(b) Sale of the 3XY licence and the origins of the Cormack Foundation
54 On 3 November 1986, Station 3XY Pty Ltd, as vendor, entered into an agreement for the sale of shares and a sale of the 3XY licence with Paul Dainty Properties Pty Ltd, as purchaser. Station 3XY Pty Ltd agreed to sell, inter-alia, the 3XY licence and all the issued shares in Radio 3XY Pty Ltd for the sum of $18.75 million. Radio 3XY Pty Ltd was a wholly owned subsidiary of Station 3XY Pty Ltd and had operated the radio station since 1 July 1978.
55 At around this time it was contemplated that a substantial proportion of that sum ($15 million) would be placed in a trust for the purposes of the Liberal Party. A draft "3XY Trust Deed" was prepared.
56 In October 1986, Mr Calvert-Jones was the Treasurer of the Liberal Party; he held that position from 1984 to 1989. In that role and on 30 October 1986 Mr Calvert-Jones retained Mr Alan Cornell (then the senior partner at Blake & Riggall), to advise the Liberal Party on a structure to be employed for receiving the proceeds of sale of the 3XY licence. Mr Cornell is currently a special counsel with Hope Earle Solicitors. Having been admitted to practise in 1962, he became a partner of Blake & Riggall (now Ashurst) in 1966. He worked as a commercial and litigation lawyer. From 1966 to 1986, Mr Cornell acted as solicitor for the then Stock Exchange of Melbourne. In that capacity he met Mr Calvert-Jones, who was a committee member of the exchange and vice president. Because the then Liberal Party's principal solicitors Weigall & Crowther were acting for the purchaser of the 3XY licence, Mr Cornell was engaged by Mr Calvert-Jones to advise the Liberal Party on the transfer of the proceeds of sale, initially into a trust for the benefit of the Liberal Party to be controlled by Liberal Party nominees.
57 Mr Morgan, then a member of the State Finance Committee and a Trustee of the Liberal Party, was also involved in giving instructions to Mr Cornell. He held the position as a member of the State Finance Committee and as a Trustee from 1983 to 1993. Mr Morgan has held a number of corporate director positions over his career, most notably Western Mining Corporation where he was chief executive officer from 1990 to 2003. He has a long association with the Business Council of Australia, including serving as its president from 2003 to 2005. He also has a long association with the Minerals Council of Australia, serving as the chairman of various committees (1976 to 1998), as president (1981 to 1983) and as senior vice president (2002 to 2003). He has twice been a board member of the Reserve Bank of Australia (1981 to 1984 and 1996 to 2007). Mr Morgan has been a member of the Liberal Party since around 1980.
58 In terms of the disposition of the proceeds of sale of the 3XY licence, initially what was anticipated was a trust to hold the funds for the benefit of the Liberal Party. That trust was to be controlled by the Liberal Party's nominated trustees. Mr Cornell prepared a draft trust deed which provided that its principal objects were to support the maintenance of liberty of speech, religion and association and to promote and preserve the element of individual enterprise, with an object of the trust being to "[assist] the Liberal Party of Australia to defray the costs of administration of that organisation or any division thereof". The draft trust deed provided that in the event of a winding up the net assets would be transferred to the "trustees of the Liberal Party of Australia". A perpetuity period of 80 years was stipulated. Both Mr Calvert-Jones and Mr Morgan were to be trustees of that trust, as too was Mr Guilfoyle. The draft trust deed was sent to each of Mr Morgan and Mr Calvert-Jones on or around 12 December 1986.
59 On 5 January 1987, Mr Morgan wrote to Mr Cornell in relation to the proposed trust deed as follows (emphasis in original):
Many thanks for your letter of 12th December. I think the draft deed that you have prepared is a vast improvement on anything we have seen previously. In respect of the comments that I would proffer, they are as follows:
(1) In 2.(4) the presumption I have from the manner in which this is drafted is that all funds will end up with the Liberal Party for there is absolutely no doubt in my mind that the Liberal Party will find ways in which to spend all of the money available. While this is the Liberal Party's intention, it may be a stumbling block with Stan Guilfoyle and the present 3XY trustees/directors. If it requires amendment we should, I believe, be "flexible", for so long as we have control of the trustees I believe there will be no practical problem.
(2) A point made to me by Charles Goode is that the Liberal Party sought to be benefitted is the Liberal Party of Victoria.
(3) Clause 4.(4) refers to the appointment of three trustees. I think there is a difficulty in limiting it to three because two of the original three trustees are clearly dedicated to representing the Liberal Party of Victoria, namely myself and John Calvert-Jones but that is not the case for Stan Guilfoyle. In the event that either John or myself were no longer to act as a trustee there may be a conundrum as to the appointment of the third by the remaining two. Consequently, I would suggest clause 4 should contemplate there being not less than three trustees nor more than five. This has the advantage of:
(a) avoiding there ever being a deadlock; and
(b) enabling the existing three trustees to arrange for the appointment of one or more additional trustees.
Given that John and I will participate we will then be able to ensure such additional trustees are acceptable to the Liberal Party. As you are aware, it is both my and John's intention to let the Liberal Party of Victoria have our resignations from this trust so that the Liberal Party can remain in control of our appointment as trustees.
Thank you again for the draft. I am sure it is a most helpful contribution to having this matter resolved.
60 It would seem that Mr Morgan may have shown a copy of the draft trust deed to Mr Goode, also then a member of the State Finance Committee and a Trustee of the Liberal Party (see para (2) of the letter); Mr Goode served in those two positions from 1986 to 2017. Apparently, Mr Morgan discussed the arrangements for the $15 million with Mr Goode and consistently with Mr Goode's suggestion, the ultimate beneficiary was made the "Liberal Party of Victoria", which in these reasons I have defined as the "Liberal Party".
