Wood v Inglis

[2008] NSWSC 1147

Reported Decision: 68 ACSR 420

New South Wales

Supreme Court

CITATION:	Wood v Inglis [2008] NSWSC 1147
HEARING DATE(S):	23/10/08
JUDGMENT DATE :	6 November 2008
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Application adjourned
CATCHWORDS:	PROCEDURE - miscellaneous procedural matters - solicitor's retainer - challenge to retainer on basis that no valid corporate action of corporate party - whether determination of challenge should be deferred - onus of proof - CORPORATIONS - title to shares - shares bequeathed by will - who may be recognised by company as entitled to become holder in place of deceased holder - CORPORATIONS - internal management - purported meeting of members resolves to remove a director and appoint another director - only one member participating - whether valid resolution - whether purported appointment non-existent or merely defective - SUCCESSION - devolution of shares in company on death of registered holder
LEGISLATION CITED:	Civil Procedure Act 2005, s 98(1) Companies Act 1961, reg 89, Table A, Fourth Schedule Corporations Act 2001 (Cth) ss 128, 129(2), (3), 176, 201M, 237, 1070A(1), (2), 1071B(2), (5), (8), (12), 1072E(2), 1274B Probate and Administration Act 1898, ss 44(1), 46C(2) Uniform Civil Procedure Rules 2005, rule 42.3
CATEGORY:	Principal judgment
CASES CITED:	A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation [1951] HCA 36; (1951) 82 CLR 452 Australian Workers Union v Bowen [1946] HCA 24; (1946) 72 CLR 575 AW & LM Forrest Pty Ltd v Beamish [1998] NSWSC 442; (1998) 146 FLR 450 Bryen v Reus [1961 SR (NSW) 396 Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 Grant v John Grant & Sons Pty Ltd [1950] HCA 64; (1950) 82 CLR 1 Griffiths v Evans [1953] 1 WLR 1424 Halliday v Sachs Group Pty Ltd (1993) 67 ALJR 678 Harry S Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 Hawksford v Hawksford [2005] NSWSC 463; (2005) 191 FLR 173 Hillig v Darkinjung Pty Ltd [2008] NSWCA 75 Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147 Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 Lunn v Cardiff Coal Co (No 3) [2003] NSWSC 789; (2003) 177 FLR 411 Morris v Kanssen [1946] AC 459 Re Agriculturalist Cattle Insurance Co (1870) LR 5 Ch App 725 Re Briton Medical and General Life Association (1888) 39 ChD 61 Re Hastings Deering Ltd (1985) 9 ACLR 755 Richmond v Branson & Son [1914] 1 Ch 968 Worcester Corsetry Ltd v Witting [1936] Ch 640 Yonge v Toynbee [1910] 1 KB 215 Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447
TEXTS CITED:	Ritchie’s “Uniform Civil Procedure NSW”, para 7.24.15
PARTIES:	Helen Margaret Inglis - Applicant/Cross-Claimant Inglis Research Pty Limited - First Cross-Defendant Kathryn Margaret Clark - Second Cross-Defendant Michael William Inglis - Third Cross-Defendant Pamela Ruth Wood - Fourth Cross-Defendant Fiona Jane Narlini Inglis - Fifth Cross-Defendant William Keith Inglis - Sixth Cross-Defendant
FILE NUMBER(S):	SC 1595/08
COUNSEL:	Mr J E Thomson - Applicant/Cross-Claimant Mr F G Lever SC/Mr J V Gooley - First Cross-Defendant Mr B J Burke - Second Cross-Defendant Mr M B Evans - Third Cross-Defendant Mr J J J Garnsey QC/Mr R M Higgins - Fourth Cross-Defendant as Executrix Ms J A Needham SC - Fourth Cross-Defendant in her personal capacity
SOLICITORS:	Michael C Smith - Applicant/Cross-Claimant ClarkeKann Lawyers - First Cross-Defendant Courtenay & Co - Second Cross-Defendant Molloy Schrader - Third Cross-Defendant DSC Law Firm - Fourth Cross-Defendant as Executrix Wills & Estates Legal Service - Fourth Cross-Defendant in her personal capacity

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY, 6 NOVEMBER 2008

1595/08 PAMELA RUTH WOOD v HELEN MARGARET INGLIS

JUDGMENT

Introduction

1 Dr William Inglis died on 11 October 2007. Surviving him were his second wife (Helen Inglis), their son (William Keith Inglis) and four children of his first marriage (Kathryn Clark, Michael Inglis, Pamela Wood and Fiona Inglis).

2 Part of the wealth accumulated during Dr Inglis’s lifetime was held in a family trust of which Inglis Research Pty Limited (“IRPL”) was and is the trustee.

3 Probate of Dr Inglis’s will dated 7 December 2005 was, on 27 November 2007, granted to the executrices therein named, Helen Inglis (the widow) and Pamela Wood (a daughter of the first marriage).

4 Clauses 7 and 8 of the will are in these terms:

“7. I GIVE to my daughter KATHRYN MARGARET CLARK one half of my total shareholding in Inglis Research Pty Limited (ABN 55 002 502 874).
8. I GIVE to my daughter PAMELA RUTH WOOD one half of my total shareholding in Inglis Research Pty Limited (ABN 55 002 502 874).

5 At his death, Dr Inglis held eight of the ten shares that made up the issued share capital of IRPL. Each of the bequests in clauses 7 and 8 of the will was therefore a bequest of four shares. The other two shares were held and continue to be held as to one each by Helen Inglis (the widow) and Michael Inglis (the son of the first marriage).

The proceedings

6 These proceedings were commenced by summons filed on 22 February 2008 by Pamela Wood in her capacity as one of the executrices. She sues her stepmother and co-executrix, Helen Inglis.

