By Amended Originating Process filed, by leave, at the hearing on 4 July 2024, the Plaintiffs, Ms Richards and Ms Hooker, seek a range of relief against Mr Kieran Turner (to whom I will refer as "KT", to distinguish him from his brother, Mr Anthony Turner ("AT")), against several corporate entities associated with the Heartland group of companies and against AT. Only the First Defendant, KT, has taken an active role for the Defendants in the proceedings. The defendant companies rightly did not seek actively to participate in the resolution of the dispute between their shareholders and directors and the Australian Securities & Investments Commission ("ASIC") (which was joined as a party since orders were sought to rectify registers that it maintains) and AT each filed submitting appearances.
By way of background, Ms Richards and Ms Hooker and the late Ms Kathryn Turner ("Mrs Turner") are the daughters of the late Mr Bernard Webb and the late Mrs Dulcie Webb ("Mrs Webb"). KT and AT are two of Mrs Turner's children, grandchildren of Mr Webb and Mrs Webb, and nephews of Ms Richards and Ms Hooker. Mr Webb founded the Heartland group of companies, and it is common ground that companies within the Heartland group operate car dealerships which retail and service cars and car parts (Amended Points of Claim ("APC") [3]; Points of Defence to APC ("POD") [3]). The issued share capital of the holding company of the Heartland group, B.G. Webb Pty Ltd ("BG Webb"), is owned by Mr Webb's and Mrs Webb's descendants. Ms Richards and Ms Hooker hold the majority of the shares in BG Webb and KT, personally and through his ownership of the shares in Turnercorp Pty Ltd, owns or controls a minority of the issued shares in BG Webb (APC [4]-[5], POD [4]-[5]).
BG Webb in turn owns all the shares in the Second Defendant, Bernley Corporation Pty Ltd ("Bernley") (APC [6], POD [6]). It is also common ground (APC [7]-[10], POD [7]-[10) that, since 28 June 2013, Bernley has owned 599 of the issued shares in the Third Defendant, Heartland Group Pty Ltd ("Heartland Group"). One share in Heartland Group is owned by its wholly owned subsidiary, the Fourth Defendant, Boyded Industries Pty Ltd ("Boyded") as trustee of the Rossfield Group Trust ("Trust").
On 7 June 2024, the Plaintiffs and KT gave undertakings, without admission or concession by any party, that they would proceed on a specified basis. By consent, the Court then ordered that several issues raised by the (now Amended) Originating Process be heard separately, and in advance of any cross-claim that may be filed by KT seeking relief for oppression, where the determination of those issues was likely to narrow the issues in dispute in an oppression claim. The matters which were the subject of that separate issue include whether AT, Mr Richards and Ms Hooker are directors of several companies and whether the Plaintiffs also be allowed relief, to the extent necessary, under s 1322(4)(a) of the Corporations Act 2001 (Cth) ("Act") declaring that members' resolutions of Heartland Group executed by Bernley on three occasions were not invalid because they were not passed at a general meeting of Heartland Group.
[4]
Affidavit evidence and cross-examination
I will first deal with the affidavit evidence and the cross-examination of KT and Ms Richards, and I will then address communications and correspondence between the parties relevant to the several issues in dispute in dealing with those issues below.
The Plaintiffs initially did not read evidence of either Ms Richards or Ms Hooker in chief and instead read several affidavits of their solicitor, Mr Scott. By his affidavit dated 3 June 2024, Mr Scott referred to the corporate structure of the Heartland group of companies and exhibited documents relating to those companies. Mr Scott there refers to the circumstances surrounding the purported appointment of AT as a director of various group companies on 6 December 2022, and I will address that matter in dealing with issue 3 below. Mr Scott's evidence (Scott 3.6.2024 [27]) is that Ms Richards had there called for a vote to appoint the chair of the board meeting, which was held for the several companies together, and that KT responded that "he was the paid chair for each company, was approved by car manufacturers, and that if Ms Richards wanted to remove him as chair she would have had to have obtained the approval of those manufacturers".
Mr Scott then refers to the steps which Ms Richards took to seek to remove AT as a director of several companies and appoint Ms Hooker as a director of those companies on 13 December 2022. His evidence is that Ms Richards, on 8 December 2022, served notices on Ms Hooker and KT convening board meetings of Bernley and Heartland Group to take place on 13 December 2022 to consider resolutions to remove AT as a director, and he refers to a response received from KT's solicitors on 13 December 2022, to which I will refer in dealing with that issue below. Mr Scott also refers to his attendance at that board meeting as Ms Richards' and Ms Hooker's legal adviser and to Ms Richards' and Ms Hooker's attendance at the meeting and KT's absence from that meeting. He also refers to circulating resolutions then executed by Bernley and Heartland Group which purported to remove AT as a director and appoint Ms Hooker as director of several companies, and I address the validity of those circulating resolutions. I will address those matters in determining issue 4 below.
Mr Scott's evidence is that KT then convened board meetings on 30 May 2024 that sought to remove Ms Richards as a director of Boyded, by a resolution of the board of Heartland Group, Boyded's holding company and of other companies. Ms Richards responded to that step by convening board meetings of Bernley and Heartland Group on 29 May 2024 to consider resolutions that they exercise their power as shareholders to affirm AT's removal as a director and affirm Ms Hooker's appointment as a director of several companies. I address that matter in dealing with issues 9-11 below. It is difficult to avoid the conclusion that, by this point, the corporate governance of the Heartland group of companies was in disarray.
[5]
Issue 1 - 29 June 2022 members' resolution of BG Webb
It is common ground that, as at 28 June 2022, each of Ms Richards and KT were the only directors of BG Webb and the other companies joined as Defendants (APC [16], POD [16]) and that, on or about 29 June 2022, Ms Hooker was appointed as a director of BG Webb, so that Ms Richards, Ms Hooker and KT have since been directors of BG Webb (APC [17]-[18], POD [17]-[18]). There was previously a dispute as to this issue; however, it is common ground that it has been resolved and that a declaration is not required.
[6]
Issue 2 - 26 September 2022 board resolution of BG Webb
It is also common ground that, on or about 26 September 2022, Ms Hooker was appointed as a director of Bernley so that each of Ms Richards, Ms Hooker and KT have been directors of Bernley (APC [19]-[20], POD [19]-[20]). There was previously a dispute as to this issue; the Plaintiffs seek a declaration as to this matter; and KT fairly accepts that such a declaration should be made.
[7]
Issue 3 - Purported 6 December 2019 board resolutions of Heartland Group, Boyded and Rossfield Nominees
The first issue that remains in dispute relates to the validity of resolutions passed at board meetings of Heartland Group, Boyded and Rossfield Nominees (A.C.T) Pty Ltd ("Rossfield Nominees") held on 6 December 2022 ("6 December Resolutions") (APC [21]-[27], POD [21]-[27]). The parties identify the factual and legal issues that arise in respect of this matter in their Joint Chronology and Summary of Issues. The Plaintiffs contend (Plaintiffs' Submissions ("PS") [29]-[30], Plaintiffs' Further Submissions ("PFS") [17]-[23]) that KT was not the chair of each of the companies and the purported resolutions were not passed and had no effect. KT responds that he was the chair of Heartland Group, Boyded and Rossfield Nominees and was able to cast a deciding vote (KT's Submissions ("DS"), [9]-[17]).
On 2 December 2022, KT gave notice to Ms Richards convening board meetings of, inter alia, Heartland Group, Boyded and Rossfield Nominees to consider proposed board resolutions appointing AT as a director of each of those companies. Those proposed resolutions relied on powers contained in each of the constitutions of those companies conferring on the board power to appoint directors, in most cases for a limited term. In the case of Boyded, the resolution caused Heartland Group to exercise its power as the shareholder in Boyded to appoint a director to Boyded (Ex P1, CB 805).
At the board meetings of Heartland Group, Boyded and Rossfield Nominees held on 6 December 2022, Ms Richards initially called for a vote as to the chair, and KT contended that he was the chair of the relevant companies. KT voted in favour of the 6 December Resolutions; Ms Richards voted against those resolutions; and KT purportedly exercised a casting vote as chair in respect of those resolutions (Scott 3.6.24, [27]). The Plaintiffs plead that the 6 December Resolutions were of no effect and that KT and Ms Richards remained the only directors of those companies (APC [21]-[27]). It is common ground that those resolutions would have been effectively passed if KT could exercise a casting vote as chair of the relevant meetings and not otherwise.
KT responds (POD [25]) that that he was the chair of the relevant companies and particularises that contention as follows:
"During a conversation held between about February and June 2019, at the then home of KT's maternal grandmother (being a unit in … Bellevue Hill, NSW) [Ms Dulcie Webb] on his return from 18 months living in France, it was agreed between Dulcie Webb, Kathryn Turner, Joanne Richards and [KT] that [KT] would take on the role of, and be paid a salary to be, Chief Executive Officer and Chairman of each of the Heartland Motor Group of Companies for so long as he was a shareholder of [BG Webb] (i.e. the ultimate holding company of the Group)."
KT also relies on numerous occasions since 2010 and again in 2020 and 2021 when he acted as chair of the companies. He contends that he was entitled to exercise casting votes as chair of the companies on that basis.
[8]
Factual background to issue 3
I now set out the factual background to this issue, and I should first identify the articles of association relevant to this dispute. Article 101 of Heartland Group's articles of association (Ex P1, CB 340) relevantly provides that:
"The Directors may elect a Chairman and if desired a Deputy Chairman of their meetings and determine the period for which he or they are respectively to hold office and unless otherwise determined the Chairman and deputy Chairman shall be elected annually. If no Chairman is elected or if at any meeting the Chairman is not present within fifteen minutes of the time appointed for holding the same the Deputy Chairman shall be Chairman of such meeting. If no Chairman and no Deputy Chairman is elected or if at any meeting neither the Chairman or Deputy Chairman is present within fifteen minutes of the time appointed for holding the same the Directors present shall choose someone of their number to be Chairman of such meeting."
Article 55 of Boyded's articles of association (Ex P1, CB 379) relevantly provides that:
"The Directors may elect a Chairman of their meetings and determine the period for which he is to hold office but if no Chairman is elected or if at any meeting the Chairman is not present at the time appointed for holding the same the Directors present shall choose one of their number to be Chairman of the meeting."
Article 87 of Rossfield Nominees' articles of association (Ex P1, CB 769) in turn provides that:
"The Directors may elect a Chairman of their meetings and determine the period during which he is to hold office. Except as hereinafter mentioned a Chairman shall have one vote at such meeting. All meetings of the Board shall be presided over by the Chairman if present and in his absence at the time appointed for holding the same or if no Chairman has been elected the Directors present may choose one of their number as Acting Chairman to preside at the meeting."
It is important to recognise that KT contends, as I have noted above, that the 2019 Meeting occurred between February and June 2019, and I now turn a review of surrounding events and correspondence in that period. It will be necessary to set out several communications between Ms Richards and KT, where Ms Richard's evidence that she was then estranged from KT and that she would not have met with or spoken to him at the 2019 Meeting, and where the factual findings that I will reach turn upon both the content and tone of these communications. I will allow the parties an opportunity to make submissions as to whether these communications should be redacted when this judgment is published.
[9]
The parties' submissions and determination as to issue 3
I should note that, in addressing this and subsequent issues below, I will largely refer to the parties' written outlines of submissions and supplementary submissions, and only briefly to Mr Dick's and Mr Izzo's oral closing submissions. Those oral submissions were helpful in identifying the relevant evidence and matters as to which the parties considered were in issue and the basis on which they put their submissions, but did not substantially advance the parties' analysis beyond that undertaken in their written outlines of submissions and supplementary submissions. That is not a criticism, since it reflects the comprehensive identification and analysis of those issues in the written submissions.
