MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as trustees of the Estate of WALTER CHARLES ATWELL on behalf of all other partners in the Atwell Family Agency other than the first defendants -v- ROBERTS [No 3] [2009] WASC 96 (17 April 2009)

MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as trustees of the Estate of WALTER CHARLES ATWELL on behalf of all other partners in the Atwell Family Agency other than the first defendants -v- ROBERTS [No 3] [2009] WASC 96 (17 April 2009) - WASC 2009 case summary — Zoe

[169]

The purported transfer of 23,220 units from the estate of Ada Ethel Atwell to the Hamersley Trust in 1983 (Ada Atwell transfer). Ada Ethel Atwell died on 24 March 1983 and this was a transfer consequent upon her death. It was treated as effecting the change from partnership 13 to partnership 14 in the chronology of successive partnerships set out in First Schedule.
The purported transfer of 4,267 units from Edna Phoebe Patterson to Noel Atwell on or around 14 February 1985 (the Edna Patterson transfer). This was treated as effecting the change from partnership number 15 to partnership number 16 in the First Schedule. It purported to transfer the units from Mrs Patterson to her nephew Noel Atwell. It was approved by the management committee on 6 March 1985 (exhibit 14).
The purported transfer by Gladys Addison Broadley of 2,630 units to Noel Atwell and 1,500 units to the seventh-second-named second defendant (Gary Atwell) on or around 31 March 1985 (the Gladys Broadley transfers). The transfer of units by Mrs Broadley to Noel Atwell was a transfer to her cousin. The second transfer of units to Gary Atwell was also a transfer by her to another cousin. By this date Noel Atwell was already recorded as a partner of the firm. Mrs Broadley's transfer of units to him was approved by the management committee and confirmed at a meeting on 5 September 1985 (exhibit 17(a)). Her second transfer of units to Gary John Atwell was also approved by the management committee and both transfers were approved again at the meeting on 5 September 1985 (exhibit 17(a)). These transactions were treated as effecting the change from partnership No 16 to partnership No 17 listed in the First Schedule.
The purported transfer of 23,100 units from Hilda Dorcus Roberts to the Hamersley Trust in 1986 (the Hilda Roberts transfer). Hilda Dorcus Roberts died on 5 January 1986. Her death dissolved partnership No 18 listed in the First Schedule following which those 23,100 units were registered in the name of her son, Keith Gilbert Roberts, as trustee of his mother's estate (see First Schedule partnership 19 - unit-holding 9.3). Subsequently, on or about 17 March 1986, those units were transferred from the estate of Hilda Dorcus Roberts to her son, Keith Gilbert Roberts, as trustee of the Hamersley Trust and the transfer was approved by the management committee (exhibit 24). The Hamersley Trust was constituted by deed of settlement dated 18 December 1972 between Hilda Dorcus Roberts as settlor and her husband Keith Gilbert Roberts as the trustee (exhibit 6A) as later varied by a deed of variation dated 15 December 1988 (exhibit 6B). The point made by the plaintiffs is that under the terms of this Deed cl 6(n), (exhibit 6A) and cl 1 and cl 7 of the deed of variation (exhibit 6B), there is a wide power of variation which would permit the trustee to vary the terms of the trust to include other beneficiaries or classes of beneficiaries so that in December 1988 this power of variation was exercised to include as a potential beneficiary the Sonoma Trust, itself created by deed of 14 December 1988 (exhibit 31). The effect of this power of variation, and its later exercise meant, so it was submitted, that the beneficial title to or the benefit of units in the firm could be transferred to interests outside the limits of the narrow family circle contemplated by Rule 5(c) of the 1976 agreement. This transfer of 23,100 units originally held by Hilda Dorcus Roberts, and then for a short period by her executor and trustee, to the Hamersley Trust was treated as effecting the change from partnership 19 to partnership 20 listed in First Schedule.
The purported transfer of 2,135 units from the estate of Dorothy May Beckett to the Hamersley Trust on or around 30 June 1986 (the Dorothy Beckett transfer). Dorothy May Beckett died on 9 October 1985 (exhibit 26). Probate of her will was granted to her sole executor and trustee, a solicitor Mr M E Frichot, on 18 November 1985. By that will she had bequeathed all her interests in the Atwell Family Agency to her trustee to be held on trust for her two daughters, Rosemary June Spurge and Roberta Joan Cowley - the latter then living in the United States of America - in equal shares as tenants in common absolutely. On 30 June 1986 the management committee approved the transfer of 2,135 units from the estate of Mrs Beckett to Rosemary Spurge and also approved the transfer of a further 2,135 units from her estate to the Hamersley Trust (exhibit 20). That was treated as effecting the change from partnership No 19 to partnership No 20 listed in the First Schedule. The objection taken by the plaintiffs is that the transfer of the second parcel of 2,135 to the Hamersley Trust constituted a transfer outside, or potentially outside, the limited circle of interests permitted by Rule 5 of the 1976 agreement.
The purported transfer of the units the subject of the Ada Atwell Transfer, the Hilda Roberts transfer and the Dorothy Beckett transfer from the Hamersley Trust to Leigh Roberts as trustee for K Roberts, M Lister and the Sonoma Trust in 2001 (the Hamersley Trust transfer). This was an inter vivos transfer of units on or about 15 June 2001 by Keith Gilbert Roberts, the son of Hilda Dorcus Roberts who died on 5 January 1986 (exhibit 23). Keith Gilbert Roberts himself died on 27 February 2003 but these transfers were effected before then. The subject matter of the transfers were units which Mr K G Roberts then held as trustee of the Hamersley Trust, having come to him as trustee respectively from Ada Atwell in 1983 (challenged transaction number 1), from Hilda Dorcus Roberts in 1986 (challenged transaction number 4) and from the estate of Dorothy Beckett in 1986 (challenged transaction number 5). It was treated as effecting the change from partnership number 29 to partnership No 30 listed in First Schedule. The transfers of the beneficial interest effected by this declaration of trust were to Kenneth Keith Roberts and to Margaret Lister, respectively son and daughter of K G Roberts, and to the Sonoma Trust of which another son of K G Roberts, Leigh O Roberts, was trustee and under which his children were the primary but not the exclusive beneficiaries (exhibit 31). Again the point of objection is that this is a transfer of units which were not properly transferred originally and, insofar as it was transferred to beneficiaries of the Sonoma Trust, it was a transfer or a potential transfer of interests outside the circle of family permitted by cl 5 of the 1976 Agreement.

