Judgment
Parties and other relevant entities
1These proceedings were commenced by Originating Process filed on 18 May 2010. The Fifth Amended Statement of Claim ("5FAS") was filed, by leave, on 14 June 2013. In the course of the hearing, and on the parties' request, I ordered that all questions of the Plaintiffs' entitlement to relief be determined prior to the determination of what relief was appropriate on terms that all evidence, including all cross-examination, on both matters was to be led - with the exception of valuation evidence as to a particular property - at the hearing and not be the subject of a separate hearing.
2The First Plaintiff is Ms Rosemary Aboud (to whom I will refer, without disrespect, as "Rosemary"), who is the daughter of the late Louis Aboud (to whom I will refer, without disrespect, as "Louis") and Mrs Ethel Aboud and the sister of Mr David Aboud and Mr Ian Aboud. The Second Plaintiff is Ledir Investments Pty Limited ("Investments"), in whose name Rosemary brings derivative claims pursuant to leave previously granted under s 237 of the Corporations Act 2001 (Cth). The First Defendant is Ledir Enterprises Pty Limited ("Enterprises"). The Second and Third Defendants are Mr David Aboud (to whom I will refer, without disrespect, as "David") and Mr Ian Aboud (to whom I will refer, without disrespect, as "Ian") who are Rosemary's brothers. The Fourth Defendant is Mrs Ethel Aboud (to whom I will refer, without disrespect, as "Ethel") who is Louis' wife and David's, Ian's and Rosemary's mother. She is presently under a guardianship order made on 29 January 2010 and has filed a submitting appearance in the proceedings. The Fifth Defendant, Mandala Pty Limited ("Mandala"), is a company of which Ian is the sole shareholder and director.
3The name "Ledir" stands for Louis, Ethel, David, Ian and Rosemary (Ian 8.11.2012 [22]). The shares in Investments are held by Enterprises as to 2 ordinary shares and 19 special shares, by Ledir General Insurance Pty Limited as to 10 redeemable preference shares and by a third party as to one special share. There is no evidence as to whether that third party holds that share beneficially or as nominee and, if so, for whom. Five A class and five B class shares in Enterprises are held by Ethel; forty-one B class shares in Enterprises are held by Comserv (No 1650) Pty Limited ("Comserv") (which is not party to the proceedings) as the trustee of the Ledir Trust, which is a discretionary trust settled pursuant to a deed of settlement dated 19 September 1983; forty E class shares in Enterprises are held by David; twenty F class shares held by Rosemary and there are several other classes of shares. A wholly-owned subsidiary of Enterprises, Pluteus (No 81) Pty Limited ("Pluteus") owns a rural property "Adair" on which David and his family lived. Other assets of the Aboud Family were, at relevant times, held in the LA Aboud Family Trust established in New Zealand ("New Zealand trust").
4Rosemary is the daughter of Louis and Ethel and the sister of David and Ian. She was employed by an entity within the Ledir Group for about a year as manager of a children's newspaper in around 1982 and again as a manager in an affiliate's office in London between 1987 and 1995, while Louis and Ethel lived in London (David 12.11.12 [27]-[28]). Rosemary was also a director of Investments and Enterprises from December 1986 until her removal as a director in December 2006. She resided for several years with her parents and, after Louis' death, for a period with Ethel.
5David also spent a substantial time working for the family businesses. He was the General Manager of General Publishers, the primary operating entity within the Ledir Group, between 1975 and 1981, was in charge of its New Zealand operations between 1993 and 1997 and was a director of other companies within the Ledir Group from 1973 (David 12.11.12 [8]-[9], [13]-[14], [20]). Until 2003, when he fell out with Louis in circumstances to which I will refer below, he was maintaining the business records of the Ledir Group and dealing with the company's accountants (David 12.11.12 [40]-[41]. On the other hand, Ian ceased to have involvement with the Ledir Group's businesses in about 1973, when he was about 24 years old, as a result of issues in relation to the then divorce between Louis and Ethel, although he was a director of General Publishers, one of the companies within the Ledir Group, for about 18 months commencing in 2001 before resigning (Ian 8.11.2012 [20]).
6As I noted above, Comserv is not party to the proceedings. David submits that the Court may not make findings in respect of Comserv where it has not been joined as party to the proceedings. It does not seem to me that that is a correct analysis of the position; rather, any findings made in respect of Comserv do not bind it, where it has not been joined as party, and the Court should not grant relief against it (which is not sought) where it has not had an opportunity to be heard. It is, of course, commonplace for the Court to make findings as to events involving third parties, notwithstanding that they are not joined as party to the proceedings, although it will exercise caution in doing so where they have not had an opportunity to be heard.
Preliminary matter and witnesses
7I should first address several preliminary matters. As will emerge below, Rosemary's pleading was complex and, in some respects, convoluted, with some allegations (for example, breach of directors' duties) pleaded in very wide terms; others (for example, oppression) cross-referenced to numerous paragraphs appearing elsewhere in the pleading; and factual allegations combined in different combinations to give rise to multiple alternative pleadings. The structure of Rosemary's case has given rise to some difficulty in structuring this judgment, since, for example, many of the matters relevant to dealing with the allegations of breach of directors' duties are also relevant to the allegations of oppression and of a fraudulent scheme liable to be set aside in equity. I have generally sought to cross-refer in this judgment to earlier findings in respect of later allegations to which they are relevant, but my findings and analysis in respect of each issue should generally be treated as relevant to each other issue.
8Second, the parties provided detailed written submissions that addressed a wide range of factual matters, including some issues that ultimately did not need to be determined in order to decide the proceedings, and many factual disputes that were, at best, subsidiary or collateral to other factual disputes. I have had close regard to those submissions and to the parties' oral submissions, although I have sought to record my findings as to the matters that are significant for the determination of the issues in dispute in this judgment. Notwithstanding the length and detail of the parties' submissions, there was limited reference in them and in oral submissions to the relevant case law, and it has therefore been necessary for me to refer to cases that were not addressed in the parties' submissions. I could see no practical alternative to that course where it would not otherwise have been possible to identify the relevant legal principles in order to decide the case.
9Third, I consider that the proper course is for me to determine these proceedings on the basis of the pleaded case, where Rosemary has not sought to amend the pleadings (beyond an amendment made early in the hearing) so as to raise several matter put in submissions. The role of pleadings is, of course, to define the issues in the proceedings and, importantly, to ensure the basic requirements of procedural fairness, namely that a party should have the opportunity to meet an identified case against him or her: Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664; Banque Commerciale SA v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286, 296, 302-303. In Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Limited [2008] NSWCA 206; (2008) 73 NSWLR 653, Ipp JA reviewed the case law and summarised the relevant principles as including (at [424]) that the rule that, in general, relief is confined to that available on the pleadings secures a party's right to a basic requirement of procedural fairness; and, apart from cases where the parties choose to disregard the pleadings and to fight the case on additional issues chosen at the trial, the relief that may be granted to a party must be founded on the pleadings. His Honour also noted that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground an inference that the parties have chosen a different basis to the pleaded issues for the determination of their respective rights and liabilities, and acquiescence giving rise to a departure from the pleadings may arise from a failure to object to evidence that raises fresh issues. Nonetheless, his Honour noted:
"While cases are to be decided upon a basis that embraces the "real controversy" between the parties, the real controversy has to be determined in accordance with the principles stated."
10The Defendants did not acquiesce in this case to a determination of the case other than on the pleadings, and made clear both in opening submissions (T66-67, 412) and in closing that they were defending the pleaded case. I do not consider that approach was unreasonable, where allegations of conduct amounting to contraventions of provisions in the Corporations Act subject to civil penalty provisions and equitable fraud was alleged against them. In my view, any attempt to decide the range of unpleaded matters raised, particularly in Rosemary's submissions, would not afford procedural fairness to the Defendants and would also not be consistent with the just resolution of the matters in dispute, where Rosemary's pleaded case was already very complex.
11Although Rosemary was a key participant in the relevant events, she did not give evidence, although she was present in Court throughout the hearing (T335). Ian and David submit that I should drawn an inference that her evidence would not have assisted her case in accordance with the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. That principle applies where a party is "required to explain or contradict" a matter and its basis is "plain commonsense": Jones v Dunkel per Windeyer J at 320-322. In Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63], Heydon, Crennan and Bell JJ observed in their joint judgment that:
"The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case."
That principle does not compel the drawing of such an inference: Galea v Bagtrans Pty Ltd [2010] NSWCA 350 at [2]; CSG Ltd v Fuji Xerox Australia Pty Ltd [2011] NSWCA 335 at [82]; Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242 at [204]. In my view, Rosemary's failure to give evidence in support of her case gives rise to an inference that her evidence would not have assisted her in respect of several significant matters in contest, and that inference is of some importance in the findings that I reach below.
12David and Ian each gave evidence and were cross-examined at length. Each plainly felt strongly about the events in issue and their evidence was at least to some extent coloured by that matter. Rosemary submits that I should make adverse credit findings, particularly in respect of Ian. There were several unsatisfactory aspects of Ian's dealings with his mother's assets while he held her power of attorney which have been addressed in other proceedings, and Ian accepted in cross-examination in these proceedings that, from March 2007, he used his mother's power of attorney for his own purposes including paying himself money and paying money for the benefit of his wife, his children and legal fees (T326ff, T329). I have not found it necessary to make such credit findings in order to determine the proceedings. The majority of issues turn upon the legal characterisation of events and corporate actions that are not disputed and do not depend on David's and Ian's evidence.
13Rosemary contends that a Jones v Dunkel inference should be drawn in respect of several witnesses. She contends that Mr Fergusson of BDO, a firm of accountants that advised the Ledir Group over the relevant period, was available to give evidence and David may recently have obtained some advice from him in December 2012 (T201). She also contends that David and Ian could have called Mr Motta, who is an accountant with BDO who appears to have been involved with changes to Enterprises' constitution made prior to Louis' death, to which I will refer below. She contends that Messrs Fergusson and Motta were in David's and Ian's "camp" and could have given relevant evidence as to the advice given by BDO, the Ledir Group's accounts, the estoppel case (to which I will refer below) and the arguments justifying Rosemary's removal as a director of Enterprises. I would not draw such an inference, since I do not consider that any evidence which is it suggested they could have given would have been of sufficient relevance to warrant drawing that inference.
Factual background - the earlier period
14I should now set out a brief chronology of relevant events. The parties led substantial evidence of the relationship between family members and events surrounding various other proceedings between them. Rosemary alleged that David and Ian had acted inappropriately and unreasonably and David and Ian similarly alleged that Rosemary had acted inappropriately and unreasonably. David and Ian contended that Rosemary procured Ethel to commence proceedings under the Family Provision Act 1982 (NSW) at a time that Ethel's will had been changed in Rosemary's favour and sought to exclude Ian from any benefit from the family's wealth. Rosemary contended that, on an occasion when David and Ian removed corporate records of the Ledir Group from a property previously occupied by Ethel and Rosemary and then occupied by Rosemary, they also removed personal records of Rosemary. Each of David and Ian on the one hand and Rosemary on the other criticise the circumstances in which Rosemary and subsequently Ian obtained powers of attorney from Ethel. I largely admitted evidence dealing with these matters, leaving their ultimate relevance to be determined in this judgment. Some aspects of these disputes seem to me to be tangential to the matters in issue in the proceedings, although it will be necessary to address some of that evidence below.
15Ian, David and Rosemary are the three children of Louis and Ethel. Ian was born in 1948, David in 1951 and Rosemary in 1953. Louis and Ethel lived at various times in England and New Zealand and from 2001 at a property, "Montoro", in Orange, New South Wales. Rosemary lived with her parents for parts of her adult life and, after Louis' death, with Ethel at Montoro until September 2006 when Ethel left to live with Ian in circumstances that I will set out below.
16The Ledir Group acquired a company known as General Publishers in 1974 (David 12.11.12 [16]) and David started work with General Publishers in 1975 (David 12.11.12 [9]). Pluteus, a subsidiary of Enterprises, acquired a property known as "Adair" in 1984, and additional land was subsequently acquired, and David and his family lived and continue to live on that property (David 12.11.12 [12]-[13]). A conflict arose between Louis and David in June 2003, when Louis instructed David to dismiss his cousin as director of General Publishers and David declined to do so, properly, on the basis that a director of a listed company could only be removed by the company in general meeting. Louis then directed that monthly distributions cease to be paid from the Ledir Group to David and directed David to hand over the business records of the Ledir Group to Rosemary (David 12.11.12 [38]-[40]). Rosemary subsequently maintained those business records, with BDO's assistance, from June 2003 until October 2006 (David 12.11.12 [43]).
17Louis obtained advice from BDO concerning proposed changes to the structure of the Ledir Group at various times, including in late 2003 (CB 29-30) (References in this form are to tabs contained in the Court Book). I will refer to that advice and the implementation of such charges in greater detail below.
18Rosemary contends, and I accept, that she, David and Ian all received substantial assistance from the Ledir Group or Louis during his lifetime. Ethel's evidence in earlier proceedings was that all of the children received fair and substantial amounts (CB 66). Louis funded, in part or whole, the purchase of an apartment in London for Rosemary in 1989 (David 12.11.12 [29]). David, Ian and Rosemary each received $1 million from a New Zealand trust established by Louis in the year ended 31 March 2004 (T192). David and Ian also received other payments or help at other times from their father (David 12.11.12 [12]-[13], [22], [59]).
19Louis died in April 2004 (David 12.11.12 [15], Ian 8.11.12 [21]). By his will dated 3 April 2002, admitted to probate in August 2005, Louis appointed Ethel, Rosemary and David as executors and left the whole of his estate to Ethel (CB 23). At the time of Louis' death, Ethel's will provided for her estate be left to Ian and Rosemary in approximately equal shares (David 12.11.12 [48]). Ethel, while living with Rosemary at Montoro, subsequently changed her will so that Rosemary would become the sole beneficiary of Ethel's estate (David 12.11.12 [46]-[48]) and also gave a power of attorney to Rosemary (CB 35, 35a).
20In October 2005 Ethel commenced proceedings under the Family Provision Act ("FPA proceedings") in respect of, inter alia, assets of the New Zealand trust that would otherwise have been available to other family members who are beneficiaries of that trust (CB 49). These proceedings clearly contributed to a deterioration, or further deterioration, in the relationship between Rosemary on the one hand and Ian and David on the other and generated a significant amount of intemperate correspondence, both from Rosemary and from Ian. David gave evidence of matters relating to the conduct of the FPA proceedings (David 12.11.12 [52.1]-[52.6]) which was admitted as evidence of his understanding and subject to relevance.
21There was a dispute between the parties as to whether Ethel or Rosemary was the primary driver of the FPA proceedings. David submits that the obvious intent of, or at least the result sought from, the FPA proceedings was that any additional assets acquired by means of those proceedings were likely to benefit Rosemary, so long as Rosemary was the sole beneficiary of Ethel's will. There is uncontested evidence that Rosemary advised David, after the commencement of the FPA proceedings, that they were intended to achieve "Zip for Ian, not one cent" (David 12.11.12 [50]). I understand that reference to indicate that those proceedings were intended to achieve the result that Ian would at least not receive any benefit from the New Zealand trust.
22Mr Zahra, who appeared for David, undertook a detailed review in oral submissions of documents held in the file maintained by Ethel's solicitors in respect of the FPA proceedings which had subsequently been made available to Ian as Ethel's representative (CB 256). I do not consider it is necessary to review all the documents contained in this file to which the parties directed attention in submissions, with David typically contending that the relevant documents disclosed aggression on the part of Rosemary and Rosemary contending that they disclosed a reasonable approach to the FPA proceedings. I am satisfied that a number of file notes which refer to communications with "Aboud" record communications with Rosemary, a matter which emerges from the content of the communications, and it is clear that Rosemary was the primary source of instructions to Ethel's solicitors in those proceedings. The extent of Rosemary's involvement in these matters has some significance, not only because of Rosemary's reluctance, at least initially, to acknowledge it in submissions in these proceedings, but because it indicates that the solicitor who received a settlement proposal put by David and Ian (to which I will refer below) was, if not acting for Rosemary, nonetheless communicating regularly with her and receiving instructions from her. The communication of that proposal to that solicitor would therefore have brought it to Rosemary's attention.