In their further outline of submissions, the Plaintiffs submit that:
"There is no evidence of any formal election by the directors of [KT] to a permanent or standing role as chairman. Rather, the highest the evidence rises is an alleged oral discussion between certain family members at which, [KT] says, he asserted that he would need to be the "full time CEO and Chairman" [KT 26.6.24, [59]]. … even taken at its highest, it does not establish that [KT] was elected chair by the board of directors of every company within the Group consistent with the requirements of each company's constitution or articles of association. Moreover, the position [KT] asserts is inconsistent with subsequent events; Ms Richards has in fact been appointed as the chair of the board of BG Webb at various board meetings since 2022, and [KT] tellingly did not raise any of the matters on which he now relies at the time of her appointment (Ex P4, [CB 2648-2653].)
In oral submissions, Mr Dick also addressed the case law concerning informal meetings of directors, to which I will refer below, and the factual circumstances surrounding the alleged 2019 Meeting and KT's account of what was said at that meeting. Mr Dick submits that, in the circumstances of the surrounding discussion of a potential sale of KT's shares in BG Webb, it was unlikely that KT would have sought to convene a family meeting to talk about being chair of the companies, and also likely that other family members would readily have agreed to his holding that position so long as he held shares in BG Webb (T72-73). In oral submissions in reply, Mr Dick returned to the question whether the appointment of a chair could be made in an informal manner, having regard to the significance of that appointment (T120-121).
[10]
Issue 4 - 13 December 2022 board resolution of Bernley and members' resolution of Heartland Group
The passage of the 6 December 2022 resolutions prompted a period of sustained, repetitive and unattractive manoeuvring by both the Plaintiffs and KT. The first step in that regard was that Ms Richards sought to hold a board meeting of Bernley to cause the execution of a circulating resolution by Bernley as a shareholder in Heartland Group to remove AT as a director of Heartland Group and appoint Ms Hooker as a director of that company.
It appears that KT was unable to attend the proposed board meetings and, by letter dated 13 December 2022 (Ex P1, CB 828), his solicitors wrote to Ms Richards' and Ms Hooker's solicitors and advised that KT met with the general managers of Heartland group on a monthly basis; that he was scheduled to do so that day when the proposed meetings had been called; and the short notice given meant that he could not cancel those meetings to allow him to attend the proposed board meetings. KT there indicated his opposition to the proposed resolutions and drew attention to a suggested breach of manufacturer agreements arising from the appointment of new directors to certain entities within the Heartland group, without the prior consent of certain manufacturers, and a suggested need for manufacturer consent to effect the removal of AT as a director of the companies. He also identified the potential risk to the Heartland group if the steps taken by Ms Richards and Ms Hooker amounted to a default under the agreements between the manufacturers and Heartland group, potentially enlivening termination rights under those agreements. There is other evidence of inquiries made by the motor vehicle manufacturers as to these matters and of Ms Richards' somewhat dismissive responses to those inquiries (Ex P5, CB 2797, 2816, 2832, 2835, 2841). It is not necessary to determine whether KT's concerns as to these matters were well-founded to determine the separate issues in this hearing.
On 13 December 2022, the board meeting of Bernley took place in KT's absence, attended by Ms Richards and Ms Hooker (Ex P1, CB 830-831). The minutes of that meeting recognised that Boyded was a shareholder in Heartland Group but stated that it could not exercise any voting rights attached to that share. I find below that that view was incorrect. The board resolved that Bernley as sole shareholder of Heartland Group exercise its entitlement to vote on the members' resolutions to remove AT as a director of Heartland Group and appoint Ms Hooker as a director of Heartland Group, and that the resolutions be passed as circulating resolutions pursuant to s 249A of the Act. Bernley (but not Boyded, the other shareholder in Heartland Group, subject to the dispute noted below) then executed a circulating members' resolution of Heartland Group by which it removed AT as a director of Heartland Group and appointed Ms Hooker as a director of Heartland Group (Ex P1, CB 838). KT contends (POD [28]) that that circular resolution was not validly passed, because Boyded was also a member of Heartland Group and the resolution could not be passed by circular resolution executed only by Bernley.
[11]
Issue 5 - 13 December 2022 board resolution of Heartland Group and members' resolution of Boyded
An issue also arises in respect of a board meeting of Heartland Group held and a members' resolution of Boyded executed on the same day, 13 December 2022. The minutes of a meeting of directors of Heartland Group held on that day (Ex P1, CB 832) record that Ms Richards and Ms Hooker resolved that Heartland Group exercise its voting power to remove AT as a director of Boyded and appoint Ms Hooker as a director of Boyded and Ms Richards subsequently executed a circulating resolution to that effect in respect of Boyded (Ex P1, CB 836, 838).
It is common ground that the sole issue that arises as to the validity of this resolution is whether Ms Hooker had by this time been validly appointed, and AT removed, as a director of Heartland Group, such that the votes of Ms Hooker and Ms Richards authorising this resolution comprised a vote of the majority of the board of Heartland Group. The parties accept that this issue is determined by the resolution of issue 4 above. I have found above that Ms Hooker was not validly appointed as a director of Heartland Group; the resolution authorising Heartland Group to execute the circulating resolution of Boyded was therefore not validly passed; AT was not validly removed as a director of Boyded, although nothing turns on that where he was not previously validly appointed to that position; and Ms Hooker was not validly appointed as a director of Boyded.
[12]
Issues 6-8 - Expiry of AT's term as director of several companies
The Plaintiffs also contend (APC [37]-[43]) that AT's term of office as a director of several companies has expired, if he was validly appointed as director of those companies. The Defendants admit that matter in respect of several companies. A contest remains as to the position in respect of Heartland Group and Rossfield Nominees and specifically whether AT's term as director of each of those companies expired on 31 December 2023, if he had validly been appointed as a director of those companies and had not previously been removed as a director. It is strictly not necessary to decide this issue, where I have held that AT was not validly appointed as a director of those companies by the exercise of a casting vote by KT. However, I will address the issue against the contingency of an appeal.
The parties have identified the factual and legal issues that arise in respect of this matter in their Joint Chronology and Summary of Issues. The Plaintiffs contend that, if AT was previously appointed as a director of Heartland Group and Rossfield Nominees, his term as a director of each of those companies expired on 31 December 2023, on the proper construction of the articles of association of each company (PS, [34], [35(c)]; PFS, [49]-[57]). KT responds (POD [42]-[43]; DS, [40]-[50]) that, although it was a requirement that an annual general meeting of those companies be each calendar year, the articles of association of each company provides that a director who is appointed by other directors of the company continues to hold office until the next following ordinary general meeting of the company; no ordinary general meeting of the companies has been held since 6 December 2022; and AT continues to hold office as a director of the companies on that basis.
Relevantly, art 53 of the articles of association of Heartland Group (Ex P1, CB 332-333) provides that:
"An Annual General Meeting of the Company shall be held in accordance with the provisions of the [Companies] Code. All General Meetings other than Annual General Meetings shall be called Extraordinary General Meetings …
Section 240 of the Companies (NSW) Code in turn provides for a general meeting, to be called the "annual general meeting", to be held at least once in every calendar year. Article 54 in turn permits the directors to convene extraordinary general meetings. Article 83 (Ex P1, CB 337) provides that:
"The Directors shall have power at any time and from time to time to appoint any other person as a Director either to fill a casual vacancy or as an addition to the Board but so that the total number of Directors shall not at any time exceed the maximum number fixed. But any Director so appointed shall hold office only until the next following Ordinary General Meeting of the Company and shall then be eligible for re-election."
The reference to an "Ordinary General Meeting" here is apparently a reference to an annual general meeting, where the articles otherwise distinguish between annual general meetings and extraordinary general meetings.
[13]
Issues 9 - 11 - 29 May 2024 members' resolutions of Heartland Group, Boyded and other companies
On 23 May 2024, KT gave notice (Ex P1, CB 854ff) to each of Ms Richards and AT (but not Ms Hooker) purporting to convene board meetings on 30 May 2024 of several companies to consider proposed board resolutions of several companies to exercise their respective power to remove Ms Richards as director of their respective subsidiary company. I do not understand there to be any suggestion that Ms Richards was removed as a director of those companies and that matter is background to subsequent events.
On 24 May 2024, Ms Richards gave notice to KT and Ms Hooker (Ex P1, CB 864-867) convening two board meetings to occur on 29 May 2024, namely a board meeting of Bernley to consider proposed resolutions exercising its rights as sole voting member of Heartland Group to confirm AT's removal as a director of Heartland Group (if ever appointed) and reaffirm Ms Hooker's appointment as a director of Heartland Group; and a subsequent board meeting of Heartland Group to consider proposed resolutions as sole member of the applicable companies, inter alia, to reaffirm AT's removal, and Ms Hooker's appointment, as a director of Boyded. On 29 May 2024, Bernley executed a circulating members' resolution of Heartland Group by which it confirmed both AT's removal as a director of Heartland Group, if he was ever validly appointed and Ms Hooker's appointment, if not already validly appointed, as a director of Heartland Group (APC [44], POD [44]; Ex P1, CB 898, 907-908).
It is now common ground that these issues raise the same issues as the 13 December 2023 members' resolutions of Heartland Group and Boyded, and these resolutions were not validly passed for the same reasons as the 13 December 2023 resolutions were not validly passed. Because Bernley was not the sole member or sole voting member of Heartland Group as at 29 May 2024, the resolution purportedly passed by Bernley at that time, appointing Ms Hooker as a director was not validly passed. The Plaintiffs claim to validate those resolutions under s 1322 of the Act is not established for the same reasons its case to validate the 29 May resolutions is not established. Accordingly, Ms Hooker did not become a director of Heartland Group at that time. The resolution to remove AT as a director of Heartland Group was also invalid, but he was not a director at that time for reasons noted above.
[14]
Issues 12 - 13 - 30 May 2024 board resolutions
An issue also arises (APC [63]ff) in respect of a board meeting of Heartland Group held on 30 May 2024, attended by KH and AH, which passed a resolution removing Ms Richards as a director of the companies and consequential notifications to the Australian Securities & Investments Commission. The parties have isolated the factual and legal issues that arise in respect of this matter in their Joint Chronology and Summary of Issues. The Plaintiffs contend that, first, AT was not a director of Heartland Group at this time and, second, the purported board meeting was inquorate and a nullity; and KT contends the contrary. While the Plaintiffs rely on several matters for that proposition, I have found above that AT had not been validly appointed as a director Heartland Group; I would have found that his appointment had expired on 31 December 2023 if it were necessary to do so; and it follows that meeting was inquorate and invalid. KT rightly does not seek to validate the meeting under s 1322 of the Act if I reached that conclusion. The Plaintiffs' alternative position relying on Ms Hooker's appointment as a director of Heartland Group must fail, because Ms Hooker was not a director of Heartland Group at that time. Issue 13, as to members' resolutions of other companies, is no longer in dispute.
[15]
Issue 14 - 5 June 2024 members' resolution of Heartland Group
On or about 5 June 2024, Bernley again executed a circulating members' resolution of Heartland Group by which it confirmed both AT's removal as a director of Heartland Group, if he was validly appointed and remained a director, and Ms Hooker's appointment as a director of Heartland Group. If Bernley was neither the sole member or the sole voting member of Heartland Group at the time of this resolution, the Plaintiffs alternatively seek a declaration under s 1322(4)(a) of the Act that this resolution was not invalid by reason of the failure to convene a general meeting of Heartland Group (APC [98]-[98A]). It is now common ground that this claim raises the same issues as the 13 December 2022 resolutions, and the Plaintiffs' claim in respect of this resolution fails for the same reasons as their claim in respect of the earlier resolutions.
