[2016] FCAFC 80
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63
(2001) 208 CLR 199
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57
[2006] HCA 46
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
[2018] FCA 1445
Chimaera Capital Ltd v Pharmaust Ltd [2007] FCA 1539
Source
Original judgment source is linked above.
Catchwords
[2016] FCAFC 80
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63(2001) 208 CLR 199
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57[2006] HCA 46
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618[2018] FCA 1445
Chimaera Capital Ltd v Pharmaust Ltd [2007] FCA 1539(2007) 64 ACSR 332
Dhami v Martin (2010) 79 ACSR 121[2010] NSWSC 770
Estate of the late James Sundell [2019] NSWSC 1108
Fox v Gadsden (2003) 46 ACSR 7137 ACLC 165
Re Homer District Consolidated Gold Minesex parte Smith (1888) 39 Ch D 546
Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (2015) 107 ACSR 172[2015] NSWSC 937
Warner-Lambert Co LCC v Apotex Pty Ltd (2014) 311 ALR 632[2014] FCAFC 59
Winthrop Investments Limited v Winns Limited (1975) 1 ACLR 222
Judgment (15 paragraphs)
[1]
First Defendant)
David Wooldridge (Second Defendant)
Dean Stell (Third Defendant)
Representation: Counsel:
C Harris SC (Plaintiff)
M Condon SC (First Defendant)
AP Coleman SC / Mr RJ May (Second Defendant)
A Ronayne (Solicitor, Third Defendant)
HER HONOUR: This is an application by Christopher Walker, a director of Bogasi Pty Ltd, for an interlocutory injunction restraining Bogasi and the company's other two directors, David Wooldridge and Dean Stell, from:
(a) holding a meeting of the directors of the first defendant referred to in the 'Notice to the Directors of the Company' issued by the first defendant, dated 13 August 2020 or the 'Amended Notice to Directors of the Company' dated 14 August 2020, and signed by the second defendant as director and secretary; and/or
(b) procuring the first defendant to resign as trustee of the TRG Sundell Family Trust or to appoint a new trustee to that trust.
This application, and opposition to it, are emanations of a struggle for control of family trusts with interests in assets worth some $30 million.
On 17 August 2020, I made such orders on an ex parte basis and, on 18 August 2020, Mr Walker sought to extend the interlocutory injunction on an inter partes basis. Bogasi appeared by its senior counsel, Mr Condon SC, but was excused. Any continuation of the interlocutory injunction was opposed by Mr Wooldridge and Mr Stell. Affidavits were read by each of the directors, together with an affidavit by the solicitor for Mr Wooldridge. There was no cross-examination.
Given the urgency with which these orders were sought, I made orders two hours ago and this judgment was published soon afterwards without the benefit of transcript. The judgment has since been amended on receipt of transcript to record counsel's submissions more accurately. With more time, this judgment would have been shorter.
[4]
Facts
Bogasi was incorporated in 1973. The directors of Bogasi were Roderick Derriman and brothers Gunnar and James Sundell.
Gunnar and James Sundell were in business together. In 1985, Sundell Holdings Pty Limited was incorporated. Gunnar and James were directors. Sundell Holdings is the holding company of a group of companies conducting the Sundell family business. The Sundell group of companies has some $30 million in assets.
In 1992, Mr Wooldridge became the secretary of Sundell Holdings. Mr Wooldridge has worked for the Sundell family in various senior capacities for over 30 years and knew Gunnar and James Sundell well.
In 1998, Mr Derriman left the business and James and Gunnar Sundell continued as the remaining directors of Bogasi. Mr Wooldridge was appointed as the secretary of Bogasi.
Gunnar and James Sundell have since passed away. Gunnar is survived by his widow, Merle Sundell, and their two adult children, Annmarie Sundell and Rickard Sundell. James is survived by his widow, Janette Sundell, and their three adult children, Joakim (Kim) Sundell, Anne-Katrine Goulston and Brett Sundell.
[5]
The trusts
Bogasi is the trustee of four trusts, of which two trusts mainly benefit the members of James Sundell's family and two trusts mainly benefit the members of Gunnar Sundell's family. More precisely, in 1973, The James Ralph Sundell Trust and The Gunnar Sundell Trust were established. In 2005, The JRS Family Trust and The TRGS Family Trust were established. The beneficiaries of The James Ralph Sundell Trust and The JRS Family Trust are mainly members of the family of James Sundell. The beneficiaries of The Gunnar Sundell Trust and The TRGS Family Trust are mainly members of the family of Gunnar Sundell. (The names of some of these trusts have since changed but I have used the original names.) A Hong Kong entity was a 'general beneficiary' of each 1973 trust until it was removed as a beneficiary in 2019.
It is necessary to mention two amendments to the trust deed for The Gunnar Sundell Trust. Clause 22 of the 1973 trust deed conferred a power of appointment on Gunnar Sundell and, following his death, Merle Sundell. In 1975, clause 5 of a Deed of Amendment sought to vary the power of appointment. In 1994, clause 1 of a Deed of Variation sought to remove the power of appointment. There is an issue of construction as to whether those amendments were validly made pursuant to clause 20 of the 1973 trust deed. If the appointment power was removed pursuant to clause 1 of the 1994 Deed of Variation, then there is "no such person able and willing" to appoint a replacement trustee within the meaning of section 6(4)(b) of the Trustee Act 1925 (NSW) and Bogasi, as the trustee for the time being, can appoint its replacement pursuant to section 6 of that Act. If the variation and removal of the appointment power pursuant to clause 5 of the 1975 Deed of Amendment and clause 1 of the 1994 Deed of Variation were invalid, Merle Sundell is the appointer.