7 Three cross-claims were later filed. By the first cross-claim, Helen Inglis originally sued IRPL, Kathryn Clark, Michael Inglis, Pamela Wood, Fiona Inglis and William Keith Inglis. She later discontinued the proceedings against Fiona Inglis and William Keith Inglis, so that the first cross-claim continues against the other four cross-defendants. By the second cross-claim, Kathryn Clark sues Helen Inglis and Pamela Wood as executrices of the will of Dr Inglis. By the third cross-claim, Pamela Wood sues Helen Inglis.

The present motion

8 By notice of motion filed on 16 July 2008 and heard by me on 23 October 2008, Helen Inglis seeks orders including the following:

“1. That the Appearance of Andrew Michael Williams of Clarke Kann Lawyers on behalf of the First Cross-Defendant be struck out.
2. That the said Andrew Michael Williams pay the costs of the proceedings from 23 April 2008 to date as between the Cross-Claimant and the First Cross-Defendant.”

9 The cross-claimant is Helen Inglis. The first cross-defendant is IRPL. Helen Inglis thus challenges the retainer by IRPL of ClarkeKann, solicitors (and specifically Mr Williams of that firm). She does so on the footing that the retainer was purportedly entered into for IRPL by persons having no authority to act for or bind IRPL.

10 Upon the hearing of the motion, Mr J E Thomson of counsel appeared for the applicant, Helen Inglis. Mr F G Lever SC leading Mr J V Gooley of counsel appeared for IRPL. Submissions in support of the case advanced by Mr Lever against the grant of the relief sought were made on behalf of Pamela Wood, as executrix, by Mr J J J Garnsey QC with whom appeared Mr R M Higgins of counsel.

11 It is necessary to go into some matters of background in order to understand the case sought to be made by the applicant. First, however, two preliminary matters require attention.

Should determination of the motion be deferred?

12 Mr Lever SC submitted that the issues raised by the notice of motion should be allowed to await the hearing of the substantive proceedings. Those issues go to the regularity and validity of certain actions within IRPL and in relation to shares in that company. The same issues are raised by the first cross-claim and therefore arise for determination in the substantive proceedings.

13 I do not accept that the questions raised by the notice of motion can or should be deferred. Helen Inglis, by her notice of motion, raises a matter that goes to the due conduct of the proceedings. In Australian Workers Union v Bowen [1946] HCA 24; (1946) 72 CLR 575, Williams J said (at CLR 592):

“The proper procedure for a defendant who wishes to challenge the retainer of the solicitor for the plaintiff is to file a substantive motion and not to raise the want of authority by way of defence to the proceedings.”

14 His Honour referred to Richmond v Branson & Son [1914] 1 Ch 968, also a case in which the retainer challenged was that of the solicitor for the plaintiff. Warrington J said at 974:

“If a solicitor is acting without authority in an action brought by a plaintiff who is not alleged to be of unsound mind, either the plaintiff or the defendant is entitled to have that action summarily stayed . . .”

15 And later:

“The business of this Court could not be carried on if one were not entitled to assume the authority of the solicitor unless and until that authority has been disputed and shewn not to exist in the proper form of proceeding, namely, a substantive application on the part of the parties concerned to stay the proceedings on the ground of want of authority.”

16 The same principle applies where it is alleged that a solicitor has entered an appearance for a defendant without that defendant’s authority. Except in limited circumstances, a company that is a party to proceedings can only act through a solicitor. It is essential to the proper conduct of proceedings in which a company is a defendant that its solicitor appear and act with due authority. Otherwise, the court has no assurance that things done by the solicitor are done by the party.

17 When uncertainty about the authority of the solicitor on the record for a party is raised, it must be dealt with at once. Justice will otherwise be endangered by the possibility that the case ultimately advanced ostensibly on behalf of the party is not that party’s case at all.

18 If, as here, the motion challenging the retainer raises issues that are to be litigated in the substantive proceedings in due course, there is no sensible alternative but for the determination of those issues to be brought forward, unless there is some insurmountable obstacle to that course. If the determination is deferred until the final hearing, it is possible that the case then supposedly advanced by the party will ultimately be seen to have been advanced by an impostor.

19 I am not persuaded that there is any insurmountable obstacle in this case. Helen Inglis’s notice of motion challenging IRPL’s retainer of ClarkeKann should be addressed now by reference to such evidence and submissions as the parties saw fit to place before the court on the motion.

The onus of proof

20 It is said at paragraph 7.24.15 of Ritchie’s “Uniform Civil Procedure NSW” that there are conflicting decisions on the question whether it is for the solicitor to prove the existence of the client’s authority or for the party challenging the retainer to prove want of authority. It seems to me, however, that the matter should be taken to be resolved by the decision of Campbell J in Hawksford v Hawksford [2005] NSWSC 463; (2005) 191 FLR 173.

21 After an extensive survey of the decided cases (including judgments of Dawson J and Mason CJ sitting as single justices of the High Court: see Halliday v Sachs Group Pty Ltd (1993) 67 ALJR 678), Campbell J concluded (at [55]) that it is for the party challenging the retainer to prove want of authority, adding observations about the evidentiary onus:

“I conclude that in the present case the plaintiffs bear the legal onus of proving that there is no retainer given by the second and third defendants, but that (in the words of Hunt J in Apollo Shower Screens Pty Ltd & Anor v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 at 565):
‘… provided that the plaintiffs have established sufficient evidence from which the negative proposition may be inferred, the defendant carries what has been called an evidential burden to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof … the plaintiffs’ burden of proof of the negative proposition for which they contend is not as difficult in this case as it might otherwise have been because of the defendants’ greater means to produce evidence which contradicts that proposition.’”

22 In this present case, the solicitors themselves did not seek to be heard on the motion challenging their retainer. As I have said, Mr Lever SC appeared for IRPL. Instructed by those solicitors on behalf of IRPL, he argued against the grant of the relief sought.

23 I approach the notice of motion on the basis that it is for Helen Inglis to establish an entitlement to an order striking out IRPL’s appearance.