61 Now around this time Mrs Eda N Ritchie was President of the Liberal Party; she held that position until 24 July 1987. Mr Calvert-Jones reported to meetings of the Liberal Party's Administrative Committee and State Finance Committee throughout 1987 about how these negotiations were progressing. Mr Michael Kroger's evidence was that from the time he took over as President from Mrs Ritchie, Mr Calvert-Jones reported to and took instructions from the Administrative Committee as to these negotiations. Mr Kroger gave evidence that it was his belief that by reason of the 1979 agreement between the shareholders of Station 3XY Pty Ltd and the Liberal Party, which I have previously discussed, that entity was effectively owned by the Liberal Party and that what was happening was a transfer of assets from one Liberal Party vehicle to another. That may have been his sincere belief. The legal significance and characterisation of relevant events is another matter.
62 Now apparently the draft trust deed was subject to negotiations with the directors of Station 3XY Pty Ltd. But it appears that the directors of Station 3XY Pty Ltd insisted that the deed not specifically name the Liberal Party as a beneficiary or provide that the funds be paid to it in the event of a winding up. On 12 May 1987, Mr Cornell had a conference with Mr Calvert-Jones at which the latter gave Mr Cornell a draft trust deed designated draft 12.5.87 and marked "Master Copy". Although this document had Mr Cornell's reference on it, it was not a document that he prepared and was in a different font from documents that he had prepared at that time. Mr Calvert-Jones instructed him to incorporate the changes embodied in the "Master Copy" into a new draft trust deed. Mr Cornell did as instructed and produced a new draft. In his covering letter to Mr Calvert-Jones dated 12 May 1987, which enclosed the new draft, Mr Cornell noted the omission of the Liberal Party from cll 2(4) and 9. Mr Cornell does not now recall what specific reason Mr Calvert-Jones gave him for the omission of the Liberal Party from cll 2(4) and 9, however his best recollection is that the document designated "Master Copy" incorporated amendments sought by one or more of the directors of Station 3XY Pty Ltd.
63 Mr Cornell was very concerned about the deletion of the Liberal Party from cll 2(4) and 9 as it contradicted the instructions that he had received from Mr Calvert-Jones on 30 October 1986. As he said in evidence, specific reference to the Liberal Party had been included in all drafts of the trust deed up to that point in time, save for the "Master Copy" produced by Mr Calvert-Jones.
64 Because of this development, Mr Cornell took the view that to protect the interests of the Liberal Party, each trustee of the new trust should sign an undertaking which committed each trustee to, inter-alia, use their best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party. Mr Cornell accordingly prepared undertakings to this effect. Further, at about this time Mr Cornell was instructed by Mr Calvert-Jones to include the names of Mr Cornell and Mr Goode as trustees in the execution copies of the trust deed.
65 On 28 May 1987, a trust deed to be executed together with a form of undertaking to be executed by each trustee was forwarded by Mr Cornell to Mrs Ritchie. At this time the trustees were to be Mr Morgan, Mr Calvert-Jones, Mr Goode and Mr Cornell, but not Mr Guilfoyle. And as I have indicated, to protect the interests of the Liberal Party Mr Cornell prepared undertakings for each trustee to sign. The undertakings provided for each trustee to:
(a) use his best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party;
(b) use his best endeavours to ensure that a condition precedent to the appointment of any new trustee would be that the nominee would first sign an undertaking in like terms; and
(c) resign as a trustee if so required by the Liberal Party.
66 According to a note on Mr Cornell's file, he received the deed signed by the four trustees on 29 May 1987. He later sent the trust deed to Mr Calvert-Jones in duplicate signed by the four trustees.
67 On 4 August 1987, Mr Cornell received a telephone call from Mr Calvert-Jones in which he asked him to draft an indemnity for the shareholders and directors of Station 3XY Pty Ltd to protect them from any liability as a result of any payment that might be made by Station 3XY Pty Ltd to any new trust from the proceeds of sale of the 3XY licence.
68 On 12 August 1987, Mr Cornell received a further telephone call from Mr Calvert-Jones who confirmed that Mr Guilfoyle had said that he wanted an indemnity for each director and shareholder of Station 3XY Pty Ltd in respect of the handover of any money to any new trust.
69 On 27 August 1987, the board of Station 3XY Pty Ltd resolved to apply its property towards the promotion of its objects by paying the sum of $7 million (of the $7,750,000 which it then had under its control) to the "Magnus Cormack Enterprise Trust".
70 Also on 27 August 1987, Mr Cornell had a conference with Mr George Raitt of Blake & Riggall who informed him that there had been yet another proposed change to the trustees.
71 On 28 August 1987, Mr Cornell wrote to Mr Calvert-Jones in which he expressed concern as to the ultimate control of the trust. Further, in a memorandum prepared by Mr Cornell on 29 August 1987 to one of his partners who was to handle the file whilst he was overseas, Mr Cornell recorded his instructions as:
It is absolutely essential that a majority of the new Trustees execute a similar undertaking otherwise the basic problem of 3XY, which refused to acknowledge it had any obligation to the Liberal Party, will be perpetuated.
72 On 1 October 1987, it was decided by the Liberal Party's Administrative Committee that there would be three trustees and that they would now be Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle. As I have already explained, Mr Guilfoyle was a director and shareholder of Station 3XY Pty Ltd, but he would not sign any undertaking. This decision was communicated to Mr Cornell by Mr Calvert-Jones in a telephone conversation that day. Mr Cornell's file note of 1 October 1987 records that when Mr Cornell pointed out to Mr Calvert-Jones that Mr Guilfoyle had not signed a resignation or an undertaking, Mr Calvert-Jones said that a 2:1 vote would protect the Liberal Party's position.