23The communications between Rosemary and the solicitor who later acted for Ethel in the FPA proceedings commenced in August 2004, more than a year before the FPA proceedings were commenced in Ethel's name (CB 256, p 1592). Consideration appears to have been given, in correspondence addressed both to Ethel and Rosemary, to a possible challenge to amendments made in 2002 to the articles of association of Enterprises (CB 256, p 1598) (to which I will refer below) although it appears the FPA proceedings were ultimately primarily directed to the position in respect of the New Zealand trust. In a conversation on 14 February 2005, Rosemary sought advice from that solicitor as to whether the (Australian) Ledir Trust "can be broken" and expressed the view that she did not wish to have David's wife to have "rights over Ethel" and was concerned about the trusts and companies if Ian was divorced (CB 256, p 1607). Rosemary subsequently took an active role in the conduct of the FPA proceedings, although she had filed a submitting appearance in them, including attending conferences with Ethel's legal representatives together with Ethel and giving instructions to Ethel's solicitors as to the basis on which "we" (which, in his context, could only refer to Rosemary and Ethel) would be prepared to settle the FPA proceedings (CB 96).
24The fact that most communications with the solicitor acting in the FPA proceedings involved Rosemary meant that Ethel would have been dependent, at least to some extent, on information communicated by Rosemary for her understanding of those proceedings, although I have not neglected that there were other communications by the solicitor directly to and with Ethel. Rosemary has, of course, not given evidence of the extent of any such communication of information by her to Ethel. In these circumstances, the Court should be less ready to infer that the distress that Ethel later expressed as to the conduct of the FPA proceedings (CB 99) was not genuine or, as was implicit in Rosemary's case, was a position forced upon Ethel by Ian. These matters provide context for Ethel's subsequent role in Rosemary's removal as a director of companies within the Ledir Group, to which I will refer below.
25On about 18 September 2006, Ian met with Ethel and Rosemary at Montoro. There is uncontradicted evidence that, at that meeting, Rosemary called Ethel "a liar"; Ian offered Ethel the opportunity to live with him and Rosemary told Ethel "I'll pack your bags and you can get out of the house" and then packed a bag for Ethel containing her clothing and told Ethel to "get out of the house, get out"; and Ethel then left Montoro and lived with Ian until 2009 when she moved to an aged care facility (Ian 8.11.12 [46]-[51]).
26Shortly after Ethel left Montoro, she terminated the retainer of the solicitors acting for her in the FPA proceedings (CB 99), then sought to instruct David's solicitors to discontinue the proceedings (CB 101) and subsequently instructed other solicitors who attended to terminating the proceedings. By deed dated 28 September 2006, Ethel revoked the power of attorney that she had previously given to Rosemary (CB 105). By a handwritten note also dated September 2006, Ethel also authorised Ian to remove financial records and personal effects from Montoro (CB 108). David and Ian then entered Montoro, when Rosemary was absent, and removed company records and also personal records of Rosemary, which were (at least in substantial part) subsequently returned to her (David 12.11.12 [45], Ian 8.11.12 [69]-[71]). On 4 October 2006, Ethel signed a handwritten authority authorising the sale of Montoro (CB 107).
27Also shortly after Ethel had left Montoro, David opened a new bank account in the name of Investments at a different bank, with the address of that account recorded as care of David at Adair. An amount of $1.65 million received on the sale of General Publishers was deposited in that account (CB 98). David did not then tell Rosemary about opening the new account or about his causing that amount to be deposited into that account and then being transferred to another account (T178). David accepted in cross-examination that these steps gave him complete control over $1.65 million of Investment's money without having to tell Rosemary (T178) and that Rosemary did not know about the existence of that account (T179).
28On 24 October 2006, Ethel made a new will in favour of her grandchildren, Ian's and David's children (CB 111) and, in late October 2006, she gave a power of attorney to Ian (CB 112). The FPA proceedings were dismissed by consent on 26 October 2006 (CB 114, 167). On 29 November 2006, Ethel appointed Ian as her enduring guardian (CB 121). Mr Brender, who appears for Rosemary, made clear in his opening that Rosemary did not seek to establish that Ethel lacked capacity when she gave Ian the power of attorney and took other associated actions in September and October 2006 (T27), although her later submissions were not wholly consistent with that position.
29Rosemary commenced proceedings in the Guardianship Tribunal in respect of her mother's affairs on 4 October 2006 (CB 109) which were unsuccessful, then brought proceedings in the Supreme Court Protective List which were also unsuccessful, largely because they sought to relitigate issues that had already been determined in the earlier Tribunal proceedings. Ethel by her tutor Ian brought proceedings against Rosemary in the Supreme Court for possession of Montoro, in the Local Court for recovery of a debt and in the District Court for recovery of furniture. In later proceedings in the Guardianship Tribunal proceedings, the Tribunal revoked the power of attorney that Ethel had granted to Ian and made a guardianship and financial management order, appointing the New South Wales Trustee in that capacity.
30In November 2006, David's solicitors wrote to the solicitors acting for the trustee of the New Zealand trust stating that David and Ethel now sought to distribute the assets of that trust to appropriate beneficiaries (CB 116). On 14 December 2006, David and Ethel signed an authority for the trustee of the New Zealand trust to distribute in the income and capital of that trust (of about $NZ2.5 million) to Ian (CB 136, T182.27). That distribution was delayed for a substantial period since the trustee did not implement it over Rosemary's objection, and the distribution was ultimately made to several beneficiaries of the trust, including Rosemary, rather than only to Ian.
31Ian's evidence is that, in late 2006, he and David decided to remove Rosemary as a director of the companies within the Ledir Group (Ian 8.11.12 [59]). David's evidence is that, in December 2006, he formed the belief that it was necessary to wind up the Ledir Group and distribute its assets between Ian, Rosemary and himself, to avoid wasted administration costs, loss on its share portfolio and because the company was no longer trading (David 12.11.12 [60]). The process that was subsequently implemented did not include any substantial distribution of assets to Rosemary as was contemplated by that approach.
32On 4 December 2006, David made a payment of $360,000 to himself from Investments (5FAS [40]-[43]). It appears that that amount reflected the amount of distributions that had not been paid to David since Louis' decision to end such distributions to him in April 2002, as a result of the difference of opinion to which I referred above. David accepted in cross-examination that that payment was made without discussion with Rosemary (T180) and that he did not wait until Rosemary ceased to be a director of Enterprises in late December 2006 (in circumstances to which I will refer below) before making that payment (T182).
33On 6 December 2006, notices of general meetings of Enterprises, Investments and other companies in the Ledir Group was sent to Rosemary and other shareholders indicating that it was proposed that Rosemary be removed as a director of the relevant companies (CB 126 - 130). By letter dated 18 December 2006, the solicitors acting for Rosemary objected to the proposed meetings (CB 138). On 22 December 2006, Ian was purportedly appointed a director of Enterprises by written resolution of its sole voting member, Ethel, pursuant to the power of attorney granted to him. Rosemary challenges the validity of that appointment on the basis that Ethel did not have voting rights (and, implicitly, no shareholder in Enterprises had such voting rights). Rosemary also contends that the use of the power of attorney amounted to equitable fraud. I will address those contentions below.
34At a general meeting of the members of Enterprises held on 29 December 2006, Rosemary was removed as a director of Enterprises (David 12.11.12 [64]), CB 141, 146). That meeting was attended by David, by Ian and Ethel by telephone and by Mr Motum, then a partner with Phillips Fox, the firm of solicitors acting for David (Motum 12.11.12 [9]). David's evidence is that Ethel said that she understood the purpose of the meeting (David 12.11.12 [64]). Ian's evidence is that Ethel did not say anything during the meeting other than to confirm that she could hear David (Ian 8.11.12 [66]). Mr Motum's affidavit evidence in these proceedings was that Ethel was present by telephone at this meeting and that he recalled that "each of David, Ian and Ethel assented to each resolution as proposed" (Motum 12.11.12 [9.4]). However, Mr Motum had previously given evidence in other proceedings (Ex P2) that Ethel did not say anything in opposition to either resolution, and did not mention that she said anything else other than that she could hear David. Mr Motum acknowledged in cross-examination that his evidence in these proceedings may be incorrect (T123). I prefer Ian's evidence and Mr Motum's earlier evidence to David's and Mr Motum's more recent evidence, and find that Ethel did not orally approve but also did not voice any opposition to the use of the power of attorney to remove Rosemary as a director at that meeting.
35The directors of Enterprises comprising David and Ian then resolved to appoint David as its corporate authorised representative for meetings of several companies within the Ledir Group to consider a resolution that Rosemary be removed as a director of those companies (David 12.11.12 [64], CB 148). David thereafter signed resolutions as corporate authorised representative removing Rosemary as a director of other companies within the Ledir Group, namely Investments, Pluteus and Ledir Estates (David 12.11.12 [64]-[65]), CB 148).
36Ian was purportedly appointed as a director of Investments by written resolution of its directors signed by David on 25 January 2007 and by Ethel (by Ian as her attorney) on 29 January 2007, and was also purportedly appointed a director of Pluteus and Ledir Estates from the same date (David 12.11.12 [65], CB 152, 154). I will refer to a challenge to the validity of Ian's appointment as a director of Investments in paragraph 61 below.
37The position of the Ledir Group was subsequently discussed at a meeting between its accountants, BDO, and David's solicitors on 29 January 2007, which noted that Ethel then had all the voting rights in Enterprises and on her death the voting rights would be shared 2/3 to David and 1/3 to Rosemary; that a resolution of Enterprises of 1 April 2002 provided that David and Rosemary would receive $9,000 per month each and the excess would be divided 70/30; that Ian was exercising his power of attorney, Rosemary had been removed as a director and David and Ian would now make all board decisions; that Louis had not indicated any desire to distribute any wealth out of Ledir Group to Ian but that David could gift after tax amounts out of his distribution; that the broad approach for the future would be interim dividends to David and Rosemary in the ratio of 2/3, 1/3; and that Adair could be transferred to David in exchange for a promissory note given by David and thereafter the Ledir Group companies could be placed in voluntary liquidation (CB 155). The observation in this meeting that Louis had not indicated any desire to distribute any wealth out of Ledir Group to Ian needs to be qualified by the fact that, as I will note below, Louis' intentions changed from time to time and he had indicated such an intention on at least two occasions. Distributions from the Ledir Group to David and Ian were not subsequently made in the proportions contemplated by that meeting, as will emerge below.
38On 21 February 2007, BDO prepared a complex distribution strategy which contemplated that Investments would pay a cash dividend to Enterprises; Enterprises would pay a cash dividend to Comserv as trustee for the Ledir Trust and would also make a loan to the Ledir Trust; the Ledir Trust would make distributions and lend money to selected beneficiaries without indicating who would be selected; Enterprises would later declare a dividend that would be offset against the amounts owing by the Ledir Trust and the Ledir Trust would apply that offset against the loans owing by the beneficiaries; Investments would sell its listed shares and lend some of the proceeds to Enterprises which would in turn lend them to the Ledir Trust which would lend them to selected beneficiaries; Investments would declare a franked dividend in favour of Enterprises and offset it against its loan to Investments; Enterprises would declare a franked dividend and offset it against its loan to the Ledir Trust; the Ledir Trust would make a distribution and offset it against the loan owing by selected beneficiaries; and Adair would be transferred to David at valuation in exchange for a promissory note for the transfer price. The intended effect of this approach was that about $1.216m would be paid to selected beneficiaries of the Ledir Trust as a distribution from the Trust, about $1.56m would be lent to selected beneficiaries, a further $360,623 would be paid as a distribution from the Trust to selected beneficiaries and about $1.420m would be lent to selected beneficiaries and, on completion of liquidation, a final distribution could be made (CB 162). At least part of this approach was later implemented, with substantial distributions and loans being made to David and Ian but not to Rosemary.
39In March 2007, agreement was reached between David and Ian that payments of about $2 million and $2.5 million would be made to Ian and David respectively (Ian 8.11.12 [100]) and, on 28 March 2007, Ian's solicitors advised David's solicitors that David had told Ian that a distribution of $2 million was to be made to Ian from the Ledir Trust (CB 182). By letter dated 5 June 2007, David's solicitors wrote to David calculating the total amount for distribution by franked and unfranked distributions and loans as $3,939,273 and seeking instructions as to the identity of the beneficiaries, and calculating that Rosemary would or could receive either 20/60th ($2,699.910) or 20/70th ($2,314.208.00) on such a distribution (CB 199). That calculation appears to reflect an assumption that such a distribution should be made by reference to Rosemary's entitlements on a winding up of Enterprises, to which I will refer below, rather than any assessment of what could or should be distributed by Comserv as the trustee of a discretionary trust. As I noted above, the distribution was ultimately not made on that basis.
40A payment of $2,439,273 was made to David from the Ledir Trust on 27 June 2007, initially as a loan, which was later extinguished when Comserv made a trust distribution to David of $2,547,273 in 2008, comprising the previous loan amount and monthly distribution for that year totalling $108,000. Payments were made to Ian of $500,000 on or about 7 May 2007 and $1,500,000 on about 27 June 2007, initially as a loan, which were extinguished in the year ended 30 June 2008 when Comserv resolved to make a distribution of $2 million to Ian. I will refer further to these payments below. A further payment of $50,000 was made to Ian or Mandala on 24 September 2008 and $1 million was paid to Ian or Mandala about 23 December 2008. I will also refer further to these payments below.
41On 4 September 2009, David and Ian met as directors of Comserv and ratified distributions made between 27 June 2007 and 23 December 2008, the loan of funds on 27 June 2007 to David in the sum of $2,439,273 interest fee and repayable on demand, and a loan to Ian in the amount of $560,861 also interest free and repayable on demand (CB 341). An issue arose in the course of the hearing as to whether Ian had properly been appointed as a director of Comserv in order to vote on that resolution. I will address that issue and any impact of that ratification below.
42In late 2009, the trustee of the New Zealand trust determined to make a final distribution totalling $2.43 million to be paid one-third to Ethel, one-third to David and one-ninth to each of David, Ian and Rosemary and Ian, David and Ethel (by Ian as her attorney) agreed to that distribution (CB 331, 332, 342). It appears that distribution was subsequently made.
Allegation that Rosemary's removal as a director was unlawful
43Rosemary pleads that her removal as a director of Enterprises was 29 December 2006 was "invalid and unlawful" (5FAS [47A]). This allegation is particularised on the basis that Ethel's B class converting preference shares had not been converted to B class shares, no other shares carried any entitlement to vote in Enterprises and no valid votes were cast for Rosemary's removal as a director
44Rosemary contended in submissions that her removal as a director of Enterprises in December 2006 was unlawful because she was removed by the exercise of Ethel's vote as a "B" class shareholder in Enterprises and, she contended (and pleaded in 5FAS [16]) that Ethel had not converted her shares from B convertible preference shares to B class shares and did not have such a vote. This question seems to me to be of little practical significance, so far as Rosemary's removal as a director was concerned, since article 64 of Enterprises' articles of association (CB 2) provided that each director shall retire from office and be eligible for re-election at any ordinary general meeting of Enterprises. Rosemary did not contend that the general meeting of Enterprises held on 29 December 2006 was not an ordinary general meeting for the purposes of that article. I accept David's submission that Rosemary ceased to be a director of Enterprises by operation of that article at that general meeting and the resolution for her removal was not necessary to that result. (I should add that it is not necessary for me to address any possibility that David and Ian also ceased to be directors of Enterprises at that meeting for the same reason, leaving Enterprises without directors since December 2006, since Rosemary did not advance that submission. Even if that were the case, their acts as directors may well be validated by s 201M of the Corporations Act, to which I will refer below, or an application brought under s 1322 of the Corporations Act.)