The facts

24 I turn now to the facts. It was accepted upon the hearing of the application that, immediately before Dr Inglis’s death, the directors of IRPL were Dr Inglis, Helen Inglis and Kathryn Clark. At the time of Dr Inglis’s death, the ten shares constituting the issued share capital of IRPL were held in the way I have mentioned so that there was, under clauses 7 and 8 of the will, a bequest of four shares to Kathryn Clark and a bequest of four shares to Pamela Wood.

25 On or after 27 November 2007 (the day on which probate was granted), entries were made in the register of members of IRPL recording that each of Kathryn Clark and Pamela Wood had become the holder of four shares previously held by Dr Inglis (being the shares numbered 1, 4, 5 and 6 in the case of Kathryn Clark and the shares numbered 7, 8, 9 and 10 in the case of Pamela Wood). The entries are framed in a way that represents Dr Inglis as the “transferor” and each of the daughters mentioned as “transferee”, with 27 November 2007 given as “date transfer” [sic]. In the space reserved for “consideration per share” there appears:

“Registered in consequence of death. Article 106. Probate produced.”

26 A general meeting of IRPL was purportedly held on 31 December 2007. The persons assembled together on that occasion were Kathryn Clark, Pamela Wood and Michael Inglis. Helen Inglis was not present either in person or by proxy but it is not disputed that she had been given notice that a meeting was to be held and of the time and place.

27 The meeting purported to resolve, first, that Pamela Wood be appointed a director and, second, that Helen Inglis be removed as a director. Kathryn Clark, Pamela Wood and Michael Inglis signed minutes of the meeting recording these matters. All three of them are recoded as having voted in favour of each resolution.

28 If these resolutions were not valid and effective to change the composition of the board of directors of IRPL, the directors after 31 December 2007 remained Helen Inglis and Kathryn Clark, they being the survivors of the three-person board as it stood immediately before Dr Inglis’s death. If the resolutions were valid and effective, the directors after 31 December 2007 were Kathryn Clark and Pamela Wood, to the exclusion of Helen Inglis.

29 After 31 December 2007, Kathryn Clark and Pamela Wood conducted themselves as if they were the only directors of IRPL and purported to exercise the powers exercisable by the directors of IRPL.

30 The decision that ClarkeKann should be retained as IRPL’s solicitors in these proceedings was a decision made by Kathryn Clark and Pamela Wood. The written retainer agreement dated 8 May 2008 is signed by both of them “on behalf of Inglis Research Pty Limited”. That retainer agreement followed earlier oral arrangements.

The parties’ contentions in brief

31 It is contended by Helen Inglis that Pamela Wood has never been a director of IRPL; that, at the time of the purported retainer of ClarkeKann, the directors were Helen Inglis and Kathryn Clark (not Pamela Wood and Kathryn Clark); and that the retainer of ClarkeKann was not authorised by resolution or other decision of the two directors of IRPL validly in office.

32 Mr Lever submitted that the true position on 31 December 2007 was that Kathryn Clark held four shares and Pamela Wood held four shares. That being so, he says, the resolutions of 31 December 2007 removing Helen Inglis as a director and appointing Pamela Wood as a director will be seen to have been valid and effective resolutions.

33 Helen Inglis maintains, however, that neither Kathryn Clark nor Pamela Wood was a member of IRPL on 31 December 2007 and that the only member present on that occasion was Michael Inglis.

Shareholdings on 31 December 2007 – is the register conclusive?

34 The proposition that Kathryn Clark and Pamela Wood were members of IRPL on 31 December 2007 depends entirely on the validity and effectiveness of the entries made in the register of members referred to in paragraph [25] above. Reference was made in the course of submissions to s 176 of the Corporations Act 2001 (Cth):

“In the absence of evidence to the contrary, a register kept under this Chapter is proof of the matters shown in the register under this Chapter.”

35 The effect of that section is, in my view, the same as that of the provision considered by Stirling J in Re Briton Medical and General Life Association (1888) 39 ChD 61 at 72:

“The register is by the Act merely made primâ facie evidence of certain matters, and if it were shewn, for example, that the entries, or some of them, were absolutely fictitious, that persons registered as shareholders were non-existent, and that the sums entered as paid up on the shares had never been paid or agreed to be paid, I conceive that the magistrate would be justified in disregarding such fictitious entries, and holding that a summary based on them was false and misleading.”

36 In the same way, the court will here be justified in looking beyond the entries in respect of Kathryn Clark and Pamela Wood as members holding four shares each if it is shown that there was no legal basis for the making of those entries.

Devolution on death

37 It is necessary, at this point, to examine the process of devolution of a share in a “company”, as defined Corporations Act, on the death of a shareholder domiciled in New South Wales.

38 Where, as here, the deceased shareholder left a will which is admitted to probate, the estate passes to the executor to whom probate is granted. The passing occurs on the grant but so that the property is vested in the executor as from the time of death: Probate and Administration Act 1898, s 44(1). The executor to whom probate is granted obtains the whole of the legal estate in the property of the deceased. In the hands of the executor, the deceased’s property represents assets for the payment of all duties and fees and of the debts of the deceased in the ordinary course of administration: s 46. In the case of a solvent estate, the property is to be applied towards discharge of expenses, debts and liabilities according to the provisions in Part 2 of the Third Schedule to the Act: s 46C(2). Under those provisions, any assets specifically disposed of by will are available for this purpose, but that is the last class of assets to which resort is to be had: Third Schedule, Part 2, item 6.

39 Property that is the subject of a specific bequest – such as each parcel of four shares in this case – will come to be available to the named legatee if not absorbed and applied in the course of administration. Pending full administration, the legatee has no proprietary or other interest in the particular item of property. He or she, like every other beneficiary under the will, has what was described by the Privy Council in Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12, as a chose in action capable of being invoked for any purpose connected with the due administration of the estate.

40 To the extent that it was submitted that a specific legatee of shares forming part of an estate not yet fully administered has an equitable interest in the shares, the submission is not accepted.