73 On 2 October 1987, Mr Calvert-Jones instructed Mr Cornell to provide him with execution copies of the trust deed. On 14 October 1987, Mr Cornell wrote to Mr Calvert-Jones enclosing a new deed for execution with some minor amendments.
74 On 20 October 1987, Mr Cornell was instructed by Mr John Ridley, the State Director of the Liberal Party, to brief senior counsel for his opinion in respect of the proposed trust. Now the need for this arose in the following way.
75 The proposed version of the trust deed at this point in time had objectives that were broadly consistent with the Liberal Party's objectives, but without specific reference to the Liberal Party, let alone as an object. But this gave rise to doubts as to the validity of the proposed trust. This question had been the subject of legal advice given by Blake & Riggall. Mr Alan Stewart, who was a consultant at Blake & Riggall, had reviewed the then proposed trust deed against the requirement of the three certainties necessary for the creation of a valid trust including the certainty of object(s). As the draft trust deed provided to him did not name the Liberal Party as an object, he expressed the following view:
In the case of the 3XY Trust there are no individual beneficiaries nor do I see how the Court could enforce and supervise the Trusts and therefore there is the gravest reason to doubt the validity of the document as a valid declaration of Trust.
Now he discussed the rule against perpetuities but thought there was no difficulty given the 80 year stipulation in cl 8. Rather, the problem that he identified was one concerning the uncertainty of the identity of the object(s). It was in that context that it was proposed to seek the opinion of Mr Alan Goldberg QC, an eminent commercial silk and later a member of this Court.
76 On 22 October 1987, Mr Cornell briefed Mr Goldberg QC to advise upon the validity of the trust deed. Those instructions asked for counsel's opinion as to whether income from the trust could be paid to the Liberal Party. Let me set out those instructions:
1. Observations for Counsel
(1) Your instructing solicitors act for The Magnus Cormack Enterprise Trust which is about to be constituted by a Trust Deed.
(2) Counsel will recently be aware that Station 3XY Pty Limited sold Station 3XY Pty Ltd for the sum of $A15 million. The purchase price is payable in two instalments, the first having been paid and the second being due at the end of this month.
(3) It is proposed that Station 3XY Pty Limited will pay to the Trustees of The Magnus Cormack Enterprise Trust the sum of $15 million to be applied by them in accordance with the Trust Deed.
2. Documents for Counsel
Counsel is handed herewith -
(1) The Trust Deed of The Magnus Cormack Enterprise Trust designated, Final Draft 21.10.87.
(2) Memorandum and Articles of Association of Station 3XY Pty Limited.
3. Instructions for Counsel
Counsel is asked to consider the enclosed documents and to advise whether the Trustees are entitled to apply the income from the Trust by paying same pursuant to clause 2.(9) to the Liberal Party of Australia (Victorian Division).
In the first draft of this Deed prepared by Blake & Riggall we had inserted in what is now "Secondly" in clause 2.(9) the following -
"secondly, in assisting the Liberal Party of Australia to defray the cost of administration of that organisation or any division thereof; and
thirdly in furthering the objects of the Trust Funds by such means as the Trustees shall determine;"
In the view of your instructing solicitors this puts the matter beyond doubt, but our instructions are that the Trust Deed should contain no specific reference to the Liberal Party of Australia (Victorian Division).
77 On 23 October 1987, Mr Cornell wrote a memorandum to Mr Geoffrey Hone (also a partner of Blake & Riggall). He recorded that the original draft of the trust deed, which included the Liberal Party as a named beneficiary, had been settled by Mr Beamish Brett and had been looked at by Mr Alan Stewart. He recorded that over the ensuing months, Mr Calvert-Jones had instructed that the clause naming the Liberal Party as a beneficiary be removed. He recorded that Mr Calvert-Jones was then having second thoughts and had sought senior counsel to be instructed on the point. Mr Cornell then stated: "Subject to your comments, I propose to provide Mr Stewart's memorandum to [Mr Goldberg QC]. In my view it is not embarrassing - the omission of a specific object was on specific instructions".
78 On 26 October 1987, Mr Cornell provided a further brief to Mr Goldberg QC. Let me set out the further instructions:
1. Documents for Counsel
Counsel is handed herewith -
(1) Memorandum, undated and signed "AAS".
(2) Extract from "The Law of Charitable Trusts in Australia" pages 101 to 105.
(3) Producers' Defence Fund 1954 VLR 246 (Smith J.)
2. Instructions for Counsel
Counsel is also asked to advise on the matters raised in Mr Stewart's memorandum and, in particular, whether the Trust is valid despite the lack of a specific legal entity as a beneficiary.
79 As I have indicated, Mr Stewart had opined upon a version of the amended trust deed that did not name the Liberal Party as an object of the trust. Mr Stewart's memorandum concluded that because the proposed trust had "no individual beneficiaries", there was "the gravest reason to doubt the validity of the document as a valid declaration of Trust". According to Mr Cornell's evidence, Mr Goldberg QC apparently gave telephone advice to Mr Cornell on or around 4 November 1987 agreeing with Mr Stewart. Mr Cornell then formed the view that the trust structure could not proceed without a residual beneficiary.
