Solicitors:
Plaintiff: Keypoint Law
First Defendant: McMahons Lawyers
Second Defendant: Uther Webster & Evans
Third Defendant: -
Fourth Defendant: NSW Trustee
File Number(s): 2018/00258352
[2]
On Appointment of Receivers and Managers
Effective management of the third defendant, a corporate vehicle of the Kanjian family, is critically impeded by a fundamental breakdown of personal relationships within the family. The critical division is between the first defendant (the eldest son of the family) on the one hand and, on the other hand, the rest of the family.
The plaintiff (Loris) and the fourth defendant (Sonia) are an elderly married couple, husband and wife respectively.
There are four (adult) children of the marriage. In descending order of age, they are the first defendant (Ken), Victor, Phillip, and Marianne.
By a notice of motion filed in these proceedings (commenced by statement of claim, and made the subject of a statement of cross-claim by the first defendant), the plaintiff seeks orders for the appointment of qualified persons as receivers and managers of the third defendant (or, in the alternative, for the removal of the third defendant as trustee of family trusts and the appointment of the same qualified persons as replacement trustees) so as to permit an orderly conduct of third party proceedings, recently commenced against the company by Senses Northbridge Pty Ltd ("Senses"), affecting the following properties held on trust by the third defendant:
1. land known as 59-67 Strathallen Avenue Northbridge held on trusts known as "the Metropole Trust".
2. land known as 69 Strathallen Avenue Northbridge, held on trusts known as "the Kanjian Family Trust".
The property the subject of the Metropole Trust includes land in Concord Road North Strathfield as well as the land known as 59-67 Strathallen Avenue in Northbridge.
The proceedings instituted by Senses affect each of the properties at Northbridge, one the subject of the Metropole Trust and the other the subject of the Kanjian Family Trust. They do not concern the North Strathfield land.
The third defendant is trustee, not only of the Metropole Trust and the Kanjian Family Trust, but also of a third trust which all parties agree involves no present need for the intervention of the Court.
The parties to the present proceedings are:
1. the plaintiff, the family patriarch.
2. the first defendant, the eldest child of the family.
3. the second defendant, the sole unit holder of the Kanjian Family Trust in its capacity as the trustee of the Vasir Superannuation Fund (of which the fourth defendant is the sole member).
4. the third defendant, the corporate trustee of family trusts which is, and which are, the subject of controversy in these proceedings.
5. the fourth defendant, the family matriarch (now represented by the NSW Trustee as her tutor).
The second defendant is presently under the control of the siblings of the first defendant and, in these proceedings, is a corporate vehicle through which they have expressed support for the plaintiff, as well as for the perceived interests of the fourth defendant.
The share capital of the third defendant comprises two "A" class shares and four "B" class shares. The A class shares are the only shares to which a present entitlement to vote attaches. The B class shares are held by the Kanjian children, one share apiece.
One A class share is registered in the name of the fourth defendant as beneficial owner. The other is registered in the name of the first defendant, ostensibly on trust for the plaintiff by virtue of a declaration of trust executed by the first defendant dated 17 April 1984.
There is a dispute about beneficial ownership of the A class share registered in the name of the first defendant. The plaintiff (the father) claims that he is the beneficial owner by virtue of the declaration of trust. The first defendant (his eldest son) contends that the plaintiff is estopped from requiring him to transfer legal title to the share to the plaintiff.
The plaintiff by his amended statement of claim, and the first defendant by his statement of cross-claim, thus make competing claims to beneficial ownership of the disputed share - and, at shareholder level, management of the third defendant is deadlocked.
Until last year the directors of the third defendant were the fourth defendant (the mother) and the first defendant.
It is common ground that the fourth defendant's mental capacity declined last year. Without opposition, after an independent medical examination of the fourth defendant, the Court made a declaration (under section 41(1)(a) of the NSW Trustee and Guardian Act 2009 NSW) that she is incapable of managing her affairs and, pending debate about the identity of a "suitable person" to manage her estate, appointed the NSW Trustee as receiver and manager of her protected estate.
The NSW Trustee has filed a submitting appearance but, at the invitation of the Court and without any objection by any party, it maintains a watching brief in order to remain aware of developments which may affect the fourth defendant's estate, and to assist the Court.
It is common ground that, by reason of her infirmity, the fourth defendant's office as a director of the third defendant has fallen vacant. It is also common ground that, under the articles of association of the third defendant, the first defendant has power to appoint a substitute director.
The problem with the first defendant exercising that power is three-fold.
First, the deadlock in the third defendant at shareholder level means that any decision made by the first defendant, without the agreement of the plaintiff, to fill the fourth defendant's casual vacancy is likely to exacerbate existing divisions within the company without any assurance of orderly governance of the company going forward.
Secondly, a case sought to be advanced by the plaintiff but contested by the first defendant is that an "agreement for lease" dated 10 May 2018 purportedly entered into with an external party (Senses Northbridge Pty Ltd) was not duly executed on behalf of the company, in the context of which controversy any decision taken by the first defendant to fill the casual vacancy is likely to be the subject of challenge.
Thirdly, the plaintiff (supported by the second defendant) strenuously opposes, although the first defendant with equal force supports, a prospective development of the properties at Northbridge - in respect of which Senses demands, by reference to the agreement for lease, that the third defendant give its consent to lodgement of a development application with the local council.
Senses commenced proceedings in this Court (styled "Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd" and numbered 2018/00390352 in the Equity Division of the Court) in which it seeks orders designed to enforce a claimed entitlement under the agreement for lease to obtain from the third defendant a signed consent to it making a development application. Those proceedings are listed for directions later today in circumstances in which Senses has been pressing for an expedited set of directions with a view to an early determination of its claim.
Disputation within the governance structure of the third defendant means that, in the absence at least of a determination of the contest between the plaintiff and the first defendant about beneficial ownership of the disputed share, no decisions can safely be made on behalf of the third defendant with respect to the "Senses proceedings" without exposing the plaintiff and the fourth defendant (if not also the first defendant and his siblings) to risks of financial loss and ongoing litigation.
Because of beneficial entitlements to the land the subject of the proposed development (held on trust by the third defendant) the financial interests of the plaintiff and the fourth defendant (now a protected person) stand to be particularly affected at a level beyond the internal management of the third defendant whatever decision might be made about the Senses development proposal.
Senses is pressing for an expedited determination of its proceedings notwithstanding that, as management arrangements within the third defendant presently stand, no person interested in the company has unchallenged authority to make decisions on behalf of the company.
This state of affairs (properly characterised as a deadlock in management of the third defendant although focused upon, and emanating from, conflict at the shareholder level) invites the Court's attention.
The fundamental problem with the current state of internal management of the third defendant, and consequently the trusts affected by the Senses litigation, cannot be overcome by permitting the first defendant to fill the fourth defendant's casual vacancy or by any regime of undertakings that might be given by the first defendant short of an undertaking to disclaim the "agreement for lease" under which Senses claims an entitlement.
The breakdown in the relationship between the plaintiff and the first defendant at a personal level appears likely to render it impossible for them to maintain any objective working relationship should they both, for example, be directors of the third defendant.
In my assessment, the only practical means of bringing order to administration of the Metropole Trust and the Kanjian Family Trust (given the third defendant's occupation of the office of trustee in respect of both trusts) is to appoint receivers and managers to the property held on trust, and to authorise them to manage the Senses litigation.
This is a more appropriate course in my assessment than appointment of a receiver and manager to the third defendant (because to do so would affect a third trust, the administration of which the parties agree is in no need of intervention) and a better course than making an order for the appointment of new trustees (which lacks the potential for ongoing control by the Court, if such control be necessary).
Those who seek the appointment of receivers and managers (not merely the plaintiff) should be required to give the usual undertaking as to damages as the price of the appointment. This is necessary, in part, because the first defendant has given a guarantee in support of the third defendant's bank borrowings and he is anxious to minimise his exposure to liability under the guarantee in the event that the bank calls in the third defendant's loans upon characterisation of the appointment of receivers and managers as an event of default.
In my judgment, the plaintiff has demonstrated a serious question to be tried in respect of the beneficial ownership of the disputed share such that an order for interlocutory relief is appropriate, subject to the balance of convenience.
In my judgment, the balance of convenience favours the appointment of receivers and managers to trust property on terms designed to provide reasonable protections to all interested parties, including the interests of the fourth defendant as a protected person.
Appointment of receivers and managers to the two trusts affected also acknowledges that the Senses proceedings affect the two trusts (not merely one), and it is in the interests of the orderly administration of the trusts, no less than the orderly administration of the third defendant, that they be under common management pending determination of the principal proceedings.
The parties presently before me, at the time the plaintiff's notice of motion was the subject of hearing, contemplated that the best way forward, procedurally, after the appointment of receivers and managers was for there to be formulated a separate question about beneficial ownership of the disputed share which could then be the subject of an application for an expedited hearing.
As I was about to deliver judgment on the motion last week, on 21 February 2019, I was invited to make no orders but to adjourn the proceedings until today with a view to settlement discussions taking place. I was given what I understood to be an assurance that the parties would resolve their differences, at least in relation to the Senses litigation, if not in relation to everything, so that the matter might proceed today without the making of orders for the appointment of receivers and managers.
Today I was informed that the parties have had extensive discussions, but they have been unable as yet to come to any form of agreement. The first defendant, in essence, applied for an adjournment today - which I refused because of the need for order to be brought into the affairs of the third defendant and the trusts of which it is trustee in circumstances in which the Senses litigation is looming large on the horizon.
On the last occasion the proceedings were before the Court Senior Counsel appearing for the second defendant (Mr Kelly) expressly confirmed that he had instructions to give to the Court the usual undertaking as to damages on behalf of Victor, Phillip and Marianne.
On the last occasion, confirmed today, the plaintiff, by his Senior Counsel, Mr Condon, gave the usual undertaking as to damages.
On those undertakings, I make orders in accordance with the short minutes of order that have been initialled by me and dated today.
In each of the related proceedings respectively numbered 2018/00150768 and 2018/00258352 I make the following notation and orders:
1. NOTE the orders and notations today made in the proceedings numbered 2018/00258352.
2. ORDER that these proceedings be listed before the Expedition Judge on 8 March 2019 (together with the proceedings numbered 2018/00258352) for directions.
[3]
SHORT MINUTES OF ORDERS (as made)
NOTE that the usual undertaking as to damages is given to the Court by the following persons jointly and severally:
(a) by the plaintiff, Loris Sarkis Kanjian (by his counsel, Miles Condon SC); and
(b) by Victor Kanjian, Philip Kanjian and Marianne Yaghljian (by their counsel, John C. Kelly SC).
Upon those undertakings as to damages, ORDER, until the final determination of these proceedings or further order, that Bradley Tonks and Mark Roufeil of PKF Australia, 1 O'Connell Street, Sydney, in the state of New South Wales ("the Receivers") be appointed jointly and severally, without security, as receivers and managers of all the following property held on trust by the third defendant:
(a) "The Metropole Trust", established by a Deed dated 14 May 1984; and
(b) "the Kanjian Family Trust", established by a Deed dated 21 December 2006.
ORDER, subject to order 4 of these orders, that the Receivers have all the powers set out in section 420 of the Corporations Act 2001 Cth (mutatis mutandis), for the purpose of managing the property of The Metropole Trust and The Kanjian Family Trust pending the final determination of these proceedings or further order.
ORDER, subject to further order, that, in their conduct of the receivership of The Metropole Trust and The Kanjian Family Trust pursuant to these orders, the Receivers are:
(a) AUTHORISED to appear on behalf of the defendant (Sahab Holdings Pty Ltd as trustee for each of the named trusts) in the proceedings styled "Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd" and numbered 2018/00390352 in the Equity Division of this Court, and, in the name of Sahab Holdings Pty Ltd, to defend any and all claims for relief made against the company (Sahab Holdings Pty Ltd) or property of the trusts by the plaintiff (Senses Northbridge Pty Ltd) in those proceedings.
(b) AUTHORISED to indemnify Sahab Holdings Pty Ltd (from the property held on the trusts respectively known as The Metropole Trust and The Kanjian Trust) against liability for costs arising from the conduct of those proceedings in its name.
(c) DIRECTED not to make any claim for relief by way of a cross claim in those proceedings (otherwise than by way of a cross-claim against Senses Northbridge Pty Ltd) without:
(i) the prior written consent of the plaintiff (Loris Sarkis Kanjian), the first defendant (Kenneth Kanjian) and the second defendant (Kanjian Holdings No. 1 Pty Ltd); and
(ii) first giving to the NSW Trustee (as receiver and manager of the protected estate of the fourth defendant and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or
(iii) the prior leave of the Court.
(d) DIRECTED not to compromise those proceedings without:
(i) the prior written consent of the plaintiff (Loris Sarkis Kanjian), the first defendant (Kenneth Kanjian) and the second defendant (Kanjian Holdings No. 1 Pty Ltd); and
(ii) first giving to the NSW Trustee (as receiver and manager of the protected estate of the fourth defendant and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or
(iii) the prior leave of the Court.
(e) DIRECTED not to sell, charge or otherwise dispose of any estate or interest in:
(i) the land held on the trusts known as "The Metropole Trust" (namely, 59-67 Strathallen Avenue, Northbridge and 145-149 Concord Road, North Strathfield); or
(ii) the land held on the trusts known as "The Kanjian Family Trust" (namely, 69 Strathallen Avenue, Northbridge)
without
(i) the prior written consent of the plaintiff (Loris Sarkis Kanjian), the first defendant (Kenneth Kanjian) and the second defendant (Kanjian Holdings No. 1 Pty Ltd); and
(ii) first giving to the NSW Trustee (as receiver and manager of the protected estate of the fourth defendant and as her tutor in these proceedings) not less than seven days prior written notice of an intention to do so; or
(iii) the prior leave of the Court.
(f) AUTHORISED and directed to apply the net income, other than any income received from Senses Northbridge Pty Ltd, derived from The Metropole Trust and The Kanjian Trust, first, towards payment of the Receivers' remuneration proportionate to the income derived; secondly, in satisfying any entitlement Sahab Holdings Pty Ltd may have to an indemnity against liability for costs arising from conduct of the proceedings numbered 2018/00390352 in its name; and, thirdly, as follows:
(i) net income from the property at 59-67 Strathallen Avenue, Northbridge (being the land contained in folio identifiers 4A/305190, 4B/305190 and 1/172561), referred to by the parties as "Sahab 1", shall be quarterly distributed to the plaintiff and the protected estate of the fourth defendant.
(ii) the net income from the property at 145-149 Concord Road, North Strathfield (being the land contained in folio identifier 3/7353), referred to by the parties as "Sahab 2", shall be quarterly distributed to the first defendant, Victor Kanjian, Philip Kanjian and Marianne Yaghljian, with the first defendant's distribution to be paid to Kancorp Pty Ltd as trustee for the Conrad Trust.
(iii) the net income from the property at 69 Strathallen Avenue, Northbridge (being the land contained in folio identifier 1/726736) shall be distributed quarterly to the second defendant as the sole unit holder in The Kanjian Family Trust, in its capacity as trustee of the Vasir Superannuation Fund.
ORDER, subject to further order, that the Receivers be entitled to remuneration calculated in accordance with the rates set forth in Annexure "B" to the affidavit of Bradley Tonks sworn on 19 February 2019.
ORDER, subject to further order, that (for the due administration of The Metropole Trust and the Kanjian Family Trust) the third defendant, as trustee, lend its name to conduct of the proceedings numbered 2018/00390352 by the Receivers pursuant to these orders.
RESERVE to all parties, and to the Receivers, liberty to apply for directions in relation to the conduct of the receivership of The Metropole Trust and the Kanjian Family Trust.
NOTE that the pleadings currently filed in these proceedings comprise:
(a) the plaintiff's amended statement of claim filed 14 February 2019.
(b) the first defendant's defence filed 15 February 2019.
(c) the first defendant's statement of cross-claim (against the plaintiff and the fourth defendant) filed 30 November 2018.
NOTE that there has been no appearance in these proceedings on behalf of the third defendant (Sahab Holdings Pty Ltd), the beneficial ownership of which is the subject of competing claims by the plaintiff (Loris Sarkis Kanjian) and the first defendant (Kenneth Kanjian).
NOTE that by orders made in these proceedings on 14 December 2018:
(a) the fourth defendant (Sonja Kanjian) was declared to be incapable of managing her affairs pursuant to section 41(1)(a) of the NSW Trustee and Guardian Act 2009 NSW.
(b) the estate of the fourth defendant was ordered to be subject to management under the NSW Trustee and Guardian Act 2009.
(c) the NSW Trustee was appointed as receiver and manager of the protected estate of the fourth defendant with all the powers and discretions that it would have if management of the fourth defendant's estate were to be committed to it pursuant to section 41(1)(b) of the NSW Trustee and Guardian Act.
NOTE that the NSW Trustee has consented to act as tutor for the fourth defendant in these proceedings.
NOTE that on 20 February 2019 the fourth defendant (by the NSW Trustee as her tutor) filed a submitting appearance in these proceedings.
ORDER, subject to further order, that the NSW Trustee (as receiver and manager of the protected estate of the fourth defendant and as her tutor) be permitted to participate in the proceedings, as it may be advised, in the interests of the protected estate of the fourth defendant.
ORDER that the second defendant (Kanjian Holdings No. 1 Pty Ltd) file and serve, no later than 7 March 2019, any defence it proposes to file to the plaintiff's amended statement of claim and any cross claim it proposes to file.
ORDER that the plaintiff (Loris Sarkis Kanjian) file and serve, no later than 7 March 2019, any defence he proposes to file to the first defendant's statement of cross-claim.
NOTE that the plaintiff and the first defendant, with no objection by any other party, propose to make a joint application to the expedition judge for an expedited hearing.
ORDER that the proceedings be listed before the expedition judge on 8 March 2019 for the purpose of:
(a) the plaintiff and the first defendant making their application for expedition; and
(b) directions incidental to or consequent upon the determination of that application.
ORDER that the plaintiff, no later than 1 March 2019, file and serve a notice of motion (returnable before the expedition judge on the date identified in order 17 of these orders) seeking an order for an expedited hearing.
RESERVE to all parties liberty to apply, generally, on three days' notice.
ORDER that the plaintiff's notice of motion filed on 18 February 2019 otherwise be dismissed.
ORDER that the costs of the plaintiff's notice of motion filed on 18 February 2019 be each party's costs in the proceedings.
ORDER that these orders be entered forthwith.
[4]
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Decision last updated: 27 February 2019