Lewis v Nortex Pty Ltd [2001] NSWSC 511 | Case summary

On the true construction of the relevant trust deed and in the events which have happened, were the income splits from 1991 to 1995 validated by valid and effective determinations in accordance with clause 4(1) of that deed? (This question does not comprehend any issue of fraud on a power). 2 The text of the impugned document is: "WE, Graeme Lindsay DUFTY, of 3 Hilma Street, Collaroy and Peter Lawrence LEWIS, of 26 Dalmeny Road, Northbridge, hereby resign as joint Appointors of the NORTEX UNIT TRUST, and nominate Peter Lawrence LEWIS of 26 Dalmeny Road, Northbridge, to succeed as Appointor in our place." 3 In order to appreciate the significance of these questions, it is necessary to provide some background detail. 4 On 16 May 1985, a trust deed was sealed known as "the Nortex Unit Trust Deed". Initially, the unit holders (each person holding 15 of 30 issued units) were Kation Pty Ltd as trustee of the Lewis No 1 Trust and Hirmanu Pty Ltd as trustee of the Hirmanu No 1 Trust. The real people behind Kation and Hirmanu are respectively Peter Lawrence Lewis and Graeme Lindsay Dufty. 5 On 30 April 1991 the trust deed was varied so that the 30 units became 30,000 units and each of Kation and Hirmanu had 15,000 of 30,000 ordinary units. 6 Nortex carried on the business of importing textiles. 7 The essential parts of the trust deed which is Exhibit KX03 need to be set out. 8 Clause 1 is the definition clause. Subclauses (32) and (35) are as follows: "(32) 'Free Net Income' in relation to a particular Accounting Period means so much of the net income of the Trust Fund for such Accounting Period as shall not at the expiry of such Accounting Period be the subject of a valid and effective determination by the Trustees during that Accounting Period under sub-clause (1) of Clause 4 of this Deed. … "(35) 'the Appointor' shall mean subject to the provisions of Clauses 31 and 32 hereof successively the person or persons successively named described or defined as such in the First Schedule (if any) or determined according to the provisions hereof and where two or more persons are specified in the First Schedule as acting jointly shall mean those persons acting jointly." 9 The first two subclauses of clause 4 are as follows: "(1) The Trustees may prior to the Vesting day without creating a perpetuity at any time and from time to time during any Accounting Period and with prior written consent of the Appointor with respect to all or any part or parts of the net income of the Trust Fund for such Accounting Period determine to pay apply or set aside the same to or for any one or more of the Unit Holders and/or the Trustees of any eligible trust (acting in such capacity) and/or any eligible corporation and/or any other person or persons who from time to time shall be living prior to the Vesting day and come within the definition of "Beneficiary" in sub-clause (42) of clause 1 of this Deed in such amounts and/or proportions as the Trustees in their absolute discretion determine. "(2) The Trustees shall hold as a separate Trust Fund the Free Net Income of each Accounting Period at the expiry of that Accounting Period in trust absolutely for the Unit Holders of the Ordinary Units as at the expiry of that Accounting Period in the Specified Proportion." 10 Clause 32(1) is as follows: "Any Appointor who is entitled to act as Appointor for the time being may whilst he is entitled so to act nominate by notice in writing under his hand a person (whether an individual or a corporation and wherever resident or incorporated) to be his successor as Appointor (hereinafter called 'a Succeeding Appointor') and upon delivery of such notice to the Trustees the Trustees shall endorse on this Deed a memorandum of such notice and after endorsement of such memorandum and upon the person then entitled to act as Appointor ceasing (for whatever reason) to be entitled to act as Appointor the Succeeding Appointor shall be the Appointer to the exclusion of any Appointor who would become Appointor under any other provision of this Deed including any provisions in the Schedule relating to Appointors." 11 I will refer to other parts of the trust deed in the course of these reasons. 12 In June 1991, Hirmanu transferred 12,000 of its units to Lamru Pty Ltd, a company controlled by Russell William Lamb and transferred the other 3,000 units to Kation Pty Ltd. Thereafter the Lewis interests held 60% of the units and the Lamb interests, 40%. The shareholders of Nortex Pty Ltd from 16 April 1991 were Messrs Lewis and Lamb or their companies, the former having two shares, and the latter one share. 