The James Ralph Sundell Trust and The Gunnar Sundell Trust each hold 50% of the shares of Sundell Holdings and derive their income from dividends paid by Sundell Holdings. Historically, Sundell Holdings has made equal dividend distributions to each 1973 trust, with distributions made by Bogasi to the beneficiaries of The James Ralph Sundell Trust only paid to members of James Sundell's family and distributions made by Bogasi to The Gunnar Sundell Trust paid only to members of Gunnar Sundell's family. The only exception to this distribution occurred in 2018 and 2019 but was corrected in 2020 and, by the end of June 2020, equality was restored in distributions in the 1973 trusts.
[6]
Gunnar Sundell appointee
On 23 December 2006, Gunnar Sundell died and Mr Wooldridge was appointed a director of Bogasi. Gunnar's share in Bogasi was transmitted to James, who became the sole shareholder of Bogasi.
In 2007, James Sundell told Mr Wooldridge, "I think we need a third director, one for the Gunnar Sundell family. I am for my family and you for both. Can you ask Merle if she would be a director?". Mr Wooldridge spoke to Merle Sundell, who agreed to become a director of Bogasi and was appointed on 24 January 2007.
[7]
Two more directors
Mr Walker had been a good friend of James Sundell for many years. In 2009, James Sundell first spoke to him about becoming "an independent director" of Bogasi, and mentioned it several times over the following years. In April 2013, Mr Walker was appointed as a director of Bogasi, as was Mr Stell.
As Mr Wooldridge understood these events, in 2013 Merle Sundell was about 84 years old and James Sundell was also advancing in age. They were not always easy to contact as new technologies were not often used. Mr Wooldridge suggested that two more directors be appointed and that James Sundell and Merle Sundell each choose a director; they agreed. James Sundell chose Mr Walker and Merle Sundell chose Mr Stell. As Mr Wooldridge understood it, there thus remained an equality of director representation on the board of Bogasi with James Sundell and Mr Walker representing the James Sundell side of the family, Merle Sundell and Mr Stell representing the Gunnar Sundell side of the family, and Mr Wooldridge as the independent director. Mr Stell agrees with Mr Wooldridge's description.
In May 2013, the share capital of Bogasi was increased from two ordinary shares to five ordinary shares. James Sundell was the sole shareholder. Changes to the share structure of Bogasi were notified to the Australian Securities and Investments Commission (ASIC).
[8]
James Sundell passes away
In May 2017, James Sundell passed away. Mr Wooldridge is co-executor of James Sundell's estate, together with Kim Sundell.
The James Sundell family is in dispute over James' estate, which is currently being litigated in this Court. Initially, there were legal proceedings to construe the last Will of James Sundell, in particular, whether the Will should be admitted with or without handwritten changes which had been made to it. The handwritten changes had the result, effectively, that James Sundell no longer gave his shares in Bogasi to Kim Sundell but gave one share each to Kim Sundell, Ms Goulston, Mr Walker, Mr Wooldridge and Phillip Nowell.
As a result of James' death, there were four directors on the board of Bogasi and the James Sundell family did not have equal representation. Mr Wooldridge also thought that an uneven number of directors was preferable in order to avoid deadlocks. In July 2017, Merle Sundell told Mr Wooldridge that she wished to resign as a director of the Bogasi as she was getting older and did not want the stress of being a director anymore. Merle Sundell told Mr Wooldridge, "Chris and Dean can remain on to keep the balance between the two families". On 26 July 2017, at a meeting of directors of Bogasi, Merle Sundell retired as a director. The minutes of meeting record the following resolution in respect of a replacement director:
That each operating entity within the Group be advised to fill the vacancy left by Jim Sundell's passing with Anne Katrine Goulston as a full time director.
Whilst Mr Walker said that the effect of the resolution was that Ms Goulston was appointed to replace her father as director of Bogasi and other companies in the corporate group of which her father had been a director, the defendants said the resolution meant no such thing. The resolution referred to replacing a vacancy in "each operating entity", being other companies within the Sundell Group but not of the trustee company, Bogasi.
On 25 August 2017, the directors of Bogasi met again and, in respect of a replacement director, resolved:
The appointment of a director to fill the vacancy created by Jim Sundell's passing be deferred until after Jim's shares are transmitted pursuant to his Will.
Mr Walker submitted that the effect of this resolution was to defer the appointment of Ms Goulston as the replacement director for her father and, further, Ms Goulston is presently entitled to become a director. The defendants submit that, when the resolution passed on 26 July 2017 is properly understood, it meant no such thing.
[9]
Shareholders' meeting called
On 27 July 2020, Mr Walker sent a notice of extraordinary general meeting of shareholders to Bogasi's shareholers by registered post. The meeting was called for 21 August 2020. Mr Walker said he called the meeting so that the new shareholders could determine who should be appointed to the board as directors of Bogasi, now that the shares had finally been transmitted to the new shareholders. Mr Walker considered that the appointment of new directors had been in abeyance since July 2017 when Ms Goulston was appointed as a replacement director but the appointment was deferred.
By the notice of meeting, Mr Walker proposed resolutions which, if passed, would have the result that the current directors are removed (including the plaintiff) and Ms Goulston and Edward Perez de la Sala will become directors of Bogasi. Mr Walker clarified at the hearing that the explanatory statement accompanying the notice made plain, "Since there has been a significant change in the Company members this resolution provides the shareholders with an opportunity to confirm or reject the continuation" of serving directors. In respect of Mr Wooldridge, however, the explanatory statement continued: (emphasis in original)
Mr Wooldridge has recently put on evidence in legal proceedings 2019/000390407 on behalf of Joakim Sundell. The evidence purports to indicate that units held by Elmach, which were previously known to be held on trust on behalf of Mr James Sundell or his nominee were now the property of Mr Joakim Sundell. It is a matter for the Company to ensure that it's best interests are being represented in the proceedings and Mr Wooldridge's evidence is contrary to the Company's best interests. In those circumstances it is a matter for the shareholders to consider whether Mr Wooldridge's continuation with the board is untenable.
