Chalker v Barwon Coast Committee of Management Inc [2003] VSC 286

9. In order to understand the appeal, it is necessary to go back in time. In the year 1994 Mr Chalker Senior was interested in leasing premises from the defendants to conduct a restaurant on the foreshore at Ocean Grove. Eventually a lease was entered into for a period of five years with a right of renewal. The lease was entered into by a predecessor of the first defendant. Mr Chalker Senior established a unit trust as the vehicle to lease the premises and operate the business. On 26 August 1994, a deed was executed by a company called Chalky's on the Dunes Pty Ltd ("Unit Trust Trustee") as trustee of the Chalky's in the Dunes Unit Trust "(Unit Trust"). A company, Caveron Pty Ltd, also executed the deed in its capacity as trustee of the Chalker Family Trust. The latter trust was a typical discretionary family trust. All told there were 1,010 units in the Unit Trust and Caveron Pty Ltd, in its capacity as trustee of the Chalker Family Trust, held all the units. The Unit Trust Trustee executed the lease.

12. Mr Chalker Senior was not happy with some of the terms of the lease and some of the restrictions imposed upon the Unit Trustee by the management body. By April 1996 there was a dispute between the parties and rent was owing. In April 1996 a Notice to Quit was served on the Unit Trust Trustee and the lease was terminated.

15. On 22 July 1996 an administrator was appointed to the Unit Trust Trustee and on 22 August 1996 a liquidator was appointed. The Unit Trust Trustee company had a number of debts. The company was de-registered on 22 November 2000 pursuant to the Corporations Law. The de-registration occurred because the liquidation had been finalised. It was de-registered by operation of law. It follows that at that date, the Unit Trust Trustee company ceased to exist and could no longer be trustee of the Unit Trust.

18. On 6 June 2000 Mr Chalker Senior was declared bankrupt. By operation of the Bankruptcy Act, he was automatically discharged on 7 June 2003.

21. On 29 January 2001 the plaintiffs Messrs Chalker instituted the proceeding against the Management Committee and the State of Victoria. They purported to bring the proceeding on their own behalf and also as trustees on behalf of the Unit Trust. Subsequently they abandoned the claim in their own name.

24. It is clear that at that date they were not trustees of the Unit Trust. Neither was the Unit Trust Trustee company, which had ceased to exist.

27. On 23 December 2002 a meeting was held of Caveron Pty Ltd which claimed to be the sole unit holder and beneficiary of the unit trust, and it resolved to appoint the two plaintiffs as trustees of the Unit Trust. In addition the plaintiffs in their capacity as the new trustees of the Unit Trust purported to ratify the proceeding which had been commenced on 29 January 2001. Caveron Pty Ltd authorised the two new trustees to do all things necessary to endorse, ratify and continue the proceeding. Because there was a concern that since Mr Chalker was bankrupt in December 2002, it may affect his appointment as trustee and his actions purporting to ratify the proceeding, on 11 July 2003 Caveron Pty Ltd executed an instrument confirming the appointment of the plaintiffs as trustees, and the new trustees and Caveron Pty Ltd ratified the actions of the plaintiffs in bringing the proceeding on behalf of the Unit Trust.

30. The defendants contend that at the time when the proceeding was instituted in this court, the plaintiffs were not trustees of the Unit Trust, were not authorised by the Unit Trust of its trustees to bring the proceeding, lacked capacity to do so and accordingly, the proceeding is a nullity. Because the proceeding is a nullity it was submitted by Mr Bick QC who appeared with Mr M. Scott for the defendants, that the purported ratification was of no effect and accordingly the proceeding must be dismissed.

34. On 4 October 2002 the defendants filed a summons seeking an order that the proceeding be dismissed on the ground that the amended statement of claim did not disclose a cause of action; was scandalous, frivolous or vexatious; was an abuse of process of the court; and that the defendants had a good defence on the merits.

37. On 2 April 2003 Master Wheeler ordered that the proceeding be forever stayed on the ground that the proceeding was brought by plaintiffs who had no authority or capacity to bring the proceeding.

40. The plaintiffs filed a notice of appeal. The appeal is an appeal by way of re-hearing de novo. See Rule 77.05(7) of the Rules of Court. As the hearing is a re-hearing de novo, the court on appeal considers the application afresh. The application made by the defendants is for an order dismissing the proceeding on the ground that the proceeding was instituted by persons who had no cause of action against the defendants and did not have any authority to represent the unit trust. They had no standing to bring the proceeding.