13 Brian Raymond Silvia was appointed provisional liquidator of Nortex Pty Ltd on 8 July 1997 and the company was wound up with Mr Silvia being appointed liquidator on 2 September 1997. Mr Lewis was the plaintiff in the winding up proceedings. 14 In December 1998, Mr Lamb lodged a proof of debt which Mr Silvia rejected. That rejection led to the present proceedings in which the five questions have been posed. 15 I should note that the proceedings of which the present set of separate questions have been excised is a notice of motion by Lamru Pty Ltd, appealing against rejection of its proof of debt. The onus, accordingly, is on Lamru to establish the facts that would enable the proof of debt to be allowed. When one is trying a separate issue of fact, the same person bears the onus of proof as would have borne it had the question been tried with the rest of the questions at the final trial. 16 Accordingly, the Lamb interests must satisfy me that it was more probable than not that the impugned document was not signed on 16 April 1991. 17 With this background, I turn to the five questions. 18 I heard evidence and argument in these proceedings on 5 and 6 December 2000 and then as time ran short, directed that the plaintiff and defendant continue their submissions in writing. This process was followed, with the last submissions being received in mid-March 2001. Mr J T Johnson of counsel, appeared for the Lewis interests, and Mr S Motbey of counsel, for the Lamb interests. Mr P Somerset, solicitor, appeared for the liquidator, though was excused attendance at an early stage. 19 In his affidavit of 23 August 2000, Mr Lewis says that he established Nortex Pty Ltd in 1985 and set up the structure under which it operated. Initially he and Graeme Dufty were the directors and shareholders and those two were also the nominated appointors referred to in clause 1(35) and (32) of the trust deed. He says that in late 1990 Mr Lamb commenced employment with Nortex Pty Ltd and when Mr Dufty was leaving the company in 1991, arrangements were made to restructure. 20 Mr Lewis says that after the directors' meeting of Nortex Pty Ltd on 12 April 1991, he had a conversation with Mr Dufty and it was agreed that he, Lewis, should be appointed new sole appointor and that Dufty left the drafting of the necessary documents to Lewis. 21 Lewis then says that between 12 and 16 April 1991, he prepared draft minutes of a meeting of directors of Nortex in relation to the proposed resignation as director of Dufty and proposed appointment of Lamb as director of Nortex in his place, and that he also prepared a draft notice of appointment in relation to the Nortex unit trust. 22 Lewis says that on 16 April 1991, a meeting of directors of Nortex was held at which he and Dufty were present. The minutes were signed by Dufty and himself, either on 16 April 1991 or very shortly thereafter: his best recollection is that they were in fact signed on 16 April 1991. At the same time the appointment document was signed. He then says: "For some reason that I cannot now recall, the original and duplicate of the appointment document were not dated at the time of signing. I clearly recollect however that both the original and duplicate of the appointment document were signed at the same time as Dufty and I signed the directors' minutes of 16 April 1991. … After the appointment document was signed in duplicate, Dufty and I each took photocopies of them. I placed the signed undated original and the signed undated duplicate in an unmarked file in an unlocked drawer in my desk, where they remained until June 2000. The signed original and duplicate of the appointment document … were produced by my solicitors to the Court on 20 June 2000. … On or shortly after 16 April 1991, I placed dates on my photocopies of the appointment document which I had taken when it was signed as above deposed. … I believe that I placed the dates on each of these copies of the appointment document on or shortly after 16 April 1991 so as to record that they were in fact signed by Dufty and me on 16 April 1991, but I cannot now recall the reason why I did not date the original appointment documents." 23 Mr Lamb claims that the appointment document was called into existence sometime after June 1996 in order to defeat his claim. 24 The importance of the document is that if Mr Lewis was the sole appointor when the relevant splits of profits were made, then he was able validly to split the profits in a way other than equally. If he was not the sole appointor, then he had no power to do this. 25 I will now deal with the questions seriatim.