As I understand it, the legal proceedings referred to are the family provision proceedings.
In respect of Ms Goulston, the explanatory statement recommended her appointment as the daughter of the late James Sundell, able to bring good experience and family representation to the board. Mr Perez de la Sala was described as a longstanding friend of the Sundell family with extensive experience in trusts and family business. Mr Perez de la Sala was proffered as an independent representative.
On 29 July 2020, Mr Wooldridge received notice of the extraordinary general meeting. Mr Wooldridge says this was the first he had heard of it. Whilst Mr Wooldridge knew Ms Goulston, he did not know Mr Peres de la Sala. Mr Wooldridge considered that, if the resolutions were passed, Gunnar Sundell's side of the family would not have a representative on the board of Bogasi.
[10]
Directors' meeting called
On 13 August 2020, Kim Sundell sent an email to Mr Walker, Mr Stell and Mr Wooldridge querying the validity of the extraordinary general meeting, said to be in breach of a shareholders' agreement, the details of which are not presently necessary to canvas. In response, Mr Stell suggested it may be prudent to get legal advice in respect of the issues raised by Kim Sundell.
At 1.43 pm on 13 August 2020, Mr Wooldridge sent an email to Mr Stell and Mr Walker attaching notice of a directors' meeting to be held at 2.00 pm on 17 August 2020. The following resolutions were proposed:
1. That the Company desires to be discharged from its position as trustee of the TRG Sundell Family Trust (formerly known as the Gunnar Sundell Trust established under the trust deed dated 19 October 1973) pursuant to section 6(2)(d) of the Trustee Act 1925 (NSW).
2. That the Company refuses to act as trustee of the TRG Sundell Family Trust (formerly known as the Gunnar Sundell Trust established under the trust deed dated 19 October 1973) pursuant to section 6(2)(e) of the Trustee Act 1925 (NSW).
3. That Annmarie Sundell and David Moralas be appointed as joint trustees of the Trust pursuant to and in the form required by section 6(1) of the Trustee Act 1925 (NSW).
4. That, if the above resolutions are passed, that any officer of the Company be authorised to do all things necessary and desirable to give effect to the resolutions, including executing and lodging for registration any documents required to give effect to the resolutions.
That is, the resolutions proposed that Bogasi would cease to be trustee of The Gunnar Sundell Trust and Annmarie Sundell and David Moralas would be appointed as trustees pursuant to section 6 of the Trustee Act.
By email sent on 13 August 2020, Mr Walker queried why a meeting of directors was being called now and indicated that he may need to approach the Court for advice. Further:
You have not provided any detail as to why the resolutions are being put forward and the effect of passing the resolutions. That is completely inappropriate. Detail and reasons are required otherwise it is impossible to properly consider what should be done.
…
The issues are made more difficult as Bogasi is trustee of 4 intertwined trusts and we will need to give detailed consideration as to the overall effect of the proposed resolutions on each of the trusts. This is clearly a matter where we may need to get the court to advise about what we are doing.
Please explain what has brought the proposals forward at this time and why you have not given any detail as to the purpose of effect of them.
As you know shareholders are meeting next week to consider the ongoing composition of the board. In those circumstances I personally am very concerned about considering any board resolution without a full and detailed explanation as to the reasons therefor and the consequences of such decisions. We are in danger of prompting [pre-empting?] the will of shareholders and beneficiaries of all of the trusts.
[11]
Duty judge application
On Monday 17 August 2020 at 10.42am, Mr Wooldridge sent, by email, a proposed Deed of Retirement and Appointment of a Trustee for The Gunnar Sundell Trust, to be considered at the directors' meeting at 2.00 pm. By the deed, it was proposed that Bogasi would cease to be trustee of The Gunnar Sundell Trust and Annmarie Sundell and Mr Moralas would be appointed instead. Mr Walker did not see the email at the time as he was then attending an ex parte duty judge application before me at 11am seeking to injunct the directors' meeting.
Whilst Mr Walker has met Annmarie Sundell once, he considers that she has never been involved in the operation of the trust and thus he has no knowledge as to her suitability to act as a trustee of The Gunnar Sundell Trust. Mr Walker has never met Mr Moralas and does not know who he is. Mr Wooldridge says that Annmarie Sundell is a director of Three Crowns Investments Pty Limited, the main operating company in the Sundell Group, and coordinates expense payment requests for Gunnar Sundell family beneficiaries. Mr Moralas is Merle Sundell's nephew and a businessman with over 30 years' experience, owns a business and is the trustee of other family trusts.
On 17 August 2020, I made orders for short service and, on Mr Walker giving the usual undertaking as to damages, restrained the defendants from holding a meeting of directors of Bogasi or procuring Bogasi to resign as trustee of The Gunnar Sundell Trust or to appoint a new trustee to that trust, and stood the matter over to 2.00 pm on 18 August 2020. Thus, the directors' meeting did not take place. On 17 August 2020, however, a Deed of Appointment of Trustee was signed by Merle Sundell, Annmarie Sundell and Mr Moralas in respect of The Gunnar Sundell Trust. Consents to act as a trustee were also signed by Annmarie Sundell and Mr Moralas. As Mr Wooldridge explained, these documents have been executed as something of a 'fall back' position in light of the construction issue referred to at [10]. That is, if the variations to the 1973 trust deed were ineffective and Merle Sundell remains the appointor for The Gunnar Sundell Family Trust, then she has already exercised the power of appointment and replaced Bogasi with Annmarie Sundell and Mr Moralas.