Assent by the legal personal representatives

41 Once the estate is fully administered, it becomes the duty of the executor to put a specific legatee into the possession of the subject matter of the bequest, assuming that it has not been absorbed and applied in the course of administration.

42 Because, under the statutory provisions already noticed, all the deceased’s property becomes vested in the executor upon and by virtue of the grant of probate, some act on the executor’s part is necessary to bring about a situation where the subject matter of the specific bequest is vested in the legatee instead of the executor. The nature of the executor’s act will differ according to the nature of the property bequeathed and the circumstances in which the legatee is to assume dominion over it. But some act of assent is necessary.

43 The concept was explained by Jacobs J (with the concurrence of Owen J and Collins J) in Bryen v Reus [1961] SR (NSW) 396 at 399 in this way:

“Of course, in the case of a specific legacy or a general bequest the beneficiary takes under the will. However, he does not take absolutely and immediately because the subject matter of the legacy may be required by the executor for the purposes of administration, particularly for the payment of the testator’s debts. The effect of the assent of an executor to a legacy is to give the beneficiary a complete title to the asset. An assent is a mere indication that the property is not required for administration purposes and therefore may pass as the will directs ( Williams on Assents (1947), p. 2. The bequest of a legacy, whether general or specific, transfers only an inchoate property to the legatee; to render it complete and perfect, the assent of the executor is requisite’: Toller, Law of Executors 6th ed. (1827), p. 306. Thus, in the case of executors it would indeed be difficult to describe their assent to a legacy as an assignment of the subject matter of the legacy. The assent causes the property to vest in the legatee, but it is not the instrument of vesting.”

44 In the case of shares in a company registered under the Corporations Act, the process by which complete title to specifically bequeathed shares comes to reside in the legatee to the exclusion of the executor comes from statutory provisions and, if applicable, provisions of the constitution of the company. A number of provisions of the Corporations Act should be mentioned.

The Corporations Act provisions

45 In the first place, s 1070A(1) and (2) provide, so far as is relevant:

“(1) A share . . . :
(a) is personal property; and
(b) is transferable or transmissible as provided by:
(i) the company's . . . constitution; or
(ii) the operating rules of a prescribed CS facility if they are applicable; and
(c) is capable of devolution by will or by operation of law.

(2) Paragraph (1)(c) has effect subject to:
(a) in the case of a company:
(i) the company's constitution (if any); and
(ii) any replaceable rules that apply to the company; and
(iii) the operating rules of a prescribed CS facility if they apply to the share or interest; and
. . .”

46 Section 1071B(2) of the Corporations Act is in these terms:

“(2) Subject to subsection (5), a company must only register a transfer of securities if a proper instrument of transfer (see subsections (3) and (4)) has been delivered to the company. This is so despite:
(a) anything in its constitution; or
(b) anything in a deed relating to debentures.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).”

47 Section 1071B(5), the operation of which is preserved by s 1071B(2), says:

“Subsection (2) does not prejudice the power of the company to register, as the holder of securities, a person to whom the right to the securities has devolved by will or by operation of law.”

48 Section 1071B(8), dealing with a “local representative” (which the executrices in this case are), goes on to provide that a transfer by the representative “is as valid as if the representative had been registered as the holder of the security at the time when the instrument of transfer was executed”.

49 Section 1071B(12) says:

“For the purposes of this section, an application by a personal representative of a dead person for registration as the holder of a security in place of the dead person is taken to be an instrument of transfer effecting a transfer of the security to the personal representative.”

50 Section 1072E(2), dealing with a share in a body corporate that is registered in a register in Australia (or, more precisely, so much of Australia as is within “this jurisdiction” as defined by s 9), provides:

“A trustee, executor or administrator of the estate of a dead person who was the registered holder of a share in a corporation may be registered as the holder of that share as trustee, executor or administrator of that estate.”

51 The scheme of these provisions, as they affect a share in a company registered under the Corporations Act, is such that:

(a) the company’s power to register as a holder of shares a person “to whom the right to the securities has devolved by will or by operation of law” is not prejudiced by the statutory prohibition on registration of a transfer of securities unless a proper instrument of transfer has been delivered to the company;
(b) the Corporations Act itself does not confer any such power on a company; it merely protects any separately and independently existing power from such operation as the rule precluding registration of a transfer in the absence of a proper instrument of transfer would otherwise have;
(c) the characteristic of a share that makes it capable of devolution by will or by operation of law may be affected or shaped by a provision of the company’s constitution (or, if applicable, a “replaceable rule” in the Corporations Act ), provided that such a provision is not inconsistent with any provision of the Corporations Act itself;
(d) if the share is registered in the name of the deceased in a register kept in “this jurisdiction”, the executor has a statutory right to be registered as the holder of the share as executor.
(e) a transfer of a share executed by an executor who is not registered as the holder of the share is as valid as if the executor had been registered as the holder of the share when it was executed; and
(f) otherwise, an executor stands in no special position, qua the company, when it comes to title to and transfer of shares.

The provisions of the constitution

52 Having regard to ss 1070A(1) and (2), regard must be had to the company’s constitution (if any) and to any replaceable rules. In the present case, where IRPL existed at 1 July 1998 and had a constitution at that date which has not since been repealed, none of the provisions of the Act designated “replaceable rules” applies. This is the effect of s 135(1). It is therefore necessary to look to the constitution only.