80 Now I agree with the plaintiffs that the suggestion made by the defendants before me, namely, that Mr Goldberg QC was not opining upon the validity of a trust absent the Liberal Party as an object but rather opining on the validity of the trust assuming that the Liberal Party was a named object, is incorrect. That was not the scenario then in contemplation and that was not what Mr Stewart had been considering. At the time it was contemplated that the Liberal Party was not to be an object. Hence the trust problem; there was a perceived lack of certainty of object. Mr Stewart was concerned with uncertainty as to object where the Liberal Party was not an object. Mr Goldberg QC was briefed with the documents identified in the instructions to advise dated 22 October 1987 and the instructions to further advise dated 26 October 1987, but those documents did not include the Liberal Party's constitution, which (if the defendants were correct) counsel would have needed to have been briefed with to express any view about whether the Liberal Party could be the object of a trust if it was contemplated that the Liberal Party was to be an object. But the documents and the evidence given by Mr Cornell well demonstrate that the concern at the time related rather, as the plaintiffs correctly contend, to the absence of an object or residual beneficiary. And it is apparent that this difficulty arose because although the original trust structure was contemplated to have the Liberal Party as the beneficiary, this was removed at the request of the directors of Station 3XY Pty Ltd as a condition of transferring the proceeds of sale over to any new structure.
81 In November 1987, it having been ascertained that the contemplated trust would fail as a non-charitable purpose trust, it was then proposed to form a proprietary company to receive the proceeds of sale. This was suggested by Mr Hone on or around 25 November 1987.
82 As matters evolved, the structure proposed was a company (the Cormack Foundation) with three shareholders, each with one-third of the shares, and each with a right to appoint one director. The authorised capital of the Cormack Foundation was to be limited to $99.00, consisting of 99 shares of $1.00 each. A special resolution was to be required to increase the authorised capital (a concept later abolished from 1 July 1998). It was proposed that the memorandum and articles of association would prohibit the payment of dividends to shareholders, but would permit payments for purposes aligned with the Liberal Party's purposes.
83 Ultimately, on 2 February 1988 Mr Cornell provided to Mr Calvert-Jones a letter in the following terms discussing the four options that had been considered to that point in time including the latest option being the corporate structure:
We have pleasure in enclosing what we trust is the final draft of the Memorandum & Articles of Association of The Magnus Cormack Foundation Pty Ltd (Draft 2.2.88). This document should be read carefully by you before it is agreed to as it will govern the investment of, and disposition of the income on, $15 million for many years to come. While change to the Articles of Association is possible, it is unlikely to occur in the short term because of the checks and balances involved in the document before you. In reviewing this document you should have in mind the other possibilities which have been canvassed in the past 15 months and have been incapable of achievement for various reasons.
The first option was for the directors of Station 3XY Pty Limited to give $15 million to the Liberal Party of Australia (Victorian Division). The sum could then have been placed in a special account and invested. As a matter of negotiation, this option has not been capable of achievement.
The second option discussed was the formation of a trust into which would be paid the sum of $15 million. The drafting of the Trust Deed and the accompanying negotiations with interested parties took place over a period of nearly 12 months. However, during the negotiations all references to the Liberal Party of Australia (Victorian Division) were removed from the Trust Deed with the result that the Trust had no object and, accordingly, could have failed for uncertainty. This option was, therefore, not proceeded with.
The third option was that Station 3XY Pty Ltd could be placed in liquidation and the moneys distributed to the persons beneficially entitled thereto. This option would have required a 75% vote by the shareholders which may not have been forthcoming and then there would have been a dispute as to who was entitled to the moneys on liquidation. Accordingly, this option has not been seriously examined.
The fourth option is that one which is presently before you. This is the incorporation of a new company which will have as its objects the support of Liberal objectives and, as a result, will be enabled to pay to the Liberal Party of Australia (Victorian Division) the income from the $15 million, subject to the value of the fund being maintained in real terms. This option is not an ideal solution as it involves the creation of a new legal entity and with it shareholders and directors who are not controlled by the Liberal Party of Australia (Victorian Division).
84 At a meeting of the Administrative Committee on 4 February 1988, attended by Mr Kroger, Mr Cornell, Mr Calvert-Jones and others, Mr Cornell explained the options that he had set out in his 2 February 1988 letter. The minutes record the following:
7. RADIO 3XY
The Administrative Committee accepted the resolution put forward by Alan Cornell that the formation of a 3XY Foundation be set up to manage the proceeds of 3XY (this was accepted by the majority of the Admin Committee).
Mr Kroger gave evidence that Mr Cornell advised the Administrative Committee that a company was being set up to house the 3XY sale proceeds that would be controlled by the Liberal Party. Mr Kroger gave evidence that Mr Calvert-Jones had told the Administrative Committee that the 3XY sale proceeds would effectively be held on trust for the Liberal Party. At all events, it would seem that the Administrative Committee resolved to proceed with the fourth option referred to in Mr Cornell's letter of 2 February 1988.
85 By letter dated 5 February 1988, Mr Cornell sent to Mr Calvert-Jones a copy of a memorandum to counsel also dated 5 February 1988 sent to Mr Goldberg QC, and stated to Mr Calvert-Jones "I have explained to [Mr Goldberg] the background to the proposed compromise and he has undertaken to examine the documents which I trust will be agreed to by Sir Magnus Cormack".
86 Let me reproduce that memorandum prepared by Mr Cornell for Mr Goldberg QC:
1. Observations for Counsel
(1) Counsel is referred to his Brief herein dated 22nd October 1987 and our subsequent conference. Since that conference the concept of a Trust has been abandoned on the basis that it was not possible for the Liberal Party of Australia (Victorian Division) to be specifically referred to as an object and, as a result, the Trust may have failed for uncertainty. The compromise which has been proposed by the shareholders of Station 3XY Pty Limited is that a new company be incorporated with similar objects to Station 3XY Pty Limited and that the $15 million received from the sale of Radio 3XY Pty Limited be paid across to that company.
(2) This is clearly a compromise solution to the dispute and, as a result, has a number of drawbacks. However, your instructing solicitors believe that it is the best that can be achieved in the circumstances.
