the brothers to satisfy James’ claim against the property, and further as part of the agreement, James gave consideration by compromising and settling his claim against the property.[28]
[28]Ibid [102].
(q) At the conclusion of the trial the County Court found, in summary, as follows:[29]
[29]Ibid [109].
(a) James contributed $110,000 to the purchase price of the property and paid $31,600 stamp duty on the purchase;
(b) as a result of his contribution, James had an interest in equity amounting to 22.57% of the property. He is entitled under a resulting trust to hold that interest as tenant in common with Vlahos;
(c) James is not precluded by laches from obtaining equitable relief;
(d) James and Andrew agreed to subdivide the property in about November 2011. Pursuant to the agreement, James was to receive the upstairs area and Vlahos was to retain the retail area downstairs. The consideration from James was the settlement of his claimed interest in the property. The agreement made no reference to car spaces.
(e) the agreement between James and Andrew (on behalf of Vlahos as trustee) did not satisfy the Statute of Frauds legislation and was not made out by part performance.
(f) the Vlahos resolution constituted by the minute of meeting did not implement the agreement but did distribute in specie the upstairs part of the property to James.
The significant background interlocutory steps leading to this application are:[30]
[30]Summary from plaintiff’s submissions, 5 December 2016, [22]-[31].
(a) On 15 November 2016, Andrew and the company filed an application for an extension of time to apply for leave to appeal the Reasons for Judgment in the Court of Appeal.[31]
[31]Affidavit Ashley del Corral 29 November 2016, “ADC-4”.
(b) On 17 November 2016, Andrew and the company served James with the application.[32]
[32]Ibid [19].
(c) By letter dated 18 November 2016, James’ solicitors wrote to Andrew’s solicitors. Amongst other things, the letter stated that Andrew did not have authority to bring an application in the Court of Appeal on behalf of the company.[33]
[33]Ibid “ADC-5”.
(d) By letter dated 21 November 2016, James’ solicitors informed the Court of Appeal Registry that Andrew did not have the authority to apply to the Court of Appeal.[34] They also stated that any such application would be futile.
[34]Ibid “ADC-6”.
(e) On 22 November 2016, the Court of Appeal Registry requested written submissions from Andrew.[35]
[35]Ibid [24].
(f) On 23 November 2016 Andrew filed submissions with the Court of Appeal Registry and, amongst other things, seeking the application to the Court of Appeal to be held in abeyance in the event that these proceedings were necessary.[36]
[36]Ibid “ADC-8”.
(g) On 23 November 2016, Andrew’s solicitors also wrote to James’ solicitors.[37] Amongst other things, the 23 November 2016 letter requested authority for James to make an application to the Court of Appeal on behalf of the company. A derivative action proceeding was foreshadowed in the absence of the authority being granted. The 23 November 2016 letter also denied that any application to the Court of Appeal by the company was futile and gave a detailed response for those reasons.
[37]Affidavit Ashley del Corral, 2 December 2016, “ADC-11”.
(h) On 25 November 2016 the Court of Appeal Registry advised the parties that Andrew and the company did not require an extension of time. On 2 December 2016, the Court of Appeal Registry later advised that time expired on 7 December 2016.
(i) On 29 November 2016, James’ solicitors wrote to Andrew’s solicitors and denied Andrew’s request that he be authorised to make an application to the Court of Appeal on behalf of the company.[38]
(j) On 1 December 2016, these proceedings were issued. An expedited hearing and determination of this hearing was sought, because time for Andrew to seek leave to appeal to the Court of Appeal, as of right, expires on 7 December 2016.
(k) The hearing of Andrew’s subject applications by Originating Motion dated 30 November 2016 took place today, namely on 6 December 2016.
[38]Affidavit Ashley del Corral, 29 November 2016, “ADC-9”.
The materials which the parties rely upon in this application, include:
Plaintiff’s material
(a) Originating Process-RedCrest filed 30 November 2016;
(b) Written submissions dated 5 December 2016;
(c) Affidavit of Ashley John del Corral sworn 29 November 2016 and exhibits;
(d) Affidavit of Ashley John del Corral sworn 2 December 2016 and exhibits
(e) Affidavit of Ashley John del Corral sworn 5 December 2016 and exhibits ; and
(f) Affidavit of Andrew Vlahos sworn 29 November 2016 and exhibits,
Defendant’s material
(a) Written submissions dated 5 December 2016;
(b) Affidavit of Harry Klonis sworn 5 December 2016 and exhibits; and
(c) Affidavit of James Vlahos sworn 5 December 2016 and exhibits.