53 Relevant provisions are articles 102 to 107:

“102. The Directors in their absolute discretion may decline to register any transfer of shares in the Company to any person of whom they do not approve and shall not be called upon to assign any reason for such refusal. Where the Company refuses to register a transfer of any shares, the Company shall within two (2) months after the date of lodgment of the transfer send to the transferee notice of the refusal.
103. Subject to these regulations any member may transfer all or any of his shares by instrument in writing in any usual or common form or in any other form which the Directors may approve. The instrument shall be executed by or on behalf of both the transferor and the transferee; and the transferor shall remain the holder of the shares transferred until the transfer is registered and the name of the transferee is entered in the register of members in respect thereof.
104. The instrument of transfer must be left for registration at the registered office of the Company or such other place as the Directors may permit, accompanied by the certificate of the shares to which it relates and such other evidence as the Directors may reasonable require to show the right of the transferor to make the transfer. The Directors may waive the production of any certificate upon evidence satisfactory to them of its loss or destruction and thereupon the Company shall subject to the powers vested in the Directors by these Articles register the transferee as a share holder.
105. The legal personal representatives of a deceased sole holder of a share shall be the only persons recognised by the Company as having any title to the share. In the case of a share registered in the name of two or more holders the survivors or survivor or the legal personal representatives of the deceased survivor shall be the only persons recognised by the Company as having any title to the share.
106. Any person becoming entitled to a share in consequence of the death or bankruptcy of a member shall upon such evidence being produced as may from time to time be properly required by the Directors have the right either to be registered as a member in respect of the share, or instead of being registered himself to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall in either case have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased bankrupt person before the death or bankruptcy.
107. A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall upon satisfying the Directors of his entitlement, be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not before being registered as a member in respect of the share be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company.”

Interaction of the Corporations Act and the constitution

54 The constitution of IRPL makes clear provision about entitlement to shares on the death of a member. Article 105 says, quite simply, that the legal personal representatives of a deceased sole holder of a share are “the only persons recognised by the Company as having any title to the share” (emphasis added). It follows that any claim to the shares of a deceased holder that is asserted by someone other than the legal personal representative of that holder is not recognisable by the company and plays no part in the effectuation of the company’s constitution.

55 It also follows that, when article 106 refers to a “person becoming entitled to a share in consequence of the death … of a member” it refers to the “only” person recognised by the constitution as having “any title” to that share, that is, the deceased holder’s legal personal representative referred to in article 105. It may be inferred that article 106 does not refer specifically to the legal personal representative because it deals with cases of death and bankruptcy together.

56 Article 106 goes on to provide for two possible courses of action on the part of that legal personal representative with respect to the deceased holder’s share. The legal personal representative may exercise a “right … to be registered as a member in respect of the share” (which right corresponds with that arising from s 1072E(2)) or a “right … to make such transfer as the deceased … person could have made”. Each right created by the constitution arises, however, only “upon such evidence being produced as may from time to time be properly required by the Directors”; and each right is subject to the “same right” as the directors would have had “to decline or suspend registration … in the case of a transfer of the share by the deceased … person before the death …”. The right for the legal personal representative under s 1072E(2) is not affected by these conditions.

57 Because it creates a right for the legal personal representative of a deceased holder of a share “to be registered as a member in respect of the shares”, article 106 carries within it a power for the company to effect that registration. An equivalent power is implied by s 1072E(2). The power is a power of the kind described in s 1071B(5), since, on the above analysis, the legal personal representative is, following a member’s death, a person (indeed, in the case of this company, the only person) to whom the right to the share has “devolved by will or by operation of law” as referred to in that section. It follows that, by force of s 1071B(5) and the qualification expressed at the start of s 1071B(2), no proper instrument of transfer is needed when the legal personal representative elects to become registered as the holder of the share as contemplated by article 106 (or by s 1072E(2)).

58 The power that is implied by the rights of the legal personal representative arising under article 106 and s 1072E(2) is, in the case of IRPL, the only power of the kind that s 1071B(5) contemplates. The constitution does not envisage any species of “person becoming entitled to a share in consequence of the death … of a member” beyond the legal personal representative.

59 A share in IRPL that is the subject of a specific bequest can therefore become registered in the name of the legatee only through action of the legal personal representative. That action can only be by way of transfer – either transfer without the representative’s first having become the registered holder or transfer after the representative has become the registered holder. It is for the legal personal representative to choose between these alternatives.

What happened in this case?

60 I return now to the specific case of Kathryn Clark and Pamela Wood and the entries in IRPL’s register in respect of them dated 27 November 2007. Each of IRPL, Kathryn Clark and Pamela Wood, by defence to the amended cross claim of Helen Inglis, admits paragraphs 43, 44 and 45 which are in the following terms:

“43. There was no transmission or transfer signed by the legal personal representatives of the deceased submitted to the board for approval.
44. There was no board meeting or other resolution of directors of the Company to consider and determine their approval or otherwise of any such transmission or transfer.
45. There was no meeting or other occasion when the directors of the company approved of the making of any such entries in the Register of Members and Transfer Journal.”

61 Helen Inglis and Pamela Wood, the executrices to whom probate of Dr Inglis’s will was granted on 27 November 2007, did not play any part in the events that led to the entries in IRPL’s register. By this, I mean that the executrices did not act together (as executors must) in any way that caused or contributed to the entries. I say this because it is clear that Helen Inglis was not involved. It may be inferred that Pamela Wood, being an object of one of the entries and acting personally and separately from her co-executrix, played a role. But what she did was not an act of the executrices.

62 Nor, it may be inferred, did the directors of IRPL at that time the entries were made (Helen Inglis and Kathryn Clark) play any part as directors in those events. Kathryn Clark, as one of the objects of the entries, may be taken to have played a role. But she alone could not act to exercise the powers of the company or the directors of the company.

The status of the entries in the register of members

63 The executrices to whom probate of Dr Inglis’s will had been granted, being the only persons capable of being recognised by IRPL as having any title to the eight shares standing in Dr Inglis’s name, did not seek to become registered themselves as the holders of the shares. Nor did they purport or attempt to transfer the shares to the specific legatees.

64 That being so, the process which led up to making of the entries in the register recognising Kathryn Clark and Pamela Wood as shareholders was a process in which no part was played by the only persons recognised by the constitution as having any right to the shares, that is, Helen Inglis and Pamela Wood, the executrices.

65 In addition and has been noted already, the entries were not made by or with the authority of the company’s directors, Helen Inglis and Kathryn Clark.