45I should, however, indicate my findings as to the question of the voting rights attached to Ethel's shares, against the contingency that an appellate court were to take a different view as to the effect of article 64 of Enterprises' articles of association, and because that question is relevant to the validity of the appointment of Ian as a director of Enterprises on 22 December 2006 by written resolution of Ethel, executed by Ian in reliance on the power of attorney that Ethel had granted to him. The articles of association of Enterprises initially set out the rights attaching to B convertible preference shares in subparagraphs (f)(i)-(vi) of article 2(b)(3). Those paragraphs were replaced by an amendment to Enterprises' articles of association made by circulating resolution dated 1 April 2002 (David 12.11.12 [35.3], CB 20), with new provisions which provided, inter alia, that:
"the said "B" preference shares shall be entitled to 100% of the voting rights of the company after the death of Louis Alexander Aboud, but the said "B" preference shares shall cease to have voting rights in the company upon the death of Ethel Aboud."
46David and Ian submitted that that circulating resolution either recognised an earlier conversion of Ethel's convertible preference shares to B class shares conferring the specified rights or alternatively implemented that conversion, and rely on the reference in those provisions to the shares as B preference shares rather than convertible preference shares and to correspondence prior to the passage of the resolution (to which I will refer below) which contemplated that the amendment would have that effect.
47The principles applicable to the construction of commercial contracts apply, with qualification, to the construction of a company's constitution. Attention must be given to the language used by the parties and the purpose and object of the transaction and, at least where there is uncertainty or ambiguity in the text of the document, the Court may have regard to the surrounding circumstances known to the parties: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 350; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 589; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) v Alphapharm (2004) 219 CLR 165 at 179; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604. The same principles are generally applicable in the construction of a company's constitution, albeit that caution is required in their application in that context: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; (2006) 59 ACSR 444.
48I do not consider that the amendment made in April 2002 can be construed as itself effecting a conversion of the "B" class convertible preference shares. The terms of the resolution expressly replaced subparagraphs (f)(1)(i)-(vi) of article 2b(3) of Enterprises' articles of association, and not the introductory words of that paragraph which dealt with the manner of conversion, and set out new rights attaching to B preference shares, where those rights had previously not been set out in Enterprises' constitution. That amendment does not itself necessitate or imply a conversion of those shares and would operate effectively and in accordance with its terms if read as defining the rights attaching to those shares once converted by a separate act of conversion. A reading of that amendment as itself effecting such a conversion would, as Rosemary points out, be inconsistent with the introductory words of the article which only permitted such conversion after Louis' death.
49David and Ian alternatively submit that the circulating resolution dated 1 April 2002, as signed by Louis, satisfies the requirements of article 2b(3)(e) of Enterprises' articles of association which permitted Louis, during his lifetime, to amend the voting rights attached to the B convertible preference shares by notice in writing to the company. I cannot accept this submission, because the resolution, in its terms, provides for the rights attaching to the B preference shares (which would come into existence on conversion) rather than the rights attaching to the B convertible preference shares.
50David and Ian also rely on a notice of the conversion of the B class shares on 1 April 2002 that was given to ASIC on 30 November 2006 (CB 137). The ASIC records of Enterprises also record Ethel as being a "B" class shareholder (CB 400, pp 2750-2752) and, by reason of s 1274 of the Corporations Act, those documents are prima facie evidence of the matters stated in them: Winlyn Developments Pty Ltd [2011] NSWSC 1218; (2011) 86 ACSR 197 at [37]. However, it seems to me that prima facie evidence is rebutted by the analysis of the effect of the amendments to which I have referred above, subject to the question of estoppel to which I now turn.
51In paragraphs 16A-16B of his Defence to the Fifth Amended Statement of Claim, David pleads an estoppel, contending that Enterprises is estopped from denying that Ethel has converted her B convertible preference shares to B class shares and therefore had voting rights in Enterprises following Louis' death. The pleading extends to a conventional estoppel, by reason that Enterprises and Ethel have acted on an alleged common basis and common assumption that Ethel had converted those shares. Ian advances a corresponding defence in paragraphs 16A-16B of his Defence to the Fifth Amended Statement of Claim.
52The pleading is put, first, as a representational estoppel. I should briefly identify the elements of such an estoppel, although the parties devoted little attention to this matter in submissions. In Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, Brennan J observed that to establish an equitable estoppel the first thing it was necessary for the plaintiff to prove was that (at 428):
"... the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship."
In Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, Deane J observed (at 444) that the law does not permit an unconscientious departure by one party:
"from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation."
In Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2010] NSWSC 776 at [42]ff, Pembroke J identified three key elements of a representational estoppel as being that the defendant's words or conduct must be clear and unambiguous; the defendant's conduct in relying to its detriment on those words or conduct must be reasonable; and the defendant must know or intend that the plaintiff will act or abstain from acting in reliance on those words or that conduct or, in effect, have some reasonable expectation that its words or conduct will induce some detrimental reliance by the plaintiff.
53In the present case, it seems to me that Enterprises made a representation to Ethel that she had converted and was entitled to vote the relevant shares by a letter dated 1 April 2002, signed by Louis, which indicated that its purpose was to inform Ethel that the rights attached to her shares in Enterprises had been varied and that the new rights were, relevantly, that the B preference shares were entitled to exercise all of the voting rights upon Louis' death. The fact that Ethel in fact held that understanding is demonstrated by a letter dated 28 July 2006 (CB 79) from her solicitors in the FPA proceedings (which may or may not have reflected instructions from Rosemary to those solicitors) to David's solicitors advising of her understanding that the conversion of the B preference shares had previously occurred. I would readily infer that Ethel's conduct in not taking further steps to convert her shares so as to allow her to receive the dividends she in fact received from Enterprises and confer voting rights after Louis' death took place on the basis of the advice she had been given by Enterprises that she already had such rights; her conduct in that regard was reasonable in the light of that advice; and Enterprises would have known that, by reason of that advice, Ethel was very likely to assume that her shares had been converted to B class shares on the basis of its advice to that effect and assume that no further conversion was necessary to secure her right to dividends or voting rights in respect of the B class shares. I consider an estoppel is therefore established as between Enterprises and Ethel, which is sufficient to support Ethel's exercise of voting rights at the December 2006 general meeting.
54For completeness, I should add that David also gave evidence of matters which led him to hold an understanding that Ethel's "B" class shares entitled her to vote as a member of Enterprises, and to his having acted on that belief including in connection with the meetings of the companies in December 2006, in his third supplementary affidavit dated 14 June 2013. David was cross-examined as to that evidence, and Rosemary sought to rely on later correspondence in which BDO left open the question whether the B preference shares had been converted at some earlier time. I do not find it necessary to consider what understanding David had as to these matters, which does not seem to me to be relevant to whether an estoppel would prevent Enterprises denying the exercise of the relevant voting rights by Ethel (by her attorney Ian) rather than by David.
55David and Ian also rely on a pleading of conventional estoppel. The elements of a conventional estoppel require that the party asserting that estoppel has adopted an assumption as to the terms of its legal relationship with the party to be estopped; that party has adopted the same assumption; the parties have conducted their relationship on the basis of the mutual assumption; each party knew or intended the other to act on that basis; and the departure from that assumption will occasion detriment to it: Waterman v Gerling Australia Insurance Company Pty Ltd & Anor [2005] NSWSC 1066; (2005) 65 NSWLR 300 at [83].
56This claim for conventional estoppel is supported, as between Enterprises and Ethel, by the letter dated 1 April 2002 from Enterprises to Ethel to which I have referred above. Correspondence from the Ledir Group's accountants, BDO, to Louis, Ethel, Rosemary and David was to similar effect to that letter. A letter dated 30 April 2001 from BDO to Louis attached amending documents that were described as having the result that Ethel's B preference shares would, after Louis' death, have 100% voting rights (CB 15). A letter dated 19 September 2003 from BDO to Louis records the structure of Enterprises following the changes that were implemented on 1 April 2002, and describes the shares held by Ethel as 5 B preference shares (rather than as convertible preference shares) and also notes that, as part of the changes, the rights attached to the shares in Enterprises were amended so that, if Ethel survives Louis, she was entitled to 100% of the voting rights in Enterprises following his death. A letter dated 24 August 2004 from BDO to Ethel and Rosemary attached a diagram setting out the Ledir Group structure, reflecting information contained in the letter dated 21 November 2003 from BDO to Louis, and recorded the shares held by Ethel as 5 B class preference shares and that, on Louis's death, Ethel was entitled to 100% of the voting shares in Enterprises. By letter dated 18 April 2005, BDO provided information as to the structure of the Ledir Group to the solicitors representing Ethel in the FPA proceedings, and again recorded that Ethel held 5 B class preference shares and that Ethel was entitled 100% of voting rights in Enterprises following Louis' death (CB 36). Ethel also proceeded on the basis that she held 5 B class preference shares, rather than B class convertible preference shares, in her affidavit in the FPA proceedings (CB 66, [5]).
57David also refers to advice given by BDO to him concerning the notification to ASIC of the conversion of the B convertible preference shares into B class preference shares, the notification given to ASIC on 30 November 2006 that Ethel held B preference shares and the preparation of a share register of Enterprises recording Ethel's holding of such shares. A conventional estoppel is also supported by Enterprises' conduct in paying dividends to Ethel pursuant to her rights as a holder of B class preference shares, in excess of the more limited dividends which she could have received as a holder of B class convertible preference shares, including dividends paid pursuant to a resolution passed by Rosemary and David as directors of Enterprises on 30 June 2005. If Ethel's shares had not been converted to B class preference shares, she would only have been entitled to a minimal dividend at a rate of 5% on the capital paid up on the shares of $10 each, rather than the dividend that she actually received for the years ending 30 June 2003 (CB 25) and thereafter.
58I should add that Rosemary also appears to have previously understood, contrary to the position she now advances in these proceedings, both that Ethel had all the voting rights in Enterprises in general meeting and also that Ethel's right to receive a dividend of $5,000 per month from Enterprises arose from her holding B class preference shares in Enterprises. Her solicitors advised the New South Wales Trustee and Guardian of that matter by letter dated 9 March 2012, the relevant paragraphs of which were admitted as admissions against Rosemary's interests in the proceedings. Rosemary also understood, and her solicitors advised the New South Wales Trustee and Guardian by that letter, that Louis had intended to leave, and had in fact left, a situation where Ethel retained a controlling shareholding in Enterprises in her lifetime, and that statement was also admitted as an admission against Rosemary's interests in the proceedings.
59In the present case, at least Ethel and Enterprises (but also Rosemary, David and Ian) had acted on the assumption that Ethel held B class preference shares (or, at least, shares having the rights conferred by the April 2002 amendments) and have conducted their mutual relationship on that basis and knew or intended that the other would act on that basis, and departure from that assumption would occasion detriment at least to Ethel so far as it would deprive her of the rights apparently conferred in April 2002, and to David and Ian so far as they have proceeded on that basis in respect of the meetings held in December 2006. I therefore find that a conventional estoppel is established.
60David and Ian also submit that the effect of article 58 of Table A to the Companies Ordinance 1962 (in respect of Enterprises) and article 88 of Table A to the Companies Ordinance 1936 (in respect of Investments) would prevent any objection now being taken by Rosemary to Ethel's entitlement to vote for the appointment of any director. The former provision provides that:
"58. No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the chairman of the meeting, whose decision shall be final and conclusive."
I do not consider it necessary to determine this further submission, which was not the subject of substantive submissions by any party, where I have held that representational and conventional estoppels would support the exercise of voting rights at that meeting.
61It also does not seem to me that Rosemary was successful in an attack on the exercise of the power of attorney given by Ethel to Ian, to the extent that underpinned the exercise of Ethel's vote at the general meeting of Enterprises on 29 December in support of Rosemary's removal as a director. I noted above that Rosemary had previously obtained a corresponding power of attorney from Ethel and thereby placed herself in a position to use it if she wished to do so. Rosemary accepted in opening that she could not establish that Ethel lacked capacity at the time the power of attorney was granted in favour of Ian; she did not plead that Ian exercised any undue influence or otherwise acted unlawfully in obtaining that power of attorney; she did not establish that the grant of the power of attorney did not in fact reflect Ethel's wishes; and she did not establish that her removal as a director was inconsistent with Ethel's wishes.
62Rosemary also pleads that, since December 2006, she has been wrongfully excluded from the deliberations of persons acting as directors of Enterprises (5FAS [48B]). That allegation is also not established since Rosemary ceased to be a director of Enterprises in December 2006 by reason of article 64 of its articles of association and, alternatively, was validly removed as a director of Enterprises for the reasons noted above.
63Rosemary also pleads that her removal as a director of Investments and other companies and the appointment of Ian as a director of Investments and other companies was "unlawful" (and, implictly, also legally ineffective) (5FAS [48A]). That allegation is particularised by the fact that Rosemary's removal depended on the deliberations of David and Ian, to the exclusion of Rosemary who remained a director of Enterprises, that Rosemary did not receive notice of any such meetings, and would have opposed such decisions had she received notice, when Ethel was not acting or was not capable of acting as a director of Enterprises. This allegation is not established. First, Rosemary's removal as a director of Investments and the other companies was effected by David's acts as corporate representative appointed by Enterprises in respect of Investments and those companies. Those appointments were not ineffective by reason of the matters particularised, where I have accepted David's submission that she ceased to be a director of Enterprises at the meeting in December 2006 under article 64 of Enterprises' articles of association; she did not contend that David or Ian had similarly ceased to be directors and their actions would potentially be validated by s 201M of the Corporations Act in any event; and I have held that Ethel was entitled, at least by reason of an estoppel, to vote (as she did, by Ian, as her attorney) at the meeting of Enterprises. Rosemary did not identify any basis for an entitlement to notice of any meeting of Investments or the other companies, arising under their articles of association or otherwise; she was not a shareholder of those companies and has identified no basis on which she could have effectively "opposed" that removal, when it was effected by the corporate representative of the holder of their voting shares; and it was not necessary for Ethel to act as a director of Enterprises either at its general meeting, where she was acting as holder of B class shares, or in respect of Investments, where Enterprises rather than Ethel held the relevant shares.
64Rosemary also submitted that Ian's appointment as a director of Investments, by written resolution of the directors of the company with effect from 29 January 2007, was invalid, because it relied on the use of Ethel's power of attorney in respect of the exercise of her powers as a director rather than a shareholder. David and Ian in turn rely on the fact that Enterprises (being the shareholder in Investments) ratified that appointment on 13 June 2013 (David 14.6.13, [7] and Annexure K). The parties, as often occurred in this case, did not advance substantive submissions in respect of the applicable legal principles and I must address the issue without the assistance of such submissions. It does not seem to me that this challenge can have any impact on the outcome of the proceedings, since it is plain that there was a purported appointment of Ian as a director of Investments. If that appointment were invalid by reason of a non-compliance with the company's constitution or the Corporations Act (because, if Rosemary were correct, the necessary resolution to make it was not effectively passed), the acts taken by Ian in his capacity as a director of Investments were nonetheless effective, so far as Investments' internal affairs including the payment of dividends were concerned, by reason of s 201M of the Corporations Act: Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1; Re Colorbus Pty Ltd [2004] VSC 486; (2004) 51 ACSR 677. This is not a case, by contrast with Sheahan v Londish [2010] NSWCA 270, (2010) 80 ACSR 377, where no such purported appointment was made. It is not necessary to determine several other matters arising in respect of this contention, including whether it was sufficiently pleaded or particularised to permit Rosemary to advance it; whether, as Rosemary contend, David and Ian could not then rely on the subsequent ratification of that appointment, which they had also not pleaded; whether the limits to a directors' ability to perform his or her duties by an attorney (to which I refer below) extend to the act of signature of a written resolution of directors; and whether that ratification was otherwise effective.