The statutory context
Section 236(1) of the Act provides as follows:
Bringing, or intervening in, proceedings on behalf of a company
(1)A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:
(a)the person is:
(i)a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or
(ii)an officer or former officer of the company; and
(b)the person is acting with leave granted under section 237.
Accordingly, in summary, s 236(1) of the Act provides that a person may bring proceedings on behalf of a company for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings, for example, in relation to compromising or settling such proceedings, if a person is a member or officer of the company and is acting with leave granted by a competent court pursuant to s 237 of the Act.
Section 237 of the Act provides:
Applying for and granting leave
(1)A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.
(2)The Court must grant the application if it is satisfied that:
(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings--there is a serious question to be tried; and
(e)either:
(i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.
(3)A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that:
(a)the proceedings are:
(i)by the company against a third party; or
(ii)by a third party against the company; and
(b)the company has decided:
(i)not to bring the proceedings; or
(ii)not to defend the proceedings; or
(iii)to discontinue, settle or compromise the proceedings; and
(c)all of the directors who participated in that decision:
(i)acted in good faith for a proper purpose; and
(ii)did not have a material personal interest in the decision; and
(iii)informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate; and
(iv)rationally believed that the decision was in the best interests of the company.
The director’s belief that the decision was in the best interests of the company is a rational one unless the belief is one that no reasonable person in their position would hold.
(4)For the purposes of subsection (3):
(a)a person is a third party if:
(i)the company is a public company and the person is not a related party of the company; or
(ii)the company is not a public company and the person would not be a related party of the company if the company were a public company; and
(b)proceedings by or against the company include any appeal from a decision made in proceedings by or against the company.
Application of ss 236 and 237 of the Act
Matters which are not in issue
It is not in issue between the parties that an appeal brought pursuant to s 74 of the County Court Act, with leave of the Court of Appeal, is a proceeding for the purposes of s 236 of the Act. Similarly, an application for leave to appeal, and an appeal prosecuted pursuant to s 14A of the Supreme Court Act 1986 are also proceedings for the purposes of s 236 of the Act.
Section 237(1) (Standing)
It is not contested that Andrew in this proceeding is a member and officer of the company. The question for the court however is whether, in the relevant circumstances, leave should be granted under s 237 of the Act.
Here, s 237(1) of the Act appears to be satisfied. That section provides that a person referred to in s 236(1)(a) of the Act, may apply to the Court for leave to bring proceedings. On this application there is no contest as to the applicant’s satisfaction of the particular requirements of these sections.
Section 237(2) of the Act provides that the Court must grant an application of this nature if it is satisfied that the criteria provided for in s 237(2)(a) to (e) of the Act are satisfied. The onus of establishing the satisfaction of those criteria is in this case on Andrew.
Section 237(2)(a) (The Company will probably not itself bring the proceeding)
Section 237(2)(a) of the Act will be satisfied if, amongst other things, it is probable that the company will not itself bring the identified proceedings. Here, the appeal may only be brought by the company if both James and Andrew, who between them control the Board of the company and each hold half the shares in the company, agree.
The affidavit material discloses that the authority of Andrew to bring the proceedings on behalf of the company has been expressly withheld by James.[39]
[39]Ibid “ADC-5”.
Andrew also notes that in this application James contends that an appeal of the trial Judge’s decision in the County Court would be futile. Andrew submits that given this view on the part of James and because James, as a result of judgment in the County Court proceedings, has the benefit of the outcome of those proceedings, it is clear that the requirement of s 237(2)(a) of the Act is satisfied.
There is in my view no real contest on this issue. As a result of the circumstances outlined above it is probable that the company will not itself bring the subject proceedings.
Section 237(2)(b) (Good faith required)
Section 237(2)(b) of the Act requires that the applicant is acting in good faith.
In Cemcon Constructions Pty Ltd v Hall Concrete Construction (Vic) Pty Ltd & anor (Cemcon Constructions), Gordon J stated in respect of that section that: [40]
The principles are now well established: South Johnstone [2007] FCA 1448; 163 FCR 343 at [64]- [69]. First, an applicant must honestly believe that a good cause of action exists with a reasonable prospect of success, and secondly the applicant must not seek to bring the derivative proceeding for a collateral process that would amount to an abuse of process: see Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 311 at [36].