When was the appointment document signed? 26 This is a pure question of fact. I have already set out Mr Lewis' statements in his affidavit of 23 August 2000. It can be seen that his evidence has some corroboration from Mr Dufty. Mr Lamb cannot give any direct contrary evidence and so his case depended on the effective cross examination of Mr Lewis and Mr Dufty. 27 Mr Motbey put that there are many reasons to doubt the truth of the Lewis version. In his first written submissions, MI39, he said in summary:

(j) The fact that Lewis' counsel in re-examination of Dufty declined to ask Dufty when he signed KX09 and KX10 whilst asking him when he signed KX14 and KX15, is a very telling matter (see transcript p 28). 28 Mr Motbey thus puts that it would be unsafe on this evidence to find that Lewis and Dufty subscribed their signatures to KX09 and KX10 on 16 April 1991. 29 As I noted earlier, the Lamb interests bear the onus of showing that the impugned document was not signed on 16 April 1991. They have obvious difficulties in doing this. The Lamb interests were not present at the relevant time and place. They can thus give no direct evidence. Furthermore, Mr Dufty has sided with Mr Lewis on this question. 30 It is true that Mr Motbey's cross examination of Mr Lewis obtained facts from which a reasonable person might well have inferred that Mr Lewis had cheated Mr Dufty out of some of the profits of the business when the two of them were partners. However, Mr Dufty has been in litigation against Messrs Lewis and Lamb for some time, and did not seem particularly perturbed about the fact that Mr Lewis may well have cheated him out of some money. Mr Motbey made the point that it may well have been that Mr Dufty "bought Mr Lewis' story" that some documents had been left unsigned in the haste to unravel affairs in 1991 and that he may have signed documents in 1997. Mr Dufty seems to accept that as a possibility, but is still of the view that the probabilities are that he signed them in April 1991. 31 However, the idea that Mr Dufty may have signed the documents in 1997 does not fit well with one of the Lamb interests' primary submissions, and that is, that the documents were manufactured by Lewis and only signed in their present form in about August 2000. 32 It is quite true that Mr Motbey in his cross examination of Mr Lewis, threw considerable doubt on Mr Lewis' credibility. The cross examination at T57 onwards does have Mr Lewis throwing up a series of improbable scenarios, so much so that his counsel in re-examination at T80 had to adduce evidence that an illness Mr Lewis suffered in 1994 had deprived him of some of the more acute abilities of perception. 33 Skilful as it was, the cross examination did not completely destroy Mr Lewis' credibility. 34 Furthermore, Mr Dufty emerged from a penetrating cross examination as being a man who might be a little naïve and trusting, despite all that had happened to him in the business world, but yet a person who genuinely believed that he had signed the relevant document back in 1991. 35 Mr Motbey, however, as I have said, submits that the deed of 30 April 1991 conclusively shows either by virtue of the doctrine of estoppel or because of its own evidentiary value, that documents having the effect of nominating Mr Lewis as the sole appointor under the Nortex unit trust could not have been executed on 16 April 1991. This deed purportedly signed on 30 April 1991 recites that there were two appointors as at that date. This was quite wrong if two weeks earlier the two appointors resigned and one was appointed. 36 The deed contains a section called "Introduction" which I have taken to be the plain English version of the legal term "Recitals". The introduction to the deed notes in paragraph D "Peter Lawrence Lewis and Graeme Lindsay Dufty are the Appointors of the Trust". The document has been signed by both Messrs Dufty and Lewis. It bears the notation that it had been faxed from the law offices of Toomey Pegg Drevikovsky on 26 April 1991 at 5.03 pm. 37 Recitals in a deed are not representations of fact on the faith of which a stranger to the deed is entitled to act without enquiry: Trinidad Asphalte Co v Coryat [1896] AC 587, 592. Furthermore, one only has an estoppel by a recital in a deed in an action based on the deed. In a collateral action there can be no estoppel: Carter v Carter (1857) 3 K & J 617, 645; 69 ER 1256, 1268. 38 Accordingly, the only significance of the deed is the fact that it exists and what is written therein. 39 Mr Baird, solicitor for the plaintiff, who made some submissions when Mr Johnson was unavoidably absent, puts that the evidence as to the deed shows that the significance Mr Motbey puts on it is exaggerated. He points out that on 4 April 1991, Mr Lewis, on Nortex letterhead, wrote to Messrs Toomey Pegg Drevikovsky, asking for advice on the deed and noting the intention that the Dufty interests would be selling its units to the Lewis interests and that - "It is the intention of Kation to on-sell … to a third party in the near future. … "Please advise how this should be structured in order to maximise any Capital Gains Tax advantages for all parties involved." 40 It was to that request that Mr Toomey replied on 26 April enclosing the draft deed. It was clear from the correspondence that there had been discussion between Mr Toomey and Mr Lewis as to the appointment of a new appointor, but it would not seem Mr Toomey was ever informed that the joint appointors were already replaced by 16 April. The fact that Mr Toomey was not told, and the fact that Mr Toomey did not give evidence, are, of course, significant matters. However, when one looks at the whole deed in context it does not seem to me that it has the significance that Mr Motbey gives it. 41 Accordingly, on the balance of probabilities the relevant document was signed on 16 April 1991 or within a few days thereafter, despite some of the improbable scenarios mentioned in Mr Lewis' evidence. 