Derivative claims - The pleaded breaches of fiduciary and statutory duties and the applicable legal principles
65Rosemary brings derivative claims by Enterprises and Investments for breach of fiduciary duty and directors' duties at general law. The relevant pleadings are somewhat complex. I will first address Rosemary's pleaded case and the applicable legal principles and then deal with the several transactions that Rosemary seeks to attack, each on several grounds.
66Rosemary first pleads that:
63. "By reason that:
a. Ledir Investments was solvent; and
b. Ian Aboud and David Aboud were directors of Ledir Investments by reason of Ledir Enterprises' control and ownership of Ledir Investments;
Ian and David's actions as directors of Ledir Investments were at all relevant times actually or substantially subject to their fiduciary duties as directors of Ledir Enterprises and are to be treated on the same basis as though they were actions as directors of Ledir Enterprises."
67It is, of course, well-established that a director owes certain fiduciary duties to the company of which he or she is a director. For example, in Mills v Mills (1938) 60 CLR 150 at 195, Dixon J observed that "[d]irectors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power". Traditionally, the fiduciary duties of directors include at least a duty to avoid situations where there is a conflict between the interest of the director and the interest of the company; and, probably, a duty to act in good faith and to exercise powers conferred on a director as a result of his or her office for proper purposes. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 89 ACSR 1, the majority held that the duties owed by company directors to act in good faith in the company's best interests and to exercise their powers for a proper purpose were also fiduciary in character (per Lee AJA at [918]-[933], per Drummond AJA at [1956]-[1978]), and Carr AJA also observed that he was not prepared to hold, on the present state of authority, that those duties were not fiduciary duties (per Carr AJA at [2733]).
68However, the fiduciary duties pleaded by Rosemary in 5FAS [63] do not appear to be duties of that orthodox character, which do not depend on a company's solvency or its control of another company. Rosemary does not here plead that David and Ian owed fiduciary duties in their capacity as directors of Investments to Investments, or in their capacity as directors of Enterprises to Enterprises, although those propositions would plainly be correct. She instead pleads that, because David and Ian owed their control of Investments to Enterprises' control of Investments, their conduct as directors of Investments was subject to their fiduciary duties to Enterprises or, as she puts it, that their actions as directors of Investments are subject to the same duties owed to Enterprises as would be owed in respect of their duties as directors of Enterprises. I should add that, although the parties did not draw my attention to the particulars (CB 9), David's legal representatives appears to have understood the allegation in this way since, by letter dated 29 October 2010, they requested particulars of the facts matters and circumstances relied upon in alleging that David's and Ian's conduct respectively "as a director of Ledir Investments gave rise to fiduciary duties owed to Ledir Enterprises". Rosemary's solicitors responded by letter dated 16 November 2010 (CB 9) by reference to the matters pleaded in paragraphs 63(a) and (b) of the Statement of Claim, to which I have referred, and paragraphs 10, 11 and 48 of the Statement of Claim and the particulars to those paragraphs. Paragraphs 10 and 11 of the Statement of Claim referred to Enterprises' ownership of shares in Investments and its entitlement to vote at a general meeting of Investments and paragraph 48 referred the exercise of the voting power of Enterprises as a shareholder of other companies in the Ledir Group to bring about Rosemary's removal as directors of those companies.
69Rosemary's written submissions did no more than assert the existence of a duty of the kind pleaded, without identifying any reasoning process that would support it. It does not seem to me that the pleaded duty is established, so as to cause David and Ian in their capacity as directors of Investments to owe a fiduciary duty to Enterprises, the holding company of Investments, or to be subject in acting as directors of Investments to the duties which they would owe to Enterprises in acting as directors of Enterprises. My attention was not drawn to any authority to suggest that a director of a subsidiary is treated in acting in that capacity as though he or she were in fact acting as director of its holding company or that he or she, at least in the ordinary course, owes fiduciary duties to its holding company while acting in that capacity. There is a significant difficulty with those propositions, namely that, in acting as directors of Investments, Ian and David were in the ordinary course required to act in the interests of that entity rather than solely in the interests of its holding company: see, for example, Walker v Wimborne (1976) 137 CLR 1 at 6-7; Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404; McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405 at [39]. The constitution of Investments was not amended in accordance with s 187 of the Corporations Act so as to permit its directors to act in the interests of its holding company, and it seems that such an amendment would not have been effective where Enterprises did not hold all the shares in Investments. There would be no reason to impose upon David and Ian duties, as directors of Investments, requiring them to act in the interests of Enterprises or not contrary to the interests of Enterprises or as though they were directors of Enterprises where such duties would potentially conflict with their duties to act in the interests of Investments. I do not find that the pleaded fiduciary duty owed by David and Ian is established.
70Rosemary in turn alleges that Ian and David breached their fiduciary duties owed to Enterprises pleaded in 5FAS [63] (which I have not held to be established) and to Investments (which are not pleaded) in taking certain pleaded actions (5FAS [64]). Rosemary pleads that:
"64. In causing Ledir Investments or Ledir Enterprises to make:
a. The David Aboud Payments;
b. The Ian Aboud Payments; and
c. Lawyers Payments
and in causing Ledir Enterprises to appropriate franking credits to dividends as pleaded in paragraph 61A which were ultimately received by them as pleaded in paragraph 61B, David Aboud and Ian Aboud acted:
d. In their own interests;
e. To prefer their own interests to the interests of Ledir Enterprises and that company as a whole;
f. Contrary to the interests of the members of Ledir Enterprises as a whole and the plaintiff in particular; and
g. In breach of their fiduciary duties to Ledir Enterprises; or
h. In breach of their fiduciary duties to Ledir Enterprises and Ledir Investments."
The term "David Aboud Payments" is in turn defined as the amount of $204,000 of the December 2006 payments; a first monthly payment of $9,000 to David and subsequently monthly payments so far as they exceeded $4,000 per month, a reimbursement of costs previously paid by David to his solicitors in respect of the FPA proceedings, and the amount of $2,439,273 paid to David on or about June 2007. The term "Ian Aboud Payments" is defined as the amounts of $500,000 paid to Mandala on 7 May 2007, $1.5 million paid to Mandala on 27 June 2007; $50,000 paid to Ian on or about 24 September 2008 and $1 million paid to Mandala on or about 23 December 2008. The term "Lawyers Payments" is defined as payments to David's, and on one occasion Ian's, legal advisers. I will address these transactions below.
71Rosemary then adds a further breach of a fiduciary duty owed to Enterprises in 5FAS [65], after a pleading of breach of statutory duties to which I refer below, namely that David and Ian, in undertaking the same conduct:
"improperly used their powers in breach of their fiduciary duties
f. not in good faith;
g. in their own interests to gain an advantage for themselves and each other to the corresponding detriment of Ledir Enterprises; and
h. contrary to the interests of Ledir Enterprises as a whole."
Presumably, the fiduciary duties referred to in this paragraph are the duties owed to Enterprises pleaded in 5FAS [63] (which I have not held to be established) or, possibly, the unpleaded fiduciary duty to Investments assumed in 5FAS [64].
72The allegation of breach in these paragraphs depend, first, on the fiduciary duty pleaded in paragraph 63, which I have not found to be established. Second, they depend on the unpleaded fiduciary duty owed to Investments. I do not consider that I can find a breach established on the basis of that unpleaded duty, particularly where Rosemary's case is already complex and these allegations received little attention in submissions. To find such a breach, I would first have to formulate the content of the duty to Investments that Rosemary has not articulated, which may be an orthodox application of the no conflict or no profit rules; or may be a more specific duty of directors of Investments not to act in their own interests, or a positive duty of good faith or an unarticulated combination of these or other elements. The fundamental difficulty with my taking that course is that it would deprive the defendants of an opportunity to address the formulation of the duty which the Court, not Rosemary, had developed. That course seems to me to be inconsistent with the role of pleadings, to which I have referred above, in defining the issues in the proceedings and, importantly, ensuring the basic requirements of procedural fairness.
73Rosemary also pleads that (at 5FAS [65]):
"65. In causing Ledir Investments or Ledir Enterprises to make:
a. The David Aboud Payments;
b. The Ian Aboud Payments; and
c. The Lawyers Payments;
and in causing Ledir Enterprises to appropriate franking creditors to dividends as pleaded in paragraph 61A which were ultimately received by them as pleaded in paragraph 61B, David Aboud and Ian Aboud have exercised their powers as directors of Ledir Enterprises:
d. in breach of the obligation of care and diligence in section 180(1) of the Corporations Law [sic];
e. Not in good faith in the best interests of Ledir Enterprises and for an improper purpose, in breach of their duty pursuant to section 181(1) of the Corporations Act ..."
74This paragraph refers, first, to the duty of care and diligence under s 180(1) of the Corporations Act, which requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties with the degree of care and diligence which a reasonable person would exercise if he or she was a director or officer of a corporation in the corporation's circumstances; and occupied the office within that corporation held by the director or officer, and had the same responsibilities within the corporation as the director or officer.
75The parties paid little attention to the relevant case law in submissions. The statutory duty of care and diligence overlaps with directors' duty of care arising at general law: Australian Securities and Investments Commission v Vines [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007) 62 ACSR 1. In Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1 at [7201], Austin J observed that the reference to a corporation's circumstances in s 180(1) required that consideration be given to the type of company involved, the size and nature of its business, the provisions of its constitution, the composition of the board and the distribution of the work between the board and other officers. The circumstances of Investments and Enterprises include that they were family companies with directors who would not necessarily have corporate experience and their affairs might be conducted in a relatively informal way; the structure of the Ledir Group contemplated the payment of dividends by the companies and the making of distributions by Comserv as trustee of the Ledir Trust to family members; and those companies were not otherwise conducting an ongoing business.
76This paragraph refers, second, to a breach of s 181(1) of the Corporations Act which requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. The allegation of breach of that section of the Corporations Act is an allegation of breach of a civil penalty provision and the Court must have regard to the seriousness of the allegations in determining it has been established: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Wilson HTM Investment Group Ltd v Pagliaro [2012] NSWSC 1068 at [102]. The alleged breach of s 181 of the Corporations Act involves both a breach of the duty to act in good faith and an allegation of conduct for improper purposes.
77The parties again paid little attention to the relevant case law in submissions. The statutory duty under s 181 of the Corporations Act reflects directors' duties at general law to act in good faith in the interests of and for the benefit of the company as a whole. In Chew v R (1991) 4 WAR 21; (1991) 5 ACSR 473 at 499, Malcolm CJ summarised the requirements of that duty as including that directors must exercise their powers in the interests of the company, and must not misuse or abuse their power and must not misappropriate the company's assets for themselves. The interests of a company as a whole, for the purposes of this formulation, include at least its shareholders and, possibly, other stakeholders: Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) [2008] WASC 239; (2008) 39 WAR 1; (2008) 70 ACSR 1 (Owen J) at [4388], [4395]. It is, of course, more difficult to apply the criterion of the "interests of the company" where classes of members have inconsistent interests: Mills v Mills above, where Latham CJ noted that the question which may arise in that situation is not a question of the company's interest, but "a question of what is fair as between different classes of shareholders".
78In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), the Court of Appeal of the Supreme Court of Western Australia unanimously held that the first element of that duty, the duty to act in good faith in the company's best interests, was subjective and would be complied with if directors honestly believed they acted in the company's best interests (per Lee AJA at [1923], per Drummond AJA at [1988], [2027], per Carr AJA at [2772], [2795]). The authors of Austin, Ford and Ramsey, Company Directors: Principles of Law and Corporate Governance, 2005 observe at [7.4] that a failure to comply with that duty can tend to arise, relevantly, "when circumstances induce directors to believe that the company's interests correspond with their own interests" and "[m]aking that unreflective assumption, they then act in the company's affairs without considering its interests as a separate entity with its own shareholders and creditors".
79The second limb of s 181(1), requires that directors' powers may be exercised only for the purpose for which they were conferred and not for any improper purpose: Mills v Mills above at 185, where Dixon J noted that a power conferred upon directors "cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power"; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218; (1994) 14 ACSR 109. There is authority that whether a director acted for a proper purpose within s 181 is to be determined objectively: Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253; (2002) 41 ACSR 72 at [738]-[739]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) above, the majority held that whether a director acts for an improper purpose is determined objectively involving an assessment by the Court of what was reasonable in the circumstances (per Lee AJA at [933], per Drummond AJA at [1988], [2027], [2073]). By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose (at [2903]). The application of a company's funds, without regard to its separate identity and without considering whether it was in the interests of the company and its members, was held to constitute a breach of that section in Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282 at [42], where Davies J noted that, even where a director had authority to make the relevant payments, the exercise of that authority required the director to turn his mind to whether the relevant transfer of funds was in the interests of the company.
80Rosemary also pleads that:
"65A. Further, the David Aboud payments, the Ian Aboud Payments and the Lawyers Payments were not authorised by Ledir Enterprises or, in the alternative, the Lawyers Payments were not authorised by Ledir Investments.
The payments were authorised by David Aboud and Ian Aboud wrongfully acting as directors to the exclusion of Rosemary Aboud."
This pleading is, at best, confusing since it appears to allege both that the payments were not authorised and that they were in fact authorised, but wrongfully, without any indication that the two propositions are alternatives or otherwise as to how they are to be reconciled. Doing the best I can, I read the allegation as intended to convey that the payments were not authorised because their purported authorisation by David and Ian was wrongful and liable to be disregarded, because David and Ian were wrongfully acting as directors to Rosemary's exclusion. That reading is consistent with the manner in which a corresponding allegation in 5FAS [67B] is particularised by reference to the allegation that:
"The Payments were authorised by David Aboud and Ian Aboud wrongfully acting as directors to the exclusion of Rosemary Aboud."
81In her written submissions, Rosemary submits that the allegedly unauthorised character of the 2006 payments, the 2007 payments, the 2008 payments and the Lawyers Payments establish a breach of fiduciary and statutory duties. She submits that:
"Unauthorised payments are the paradigm abuse of a fiduciary position and breach of fiduciary duty. They are a breach of the fundamental duty to have regard to the corporate constitution (see Austin Ford & Ramsay, Company Directors: Principles of Law and Corporate Governance 2005 paragraph 7.17). To make such payments is also a breach of the statutory duties under section 181 to act in good faith for the best interests of the company or for a proper purpose. Ian and David acted in their own and each other's interests and contrary to the interests of the company in breach of both fiduciary duties and statutory duties as pleaded."
The 2006 payments and monthly distributions to David
82I now turn to each of the actions alleged to constitute the breach of the pleaded fiduciary and statutory duties.
83Rosemary pleads that the payment of $360,000 to David made in December 2006 was not authorised by the directors of Enterprises or Investments (5FAS [42]). In my view, this allegation has not been established, since the $360,000 paid to David represents the amount of dividends authorised in April 2002 but not paid. It seems to me that the payment of the amounts to David was, in substance, authorised by the April 2002 resolution, notwithstanding that Louis had not acted in accordance with that authority after his falling out with David, and the payments were made (as were lesser payments to Rosemary) as distributions from the Ledir Trust rather than as dividends from Enterprises. The failure to reverse the reduction in Rosemary's dividends (or, more precisely, distributions) implemented by Louis in a similar way is a matter that will be relevant to Rosemary's claim in oppression, but does not, in my view, affect the authority to make the payments to either David or Rosemary in accordance with the resolution.