44. According to the statement of claim attached to the writ, the plaintiffs, Messrs Chalker, "sue in their capacity as the trustees of the Chalkie's in the Dunes Unit Trust". Mr Chalker Snr also sued as "the sole unit holder and beneficiary under the Chalkie's in the Dunes Unit Trust". This claim has been abandoned.

47. It is common ground between the parties that Messrs Chalker were not the trustees of the Unit Trust at 29 January 2001. The statement of claim alleges that a lease agreement was executed on 19 December 1994 between a body known as the Ocean Grove Foreshore Committee of Management and the Unit Trust. The cause of action is a claim for damages by the Unit Trust for breach of the terms of the lease. It is also alleged that there was a background agreement and a breach of same causing damage, claims founded on three variations of the lease and a breach of a duty of care. As the plaintiffs allege that their actions in instituting the proceeding have been ratified by the trustee of the Chalker Family Trust and themselves as trustees appointed in December 2002 and June 2003, it is necessary to determine who was the trustee at the relevant times.

50. On 26 August 1994, a trust deed was executed by Chalkie's on the Dunes Pty Ltd and Caveron Pty Ltd. The trustee was Chalkie's on the Dunes Pty Ltd. The name of the trust was the "Chalkie's in the Dunes Unit Trust". There were 1,010 $1 units issued and they were taken up by Caveron Pty Ltd in its capacity as trustee of the Chalker Family Trust. The Chalker Family Trust was a typical discretionary family trust. The plaintiffs were discretionary beneficiaries.

53. It is clear that Chalkie's on the Dunes Pty Ltd was trustee of the trust from the date of its inception. It entered into the lease in respect of the property on the foreshore at Ocean Grove.

56. The Unit Trust Trustee operated the business on behalf of the Unit Trust and incurred debts. The business reached the stage that it was unable to pay its debts. On 22 July 1996, an administrator was appointed of the Unit Trust Trustee, and on 22 August 1966, a liquidator was appointed.

59. The question then arises as to what effect, if any, these appointments had upon the trustee and in particular, the legal estate held by the trustee on behalf of the Unit Trust.

62. By July 1996, the Unit Trust Trustee had ceased business on behalf of the Unit Trust.

65. Mr Herbert of counsel on behalf of the plaintiffs submitted that the effect of the appointments was governed by clause 19 of the Trust Deed which dealt with the retirement and removal of a trustee. Clauses 19.1, 19.2 and 19.3 deal with retirement and removal of a trustee. Clause 19.1 enables the trustee to retire upon giving notice, and 19.3 gives power to the unit holders to remove a trustee. Neither of these powers were exercised. Mr Herbert relies upon Rule 19.2 which provides -

"19.2 If the Trustee goes into liquidation or ceases to carry on business or a Receiver or an Official Manager of its undertaking is appointed the Trustee shall forthwith give notice in writing to all Unit holders of that entry into liquidation, cessation or appointment and shall convene a meeting of unit holders. The Trustee shall be deemed to have resigned effective on the date of such liquidation, cessation or appointment and by Special Resolution at a meeting of the Unit holders a new Trustee shall be appointed."

69. It is clear that by August 1996 a liquidator had been appointed to the Trustee and secondly, that it had ceased to carry on business. However, it did not give notice to the unit holder which was Caveron Pty Ltd in its capacity as trustee of the Chalker Family Trust, nor did it convene a meeting of unit holders. It did nothing. Mr Herbert submitted that the second sentence in the clause had the effect that the trustee had resigned. In my opinion, that is not correct. Clause 19.2 provides the machinery whereby a trustee is deemed to have resigned but only after notice is given and a meeting of unit holders by special resolution has appointed a new trustee. In my opinion, clause 19.6 confirms that conclusion. It deals with what happens on retirement or removal, namely, that the trustee ceases to be a trustee and all property rights and benefits vest in the new trustee "on the new Trustee executing the instrument of appointment."

72. Whilst clause 19 provided the machinery for the retirement and removal of a trustee, the procedure was never activated and in my opinion did not apply. It is clear that at that time the Unit Trust Trustee was not removed and that no new trustee was appointed.

75. To determine the effect of the appointments, it is necessary to go to the Corporations Law. Section 474 authorises the liquidator to get in the company's property. In Octo Investments Pty Ltd v Knight,[1] Stephen, Mason, Aitken and Wilson JJ stated -

"In the case of the winding up of the company the legal title to all company property, including trust property, remains in the company. The liquidator of a company takes the position of the directors and, in the absence of a court order ... the company acquires no title to the company property."[2]

79. There is no evidence of any court order to the contrary and it follows that the Unit Trust Trustee remained the owner of the legal estate which it held for the benefit of the Unit Trust.