[16]
Issue 15 - 5 June 2024 members' resolution relating to TS Management
An issue is also in dispute as to the validity of a members' resolution on 5 June 2024 removing AT as a director of TS Management. On that date, Heartland Group executed yet another members' resolution of TS Management, purportedly authorised by prior board resolution, removing AT as a director (if validly appointed) of TS Management. The validity of this resolution is challenged on the basis that Ms Hooker was not, at this time, a director of Heartland Group. This issue received little attention at the hearing and the parties accept that it depends upon the issues that I have determined above. It is strictly not necessary to address this issue where the findings that I have reached have the consequence that AT was not a director of TS Management at the relevant time. However, the resolution would also have failed because I have held above that Ms Hooker was not validly appointed as a director of Heartland Group at this time.
[17]
Orders and costs
I am inclined to think that there should be no order as to costs as to the separate issues and this hearing, where each party has had a measure of success and a substantial measure of failure. However, I will allow the parties an opportunity to make short submissions as to costs. I direct the parties to bring in short minutes of order to give effect to this judgment, including as to costs, within five business days and, if there is no agreement between them, their respective draft orders and submissions as to the differences between them, not exceeding 5 pages in Arial font in one and a half spacing.
[18]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 23 July 2024
By a second affidavit dated 5 June 2024, Mr Scott referred to documentary evidence relating to several transactions on 28 June 2013, which had the result that Bernley and Boyded became the two shareholders in Heartland Group, subject to an issue as to the potential application of ss 259C-259D of the Act, which I address in dealing with issue 4 below. Mr Scott also there referred to an unpaid distribution from the Trust payable to Heartland Group in the amount of $4,816,548, which I also address in dealing with that issue.
By a third affidavit dated 6 June 2024, Mr Scott addressed a board meeting of T S Management Pty Ltd ("TS Management") called by KT on 6 June 2024 seeking to remove Ms Richards from the board of that company, and yet another board meeting of Bernley convened by Ms Richards to consider resolutions that Bernley reaffirm AT's removal as a director of Heartland Group and the appointment of Ms Hooker as a director of Heartland Group, and a board meeting of Heartland Group to consider a resolution that it exercise its power as sole member of TS Management to remove AT as a director of that company. The parties paid little attention to this issue at the hearing, but I will address it briefly as issue 15 below.
KT relied on his affidavit dated 26 June 2024. He there referred to his education and to the fact that he started working with the Heartland group of companies in January 1995, immediately after he graduated high school, and he explained the business of the group and its relationship with several motor vehicle manufacturers in respect of its five motor vehicle dealerships and parts and logistics businesses that it conducts in Western Sydney. KT referred to the steps taken by Mr Webb to train him to succeed Mr Webb in the business; to his appointment as chief executive officer of the Heartland group of companies in 2009; and to the circumstances in which he was issued equity in BG Webb and appointed as a director of several companies within the Heartland group. He also refers to his responsibilities as chief executive officer of the group and to AT's role as chief operating officer of the Heartland group of companies. His evidence (KT 26.6.2024 [34]) is that:
"The group of companies historically infrequently held board meetings or general meetings, although recently they have occurred more frequently. They are usually conducted to update the attendees on the business generally and family issues have sometimes been discussed in these meetings too."
KT also further addressed the relationship between the Heartland group of companies and the motor vehicle manufacturers, and the manufacturers' practice of reviewing the suitability of persons appointed to senior positions within motor dealers and changes to key personnel within a dealership. He also referred to communications with motor vehicle manufacturers in respect of proposals to appoint Ms Hooker as a director of the company, although it will not be necessary to address the merit of those proposals to determine the separate issues in this hearing.
KT also gives evidence of the circumstances in which he claims that, at a meeting in the first half of 2019, he was appointed chair of each company in the Heartland group, a factual matter which is in dispute in the proceedings. I will address his evidence as to that matter and the contemporaneous correspondence and communications in dealing with issue 3 below.
KT was examined at considerable length, although that may not have been the original intention of Mr Dick, with whom Mr Langshaw appears for the Plaintiffs. Mr Dick sought to put numerous emails and letters to KT, and then to put the ultimate propositions that KT and Ms Richards were not on good terms in the first half of 2019 and their communications were then largely directed to a contentious proposal by KT to sell his shares in BG Webb. That appeared to be directed to supporting a contention that it was unlikely that Ms Richards would have agreed in an informal board or other meeting in that period ("2019 Meeting"), also attended by several other family members, that KT would be the chair of the companies within the Heartland group so long as he held shares in BG Webb. That matter was relevant to the determination of issue 3 below. It was perhaps not surprising that KT, a plainly intelligent businessman, did not understand Mr Dick's questions about those emails and letters to be directed to no more than the fact that they existed, and sought to address the merit of the positions taken by the parties in that correspondence even if he was not asked to do so. It seemed to me that he was not being uncooperative in that approach, although that approach substantially expanded the scope and length of the cross-examination.
It is not necessary to reach a finding as to KT's credit to determine the separate issues that arise at this hearing. It is preferable that I do not do so where it is not necessary to do so, where his credit will likely be in issue in the wider oppression claim that he has foreshadowed, possibly subject to the outcome of this hearing. I will find below, without reaching any adverse credit finding in respect of KT, that I cannot reach a state of actual persuasion, and am unable to find on the balance of probabilities, that the 2019 Meeting took place in the manner or substantially in the terms set out in KT's evidence, notwithstanding the parties' acceptance by conduct that KT was chair of the companies over an extended period.
Turning now to the Plaintiff's evidence in reply, by a fourth affidavit dated 27 June 2024, apparently in response to KT's affidavit dated 26 June 2024, Mr Scott referred to minutes of meetings of several companies where Ms Richards was recorded as having been chair of the meetings. Little turned upon that evidence, where it became apparent that all but one of those meetings had occurred while KT was on a lengthy sabbatical in France and it was not surprising that he had not chaired those meetings where he was attending them virtually from overseas. By a fifth affidavit dated 28 June 2024, Mr Scott referred to his communications with car manufacturers on behalf of Ms Richards and Ms Hooker since June 2022, apparently also in response to KT's evidence.
I will address Ms Richards' evidence in reply in addressing issue 3 below. It is notable that, although Ms Richards addressed narrow but important aspects of KT's evidence, she did not address, in chief or in reply, other aspects of the proceedings. In particular, she did not address the circumstances leading to the numerous board resolutions and shareholder resolutions in 2022 and, notwithstanding that the Plaintiffs sought relief under s 1322 of the Act in respect of the potential invalidity of several transactions, she neither gave an account of those transactions which would allow the Court to form a view as to her honesty in respect of them, nor advance even a conclusory claim to honesty in respect of the transactions. Ms Hooker, who did not give evidence, also did not address those matters.
In reply, the Plaintiffs deny the existence of the agreement on which KT relies and point to occasions on which Ms Richards acted as chair of board meetings, all but one of which occurred in the period when KT was absent in France and attended the meetings remotely, and the last of which took place between the date of the meeting alleged by KT and 1 July 2019, when he contends the resolution on which he relies took effect.
At the commencement of the period on which KT contends the 2019 Meeting occurred, on 4 February 2019, Ms Richards and KT exchanged messages as to the fact that Mrs Webb was then in hospital and as to the nature of her condition (Ex D2, 3-4). Obviously, the fact that Mrs Webb was then in hospital confines the dates on which the 2019 Meeting, which is said to have taken place in her presence and at her home, could have occurred and it is unfortunate that better evidence was not led as to the dates of her hospitalisation.
On 9 February 2019, KT and Ms Richards sent text messages, in apparently civil terms (Ex D2, 4-5):
[Ms Richards] "Got muttered voicemail from "
[KT] "Ahh the good old pocket dial at the park with kids amock".
By February 2019, an issue had arisen as to KT's then wish to sell his shares in BG Webb, either to other family members or to a third party. On 14 February 2019 (Ex D2, 5-6) Ms Richards and KT exchanged text messages, at about the same time as an email sent by Ms Richards to KT:
[KT]: "Hi Jo, [Mrs Webb] tells me she is feeling much better which is great to hear. I don't feel it's her turn but fingers and toes are always crossed. Any update on your possible acquisition?"
[Ms Richards]: "Mum is feeling much better but she has a long uncertain road ahead unfortunately. I have just sent you an email".
On 14 February 2019 (Ex P11), Ms Richards emailed KT, copied to Ms Hooker, Mrs Turner and Mrs Webb, that:
"With regard to your offer for us to buy your interest in the Heartland Group, we have been thinking carefully about it, but have delayed because of mum's illness. Now we have decided that we do not wish to buy out your interest, but we are comfortable with selling the whole business and land with it, providing it is for an attractive price, bearing in mind that it is not a particularly good time to be selling, may be after the election. We know that you would like to leave the business to pursue other interests, so we have no problem with Neal taking over as CEO while the sale process takes place. We are not sure if you would like to be involved in the sale, but if not we are happy to orchestrate it with some professional help of course."
By a subsequent email on the same date to Ms Richards (Ex P11), copied to Ms Hooker, Mrs Turner and Mrs Webb, KT advised that he had previously been approached by a dealer to buy his interest and, where other shareholders did not wish to do so, he would progress his discussions with that dealer, and noted the possibility that purchasers could afford the cost of his interest to BG Webb, but not of the value of the whole of the company. KT then sent a text message to Ms Richards (Ex D2, 6) that:
"I replied to your email but [Mrs Webb's] email address bounced."
Ms Richards responded, on 19 February 2019:
"Thanks for your email. I mentioned that we would be comfortable for the sale of the whole business including land, but the sale of a small interest to someone we don't know doesn't appear to be in anyone's interest or indeed the company's interest. The Groups' finances and assets are very sensitive and confidential and making them available would need to be done only with proper restrictions and the board's consent. We think that can best be done with a whole business sale. As you know, trying to sell your interest at the same time as we investigate the larger sale will likely cause problems and conflict with what we suggest is best for the Group.
We seek your support for a sale process of the whole business and land.
Cheers Dulcie, Kate, Jo"
KT then responded, on 19 February 2019, indicating the difficulty with a sale of the whole group in the then market and observed, in a manner that suggested increasing impatience on his part:
"I need out and I am progressing that as we speak with an interested party."
Communications concerning KT's potential sale of his interest in BG Webb continued with emails dated 26 February 2019 from Ms Richards to KT and 26 February 2019 from KT to Ms Richards (Ex P10, CB 2867). By March 2019, a further issue had arisen as to whether additional directors should be appointed to BG Webb. By her email dated 27 February 2019 to KT (Ex P10, CB 2870), Ms Richards advised that:
"Your timing is very very short, but we really hope that we can sort this out, and we agree with your comment that it would be crazy, and not in the companies' best interests, to let a non-family member into our boardroom which raises an issue that we should address, and that is I think the others (Bess, Kate and mum) should also be appointed to the various company boards as they have an interest in all of this and particularly decisions have to be made in dealings with you and the companies."
Ms Richards there appears to express her own view as to the appointment of additional directors rather than a view attributed to Mrs Webb, Ms Hooker or KT's mother, Mrs Turner, and she did not, on the face of that email, copy it to Mrs Webb, Ms Hooker or Mrs Turner. Ms Richards also there suggested that she would arrange for a solicitor to contact KT's solicitor.
KT copied Mrs Webb, Ms Hooker or Mrs Turner in his response dated 28 February 2019 (Ex P10, CB 2869), and asked the question:
"Why would you want to add Director liabilities to more family members? Do [Mrs Turner, Ms Hooker and Mrs Webb] agree with this? [Mrs Webb] has always been against her nomination."