[12]
Extension of injunction
As to why the interlocutory injunction should be continued, Mr Walker's evidence was that, since the death of James Sundell, the directors have effectively been 'caretaker directors'. Now that the shares have been transmitted, there should be a meeting of the new shareholders to elect a board, who should consider whether to proceed with the proposed resolutions to change the trustee of The Gunnar Sundell Trust. Mr Walker said that this is particularly important having regard to the potentially ruinous financial effect that the proposed resolutions could cause to beneficiaries of the trusts. Mr Walker says that Bogasi has never operated on the basis that there needed to be equal representation of the Gunnar Sundell and James Sundell families on the board, nor even that there had to be any particular representation on the board. No members of Gunnar Sundell's family had been directors since Merle Sundell resigned in 2017. He has had no discussions with either of the other directors about any dissatisfaction with Bogasi continuing to be the trustee of The Gunnar Sundell Trust. Neither of the other directors has mentioned that they are unhappy about Bogasi continuing as trustee, and he had no knowledge, prior to 13 August 2020, that the other directors of Bogasi may wish to be discharged from that position. Nor has Merle Sundell told him that she wants to replace Bogasi as trustee of The Gunnar Sundell Trust.
Mr Walker does not think that Bogasi should cease to act as trustee for The Gunnar Sundell Trust. Mr Walker believes that if the trusts cease to be administered by a common trustee then this may trigger a train of events with potential financial ramifications for all four trusts. Mr Walker says the trusts have historically been administered on the basis that, while individual members of each family receive different distributions, the total distributions to each family are roughly equal. The distributions have been recorded as loans to the beneficiaries and, on occasion, the trusts have made loans to beneficiaries. Payments by way of loans have been made between the trusts from time to time. Mr Walker believes that the financial relationship between the trusts and the beneficiaries is now quite complicated and Mr Walker considers that extreme hardship may be caused to some beneficiaries if the trusts do not have the same trustee and are not administered in a way that gives equality to each family. For example, as Mr Walker understands it, if The Gunnar Sundell Family Trust required repayment of some $3.5 million owed by The James Sundell Family Trust or if the Estate of James Sundell required repayment of approximately $11 million owed to it, then The James Sundell Trust would have to liquidate assets to make such payments including by recovering amounts owed by family members to the trust such as some $12.8 million owed by Kim Sundell. Mr Walker surmised that Kim Sundell would probably have to realise all of his assets to be able to make that payment, and significant hardship may be caused to other members of the family in order to repay their loans as well.
[13]
Submissions
The plaintiff submitted that there should be no decisions made by directors until the new board is in place after the shareholders' meeting. It was submitted that the combined effect of the resolutions of the directors on 26 July 2017 and 25 August 2017 was to appoint Ms Goulston as a director of Bogasi but to defer that appointment until the shares in the company had been distributed to the beneficiaries under James Sundell's Will. That transmission has now taken place and so her appointment was said to have come into effect. It was submitted that Ms Goulston must be given appropriate notice of any directors' meetings so that she can attend and vote on any resolutions put to the meetings.
In particular, the plaintiff submitted that there should be no resignation by Bogasi as the trustee of the trust, or any appointment of new trustees, in circumstances where the company has been the sole trustee since 1973, and where there has been no previous discussion between the directors or indication of dissatisfaction with it continuing as trustee, and where the sudden convening of the meeting is clearly an attempt to pre-empt the outcome of the shareholders' meeting. This is particularly important where, because of the cross-investments between the trusts and the large debts owed by beneficiaries to the trusts, separate administrations of the trusts could lead to significant adverse financial consequences for those persons. It was submitted that there was a serious question to be tried as to whether resolutions of the unequivocal and final nature of those proposed should, in the absence of any previous agitation or discussion between the directors, be made immediately before a new election of directors.
As to the proposed Deed of Retirement, it was submitted that where - as here - the Articles of Association of a company specify no particular notice period that must be given of directors' meetings, directors are entitled to fair and reasonable notice: Re Homer District Consolidated Gold Mines; ex parte Smith (1888) 39 Ch D 546. It was submitted that forwarding the proposed deed three hours before a meeting was not reasonable notice. (This submission was a little ironic in circumstances where, when the proposed deed was sent, Mr Walker was participating in a hearing of which he had not told the defendants). The period of notice must be sufficient for the directors to consider the ramifications of the retirement and execution of the deed, for example, whether Bogasi would lose its right of indemnity to the trust's assets and be dependent on being able to enforce any such right against the new trustees. This was said to make the financial position of the replacement trustees a significant issue for Bogasi to consider. Further, clause 4(a) of the proposed Deed required Bogasi to indemnify the replacement trustees from any liability arising out of Bogasi's actions while trustee. The directors should have sufficient time to be able to make enquiries about, investigate, and assess the company's potential liability under this provision before agreeing to it.
[14]
Consideration
Drawing on my judgment In the matter of A Twins Spare Parts Pty Ltd [2019] NSWSC 1347 at [14]-[15], on an application for an interlocutory injunction, the question is whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction. As to whether there is a prima facie case, a plaintiff does not need to show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient to show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 at [87].
The second question is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1; Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46. Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions: Warner-Lambert Co LCC v Apotex Pty Ltd (2014) 311 ALR 632; [2014] FCAFC 59 at [70]; Mineralogy v Sino Iron at [87].