2. Documents for Counsel
Counsel is handed herewith -
(1) Letter dated 2nd February 1988 to Mr J.A. Calvert-Jones.
(2) Memorandum and Articles of Association of The Magnus Cormack Foundation Pty Limited.
[(3)] Deed of Indemnity.
3. Instructions for Counsel
Counsel is requested to examine the enclosed documents and make any comments he deems appropriate.
Counsel will note that the initial shareholders will be Messrs J.A. Calvert-Jones, S.M.L. Guilfoyle, and H.M. Morgan. Both Mr Calvert-Jones and Mr Morgan have indicated that they will give an executed Deed of Trust in favour of the Liberal Party of Australia (Victorian Division) and undertake to deal with their shares as directed by the Liberal Party of Australia (Victorian Division). In addition, they will hand to the Liberal Party of Australia (Victorian Division), blank share transfer forms together with undated signed resignations as directors.
87 Mr Guilfoyle, a director and shareholder of Station 3XY Pty Ltd, was to be one of the three shareholders and directors, and Mr Calvert-Jones and Mr Morgan were put forward by the Liberal Party as the other two shareholders and directors. Now it is not apparent on the evidence before me what precise advice Mr Goldberg QC then provided. It was put to Mr Cornell in cross-examination by Mr Allan Myers QC for the defendants that Mr Goldberg QC advised that the same problems existed with a deed of trust over the shares as existed with the proposed deed of trust over the assets of the company, but Mr Cornell could not recall. Now there are two points to be noted. First, at this time it was contemplated that there would be some trust over the shares of Mr Calvert-Jones and Mr Morgan. Second, the same uncertainty of object problem did not arise. The previous proposed deed did not have the Liberal Party as an object. But the proposed undertakings did, although a more subtle problem arose which I will discuss later when dealing with the validity or enforceability of the trust(s) asserted. Further, it is interesting that what then occurred over the next few months was very close to what was contemplated in the instructions to counsel, although of course no formal deed of trust over the shares was ever executed. But in terms of intention, in my view it would seem that a trust over Mr Calvert-Jones' and Mr Morgan's shares was contemplated in favour of the Liberal Party. Now several months after this time undertakings were given and signed blank share transfer forms and undated resignations as directors were given over by Mr Calvert-Jones and Mr Morgan. I doubt that Mr Goldberg QC gave the advice suggested by counsel for the defendants. If he had it is likely that a different course of events would have transpired.
88 Now there was then a delay caused apparently by the directors of Station 3XY Pty Ltd refusing to adopt the proposed structure. The minutes of a meeting of the Administrative Committee held on 3 March 1988 record the following:
Discussion followed on the budget papers, as attached and included considerable comment on the 3XY situation - it was agreed that Alan Castleman and Eda Ritchie liaise closely with John Calvert-Jones and express the views of the Committee in this matter.
Concern at:
• the 2 extra Directors now sought
• proposal to give some funds to another body
See if the Hon Andrew Peacock is prepared to talk to Sir Magnus Cormack.
89 Mr Kroger gave evidence that the nature of this dispute between the directors of Station 3XY Pty Ltd and the Liberal Party was about who would control the allocation of income going forward. Mr Kroger also gave evidence that when Mr Calvert-Jones told him that this dispute had been resolved in favour of the Liberal Party, Mr Calvert-Jones said nothing about the elected officials of the Liberal Party having no control over the funds.
90 The Cormack Foundation was incorporated on 10 March 1988 for the purpose of receiving a gift of the sale proceeds from Station 3XY Pty Ltd. The original subscribers and directors were Mr Calvert-Jones, Mr Guilfoyle and Mr Morgan, who each paid $33.00 for their 33 shares, as Mr Cornell had requested them to do by his letter dated 7 March 1988. At the time Mr Calvert-Jones was Treasurer, and Mr Morgan was a Trustee, of the Liberal Party. Station 3XY Pty Ltd had by this time been renamed "Station Enterprise Pty Ltd".
91 As set out in the memorandum and articles of association of the Cormack Foundation and adopted upon its incorporation, the objects for which the Cormack Foundation was established and to which its income and capital were to be applied were general objects which did not refer to the Liberal Party or any other person or organisation, but did include objects that appear to me to be associated with the political philosophy of liberalism (cll II and VII of the memorandum and art 69). According to Mr Cornell, cl II(5) of the memorandum of association of the Cormack Foundation was based on para 4 of the objectives of the Liberal Party of Australia as set out in the Official Federal Platform of the Liberal Party of Australia (approved by the Federal Council on 15 November 1960). The memorandum prohibited distributions to members or to any person claiming through them (cl VII), and provided that upon a winding up any surplus property was to be given or transferred to some institution(s) having similar objects and prohibition on distributions to members, such institution(s) to be determined by the members or pursuant to a default mechanism, and otherwise to some charitable object (cl VIII). The articles provided inter-alia the following: shares could be issued by unanimous decision of the directors (art 3); directors could refuse to register any transfer of shares (art 11(3)); each shareholder holding at least one third of the issued shares could appoint one director, and any further appointments were to be made by unanimous decision of the directors (art 38); the directors had no entitlement to receive remuneration (art 41); and acts done by the directors were not invalidated by any defect in appointment of directors (art 60).
92 Mr Cornell gave evidence that with the assistance of Mr Raitt, he drafted the memorandum and articles of association of the Cormack Foundation. In drafting the memorandum and articles of association, he intended that the structure should to the extent feasible reflect the intended structure when there was to be a trust rather than a company. Accordingly, there were to be three directors and shareholders of the Cormack Foundation: Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle.