66 The entries are, in short, entries made without due authority which record matters which ought not to have been recorded in the register and ought not continue to be recorded there. They do not reflect established legal rights; nor are they the source of legal rights.

Rectification of the register is not sought

67 If the corrective or rectifying jurisdiction with respect to registers created by s 175 of the Corporations Act were regularly invoked in respect of IRPL’s register of members, there would be grounds for the court to make an order correcting the register by removal of the entries of 27 November 2007 in respect of Kathryn Clark and Pamela Wood and reinstatement of the entries recognising Dr Inglis as the holder of the eight shares. As was pointed out in submissions, that jurisdiction is discretionary: Grant v John Grant & Sons Pty Ltd [1950] HCA 64; (1950) 82 CLR 1 at CLR 51 per Fullager J.

68 But the court is not asked, on this application, to exercise that jurisdiction. Rather, it is asked to recognise that the purported corporate action of IRPL in retaining ClarkeKann to act as the solicitors for IRPL in these proceedings was not a corporate action of IRPL at all.

The purported resolutions of 31 December 2007

69 The decision to retain ClarkeKann was a decision of Kathryn Clark and Pamela Wood. Kathryn Clark was, at the time, in office as a director. Pamela Wood purported to be in office as a result of a resolution of members passed on 31 December 2007. That resolution was purportedly passed at a meeting of members on 31 December 2007, together with a resolution that Helen Inglis be removed as a director. Before proceeding to consider the effect of the steps taken on 31 December 2007, it is necessary to consider the provisions of the constitution concerning appointment and removal of directors.

70 The capacity of a duly convened and quorate general meeting to appoint Pamela Wood as a director and remove Helen Inglis as a director was not questioned on the hearing of the notice of motion. Given that both matters were dealt with together and as a composite whole (albeit in such a way, according to the minutes, that the appointment occurred before the removal), it is possible to conclude, I think, that the process was within article 33:

“The Company may by ordinary resolution remove any Director and may by an ordinary resolution appoint another person in his stead.”

71 If the correct approach is to regard that article as authorising the removal of a director by resolution passed at a general meeting but without authorising earlier, as distinct from subsequent, appointment of another director by such a resolution, such an appointment can be supported under article 31:

“The Company may from time to time by ordinary resolution passed at a general meeting increase or reduce the number of Directors.”

72 An article in this form allows not only the creation of a new position but also installation of a person in that position: see, in particular, Worcester Corsetry Ltd v Witting [1936] Ch 640; Grant v John Grant & Sons Pty Ltd (above).

73 It must be accepted, therefore, that the removal of Helen Inglis and the appointment of Pamela Wood were matters within the competence of a general meeting capable of functioning as such. Of course, if, despite what I have said about article 33 and article 31, a general meeting was not competent to make an appointment of the kind purportedly made, that is reason in itself to find that Pamela Wood was not appointed.

74 Assuming that, as I have stated, article 31 or article 33 allows such an appointment, a meeting of the company’s members is the medium through which the necessary determination is to be made (although that otherwise necessary element might be displaced by a unanimous determination of the corporators as a whole without a meeting).

75 The general rule in a case where a “meeting” is required was stated by Kearney J in Re Hastings Deering Ltd (1985) 9 ACLR 755 at 755:

“The general rule is that a plurality of persons is required to constitute a meeting: see Sharpe v Dawes [1876] 2 QBD 26. However, as pointed out in The Law of Meetings by Shaw & Smith 5th ed at p 54, the expression “meeting” can be used in particular contexts in an artificial sense which is satisfied by the presence of a single individual. One of the illustrations of such an exception is afforded by the case where all the shares of a particular class in a company are held by a single holder. Thus, it was held by Warrington J in East v Bennett Bros Ltd [1911] 1 Ch D 163 that in such circumstances the expression “meeting” used in the memorandum and articles of the company was properly to be construed as comprehending the case where only one shareholder was entitled to attend .”

76 No special context of that kind existed here. There were two members capable of attending and voting (or appointing a proxy). They were Helen Inglis and Michael Inglis. There was also a “member” in respect of the untransmitted shares of the deceased Dr Inglis, although a member incapable of exercising the rights of membership pending transmission of shares and entry in the register: Re Agriculturalist Cattle Insurance Co (1870) LR 5 Ch App 725; A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation [1951] HCA 36; (1951) 82 CLR 452; Lunn v Cardiff Coal Co (No 3) [2003] NSWSC 789; (2003) 177 FLR 411.

77 Because Helen Inglis and Michael Inglis were both quite capable of functioning as members, it was possible to achieve on 31 December 2007 a meeting in the sense of a plurality of persons. The context did not attract the artificial and special meaning of “meeting” to which Kearney J referred.

78 Under article 11 of IRPL’s constitution, “two members present in person shall be a quorum” for a general meeting. It is not entirely clear to me whether the meeting was, in terms of article 12, “convened upon the requisition of members” but I do not think this matters. If the meeting was convened in that way and a quorum was not present half an hour after the time appointed for the meeting, then the meeting was, by operation of article 12, dissolved at the end of that half hour. If the meeting was not “convened upon the requisition of members” and a quorum was not present at the end of the half hour, the meeting was, by operation of article 12, adjourned to the same time on the same day of the next week. Either way, there was on 31 December 2007 no quorum and therefore no meeting capable of proceeding to business and passing valid resolutions.

79 But, as I have said, there was in reality no meeting at all. The organ of the company having authority to change the composition of the board of directors pursuant to articles 31 and 33 did not function.

Was there a defect saved by article 54?

80 The question that then arises is whether the purported appointment of Pamela Wood as a director on 31 December 2007 may nevertheless be effective because of article 54 of IRPL’s constitution:

“All acts done by any meeting of the Directors or of a committee of Directors or by any person acting as a Director shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director.”

81 This article is similar, in some respects, to s 201M of the Corporations Act, although the statutory provision has a narrower operation than does the provision of the constitution. For present purposes, it is sufficient to have regard to article 54 alone.