As to whether the plaintiff has made out a prima facie case, regard should be had to the Originating Process, in respect of which rule 2.2(3) of the Supreme Court (Corporations) Rules 1999 provides:
An originating process must:
(a) be in accordance with Form 2, and
(b) state:
(i) each section of the Corporations Act or the ASIC Act, or each regulation of the Corporations Regulations, under which the proceeding is brought, and
(ii) the relief sought.
Form 2 (contained in Schedule 1 of Supreme Court (Corporations) Rules) requires that an originating process contain the following information:
A. DETAILS OF APPLICATION
This application is made under *section/*regulation [number] of the *Corporations Act/*ASIC Act/*Cross-Border Insolvency Act/*Corporations Regulations.
[State briefly the nature of the proceeding, eg application for winding-up on ground of insolvency, or complaint about a receiver.]
…
[15]
Amendments
24 August 2020 - On coversheet: Mr RJ May included as representing second defendant.
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: 24 August 2020
Parties
Applicant/Plaintiff:
Australasian Centre for Corporate Responsibility
Respondent/Defendant:
Commonw
Legislation Cited (6)
Corporations Act, the Australian Securities and Investments Commission Act 2001(Cth)
In August 2019, Sackar J admitted to probate the Will with the handwritten changes marked: Estate of the late James Sundell [2019] NSWSC 1108. Probate was granted on 23 September 2019. There remains on foot, as I was informed by Bogasi's senior counsel, family provision proceedings which are well advanced. Mr Wooldridge says that Kim Sundell and Ms Goulston are broadly taking opposing positions in that litigation. On 16 June 2020, the executors transmitted the shares, except for the share to Kim Sundell. I infer from Mr Walker's affidavits that he is concerned by the delay and unclear why Kim Sundell's share has not been transmitted. The latter may have something to do with the ongoing litigation concerning the Estate of James Sundell.
The position has thus emerged that, whilst Bogasi is the trustee of four trusts which have been operated historically so that Gunnar and James' sides of the family are treated equally, the shareholders of Bogasi are now people whom James Sundell selected to receive a share in the company, that is, they have been chosen by James through his Will rather than by both sides of the family. That is not to criticise James Sundell nor the recipients of a share in Bogasi but to recognise that, practically speaking, representation of Gunnar's family in the shareholders of Bogasi has been eroded as events have unfolded. Whether that has the result that directors elected to the board of Bogasi by these shareholders will represent both sides of the family equally is unknown.
On 2 August 2020, Mr Wooldridge told Merle Sundell of the proposed resolutions. Whilst Mr Wooldridge explained that the resolutions may not be passed, the proposal was to remove the current directors and appoint Ms Goulston and Mr Perez de la Sala. Merle Sundell expressed concern that James Sundell's side of the family was "stacking" the board as, if the resolutions were passed, then Ms Goulston and Mr Perez de la Sala - who she did not know - would be running Bogasi. Merle Sundell observed that she was owed some $11 million by the trusts and, whilst there had been no need to call on the loans where the board had been balanced and her family's interests were protected and honoured, "If Bogasi's board changes so that it is only represented by James' family, the distributions to my side of the family might change and the substantial loan to me may not be repaid. The Gunnar family trusts should have a trustee with a family association." Merle Sundell told Mr Wooldridge that she would like to replace Bogasi as the trustee of The Gunnar Sundell Trust. Mr Wooldridge took steps to do so. On 12 August 2020, Mr Wooldridge's solicitor made enquiries of the NSW Land Registry Services about how long it would take for a deed of appointment of a new trustee to be registered.
Mr Stell and Mr Wooldridge pressed for the directors' meeting to go ahead. In particular, Mr Stell replied:
In answer to your (Chris') query as to what is behind the motions I assume that they are to address Merle's understandable concerns arising out of the litigation to which Bogasi is a party, no doubt heightened by the proposed Member's Meeting on the 21st at which a possible outcome could be no representation from Merle's side of the family on the Bogasi Board.
If I am correct, and Merle perceive any opposition to the passing of the resolutions proposed she may see herself having no option but to apply to the Court to have Bogasi removed as trustee of the two "Gunnar" trusts.
My view is that separating the two families' trusts by having different trustees is a good thing and should not be opposed.
Also on 13 August 2020, Mr Wooldridge sent an email to Mr Walker and Mr Stell:
… I am happy to address any appropriate and relevant specific details it is that you do not already have as a director that are necessary to consider the resolutions. In my view the consequences of the resolutions are self evident given the knowledge that you already have about the trusts as a fellow director of the trustee. However, if you feel that your knowledge is lacking then please detail the specific questions you are unable to answer and to the extent that they are relevant and I am able to do so I will endeavour to be of assistance.
On 14 August 2020, Mr Walker replied that the calling of the shareholders meeting was valid notwithstanding Kim Sundell's concerns, but did not otherwise respond to Mr Stell and Mr Woodridge's emails regarding the directors' meeting or Mr Wooldridge's offer to provide further information. Also on 14 August 2020, an amended notice of meeting of directors was issued, the amendment being to change the meeting from a telephone meeting to a face to face meeting as requested by Mr Walker.
Mr Walker also does not consider that he has been given sufficient information to be able to determine how he should vote on the resolutions proposed to be put at the directors' meeting. Mr Wooldridge has provided no background to the resolutions, no information on the proposed new trustees to assess whether they have sufficient experience if given control of the trust with confidence that they will be able to, and will, carry out all of the duties of a trustee. Mr Walker considers that it is his duty as a director to discuss the possibility of the replacement of the trustees of The Gunnar Sundell Family Trust with Bogasi's shareholders, particularly with Kim Sundell and Ms Goulston, who he believes could be significantly impacted by this decision, and to obtain their views, before he exercises his vote. (It may be that this information lacuna has been remedied by affidavits since filed in the proceedings by Mr Wooldridge and Mr Stell and the matters ventilated at the inter partes hearing.)