I will return to this question below. KT there also expressed discontent with Ms Richards' approach to his proposed sale of interest in BG Webb, and referred to the possible sale of that interest to a third party.
On 1 March 2019 (Ex D2, 6), KT sent a text to Ms Richards in respect of a price for the sale of his shares in BG Webb. Also on 1 March 2019, Mr Scott's firm sent a letter to Ms Richards, Ms Hooker, Mrs Webb and Mrs Turner (Ex P8) comprising an engagement letter and disclosure and costs agreement, which described the relevant legal services as "advising generally regarding Heartland Motor Group". That letter provided for acceptance in writing, but by Ms Richards only, or by continuing to instruct the firm. It is not clear, and not necessary to determine in this aspect of the proceedings, whether Mrs Webb and Mrs Turner had then retained Mr Scott to act for them and whether he was speaking for them in subsequent correspondence.
By email dated 6 March 2019 (Ex P12), Mr Scott advised Ms Richards, with copies to Ms Hooker and Mrs Turner but not Mrs Webb:
"When Peter first raised the potential for issues to arise with the Group there was uncertainty who would be the client(s) so we issued a costs agreement to him subject to substituting the clients in the future. It is appropriate for a new agreement to be issued.
Attached is our costs agreement terms and retainer letter. As you know the matter is very fluid as to what will happen including the potential for a buy-out of [KT's] interest. At this time however the nature of the estimate referred to in the agreement is predicated upon uncertainty with ongoing debate between the parties. Obviously that may change."
The attached costs agreement and retainer letter was addressed to Ms Richards, Ms Hooker, Mrs Webb and Mrs Turner but provided for signature only by Ms Richards; it allowed other parties to accept by conduct, but there is no evidence that they did so.
By email dated 7 March 2019 (Ex P6; Ex P10, CB 2871), Mr Scott advised KT's solicitor with a copy to KT that:
"I understand my clients have previously notified your client that they considered it appropriate that each of the shareholders be appointed as directors in [BG Webb]. Our ASIC search indicates that the current directors are Joanne Richards, Kathryn Turner and [KT] meaning Dulcie Webb and Bernice Hooker are to be appointed as directors."
That email referred to the receipt of consents to act as directors from Mrs Webb and Ms Hooker and attached copies of those consents and requested that KT execute a circulating resolution to make the relevant appointment.
In his cross-examination, KT expressed doubt as to whether Mr Scott was then acting for Mrs Webb and whether the position which he expressed was Mrs Webb's position. I accept that KT had every reason to be concerned as to that matter, where it would be surprising if Mrs Webb, who was then in hospital with a very serious illness, then wished to be appointed as a director of the holding company of a substantial motor dealership, and assume the liabilities attached to that position, when she was plainly too ill to undertake a director's duties. That proposition calls for further explanation, although I recognise that this issue may have caught the Plaintiffs and Mr Scott by surprise. It would not be appropriate for me to reach findings as to the extent of Mr Scott's retainer, or the status of the position attributed to Mrs Webb, where it is not necessary to do so to resolve this aspect of the proceedings; the Plaintiffs and Mr Scott may not have led all the evidence that would be available to address those matters; and these matters may well be in issue in the balance of the proceedings.
By email dated 14 March 2019 (Ex P7), Mr Scott wrote to KT, with a copy to KT's solicitors, in respect of then discussions concerning a possible sale of KT's interest in BG Webb, observing that nothing has been agreed, nor committed to, including the structure and terms of any transaction. He advised that he not received a response from KT to emails requesting further information and observed that:
"You will appreciate that any transaction will require the approval of my clients. I assume that the fact that none of the details requested in my email dated 28 February 2019, concerning a proposed sale to a third party, have been provided means that such a sale is no longer being considered."
Mr Scott also referred to a "proposed transaction" with BG Webb, although the content of that transaction is unclear, and followed up as to the circulating resolution attached to his earlier email.
The relations between the parties were tense by mid-March 2019. In an email sent on 18 March 2019 (Ex P10, CB 2874-2875), Mr Scott communicated the fact that his "clients" did not approve the transaction set out in a draft contract, which is not in evidence, because the price exceeded the value of KT's shares in BG Webb. He also indicated that:
"My clients and their advisors continue to investigate options for the way forward. In this respect I note you continue to ignore my clients' request that you sign the Circulating Resolution appointing the other shareholders as directors of [BG Webb]. As you know my clients represent over 80% of the voting entitlements of [BG Webb] and they again ask that you immediately sign the resolution without the need to call a meeting or meetings.
I am asked to request that all further communications concerning this matter be directed to me."
Also on 18 March 2019, KT responded (Ex P10, CB 2874) to Mr Scott's email set out above as follows:
"I will now focus on completing my sale with a third party, a position I preferred from the outset. I knew the family couldn't and wouldn't make a decision.
I will not be signing your proposed Circulating Resolution because I do not believe it is in the best interests of [Ms Hooker] or [Mrs Webb] or the Company. In fact [Mrs Webb] has said many times she doesn't want to be a Director and risk "going to jail". Furthermore, I do not understand why all of a sudden these 2 persons would like to expose their personal liabilities accordingly especially when they are very hands off and [Mrs Webb] is ill. If your sneaky intention is to out vote me selling my shares then I will sell my holding Family Trust which has already been dealt with by my team and I.
I will continue to speak to my Mum and [Mrs Webb] about any matters of the company when and how I feel like it.
[Ms Richards] is bullying the other family members, none of which are savvy or experienced business people, and steering this ship into an iceberg. I will not be here to watch."
On 18 March 2019, KT also sent a text to Ms Richards, in somewhat hostile terms, as follows (Ex D2, 9):
"Hi Jo [Mr Scott] told me your [sic] not interested and that's fine although foolish, but I would love a copy of your so called valuation that's [sic] says my price is many times too high? I'm betting you don't have this and I'm making this personal. I am exiting the business because of you and yet here you are trapping me in. Very strange, although not unusual … you will regret this."
Communications as to these matters continued into 2 April 2019, when Mr Scott again confirmed that his clients did not wish to buy KT's shares in BG Webb at the price which KT proposed (Ex P10, CB 2877).
By email dated 16 April 2019 (Ex P10, CB 2883), KT advised Mr Scott that, absent a circular resolution, presumably permitting the transaction, the proposed purchaser of his shares in BG Webb would "walk". Mr Scott responded on 16 April 2019 (Ex P10, CB 2886) that his clients had "at all times acted reasonably and with everyone's interests, including the company's, foremost in their approach" and stated that:
"My clients do not wish to frustrate your exit from the Group but they are simply not in a position to provide you with the approval that you seek without the adequate information requested and the consideration of, and advice from, Their advisors with respect to that information. To ask them to do so is unreasonable, particularly in the timeframe that you suggest."
KT responded on 19 April 2019 (Ex P10, CB 2886), in strong terms, that:
"As warned, my buyer has walked. It's been an incredibly difficult process trying to separate from the family in business and I am not wasting another minute on it. Your intent is frustratingly clear and unwavering. You have destroyed a good idea and deal out of sheer stubbornness and stupidity. The process has proven to been [sic] full of back flips (4 on 4 months) and stonewalling and your recent refusal to sign my [circulating resolution] is the straw that broke the camels [sic] back. Ironically, your illegal and immoral entrapment of my minority equity is flattering.
I need to focus back on the business and protect my 10% equity from further los[s]es."
In this context, KT's evidence as to his appointment of chair of each entity in the Group (KT 26.6.24 [56]-[60]) is that:
"My appointment as Chair of each entity in the Heartland Motor Group was formalised during a family meeting held sometime between about January 2019 and June 2019 following my return from living in France ([2019 Meeting]).
The Appointment Meeting I refer to immediately above took place at the home of my grandmother (my mother's mother) which was a unit in … Bellevue Hill, NSW.
The persons in attendance at the [2019 Meeting] were my grandmother (Dulcie Webb), my mother (Kathryn Turner), the first plaintiff, Joanne Richards and myself. No minutes were taken of the [2019 Meeting] as it was not a board or shareholder meeting. It was a meeting of family members with the material interest in the Group.
I recall the discussion at the [2019 Meeting] was in the following terms:
[KT]: I am back from sabbatical and need to decide whether the break was a halftime break or fulltime for me. If I leave then obviously I wouldn't be CEO or chairman but if I stay I would need to be the fulltime CEO and chairman until I am no longer involved in and don't hold shares in all the companies. I have compared the salaries of both positions and have them here for you. I propose this be accepted and we carry the business forward unless a[t] some stage in the future I choose to leave. Agreed?
[Ms Richards]: Yes.
[Mrs Webb]: Yes.
[Mrs Turner]: Yes.
[KT]: OK, great. I am happy to start this clean in the new financial year.
The consequence and effect of this discussion was that I take on the role of, and be paid a salary to be permanent Chairman of each of the Heartland Motor Group of Companies so long as I was a shareholder of [BG Webb] (ie the ultimate holding company of the Group)."
The last paragraph quoted above was admitted, by agreement of the parties, with a limiting order under s 136 of the Evidence Act 1995 (NSW) as evidence of KT's understanding. I bear in mind that, as Mr Dick emphasises, KT here characterises this meeting as a "family meeting" and as a "meeting of family members with a material interest in the Group" rather than as a board or shareholder meeting, and I have taken that characterisation into account. However, the question of the effectiveness of the meeting, as a decision of the directors of the companies which binds those companies, is a question of law which does not depend on KT's understanding of the meeting. I address that question below. I also recognise that KT's evidence in cross-examination was that there has been a previous practice appointing the chief executive officer as chair of companies in the Group (T40).
By an affidavit in reply dated 3 July 2024, made the day before the hearing commenced and after KT had served his affidavit evidence in chief and also after he had served his written opening submissions, Ms Richards addressed one aspect of KT's evidence. Ms Richards' evidence was that she did not recall being present at a meeting with KT between January 2019 and June 2019 as described by him or at all; that, obviously, was a statement of lack of recollection, not a denial of such a meeting, although her evidence in cross-examination was not wholly consistent with that position. She then went on to say that she otherwise recalled the period, and by a process of deduction, concluded that the meeting did not occur because, during that time period, she had an "estranged relationship" with KT; correspondence had occurred in respect of his wish to sell his interest in the Group and leave the Group; and
"As a result, there was no occasion after [KT] returned from France in which all of my mother, my sister (Kathryn Turner); [KT] and I were all present during the first half of 2019."
Ms Richards also referred to an occasion on which, when she visited her mother, KT telephoned her mother, Mrs Webb; Ms Richards answered the phone and did not say anything to KT; and she then passed the phone to Mrs Webb. Her evidence was also that Mrs Webb was in hospital for between 6 and 8 weeks in February and March 2019; that she was not present for visits of KT and his children to Mrs Webb or when KT was at Mrs Webb's unit; and she relied on the lack of reference to the 2019 Meeting in her appointment diary as proof that it did not occur. Her evidence was also that KT had determined his own salary, rather than the family doing so informally or at a meeting of directors or members of companies in the Heartland Group.