82. In my opinion, as at 23 August 1996 on the appointment of the liquidator, the Unit Trust Trustee still held the legal estate for the benefit of the Unit Trust.

85. On 22 November 2000, the company was de-registered. The effect is dealt with by Corporations Law.

88. Section 509 deals with the final meeting and de-registration of the company. By reason of s.509 a liquidator, as soon as the affairs of the company are fully wound up, shall make an account and convene a general meeting of the company or the creditors as the case may be. The meeting is to be convened by an advertisement. The liquidator shall within seven days after the meeting lodge a return of the holding of the meeting. By reason of s.509(5), ASIC must de-register the company at the end of the three month period after the return was lodged. The evidence revealed that the meeting took place, and ASIC de-registered the company on 22 November 2000 pursuant to s.509. Counsel for the defendants submitted that the effect of the de-registration was dealt with by s.576(1) which vested the property in the commission. However, s.576 was repealed in 1999.

91. Section 601AD deals with the effect of de-registration. By reason of sub-s.(1) the company ceased to exist on de-registration. According to sub-s.(2), on de-registration all the company's property vests in ASIC. Sub-section (3) is important and it provides -

"(3) Under sub-section (2), ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, ASIC takes the property subject to that interest or claim."

95. It follows that the legal estate held by the Unit Trust Trustee company prior to its de-registration was held thereafter by ASIC. Section 601AE provides for what ASIC can do with the property. Section 601AE(1) is concerned with property vested in ASIC which was held by the de-registered company on trust. ASIC may continue to act as trustee or to apply to a court for appointment of a new trustee. Clearly, ASIC has the power to transfer the legal estate to a new trustee appointed pursuant to the trust instrument. In my opinion, as at 22 November 2000, ASIC held the legal estate originally held by the Unit Trust Trustee prior to its de-registration, and held the legal estate for the benefit of the Unit Trust. No application was made to the court to appoint a new trustee and no steps were taken pursuant to the Unit Trust Deed to appoint a new trustee. It follows that at the date of issue of the writ, ASIC held the legal estate of the Unit Trust for the benefit of the beneficiary under the Unit Trust Deed. The only property comprised in the legal estate was the cause of action (if any) which the Unit Trust Trustee had on behalf of the Unit Trust against the defendants. Hence, the position as at 29 January 2001 was that if there was a cause of action against the defendants or either of them, the cause of action formed part of the legal estate of the trust. The property in that cause of action was vested in ASIC who held the estate for the benefit of the beneficiary under the Unit Trust, that is, Caveron Pty Ltd in its capacity as trustee of the Chalker Family Trust. What is clear is that neither plaintiff was the trustee of the Unit Trust when the proceeding was commenced. They had no right to bring the proceeding. Further, they could not prove a cause of action against the defendants on behalf of the trust. They did not have any interest in the cause of action. If there was one, it was a legal chose in action and part of the legal estate of the trust then vested in ASIC.

98. The general rule is that where a party has the equitable right in the claim, the person having a legal right should be a party to the proceeding.[3] Hence in a proceeding by a person claiming under a trust, the trustee in whom the legal estate is vested is the party who must bring the proceeding. If the proceeding is brought by the holder of the equitable estate, the holder of the legal estate is a necessary party and may be added as a party.[4]

101. But here, two persons who were neither a beneficiary nor a trustee of the Unit Trust purported to bring a proceeding in their own name as trustees when there was a trustee who held the legal estate. The latter should have brought the proceeding and was a necessary party to it.

104. This was not a case where the proceeding was brought in the name of a trustee without authority. In such a case if the trustee does not later ratify the proceeding, the proper course is to dismiss the proceeding.[5] As that case makes clear, a beneficiary cannot give authority to a solicitor to bring a proceeding in the trustee's name to recover a legal interest unless the trustee consents to that course.

107. The present case is not one where the trustee refuses to bring the proceeding. In such a case any beneficiary, however remotely interested, may go to court to compel the trustees to assert their legal property and if necessary to permit their names to be used in the proceeding.[6] The modern approach is to permit a beneficiary to sue when the trustee is unwilling to do so.[7] In the present case, there was a trustee, ASIC, but it was not requested to bring any proceeding and that rule does not apply. In any event the plaintiffs were not beneficiaries. The beneficiary was Caveron Pty Ltd.