According to Mr Wooldridge, the distributions to each family have always been equal. Bogasi as trustee pays living expenses for the beneficiaries of the trusts and, if one side of the family spends more than the other side of the family, then beneficiaries who do not need their distributions in the same amount can lend their distribution back to the trust which is recorded as loans from that beneficiary to Bogasi. In particular, The Gunnar Sundell Trust owes Merle Sundell some $11.5 million, which has accumulated over a long period of time, is interest free and at call.
Mr Wooldridge and Mr Stell do not accept the characterisation of their role as 'caretaker directors'. Nor do they agree that the change in trustees will have the financial ramifications referred to by Mr Walker. The loans owed to the trust could be called upon by either Bogasi or any new trustee but, historically, there has been no need to do so because the board of Bogasi has always been balanced between the families and the families have had confidence in the board. If the board is changed so that only the James Sundell family is controlling Bogasi, the Gunnar Sundell family may well have cause to request that loans be repaid. Appointing standalone trustees for each family trust may appease this situation.
Further, on 13 August 2020, Mr Walker sought information as to the reasons for, and ramifications of, the proposed resolutions but, beyond being provided with Mr Stell's 'assumptions' as to the basis for the resolutions, it was said that Mr Wooldridge's response was contrary to the principles outlined by Austin J in Fox v Gadsden (2003) 46 ACSR 713; [2003] NSWSC 748 as to a director's right of access to information. At [23]:
It would be difficult for the court to over-emphasise the importance of the director's statutory law rights of access to corporate information. They are the foundation of the system of corporate governments (sic) as it exists in Australia today. Directors cannot be expected to carry out any of their substantial responsibilities, including their fiduciary duties and their duties to attend to the solvency of the company and its general management, unless they can be sure of having full and unfettered access to the documents of the company. It is not appropriate for their fellow directors to offer to provide the requesting director with particular documents if that director requests the documents by name. What should happen, when documents are demanded by a director, is that the gate is opened wide and the director has full and unfettered access at all reasonable times.
As I read this passage, however, Austin J was referring to a director's request for documents. Mr Walker had not by his email of 13 August 2020 (set out at [30]) requested documents, nor did Mr Wooldridge by his reply invite Mr Walker to specify what documents he wanted.
The plaintiff submitted that this case does not involve a small private company in which shareholders and directors were at loggerheads. Mr Walker was an independent director who had no beneficial interest in the assets controlled by the company and nothing to gain personally by the decisions he makes as director of the company beyond any entitlement to directors' fees. He was appointed as a director specifically to be independent of family members and brought the application because he considered it important that decisions - particularly significant decisions - were made by directors who have been appointed by the shareholders of the company and because he wished to ensure that he complied with his obligations under sections 180 and 181 of the Corporations Act 2001 (Cth). This submission may have been pitched too high: the contemporaneous documents and Mr Walker's affidavit evidence suggest that he was acting consistently with the interests of the James Sundell side of the family.
The calling of the directors' meeting was said to be an ambush designed to pre-empt the shareholders' meeting and to frustrate - rather than promote - the interests of the shareholders. The plaintiff submitted that the purpose of the directors' meeting was to frustrate the shareholders' meeting and prevent the shareholders from being effective. The plaintiff submitted that the purpose of the directors' meeting was improper as it favoured one beneficiary of the trusts - Merle Sundell - over the shareholders of Bogasi or the other beneficiaries and objects of the trust. This last suggestion was made in oral submissions.
As to balance of convenience, the plaintiff submitted that, once Bogasi ceased to be trustee of the Gunnar Sundell Family Trust, the position could not be reversed. Further, given the intermingled nature of the trusts, it was important that there was a common trustee for the four trusts.
Bogasi made no submissions. The submissions of Mr Wooldridge's senior counsel were embraced by Mr Snell. It was submitted that the purpose of the hearing on the return of an ex parte interlocutory injunction application is to provide the Court with an opportunity to review its provisional orders in light of evidence and argument adduced by the defendant: Brags Electrics Pty Ltd t/as Inscope Building Technologies v Gregory [2010] NSWSC 1205 at [10]-[12]. At such a hearing, the plaintiff bears the onus of showing that there is a sufficient case to justify the continuation of the ex parte order on an interlocutory basis: Brags Electrics v Gregory at [10]. It was submitted that the plaintiff had not discharged that onus. The plaintiff ought not be permitted to disrupt the proper management of the company. The injunction should not continue so as to allow the directors to call the meeting and vote on the resolutions.
The defendants submitted that an interlocutory injunction can only be granted in aid of final relief and the plaintiff has not identified a single cause of action which he is pursing against the defendants. As Gleeson CJ stated in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at 218 ([15]):
A dispute arose in the course of argument as to "whether interlocutory injunctive relief to prevent publication can be granted without any underlying causes of action to be tried". In the context of the present case, this is puzzling. There could be no justification, in principle, for granting an interlocutory injunction here other than to preserve the subject matter of the dispute, and to maintain the status quo pending the determination of the rights of the parties. If the respondent cannot show sufficient colour of right of the kind sought be vindicated by final relief, the foundation of the claim for interlocutory relief disappears.