93 He intended that each of Mr Calvert-Jones and Mr Morgan would execute an undertaking similar to that proposed when the vehicle was to be structured as a trust, with appropriate changes to reflect the fact that the structure was now a company; it was well apparent to Mr Cornell that Mr Guilfoyle was not prepared to give any undertaking. He provided that the authorised capital of the Cormack Foundation would be $99.00, consisting of 99 shares of $1.00 each, all of which would be issued upon incorporation. Each of Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle would be issued with 33 shares. Further, if the authorised capital was to be increased this would at the least require the acquiescence of either Mr Calvert-Jones or Mr Morgan. He also provided in art 38 of the articles of association that the holder of one-third of the shares could appoint a director, thereby ensuring that Mr Calvert-Jones and Mr Morgan (and anyone to whom their shares were transferred) could appoint themselves a director.
94 So far as Mr Cornell was concerned, this all meant that the money from the sale of the 3XY licence would come into a company that was controlled by the Liberal Party, particularly as Mr Calvert-Jones and Mr Morgan were senior office holders in the Liberal Party and were prepared to sign an undertaking. The Cormack Foundation would be controlled by Mr Calvert-Jones and Mr Morgan, who would sign undertakings to inter-alia use their best endeavours to ensure the income of the Cormack Foundation was applied for the benefit of the Liberal Party, use their best endeavours to ensure that a condition precedent to a person becoming a director of the Cormack Foundation or having shares allotted or transferred to them was to sign a like undertaking, to resign as a director if required by the Liberal Party and use their best endeavours to have its nominee appointed and to, if required by the Liberal Party, transfer their shareholding to a person or corporation nominated by the Liberal Party. In this way, as he understood it, the Liberal Party would maintain control of the Cormack Foundation.
95 I have extracted below relevant clauses from the memorandum of association:
II. The objects for which the company is established are -
(1) to promote the private sector, supported by a spirit of self endeavour;
(2) to support the maintenance of liberty of speech religion and association and the preservation of freedom of the press and other media;
(3) to promote and preserve the element of individual enterprise as an integral part of the structure of society and to promote the interests of employees and employers or others engaged in any trade or business;
(4) to promote the recognition by society of merit at the earliest possible age and encourage its development;
(5) to promote an intelligent free and liberal Australian democracy in which -
(a) executive government is responsible to Parliament;
(b) the rule of law is paramount;
(c) the judiciary is independent of government;
(d) freedom of the individual is recognized, subject to the rights of others;
(e) people are protected against exploitation;
(f) individual initiative and enterprise or [sic] encouraged; and
(g) a national spirit in Australia is developed to the fullest extent possible.
(6) to promote and support by financial grants or otherwise any corporation institution association or body or any division thereof having as one or more of its objects one or more of the objects of the Company;
(7) to receive any gift of money or property for any of the purposes and objects of the Company whether subject to any special trust condition or obligation whatsoever or not but so that the Directors may nevertheless decline to accept any gift or donation or to take over any property which has annexed to it any condition or obligation not approved of by the Directors;
(8) to give any guarantee for payment of money or the performance of any contract obligation or undertaking by any person firm company corporation or association;
(9) to indemnify and keep indemnified any person firm company corporation or association against any claim, demand, suit or cause of action whatsoever, and the costs and expenses thereof;
(10) to subscribe to any local or other charity and to grant donations for any public purpose or for any object of the Company;
(11) to establish and support any company for the purpose of holding any investment or for any other purpose incidental or conducive to any of the above objects;
(12) to do all such other things as are incidental or conducive to the attainment of the above objects or any of them.
…
V. The capital of the Company is $99 divided into 99 shares of $1 each with power to increase the same and to issue any shares in the original capital or any new capital with any preferential special deferred or qualified rights privileges or conditions attached to them.
…
VII. The income and property of the Company whencesoever derived shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association. No part of the income or property of the Company shall be paid or transferred directly or indirectly to the members of the Company or to persons who at any time have been members of the Company or to any person claiming through any of them. No fees shall be paid or given to any director of the Company for acting as a director of the Company. PROVIDED THAT nothing herein shall prevent: -
(a) the payment in good faith of reasonable and proper remuneration to any director or the Company or to any member of the Company or to any other person in return for any services (other than as a director) actually rendered to the Company or for goods supplied in the ordinary or usual course of business; or
(b) the payment of interest on monies borrowed from a director or member of the Company at a rate not exceeding interest at the rate for the time being charged by the Company's Bankers in Melbourne for overdrawn accounts on money lent;
(c) reasonable and proper rent for premises demised or let to the Company by any director or a member of the Company; or
(d) the repayment or reimbursement of any expenses properly incurred by any director of the Company in or about the Company business.
VIII. If upon the winding up or dissolution of the Company there remains, after satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed amongst the members of the Company but shall be given or transferred to some institution or institutions having objects similar to the objects of the Company and the Memorandum of Association or constitution of which prohibits the distribution of its or their income and property among its or their members to an extent at least as great as is imposed upon the Company under or by virtue of Clause VII of this Memorandum of Association, such institution or institutions to be determined by the members of the Company at or before the time of dissolution, and in default thereof by such Judge of the Supreme Court of Victoria as may have or shall acquire jurisdiction in the matter and if and so far as effect cannot be given to the aforesaid provisions then to some charitable object.
96 I have also extracted below relevant articles from the articles of association:
3. The issue and allotment of shares in the capital of the Company shall subject to the Code be under the control of the Directors and shall only be issued in such manner as all the Directors for the time being may agree.
…
9. The Company may by unanimous vote of all the members for the time being increase the capital by the creation of new shares of such amount as may be deemed expedient and all the provisions of these Articles shall apply to the shares in the new capital in the same manner in all respects as to the shares in the original capital of the Company.
…
36. Until otherwise determined by the Company in General Meeting the number of Directors shall not be less than three nor more than five.