42 Accordingly, I answer question 1(a) "Yes". Question 2. 43 Mr Motbey submits that one must examine the procedure set out under clause 32 of the trust deed. This requires an appointor who wishes to nominate another person to be appointor instead is (a) to nominate by notice in writing under his hand that successor; (b) deliver such notice to the trustees; (c) the trustees shall endorse on the deed a memorandum of such notice; and (d) upon endorsement and upon the preceding appointor ceasing to be entitled to act as appointor, the succeeding appointor shall be the appointor. 44 Mr Motbey concedes that Exhibits KX09 and KX10 are documents constituting a notice in writing under the hand of the appointor. However, he submits that the undisputed evidence is that Mr Lewis placed those documents in an unmarked file in an unlocked drawer in his desk where they stayed until June 2000. 45 Furthermore, Mr Motbey puts that no endorsement on the deed was made until 13 March 1997 and even then that was not validly done because at the relevant time Mr Lamb was a director of Nortex Pty Ltd, the trustee, and there is no evidence that any endorsement was made with the assent of the board of directors of Nortex Pty Ltd. 46 Mr Motbey also draws attention to clause 38 of the deed which makes the presence or absence of a memorandum on the trust deed proof that the appropriate act has occurred or not occurred. 47 In answer to this, Mr Johnson of counsel (who shared making submissions with Mr Baird, solicitor, at various days of the hearing) submitted that Mr Lewis was a director of Nortex Pty Ltd, occupied the Nortex premises so that when he took charge of the document and put it in a drawer in his office the document was "delivered" to the trustee. It is put that Nortex should only act by its directors and officers, therefore delivery to Mr Lewis constituted delivery to Nortex. As clause 32 of the trust deed is mandatory, by using the word "shall" Nortex was bound to make the endorsement and accordingly it was not necessary for there to be any resolution of the board of directors. Mr Johnson does not dispute that the endorsement was not made on the trust deed until 13 March 1997. 48 What is delivery is to a great extent a question of fact. Ordinarily, the word "delivery" connotes the parting with possession of the prepositus without the right to recall it. One delivers a document normally when one hands it to another person with the intention of putting it beyond recall; see eg the decision of the Full Federal Court in J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539, 545. 49 There are a plethora of American cases digested in Volume 11A of Words and Phrases (West Publishing Company, St Paul, 1971, with supplements) which illustrate this proposition over and over again. 50 There can be some circumstances where a person can hand a document over to a third person, or alternatively, hand it to an attorney and the attorney change his or her control of the document as agent for X to being agent for Y. However, the mere fact that the document is in the possession of Y does not necessarily mean that it has been delivered to Y; see eg Arwe v White 381 A (2d) 737, 741 (1977) (NHSC). 51 The common sense rule to be applied in this sort of case was well stated by Van Fleet VC in the New Jersey Court of Chancery in Vreeland v Vreeland 21 A 627 (1891). The learned Vice-Chancellor said at 629 that what needed to be established was not that the deed was actually handed by the grantor to the grantee or to a third party for the grantee, but that the evidence demonstrates that the grantor intended at a particular point in time that the title should pass from himself to the grantee and that the deed at the same time should become the property of the grantee. This is normally established by possession by the grantee of the deed fully executed, but not necessarily so. Likewise where the deed is found in the possession of the grantor that is strong evidence that the deed has not been delivered. If the grantor has parted with all control over the deed even though the grantee is ignorant of its existence the deed may well have been delivered. However, it is all a question of evidence. 52 There may be some cases where a person can intend that a document pass out of his or her personal control and into the control of a company of which he or she is the controller by doing an act less than standing in front of a mirror and saying "I deliver this document to myself as agent for company X"; cf T Choithram International SA v Pagarani [2001] 2 All ER 492. However, in the instant case there is absolutely no such evidence. The evidence was in the camp of the Lewis interests, but all that was revealed was that the document was put in a drawer of a desk in an unmarked file. I cannot draw the inference, or if I can, I should not, that by doing so Mr Lewis put the document out of all recall by himself personally and into the sole and exclusive possession of the trustee company, Nortex. 53 Even if I had come to a different view on this matter, it seems to me that the structure of the deed, particularly clause 38, makes endorsement on the deed itself something that must be done before there is a change of appointor. It may be that Mr Johnson is correct in his submissions that it was mandatory for Nortex to put the endorsement on the deed, but it did not do so and the only person who can be blamed for that really is Mr Lewis. He cannot take advantage of his own default. 54 Accordingly, in my view, the answer to question 2 must be "No". 55 Question 3, accordingly, does not arise. Question 4 56 In my view the effect of clause 38 of the trust deed is that as the endorsement is on the deed it is presumed to have effect as from 31 March 1997. 