82 The article is in a common form (compare, for example, regulation 89 of Table A in the Fourth Schedule to the Companies Act 1961). The threshold question it poses is whether the particular case is one of defective appointment or no appointment at all.

83 The distinction was explained by Lord Simonds in Morris v Kanssen [1946] AC 459 at 472 in a passage approved by members of the High Court in Grant v John Grant & Sons Pty Ltd (above):

“[T]he section and the article, being designed as machinery to avoid questions being raised as to the validity of transactions where there has been a slip in the appointment of a director, cannot be utilised for the purpose of ignoring or overriding the substantive provisions relating to such appointment.”

84 The distinction was further elucidated by Kitto J in this way (at CLR 53):

“The section and the article presuppose an appointment in fact made by a person or body having power to appoint, and they refer to a slip in the making of the particular appointment in question.”

85 In the present case, the “person or body having power to appoint” was the company in general meeting. No general meeting took place. No quorate meeting of members capable of functioning occurred. There was therefore in fact no appointment made by the person or body having power to appoint. The machinery made necessary by the substantive provision allowing appointment was not set in motion. The situation was not one of defective appointment. It was one of no appointment.

86 Article 54 therefore did not operate to validate the purported appointment of Pamela Wood as a director on 31 December 2007.

The composition of the board was not changed on 31 December 2007

87 It follows from what has just been said that, from and after 31 December 2007, Pamela Wood was not a director of IRPL. Another consequence of the lack of any meeting of the members of IRPL was that the supposed resolution to remove Helen Inglis was ineffective and did not achieve that result. From and after 31 December 2007, the directors of the company remained as they had been immediately beforehand. Helen Inglis and Kathryn Clark remained the only directors in office.

88 The retainer of ClarkeKann by IRPL was, on its face, effected by Kathryn Clark and Pamela Wood. They were incapable of acting together as a board of directors of IRPL. To the extent that the retainer may have been agreed to by Kathryn Clark alone (and thus by a person validly in office as a director), there was no retainer by the company. This is because, under article 37, the management of the business of the company is, in the usual way, confided to the directors and they are authorised to exercise all the powers of the company not required by the Act or the constitution to be exercised by the company in general meeting; while under articles 45, 46 and 48, the directors are required to act by majority determination at meetings of directors, with two directors constituting a quorum at any such meeting.

89 As things stood on 8 May 2008, Helen Inglis and Kathryn Clark were the only directors and it was they who were capable of proceeding in that way. They did not do so.

The entitlement under s 128 to rely on s 129 assumptions

90 It is necessary to mention briefly the entitlement that ClarkeKann had under s 128 of the Corporations Act. That section says that a person is “entitled to make the assumptions in section 129 in relation to dealings with a company”. Relevant, for present purposes, are the assumptions in ss 129(2) and 129(3):

“(2) A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:
(a) has been duly appointed; and
(b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

(3) A person may assume that anyone who is held out by the company to be an officer or agent of the company:
(a) has been duly appointed; and
(b) has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company.”

91 A company search in evidence shows that, as at 8 May 2008 (the date of ClarkeKann’s written retainer), records kept by ASIC and available to the public showed Kathryn Clark and Pamela Wood to be the only directors of IRPL. The records showed Pamela Wood as having commenced to be a director on 31 December 2007 and Helen Inglis as having ceased to be a director on that date. Kathryn Clark is shown as having been a director since a date in 2003.

92 It must be inferred that the information given to ASIC that caused the records to be in that state was given by or at the direction of Kathryn Clark and Pamela Wood. They had purported to act as the directors of the company after 31 December 2007, relying on the validity of the supposed resolutions of members to remove Helen Inglis as a director and to appoint Pamela Wood as a director. Lodgment with ASIC of a notice of change in officeholders may be presumed to have been among the actions they took or procured to be taken.

93 The lodgement with ASIC and the notification it conveyed suffered from the same vice as the making of the retainer agreement with ClarkeKann. It was not something done by IRPL which, at the time, was capable of acting only through a board of directors consisting of Helen Inglis and Kathryn Clark. Anything purportedly done by the company that was not traceable to the authority of that board of directors was not done by IRPL.

94 It follows that the information available from ASIC as to the particulars of the company’s directors, as already described, was not “information provided by the company” as referred to in s 129(2). It was information provided without the authority of the company duly given. It follows that, on 8 May 2008, ClarkeKann were not entitled to make any assumption by virtue of that section that Pamela Wood was a director and Helen Inglis was not a director.

95 The position is the same under s 129(3). To the extent that there may have been any holding out to ClarkeKann, it was a holding out by Kathryn Clark and Pamela Wood and not a holding out “by the company”.

Section 1274B

96 Reference was also made in submissions to s 1274B of the Corporations Act:

“(1) In this section:
"data processor" means a mechanical, electronic or other device for processing data.


(2) In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary.

(3) A writing need not bear a certificate or signature in order to be taken to purport to have been prepared by ASIC.

(4) Nothing in this section limits, or is limited by, section 1274 or 1274A.”

97 A document of the kind referred to in s 1274B(2) is in evidence and has already been mentioned (see paragraph [91] above). It is prima facie evidence that Pamela Wood became a director on 31 December 2007, that Helen Inglis ceased being a director on that date and that Kathryn Clark has been in office as a director since the specified date in 2003.

98 But that prima facie position is displaced in the same way as the prima facie position with respect to shareholders arising under s 176 is displaced: see paragraphs [34] – [36] above.

Estoppel

99 Each of IRPL, Kathryn Clark, Michael Inglis and Pamela Wood, as a cross-defendant to Helen Inglis’s amended cross-claim, pleads that Helen Inglis is estopped from denying “that any transfer of the deceased’s eight shares in [IRPL] to [Kathryn Clark] and [Pamela Wood] after the grant of probate was effective, and was effective as at 31 December 2007”.