110. It was submitted by counsel for the defendants that the plaintiffs were strangers to the trust, and that their interest in the trust property was contingent and extremely remote and dependent upon the trustee of the Chalker Family Trust in its discretion resolving to benefit either of them. They were not beneficiaries, and were strangers to the proceeding. It was submitted that in those circumstances the proceeding was a nullity.

113. Mr Herbert relied upon the principles of ratification. There is no doubt that where a proceeding is brought without authority in the name of a person or entity which has a cause of action against a defendant, the named party may later ratify the unauthorised issue of the proceeding in accordance with the principles concerning principal-agent. In Danish Mercantile Co Ltd v Beaumont,[8] Jenkins LJ stated the principles[9] -

"I think that the true position is simply that a solicitor who starts proceedings in the name of a company without verifying whether he has proper authority so to do, or under an erroneous assumption as to the authority, does so at his own peril, and that, so long as the matter rests there, the action is not properly constituted. In that sense, it is a nullity and can be stated any time provided that the aggrieved defendant does not unduly delay his application; but it is open at any time to the purported plaintiff to ratify the act of the solicitor who started the action to adopt the proceedings, to approve all that has been done in the past, and to instruct the solicitor to continue the action. When that has been done, then, in accordance with the ordinary law of principal and agent and in accordance with the ordinary doctrine of ratification, in my view, the defect in the proceedings as originally constituted is cured; and it is no longer open to the defendant to object on the ground that the proceedings thus ratified and adopted were, in the first instance, brought without proper authority."

117. But that is not this case. This proceeding was brought by persons alleging they were the holders of the legal estate, held in trust for the unit trust for the benefit of the trustee of the Chalker Family Trust, Caveron Pty Ltd. On no view were the plaintiffs the holders of the legal estate. The holder was ASIC. In my opinion, the principle of ratification cannot apply. The principle applies where a writ is issued without authority and the nominal plaintiff adopts the writ or ratifies its issue. Here the nominal plaintiffs did not have a cause of action. The trustee at the time, ASIC, was not a party, was unaware of the proceeding and did not ratify anything.

120. In my opinion, the proceeding was a nullity. It cannot be cured. The plaintiffs did not have a cause of action against the defendants either in their own capacity or as trustee of the unit trust. There was a trustee. It was ASIC. My conclusion is supported by what Taylor J said in Minister of State for the Interior v R.T.Co. Pty Ltd.[10] His Honour said -

"To my mind principle and authority admit of only one answer to the problem; it is incumbent upon the plaintiff to establish the existence of his cause of action as at the date of his writ and the failure or success of his action will not depend upon whether the trial takes place promptly or happens to be delayed until after he is entered into possession. It seems to me that the problem is analogous to that which has arisen in cases where a plaintiff has, before actual grant of administration, commenced proceedings as an administrator. Notwithstanding that upon grant the administrator's title relates back to the death of the deceased whom he represents it has been consistently held that this element of retroactivity is incapable of sustaining a writ issued before grant."

124. In my opinion, the same principles apply here. The plaintiffs never had any authority or capacity to bring the proceeding against the defendants either in their personal capacity or as trustees of the Unit Trust. The proceeding was a nullity from the very beginning and cannot be cured.

127. In my opinion, the proceeding should be dismissed. The Master ordered that the proceeding be forever stayed. Since the plaintiffs had no cause of action at any point against the defendants, the proper order to make is that the proceeding be dismissed.

130. Subject to any submissions by counsel I propose to make the following orders -

(i) That the appeal from the orders made by Master Wheeler on 2 April 2003 is dismissed.

(ii) That the plaintiffs' proceeding be dismissed.

(iii) That the Orders made by Master Wheeler, being paragraphs 2 and 3 of the Order authenticated on 7 April 2003, are affirmed.

(iv) That the plaintiffs pay the defendants' costs of their appeal, including any reserved costs.

[1] [1979] HCA 61; (1979) 144 CLR 360.

[3] See Daniell's Chancery Practice, 8th edition at p.151.

[4] See Bowden's Patents v Smith [1904] 2 Ch 86.

[5] See Crossley v Crowther [1851] EngR 898; (1851) 9 Hare 384 at 386; [1851] EngR 898; 68 ER 556.

[6] See Foley v Burnell 1 BCC 274 at 276 and Lechmere v Carlisle 3 PW 215.

[7] See Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 436-8 and Fried v National Australia Bank and Ors [2001] FCA 907; (2001) 111 FCR 322.

[8] [1951] 1 Ch 680.

[10] [1962] HCA 29; (1962) 107 CLR 1 at 7.