84I have not neglected that the resolution of 1 April 2002 was not implemented in its terms since subsequent payments to David and Rosemary were made as distributions from the Ledir Trust rather than as dividends from Enterprises. I did not understand Rosemary to attack the payments made to David on the basis that the April 2002 resolution had authorised dividends from the companies not distributions in the same amount from the Ledir Trust, where such an attack would have impugned the monthly distributions made from the Ledir Trust to her as well as to David. It seems to me that it would be somewhat artificial to treat the distributions as unauthorised on that basis, in the context of a family company and family trust where the distinction between dividends from Investments and distributions from the Ledir Trust was not generally been recognised in the past.
85Rosemary's claim that the payments were also unauthorised because they depended on David and Ian acting wrongfully as directors to Rosemary's exclusion must fail, because Rosemary had ceased to be a director under article 64 of Enterprises' articles of association at the 2006 meeting; I have held that Enterprises is estopped from denying Ethel's voting power in respect of the B class shares; for reasons that I will address below, it has not been established that the use of Ian's power of attorney to appoint Ian as a director amounted to equitable fraud; and it therefore has not been established that Rosemary's removal as a director, to the extent that it had any effect, was not valid.
86Alternatively, Rosemary pleads that the December 2006 payment, if authorised by the directors of Enterprises or Investments, was authorised pursuant to the resolution of the directors of Enterprises dated 1 April 2002 which provided for dividends to be paid at a rate of $9,000 per month to each of David and Rosemary as the holders of class "E" and "F" shares respectively, and for the balance of any further dividends to be made in the proportion of 70% to the holder of class "E" shares (David) and 30% to the holder of class "F" shares (Rosemary) (5FAS [43]). It seems to me that this analysis of the transaction is correct, but it does not have the consequence that dividends that had been authorised to be paid to David could not be paid, as distinct from potentially supporting a claim by Rosemary (which has not been made) for dividends that had been authorised to be paid to her to the extent they had not been paid.
87Rosemary also contends that the payment made to David in December 2006, at least to the extent of $204,000 (being the amount by which the payment to David was in excess of the amounts paid to Rosemary in the period prior to December 2006) and subsequent monthly distributions to David (which fall within the defined terms "David Aboud Payments) involve a breach of fiduciary duties (5FAS [64], [65], a breach of ss 180 and 181 of the Corporations Act (5FAS [65]) and were unauthorised (5FAS [65A]). I need not address the alleged breach of fiduciary duties, since the only pleaded fiduciary duty in 5FAS [63] has not been established.
88It also does not seem to me that the claim for breach of ss 180 and 181 of the Corporations Act is established in respect of the 2006 payment and subsequent monthly payments to David, where those payments were in amounts that had previously been authorised by the board of Enterprises, although the payments were made (as were monthly distributions as to Rosemary in a lesser amount) by way of distributions from the Ledir Trust rather than as dividends by Enterprises. The structure of the Ledir Group and the facts that distributions were historically made (including to Rosemary) in this manner tends against a finding of breach of a duty of care or the duty to act in good faith or for proper purposes in respect of those payments. It has not been established that David in respect of the 2006 payment, or David and Ian in respect of subsequent monthly distributions, did not subjectively consider that making the payments to Comserv in the amounts previously authorised by the board of Enterprises, so it could make corresponding distributions to David, was not in the interests of Enterprises and a contravention of the duty to act in good faith under s 181 is not established. I also do not consider that it has been established that that conduct, or corresponding payments to Rosemary, could not reasonably have been undertaken so as to give rise to a breach of the proper purposes duty under s 181. It is not necessary or appropriate to determine whether there was a breach of statutory duty in failing to make corresponding payments to Rosemary, since that failure is not the pleaded breach. I will, however, return to that issue in respect of the oppression case below.
2007 payments
89Rosemary pleads that the 2007 payments (which fall within the definitions of "David Aboud Payments" and "Ian Aboud Payments") involve a breach of fiduciary duties (5FAS [64], [65]), a breach of statutory duties (5FAS [65]) and were unauthorised (5FAS [65A]). I need not address the alleged breach of fiduciary duties since the only pleaded fiduciary duty in 5FAS [63] has not been established for the reasons noted above.
90The first step in the 2007 payments was the payment of dividends and other payments by Investments. On 25 and 26 June 2007, Investments resolved to pay an unfranked dividend of $2,238,232 and a franked dividend of $578,516 to Enterprises and to lend $1,433,411 to Enterprises (CB 205). Article 89(3) of Investments' articles of association confers an absolute discretion on its directors as to the rate of dividend to be paid upon shares constituting any one or more of the relevant classes. The second step in the 2007 payments was the payment of dividends and other payments by Enterprises. Enterprises resolved to retain a portion of the unfranked dividend from Investments and pay a franked dividend of $578,516 and an unfranked dividend of $360,523 to Comserv as trustee of the Ledir Trust, to borrow $1,433,411 from Investments and lend $3,000,134 to Comserv as trustee of the Ledir Trust. Article 98 of Enterprises' articles of association of Enterprises provides that, relevantly, subject to the provisions of article 2b, Enterprises' directors have an absolute discretion in the determination of the rate of dividend (if any) to be paid in respect of shares in the relevant classes.
91The final step was the making of certain distributions and payments by Comserv as trustee of the Ledir Trust. Clause 4(a) of the Trust Deed of the Ledir Trust (CB 8) confers a discretionary power on Comserv:
"to pay or apply the whole or any part of the Trust Fund to or for the maintenance, education, benefit or advancement in life of all or such one or more to the exclusion of others or other of the Beneficiaries and if more than one in such shares and in such manner generally as the Trustee shall in its absolute discretion from time to time think fit ...".
On 27 June 2007, Comserv resolved to pay a fully franked distribution of $578,516 and an unfranked distribution of $360,623 to Ian (although it appears these payments were also initially treated as loans and only later extinguished by distributions) and to lend the amounts of $2,439,273 and $560,861 to David and Ian respectively (David 12.11.12 [73], Matthews 13.11.12 [221.3], CB 207). David accepted in cross-examination that the 2007 payments were loans in the first year and then they became "dividends" in the second year (T220). (David's acceptance that the payments became "dividends" in 2008 seems to me to have been in error, in response to a question that mischaracterised the relevant payments, which were in fact trust distributions made by the Ledir Trust in 2008.) On 27 June 2007 David was paid the amount contemplated by that resolution (T183). On 28 June 2007, Mandala received a transfer of $1.5m from Ledir Investments (CB 237).
92The loan to David was extinguished in 2008 when Comserv made a trust distribution to David of $2,547,273, comprising the previous loan amount and a distribution for that year of $108,000 (Matthews 13.11.12 [21.6], CB 275). The financial report for the Ledir Trust for the year ended 30 June 2007 records a loan of $2 million from the Ledir Trust to Ian (Matthews 13.11.12 [18.3], [21.3.3], CB 218), which was extinguished in the year ended 30 June 2008 when Comserv resolved to make a distribution of $2 million to Ian (Matthews 13.11.12 [21.6], CB 275). The payments to David and Ian and ongoing distributions to Rosemary were ratified by resolution of Comserv on 4 September 2009 (CB 341).
93David's evidence is that the distribution made in the 2007 payments was based upon the advice of BDO and in accordance with his intention to distribute the assets fairly between Ian, Rosemary and himself (David 12.11.12 [74]). He acknowledged in cross-examination that the advice given by BDO related to the means of making a tax effective distribution and not to which beneficiaries or shareholders would receive the money (T192). His evidence also has the difficulty that no corresponding distribution was sought to be made to Rosemary at that time.
94The primary basis on which Rosemary contends that David and Ian acted in breach of directors' fiduciary and statutory duties in making the 2007 payments (or, more accurately, resolving to authorise the payment of dividends by Investments and Enterprises) is that that conduct was, in substance, part of a "winding up" of the Ledir Group and was inconsistent with her rights on a winding up of Enterprises. This contention is also critical to Rosemary's oppression claim.
95Rosemary pleads that, in the event of a winding up of Enterprises, she, by reason of her holding of 20 "F" class shares in Enterprises, is entitled to one-third of the surplus assets of Enterprises (5FAS [7]). Rosemary's claimed entitlement to one-third of those assets is on the basis that the only shares entitled so to share are David's 40 E class shares and Rosemary's 20 F class shares and that the B convertible preference shares owned by Ethel do not have such an entitlement. Alternatively, Rosemary claims to be entitled to two-sevenths of the surplus assets of Enterprises on a winding up (5FAS [8]). Rosemary's claim to an entitlement to no less than two-sevenths is on the basis that the other shares entitled to share in surplus assets are Ethel's 5 B class shares.
96I accept that it is likely that Rosemary was entitled to one-third, or two-sevenths, of the surplus on the winding up of Enterprises, and it is not necessary to determine which given the findings that I have reached below. That entitlement arose as follows. The E and F class shares held by David and Rosemary were originally issued as E and F convertible preference shares and articles 2b(6)(b) and 2(b)(7)(b) of Enterprises' articles of association, which were not affected by the 1 April 2002 amendments, conferred a preferential right to participate in a distribution of the surplus on the holders of those convertible preference shares. Rosemary contends, and I accept, that the E and F class convertible preference shares were converted to E and F class shares by no later than 1985 (T448). A form lodged by Enterprises with the National Companies & Securities Commission on 11 March 1985 and the attached special resolution signed by Louis indicated that the share capital of Enterprises then included, relevantly, 40 E class shares and 20 F class shares, which were then held by Louis and Ethel and later transferred to David and Rosemary respectively (CB 10). The annual return of Enterprises for the financial year ended 1 July 1984 lodged with the National Companies & Securities Commission in turn recorded that Enterprises had on issue 40 E class shares and 20 F class shares. An ASIC form subsequently prepared by BDO and signed by David recorded those shares as having been converted (CB 137). The resolution for the payment of dividends passed on 1 April 2002 also necessarily assumes that the E and F convertible preference shares had been converted to E and F class shares.
97The articles of association of Enterprises initially did not deal with the rights of E and F class shares on conversion, but the amendments made on 1 April 2002 specified the rights attached to E and F class shares once converted. Those rights did not expressly confer a preferential right to any surplus in a winding up on E and F class shares, by contrast with E and F class convertible preference shares. Although it is not necessary to reach a final conclusion as to this matter at this stage, it appears that that the B class preference shares held by Ethel had the same rights as the E and F class shares if converted or, if as I have held, an estoppel was established to prevent Enterprises (or Ethel) denying the conversion of those shares. Enterprises' articles of association, as amended on 1 April 2002, provide that the D, G, I, L, M and N class shares were only entitled to a return of subscribed capital (and, by exclusion, not to a share of any surplus) on a winding up of Enterprises, and a somewhat differently worded provision in respect of the X class shares had the same effect. Although the B, D and F class shares did not expressly confer a right to participate in the surplus on a winding up on the B, D and F class shares, they would have such a right according to their proportionate interests in the share capital, measured according to the nominal amount, and on the basis that the other classes of shares to which I have referred above did not have such a right under the company's constitution: Birch v Cropper (1889) 14 App Cas 525 at 543; Re Driffield Gas Light Company [1898] 1 Ch 451 at 455; Beck v LW Furniture Consolidated (Aust) Pty Ltd [2011] NSWSC 235 at [206] (which observations do not appear to be affected by the subsequent appeals); Re Sullivans Cove IXL Nominees Pty Ltd [2011] TASSC 9; (2011) 82 ACSR 224 at [48].
98However, it does not seem to me to follow from the fact that Rosemary had an entitlement to two-sevenths or one third of the surplus on a winding up of Enterprises that she also had an entitlement to expect that two-sevenths or one-third of dividends from Enterprises, still less of distributions from the Ledir Trust, would be paid to her prior to a winding up. While the structure of the family companies and the trust would confer a benefit on Rosemary on a winding up, her ability to receive dividends from the Company depended on a decision of its directors and her ability to receive distributions from the Trust depended on the exercise of the trustee's discretion. The allocation of D class shares in Enterprises to Comserv as trustee of the Ledir Trust provided, and was plainly intended to provide, a means to make distributions by Enterprises to Comserv as trustee of the Ledir Trust and then to family members at its discretion and in accordance with the terms of the Trust.
99Rosemary also submitted that the 2007 payments were contrary to Louis' wishes as to how the family assets, shares in Enterprises and distributions should be treated after his death. The evidence as to that matter indicates that Louis' intentions changed from time to time. He generally contemplated that Rosemary and David would hold an interest in Enterprises and from time to time, including in the period shortly before his death, he also contemplated that Ian would hold such an interest.
100Rosemary relies on Louis' memorandum of wishes dated 28 June 1997, although it primarily related to the New Zealand trust and was nearly 7 years prior to his death. That memorandum of wishes recognised that the trustee of the New Zealand trust was not bound by Louis' wishes and had full discretion to make decisions as they saw fit, and referred to Louis's intention to transfer the shares in Enterprises to David as to a two thirds share and Rosemary as to one third share prior to his death, and gave reasons for not transferring any of the shares in Enterprises to Ian, on the basis that Ian had already received his share of the benefit of ownership of those shares (CB 17). A further memorandum of wishes dated 20 November 2000 in relation to the New Zealand Trust indicated Louis ' wish that, on his death, that trust would vest and be distributed to Rosemary as to NZ $1 million and 10 percent of any excess over that amount with the balance to be distributed to David and Ian equally (CB 18, 275).
101A letter dated 21 February 2001 from BDO to Louis records his then wish that Enterprises should be owned as to 70% (directly or indirectly) by David and 30% (directly or indirectly) by Rosemary, subject to several qualifications, and that income should be distributed to David and Rosemary up to $9000 per month to each and the balance over that amount as to 70% to David and 30% to Rosemary (CB 14). On 1 April 2002, the directors of Enterprises (at a meeting attended by Louis, Ethel, David and Rosemary) similarly resolved that distributions would be paid monthly at the rate of $9000 to David and Rosemary and the balance of any distributable profits in the ratio of 70:30 to David and Rosemary (CB 22). It appears that resolution was not implemented, at least for any extended period, since Louis ceased payment of dividends to David in 2003 after the disagreement concerning General Publishers to which I referred above (David 12.11.2012 [39]) and also reduced Rosemary's distributions to $4000 per month, and the distributions made to Rosemary were made from the Ledir Trust rather than as dividends paid by Enterprises. Further correspondence concerning Louis' intentions from time to time followed. For example:
- A letter dated 19 September 2003 from BDO to Louis records his then intention that David was to receive 49% of the dividends of Enterprises, Rosemary was to receive 31% of the dividends and Ian was to receive 20% of those dividends. Rosemary rightly notes that her anticipated share in such dividends was not substantially reduced by that letter.
- A subsequent letter dated 21 November 2003 from BDO to Louis records Louis's then intention that each of David, Rosemary and Ian would be entitled to one-third of the dividends paid by Enterprises (CB 30). It appears that proposal was not implemented before Louis' death in April 2004.
- A letter dated 24 August 2004 from BDO to Rosemary and Ethel in turn referred to a 70:30 distribution split between David and Rosemary, which appears to have reflected the earlier rather than the later wishes expressed by Louis (CB 34).
- A letter dated 18 April 2005 from BDO to Rosemary's lawyers again referred to a 70:30 distribution split between David and Rosemary (CB 36).
102It does not seem to me that inconsistency with the wishes expressed by Louis supports a finding of breach of directors' duties in respect of the 2007 payments, because those wishes changed significantly over the period and were not implemented in Louis' lifetime by the payment of dividends from those companies as distinct from distributions from the trust and would be a matter to which the directors of Investments, Enterprises and (more, relevantly) Comserv could or should have regard in the exercise of their powers rather than a matter which dictated the exercise of the powers in a particular way.