100 While there was brief reference to this in the course of Mr Lever’s submissions on the motion, no attempt was made to develop the point or to show any basis on which an estoppel might be seen to arise so as to displace the results I have outlined.

Decision on the motion

101 Helen Inglis has established that ClarkeKann were not validly and regularly retained to act as the solicitors for IRPL in these proceedings.

102 It was urged upon me by Mr Lever that, if this position were reached, I should adjourn the motion rather than proceeding to make order 1 as set out at paragraph [8] above. I am persuaded that that is the preferable course.

103 Dr Inglis, by his will, stated his wish as to the ownership of his shares in IRPL. He was obviously aware that Helen Inglis and Michael Inglis held one share each. He made provision for Kathryn Clark and Pamela Wood to have four shares each. When the company’s share capital comes to be held in the way provided for in the will, Kathryn Clark and Pamela Wood, acting together, will be able to cause the board of directors to be reconstituted in the way it was purportedly reconstituted on 31 December 2007; and then (at both the level of a general meeting and the level of a board meeting) to cause IRPL to ratify or renew the retainer of ClarkeKann.

104 I accept, in this respect, the submission of Mr Lever that an immediate order in terms of paragraph 1 of the notice of motion would be an undesirable triumph of form over substance.

105 An essential step to put matters on to a proper footing is action by Helen Inglis and Pamela Wood, acting together as executrices of Dr Inglis’s will, to cause Kathryn Clark and Pamela Wood to be the registered holders, as to four each, of the eight shares of which Dr Inglis was the registered holder at his death. His wishes are clear and the executrices are bound to give effect to them, whatever may be the differences that have developed between them. It is said that the estate is only partly administered. It is also said that because the activities of IRPL are confined to acting as trustee of the family trust, the shares are of purely nominal value – added to which one cannot imagine that there is any ready market for them. If, as thus appears, the shares are effectively worthless, due administration is most unlikely to be enhanced by delaying transmission to the legatees.

106 It may be that the executrices will conclude with ease that the shares are not required for administration purposes. If they do so conclude, there is no apparent reason on the facts before me why they should not promptly do all such things as are necessary on their part to cause the legatees to become the holders of the shares. And if the executrices take those steps, there is likewise no apparent reason why the directors of IRPL should not do what needs to be done by them to place the legatees on the register in respect of the shares.

107 The executrices are bound to give effect to the testator’s wishes expressed in the will. If they do not see fit to take the matter in hand expeditiously, it is possible that some other solution will be sought by way of application under s 237 of the Corporations Act or invocation of some other aspect of the court’s jurisdiction under which deadlocks may be broken.

108 I shall, as Mr Lever has asked, adjourn the notice of motion. I did not receive submissions on the length of the adjournment. It should not, however, be very long. Each of the possible solutions to the impasse should be achievable in a relatively short time. I shall therefore stand the matter over for one month in the first instance.

Costs

109 It remains to say something about costs and the order sought by paragraph 2 of the notice of motion (see paragraph [8] above).

110 As Mr Thomson pointed out in submissions on behalf of Helen Inglis, it has commonly been ordered, where a challenge to a solicitor’s retainer is successful, that the solicitor pay both the costs of the motion and the costs of the proceedings to date: see, for example, Harry S Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421; AW & LM Forrest Pty Ltd v Beamish [1998] NSWSC 442; (1998) 146 FLR 450. This is apparently because “the client is ignorant and the solicitor is, or should be, learned” (Griffiths v Evans [1953] 1 WLR 1424 per Lord Denning) and the solicitor is taken to have warranted his or her authority, so that, if there is a breach of the warranty, the court’s supervisory or disciplinary jurisdiction is enlivened (Yonge v Toynbee [1910] 1 KB 215).

111 It has recently been made clear by the Court of Appeal, however, that the question should not be approached as if there were some prima facie rule as to the costs consequences of a successful challenge to a solicitor’s retainer.

112 In Hillig v Darkinjung Pty Ltd [2008] NSWCA 75, the Court of Appeal found that a solicitor had been retained without authority. There was then an application for an order that the solicitor pay the costs of the proceedings. The decision on that application was given on 23 June 2008, Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147.

113 McColl JA, with whom Beazley JA and Giles JA agreed, made two fundamental points: first, that under s 98(1) of the Civil Procedure Act 2005, costs are in the discretion of the court which has full power to determine by whom, to whom and to what extent costs are to be paid; and, second, that the power to make a costs order against a person who is not a “party” is heavily circumscribed by rule 42.3 of the Uniform Civil Procedure Rules 2005.

114 McColl JA referred to Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 and raised, without answering, the question whether “any part of the Knight jurisdiction survived UCPR 42.3 and its predecessors”. Her Honour then referred to the decision of Bryson J in Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447 and expressed agreement with the proposition that the issue of costs, in case of successful challenge to a solicitor’s retainer, should be approached without preconceptions beyond the clear rule that costs are in the discretion of the court. In the result, the solicitor in Hillig v Darkinjung Pty Ltd (No 2) was not ordered to pay the costs of the opposing parties either at trial or on appeal.

115 I do not propose to say more at this point on the subject of costs. It should be revisited when the adjourned notice of motion comes before the court and in the light of the whole of the circumstances, as they then exist.

Conclusion

116 I order that Helen Inglis’s notice filed on 16 July 2008 be adjourned to 9.30am on 5 December 2008 before me.

117 When the matter is next before the court, I shall wish to have submissions as to why it should remain in the Corporations List which, in terms of Practice Note SC Eq 4, is for “Corporations matters” which

“include proceedings and interlocutory applications that arise out of the Act [ie, the Corporations Act 2001 (Cth)] or the Rules [ie, the Supreme Court (Corporations) Rules 1999 )], or seek relief under any of those provisions; and proceedings relating to other incorporated bodies such as co-operatives and incorporated associations.”

118 The Corporations Act claims in the amended cross-claim, apart from those involving the matters dealt with in these reasons, appear to be merely incidental and subordinate to substantive issues going to the due administration of the estate and the family trust.

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