Ms Richards was cross-examined, by reference to documents which were produced in response to a notice to produce that was issued on the first day of the hearing, where her affidavit had only been served the day before the hearing commenced. I did not understand that Mr Izzo, with whom Mr Boyle appears for KT, asked me to reach an adverse credit finding against Ms Richards, although he contended that her evidence did not establish that the 2019 Meeting did not occur. It is not necessary to reach, and I do not reach, an adverse credit finding in respect of Ms Richards, although I reach the following findings in respect of that evidence. First, Ms Richard's evidence that she and KT did not speak is plainly qualified by her exchange of text messages with KT at the relevant time, to which I have referred above; at best, that evidence could be correct only if read literally as a denial of spoken communications that left open other forms of communication. Her suggestion that she had an "estranged" relationship with KT plainly did not have the result that there were no communications between her and KT, where there were a significant number of communications over that period by text and email, including in respect of the suggested sale of his interest in the Heartland group and the state of Mrs Webb's health, and those communications were inconsistent with any suggestion that she was not then communicating with KT. Second, as Mr Izzo points out, communications between KT and Ms Richards must have taken place before 14 February 2019, because the communications concerning KT's offer to other family members to acquire his shares could not have taken place unless that offer had first been communicated to Ms Richards and other family members. Third, her appointment diary was plainly no more than a note of preplanned engagements (such as pilates appointments and the like) and plainly not capable of supporting a negative inference that a meeting could not have occurred as it was not recorded in that diary, at least if family members found themselves at Mrs Webb's home at the same time.
In his outline of submissions, KT responds:
"The authorities recognise that latitude is given to companies in being found to have made resolutions, notwithstanding that no formal meeting has occurred and no resolution has been documented ….
[KT]'s evidence is, in substance, that in 2019, at [the 2019 M]eeting attended by Ms Richards (who at the time was the only other director of Boyded, Heartland Group and Rossfield Nominees) and his mother [Mrs] Turner (who, with [KT] and Ms Richards, comprised the board of BG Webb), it was agreed that [KT] would serve as chairman of all the companies in the group so long as he remained involved and held shares … ".
The Plaintiffs also there refer to contemporaneous documentary evidence which they contend supports KT's contention that he was the chairman of the companies, which I will address below.
Mr Izzo also points out that, by mid-June 2019, KT plainly understood he was chair of companies within the Heartland group and, on 27 June 2019, an internal email (Ex D1, CB 2555) referred to his wish to increase his "Chairman's salary." Mr Izzo also points to many subsequent occasions, prior to KT's departure for a long "sabbatical" in France, where he chaired directors' meetings of numerous companies within the Heartland group (Ex D1, CB 2564ff; I have assumed these documents were tendered). However, this matter would be explicable by a practice that accepted his taking the role of chair, consistent with the group's prior practice of combining the role of chief executive and chair, even if the 2019 Meeting had not occurred and no express agreement had been reached that he occupy that role, still less that he do so for as long as he held shares in BG Webb. Mr Izzo also responds to the Plaintiffs' submission that KT had not raised an issue with Ms Richards acting as chair in board meetings, pointing out that minutes of a meeting of BG Webb on 11 August 2022 (Ex P1, CB 1214; I have assumed this document was tendered) recorded that "[Ms Richards] nominated herself to be Chairperson of the meeting [and] KT stated he should be Chairperson to the meeting" and that a similar issue is recorded in minutes of a meeting of BG Webb on 30 November 2022 (Ex P4, CB 2653). The weight of these comments is reduced by the fact that Ms Richards plainly acted as chair of directors' meetings while KT was on "sabbatical" and for at least one meeting after his return and that, by mid-2022, a potential dispute as to board control of the companies was likely emerging. KT reiterated that position at directors' meetings of Bernley and Heartland Group on 29 May 2024, contending that he was "voted Chairperson in 2018 [sic] for the duration of while he is a shareholder" (Ex P9), but by then the dispute was well-advanced.
Mr Izzo also addressed the communications between KT and Ms Richards in the first half of 2019, when the 2019 Meeting is said to have occurred, in oral submissions and undertook a detailed review of the texts produced on notice to produce by Ms Richards, and the texts and email correspondence in respect of the proposed sale of KT's shares in BG Webb (T95ff), which I have addressed above. Mr Izzo emphasised the evidence that KT had in fact acted as chair of board meetings, both before his sabbatical in France and, after his return, from July 2019 until disputes arose (T98). I have had regard to that evidence, although I recognise that it would be consistent with a practice that permitted him to do so, falling short of the board resolution for which he contended. Mr Izzo also submitted that the 2019 Meeting was sufficient to pass a board resolution, where the relevant directors were present at the meeting (T102). I address that proposition below, although it will only advance KT's position if I could find, on the balance of probabilities, that the 2019 Meeting and the discussion, in substantially the terms for which KT contends, had occurred. The Defendants also provided a helpful written summary of the documents on which they relied in support of the contention that KT was chair of the relevant companies.
I have referred to KT's and Ms Richards' evidence in respect of the 2019 Meeting above. I recognise that their respective recollections and their evidence as to that meeting could well be distorted by their respective economic interests in KT retaining or Mr Richards (with Ms Hooker) obtaining control at board level of the Heartland Group. The other persons who are alleged to have attended that meeting have died and there is no contemporaneous recording that the meeting occurred or what was said at it.
I also have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41]; Varma v Varma [2010] NSWSC 786 at [424]-[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [10].
In Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [87], in dealing with alleged oral representations, Slattery J observed that:
"The principal conduct of the defendants that [the plaintiff] alleges was misleading or deceptive was the speaking of words in the course of a series of conversations. Special considerations apply when assessing alleged misleading and deceptive conduct in such a context. It is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq. In assessing whether spoken words were misleading the Court may have to examine relatively subtle nuances flowing from the use of one word, a phrase or a grammatical construction rather than another or the presence or absence of some qualifying word, phrase or condition: Watson v Foxman (1995) 49 NSWLR 315 at 31. The fallibility of human memory and the overlaying of memory with perceptions of self interest leading to sub conscious reconstruction are all hazards of ordinary human experience to which a Court must be alert in assessing whether particular spoken words are misleading or deceptive: Watson v Foxman (1995) 49 NSWLR 315 at 319. Ultimately each element of the cause of action must be proved to the reasonable satisfaction of the Court which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not obtained or established independently of the nature and consequences of the fact or facts to be proved", including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712."
I also note the matters relevant to the assessment of spoken words in the context of a contractual dispute, which were identified by Hammerschlag J (as his Honour was then) in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 ("John Holland") at [95]:
"Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319."
I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[29]:
"Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):
"the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." (emphasis added)
Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents."
I have here drawn on my summary of the applicable principles in Re Atlas Advisors Australia Pty Ltd (2022) 162 ACSR 509; [2022] NSWSC 705 at [5] and No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345 at [53]ff.
As I noted above, I have not reached an adverse credit finding in respect of either KT or Ms Richards, although I have found that Ms Richards' evidence that the 2019 Meeting could not have occurred because she was "estranged" from KT and because it was not recorded in her diary is not persuasive. The fact that I am not persuaded by Ms Richards' evidence that the 2019 Meeting could not have occurred does not have the consequence that I should accept KT's evidence of what was said at that meeting, where a wider range of possibilities is obviously available. I accept Mr Izzo's submission that, if the conversation for which KT contends had occurred at the 2019 Meeting, it would likely have taken place prior to KT's attempt to sell his interest in the group and the increasingly fraught discussions whether other shareholders would consent to that course. It is unlikely that such a meeting occurred after KT's attempt to sell that interest had failed, where his account of what was said commences with his reference to his return from France but does not refer to the failed discussions as to the sale of his interest. I have pointed to the evidence, both before KT departed for France and after his return, that he regularly acted as chair of the companies within the Heartland group and to his employment agreement which was signed in a manner referring to that position, although it is not apparent that Ms Richards as a director or other shareholders had acquiesced in that document. I also recognise that Ms Richards acted as chair of several meetings while KT was in France.
I accept that it is possible that an agreement was reached to the effect set out in KT's evidence, and I think it likely that Ms Richards as a director of companies within the Heartland group and its shareholders had previously accepted, as a matter of practice, that KT would act as the companies' chair while he was also chief executive of the Heartland group, as his predecessors had done, and the parties proceeded on that basis until Ms Richards and Ms Hooker sought to take control of the companies' boards in 2022. However, there was a very limited period in which that meeting could have occurred, before KT and Ms Richards became involved in contentious discussions as to the sale of his shares in BG Webb; Mrs Webb was in hospital and not at her home, where the meeting is said to have occurred, for a part of that period; it is doubtful that, once the share sale discussions had commenced, the meeting would have occurred without reference to them and so readily reached the result that KT sought; no contemporaneous documents refer to or record the 2019 Meeting or the resolution for which KT contends; and the other persons present at the suggested meeting have died. I am unable to reach a state of actual persuasion that, and I am unable to find on the balance of probabilities that, the 2019 Meeting took place in the manner or substantially in the terms set out in KT's evidence, notwithstanding the parties' acceptance by conduct that KT was chair of the companies over an extended period. KT did not contend that there was, for example, any form of estoppel or acquiescence arising from the conduct of the parties, which would prevent Ms Richards and Ms Hooker subsequently taking the course they have adopted since 2022.
Where I am unable to find on the balance of probabilities that the 2019 Meeting or the relevant conversation between KT and Ms Richards, in the presence of other family members, took place in the manner or substantially in the terms set out in KT's evidence, the 6 December Resolutions that appointed AT as director of the companies, relying on KT's casting vote, were invalid, irrespective of any question of law as to whether a chair could be appointed in an informal meeting. I will nonetheless address that question against the contingency of an appeal.
It is common ground that company directors, particularly of proprietary companies, may pass board resolutions, although a formal meeting has not occurred and the resolution was not formally documented. Mr Izzo points to MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; (1999) 25 ACSR 78 at 92; [1999] HCA 24, where Powell JA observed, with reference to authority, that even a casual meeting of directors may constitute a board meeting, so long as that represents the will and intention of those meeting; it is not necessary, in order for a decision of a board of directors to operate in law, that it be recorded in a minute; and the intention of the directors of a company may be determined by reference to what they say or do. In Australian Karting Association Ltd v Karting (NSW) Inc [2021] NSWSC 1075 ("Australian Karting") at [118], Adamson J similarly observed that:
"Latitude is given to companies in being found to have made resolutions notwithstanding that no formal meeting has taken place and no resolution has been documented: MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 140 FLR 247 at 266 (Powell JA). The intention of the directors of a company may be determined by reference to what they say or do: H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159 (H L Bolton (Engineering)) at 170-173 (Denning LJ, Hodson and Morris LJJ agreeing). In H L Bolton (Engineering), their Lordships found that the intention of a company to occupy a building was clear from its acts. Thus, the fact that there had been no board meeting or resolution did not mean that the company's intention had not been sufficiently established. ..."
The Plaintiffs seek to qualify that position by reference to the decision in Clark v Workman [1920] 1 IR 107 which held that shareholders, in general meeting, cannot appoint the chair of directors' meetings. KT does not contend to the contrary, and relies instead on the orthodox proposition that directors in a directors' meeting, held informally, can do so. Mr Dick points to observations in that decision which emphasise the significance of the appointment of a chair, for the exercise of the casting vote, although it should be recognised that company directors make many significant decisions and the appointment of a chair is not necessarily the most significant of them. That decision was also referred to by the Court of Appeal in New South Wales Rugby League Ltd v Australian Rugby Football League Ltd (1999) 30 ACSR 354; [1999] NSWCA 9 at [79], but without reference to its reasoning process.
Had it been necessary to decide the question, I would have followed the well-established reasoning in Australian cases that accept that directors' resolutions may be passed in an informal setting and would have applied that reasoning to a directors' resolution that appoints a chair of company meetings, as it also applies in respect of directors' resolutions dealing with other important matters. It seems to me undesirable to treat a single category of resolution, relating to the appointment of a chair, as excluded from that general approach; and it seems to me that to do so would undermine commercial certainty, where some or many Australian proprietary companies may have previously operated on the basis of the appointment of a chair undertaken in an informal way and previously accepted by all directors and all shareholders. It would be an extraordinary and unfortunate result if decisions made on the exercise of a casting vote on that basis were now to be called into question or companies put to the costs of seeking to validate them under s 1322 of the Act.