103David's submissions emphasise that he and Rosemary were not paid dividends from Enterprises but were paid discretionary trust distributions from the Ledir Trust, implemented by the declaration of a dividend by Investments to its sole ordinary shareholder, Enterprises and payment of that dividend; the declaration of a dividend by Enterprises to Comserv as trustee of the Ledir Trust and payment of that dividend; and a determination by Comserv of the distribution it would make to beneficiaries of the Ledir Trust and the making of that distribution. David also contends in his opening submissions (also adopted by Ian and Mandala) that the particular payments made to David and Ian:
"were not payments to shareholders of Enterprises. They were discretionary trust payments made to beneficiaries of the Ledir Trust by the corporate trustee of that trust, Comserv."
Rosemary responds that it is:
"artificial to say that dividends were paid by Ledir Investments and [Ledir] Enterprises and that there was a totally separate decision, divorced from the affairs of the company, as to who they should be paid to by the Trust. The decisions were taken together as part of a "distribution strategy", conceived by advisors for tax benefit. The identity of the recipients of the strategy were determined by David and Ian. The cash flowed to whom they decided (largely themselves). The accountants then accounted for it via the "dividend strategy" months later, in the case of the large 2007 Payments, via a 2 year exercise, first via loans in year 1, repaid in the second year by declaring dividends and making distributions to repay those loans, in each case through 3 legal entities."
104I accept that there was a coordinated set of steps, reflecting the advice given by BDO as to how a distribution could be implemented, and that David and Ian determined that substantial distributions should be made from the Ledir Trust to themselves and not to Rosemary. Nonetheless, some of those steps involved actions taken by Ian and David as directors of Investments, some as directors of Enterprises, and some by David as a director of Comserv in its capacity as trustee of the Ledir Trust. A claim for breach of directors' duties in respect of a particular company must be determined by reference to the steps taken by the director in respect of that company, albeit also in its wider factual context. There is, as I will note below, a difficulty with Ian's purported exercise of Ethel's powers as a director of Comserv as her attorney. However, I did not understand Rosemary to contend that that could in itself establish any breach of duty by David or Ian as directors of Investments or Enterprises in 2007. I would not have accepted such a contention, since the propriety of the actions in that capacity is not to be determined by the validity of Ian's actions as a director of Comserv.
105As I noted above, Rosemary contends that, if Ian and David were authorised to act as directors of Enterprises so as to determine the dividends paid by it, what was done went beyond the bound by constraints of fairness recognised in Mills v Mills above. The first difficulty with this proposition seems to me to be that all that as done by David and Ian as directors of Enterprises was to authorise distributions and loans to Comserv, which involved no inherent unfairness. Whether the ultimate outcome was "unfair" or inappropriate depended on the exercise of Comserv's discretion as to whom distributions and loans were made. Whether the distributions made by Comserv as trustee of the Ledir Trust were a proper exercise of Comserv's discretion would in turn depend upon a range of matters, which could include the level of payments received by Rosemary on the one hand and David and Ian on the other over a wider period than addressed in the evidence in these proceedings. Rosemary's submissions in reply submit that there was no need for her to make claims in respect of Comserv that were (in the words of those submissions) "bound to fail" in Rosemary's capacity as discretionary beneficiary of the Ledir Trust; however, that highlights the difficulty in her establishing that the decision of David and Ian to authorise the payment of dividends by Investments to its shareholder, Enterprises, and by Enterprises to one of its shareholders, Comserv, was a breach of directors' duties because they would fund a distribution from the Trust which Rosemary did not seek to show, and concedes that she could not show, was wrongful.
106Rosemary's claim for breach of directors' fiduciary and statutory duties is also not supported by any analysis of the matters that would be relevant to whether Comserv properly exercised its discretion to make the distributions and loans to David and Ian in 2007. David points in submissions to matters which may be relevant to the exercise of Comserv's discretion as to the making of distributions, including the relevant needs of the beneficiaries; the fact that Ian and David have families and dependents and Rosemary does not; benefits that had previously been conferred on the beneficiaries; and the relative contributions that the beneficiaries had made to the growth and profitability of the Ledir Group businesses. An exercise of Comserv's discretion could also have had regard to Rosemary's personal assets. Ian's understanding of that matter (which is not evidence of the fact) as at August 2007 was set out in a letter dated 23 August 2007 from his solicitor to the trustee of the New Zealand Trust, CB 239) which indicated his understanding that Rosemary then had estimated assets in excess of $5 million, including money is held in her bank account of $1,350,000, an apartment in London with an estimated value of nearly $2.4 million and amounts derived from distributions from the New Zealand and Australian trusts. The evidence does not allow me to reach a finding as to the level of Rosemary's assets as a matter of fact. However, where Rosemary did not give evidence, I should and do infer that her evidence as to the level of her assets would not have assisted her in establishing that there was any substantive unfairness in the making of distributions by Comserv as trustee of the Ledir Trust to David and Ian in 2007, rather than to her.
107Rosemary has also not sought to establish that the exercise of Comserv's discretion to make distributions to David and Ian in 2006 and 2007 had the result that David and Ian in fact received a disproportionate share of the Ledir Group's assets or the family assets over any longer period or indeed over the whole of the period in which Rosemary, David and Ian benefited from the assets accumulated by Louis and the Ledir Group. Rosemary disavows such a contention in her submissions in chief:
"It is no part of this case to analyse who might have received more prior to Louis' death. The Court should proceed on the basis that they all received fair and substantial amounts."
Each of David, Ian and Rosemary received amounts from Louis, the Ledir Group and/or the Ledir Trust in the earlier period; there is not, however, any evidence as to the total of those amounts that would allow a conclusion as to whether they were approximately equal or proportionate by any other identified standard. There is evidence, admitted as an admission by Rosemary, that her father gave considerable financial assistance to Ian, David and Rosemary; that she generally received payments from Louis from the Ledir Trust; that she received £200,000 towards her purchase of the London apartment, although the total purchase price of that apartment is not disclosed; and that she received $1 million in 2003-2004, when amounts were also paid to David and Ian (Ex D1, [7]-[8], Ex D3, [8], [91]-[100]). Where the level of benefits received by Rosemary in earlier years was within her knowledge and she did not give evidence about it, I infer that evidence would also not have assisted her in establishing that the distributions made to Ian and David in 2007 were inappropriate.
108In her written submissions in reply, Rosemary refers to David's and Ian's submission that she made no attempt to establish what she received from the family assets and companies over the years and responds that:
"This formed no part of the case. It was quite clear that prior to Louis' death, all siblings were treated generously. A precise accounting was quite irrelevant to the proceedings:"
In oral submissions, Mr Brender submitted that Rosemary did not "concede" any proposition that she had not received less than David and Ian over the whole of their respective dealings with the Ledir Group, the Ledir Trust and family interests. However, it does not seem to me that the question is whether Rosemary concedes that matter, but whether she has established the case she advances.
109Alternatively, Rosemary submitted that the question whether the distributions were substantively unfair could be determined from 2002 onwards, because Rosemary had rights and expectations as a shareholder at least from the point of the amendments in April 2002. Although I have held above that Rosemary has established an entitlement to two-sevenths or one-third of the surplus assets of the Ledir Group on a winding up, I have not accepted that Comserv as trustee of the Trust was only entitled to make distributions on that basis.
110Rosemary also contends, correctly, that the payments made by Enterprises to Comserv in 2007 reduced its assets. However, Rosemary has not established that the payment of those amounts in 2007 would have prevented the making of further distributions to Comserv, sufficient to fund a later distribution by Comserv in accordance with her claimed entitlements in a winding up, at least absent the various proceedings which followed and the payment of legal costs of David and Ian from the funds of the Ledir Group, a matter which I will address below. David's evidence is that, as at 1 July 2007, following the payments to Ian of $500,000 and $1,500,000 in May and June 2007, and the payment to himself of $2,439,273 on or about 27 June 2007, an amount in excess of $5.2 million was available in Investments' accounts (David 10.6.2013 [9]), although it appears this figure does not take account of tax subsequently payable by Enterprises and Investments in respect of the 2007 transactions. As at 30 June 2007, Investments retained $4,739,283 on deposit, reflecting an opening balance of $9,282,887 less the payment to David of $2,439,273 and the two payments to Ian totalling $2m (CB 216). There should be added to this the value of Adair (held by Pluteus) then estimated as in the order of $3.2 million (CB 199). (I note the correspondence referring to that estimate was not admitted as proof of the asserted fact, but does establish David's undersanding as to that matter.) It does not seem to me that the proposition that the dividends paid in 2007 to Enterprises and Comserv, so as to fund the distributions to David and Ian, were contrary to the interests of the members of Investments or Enterprises as a whole, or even to Rosemary's interests individually, can be established where it is not shown that the payment of those dividends would have prevented the making of a distribution from the trust to Rosemary, at least at that time, to the extent of one-third or two-sevenths of the surplus assets of Enterprises on a winding up.
111Turning now to the alleged breach of s 180 of the Corporations Act in respect of the 2007 payments, I raised a question with the parties as to whether Rosemary's pleading raised an attack on the process by which such payments were made, as distinct from the outcome by which those payments were made to David and Ian to Rosemary's exclusion. Rosemary contended that the pleaded claim extended to both the process for and the outcome of the payments and David and Ian contended that it was limited to, in effect, an attack on the fact of the payments rather than the process by which they were made. It may be that a distinction between the process of the payments and their outcome is not readily drawn, since the two plainly overlap; in any event, it seems to me that the breadth of Rosemary's pleadings, largely unconfined by particulars, meant that both aspects of the claim were open to her. I do not, however, consider that claim is established in respect of the 2007 payments. In my view, the outcome of those payments has not been shown to have contravened that duty, where they placed Comserv in a position to make payments that were not contended to be improper. The process adopted for those payments included obtaining detailed advice from BDO as to their structure and appropriate tax treatment; they were authorised by resolutions of the relevant companies; and they were consistent with the structure of the Ledir Trust which contemplated that benefits could be conferred on family members and with the fact that the family companies and that trust had, for many years, conferred benefits on family members. I do not consider that process gave rise to a contravention of s 180 of the Corporations Act in respect of the 2007 payments.
112It has also not been established that David or Ian did not subjectively consider that making the relevant loans and paying the relevant dividends, so that Comserv could make corresponding loans and distributions to David and Ian, was not in the interests of Investments or Enterprises and a contravention of the duty to act in good faith under s 181 of the Corporations Act is not established on that basis. For the reasons noted above, I do not consider that it has been established that making the relevant loans and paying the relevant dividends could not reasonably have been undertaken so as to give rise to a breach of the proper purposes duty under s 181 of the Corporations Act. In particular, as I noted above, those payments involved making loans and paying dividends to Enterprises and Comserv as trustee of the Trust so as to fund loans and distributions by Comserv as trustee of the Ledir Trust and Rosemary did not seek to establish that the loans and distributions made by Comserv were not properly made.
113Rosemary submits that one cannot break up each element of the loans and payment of dividends by Investments and Enterprises and the loans and payment of distributions by Comserv as trustee of the Trust and consider it in isolation. I accept that one cannot consider each element of the transaction in isolation, without reference to the other elements of the transaction and the overall circumstances. However, whether the making of a loan or payment of a dividend by a particular company is breach of duties by the director of that company must be considered by reference to that company, and unfairness by reference to all the circumstances, including the character of the Trust and the fact that the loans and distributions made by the Trust in 2007 were not impugned.
The 2008 payments to Ian or Mandala
114Rosemary pleads a characterisation of the 2008 payments to Ian or Mandala (which fall within the definitions of "Ian Aboud Payments") as distributions from the Ledir Trust, and pleads that this presupposed a similar dividend from Enterprises (5FAS [55A] - [55B]), and alternatively pleads a characterisation of those payments as a payment direct from Investments (5FAS [57A]). Rosemary also pleads that the 2008 payments involve a breach of fiduciary duties (5FAS [64], [65]) a breach of statutory duties (5FAS [65]) and were unauthorised (5FAS [65A]). It is again not necessary to address the alleged breach of fiduciary duties since the only pleaded fiduciary duty in 5FAS [63] has not been established for the reasons noted above.
115In order to determine the claim for breach of ss 180 and 181 of the Corporations Act in respect of the 2008 payments, it is necessary first to determine the character of those payments, whether as a distribution or as a loan or as neither. The proper characterisation of those payments is also relevant to an alternative claim brought by Rosemary (on Investments' behalf) in respect of the 2008 payments to which I will refer below.
116The minutes of a meeting of the directors of Comserv as trustee for the Ledir Trust held on 24 September 2008, attended by David and purportedly by Ethel (by her attorney Ian) record a resolution that an interim distribution of $50,000 be paid to Ian (Matthews 13.11.12 [22.5], CB 300). A cheque was drawn on the account of Investments for that amount, which was deposited into Mandala's account by Ian on 30 September 2008 (CB 300, 301, 303, 305; David 12.11.12 [75]).
117A further amount of $1 million was paid to Ian or Mandala about 23 December 2008. The minutes of a meeting of directors of Comserv as trustee for the Ledir Trust held on 23 December 2008, attended by David and purportedly by Ethel (by her attorney Ian) record a resolution for an interim distribution to be made to Ian of $1 million (Matthews 13.11.12 [22.5], CB 307). The payment of $1 million on or about 24 December 2008 was made by electronic funds transfer from the account of Investments to the account of Mandala.
118The minutes purportedly authorising distributions by Comserv on 24 September 2008 and 23 December 2008 were later prepared by BDO following discussions with David (T238, 259-261). No formal resolutions were passed by Investments or Enterprises to authorise corresponding dividend payments, although it is common ground between the parties that Comserv could not have made such distributions without receiving corresponding dividends from Enterprises. The distributions were purportedly ratified by Comserv on 4 September 2009 (CB 341), following discussion between David and BDO (T239).
119David's evidence in cross-examination was that he thought at the time the payments were a distribution, but they were going to be characterised initially as a loan (T219); he did not turn his mind to the question of payment of tax by Investments or Enterprises (T220) and neither company had paid tax on that dividend because it stands as a loan (T221); and he considered the 2008 payments to be loans to Ian and he had not sought repayment of the $1 million and did not know whether he intended to seek repayment of that loan (T222-223). David accepted a suggestion put in cross-examination (T219) that what probably happened in 2008 was that he said to Ian
"You can have the money and the lawyers and accountants can work out how we will characterise it later"
David's evidence, under cross examination by Mr Fernon (who appears for Ian), was also that his earlier affidavit evidence that the 2008 payments were distributions to Ian was given on the basis of the resolutions of Comserv to that effect (T238) and there were no other resolutions that he is aware of concerning the payments of $50,000 or $1 million to Ian (T239).
120Ian's evidence is that, in mid 2008, he requested a further $50,000 payment by reason of financial difficulties and David agreed that such a payment should be made (Ian 8.11.12 [120]). Ian's evidence is that he did not notice the entries in Investments' 2009 accounts referring to a loan of $1,050,000 for 2009 and he understood those monies had been paid to him by the Ledir Trust rather than by Investments. His evidence is that he did not know why that amount was reduced in the financial records of Investments to $923,951 in the accounts for 30 June 2010 and that he has no recollection of any conversation in which he agreed to those amounts being recorded as a loan in the accounts of Investments or agreed that they would be repaid by him; that he had received no document recording any terms of the alleged loans; and had received no demand from Investments for repayment of those amounts. Ian's evidence is also that he has no recollection of any conversation in which he agreed that the amounts that he received should be repaid by him (Ian 8.11.12 [166]).