It was said that Mr Walker had not identified in his affidavits, outline of submissions or, most importantly, the originating process, a single cause of action against the defendants. It was not for shareholders to remove or appoint a trustee, but for the board of directors of the trustee company. There was no suggestion that the holding of the directors' meeting and the passing of the resolution would be a breach by the defendants of their statutory or general law obligations owed to him or to Bogasi. Absent such an allegation, the calling of a directors' meeting after a shareholders' meeting had been called went nowhere. The plaintiff's application as a matter of principle was said to be fundamentally misconceived and flawed. There was no basis for the Court to interfere with the ordinary course of business of the trustee company in calling and holding a directors' meeting to consider the proposed resolutions. The fact that a different decision might be made by a different board if the shareholders' meeting went ahead and the resolutions proposed by the plaintiff were passed did not found the relief sought in the absence of any suggestion that was a breach of any duty or obligation.
The defendants submitted that the novel principle of "caretaker directors" in Australian law was not a proper basis for the continuation of the injunction against the defendants: Chimaera Capital Ltd v Pharmaust Ltd [2007] FCA 1539; (2007) 64 ACSR 332 per French J at 357 [91]-[93]. Even if there was such a doctrine in Australian law, it would have no application in the present circumstances as there was not a "high degree of certainty" that the incumbent directors would be replaced at the extraordinary general meeting: RP Austin and IM Ramsay, Ford, Austin & Ramsay's Principles of Corporations Law (Online Edition, July 2020) at [7.410.3]; Re Bigshop.com.au Ltd (2001) 39 ACSR 525 at 538. The plaintiff is but one of five ordinary shareholders who each hold one ordinary share in Bogasi.
Complaint about the "absence of any previous agitation or discussion between the directors" was said to be without merit. There was no requirement that directors agitate or discuss the business of a directors' meeting in advance. There is not even a requirement that the business to be conducted at a board meeting be specified in the notice of the meeting: Dhami v Martin (2010) 79 ACSR 121 at 130; [2010] NSWSC 770 at [47]; Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (2015) 107 ACSR 172 at 199; [2015] NSWSC 937 at [73]; Cao v Apollo Phoenix Resources Pty Ltd (2018) 130 ACSR 602 at 621; [2018] FCA 1445 at [67]. (This submission fairly encapsulated the authorities cited). In any event, notice of the business of the meeting was given and there had been discussion between the directors about the subject matter of the meeting until the plaintiff, without notice, sought an interlocutory injunction restraining the meeting taking place.
Finally, the defendants submitted that the balance of convenience did not favour the continuation of the injunction. Bogasi would still have a right of indemnity out of the assets of the trust in the ordinary course in respect of events occurring whilst it was trustee. Whilst the plaintiff suggested that the possibility of a new trustee calling in existing loans to beneficiaries warranted the granting and continuation of the injunction, there was no evidence that Annmarie Sundell and Mr Moralas, if appointed as trustees, would do so. If anything, members of the Gunnar side of the family may be more likely to call in loans owing by the trust to them if their side of the family was not represented on Bogasi's board and they lost confidence in the board. There was nothing to stop Bogasi either now or in the future from calling in loans that were made to beneficiaries. It was submitted that there was no evidence that the interests of one beneficiary were being favoured, nor that the new trustees would do so either. Mr Walker failed to identify any prejudice to him personally if the injunction were to be discharged. There was no sufficient basis for the continuation of the injunction.
The final relief sought in the Originating Process is:
Order that the defendants be restrained from holding any meeting of directors of the first defendant, and/or procuring the first defendant to make any resolutions of directors purporting to record dissatisfaction with continuing to act as trustee of the TRG Sundell Family Trust; purporting to resign or retire as trustee of that trust or refusing to continue to act as trustee; or purporting to appoint any other entity as trustee until the conclusion of the extraordinary general meeting of shareholders convened by Notice convened on 29 July 2020 and due to take place on 21 August 2020.
The basis on which the final relief is sought is stated to be "under the general law".
As such, is not entirely clear why these proceedings were commenced in the Corporations List at all. Under Practice Note SC Eq 4, the Corporations Duty Judge is available to deal with urgent applications in "Corporations Matters", which is defined as including proceedings in respect of any matter relating to the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth), the Cross-Border Insolvency Act 2008 (Cth) or the Supreme Court (Corporations) Rules or proceedings relating to other incorporated bodies such as cooperatives and incorporated associations.
As to why the general law would grant the final relief sought, I was taken to no authority by the plaintiff. As I understand it, Mr Walker does not suggest that the directors of Bogasi do not have power to make the resolutions proposed to be considered at the directors' meeting. Section 198A of the Corporations Act, which is a replaceable rule under section 135, provides:
198A Powers of directors (replaceable rule - see section 135)
(1) The business of a company is to be managed by or under the direction of the directors.
(2) The directors may exercise all the powers of the company except any powers that this Act or the company's constitution (if any) requires the company to exercise in general meeting.
The plaintiff did not suggest that the memorandum and articles of association of Bogasi provided otherwise. As a general proposition, the shareholders in general meeting are not entitled to control, usurp or exercise the powers of the directors; the shareholders in general meeting have no authority to speak or act on behalf of the company except to the extent and in the manner authorised by the company's constitution or any relevant statute and to an extent and in a manner consistent with the constitution or statute: Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia (2016) 113 ACSR 600; [2016] FCAFC 80 at [20], [37]-[38]. Further, the general meeting is not the proper forum to determine matters of management as the area of management is one in which the shareholders have no direct effective will: Winthrop Investments Limited v Winns Limited (1975) 1 ACLR 222; [1975] 2 NSWLR 666 at 684 per Samuels JA, followed in Australasian Centre for Corporate Responsibility at [43].
As I understand Mr Walker's claim, it is contended as a general proposition that - where a meeting of shareholders has been called - the directors should not meet and pass resolutions in respect of significant business decisions until the shareholders' meeting has taken place and, potentially, a new board of directors has been elected. So far as this proposition forms part of the general law, I take it to be a reference to the notion of 'caretaker directors', there being no other legal principle proffered (and that being proffered by the defendants).
As the defendants correctly submitted, whether 'caretaker directors' are restricted in exercising their powers has been considered from time to time in Australian law and recently doubted by French J in Chimaera Capital at [91]-[93]:
91 If there is a caretaker doctrine it has not been defined. The use of an adjectival metaphor does not define a doctrine that can best be regarded as a shorthand reference to the kinds of duties that may constrain the exercise of directors' power in particular situations including circumstances in which an extraordinary general meeting for the removal of directors has been requisitioned. In my opinion, however, it should be treated with great caution. Such usages which are taxonomical or descriptive, rather than conveying principle or doctrine, have arisen in other areas of the law…
92 In RP Austin, HAJ Ford and IM Ramsay Company Directors: Principles of Law and Corporate Governance LexisNexis Butterworths, Sydney, 2005 at 2.55, the learned authors observed that if there is a principle of caretaker directors it may be thought essential to confine its operation to situations where there is a high degree of certainty that the directors would be removed at the general meeting of the company. Otherwise any such principle could be used by disaffected minority shareholders to disrupt the management of companies.
93 I would not be prepared to rest upon the very uncertain provision of a "doctrine" of caretaker directors, a conclusion that there is a seriously arguable question, simply because of the requisitioned EGM, the directors lacked the power to embark upon the rights issue. I do not regard such an absolute proposition as being of sufficient strength to warrant the grant of injunctive relief. I regard the existence of such as "doctrine" as highly questionable…
As the learned authors of Ford, Austin and Ramsay's Principles of Corporations Law state the current position on "caretaker directors" in light of Chimaera Capital at [7.410.3]:
It has been said that from the time a meeting is requisitioned for the purpose of replacing incumbent directors they are caretaker-directors, especially where the meeting is requisitioned by a controlling shareholder: Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587 at 591; 7 ACLC 165. The reference to requisition by a controlling shareholder is important. If there is no prospect of the requisitioned meeting replacing the incumbent directors, they are, presumably, not mere caretaker directors.
…
It is submitted that if there is such a principle of caretaker directors, it may be thought essential to confine its operation to situations where there is a high degree of certainty that the directors will be removed at the general meeting of the company. Otherwise, any such principle could be used by disaffected minority shareholders to disrupt the management of companies. Also, the threat of requisitioning meetings by such minority shareholders could be used to negotiate a higher purchase price for the sale of their shares to other shareholders than could otherwise be obtained.
Mr Walker is one of five shareholders in Bogasi. There is no evidence of the voting intentions of the shareholders in respect of the resolutions proposed for the shareholders' meeting. The prospects of the current directors being removed and replaced are simply unknown.
Of course, in his affidavits, Mr Walker does refer to the current directors of Bogasi being 'caretaker' directors - not in the sense that a shareholders' meeting has recently been called - but in the sense that the appointment of Ms Goulston following her father's death has been deferred until his shares in Bogasi are transmitted under his Will. Such a suggestion does not accord with the minutes of meeting of 26 July 2017 which, as the defendants submitted, related to the appointment of a replacement director to the operating companies in the Sundell group rather than appointment as director of a trustee company, Bogasi.
Nor does Mr Walker suggest that the directors would be breaching their directors' duties if they passed the proposed resolutions at a directors' meeting, as was the contention in Chimaera Capital. Whilst Mr Walker says he is concerned as to whether he can make a decision in respect of the proposed resolutions consistently with his directors' duties, he does not suggest that the defendants are breaching their duties as directors or that the directors or Bogasi are otherwise breaching any provision of the Corporations Act.
The high point of the plaintiff's submission was as follows:
… what they are doing is improper within corporate terms, and there is a serious question to be tried as to whether or not that is the case.
HER HONOUR: Sorry, how are they favouring one beneficiary in the trust over other beneficiaries or the shareholders of the corporation.
Harris: Because they are taking out of the hands of the shareholders the power to make the decision as to what ought occur, if anything, to change the trustee of that trust. So that becomes a decision the shareholders have no power in because it is taken away from them, before they have an opportunity to exercise that power, if they wish to do so, and they may not, of course.
The plaintiff's submission, with respect, conflated the power of the board of directors to make management decisions with the power of members to appoint a director.
I am not satisfied that the plaintiff has made out a prima facie case as it is just not clear to me what the plaintiff's case is. It is thus not strictly necessary for me to consider whether the balance of convenience favours the continuation of the injunction. Doing so briefly, I accept that, if the injunction is not continued, then the directors of Bogasi will resolve that Bogasi cease to be the trustee of The Gunnar Sundell Family Trust. That may not be able to be un-done. What it is said that Bogasi will lose as a consequence is not clear, beyond the ability to make decisions in respect of that trust. As to the suggestion that it was important to have a common trustee for the four trusts, I do not consider this to be a relevant factor. As a trustee, Bogasi is obliged to act in the interests of the beneficiaries of each trust when making a decision on behalf of that trust. A trustee does not make collective decisions on behalf of all of the trusts for which it is trustee. If there is a conflict between the duties which a trustee owes to one trust and those owed to another trust, the trustee should not act at all but find another trustee who can act without such a conflict.
Whether the change of trustee will impact adversely on the beneficiaries of the other trusts is not known. Mr Walker's fears that loans may be called in does not appear to me to change the position as matters already stand, as Bogasi or the beneficiaries to whom the loans are owed could equally call on those loans today if they so choose. How this would impact on the plaintiff is unclear.
For these reasons, I have made orders dismissing the plaintiff's application to extend the interlocutory injunction, with costs.