37. The first Directors of the Company shall be:
John Anthony Calvert-Jones
Stanley Martin Leslie Guilfoyle
Hugh Matheson Morgan.
38. Each member of the Company (or, if applicable, the legal personal representative of such member) holding not less than one third of the issued shares of the Company shall be entitled to appoint by notice to the Company one Director and from time to time by notice to remove any Director so appointed and to appoint another person to fill any vacancy in the office of his appointee however caused. Any further appointments shall be made by unanimous decision of the Directors.
39. For the purposes of Article 38, the Directors named in Article 37 shall be deemed to have been appointed by themselves in their capacity as shareholders.
…
69. The whole of the property and assets of the Company shall be invested and re-invested in accordance with these Articles and shall not otherwise be expended or applied in pursuance of the Company's objects. The income of the Company shall be applied only in accordance with the provisions of the Company's Memorandum and Articles of Association. Subject thereto the whole of the net annual income of the Company shall be applied as soon as practicable after the end of each financial year of the Company as follows: -
FIRST an amount equal to the lesser of -
(a) one half of the net annual after-tax income of the Company; and
(b) the amount by which the Indexed Sum exceeds the net assets of the Company as as [sic] the 30th day of June of the subject year,
shall be capitalised and credited to a reserve in the books of the Company called the Revenue Maintenance Reserve; and
SECONDLY the balance of the net annual income shall be applied in furthering the objects of the Company by such means as the Directors shall determine.
For the purpose of this Article: -
(a) "Consumer Price Index" means the Consumer Price Index (All Groups - Weighted Average of Eight Capital Cities) or if it ceases to be published by some other similar independent indicator selected by the Directors.
(b) "Indexed Sum" means the Nominated Sum increased or decreased on the 30th day of June of each year by the percentage increase or decrease in the Consumer Price Index over the intervening period on a cumulative basis (last available figures being applied up to the 30th day of June if the index at that date is not then available).
97 On 11 March 1988, Mr Cornell wrote to the directors of the Cormack Foundation, enclosing draft minutes for the first meeting of directors and noting inter-alia that the "most significant item of business is the approval of the Deed of Indemnity to be entered into by the Company in return for the transfer of funds from Station Enterprise Pty Ltd".
98 On 16 March 1988, the first meeting of the directors of the Cormack Foundation was held. It was attended by Mr Calvert-Jones, Mr Guilfoyle and Mr Morgan, with Mr Calvert-Jones as Chairman. The minutes relating to the agenda item "Gift from Station Enterprise Pty Ltd" record the following:
Mr. Guilfoyle informed the meeting that the Company expected to receive shortly a letter from Station Enterprise Pty. Ltd. offering a gift to the Company of the sum of $15 million on condition that the Company deliver an indemnity to Station Enterprise Pty. Ltd. and its Members and Directors. A copy of the required Deed of Indemnity is annexed.
It was noted by the Board that the Company has power pursuant to paragraphs (7) and (9) of Clause II of its Memorandum of Association to receive any gift of money for the purposes and objects of the Company, subject to any conditions, and to indemnify and keep indemnified any person or company.
Mr. Guilfoyle declared his interest in the transaction, as a party to the Deed of Indemnity and as a Member and former Director of Station Enterprise Pty. Ltd.
RESOLVED that the Company accept the said gift subject to the condition attaching to it and that the Deed of Indemnity be executed by the Company under its Common Seal.
99 The basis upon which the now Station Enterprise Pty Ltd offered the $15 million to the Cormack Foundation was set out in a letter around this time from the secretary of Station Enterprise Pty Ltd, Mr Leon Slade, to the Chairman of the Cormack Foundation, Mr Calvert-Jones. The letter had the subject matter "Gift of $15 million to the Cormack Foundation Pty Ltd ('the Foundation')" and stated inter-alia:
As you will be aware, the Board of Directors of this Company met yesterday to consider, inter alia, the above gift.
The Board of Directors has determined to offer to the Foundation, in furtherance of this Company's objects, the sum of $15,000,000 on condition that the Foundation executes an indemnity, in the form previously provided to the Foundation, in favour of this Company, its past present and future Members and Directors.
100 Pursuant to the Cormack Foundation's board resolution made on 16 March 1988, on 11 April 1988 the Cormack Foundation executed a deed of indemnity and accepted the offer of a gift of $15 million from Station Enterprise Pty Ltd, which the Cormack Foundation then received and applied towards the objects for which it was established. Recital A of the deed of indemnity stated inter-alia: "The Members [of Station Enterprise Pty Ltd] are the beneficial owners of all the issued share capital of [Station Enterprise Pty Ltd]". The fact that the shareholders of Station Enterprise Pty Ltd held their shares beneficially and the fact that Station Enterprise Pty Ltd was making a gift to the Cormack Foundation are not supportive of Station Enterprise Pty Ltd (formerly known as Station 3XY Pty Ltd), its assets or its shares being held on trust for the Liberal Party. If one trustee was handing over assets to a replacement trustee, one would not normally describe this as a gift. And if the shares in Station Enterprise Pty Ltd were held on trust for the Liberal Party then the statements in the deed of indemnity were incorrect.
101 On 27 April 1988, Mr Cornell wrote to Mr Calvert-Jones, and Mr Morgan, in the following terms:
The 3XY Trust - Cormack Foundation Pty Ltd
The above matter is now completed except for the documentation of your and Mr Morgan's position vis-a-vis the Liberal Party of Australia (Victorian Division). I enclose the following documents and ask that you sign same and return them to me -
(1) Undertaking
(2) Share Transfer
(3) Notice to Cormack Foundation Pty Ltd
102 On 3 and 5 May 1988, Mr Calvert-Jones and Mr Morgan respectively signed a form of undertaking which Mr Cornell had prepared. The form was similar to that which had been prepared when a trust structure for the proceeds of the 3XY licence had been contemplated and a trust deed prepared.