Where I have held that KT has not established that he was appointed as chair at the 2019 Meeting, then KT was not entitled to exercise a casting vote and AT was not effectively appointed a director of Heartland Group or of subsidiary companies by the 6 December Resolutions, in reliance on that casting vote. An issue as to the validity of subsequent resolutions purportedly passed at the Plaintiffs' instigation to remove AT as director of the several companies therefore does not arise, although it will be necessary to determine the question of the validity of resolutions to appoint Ms Hooker as a director of those companies.
The effect of this resolution depends on the status of the shareholdings in Heartland Group, which in turn depends on the effect of earlier transactions that took place on 28 June 2013 concerning Heartland Group. The Plaintiffs identify two possible analyses of those transactions. The evidence does not establish and it is not necessary to decide which analysis is applicable. The first is that, if the Heartland Group Acquisition (as defined) occurred prior to the Bernley Share Transfer (as defined), then the Bernley Share Transfer comprised a transfer of shares in Heartland Group to an entity which it controlled, Boyded, within the meaning of s 259C(1) of the Act; the Bernley Share Transfer was void; and Bernley has at all times since 28 June 2013 been the sole member of Heartland Group (APC [12]). KT responds (POD [12]), in respect of that analysis, and I accept for the reasons noted below, that Boyded is and at all material times was the trustee of the Trust; the Trust is a discretionary trust; neither Heartland Group nor any of the companies it then controlled have at any relevant time had a beneficial interest in the Trust; so the transfer of the share in Heartland Group to Boyded was not void by reason of s 259C of the Act.
The Plaintiffs alternatively contend (APC [13]) that, if the Bernley Share Transfer occurred prior to the Heartland Group Acquisition, Heartland Group obtained control (within the meaning of s 259E of the Act) of an entity that held shares in Heartland Group, Boyded, within the meaning of s 259D(1)(a) of the Act; by operation of s 259D(3) of the Act, no voting rights attached to the share held by Boyded in Heartland Group could be exercised whilst Heartland Group continued to control Boyded; and Bernley has at all times since 28 June 2013 been the sole member of Heartland Group entitled to vote on any members' resolution. KT responds (POD [13]), in respect of that analysis, and I also accept for the same reasons, that the transfer of a share in Heartland Group was a transfer to Boyded as trustee of the Trust; neither Heartland Group nor any of the companies it then controlled had a beneficial interest in the Trust; and Boyded's entitlement to vote its share in Heartland Group was not affected by s 259D(3) of the Act, by reason of s 259D(5)(b) of the Act.
It is common ground that Bernley was not the sole shareholder of the Heartland Group, nor the sole shareholder entitled to vote on the resolution, unless Boyded did not hold that share by reason of s 259C(1) of the Act or was not entitled to vote that share by reason of s 259D(3) of the Act. It is also common ground that neither of those provisions would apply, and Boyded would be entitled to vote that share, if either s 249C(1)(b) or s 259(d)(5)(b) apply, because Boyded holds its share in Heartland Group as trustee (as is the case) and neither Heartland Group nor any entity it controls has a beneficial interest in the Trust. There is no suggestion that any controlled entity of Heartland Group has such an interest and the only question is whether Heartland Group has such an interest.
In their opening written submissions, the Plaintiffs contend that the share held by Boyded in Heartland Group was either invalidly transferred to Boyded by reason of s 259C of the Act or could not be voted on resolutions by reason of s 259D of the Act, and recognise the disputed steps in that analysis as follows:
"the effect of those provisions was that, regardless of the order of those two transactions, the resulting position since 2013 was that Bernley was either:
a. the sole member of Heartland Group (relevantly, for the purposes of s 249B(1) of the Act), because Bernley's transfer of one of its shares in Heartland Group to [Boyded] was void pursuant to s 259C(1) of the Act; or alternatively
b. the sole member of Heartland Group entitled to vote (relevantly, for the purposes of s 249A(2) of the Act), because on and from Heartland Group's acquisition of control of [Boyded] through Rossfield Nominees, [Boyded] could not exercise any voting rotes attached to its share in Heartland Group by operation of s 259D(3) of the Act.
[KT's] solicitors have asserted in correspondence that exceptions, specifically those in either ss 259C(1)(b) or 259D(5)(b) apply so as to render s 259D inapplicable, with the result that [Boyded] both validly received and can exercise its voting rights in respect of its one share in Heartland Group. One of those exceptions would apply if [Boyded] held its share in Heartland Group in its capacity as trustee of a trust in which Heartland Group has no beneficial interest. [Boyded] is the trustee of the Rossfield Group Trust (Trust), and it may hold its share in Heartland Group for the benefit of the Trust. Regardless, Heartland Group was prior to 2013, and remains, both a discretionary object of the Trust, and at least from 2010, has had fixed, unpaid beneficial entitlements held pursuant to the Trust. It follows that Heartland Group has a beneficial interest in the trust, and neither of those exceptions applies."
First, the Plaintiffs contend that Heartland Group has an interest in the Trust because it is a discretionary object of the Trust. Mr Dick puts the key and contentious step in this analysis, in opening written submissions, as follows
"… the [P]laintiffs' principal submission is that a sufficient "beneficial interest" in the Trust arises in respect of a discretionary object of the Trust for the purposes of ss 259C(1)(b) and 259D(5)(b) of the Act. A discretionary object of a discretionary trust has a beneficial interest "in the trust" (as distinct from, for example, a fixed beneficial in the trust property) insofar as it has a right to due administration of the trust, including to compel the trustee to act in good faith and give due consideration to the exercise of its discretionary powers, see, eg: Kennon v Spry (2008) 238 CLR 366 at [74], [125]."
Mr Dick also addressed the scope of ss 259C and 259D of the Act and the exceptions to those sections in oral submissions (T83ff) and, in reply, Mr Dick again emphasised the Plaintiffs' construction of the exceptions to s 259C-259D of the Act, and the distinction that the Plaintiffs draw between a "beneficial interest in the Trust" and a "beneficial interest in Trust property", and their reliance on the unpaid distribution to Heartland Group as establishing an interest in the Trust property in its part, which I address below (T123-124).
Mr Izzo responds, in opening written submissions, that ss 259C and 259D of the Act do not operate as the Plaintiffs contend in the circumstances of this case, and Boyded was entitled to vote as a member of Heartland Group and the purported resolution passed on 13 December 2022 was invalid by reason of Boyded's exclusion from voting (DS [18]-[38]). Mr Izzo refers to cll 3 and 4 of the Trust Deed for the Trust (Ex P1, CB 403ff) which provide that the trustee has an absolute discretion as to how to apply the Trust property, as to both income and corpus, among the "General Beneficiaries", which it is common ground include Heartland Group. Both parties rightly accept that the rights of a discretionary object in the position of Heartland Group are a right to due administration of the trust, and Mr Izzo submits that a person with an interest of that kind does not have a beneficial interest in the trust property: Commissioner of State Revenue v Serana Pty Ltd (2008) 36 WAR 251; [2008] WASCA 82 ("Serana") at [53], [122]-[129], [135], [139].
Mr Izzo also rightly draws attention to the observation of Brereton J in Cypjayne Pty Ltd v Sverre Rodskog [2009] NSWSC 301 at [41] that:
"a discretionary trust does not have beneficiaries in the traditional sense, whose interests together aggregate the beneficial ownership of the trust property. Instead there is a class of persons, usually described in wide terms, who are the objects of a trust power to appoint either income or corpus or both to selected members of the class. The members of the class are objects of a trust power, rather than beneficiaries in the strict sense. They do not have a proprietary legal or equitable interest in the trust fund… They have no beneficial interest in the trust property; they are not persons for whose benefit the trust property is held by the trustee; at the highest they are members of a class of persons for the benefit of some one or more of whom the trustee may in due course hold property if it so determines. At best, they are potential beneficiaries, not beneficiaries."
Mr Izzo takes issue with Mr Dick's submission distinguishing between the reference to "a beneficial interest in the trust" in ss 259C(1)(b) and 259D(5)(b) of the Act and a beneficial interest in the trust property. Mr Izzo submits that, obviously enough, the meaning of "beneficial interest in the trust" in these sections is a question of statutory construction. He submits, and I accept, that the phrase "beneficial interest", when used in connection with a "trust", directs inquiry to whether the company has a proprietary interest in the trust property, where the phrase "beneficial interest" is itself ordinarily used in connection with property, rather than to beneficiaries' interests in a discretionary trust: MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494 at [34], Serana at [121], [135]; [1999] HCA 51. Mr Izzo also points to the difficulty that, if a potential beneficiary of a discretionary trust (in the sense of being among the class of persons for whose benefit the trustee may hold property if it so determines) has a "beneficial interest" for the purposes of ss 259C(1)(b) and 259D(5)(b), then the scope of persons caught by the provisions is unreasonably extended. He submits and I also accept that, at least so far as the object of the provisions includes maintenance of a company's capital (Re National Australia Bank Ltd (2020) 149 ACSR 323; [2020] NSWSC 1761 at [25]), the construction for which the Plaintiffs contend would not advance that objective because a potential beneficiary has no right in any share which is the subject of the trust unless and until a power of appointment is exercised in its favour. Mr Izzo also put further matters in support of this view which I need not address. Mr Izzo also made detailed oral submission as to the operation of ss 259C-259D of the Act and the concept of "interest in the trust" in the exceptions to those sections (T107ff).
For the reasons put by Mr Izzo, I do not accept the Plaintiffs' submissions as to this aspect of this issue. The language "interest in the trust" in s 259C(1)(b) and s 259D(5)(b) appears to me to be directed to an interest in assets of the trust and it can be given no other coherent meaning where a trust is not a legal entity, and the Heartland Group can have no "interest in the trust", as a concept or collection of legal rights and obligations, as distinct from an interest in the assets of the trust. Specifically, I do not accept the Plaintiffs' submission that the right of a discretionary object of a discretionary trust to due administration of the trust can properly be characterised as an "interest in the trust" for the purpose of these sections, with the result that persons who have little or no prospect of an ultimate exercise of discretion in their favour are treated as having an "interest in the trust".
Alternatively, the Plaintiffs contend that Heartland Group has an interest in the Trust because, from 2010, it has had unpaid beneficial entitlements held pursuant to the Trust (Ex P2, CB 1268). Mr Dick here submits that:
"… Heartland Group also has (or, at least, had at 28 June 2013) a fixed beneficial entitlement to Trust property in the nature of unpaid present entitlements, such that it was not a 'mere' discretionary object, but had a direct beneficial interest in Trust property.
The Trust's financial statements for the financial year ended 30 June 2017 record in its statement of financial position non-current liabilities described as "[t]rade and other payables" of just under $40 million. Note 7 to that entry provides further descriptions of that entry, and relevantly includes an entry for $4,816,548 described as:
"Heartland Group Pty Limited - unpaid Distributions pre 2010"
The inference to be drawn from that business record is that, at all times between at least 2010 and 30 June 2017, Heartland Group had a fixed beneficial entitlement to unpaid distributions declared in its favour out of the Trust totalling just over $4.8 million."
The Defendants contend to the contrary. Mr Izzo submits that ss 259C(1)(b) and 259D(5)(b) refer to shares that are held by an entity as trustee; the "trust" the subject of those provisions is a trust of the "shares" in question; and the single share in Heartland Group that is held by Boyded has not been the subject of any appointment in favour of Heartland Group as contemplated by cl 4 of the Trust Deed, and remains part of the capital of the Trust (Ex P2 , CB 1267). I accept the factual basis of that submission.