57 I realise the problem that Mr Lewis was not authorised by the board of Nortex to make the endorsement and that even if a company is bound to do something, an officer of the company is not to do that something until properly authorised. If the company does not do the thing, then the company may be liable in damages or perhaps to a penalty, but that does not in itself give authority to an officer of the company to do the thing. 58 Where an officer of the company does something in the company's name for his own benefit, then ordinarily that act is voidable at the suit of the company unless the company has authorised it with full knowledge of the facts; see eg Aberdeen Railway Co v Blaikie Bros (1854) 1 MacQueen 461. 59 I think that is the position here that Nortex may move to have the endorsement expunged. 60 However, it may also be that Mr Lewis is not entitled to take the benefit of his own wrong by doing an unauthorised act by claiming that he is the appointor. 61 Thus the formal answer to question 4 is that the endorsement of March 1997 cannot have any effect before March 1997 and only has limited effect after that date. Question 5 62 Question 5 requires me to construe the trust deed and say in the events which have happened whether the income splits in 1991 to 1995 were validated by valid and effective determinations under clause 4(1) of the deed ignoring any issue of fraud on a power. 63 Clause 4 of the trust deed provides that at any time and from time to time during any accounting period with the prior consent of the appointor with respect to any part of the net income of the trust fund for such accounting period the trustee may determine to pay same to any one or more of the unit holders as the trustee in its absolute discretion determines. An accounting period is 12 months ending on 30 June of each year. The definition clause defines "free net income" as so much of the net income of the trust fund for an accounting period as is not the subject of a valid and effective determination by the trustees during that accounting period under clause 4. Under clause 4(2) the trustees are to hold as a separate trust fund the free net income of each accounting period in trust absolutely for the unit holders of the ordinary units in the specified proportion. "Specified proportion" is defined in 1(14) of the deed as meaning the proportions that the number of ordinary units held by a unit holder bears to the total ordinary units. Thus, unless there has been a proper determination under clause 4(1) of the deed, the income for the financial year is held in proportion to the number of units that a unit holder has to the total number of units. 64 Mr Motbey says that the evidence shows quite clearly that although there was a minute of 28 June 1991 and a similar minute in 1992, the minute was actually signed some time after 30 June in each year. There is thus no proper evidence that the board of the trustee ever met prior to 30 June in 1991 or 1992 to make a determination under clause 4(1). Furthermore, as Lewis and Dufty were the appointors until at least 1997, there was no prior written consent of the appointor to anything that Nortex may have done. 65 I cannot see any answer to this submission. The whole tone of the evidence was that adjustments were made to the accounts for the year ending 30 June after that day and then the records retrospectively adjusted. There was no effective answer given to Mr Motbey's submission in the submissions that were made by counsel and solicitors for the Lewis interests. 66 The submissions for the Lewis interests were strongly criticised by Mr Motbey as being replete with irrelevancies. With respect, I thought that this submission was justified. I was asked to deal with several discrete questions. Many of the matters that were raised in the submissions for the Lewis interests may be relevant in the final determination of these proceedings (or perhaps they are not), but they were not relevant to the questions that I had to determine. 67 The submissions put by the Lewis interests included a submission that Lamru Pty Ltd was only incorporated on 12 June 1991, that Lamru was not a unit holder as at 30 June 1991, that there had never been a valid split of units whereby one old unit became 1000 new units. There were then another set of submissions to the effect that the filing of his own income tax returns from 1991 onwards and otherwise his conduct from 1991 onwards estopped Mr Lamb from disputing the splits that were made in 1991 and 1992. In this regard particular stress was put on what I said when a temporary member of the Court of Appeal in Spellson v George (1992) 26 NSWLR 666, 669-670. There were then a third set of submissions as to how it would be quite unconscionable for Mr Lamb or Lamru Pty Ltd to make the claims they are now making, and how equity would not come to their aid. Just how relevant that last set of submissions are to appeal against rejection of a proof of debt remains to be seen. 68 I record these three lines of submissions because a considerable amount of the oral and written submissions were devoted to them. I would agree with Mr Motbey that they are not relevant to the present aspect of the case. 69 Accordingly, I should answer question 5, "No". 70 I publish my reasons. I would think that all I would have to do is to make an order that the questions be answered in the way I have indicated and give directions for the further conduct of the proceedings and also consider the question of costs. I will tentatively list the matter for 9 July 2001 at 9.50 am, but if some communication is made with my Associate at least the week before, that can be rescheduled. *******************

Lewis v Nortex Pty Ltd

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Judgment (22 paragraphs)

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Cited By (9)