121Ian conceded in cross-examination that the $1 million received in December 2008 would (or should) have been included in his 2009 tax return if it was a dividend and, if franking credits were not available, he would have had to pay tax on the $1 million if it was a dividend (T311). (This concession may have been wrongly given if the payment was properly treated as made to Mandala rather than to Ian personally). Ian also conceded that he had not paid tax on the $1 million in the 2009 tax year because, he claimed, he was under the impression he did not have to. Ian's evidence on cross-examination was also that he does not remember what was said about the character of the $1 million in 2008 and, although his feeling was that it was said to be a distribution, he is not sure (T313). Ian's evidence in cross-examination was also that he did not recall one way or the other whether there were any formal meetings in December 2008 as directors of Investments to declare a dividend to Enterprises or as directors of Enterprises to declare a dividend to Comserv (T314).
122Ian contends that it must follow as a matter of necessary implication from the resolutions purportedly authorising a distribution by Comserv as trustee of the Ledir Trust that there was a corresponding dividend from Investments to Enterprises and from Enterprises to Comserv. Ian also contends that the Court should infer that that there was a meeting of minds of David and Ian, sufficient to give rise to informal resolutions of the directors of Investments and Enterprises to approve such dividends. Ian relied on the proposition that directors could make decisions informally and by a "meeting of the minds": Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756 at 758; Roden v International Gas Applications (1995) 125 FLR 396; 18 ACSR 454. On the other hand, in Poliwka v Heven Holdings Pty Ltd (1992) 7 ACSR 85 at 90-91, Anderson J noted that, while latitude is given to directors of private companies in relation to the formalities that should attend their corporate activities, a directors' meeting would require at least an intention that an occasion be a directors' meeting and an awareness by the relevant persons that they were concurring in the management of the company's affairs. In my view, the evidence does not establish that David and Ian turned their minds to the question whether there should be a dividend paid by Investments to Enterprises and by Enterprises to Comserv or the amount of such a dividend or any of the associated issues (such as the tax implications of such a dividend) so as to give rise to such a corporate decision and plainly no consensus was reached as to that matter.
123There is also a difficulty with both meetings of directors of Comserv held on 24 September and 23 December 2008, in that Ian is recorded as attending both meetings as Ethel's attorney, whereas a director's responsibilities cannot be discharged by a person acting in that capacity: Mancini v Mancini [1999] NSWSC 799 at [30]-[31]. The meeting of directors was therefore invalid if the quorum for the relevant directors meetings was two directors. The articles of association of Comserv (CB 7) adopted Table A to the Companies Code and did not exclude clause 57 of Table A, which provided that the number of directors is to be determined by the subscribers to the memorandum of association. David and Ian contend that there is no evidence that a minimum number of directors was set for Comserv and David was therefore entitled to act as its sole director at those meetings. I do not accept that submission since, even if no minimum number of directors was set, both David and Ethel were directors of Comserv at the relevant time, so it was not a single director company. Article 73 of Table A, which is also not excluded by the articles, in turn set a quorum of two for a directors meeting which would not be satisfied in respect of the meetings in September and December 2008. Accordingly, I find that those meetings did not validly authorise the payment of the relevant distributions. No application was brought by David or Ian to seek to validate those distributions under s 1322 of the Corporations Act. I will return to a later purported ratification of the distribution by a meeting of the directors of Comserv in September 2009 below.
124There is other evidence that would support a characterisation of the 2008 payments as loans to Ian rather than as distributions from the Trust. The 2009 accounts of Investments (CB 321) record a liability by Ian to Investments of $1,050,000 and the 2010 accounts of Investments (CB 368; Matthews 13.11.12 [22.2]) record that the liability described as "Ian Aboud 2009" has reduced, but a new liability described as "Ian Aboud 2010" is recorded. It appears that these accounts are consistent with what would have occurred had a loan agreement complying with Division 7A of the Income Tax Assessment Act been entered into, with the 2010 amount corresponding to the amount which would have been due for repayment in the 2010 year on that basis. The recording of the payments as loans in the accounts of Investments for FY09 and FY10 significantly postdated the making of the payments, since those accounts were apparently prepared in May and June 2011. Mr Matthews of BDO, the Ledir Group's accounting advisers, accepted in cross-examination that, when BDO was reviewing the 2008 payments of $50,000 and $1 million, after they had occurred, Enterprises had no franking credits and the payments would have been subject to tax in the hands of the recipient of they were a dividend and his understanding was that the payments were a loan (T243). Mr Matthews also accepted that the accounts for the 2009 year recorded loans to Ian of $50,000 and $1 million and that was his view of the correct accounting treatment (T245). Mr Matthews also noted that there were calculations and figures in the accounts consistent with the amount of $1 million being a loan within Division 7A of the Income tax Assessment Act (T245-246). Mr Matthews' evidence was also that Enterprises did not have franking credits so if the money was treated as a distribution it would be fully taxable, and treating it as a loan made in non taxable but created an issue under Division 7A, and he was not aware of any transaction or documents recording a Division 7A loan (T261-262). A Division 7A loan repayment schedule for Ian (Ex P8) calculates the opening balance of $1,050,000 and the minimum payments and principal reductions were the loan to comply with Division 7A. A BDO working paper for Investments in turn also undertakes calculation on the basis of a Div 7A loan for the 2011 year (Ex P9). The weight of Mr Matthews' evidence is reduced by the fact that he had no direct involvement in the preparation of the relevant accounts although he had some responsibility for them (T249-250).
125Rosemary contends that the distribution contemplated by the resolutions purportedly passed by Comserv in September and December 2008 did not occur because Investments did not resolve to pay, and did not pay, the relevant money to Enterprises; Enterprises did not resolve to pay, and did not pay, the money to the Ledir Trust, and ultimately the Ledir Trust did not distribute the money to Ian. It does not seem to me that the 2008 payments by Investments to Ian can properly be characterised as trust distributions from the Ledir Trust to Ian. First, there were no board resolutions by David and Ian as directors of Investments or Enterprises to either pay dividends or make loans by Investments to Enterprises or by Enterprises to Comserv to fund those distributions. Second, the evidence to which I have referred above indicates that David or Ian did not then reach any consensus as to how the payments would be funded by Investments or Enterprises, whether by payment of dividends or inter-company loans or how any tax arising from them would be funded. I have found that informal board decisions to pay dividends by Investments and Enterprises were not established, for the reasons noted above. It does not seem to me that the payment made directly by Investments to Ian or Mandala, in the absence of any applicable board decision by Investments, can take its character from the then resolution by Comserv, which was in any event ineffective for the reasons noted in paragraph 123 above.
126It also does not seem to me that the 2008 payments by Investments to Ian can properly be characterised as a loan from Investments to Ian, whether for the purposes of Division 7A of the Income Tax Assessment Act 1997 (Cth) or otherwise, because David and Ian, as directors of Investments, did not either pass a resolution or reach any consensus to that effect, and the later characterisation of the transaction in that way by Investments' accountants, and in Investments' accounts, does not seem to me to be sufficient to support that characterisation where it has not in fact been adopted by Investments' directors (although I recognise that Ian signed the relevant accounts) and, indeed, Ian continues to reject that characterisation. Any treatment of the 2008 payments as a loan within the meaning of Division 7A of the Income Tax Assessment Act is not supported by contemporaneous transactional documents, including a written loan agreement as required by that Division (T239, 252, 261). Where there was no corporate decision of Investments to make a loan to Ian, whether formally by the board of by a meeting of minds of the directors, including in respect of the approval of Investments' accounts, the description of the payments as loans in Investments' accounts cannot alter the substance of the transaction: Temples Wholesale Flower Supplies Pty Ltd v Commissioner of Taxation (1991) 29 FCR 93.
127David and Ian also rely on a meeting of the directors of Comserv held on 4 September 2009 attended by David and Ian (purportedly in his capacity as a director of Comserv) which ratified the making of various distributions, including the interim distributions of $50,000 paid to Ian on or about 24 September 2008 and $1 million paid to Ian on 23 December 2008. A preliminary issue arises as to whether Ian had been validly appointed as a director of Comserv so as to vote in that resolution.
128Ian's evidence is that his solicitors sent him an email on 1 September 2009 attaching draft ratifying resolutions to be passed by Comserv as well as a consent for him to act as a director of Comserv, that he signed the consent to act as a director on that date in that form and caused his solicitors to send that consent to David's solicitors, and that it was contemplated that David's solicitors would notify Ian's solicitors when he was appointed as a director of Comserv. There is no evidence that he was notified of such an appointment. David's evidence is that, to the best of his recollection, he signed a resolution appointing Ian as a director of Comserv prior to 4 September 2009 which was the date on which Ian and David met at the Guardianship Tribunal and passed the ratification resolution (David 13.6.2013 [3]-[6]). There is contemporary correspondence reporting a statement made by Ian's and David's solicitors to the Guardianship Tribunal in September 2009 that Ian had been appointed as a director of Comserv (although I recognise and proceed on the basis that letter was subject to a limitation under s 136 of the Evidence Act 1995 (Cth) that it was not proof of the disputed facts).
129The minutes of Comserv of 4 September 2009 proceed on the basis that such an appointment had occurred and it would be surprising if David and Ian had proceeded with passing such a resolution, without David first taking the simple step of appointing Ian as a director so that that resolution would have effect. A director of Comserv may appoint a person to fill a casual vacancy or as an addition to the existing directors (Article 3, CB 7) and David had power to make that appointment by that date on the basis that Ethel lacked capacity to act as a director by at least that date (which is consistent with the orders then made by the Guardianship Tribunal) and was automatically removed as a director, leaving David as the only remaining director and entitled to appoint Ian to fill a casual vacancy. On the other hand, the signed resolution for that appointment was not produced in original or copy form; that appointment was not notified to ASIC; and a company search for Comserv as at 8 November 2012 records its current directors as David and Ethel (CB 407); and that record is prima facie evidence of the matters contained in it.
130On balance, although with real hesitation, I consider that the prima facie evidence of the identity of the current directors of Comserv is displaced by the evidence as to Ian's consent and David's recollection that he had appointed Ian as a director of Comserv, notwithstanding that the signed resolution for the appointment was not produced and that appointment was not notified to ASIC when it occurred. No point was taken by Rosemary that such ratification, had it occurred, could not be effective by reason of any issue as to retrospective ratification of the kind noted in NM Superannuation Pty Ltd v Hughes (1992) 27 NSWLR 26; (1992) 7 ACSR 105 and Showa Shoji Australia Pty Ltd v Oceanic Life Limited (1994) 34 NSWLR 548 and, accordingly, it is not necessary for me to consider that question. I therefore proceed on the basis that the payments of $50,000 and $1 million were ratified by the resolutions passed by Comserv in September 2009, at least so far as they had the character of distributions from the Ledir Trust to Ian. However, a ratification by the directors of Comserv of those payments - which were in fact made by Investments, not by Comserv - does not seem to me to permit a payment which was, at the relevant time, neither a dividend nor a loan by Investments to Ian to be later treated as having a different character, or to have any effect on the question whether there was a breach of duty by the directors of Investments or Enterprises in respect of the transaction.
131I turn now to the question whether the 2008 payments amounted to a breach of the pleaded duties under ss 180 and 181 of the Corporations Act. I have held above that Rosemary's pleading of the breach of s 180 of the Corporations Act was sufficiently wide to raise a challenge both to the fact of the payments and the process by which they were made, to the extent that a distinction can be drawn between the two. In submissions in reply, Rosemary attacks the process adopted for the making of the 2008 payments, submitting, inter alia, that no care was taken properly to record the character of the payment. That submission has real force so far as there was an absence of documentation of, or indeed consideration of, the character of the payments made by Investments and (to the extent that Enterprises had a notional involvement in the transaction) Enterprises. In my view, the 2008 payments by Investments to Ian involved a breach by David and Ian of the statutory duty of care under s 180 of the Corporations Act owed by them to Investments, by reason of their failure to give adequate consideration to the nature of the transaction, how any applicable tax was to be paid, or whether the transaction was in the interests of Investments. Even in the context of a family group, a director of Investments who exercised his or her powers and discharged his or her duties with the degree of care and diligence which a reasonable person would exercise in those circumstances would have had to address those matters before authorising the relevant payment by Investments.
132The payment of the amounts to Ian, without proper consideration of the matters noted above, seems to me necessarily to involve a failure to act for proper purposes in contravention of s 181 of the Corporations Act. In particular, David or Ian did not then turn their minds to the interests of Investments or Enterprises as its shareholder. Their evidence goes no further than that Ian asked for or David offered substantial amounts of money to Ian, which were paid by Investments to Ian without a directors' meeting of Investments, further discussion between the directors or any consideration of Investments' interests in respect of whether such a payment should have been made. In my view, David's and Ian's failure to give any real consideration, in their capacity as directors of Investments and Enterprises, to whether to make the 2008 payments was a matter of substance. The fact that the only relevant decision was made in respect of Comserv meant that they did not give separate consideration to the interests of either Investments or Enterprises or their respective shareholders. In my view, it was also not a proper purpose of Investments to confer a substantial gift on Ian, who was not a shareholder, where the relevant payments were neither a dividend by Investments to its shareholder nor a distribution from the Trust or a properly authorised loan to Ian, for the reasons that I have noted above.
133It does not seem to me that the result would differ, where a subjective or an objective test were applied in respect of the proper purposes requirement under s 181 of the Corporations Act. For the reasons noted above, it may have been open to David and Ian to form a view in 2008 that a distribution or further loan could properly have been made by Investments to Enterprises, and by Enterprises to Comserv so as to fund a further distribution or loan from the Trust. Comserv, in its capacity as trustee of the Ledir Trust, would then have had to form a view as to the persons to whom any such distribution or loans should be made and the amount of any such distributions or loans. That did not occur since, whether formally or informally, David or Ian did not in fact give any, or any proper, consideration to the interests of Investments, or Enterprises as its shareholder, in determining whether to make the further payments to Ian or their amount or their basis.
134David contends that the making of the 2008 payments would not then have prevented a further distribution to Rosemary of the amount to which she claims to be entitled on a winding-up. Even if that proposition were established, it does not provide affirmative justification for the conduct of David and Ian as directors of Investments in permitting that payment to be made without any consideration of the matters to which I have referred.
135It seems to me that Rosemary has also established that the relevant payments by Investments to Ian or Mandala were unauthorised, in that there was, for the reasons noted above, no resolution of the directors of Investments authorising them and no meeting of minds of those directors as to the matters which would be necessary to give rise to an informal authorisation of those payments.
136David and Ian rely on a ratification by Enterprises of their actions as directors of Investments, which occurred in the course of the hearing. I do not find it necessary to determine whether that self-interested ratification would be effective in respect of any breach of fiduciary duty since the pleaded fiduciary duty was not established. It does not seem to me that a subsequent ratification would be effective to extinguish an earlier breach of statutory duty: Macleod v R [2003] HCA 24; (2003) 214 CLR 230 at [30]-[34]; Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507; (2005) 53 ACSR 208 at [32]; Krecichwost v R [2012] NSWCCA 101; (2012) 88 ACSR 339 at [81]. In particular, where the relevant breach was the payment of a substantial amount of money to Ian, without consideration of the matters noted above, a subsequent ratification does not deprive the earlier payments of their character as payments not made, at the relevant time, for a proper purposes, and that is sufficient to establish the relevant breach.
137Rosemary also pleads (5FAS [67A]) further breaches of directors' equitable, fiduciary and statutory duties if the 2008 payments were made directly to Ian by Investments without passing through Enterprises as dividends paid by it. This characterisation contemplates a direct payment by Ian to Investments without Enterprises' involvement, and is consistent with the findings I have reached above that the 2008 payments were neither a distribution from the Comserv trust nor a loan by Investments to Ian. I have held that that transaction gave rise to a breach of the duty of care and diligence and the proper purposes duty under ss 180 and 181 of the Corporations Act for the reasons noted above.