Mr Izzo also points out, and I accept, that a distribution of income has apparently here been made to Heartland Group pursuant to cl 3 of the Trust Deed, and points out that cl 3(i) of the Trust Deed provides that:
"the Trustee may, in each Accounting Period, pay apply or set aside the whole or such part (if any) as it shall think fit of the net income of the Trust Fund of that Accounting Period to or for the benefit of or for all or such one or more exclusive of the others or other of the General Beneficiaries from time to time in such proportions and in such manner as the Trustee in its absolute discretion thinks fit…"
Mr Izzo also points out that cl 1(ix) of the Trust Deed defines "set aside", in relation to a Beneficiary, as including "placing sums to the credit of such Beneficiary in the books of the Trust Fund". Mr Izzo submits, and I accept, that the result of making a distribution of income under that clause is to give Heartland Group a vested interest in the sums distributed to it: Re Vestey's Settlement [1951] Ch 209 at 217, 224; Inland Revenue Commissioner (NZ) v Ward [1970] NZLR 1 at 17, 30. Mr Izzo also refers to Fischer v Nemeske Pty Ltd (2016) 257 CLR 615; [2016] HCA 11 at [96], where Gageler J observed that:
"Once it is accepted - as it was in Re Baron Vestey's Settlement; Lloyds Bank Ltd v O'Meara [1951] Ch 209; [1950] 2 All ER 891] and in Commissioner of Inland Revenue v Ward [[1970] NZLR 1] - that a trustee can "apply" trust property to the advancement of a specified beneficiary by resolving to allocate trust property unconditionally and irrevocably to the benefit of that beneficiary, it is difficult to see any reason in principle why such an unconditional and irrevocable allocation of trust property must take the form of an alteration of the beneficial ownership of one or more specific trust assets. The allocations in each of those cases were of specified proportions of a single monetary amount which stood to the credit of a bank account which the trustee held as trust property at the time of the resolution. The allocations were held to be sufficient to result in the specified beneficiaries to whom the allocations were made each obtaining an immediate absolute beneficial entitlement to the sums so allocated. It appears that the sums in question in the first case were soon afterwards paid into separate bank accounts, but that fact does not appear to have been treated as relevant to the holding. The sums in question in the second case were not paid into separate accounts for many years." [emphasis added]
In Australian Karting at [108], to which Mr Izzo also referred, Adamson J similarly observed that:
"A distribution of trust property has the effect of removing the amount distributed from the corpus of trust property. If the distribution is paid to the beneficiary, the distribution is complete. If the distribution is made but not yet paid to the beneficiary, the amount of the unpaid distribution becomes the subject of a "bare" or "absolute" trust in favour of the beneficiary to which the distribution has been made. As the beneficiary's entitlement in such a case is absolute (by reason of the distribution), the beneficiary can call for the distribution (under the principles of Saunders v Vautier (1841) 49 ER 282) or obtain judgment for the amount of the distribution in an action for money had and received …" [emphasis added]
Mr Izzo submits that, obviously enough, the distribution of income to Heartland Group is not the same thing as an appointment or distribution of the share, which remains undistributed, and this case is different to Fischer v Nemeske where what was distributed was the capital of the trust, comprising shares in a company.
Here, it seems to me that the distribution of the unpaid distributions declared by the Trust in favour of Heartland Group in the sum of $4.8m plainly give that company a beneficial interest in that amount, which is to the extent removed from the Trust property; but they do not give that company a beneficial interest in the Trust, or any other "interest in the trust" in the relevant sense. Again, to read the sections in that way would unreasonably expand their scope, and lead to arbitrary results where the applications of the sections to shareholdings in a company group would potentially alter with no more than the making of money distributions to discretionary beneficiaries of trusts. Companies and their shareholders would have no reason to anticipate such a result, and no legislative policy would be served by it. I also do not accept the Plaintiffs' submission as to this alternative claim on this basis.
The Plaintiffs also put a submission in reply that the dispute as to the application of s 249C and s 249D of the Act, and whether Boyded was deprived of the right to vote at a meeting of Heartland Group was largely an "arid one", because:
"There can be no doubt that, had a general meeting of Heartland Group been formally convened on the requisite 21 days' notice, a members' resolution in identical terms to that signed by [Bernley] would have been passed."
I do not accept that submission. It is not an answer to the fact that minority shareholder(s) have been deprived of the right to vote that the controlling shareholder would have disregarded any matters they raised at a shareholders meeting and overridden their wishes in any event. That proposition also assumes that the Plaintiffs and those advising them would not have engaged genuinely in the process of consultation at a shareholders meeting and that their wishes were impervious to reasoned discussion. That proposition also should not be accepted here, where careful attention would likely need to be given to the impact of a change of control of the companies or any change in the identity of their directors on the relationship between the Heartland group of companies and the motor vehicle manufacturers, given the manufacturers' proper commercial interest in the identity of the controllers of the Heartland group.
The Plaintiffs alternatively seek a declaration under s 1322(4)(a) of the Act that the circular resolution executed by Bernley was not invalid by reason of the failure to convene a meeting of the companies (APC [29]-[29A]) and, implicitly, by the fact that Boyded was not permitted to vote upon it. KT responds that no relief is available under s 1322 because the criteria under s 1322(6)(a) and (c) of the Act are not satisfied. In oral submissions, Mr Dick also addressed the potential application of s 1322 of the Act and the outcome of the shareholder meeting, had it been held and Boyded attended it (T86). Mr Izzo also addressed the Plaintiffs' reliance on s 1322 of the Act in oral submissions (T111ff) and, in oral submissions in reply, Mr Dick also sought to distinguish the case law relating to ss 1317S-1318 of the Act, so far as it requires proof of honesty, and the position under s 1322 of the Act (T124-125).
The Court can only make an order under s 1322(4) if it is satisfied that the act, matter or thing, or the proceeding is essentially of a procedural nature; or the person or persons concerned in or party to the contravention or failure acted honestly; or that it is just and equitable that the order be made (s 1322(6)(a)(i)-(iii)). The conditions specified in s 1322(6)(a)(i)-(iii) are not cumulative, and only one of those conditions needs to be satisfied in order to allow an order to be made under s 1322(4): Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 194 FLR 322; (2005) 55 ACSR 185; [2005] NSWSC 1005 ("Cordiant"); Gosford Christian School Ltd v Totonjian (2006) 201 FLR 424; [2006] NSWSC 725 ("Gosford Christian School") at [80]. The section should be given the wide application recognised by the High Court in Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14. French CJ there observed that that section should be construed widely to give effect to its policy and did not consider the section was limited to where there was disobedience of a prohibition or non-compliance with an obligation. Hayne, Crennan and Kiefel JJ similarly rejected the view that s 1322(4) was limited to validating actions that were able to be achieved under the Act or a company's constitution or was not available for actions that could not otherwise be achieved. Gageler J observed that a contravention of the company's constitution may occur if something happened differently to what the constitution required. However, the potential width of the application of the section does not exclude the relevance of injustice arising from the relevant event, to which I will refer below, in determining whether it should be applied in a particular case. Mr Izzo submits and I understand it to be common ground that the Plaintiffs bear the onus of establishing that the criteria specified in s 1322(6) of the Act are satisfied: Australian Hydocarbons NL v Green (1985) 10 ACLR 72 at 83.
Mr Izzo submits that s 1322(6)(a)(i) would only be satisfied if the contravention which occurred, which is not merely the use of a circulating resolution but the fact that Boyded was excluded from voting on the resolution, was "essentially of a procedural nature". He points to Palmer J's observation in Cordiant that a wrongful denial of a shareholder's statutory right to vote at a meeting is a denial of a substantive right and is not of a procedural nature. I accept that submission.
Mr Izzo also points out that s 1322(6)(a)(ii) only applies if it is shown that the person or persons concerned in the contravention, here Ms Richards and Ms Hooker, "acted honestly". The case law, in respect of the requirement for honesty in ss 1317S and 1318 of the Act, indicates that an applicant for relief under those sections must positively satisfy the Court that his or her conduct was honest. While I accept those sections are directed to a different situation, it still seems to me that it will at least be difficult for a person to establish honesty without leading his or her evidence of the facts which may support that finding. Mr Izzo also points out that the requirement for honesty requires that the relevant person has not only acted without deceit or conscious impropriety, and without intent to gain improper benefit or advantage, but also without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been made to carry out the duties and obligations imposed by the Act or the general law: Re iCandy Interactive Ltd (2018) 125 ACSR 369; [2018] FCA 533 at [56]; Re Pacific Springs Pty Ltd (2020) 148 ACSR 454; [2020] NSWSC 1240 ("Pacific Springs") at [175] (reversed on appeal on other grounds). I am not persuaded that Ms Richards, who did not give evidence of her decision making in respect of this matter, or Ms Hooker, who did not give any evidence, have affirmatively established honesty in the relevant sense.
Mr Izzo points out that s 1322(6)(a)(iii) requires it to be shown that it is "just and equitable" that the order sought by the Plaintiffs be made. He points out that the authorities indicate that concept confers a discretion which is to be exercised judicially, that is, by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision to be made: The Chinese Cultural Club Ltd (2004) 83 FLR 33; (2004) 49 ACSR 568; [2004] NSWSC 432 at [19]; Pacific Springs at [176]-[177]. Mr Izzo identifies several relevant considerations, namely that Boyded was denied the opportunity to vote on a resolution on which it was entitled to vote; and the significance of the denial of that opportunity must be assessed in the context of the rights which the Act and the constitution gives to shareholders in the company, including Boyded's rights under s 249S of the Act to attend and participate in any general meeting at which a resolution to remove or appoint directors was to be considered. Mr Izzo submits that the denial of those rights occurred in circumstances where, it may be inferred, the Plaintiffs must have been advised at least of a real risk that they ought to have held a general meeting to consider any resolution to remove or appoint directors. I do not draw that inference but do recognise that course was taken, more than once, in steps directed to the Plaintiffs' obtaining control of the board, where both parties were manoeuvring for advantage, and there is no reason to think it reflected any naïve misunderstanding of the statutory requirements. I also do not accept the Plaintiffs' submission, in effect, that the outcome of such a meeting would be a foregone conclusion, implicitly because a corporate representative or proxy holder for Bernley would not genuinely have engaged in any discussion on the merits at a shareholders meeting, for the reasons that I did not accept that submission in respect of the application of ss 259C-259D of the Act. That proposition, in any event, undermines rather than advances a claim to relief under s 1322 of the Act. For these reasons, I am not satisfied that it would be just and equitable to make an order under s 1322(6) of the Act here.
In order to obtain relief under s 1322 of the Act, the Plaintiffs must also establish that "no substantial injustice" has been or is likely to be caused to any person, under s 1322(6)(c) of the Act and a validating order cannot be made if it would cause substantial injustice: Primary Securities Ltd v Aurora Funds Management Ltd [2020] NSWCA 230 at [146]. Mr Izzo submits and I accept that this requirement directs attention to whether the order would be unjust in the sense of causing such prejudice overall as to be unfair or inequitable, taking into account the interests of those directly affected: Pacific Springs at [178]. Mr Izzo points to the possibilities that AT was a director of Boyded at the time of the passage of the three circular resolutions or that KT had a casting vote on the board of Boyded at the time of the passage of the three circular resolutions. I have not accepted either proposition. Nonetheless, it seems to me that there would be substantial injustice in exercising the Court's power of validation so as to advance the denial of Boyded's right to vote on this issue, whatever the result of that vote would ultimately have been.
For these reasons, Boyded was entitled to vote on the relevant resolutions and was deprived of the opportunity to do so. No issue arises as to the validity of any resolution to remove AT as a director, since the finding that I have reached above has the consequence that he was not properly appointed as a director by the exercise of KT's casting vote. However, the appointment of Ms Hooker as a director of Heartland Group was invalid, and any subsequent resolution that depended on the exercise of her vote as a director of Heartland Group was also invalid.
Article 80 of Rossfield Nominees' articles of association similarly provides that:
"The Directors shall have power at any time and from time to time to appoint any other person as a Director either to fill a casual vacancy or as an addition to the Board but so that the total number of Directors shall not at any time exceed the maximum number fixed by or in accordance with these Articles and any director so appointed shall subject to these articles hold office until the next annual general meeting of the Company."
In their initial submissions, the Plaintiffs put that:
"… even if [AT] had been validly appointed as a director of Heartland Group, and was not removed by Bernley as its sole voting member on 13 December 2022, his term as director has in any event expired. The articles of association of Heartland Group provide that a director appointed by the board only until the next ordinary general meeting of Heartland Group. Whilst no annual (or 'ordinary') general meeting of Heartland Group has been held since 6 December 2022, the latest time at which such a subsequent general meeting should have been convened was 31 December 2023, such that if [AT] was validly appointed as a director, and remained a director by that time, his office in any event expired, see: see: Re Consolidated Nickel Mines Ltd [1914] 1 Ch 883 ["Consolidated Nickel"]. …
[I]n respect of Rossfield Nominees, the term of a director appointed by the board expires at the next annual general meeting. Whilst no such annual general meeting has since occurred, the latest date after 6 December 2022 that such an annual general meeting could have occurred was 31 December 2023, such that Anthony's term of office will also have expired at that time."
In further submissions, Mr Dick elaborated on that submission:
"On the proper construction of those articles of each of Heartland Group and Rossfield Nominees, a director appointed by the board is to hold office until either the next annual general meeting is in fact held or, if no such meeting is held, the last date after their appointment at which an annual general meeting should have been held. That is an incident of the canon of construction that a document will not be construed such as to permit a party to take advantage of their own wrong, namely by permitting the directors to extend the term of their office by failing to convene an annual general meeting as required, see: [Consolidated Nickel] at 888; Camenzuli v Hawke [2022] NSWSC 168 ["Camenzuli"] at [65] ff.
It is common ground that no annual general meeting of either of Heartland Group or Rossfield Nominees was held in the calendar year 2023, or indeed at any time since 6 December 2022: POC, [42(c)], [43(c)]; POD, [42(d)]; [43(d)]. In those circumstances, [AT's] term of office as a director of each of those companies (if validly appointed) expired on the last day after his appointment on which an annual general meeting should have been held, being 31 December 2023."
Mr Izzo responds that:
"The Plaintiffs submit that on their proper construction these provisions have the effect that, where no annual general meeting is held, the director's appointment expires on the last date after their appointment at which an annual general meeting should have been held (PFS [55]). That construction is not supported by the text of the provisions. What is significant about the language of both provisions is that they are concerned with and premised upon the occurrence of an event, namely the holding of a meeting. In terms, both provisions are silent as to any temporal limitation on office, in the sense that neither provision states that the lapsing of the time period for a meeting is the determiner of a director's office.
… there is a serious question as to the correctness of the principle of law for which [Consolidated Nickel] is said to stand. The principle that a person cannot take advantage of their own wrong is, in truth, not a principle of construction at all. It is simply a principle that may preclude a person obtaining relief in particular instances. Further, a construction that holds that a person's office as director is vacated after the company has failed to hold an annual general meeting, despite no other director having been appointed in that person's stead, is capable of causing significant inconvenience if it would mean invalidation of corporate acts in circumstances where the directors may not have appreciated the defect. That is particularly so in a case such as Re Consolidated Nickel Mines Ltd, where all directors were required to retire and it would follow that there was no director validly in office for the relevant period."
In oral submissions, Mr Dick reviewed the case law as to the question whether AT's office was vacated on the failure to call an annual general meeting by 31 December 2023 (T91ff). His submissions rightly highlighted the difference in approach between Consolidated Nickel and cases which have followed it, including Singh v Singh; Flora t/as Flora Constructions v Budget Demolition & Excavation Pty Ltd [2008] NSWSC 386 ("Singh v Singh) and Gosford Christian School and the approach more recently adopted by Ward CJ in Eq in Camenzuli. In oral submissions (T116ff), Mr Izzo also addressed the relevant case law in respect of the expiry of AT's term as a director of the companies, if he validly had been appointed, with particular focus on the decision of Ward CJ Eq in Camenzuli and, in oral submissions in reply, Mr Dick returned to the analysis of that decision (T126).
I now turn to the applicable case law. The decision in Consolidated Nickel concerned the application of art 101 of that company's articles of association which provided that:
"At the ordinary meeting in 1906 all the directors, and at the ordinary meeting in every subsequent year one-third of the directors for the time being respectively, or if their number is not a multiple of three, then the number nearest to one-third, but not exceeding one-third, shall retire from office. A retiring director shall retain office until the dissolution of the meeting at which his successor is elected."
Sargant LJ there observed (at 888) that:
"No ordinary meeting was held or called in 1906 or 1907, and the liquidator's contention is that all the directors vacated office on December 31, 1906, which was the last day on which a meeting of the company for that year could have been held. That contention appears to me to be well founded.
A director on his appointment does not ordinarily step into an office which is perpetual unless terminated by some act, but into an office the holding of which is limited by the terms of the articles. The meaning of article 101 is that the holding of the office of the director was only to last until the end of 1906, or until the earlier date on which the ordinary meeting for that year was held. … The duty of the directors was to call a meeting in 1906 and 1907, and they cannot take advantage of their own default in that respect and say that they still remain director."
This decision has stood for many years and has been followed by many Australian decisions. I do not accept Mr Izzo's submission that the correctness of the principle for which it stands should be reconsidered by a judge at first instance, and there is no reason to think that it or the decisions that have applied it are plainly wrong. To the contrary, to the extent that they avoid creating an incentive for directors to fail to call general meetings, so as to extend their period in office, these decisions seem to me to promote good corporate governance.
In Gosford Christian School, Barrett J considered the construction of an article of association which provided that a director "shall retire from office at the conclusion of the annual general meeting which shall elect the directors for the ensuing year". His Honour recognised (at [36]) that, on one view, an article that required a director's retirement from office "at the conclusion of the annual general meeting" could mean that:
"there can be no retirement and hence no vacancy unless an annual general meeting takes place, since there can otherwise be no 'conclusion' of the annual general meeting and therefore no occasion for retirement and the creation of the resultant vacancy".
However, his Honour held (at [37]) that such a construction was inconsistent with authority, including Consolidated Nickel.
In Singh v Singh, Barrett JA considered an article which provided that each member of the executive committee "shall hold office until the next annual general meeting when they shall retire". His Honour observed (at [70]) that, where a provision "limit[s] tenure to the next annual general meeting and compel[s] retirement at that meeting", then office holders are taken to have vacated office on the last day on which the annual general meeting could have been held and it made no difference that no meeting was held.
In Luen Fook Tong Incorporated v Lowe [2011] NSWSC 1004 ("Luen Fook Tong"), an association's rules did not expressly provide for the retirement of committee members at a specified time but provided that each member "shall, subject to these rules, hold office until the conclusion of the annual general meeting following the date of the member's election but is eligible for re-election". Slattery J there expressed the view (at [66]-[67]) that, had it been necessary to consider the issue, he would have distinguished Singh v Singh on the basis that the rule did not require the members of the committee to retire, by contrast with the article in Consolidated Nickel.
The parties also refer to Camenzuli, where Ward CJ in Eq (as the President then was) undertook a detailed review of the relevant authorities. Her Honour there observed (at [67]) that:
"The plaintiff accepts that it is a well-settled principle of construction that may properly be taken into account in cases such as the present that the Court ought not to adopt a construction that allows one to take advantage of one's own wrong … (which was relevant in Consolidated Nickel as the directors had there lodged a proof in the winding up of the company on the basis that they were still directors when that was so only due to their own default in not calling an ordinary meeting as required by the company's articles)."
Her Honour also noted (at [69]) that questions of construction are questions of law, and referred to a submission that they ultimately turn on the meaning of the particular document in issue (formed within a particular context, between particular parties) and that judges ought to be wary of placing too great an emphasis on judicial precedent. She observed (at [70]-[71]) that she was not, in any traditional sense, bound by the earlier decisions; that they would be relevant to the extent that the wording of the relevant clause might be said to have some received meaning in particular contexts; and that she was assisted by "the manner in which the conclusion was reached as to the meaning of cognate provisions." By contrast with Luen Fook Tong, her Honour noted (at [72]) that words such as "when they shall retire" did not seem to her to bear upon the question whether, where no such AGM is held, a clause operates so as automatically to vacate the office of office-bearers, and she did not find the obiter dicta in that decision to be of assistance.
Her Honour then observed (at [76]) that:
"Approaching the construction of the relevant clause by reference to its text and in the context of the NSW constitution as a whole, and having regard to the caution to be exercised in construing constitutions of this kind, I have concluded (with some hesitation) that the natural meaning of the words "until the next AGM" is premised on such an AGM occurring, such that if an AGM does not occur then the event on which the termination of office will happen has not arisen and the elected office-bearer continues in office until such time as an AGM is held. I have so concluded because I consider that the contrary construction requires an impermissible distortion of the text of the clause, and the substitution of the requirement that an event occur with the elapsing of the time within which that event was to occur, which is inconsistent with text of the constitution, and the "public element" that shapes the construction of instruments of this kind. The hesitation I have is that this is inconsistent with the interpretation that has been placed on cognate provisions in the line of authority following Consolidated Nickel. However, I consider that those decisions are explicable on the principle of construction that an approach not be adopted which would permit a person to rely on his or her own wrong and/or by reference to an inference that the use of words that have been interpreted in a particular context suggests that such a meaning was intended."
Her Honour also there noted that the application of a principle that one could not take advantage of one's own wrong had a limited application in that case, where the persons in office were not the same persons as those who were obliged to call the AGM. That cannot be said in this case, as to KT and AT, although I recognise that Ms Richards could also have sought to convene an AGM of Heartland Group and Rossfield Nominees when it was due to be held by 31 December 2023.
It seems to me that the facts of this case, involving the construction of a proprietary company's articles of association, are relevantly indistinguishable from those considered in Gosford Christian School and Singh v Singh, and I would also give little weight to whether an article expressly required retirement at the end of a specified period, where reference to holding office for a period implies that office will cease at the end of that period. If it had been necessary to do so, I would have followed and applied Gosford Christian School and Singh v Singh here, and distinguished the decision in Camenzuli so far as it relied on the absence of reciprocity between those who had failed to call the annual general meeting as to who stood to benefit from the continuance of the directors in office. I would have held that AT had ceased to hold office as a director of Heartland Group and Rossfield Nominees on 31 December 2023 on that basis.
Also on 29 May 2024, Heartland Group then executed a sole members' resolution of Boyded, purportedly authorised by prior board resolution of Heartland Group, appointing Ms Hooker (if not already appointed) and removing AT (if validly appointed at the time) as a director of Boyded (APC [51], POD [51]; Ex P1, CB 899-900, 909ff). Because Ms Hooker was not then a director of Heartland Group, the resolution of Ms Hooker and Ms Richards authorising a members' resolution of Boyded appointing Ms Hooker, purportedly passed at that time, was not valid. The resolution to remove AT as a director of Boyded was also invalid, but he was not a director at that time for reasons noted above.
Issue 11, as to members' resolutions of other companies, is no longer in dispute.