103 In addition to signing the undertakings, Mr Calvert-Jones and Mr Morgan signed blank share transfers to enable their shares to be transferred should the Liberal Party have required them to do so and signed but undated resignations as directors. But such transfers and resignations cannot now be located.
104 The other director and shareholder, Mr Guilfoyle, was not sent a form of undertaking and he did not sign one.
105 As is apparent from the above chronology, the idea of obtaining undertakings had originated in 1987 when the trust option was still being explored and a question arose as to how to protect the interests of the Liberal Party in view of the new wording of the trust which did not refer to the Liberal Party. In that context, Mr Cornell said in his evidence that he took the view that to protect the interests of the Liberal Party, each trustee of the new trust should sign an undertaking which committed each trustee to, inter-alia, use their best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party.
106 Now the defendants assert that the undertakings did not involve the creation of another trust. Rather, they were concerned with trying to achieve some control over the then proposed trust for the Liberal Party. So, it was pointed out that in August 1987, when the trust proposal was still on foot but the identity of the trustees remained unresolved, Mr Cornell observed in a letter dated 28 August 1987:
The real issue outstanding is the ultimate control of the Trust. It seems to me that the solution of having the Trustees execute an Undertaking to the Liberal Party of Australia (Victoria Division) ("Liberal Party") is the only acceptable solution for the Liberal Party.
However, you will see that in the Trust Deed to be submitted to you that the names of two of the original named Trustees have been omitted and that the directors of Station 3XY Pty Ltd have nominated in their place, three new Trustees. When you see their names I doubt whether they would agree to sign the Undertaking and if they were asked may not only refuse to do so but may publicise their concern.
The solution is, of course, to increase the number of Trustees to seven, being the original four who signed the the [sic] original Trust Deed and Undertakings, and the three new nominees who have not. While this is not a perfect solution, at least the Liberal Party will have Undertakings from a majority of the Trustees. In my view, you should, therefore, insist that the original four Trustees remain but indicate your willingness to accept their three nominees in addition.
107 As I have already noted, the trust model never proceeded due to doubts as to its validity. When the Cormack Foundation was incorporated, the idea of obtaining undertakings was taken up again, this time as undertakings from a majority of directors / shareholders, instead of from trustees. By this transposed mechanism, the Liberal Party sought to achieve a measure of control. I will return to the proper characterisation of this transposed legal question later.
108 Ultimately, Mr Calvert-Jones' undertaking (Mr Morgan's undertaking is in a similar form) signed in May 1988 was in the following form:
UNDERTAKING
TO: The Liberal Party of Australia (Victorian Division)
I, JOHN ANTHONY CALVERT-JONES of 367 Collins Street Melbourne in the State of Victoria acknowledge that I have been requested by the Liberal Party of Australia (Victorian Division) ("the Liberal Party") to become a director and a shareholder of the Cormack Foundation Pty Ltd ("the Company"). I hereby give the following undertakings and acknowledgements to the Liberal Party -
1. I will at all times properly perform my duties as a director and a shareholder in accordance with the law and the Memorandum and Articles of Association of the Company and subject thereto will use my best endeavours to ensure that the available income of the Company is applied for the benefit of the Liberal Party.
2. I further undertake that I will use my best endeavours to ensure that a condition precedent to the appointment of any person as a director of the Company or to any transfer or allotment of shares of the Company to any person will be that that person will first sign an undertaking in or to the effect of this undertaking.
3. I will if required by the Liberal Party resign as a director of the Company and use my best endeavours to have its nominee appointed in my place.
4. I will if required by the Liberal Party transfer my shareholding to a person or corporation nominated by the Liberal Party at a consideration designated by the Liberal Party.
5. I will account to the Liberal Party for any dividends or other benefits which I may receive as a shareholder of the Company.
6. This undertaking will bind my executors, trustees and assigns.
7. The Liberal Party may assign its rights under this undertaking to any association or corporation which shall or may be formed to succeed it. The Liberal Party may from time to time delegate to one or more of its officers the powers vested in it by this undertaking.
109 In 1989, Mr Calvert-Jones stepped down as Treasurer of the Liberal Party. From 1991 to 2017, Mr Calvert-Jones served as a member of the State Finance Committee and as a Trustee of the Liberal Party. From 1992 to 2017, he was also a director and shareholder of Vapold Pty Ltd. Vapold Pty Ltd is a private company which holds assets, the shares in which are held for and on behalf of the Liberal Party.
110 In 1993, Mr Morgan stepped down as a member of the State Finance Committee, as a Trustee of the Liberal Party and as a director of Vapold Pty Ltd. He had served in each position since 1983. On 13 July 1993, Mr Morgan wrote to Mr Ted Baillieu (then President of the Liberal Party and Premier of Victoria from 2010 to 2013) mentioning the existence of a pre-signed resignation from the Cormack Foundation:
I cannot recall how many years it has now been that I have served as a member of the Finance Council of the Victorian Liberal Party and a Trustee. However, I do feel it is proper that there be some circulation or change of those positions and I write to ask if you would accept my retirement (some call it resignation!).
I am also a Trustee of the Cormack Foundation and, if it is the wish of the Administrative Committee, I would also retire from being an office bearer of the Foundation. Somewhere in the bowels of the Secretariat you are holding my pre-signed resignation from the Foundation. On the other hand, if you would like me to continue with the Foundation I would be agreeable to do so.
111 Mr Morgan did not resign from the board of directors of the Cormack Foundation and later became its chairman from 2009.