138Alternatively, Rosemary pleads breaches of directors' equitable, fiduciary and statutory duties if an alleged "recharacterisation" of the Ian Aboud 2008 payments (pleaded in 5FAS [57A]) as loans to Ian by Investments is found to be the true characterisation. This pleading is in turn supported by lengthy particulars. In her written submissions, Rosemary submits that, if the payments made to Ian in 2008 were loans, they were imprudent and not for a proper purpose, as follows:
"The Ian Aboud payment, if a loan, was an improvident one and for no purpose of Ledir Investments. (If it was a dividend from Ledir Enterprises, a further breach arises in that there has been a lack of care and diligence of the directors in relation to the taxation liability which will arise in Ledir Enterprises.)"
139This submission relies on the proposition that, Rosemary contends, Ian would not have had sufficient assets to repay the loan. I do not consider that the payments to Ian can properly be characterised as a loan to him. It is not strictly necessary to address the lengthy and somewhat discursive particulars provided to the pleading, since they cannot expand the pleaded allegation. However, I would not have found the suggestion in the particulars that any "subsequent characterisation" of the Ian Abound 2008 payments as loans by Investments was in substance a forgiveness or compromise of a prior breach of fiduciary duties to be established, if the payments were properly characterised as loans. So far as the particulars repeat the allegations in respect of the "scheme", I address those allegations below.
140Rosemary then pleads (5FAS [67B]) that the Ian Aboud 2008 payments were not authorised by Investments, because they were authorised by David and Ian wrongfully acting as directors to Rosemary's exclusion (5FAS [48A]). That claim cannot succeed as pleaded, because I have held that Rosemary ceased to be a director of Investments in December 2006 by the operation of article 64 of its articles of association and Ian was properly appointed as a director of Investments.
Lawyers' payments
141Rosemary pleads that the Lawyers Payments (as defined) also involve a breach of fiduciary duties (5FAS [64], [65]) a breach of statutory duties (5FAS [65]) and were unauthorised (5FAS [65A]). In her written submissions, she also submits that:
"The Lawyers payments were not for the purposes of the companies. They were for the sectional purposes of David Aboud and Ian Aboud."
142In particular, Rosemary attacks a payment of approximately $44,232 made by Investments to David to reimburse him for an amount previously paid by him to his solicitors (5FAS [51(a)]); two further payments by Investments to David's solicitors (5FAS [51(b)-(c)]); and other payments made to those solicitors and one payment to Ian's solicitors (5FAS [51(i)]). Rosemary alleges that these payments were procured by means of the control that the directors of Enterprises had of other companies in the Ledir Group, that they were not for any purpose or proper purpose of the companies in the Group and that they were for the furtherance of the purposes of Ian and David pleaded at 5FAS [44] and were also within the allegedly oppressive conduct.
143I have referred above to the several proceedings between the parties. Rosemary contends that none of those proceedings were company business and notes that Enterprises and Investments were not party to any of the proceedings. Rosemary contends that those payments support claims for oppression and breach of directors' duty because David and Ian caused Enterprises or Investments to pay their legal fees for those private actions out of company assets. Rosemary also criticises the manner in which copies of invoices were redacted by David and his solicitors when produced. I do not propose to address the latter criticism, which seems to me to be collateral to the substantive issues in the proceedings and a matter that the parties should properly have addressed in the interlocutory stages of the proceedings.
144In his further supplementary affidavit, David acknowledged that $15,274.44 out of the amount of $44,252.18 that was reimbursed to him (5FAS 51(a)) related to legal services provided in relation to the FPA proceeding and indicated that he proposed to reimburse Investments for that amount (David 13.6.2013 [8.1], [11]). David was unable to identify in cross-examination how the amount of $15,274.44 was calculated (T164). David's evidence was that a further amount of $25,161.87 paid in respect of the final bill of four bills comprising the payment made to David's solicitors on 17 April 2007 related to the first Guardianship Tribunal Proceedings and that he also proposed to reimburse Investments for that amount (David 13.6.2013 [[10.1], [11]). It appears those reimbursements have now been made. No such offer is made in respect of those portions of the three bills that did not, on David' evidence, relate to either the FPA proceedings or the Guardianship Tribunal proceedings.
145David initially accepted in cross-examination that it was an "error" for Investments to have reimbursed him for the costs of the FPA proceedings (T165) and that it was also an "error" for Investments to have paid for the costs of the proceedings in the Guardianship Tribunal up to March 2007 of $25,161.87 (T165). David was then unable to identify any relevant distinction between the first and second Guardianship Tribunal proceedings (T166) and he then suggested that he may have been hasty in offering to repay the $25,274.44 (T167) paid by Investments relating to the first Guardianship Tribunal proceedings. David did not accept an obligation to pay back further costs of Guardianship Tribunal proceedings in April 2007 on the basis he had too readily agreed to repay the $25,274.44 (T168) and his evidence was that he would not pay back any more money in relation to further costs from the first Guardianship Tribunal proceedings or the second Guardianship Tribunal proceedings unless ordered to do so by the Court since he had received different advice since he swore his affidavit the previous weekend (T168-169). David's evidence, in answer to a question from the Court, was that his role and Ian's role in respect of the Guardianship Tribunal was a matter relating to the affairs of Investments and Enterprises but Rosemary's role was "one of selfishness" and was not the same as his or his brother's (T232). I do not consider this subjective and self-interested assessment of the merits of the respective parties' positions provides a rational basis to treat some but not all family members' participation in those proceedings as relating to company affairs.
146David also gave further evidence that he would also repay several additional amounts paid by Investments to David's solicitors totalling $6,256 which relate to the Protective List proceedings (David 17.6.2013 [17], [19], [22]). David conceded that he should not have caused Investments to pay for the Protective List proceedings, because it was not company business. However, he could not explain what the difference was between the Protective List proceedings (as to which that concession was made) and the Guardianship Tribunal proceedings (as to which that concession had implicitly been made as to the first proceedings and then withdrawn as noted above) in this respect (T171). He then said he may also have been in error in agreeing to repay the costs referable to the Protective List proceedings (T172). David also identified several other relatively small amounts paid by Investments to his solicitors that he indicated he would reimburse, being an amount of $299.75 relating to his father's estate (David 17.6.2013 [25]), an amount of $201.30 relating to the grant of probate (David 17.6.2013 [29]), an amount of $536.80 relating to a "personal matter" (David 17.6.2013 [44]) and an amount of $201.30 relating to another personal expense (David 17.6.2013 [54)]. David otherwise supports the payment of the other solicitors' Invoices on the basis that they related to the company affairs of the Ledir Group. David had considerable difficulty, in cross-examination, in articulating a coherent position as to the basis on which payments were properly made by Investments in respect of earlier proceedings. For example, he adhered to the view that costs referable to the second Guardianship Tribunal case were properly payable by the companies, but did not articulate any better reason for that position than that he had previously taken that view, and had not been advised otherwise (T175).
147A bill totalling $66,789.45 issued by Ian's solicitors for unsuccessful proceedings brought by Ethel (by Ian, as her tutor) seeking to recover furniture retained by Rosemary from Montoro was also paid by Enterprises or Investments. David's affidavit evidence concerning this invoice is only that, to the best of his recollection, it relates to legal services provided to Ian. Ian accepted in cross-examination that none of the companies within the Ledir Group was party to those proceedings and they were not company business, although contending that they were part of a complex litigation that sought to resolve the issues that the family faced (T320). I do not accept that proceedings brought in Ethel's name against Rosemary in respect of furniture from Montoro would have assisted in a resolution of wider issues, to the extent those wider issues involved Enterprises or Investments. Ian also accepted in cross-examination that he did not consider whether it was a proper exercise of his duty as a director to have Enterprises or Investments pay for the litigation that he commenced as tutor against Rosemary in connection with his mother's furniture (T321).
148David submits, first, that there was no breach of duty in respect of the expenditure of monies by Investments towards his costs of the FPA proceedings and the Guardianship Tribunal proceedings because, in summary, there was a history of use of company funds to pay family-related expenses and Rosemary herself had spent funds on legal expenses in the 12 month period to September 2005. I do not accept this proposition. The fact that Rosemary applied company funds to personal legal expenses may have amounted to a breach of directors' duty on her part, if that was either not properly reflected in a loan account with the relevant company or not authorised by the directors or the body of shareholders, but that would not exclude a corresponding breach by David in taking the same course.
149David submits, second, that the FPA proceedings involved matters relating to the Ledir Group, including an attempt to challenge the 1 April 2002 amendments to Enterprises' constitution as a prescribed transaction. I do not accept that proposition, because the true interests at stake in the FPA proceedings were those of family members; Enterprises itself had, for example, no corporate interest in defending the April 2002 restructuring, if there was a dispute between its shareholders as to its validity; and, in any event, the FPA proceedings primarily involved issues in respect of the New Zealand Trust rather than the April 2002 restructuring.
150David submits, third, that the Guardianship Tribunal proceedings involved matters relating to the guardianship of the sole voting member of Enterprises, Ethel. I also do not accept that proposition, because the fact that proceedings involve a shareholder in a company does not mean that the company itself has an interest in them. While the question of the validity of the power of attorney granted by Ethel to Ian would, no doubt, have practical consequences for the management of Enterprises' affairs, it does not follow that Enterprises itself had an interest in whether one or other of its shareholders prevailed in a challenge to its validity. The fact that Enterprises was directed to produce documents relating to the Ledir Group in the second Guardianship Tribunal proceedings, or that those proceedings might also have indirect implications for the control of the Ledir Group, also does not seem to me to establish that Enterprises had a proper interest in paying the legal costs of one but not both of its shareholders involved in those proceedings.
151It appears that legal costs have also been incurred in respect of questions relating to the distribution of assets of the Ledir Group; notwithstanding the challenge to the propriety of the particular distribution made, it seems to me that those costs are properly incurred by Enterprises, including in respect of any advice obtained as to Enterprises' role in respect of any disposition or transfer of Adair to David.
152Rosemary accepted in opening that any challenge to the costs incurred by Enterprises or Investments may depend on the outcome of the proceedings and David also drew attention to provisions in Enterprises' articles of association that will allow him a right of indemnity against Investments in respect of the costs of these proceedings in certain circumstances. Rosemary accepted, in submissions in reply, that the legitimacy of the payment of the costs in respect of these proceedings will depend upon their outcome and she acknowledged that David may have a claim, under Enterprises' articles of association to indemnity, if judgment is given in his favour. There is at least arguably a basis for Enterprises or Investments to incur costs in defending the oppression proceedings, where relief was sought against it including orders amending its constitution, an order that it be wound up and an order that it indemnify Rosemary in respect of legal costs, and where Enterprises and/or Investments was required to give discovery in the proceedings and was issued several notices to produce in the course of the proceedings, including in the course of the hearing.
153In my view, Rosemary has established a claim for breach of s 181 of the Corporations Act by David and Ian to the extent that Investments and Enterprises made payments to David's solicitors in respect of the two Guardianship Tribunal proceedings and the Protective Division proceedings and to Ian's solicitors on respect of the proceedings seeking to recover furniture at Montoro, other than for legal services provided in respect of a direct involvement in the proceedings such as production of documents on their behalf). The extent of that breach and the amount of any compensation recoverable may ultimately require a detailed scrutiny of particular attendances recorded in the invoices to determine whether or not those attendances related to a direct involvement of the companies in those proceedings. I do not consider it necessary or appropriate for me to undertake a review of individual attendances in those invoices to reach the finding that I have reached above. If a review of invoices or such attendances is necessary for the purposes of relief, than I will, subject to hearing from the parties, refer that question to a referee so that scarce Court time and resources are not diverted to that exercise, particularly where the parties have not led evidence in a form that would assist in its efficient determination.
Application of franking credits
154Rosemary also pleads that the application of franking credits to distributions made to David and Ian was a further detriment to Investments and Enterprises and a benefit to them (5FAS [61A] - [61C]). Rosemary clarified that claim in her submissions in reply, with effect that she:
"do[es] not claim that using franking credits per se was unfair. The unfairness arises from the extent to which they were appropriated to the dividend payments which ultimately reached Ian and David and which were themselves unfair."
155David agreed in cross-examination that the franking credits he received in 2007 and thereafter were of benefit to him (T215) and that the benefits in the Ledir Group available to be distributed to all the shareholders as at the date he and Ian became directors included both cash and franking credits (T215). He accepted that he received the benefit of franking credits on amounts paid to him as recorded in his 2008, 2009 and 2010 tax returns (T216). Ian also accepted in cross-examination that the franking credits of about $709,000 claimed in his 2008 tax return reduced the tax he would otherwise have to pay and that was a benefit received by reason of decisions he made as a director of the Ledir Group (T310).
156This claim seems to me to stand or fall with the corresponding claims in respect of the payments to which the franking credits related. So far as the 2007 distributions from the Trust were concerned, the relevant franked dividends were paid by Investments to Enterprises and by Enterprises to Comserv as I noted above and Rosemary has not challenged the exercise of Comserv's discretion in respect of the distributions from the Ledir Trust. While David and Ian received a large benefit from franking credits in respect of those payments, Rosemary has not established that the payments, and by extension the franking credits associated with them, were a breach of directors' duties for the reasons noted above.
157It may be that an issue arises in respect of franking credits in respect of the 2008 payments to Ian, given the findings that I have reached above in respect of those payments. I will hear the parties in respect of those payments in respect of the question of relief.
Unpleaded claim against Ian for breach of s 180 of the Corporations Act
158In written submissions, Rosemary also sought to develop a claim for breach of s 180 of the Corporations Act against Ian by reason of his lack of active involvement in the affairs of the companies. Ian's evidence was that he relied upon David to seek and obtain the necessary advice as to how assets in the family companies and trusts could be distributed; and that he had little knowledge of the assets of any of the Ledir companies (Ian 8.11.2012 [88]-[89]). Ian also gave evidence that, between the time Ethel came to live with him in September 2006 until she left to move into a nursing home in 2009, he was her full-time carer and he had "little time to think about the business operations of the various Ledir companies" to which he had been appointed as director and, given his lack of prior involvement in those companies and David's long involvement and detailed knowledge of them, he "relied upon and considered it appropriate to rely upon David to arrange for the finalisation of the affairs of those companies and for the ultimate distribution of their assets" (Ian 8.11.2012 [119]).
159In cross-examination, Ian's evidence was that he was not able to be more active as a director because he was Ethel's full-time carer, his business was becoming unworkable, his wife was ill and he had a family to care for, and he also claimed that he was subject to harassment by Rosemary (T296). He acknowledged in evidence that he had left it to David to run the companies after he was appointed as director and was a "passive" director (T296) and had, to the best of his recollection, not done anything else in the affairs of the companies in his capacity as a director in the financial year ended 30 June 2007, other than facilitating the payments made to himself, David, Rosemary and Ethel (T297-298). Ian's evidence was also that he assumed that anything that was done in the name of the companies was done with an appropriate level of care by his brother, lawyers, accountants or other persons responsible (T314).
160It does not seem to me that such an allegation was within Rosemary's pleaded case in 5FAS [65], which was directed to an allegation of improperly authorising certain payments not to an allegation of inactivity as a director of the relevant companies in that or other aspects. There seems to me to be a real prospect that Ian would have conducted his case differently, had this issue been squarely raised by the pleadings, and that the Court should not reach findings against him on this basis where it was not.
Claim for unjust enrichment in respect of 2008 payments
161Rosemary brings an alternative claim on behalf of Investments against Ian in respect of the 2008 payments (5FAS [67C]-[67C.11]). Rosemary alleges that, regardless of whether any breaches of duty by Ian and David are established, the amount of $1.05 million is repayable by Ian to Investments on the basis of one or other of three common money counts. In summary, Rosemary pleads (5FAS [67C.1]-[67C.11]) that: