KARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS

Court of Appeal (NSW)|1997-03-06|Before: Young J, Beazley JA, Handley JA, Per Powell JA, Sheller JA, Powell JA, Beazley JJ

KARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS

SHELLER, POWELL and BEAZLEY JJ 6 March 1997, 27 March 1997 [1997] NSWCA 171

APPEAL AND NEW TRIAL - Points and objections not taken below - Point taken below but trial judge made no express determination - Subsequent proceedings heard on basis of an implied determination in first judgment - Extension of time for fling Notice of Grounds of Appeal - matter returned to trial judge for new trial

The first appellant (Kara Kar) was the trustee of the Kara Kar Employees' Pension Fund, of which the second and third appellants (the Yardys), and the second and third respondents (the Knudsens) were members. Shares in Kara Kar were held by the Yardys and the Knudsens in the ratio of 9:1 respectively. In 1989, Mr Yardy had wrongfully caused $115,000 to be paid out of the fund for his personal use. Subsequently, Mr Knudsen left the employment of Kara Kar and the Knudsens were paid out from the money then in the fund a sum proportionate to their shareholding ratio of 9:1

At first instance Young J held that there had been a breach of trust by Kara Kar in the payment out of the fund of $115,000 for Mr Yardy's personal purposes. His Honour also held that the funds were not held beneficially for the parties in the ratio of 9:1 and that there had been a breach of trust in the trustee indicating that it wished to proceed to a distribution of the remaining funds in that ratio. His Honour referred the matter to the Master for accounting. The Master purported to take an account, and calculated the entitlements of the Knudsens based on that account, after the notional instatement of the $115,000.

At the second hearing before Young J, the Yardys raised the point that there was no evidence that Kara Kar had exercised its discretion as trustee of the fund to make any payment to the Knudsens and thus the Knudsens were not entitled to any payment at all. The Knudsens contended, and Young J that it was not open for that point to be taken at that stage of the proceedings, and that it should have been taken at the first hearing. However, on appeal it was conceded by counsel for the Knudsens that the point had in fact been taken by the Yardys at the first hearing.

The appellant trustee and the Yardys appealed from the second judgment.

(1) (per Beazley JA, Sheller and Powell JJA concurring) The second judgment was interlocutory in nature so that leave was required: Derrawee Pastoral Company Pty Ltd v McConochie (unreported, Handley JA 24 February 1995) applied

(2) (per Beazley JA, Sheller and Powell JJA concurring) The failure of a court to determine a matter properly raised in the proceedings will usually mean that the trial has miscarried

(3) (Per Powell JA, Sheller JA concurring) A proceeding may be so beset with procedural irregularities that the trial will miscarry.

Sheller JA In this appeal I have had the benefit of reading the judgments prepared by Powell and Beazley JJA. I agree with the reasons in both and with the orders proposed by Beazley JA.

Powell JA When, as occurred in this case, the requirements of good litigious practice and procedure are ignored, or, at the least, overlooked, it is almost inevitable that the result will be, not mercy a procedural shambles, but that the proceedings will miscarry. Far from proving to be a departure from, the present proceedings provide a perfect example of, the operation of that "rule".

The proceedings appear to have been beset by irregularities as from the date of their commencement on 17 January 1991. In the Summons which was filed on that date, in which Summons there was sought only orders that Kara Kar Holdings Pty Ltd ("Holdings") be wound up under the provisions of the Corporations Law and that a liquidator of Holdings be appointed - the ground for which order not being revealed in the Summons, but, presumably, being one or other of the matters set out in para(f), para(g) and para(k) of s461 of the Corporations Law - the Plaintiffs were Brookton Holdings No 5 Pty Ltd ("Brookton") and Mr Knudsen, while the Defendants were Holdings and Mr Yardy. As the issued shares in the capital of Holdings were held by Kara Kar Pty Ltd ("Kara Kar') - a company the shares in which were held by Mr and Mrs Yardy - and Brookton - the shares in which were held by Mr and Mrs Knudsen

in the proportions 9:1, the joinder of Mr Knudsen as a Plaintiff was impermissible (Corporations Law s462(2),(5)) while the joinder of Mr Yardy as a Defendant was inappropriate.

While the amendment of that Summons in June 1991 so as to seek an order for the purchase by Mr Yardy of Brookton's shares in Holdings was permissible - since the making of such an order in cases of alleged oppression is provided for in s260(2)(e), s260(5), of the Corporations Law - the inclusion in the Amended Summons of claims on behalf of Mr Knudsen for damages for wrongful dismissal and for orders in relation the superannuation fund was totally inappropriate, first, since it is generally inappropriate to permit what might be called "extraneous claims" to be prosecuted in proceedings seeking an order for winding up (see, for example, Commonwealth Bank of Australia v Western D Engineering Co Pty Ltd (8 August 1994, McLelland CJ in Eq (unreported)) and, second, since, as the latter two claims would not give rise to questions of law or fact which were common to the former two claims, the joinder of Mr Knudsen as a Plaintiff would not appear to have been permissible under the provisions of SCR Pt8 12.

Two further comments might be made about the Amended Summons and the conduct of the parties thereafter, they being:

even if it had been permissible, and appropriate, to join in the Amended Summons the orders sought in relation to the pension fund, the proceedings would thereafter have been defective for want of parties, as neither Mrs Knudsen nor Mrs Yardy, each of whom was a potential beneficiary, was joined as a party; and

since relief was being sought against Holdings in its capacity as trustee of the pension fund, it was no longer appropriate for Holdings, in that capacity, to be represented by the same advisers as had earlier appeared for it and Mr Yardy.

The further amendment of that Amended Summons on 18 March 1994 - which amendment is said to have occurred pursuant to orders made by Young J on 3 March 1994 - did little to improve the position. The first of those amendments involved the deletion of any claim for relief pursuant to the provisions of the

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Powel JA)

Corporations Law, despite which fact Brookton, which no longer had any interest in the proceedings, continued as a Plaintiff. The second of those amendments involved the addition of Mrs Knudsen as a Plaintiff while other amendments included a claim for an order for the payment to Mr and Mrs Knudsen of all sums found to be due to them from the pension fund together with interest pursuant to the provisions of s94 of the Supreme Court Act 1970.

The fact that Brookton was no longer a necessary party to the proceedings appears to have dawned on the advisers for Mr and Mrs Knudsen at some time prior to, or on, 12 April 1994, for it is said that, on that day, Brookton was dismissed from the proceedings. The nett result of the making of that order, coupled with the amendments to the Amended Summons which had earlier been made, was, first, that the proceedings had been reconstituted as to parties, and, second, that the relief which had originally been sought in the proceedings had been totally abandoned.

As recorded in the Judgment which Beazley JA has written, when the proceedings, as so amended, came on for hearing before Young J on 12 and 13 April 1994, his Honour, although making no order for the separate determination of Mr Knudsen's claim for damages for wrongful dismissal, determined that claim in favour of Mr Knudsen; however, his Honour did not determine, even in principle, the claim by Mr and Mrs Knudsen that they were entitled to receive a money sum from the pension fund, and, this, despite the fact that, as Beazley JA teas recorded in the Judgment which she has written, it is conceded that counsel for Holdings and Mr Yardy had submitted that, there being no evidence of any exercise of the discretion conferred on Holdings as trustee of the fund to determine whether to make any payment to Mr and Mrs Knudsen, they had not established that they were entitled to any payment at all.

Despite the fact that Young J did not determine that Mr and Mrs Knudsen had any entitlement to receive a money sum from the pension fund, his Honour expressed the view - seemingly upon the basis that they were potential beneficiaries - that there ought to be a reference to the Master for the purpose of taking accounts (see, for example, Spellson v George (1987) 11 NSWLR 300).

After he had delivered his ex tempore Judgment on 13 April 1994, Young J adjourned the hearing until 6 May 1994 in order to enable the parties to discuss what were the consequences of the Judgment which he had delivered. However, as the parties appear not to have been able to agree, when the matter came again before his Honour on 6 May 1994, he made a number of orders which, as recorded on the Associate's Record of Proceedings, were as follows: -

"Plaintiff (sic) to have liberty to take out NM returnable before the Master to take accounts.

The Plaintiff (sic) is entitled to file a NM before the Master for an inquiry as to what amount should be restored by the Defts to the superannuation funs.

Order tat the Defts pay the Plaintiff's (sic) costs with the proviso that the Deft may move to have this order vacated 6bould it appear in due course that there is some reason connected with Pt22 of the rules for final order to be otherwise.

Liberty to the plaintiff to amend the summons by adding Jennifer Yardy. The amended summons to be filed within 14 days.

If I may, with respect, say so, the orders which his Honour appears to have made in relation to the taking of accounts were most irregular, as well, the order which his Honour made as to costs had consequences which no one, either then, or later, appears to have appreciated.

The orders which Young J made being orders made on a final hearing, it was incumbent upon him to determine, and to declare, what were the parties' rights

as, indeed, he did in relation to Mr Knudsen's claim for damages for wrongful dismissal - or, at least, if the determination of the precise nature, and extent, of those rights was dependent upon inquiries to be had before the Master, to determine and to declare what, in principle, were the parties' rights, to make such orders as were required for the making of the inquiries required of the Master, and, when so doing, to define the nature and purpose of the inquiries, and, if need be, then to reserve further consideration for the purpose of determining what, if any, supplemental orders required to be made in order to give effect to the original decree in the light of the result of the inquiries had before the Master. As is apparent from what I have recorded above, this was not done, so that both the Master and the parties were left to speculate upon and disagree about the nature and purpose of the inquiry.

That these matters ought to have been dealt with in the orders made by Young J on 6 May 1994 is due to the fact:

that the Master has no power to certify matters foreign to the account or inquiry directed (Re Tillett (1886) LR 32 Ch D 639) and a certificate purporting to be made in such circumstances even by the consent of all the parties, cannot be regarded as a certificate; and

the Court will not, on the hearing of further consideration, make an order varying, or impugning, the original decree, even although it would not have given the directions contained in the original decree if at the date of that decree it had known the facts stated in the certificate (Daniell's Chancery Practice 5 Ed 1233); nor will it deal with a matter which should be the subject of a fresh suit (Haviland v McCleary (1894) 15 NSWLR (Eq) 22).

So far as the question of costs is concerned, the position is that, if the decree at the hearing, while reserving further consideration, orders one party to pay the costs of the suit, but does not reserve further costs, the costs of the inquiries in the Master's office, and of further consideration, will follow the decree as to the costs of the suit (Ricketson v Smith (1896) 17 NSWLR (Eq) 209; Goddard v Cole (1902) 2 SR (Eq) 257); in this case, the reservation as to costs made by Young J applied only in the circumstances referred to in SCR Pt22, which part applies to the consequences which flow from the making of offers for compromise.

On 19 May 1994, there were filed on behalf of Mr and Mrs Knudsen a yet further Amended Summons and a Notice of Motion.

The first of these documents was, to say the least, extraordinary, for the reasons:

that although Brookton's shares in Holdings had been acquired by what might be called 'the Yardy interests" at an agreed price prior to the hearing before Young J, there were sought in the yet further Amended Summons, an order pursuant to the provisions of s260(2)(e) of the Corporations Law requiring Mr Yardy to purchase the shares of "the first plaintiff' - who, by this stage, was Mr Knudsen - in Holdings, and an order pursuant to s461(k) of the Corporations Law

that is "the just and equitable ground" - that Holdings be wound up;

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Powell JA)

despite the fact that there was sought an order for the taking of an account of the pension fund, there was no longer sought an order for the payment to Mr and Mrs Knudsen of any sum found to be due to them on the taking of the account.

Although Young J had not directed the taking of an account on a wilful neglect and default basis (as to the distinction between a common account and an account on a wilful neglect and default basis, see, for example, In re Wrighton ([1908] 1 Ch 789) - allegations of wilful neglect and default normally being required to be disposed of at the hearing and not referred to the Master (see Smith v Armitage (1883) LR 24 Ch D 727) - and although Young J had not directed that there be an inquiry as to the sums which Mr and Mrs Knudsen were entitled to be paid from the pension fund, the Notice of Motion sought the following (inter alia) orders:

"2. That an inquiry be held as to whether, and if so what, moneys being assets of the Kara Kar Employees Pension Fund have been lost or misappropriated (including those which have been so found by his Honour Mr Justice Young) and when, and by whom and under what circumstances.

That an inquiry be held as to the sum which the second and third plaintiffs are entitled to be paid from the Kara Kar Employees Fund by the first defendant".

Quite apart from the irregularity involved in seeking such orders in the Notice of Motion, it is quite clear that the parties, or their advisers, were either not aware of, or did not appreciate, the significance of the provisions of SCR Pt49 which deal with accounts inquiries and the like to be taken or conducted under an order made in the Equity Division. The appropriate order to be sought in the Notice of Motion (SCR Pt49 r2) was an order to proceed under Young J's Judgment, it then being open to the Master, on the return of the Notice of Motion, to give all appropriate directions as to the conduct of the proceedings under the order - in the light of what I have earlier written, it will be apparent that it would not be open to the Master on the return of the Motion to delimit the nature of the inquiry and still less to expand its range beyond that provided for in Young J's Judgment.

It would appear that, despite the order made by Young J on 6 May 1994, the Notice of Motion came, not before the Master, but before the Registrar, who, on at least two days, gave directions as to the filing of affidavits and the like.

For some reason which is by no means clear to me, the proceedings appear then to have stalled until June 1995, when, as it would appear, there was filed on behalf of Mr and Mrs Knudsen yet another Notice of Motion, in which Notice of Motion they sought - quite unnecessarily - directions as to the conduct of the inquiry.

That Notice of Motion appears to have come before Young J on 17 July 1995 when his Honour gave the following directions and made the following orders:

"1. I direct that the defendant (sic) within 28 days file a list of payments in and payment out of the trust fund for the period December 1989 to 31 October 1990.

For the purposes of the Master's inquiry the defendants are the accounting parties and the accounts consist of the accounts to 30 June 1990 attached to the affidavit of Phillip Nancarrow of 18 July 1994, plus the statement referred to in order 1.

The inquiry should take place before the Master in the normal way. The exact form of the inquiry is a matter for the Master, but I would envisage that it would involve -

(a) the plaintiffs being at liberty to interrogate the accounting parties, viva voce or in writing;

(d) the trial by the Master of the issues thrown up by the surcharges and falsifications.

Costs of the Notice of Motion of 16 June will be costs in the accounts. I note that all questions of costs including reserved costs may be dealt with by the Master'.

Although the material that is before the Court does not permit one to express a concluded view on the matter, such material as is before the Court rather suggests that what one would have regarded as the conventional procedure for taking an account - which procedure appears to have been envisaged by Young J - was not followed in the present case and the hearing before the Master appears to have proceeded in a manner was unlike that followed on any taking of an account with which I have ever been concerned

Be all this as it may, it is quite dear from the passages from the Master's Judgment which Beazley JA has set out on p 5, p6 of the Judgment which she has written, both, that the Master was unsure of the nature and extent of the account which he was required to take, and, that the parties were unable to agree upon the matter.

Although I would have thought that what I have written earlier would indicate that that stage had been reached much earlier, it is clear that, by this time, the proceedings had completely miscarried.

It would seem that, following the delivery of his initial Judgment on 1 February 1996, the Master entertained a further contested hearing as to what has since been described as the "calculation of pension fund entitlements". Although so described by counsel for Mr and Mrs Knudsen, that hearing as it seems to me, was not a hearing for that purpose, but, rather, was a hearing for the purposes of determining whether, on the basis of certain assumptions, the moneys which had been withdrawn from the pension fund for the benefit of Mr Yardy ought to be treated as having been restored to the fund and redistributed to the accounts of Mr and Mrs Knudsen and, if so, in what amounts. In the event, the Master determined that those moneys ought so to be treated, but, as I read his further Judgment he did not determine - as, indeed, it was not open to him to determine

that the amounts which would stand to those accounts following such an adjustment were amounts to which Mr and Mrs Knudsen were entitled to payment.

As Beazley JA has recorded on p 6 of the Judgment which she has written, when the proceedings came before Young J for further consideration on 24 June 1996, counsel for the Knudsens advised his Honour that the Knudsens sought O3 in the yet further Amended Summons which had been filed on 19 May 1994, that is, an order for the payment by Mr Yardy to the Kara Kay Employees Pension Fund of all moneys found to be due by him to that fund on the taking of such accounts.

This notwithstanding, the transcript record of proceedings also recorded that:

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Powell JA)

"(Counsel for the Knudsen) indicated that the Master found that the entitlement should be assessed as at 28 February 1991 and the entitlements of Mr and Mrs Knudsen were $66,112.00 and $30,306.00 respectively so that the plaintiffs sought those amounts plus interest under s94 and costs of the whole suit."

a statement which, if accurately recorded, not only did not correctly represent what the Master had found, but also indicated that Mr and Mrs Knudsen sought an order which was no longer sought in the yet further Amended Summons.

It is dear from the Judgment which Young J delivered following the hearing before him in June 1996, that his Honour appreciated the limited nature of the orders and directions which he had given following the hearing before him in April 1994, as also is it clear, that his Honour appreciated the very limited nature of the orders which might be made on a hearing on further consideration. That this is so is made dear by the following passages in the second Judgment which his Honour delivered. After referring to the sum of $115,000.00 which had earlier been paid to Mr Yardy, and the fact that, after the delivery of his Judgment, the accountants for the pension fund rewrote the accounts to show that the payment was a loan to Mr Yardy, his Honour continued (inter alia):

"This had the effect of restoring the amount to the accounts (presuming it can be recovered from Mr Yardy) but that merely meant that the moneys were restored to the special reserve.

My earlier reasons for Judgment really did not take the matter further than that. Indeed, it expressed a hope that as the most that the plaintiffs could receive would be less than $100,000.00 the parties could work out the consequences themselves. When an inquiry was ordered, it was as to what amounts should be restored to the fund. As I have indicated, the inquiry before the learned Master took 4 days. It was not anticipated that it could ever take this long. This is no criticism of the learned Master who appears to have approached the matter in his usual efficient way. Rather it was the way in which the parties presented the issues.

The Master made it clear that he made his determination on the basis of adjusting figures of an existing distribution. He then noted that the point had been made that as there had been no exercise of the discretion the plaintiffs were not entitled to any distribution, but indicated that that matter went beyond his inquiry.

In his Judgment of 22 March 1996 the learned Master said because the accounts in 1990 were prepared showing a distribution of the special reserve in a particular way he should assume that there was a distribution of the reserve in that way and merely adjust the figures. He then made the determination that he did.

It should be pointed out that wen further consideration is reserved in proceedings that does not mean that the judge is entitled to review and consider what has been decided by him or her at an earlier hearing. I so held in NSW Egg Corporation v Peek (No 3) - 13 June 1986, unreported, and what I said there was based on the Judgment of Lord Gifford (sic) MR in Le Grand v Whitehead (1826) 1 Russ 309, 311; 38 ER 120, 121.

It was not the practice of the Court of Chancery in these sort (sic) of proceedings and it is not the practice of the Court today to entertain on further consideration questions raised on the pleadings but with respect

to which no direction is contained in the original Judgment: Morgan v Morgan (1850) 13 Beav 441, 446: 51 ER 170 172.

The authorities really do not disclose any other general principle than that there must be a fair trial If a matter has been determined at one step in the proceedings it is determined forever and cannot be reopened. Likewise if a point teas been abandoned d an early step of litigation, it must be treated as having been abandoned forever. Generally speaking, further consideration is reserved to the matters which were the subject of the inquiry which was directed and it is only in circumstances that are out of the ordinary that the Court considers matters which could or should have bees dealt with in the original judgment. Despite what he then wrote his Honour continued:

"The present case is a peculiar one because the original judgment did not really do more than direct that it be worked out how much should come back into the fund. The parties then took the matter further and spent four days of trial time before the Master in having further questions determined as well.

It is really extraordinary for the defendants to say that because of the point, there really should have been no inquiry at all. If in 1994 the defendants really did intend to rely on the point, they should have said so then. The consequence of its success now if upheld would be that the plaintiffs would not be entitled to any more money, but that the defendants would pay the whole of the costs of the inquiry on the (sic) indemnity basis for wasting everybody's time.

However, it does seem to me that the parties have conducted the case before the Master on the base that the Master was adjusting the figures that had been arrived at by Mr Nancarrow in his 1990 accounts in the

light of the fact that an additional $115,000 plus interest bad to be restored to the account.

Thus it seems to me that the point is not one that the defendants can now take. It either should have been taken before me in 1994, or alternatively, the Master's inquiry should not have been permitted for 4 days on the lines it did.

Quite apart from the fact that, as I have earlier recorded, it is now conceded that "the point" was taken on the hearing before his Honour in 1994, as I have earlier recorded, a Master has no power to certify matters foreign to the account or inquiry directed and a certificate purporting to be made in such circumstances even by consent of all the parties cannot be regarded as a Certificate for the purposes of the decree. This being so, it is clear that at this stage, as well, the proceedings completely miscarried and that it was not open to his Honour to make the orders which he did on that day - to complete the litany of irregularities which occurred in the proceedings it needs to be recorded that the Judgment which was entered pursuant to the Judgment given by Young J on 4 September 1996 needed later to be amended in order to give effect to the payments which had been made to the Knudsens from the pension fund prior to the commencement of the proceedings.

Regrettable though it may be, it seems to me inevitable that the orders proposed by Beazley JA for the disposition of the application for leave to appeal and the appeal should be made.

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Beazle9 JA)

Beazley JA The appellants seek to appeal to this Court, either as of right, or by the grant of leave to appeal from a determination of Young J in which his Honour ordered that the respondents were entitled to be paid an amount of approximately $96,000 out of a superannuation fund of which the first appellant (Kara Kar) was the trustee. The matter, however, has an unfortunate history which it is necessary to understand in order to determine the appeal.

Kara Kar carries on business as a trailer manufacturer, wholesaler and retailer. The shares in Kara Kar are held by the second and third appellants (the Yardys) and the second and third respondents (the Knudsens) in the ratio of 9:1 respectively. Mr Yardy and Mr Knudsen were both employees of Kara Karl By a trust deed made 22 June 1979 Kara Kar established the Kara Kar Employees' Pension Fund (the pension fund) to provide benefits for its employees and their dependents. The Yardys and the Knudsens were members of the pension fund. The trust deed was amended on a number of occasions to take account of the taxation law which from time to time governed such funds. In its final form, the terms of the trust were embodied in a Deed of Amendment (the Amending Deed) made on 23 August 1990 to which there were appended a set of Rules which were to "have effect as if set out in the body of [the amending] Deed".

In December 1989, unbeknown to the Knudsens, Mr Yardy had caused $115,000 to be paid out of the pension fund for his own purposes. Subsequently, in September 1990, a disagreement arose between Mr Yardy and Mr Knudsen as to the terms of Mr Knudsen's employment with Kara Kar. On 24 September 1990, Mr Knudsen left that employment.

On 17 January 1991, Mr Knudsen and his company Brookton Holdings No 5 Pty Ltd commenced winding up proceedings against Kara Kar.

On 28 February 1991 payments of $9,012.89 and $3,595.28 were made out of the pension fund to Mr and Mrs Knudsen respectively, supposedly by way of their full and final entitlement as members of the fund. The payments were based on a calculation that assumed there was an agreement between the Yardys and the Knudsens that the pension fund would be distributed on a 9:1 ratio, reflecting the parties' respective shareholding in Kara Kar.

Following this payment, the winding up summons was amended. Mrs Knudsen was added as a plaintiff the winding up proceedings against Kara Kar were abandoned, and Mr Knudsen sought damages for wrongful dismissal and an order for an account in respect of the pension fund. Relief was also sought under the Corporations Law. The summons was further amended shortly prior to the hearing of the matter (the further amended summons), whereby the relief sought under the Corporations Law was abandoned.

The further amended summons was heard by Young J on 12 and 13 April 1994. On the first day of the hearing, Brookton Holdings Number 5 Pty Ltd was dismissal from the proceedings. On 13 April 1994 his Honour gave ex tempore reasons for judgment (the first judgment). Mr Knudsen was successful in the wrongful dismissal claim and was ordered to be paid a sum of money by way of damages. No appeal is brought against that determination. In respect of the pension fund issue, his Honour found that the amounts in the pension fund were not held beneficially for the Yardys and Knudsens in the ratio of 9:1 respectively and further held that Kara Kar had committed a breach of trust, first, in paying out of the pension fund the amount of $115,000 for the personal benefit of Mr Yardy and secondly, in indicating that it wished to proceed to a distribution of the

trust fund in the ratio of 9:1. His Honour did not, however, make any orders in respect of this determination Having found the breach of trust he stated:

"The consequence is that the matter should be referred to the Master for determination."

"The amounts involved are relatively small Even if [the figures]...most favourable to the plaintiffs, are adopted, I think that the fatal sum due to the plaintiffs would not exceed $100,000. There would also be awkward questions - as to interest because interest against the trustee is worked out on a different principle to interest under schedule J to the court rules Although the plaintiffs claim to monies under the superannuation plan looks like a money claim, it is not. It is a claim to have a trust properly administered. On that matter all the beneficiaries have an interest and should be parties. Care must also be taken to ensure that the eligible plaintiff (sic) obtains no greater benefit than he would have obtained had the fund been properly administered. Thus the matter should go to the Master."

However, his Honour stood the matter over to give the parties an opportunity to reach as to how the trust funds should be adjusted and paid out to the Knudsens. The parties failed to reach such agreement. On 6 May 1994, his Honour gave leave to file a notice of motion before the Master. In addition to seeking an account one of the orders sought in the notice of motion was:

"That an inquiry be held as to the sum which the second and third plaintiffs are entitled to be paid from the Kara Kar Employees Pension Fund by [Kara Kar]."

Before dealing with the hearing before the Master, two aspects of the proceedings before the trial judge, which were the subject of comment by his Honour in the first judgment, should be noted. First, Mrs Yardy, who was a member of the pension fund, was not a party to the proceedings. His Honour stated that she should be so joined before any orders were made. This matter was dealt with on 6 May 1994, when his Honour gave leave to join her as a defendant in the proceedings. Secondly, it was not certain during the course of the hearing before his Honour whether the governing trust deed was that of 22 June 1979 or the Amending Deed of 23 August 1990. His Honour made no finding in that regard and it was not clarified until of the hearing before the Master, when it was determined that the Amending Deed was the operative deed. There is now no dispute about that.

The Notice of Motion for an account was heard by the Master over four days in November and December 1995. In his judgment of 1 February 1996, the Master identified the issue before him as "the amount of superannuation payable to Mr and Mrs Knudsen from a superannuation scheme run by [Kara Kar]". The Master returned to the formulation of the issue before him later in his judgment when he stated:

"Tif] one returns to the question of what might be referred to me his Honour seems to be referring to the question of there teeing a breach of trust and that I have to do the calculations to ascertain what should be payable if the trust had been properly administered. This involves certainly bringing back in the

$115,000. It also involves the reversing of the 9 to 1 split to which his Honour refers".

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Beazley JA)

"The problem in the matter is that His Honour did not formulate precisely the terms of the accounting and the parties have not been able to agree on the terms of the accounting which is to be conducted before me. This is because of a number of fundamental differences between them. At one stage I suggested that I should have the whole matter referred to me for decision but the plaintiffs were not anxious for this to happen.

Accordingly I will confine myself to the accounting."

The Master then dealt with the issues he considered were raised by the accounting issue and concluded:

"Bearing in mind that His Honour has reserved further consideration of the matter, it seems to me that I should determine what amount is payable following the allocation of the accounts in the way I have indicated earlier and simply refer the matter back to His Honour. His Honour can then decide whether in fact there has been an exercise of discretion by the defendant which has consequences once accounting calculations are done or whether in fact the matter is looked at afresh to see whether further decisions of the trustee are needed before there is any entitlement to part of the $115,000."

The Master also referred to the provisions of cll1(c) of the Amending Deed which provided for a valid discharge to be given to the trustees in certain circumstances. He noted, however, that the application of that clause was not dealt with in the evidence and was properly within the factual matters dealt with by his Honour. Accordingly, he did not determine that matter.

The amounts determined as payable by the Master were based upon calculations carried out by the accountant for the pension fund and reflected an adjustment of the accounts to the state they would have been in had the $115,000 not been paid out for Mr Yardy's personal purposes. The effect of the calculation done by the Master was that the accounts reflected an entitlement of $66,112 in Mr Knudsen and $30,336 in Mrs Knudsen.

On 24 June 1996 the matter came before Young J for further hearing. Counsel for the Knudsens advised the Court that the Knudsens sought O03 of the further amended summons which claimed

"An order for the payment by the [Yardy's] to the Kara Kar Employees Pension Fund of an monies found to be the by them to that Fund on the taking of such accounts."

The transcript of the hearing on that day reveals that counsel for the parties were at odds as to the effect of the Master's determination. Counsel for the Knudsens submitted that the Master had assessed the entitlements of the Knudsens under the pension fund. Counsel for the Yardys submitted, on the other hand, that the Master had only ascertained the amounts that should have stood in the accounts had the accounts been administered in accordance with the terms of the Amending Deed. He sought to argue that Young J should now determine the entitlement of the parties under that Deed

His Honour delivered judgment on 4 September 1996 (the second judgment). He stated that, in his first judgment, he had found that the Knudsens were entitled to relief in respect of the pension fund "that relief being necessary because [Kara Kar] as Trustee did not bring into account $115,000." He noted that the Knudsens were entitled to an inquiry before the Master to ascertain the amount which should be restored by Kara Kar to the pension fund. He then referred to the Master's determination and dealt with the submission which is at the heart of the appeal. Counsel for the Yardys had submitted to his Honour that, notwithstanding the Master's calculations, the rules of the pension fund provided

for an absolute entitlement to certain benefits and, in the exercise of the trustee's discretion, the provision of certain additional benefits. Counsel had further submitted that there was no evidence of any exercise of Kara Kar's discretion and that without some such evidence the Knudsens were not entitled to any part of the $115,000 which was, in accordance with the Master's account, to be restored to the pension fund.

His Honour, after referring to this submission, stated:

"Thus, the point which I have to decide (which I will simply call 'the point:) is whether, there being no evidence of any exercise of the Trustee's discretion, the plaintiffs are entitled to any payment at all."

Counsel for the Knudsens had argued before his Honour that it was not open for "the point' to be taken or alternatively the Yardys ought not be permitted to take "the point" at that stage of the proceedings, having regard to the way in which the proceedings were conducted before the Master. His Honour acceded to this submission. He stated that the first judgment did not take the matter further than determining that the $115,000 had been removed in breach of trust and that the purpose of ordering the inquiry before the Master was to ascertain what amount should be restored to the pension fund. However, he considered that, because of the way the issues had been presented to him, the Master had gone further and determined "the amount of superannuation payable to Mr and Mrs Knudsen from a superannuation scheme." He held it was not open to Kara Kar and the Yardys to raise the matter at that stage of the proceedings, both because of the way in which the matter had been conducted before the Master, and because Kara Kar and the Yardys should have raised "the point" earlier. Implicit in this ruling was a finding that counsel for Kara Kar and the Yardys had not raised the issue during the first hearing. His Honour held that the Knudsens were entitled "to the sums awarded by the Master, namely $66,112 to Mr Knudsen and $30,336 to Mrs Knudsen." His Honour then made adjustments for interest.

On 27 September 1996, Kara Kar and the Yardys filed a Notice of Appeal from the second judgment, claiming that his Honour had erred in not allowing the "the point" to be raised and contending that his Honour should have found that upon the evidence and a true construction of the Amending Deed, "the point" was well founded and should have been sustained.

On 9 October 1996, the Registrar of the Court of Appeal wrote to the solicitors for Kara Kar and the Yardys, advising them that it appeared that the second judgment involved an interlocutory decision in respect of which leave to appeal was required. Kara Kar and the Yardys then filed a notice of motion seeking a declaration that the appeal in the proceedings be allowed as of right or alternatively that the appeal be allowed by leave. By a later notice of motion dated 19 December 1996, they also sought an extension of time for leave to appeal from the first judgment.

The question whether leave is required in this matter or whether Kara Kar and the Yardys have a right of appeal was initially surrounded by confusion, due, in part, to the manner in which the proceedings were conducted and in part to his Honour's error to which I shall refer shortly. It also arises out of the fact that his Honour considered that the Master made a determination in relation to the entitlements of the Knudsens to the funds in the pension fund. In my opinion, that

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Beazlt$ JA)

is not correct. However, it is clear from the second judgment that his Honour considered the purpose of the hearing before him at that point was to give effect to the Master's determination, which in turn was intended to give effect to the finding in the first judgment that there had been a breach of trust in the payment out of the sum of $115,000. In my opinion, the second judgment is thus properly classified as interlocutory in nature: see Derrawee Pastoral Co Pty Ltd and Anor v McConochie and Anor (unreported, Handley JA, 24 February 1995). That being the case Kara Kar and the Yardys require leave to appeal from-the second judgment. They also need an extension of time to appeal from the first judgment, that being the judgment which finally determined the rights of the parties. Before determining whether an extension of time should be granted, it is appropriate to consider the issues raised on appeal.

Although during the course of the second hearing before Young J, counsel for the Knudsens argued that "the point' had not previously been taken, or alternatively that the proceedings before the Master had been conducted on a basis which precluded them from then raising the issue, it was conceded to this Court that counsel for the Yardys had taken "the point' during the course of the first hearing. Counsel for the Knudsens submitted, however, that even given this concession the Court ought not to extend time for the filing of the appeal. He submitted that it was implicit in both judgments that his Honour had found that Kara Kar had made a determination as to the Knudsens' entitlements to the funds in the pension fund and that this Court should uphold his Honour's finding as both open and preferable on the facts. This submission would have involved the Court embarking upon a determination of the issue raised by "the point". Counsel for Kara Kar and the Yardys also urged the Court to finally determine the substantive issue. He indicated that if the Court was inclined to do so, Kara Kar and the Yardys would abandon any reliance upon the discharge clause in cl 11(c), to which I referred earlier. This approach led the Court being taken to a dose examination of the evidence before the trial judge and in particular to an examination of the accounts. This exercise, whilst done with thoroughness and competence by counsel for the Knudsens, only saved to demonstrate that this Court ought not to embark upon a determination of "the point". In the first place it is inappropriate to proceed on the basis of an implied determination in a judgment. The so called implied determination in this case was an essential matter in the determination of the issues before the Court. A judge is under a duty to make the findings of fact upon which the decision is based and to give reasons for that decision: Pettit v Dunkley [1971] 1 NSWLR 176; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 145. That principle carries with it the notion that the Court's essential findings of fact are to be express. This Court should not, except in an exceptional case, proceed on a basis which does not give full force to that principle. There is also a real danger that on this approach the Court might not fully appreciate or may overestimate the implied determination which it is asserted was made by his Honour. Further, his Honour made no findings of fact from which the Court can determine whether such an implied determination was correct. Nor did his Honour deal with the consequences which flowed under the terms of the Deed from any failure of Kara Kar to exercise its discretion. This could not have been determined, of course, in the first hearing because no finding had been made as to which deed governed the pension fund.

Once it is established that a matter, properly raised in the proceedings has not been determined, or that a party has been denied the opportunity of presenting its case to the court, in whole or in part, and thus denied procedural fairness, then, in the usual course, appellate intervention is warranted. The appellate court may refuse to intervene if the question involved could not succeed or would make no difference to the final orders made by the trial judge. However, if appellate intervention is required, the procedure which the Court adopts will vary depending upon the circumstances. If the trial judge has made all necessary findings of fact relevant to the issue, or there is no dispute as to the relevant facts, or if the question involves a pure question of law, the appellate court may consider it appropriate to determine the matter itself. However, where, as here, the matter does not involve a pure question of law, the trial judge has not made relevant findings of fact, there are factual issues in dispute, and further, it cannot be said that "the point" is hopeless, the court has no option but to allow the appeal and to remit the matter for rehearing, save only for determination of the question, whether the Court, in this case ought to extend time for filing of the Notice of Grounds of Appeal against the first judgment.

The first judgment was delivered almost three years ago. On its face, there has been an extraordinarily long delay in filing the application for leave to appeal out of time. However, this is not a case where a party merely sat by and did not seek to press its rights. During the whole of the time since the first judgment, the parties have been engaged either in negotiations (prior to seeking the account before the Master) or involved in proceedings which flowed directly as a consequence of and in accordance with the first judgment. Had there been a right of appeal from the second judgment the Notice of Grounds of Appeal would have been lodged within time. I have determined that there is no appeal as of right, and although legal representatives are expected to know and understand the procedural rules which govern matters in the Court, it must be said, as Handley JA noted in Derrawee Pastoral Co that "the distinction between final and interlocutory orders is not entirely satisfactory, no golden thread of logic or principle runs through the cases, and it is futile looking for an entirely coherent system". Given the absence of any delay by Kara Kar and the Yardys in bringing the appeal from the second judgment, I am of the opinion they should not be penalised for failing to recognise that an appeal ought to have been brought from the first judgment. Accordingly I would extend the time for filing a Notice of Grounds of Appeal.

That does not finally dispose of the matter as orders have been entered following the second judgment. In my opinion, leave to appeal from that decision ought to be granted and the entire matter remitted to the Equity Division for rehearing.

That leaves one final comment. Throughout the hearing of the matter, including the appeal, Kara Kar was represented by the same legal representatives as the Yardys. In my opinion, the mutual representation failed to recognise the very real conflict of interest thereby arising due to Kara Kar's position as trustee. The matter was left with counsel for the appellants on the basis that separate representation be arranged for Kara Karl That has now been attended to, and it should be recorded that Kara Kar supports the submissions advanced on behalf of the Yardys.

UARA KAR HOLDINGS PTY LTD and ORS v BROOKTON HOLDINGS and ORS (Beazley JA)

Extend the time in which to file a notice of appeal from the decision of Young J dated 13 April 1994 to 27 March 1997.
Grant leave to appeal from the decision of Young J dated 4 September 1996.
Appeals allowed. 5 4. Order that the matter be remitted for rehearing.
Order that the costs of the notices of motion for leave to appeal and extension of time to appeal and the appeals be costs in the rehearing.

Extend the time in which to file a notice of appeal from the decision 10 of Young J dated 13 April 1994 to 27 March 1997.
Grant leave to appeal from the decision of Young J dated 4 September
Appeals allowed.
Order that the matter be remitted for rehearing. 15 5. Order that the costs of the notices of motion for the leave to appeal and extension of time to appeal be costs in the rehearing.

20 Solicitors for the Appellant/Claimant: Harders Solicitors

Solicitors for the Respondent/Opponent: Ross Koffell Solicitors

At a glance

Court

Decision date

Before

Source

Judgment (126 paragraphs)

Parties

Cases Cited (2)