[40][2009] FCA 696, [15].
In Swansson v RA Pratt Properties Pty Ltd, Palmer J stated: [41]
Where the application is made by a current shareholder of a company who has more than a token shareholding and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased, good faith will be relatively easy for the applicant to demonstrate to the Court's satisfaction. So also where the applicant is a current director or officer: it will generally be easy to show that such an applicant has a legitimate interest in the welfare and good management of the company itself, warranting action to recover property or to ensure that the majority of the shareholders or of the board do not act unlawfully to the detriment of the company as a whole.
[41](2002) 42 ACSR 313, [38].
In Swansson, the court recognised that it will generally be relatively easy for an applicant to show relevant good faith if such an applicant has a legitimate interest in the welfare and good management of the company itself thereby warranting action to recover property or to ensure that the majority of the shareholders of the Board do not act unlawfully or to the detriment of the company as a whole.
Andrew’s submissions
Andrew submits that the County Court's findings that James was entitled to a percentage of equity in the subject property deprived the family discretionary trust of a portion of the interest which would otherwise enure for the beneficiaries of the trust and which would otherwise form part of the corpus of the trust which the Trustee has an obligation to preserve.
It is submitted by Andrew on this application that the trial Judge’s finding concerning the Minute[42] results in James being entitled in equity to what is referred to as “the upstairs unit” in the relevant property. As a result of this general finding Andrew submits that the judgment here is to the following general effect: [43]
Here, the position is even stronger in respect of good faith, as the proceeding concerns property rights of a trustee company, as in Re Cemcon. The County Court’s finding that the defendant was entitled in equity to 22.57 per cent in the property deprived the objects of the family discretionary trust to that interest, which would otherwise enure for their benefit. The County Court also held that the 8 December 2011 minute of distribution was specifically enforceable. Under that finding, the defendant would be entitled in equity to the upstairs unit at the property. Again, the finding deprives the objects of the family trust of an interest in the property which would otherwise enure for their benefit.
and that it therefore results in a deprivation of the trust corpus and an interest of the discretionary trust.
[42]Affidavit of James Vlahos 5 December 2016, Exhibit “C”; Reasons [69].
[43]Plaintiff’s submissions, 5 December 2016, [44].
Andrew submits that the above outcome is relevant to good faith because he contends that these are matters in which Andrew, by the proposed proceedings (were leave granted) seeks to reverse and thereby bring about an appreciable increase in effect in relevant beneficial interests and the corpus of the trust.
In this application Andrew deposes to his belief that the company has good prospects of success in relation to the company’s application for leave to appeal and in relation to the appeal proper. That belief is said to be supported by advice from Queens Counsel, received in respect of the proposed application and prospective appeal.
Andrew submits that in these applications he is not seeking to bring a derivative action for any collateral purpose. Indeed no such characterisation was put by James. James does not, in terms, suggest that Andrew is seeking to pursue a collateral purpose, nor does he contend that there is any intended or actual abuse of process on the part of Andrew.
Further, it is notable that here Andrew is willing to undertake to indemnify the company, subject to further court orders, against and in respect of the costs of the proposed appeal. The terms of this offer of indemnification are however not yet finalised.
Andrew submits that in satisfaction of s 237(2)(b) of the Act it is in the best interests of the company that leave be granted because here Andrew, for the benefit of the trustee company, is seeking to assert rights which in turn are directed to reinstating property held by the company. Furthermore, Andrew adds that he is seeking to do so in circumstances where James holds an entitlement which will benefit him and to that extent the trust corpus will be diminished, and therefore the rebuttable presumption that granting leave would not be in the best interests of the company, does not arise.
James’ submissions
In this application James argues that Andrew has not acted in good faith in bringing this application. In particular, James’ submission is that Andrew could not possibly be considered to have done so, given the terms of his communications, specifically on 6 May 2016 and 1 June 2016, which were to the effect that Andrew had no authority from the company to commence an appeal, or an application for leave to appeal or any application for extension of time in respect of any such process.
In argument, however, Mr Gronow, Counsel for James, agreed[44] that the email of 6 May 2016 did not, in its own terms, expressly prohibit such action being taken by Andrew, but nevertheless was a communication which could in no way be taken as providing the company’s authority or consent in respect of any proposed legal action.
[44]T26.5-15.
James' submission is that Andrew's authority, such as it was, extended only to defending the County Court proceeding before the trial Judge below on the company’s behalf. James submits that neither Andrew, nor his solicitors, have provided any explanation as to how they considered, in the light of the communications of 6 May 2016[45] and the letter of 1 June 2016,[46] that they had authority to make any application in relation to the proposed appeal without consulting and obtaining the consent of James.
[45]Affidavit of Ashley del Corral, 29 November 2016, “ADC-1”.
[46]Ibid “ADC-2”.
Conclusion as to s 237(2)(b) (Good Faith)
I consider that Andrew has satisfied the necessary good faith requirement in s 237(2)(b) of the Act. I am satisfied, on the material to which I have already made reference, that Andrew honestly believes that a good cause of action exists in relation to the foreshadowed appeal and more particularly the claims made in the draft Grounds of Appeal addressed in more detail below. Furthermore, I am persuaded that Andrew is not seeking to bring a derivative action for a collateral purpose such as would amount to an abuse of process, but rather is motivated by the best interests of the company in the way identified below.
Accordingly, I am satisfied that Andrew has not acted with any want of good faith and that Andrew’s honest belief in the cause of action reflected in the proposed appeal and his honest belief that the prospective appeal has reasonable prospects of success and will, if successful, reinstate part of the corpus of the Trust and protect the interests of the beneficiaries,[47] amply satisfy the requirements of 237(2)(b) of the Act.
[47]Affidavit of Andrew Vlahos, 29 November 2016, [27]-[28].
Conclusion as to s 237(2)(c) (Best interests of the company)
Section 237(2)(c) of the Act also requires that it be in the best interests of the company that leave be granted. Section 237(2)(c) will be satisfied if it is established the proposed application is likely to be in the best interests of the company.[48]
[48]Huang v Wang (2016) 34 ACLC 16-022 at [57]; In his submissions Andrew concedes that this threshold requirement appears to be higher than the associated proposed appeal; Plaintiff’s submissions, 5 December 2016, [48].
Andrew relies upon the decision in Cemcon Constructions, in response to James’ submissions that because the applicant was a corporate trustee and that it would therefore not be possible for it to demonstrate that leave should be granted under s 237(2)(c) of the Act because no action for which leave could be granted would ever be in the best interests of the relevant company, but only the interests of the beneficiaries.
In Cemcon Constructions, Gordon J stated that:[49]
… It is trite to say that a trustee is under a duty to recover property belonging to the trust – that is what it is seeking to do in the Derivative Proceeding. It is the appropriate entity to undertake that task: Alexander v Perpetual Trustees [2004] HCA 7; (2004) 216 CLR 109 at [55]- [56]; Young v Murphy [1996] 1 VR 279 at 284; Burns v Burns [2008] QSC 173 at [60]; Vanmarc Holdings Pty Ltd v P W Jess and Associates Pty Ltd [2000] VSC 153; (2000) 34 ACSR 222 at [36]; Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431 at 434-435. It is contrary to the obligations of a trustee to allow trust property to be misappropriated or recklessly devalued, even assuming for a moment that there is utility in distinguishing in this context between legal and beneficial ownership.
[49][2009] FCA 696, [20].
Andrew submits that the trustee here is under a duty to recover trust property belonging to a trust and points out that this is in substance what is sought to be achieved by the appeal in respect of which leave is sought.
James argues, relying upon Huang v Wang,[50] and in particular the judgment of Bathurst CJ in that case, that in essence the best interests of the company will predominantly be reflected in the interests of the shareholders, in that capacity. In Huang at [59], the Chief Justice stated that the fact that the persons there associated with the company under the name of which, and on behalf of which it was sought to instigate proceedings may derive “some collateral benefit from the bringing or otherwise of the proceedings … is irrelevant”. The Chief Justice stated:[51]
… the best interests of the company means best interests in the sense of its separate and independent welfare. Best interests, at least assuming that the company is solvent, will predominantly reflect the interests of the shareholders in that capacity. The fact that, in the present case either [company director] or [company director] may receive some collateral benefit from the brining or otherwise of the proceedings … is irrelevant . (Citations omitted).
[50](2016) 34 ACLC 16-022 (per Bathurst CJ, McColl JA and Barrett AJA agreeing).
[51]Ibid [59].
Further, James points out that in the present case, it is not in dispute that the company only owns and operates assets in its capacity as trustee of a family trust, the principal beneficiaries of which are Andrew and James and their respective families.
James submits that the company does not appear to have any activity apart from that of a trustee of the relevant family trust.
James also submits that therefore the company cannot say that bringing the proposed appeal will be of any benefit to the company or its shareholders in that capacity. This is said to be because the company is solely a trustee and therefore the value of the shares in the company will not be affected by the outcome of the proposed appeal relating to the extent of trust property.
The fact that Andrew and James may derive some collateral benefit from bringing the proposed appeal, for example because the appeal proceeding may enhance or diminish the extent of the trust property, is in James’ submission not relevant to determining whether Andrew has satisfied the requirement of s 237(2)(c) of the Act.
I do not agree with James’ submissions as to the scope of the concept of “the best interests” of the company under s 237(2)(c) of the Act.
In my view, it is clear enough from the passage from Huang cited above and relied upon by James, that Bathurst CJ was dealing with but one example of the ways in which the best interests of a trustee company might be detrimentally affected. In Huang, the Chief Justice accepted that “best interests of the company means best interests in the sense of its separate and independent welfare”. In my view the trustee’s obligation to maintain the trust assets against misappropriation or erroneous alienation is, in the circumstances of this application and its particular background which has been detailed above, action taken in the best interests or welfare of a trustee company.
In Cemcon Constructions Gordon J also stated, in a passage cited in part above, that:[52]
Counsel for J. Hall submitted that as HCC was a corporate trustee it would be impossible to demonstrate that leave should be granted under s 237(2)(c) as no action for which leave was granted would ever be in its best interests – by default it would be in the interests of the beneficiaries of the HFUT (ie the unit holders in the HFUT, one of which was Cemcon). I reject that contention. It is trite to say that a trustee is under a duty to recover property belonging to the trust – that is what it is seeking to do in the Derivative Proceeding. It is the appropriate entity to undertake that task: Alexander v Perpetual Trustees (2004) 216 CLR 109 at [55]-[56]; Young v Murphy [1996] 1 VR 279 at 284; Burns v Burns [2008] QSC 173 at [60]; Vanmarc Holdings Pty Ltd v P W Jess and Associates Pty Ltd (2000) 34 ACSR 222 at [36]; Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431 at 434-435. It is contrary to the obligations of a trustee to allow trust property to be misappropriated or recklessly devalued, even assuming for a moment that there is utility in distinguishing in this context between legal and beneficial ownership.
[52][2009] FCA 696, [20].
The misappropriation or reckless devaluation, or erroneous alienation of trust assets is a circumstance which is not in the best interests of the trustee company and conversely therefore it is in the best interests of the trustee company that officers or members of the trustee company should take action to prevent such a circumstance occurring or to rectify the detrimental effect of such an occurrence.
In this case, it is not by any means a strained analogy to say that the effect of a reversal of the judgment of the trial Judge, were that to be ordered on appeal, would have the effect of reinstating a valuable part of the trust corpus.
Further, I consider the statements in Cemcon Constructions to be consistent with the statements made by Bathurst CJ in Huang on these matters. It would be appropriate to grant leave to ensure that the best interests of the trustee company were served by an action that if successful would remediate a situation which otherwise has the effect of diminishing the relevant trust corpus. Here the potential entitlement of the beneficiaries of the family discretionary trust and the corpus of the Trust have been diminished in the way which I have described. Further, in this case, Andrew himself is a director of the affected trustee company.
Accordingly, in my view, here there is no rebuttable presumption that granting leave would not be in the best interests of the company or, if I am incorrect in that regard, such a presumption is rebutted in this particular instance.
Finally, because of the costs indemnity offered by Andrew, even if the application for leave and the appeal to the Court of Appeal were unsuccessful the company would be in no worse a financial position
Section 237(2)(d) (Serious question to be tried)
Section 237(2)(d) of the Act requires that an applicant for leave to bring proceedings, must establish that there is a serious question to be tried in connection with the subject of its application .
On this issue, both parties cited the decision of Gordon J in Wood v Links Golf Tasmania Pty Ltd (No 2),[53] in support of their position.
[53][2013] FCA 143.
This application relates to a proceeding to be commenced in the Court of Appeal of this Court and that proceeding itself requires the applicant to demonstrate that its proposed appeal enjoys sufficient prospects of success to justify a grant of leave to appeal in that court.
Further, it is observed by Counsel for Andrew that it may be that in the Court of Appeal the question of leave there will be considered by reference to s 74 of the County Court Act 1958. Section 74 of that Act provides:
Appeal to the Court of Appeal
(1)Subject to this section, any party to a civil proceeding who is dissatisfied with any judgment or order of the court constituted by a judge other than an associate judge may appeal from the same to the Court of Appeal with leave of the Court of Appeal, notwithstanding that the civil proceeding may have been brought in the County Court by consent as provided by this Act.
(2)An appeal by a party referred to in subsection (1) must be commenced by filing an application for leave to appeal in the Court of Appeal within 28 days after the date of the judgment or order of the court being appealed.
(2A)The Court of Appeal may extend the time within which an appeal or an application for leave to appeal may be commenced, whether or not the time has expired and whether or not an application for extension of time has been made.
(2B)An application for leave to appeal must be made in accordance with the Rules of the Supreme Court.
(2C)An application for leave to appeal or a notice of appeal may be amended at any time as the Court of Appeal thinks fit.
(4)Except so far as the Court of Appeal or the County Court otherwise orders, an appeal from a judgment or order made on or after the commencement of section 11 of the Courts Legislation Amendment (Judicial Education and Other Matters) Act 2007 does not operate as a stay of execution or of proceedings under the judgment or order.
(5)The rules for the time being in force with respect to ordering security for the costs of appeals from the Trial Division of the Supreme Court to the Court of Appeal shall, so far as practicable, apply to and govern appeals from the County Court.
(6)Nothing herein contained shall authorize any party to appeal against any decision of the court given upon any question as to the value of any real or personal property for the purpose of determining the question of the jurisdiction of the court under this Act nor to appeal against the decision of the court on the ground that the proceedings might or should have been taken at any other place of sitting of the County Court.
(7)No appeal shall lie from any judgment or order of the court, if before it is pronounced the parties agree, in writing signed by themselves or their practitioners, that it shall be final.
Notwithstanding the above, I consider that I should determine whether there is a serious question to be tried in relation to Andrew’s proposed proceedings in the Court of Appeal, by reference to the usual approach taken by the Appeal Division of this Court.
In this regard, both Andrew and James rely upon Gordon J’s decision in Wood submitting that I should follow the approach outlined by her Honour in relation to the task of identifying a serious question to be tried.
Both parties submit, although in different language, that to be satisfied as to the existence of such a question under s 237(2)(d) of the Act, I need to be able to conclude in substance that Andrew identifies a sufficiently cogent and persuasive case in relation to his proposed grounds of appeal. Mr Gronow, Counsel for James, characterised what needed to be established as “a tenable appeal”.[54]
[54]T47.26.
Reliance by both parties upon the decision in Wood also conveys that the parties accept that although a sufficiently cogent and persuasive case on appeal needs to be identified, such identification is possible even though legitimate criticisms can be made of the proposed grounds of appeal.
Further, it is accepted by both parties that on an application such as this, it is not usually an occasion for the court to entertain extensive debate or consideration of the merits of the proposed proceeding.
I also accept that on an application for leave to bring an appeal under s 237 of the Act the consideration of the existence of a serious question to be tried must, to the extent appropriate, be undertaken by reference to the foreshadowed grounds of appeal.[55] Further, in turn, the foreshadowed grounds of appeal must proceed from established principles which inform the approach of appellate courts in relation to such appeals. I add that I need not be satisfied that all the foreshadowed grounds of appeal are sufficiently cogent and persuasive.
[55]Wood v Links Golf Tasmania Pty Ltd (No 2) [2013] FCA 143, [51].
Andrew’s Grounds of Appeal [1] to [4] concern whether certain facts and circumstances, which he contends the learned trial Judge did not consider or did not appropriately consider, should, on appeal, affect whether an equitable presumption of a resulting trust applies in the circumstances.
Grounds [5] to [7] of Andrew’s proposed application for leave to appeal relate to whether the trial Judge was correct in concluding that a trustee’s resolution concerning a transfer of an interest in the subject land was enforceable, given that at trial the trial Judge had also concluded that the agreement resulting in that resolution was itself unenforceable.
In relation to proposed Grounds of Appeal [1] to [4] of Andrew’s proposed appeal, James submits that such grounds in substance seek to overturn the trial Judge's factual findings. James also submits that Grounds [1] to [4] now present a case which is contrary to the case conducted at trial by Andrew.
Amongst other points James argues that a concession was made by Andrew before the trial Judge, namely, in substance, that James would succeed at trial if he established only that he made a contribution to the purchase price of the property.[56]
[56]Defendant’s outline submissions, 5 December 2016, [14]-[19].
James also contends, in summary, that the trial Judge’s findings that $141,000 (approximately) had been paid by James in 1990 to his late father and that it had been agreed by James and his late father that the sum of $141,000 would be a contribution to the purchase price, resulted in the trial Judge’s conclusion that the legal effect of these matters was that a resulting trust was created in favour of James. James also submits that these factual findings were not challenged in cross-examination at trial.
James also contends that Andrew did not resist or refute James’ allegation and assertion of a resulting trust in cross-examination or in closing submissions at trial. James complains that Andrew’s proposed grounds of appeal now appear to dispute James’ case in that respect.
James points out in argument that proposed Grounds of Appeal [1] to [4] do not seek to displace the trial Judge's factual findings about James’ contribution of the $141,000 (approximately) to the purchase price of the property.
Finally James submits that there is no recognised presumption of advancement in the circumstances of this case.
Conclusions as to s 237(2)(d) (Serious Question to be Tried)
In my view, James’ above submissions are not ultimately persuasive on this application.
The articulation of Andrew’s case at trial, as reflected in the extracts of its Opening Submissions, referred to at paragraphs [15] and [16] of James’ written submissions in this application, appear to have always been qualified as to the effect of James’ monetary contribution of $141,000 (approximately). That is, Andrew’s submissions at trial about James’ contribution to the purchase price of the property was predicated and dependent upon the establishment of “… such a contribution in the proper form with an intention for it to be part of the purchase price…”. That is, James submitted at trial that he would accept the legal consequences contended for by Andrew but only upon satisfaction of these matters.
Further, at trial, James also predicated the effect of his contribution to the purchase price on associated findings as to the proper characterisation of that payment and the capacity in which it was made.[57]
[57]Affidavit of Ashley John Del Corral, 2 December 2016, “ADC-11”, [5].
Accordingly I am not, in this interlocutory application, satisfied that the Grounds of Appeal formulated by Andrew seek to advance a case which contradicts what was asserted, or conceded, by Andrew at trial.
Ground [1] of the proposed Grounds of Appeal and, in substance, also Grounds [2] to [4], which are developments of Ground [1], are in my view not directed to challenging the trial Judge’s underlying factual findings. Rather, as Andrew submits, those grounds are directed to the trial Judge’s asserted failure to consider all the relevant facts and circumstances at the time the property was acquired. Those grounds are also directed to the further assertion by Andrew that any presumption of a resulting trust should have been based on the consideration of a broader factual setting which was not appropriately taken into account at trial, and which would, if properly considered, have displaced a resulting trust.
Further, for the above reasons, I am not satisfied that the findings referred to in James’ written submissions at [18], to which I have earlier referred, necessarily forecloses the broader factual case which Andrew seeks to advance in Grounds of Appeal [1] to [4], as demonstrating error below.
I am also not satisfied that James’ contention that there is no recognised assumption of advancement in the relevant circumstances necessarily renders the proposed appeal futile. This argument by James is in my view susceptible to the establishment on appeal of the broader body of potentially relevant facts and circumstances asserted by Andrew and generally described in Ground [1] of the proposed Notice of Appeal.
Grounds of Appeal [5] to [8] concern an alternative claim at trial for specific performance of an agreement between James and Andrew to subdivide the subsequent property. James did not pursue that claim.
I again observe that it is only necessary for me to conclude that the proposed appeal includes a ground which is sufficiently cogent and persuasive to warrant leave in respect of the proceedings sought to launch Andrew’s appeal. Having concluded that Grounds of Appeal [1] to [4] are sufficiently cogent and persuasive, I consider that there should be leave granted to Andrew to bring the proposed proceedings pursuant to s 237(2)(d) of the Act.
I add that although James elected to have judgment entered for a percentage of the property in issue, given the thrust of the appeal reflected in Grounds of Appeal [1] to [4], it may well be relevant and necessary in the appeal to challenge the effect of the Minute, and whether it was specifically enforceable. In that regard, I consider that Grounds [5] to [8] of the proposed appeal are potentially relevant in that they advance an appeal which could give rise to a finding of error in relation to the trial Judge’s conclusions in connection with the Directors’ meeting of 8 December 2011 and Minute.
Further, and in any event, I regard it is appropriate to grant leave in relation to Grounds [5] to [8], where leave has been granted in relation to Grounds [1] to [4] because, as argued by Andrew, if he is successful on the appeal in relation to the first four grounds it would be arguably necessary for the Court of Appeal to address the alternative case referred to in the last preceding paragraph.
Notice of application for leave
Section 237(2)(e)(i) (Notice)
Section 237(2)(e)(i) of the Act requires that written notice be given of an intention to apply for leave and the reasons for doing so.
It is however accepted by the parties, as the provisions of that section of the Act make clear, that I am empowered to make orders sought notwithstanding non-compliance with the section’s notice requirements.
Andrew submits that in all the circumstances it is appropriate for the court to grant leave under s 237(2)(e)(ii) of the Act even though the notice requirement in s 237(2)(e) of the Act has not, in this instance, been satisfied, because:
(a) the trial before the County Court was conducted subject to express authority;
(b) the terms of the 18 November 2016 letter from James’ solicitors to Andrew’s solicitors,[58] and the 21 November 2016 letter from James’ solicitors to the Court of Appeal Registry (with which Andrew’s solicitors were copied),[59] show that James was well aware of the issue of the company's authority and, indeed itself raised that issue;
[58]Affidavit of Harry Klonis 5 December 2016, Exhibit “HK-7”.
[59]Ibid.
(c) James was the only other Director and shareholder who would receive such notice, and therefore in the circumstances, the provision of notice in accordance with s 237(2)(e) was a mere formality;
(d) notice of Andrew’s intention to issue this proceeding was given to James on 23 November 2016 when a request was made of James that he authorise Andrew to bring the relevant proceeding; and
(e) this application was brought upon, and necessitated by James’ refusal to agree to leave pursuant to s 237 of the Act and because there was a need to expedite this hearing in any event.
In all the above circumstances, I consider that for each of the above reasons (b) to (e), it is appropriate to make the orders sought, notwithstanding that no formal notice has been given by Andrew pursuant to s 237(2)(e)(ii) of the Act.
James does not complain of any prejudice arising as a result of inadequate notice.
I also infer that James is well aware of the responses he would make to any application such as this, if it came, as indeed occurred. In the events which have occurred, James has ably responded to Andrew’s written and oral submissions, and, as already highlighted, James has not pointed to any prejudice caused to him by any lack of notice.
Finally I consider it to be appropriate to dispense with notice in this instance, because to do so is in the interests of justice, given my other above conclusions on this application which justify leave so as to enable Andrew to apply to the Court of Appeal in connection with his proposed appeal.
For the above reasons, I uphold Andrew’s application pursuant to s 236 of the Act.
I am satisfied that each of the required criteria in s 237(2)(a)-(d) are made out and, in the case of s 237(2)(e), that it is here appropriate to grant leave even though notice under s 237(2)(e)(i) was not given.
Orders
I note that at the hearing of the matter this morning Andrew, by his Counsel, gave the following undertaking to the Court:
(a)that he will pay the costs of Vlahos Pty Ltd of an application to be brought by it pursuant to these Orders to the Court of Appeal for leave to appeal against the Judgment of the County Court given 30 August 2016, reported as Vlahos v Vlahos Pty Ltd & Anor [2016] VCC 1250;
(b) that he will pay the costs of Vlahos Pty Ltd of any appeal to the Court of Appeal against that Judgment made with leave of the Court of Appeal; and
(c) that he will indemnify Vlahos Pty Ltd against any liability for costs that it may incur in so making that application, and in so bringing any appeal.
Accordingly I shall order that:
1.The plaintiff be granted leave pursuant to s 236 and s 237 of the Corporations Act 2001 (Cth) to bring a proceeding on behalf of Vlahos Pty Ltd, being an application for leave to appeal to the Court of Appeal from the Judgment of the County Court given 30 August 2016, reported as Vlahos v Vlahos Pty Ltd & Anor [2016] VCC 1250, and any appeal consequential upon such leave.
2.Costs be reserved until the hearing and determination of that proceeding, or any further order.
3.Each party have liberty to apply in respect of these Orders upon 48 hours written notice to the other.
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