[178]

58 This makes it timely to consider exactly what in point of law occurs on any occasion when a partner of the Atwell Family Agency dies or retires and procedures are then followed, whether or not in strict conformity with the 1976 partnership agreement, to 'transfer' his or her units, resulting in the admission of a new partner or partners to the succeeding firm or in the increase in the unit holdings of some of the partners of the former firm who have continued in the new and succeeding partnership. The executor of the deceased partner, or the retiring partner on leaving the partnership, has a right to realise the value of the share in the partnership previously held. In the case of a solvent partnership, and even in many insolvent partnerships, that share will have a value which can be quantified. In a case of a winding up the amount of the value of the share would both be identified and satisfied by payment from the net surplus of assets after realisation. However, if there is not to be a full winding up resulting in the sale of the assets then the entitlement of the deceased partner's representatives or the retired partner will have to be satisfied in a different manner. It may be that the deceased's partner's executor does not wish to become a member of the firm, and there may not be a spouse, son, daughter or grandchild of the deceased or retired partner who wishes to join the firm either. There may be many good reasons for this, because of differences in interest, other career choices and a not unreasonable aversion to sharing the responsibilities and liabilities of those persons who wish to continue the business of the firm. In any such case that value of that deceased or retired partner's share will need to be paid out and, if the value can be quantified by agreement or valuation, money will need to be found to make the payment. Normally, that could be expected to come from the continuing partners or, by what amounts to the same thing, by money borrowed or capital introduced on their behalf to defray that obligation. Were that to occur, the procedure followed will be an alternative to a formal winding up so there will be a great incentive for the former partners, who wish to continue in a new firm, to have their liability discharged in a way which does not produce a full winding up. The real point, however, is that the liability to the retired partner or to the executor of the deceased partner for payment out to him or to her of the value of the share of the departed partner is an obligation of all the surviving partners of the former firm.

[179]

59 There can also, obviously, be many situations in which the deceased or retired partner can be expected to be replaced by the executor or a close member of the family becoming admitted to the partnership, by the consent of all the other partners, and by being accorded a share in the new partnership equal to the share which his or her forebear had in the firm which had just been dissolved. In such a case, predicated upon the willingness of an eligible successor to join a newly created continuing firm and to hold the same number of units as the person whom he or she replaced, this partnership agreement assumes that there will be no payment made by the firm for the value of the share of the deceased or retired partner. In practical terms, the willing admission of the new partner with a number of units in numerical terms equal to the units held by the departing partner in the former firm is treated as the discharge of the liability of the other members of that earlier firm in exchange for the admission of the new partner into the new firm. Of course, this cannot occur without the consent of the surviving members of the former firm but their consent is apparent from the acceptance of the newcomer into their midst as a partner in the new firm to the same degree as the departing partner held in the old firm. Equally, this cannot happen without the consent of the incoming partner whose consent is apparent by his agreement to join the newly formed firm. In the case of a retired partner this cannot happen without his or her consent because, otherwise, the debt due to him or to her for the value of his or her share in the partnership would not be discharged. Similarly, in the case of a deceased partner it could not happen without the consent of the executor who, whether he agrees to become a partner in the newly created firm, either temporarily during the course of administration or in the longer term, or whether he agrees to some beneficiary appointed by the deceased who is eligible under the terms of the 1976 agreement to be admitted as a partner and who becomes a partner, either eventuality demonstrates the consents of the executor and of those entitled to take a position in the new partnership in exchange for payment of the value of the share in the former firm due to the deceased member.

[200]

With the transfer of the units formerly held by Edna Paterson in February 1985, the transfer was made to Noel Henry Atwell who was Henry Atwell's son. This was an inter vivos transfer by Mrs Edna Paterson to a cousin who was not a member of the partnership at the time (partnership No 15 listed in Schedule 1) so that he was not an eligible transferee under Rule 4 or Rule 5(c). The defendants plead that a disposal notice was given but it is agreed that the valuation procedures were not strictly complied with.
The transfer of units held by Gladys Broadley to Noel Atwell and Garry Atwell in 1985 were also inter vivos transfers. Noel Henry Atwell was, by then, a member of the partnership (partnership No 16 listed in the First Schedule) although it must be noted that the plaintiffs contend that he was wrongly admitted as a partner in March 1985 pursuant to the Edna Paterson transfer. If he was properly a partner of the date of this third impugned transfer in 1985 then he was an eligible transferee without the need for a disposal notice in accordance with Rule 4. However Garry Atwell was not then a partner. He was the son of Lloyd D Atwell, a cousin of Mrs Gladys Addison Broadley and, therefore, not an eligible transferee under Rule 5(c). The position of the defendants in this respect, as already explained, is that disposal notices were given but that the valuation procedure was not strictly complied with. If the partners for the time being in about June 1985 had required strict compliance with the pre-emptive rights procedures in relation to the transfer of units to Mr Gary Atwell then this transaction was not strictly in accordance with those procedures.
The Hilda Roberts transfer of 23,100 units to the Hamersley trust in 1986 has already been described. Hilda Dorcus Roberts died on 5 January 1986 appointing her son Keith Gilbert Roberts as her executor who accepted the position and proved her will (exhibit 23). By her will she left the whole of her shares in the units in the Atwell Family Agency to her executor and trustee to be held on the terms of the Hamersley Trust (the deed dated 18 December 1972 - exhibit 6A). At the time of her death and at the time of the transfer of those units Mr K G Roberts was already a member of the partnership, in his personal capacity; as trustee of the Hamersley Trust; and as trustee of his mother's estate (see partnership No 19 listed in the First Schedule). He had also been a member of the earlier partnership when his mother was a member (see partnership number 18 listed in the First Schedule). Subject to the determination of the issue about transfers of an equitable interest in the units, Mr Roberts was therefore eligible to be registered as the holder of his mother's units under Rule 5(b) when this transfer was processed. The remaining issue in this respect is whether or not the possibility of the beneficiaries under the Hamersley Trust might be varied to introduce beneficiaries not within the limited family circle provided by Rule 5(c) meant that the transfer of units to the trustee of the Hamersley Trust required compliance with the disposal notice procedure. This is similar to the issue raised in respect of the Ada Ethel Atwell transfer above.
The Dorothy Beckett transfer occurring on about 30 June 1986 involved a transfer of the units from the estate of Dorothy May Beckett who had died on 9 October 1985 and who had appointed her solicitor, Mr M E Frichot, as her sole executor (exhibit 26). The transfer of one parcel of those units to Mrs Rosemary June Spurge without compliance with the pre-emptive rights provisions was authorised because Mrs Spurge was her daughter and so eligible under Rule 5(c). It was the transfer of the other moiety of her units to Keith Gilbert Roberts as trustee for the Hamersley Trust which has produced this challenge. As previously noted, Mr K G Roberts was a member of the partnership at the time (partnership No 19 listed in the First Schedule) and also as trustee of the Hamersley Trust he was the trustee of a settlement which had been made by a previous partner, his mother although she had died before this later disposition. Accordingly if the members for the time being of partnership No 19 required strict compliance with the pre-emptive rights provisions in respect of this transfer then similar issues arise here as arise in the case of the Hilda Roberts transfer.
The Hamersley Trust transfer of units to Leigh Roberts as trustee for K Roberts, M Lister and the Sonoma Trust in 2001 involves the twin submissions that the units in question should never have been transferred to the Hamersley Trust under any of the three earlier transfers and that the transfer from the Hamersley Trust to Leigh Roberts as trustee for K Robert, M Lister and the Sonoma Trust could not have been validly achieved without compliance with the pre-emptive rights provisions because of the capacity for beneficiaries to include persons outside the family circle defined by Rule 5(c). This again raises the issue of changes in the beneficial interest.

[204]

79 The plaintiffs acknowledge that while the approach taken by the authorities is not uniform, the preponderance of authorities are to the effect that the word 'transfer' or 'dispose' when used in pre-emptive rights provisions in a company's articles of association or constitution relate only to the transfer or disposition of legal title to shares and not of a beneficial or equitable interest in shares: Safeguard Industrial Investments Ltd v National Westminster Bank [1981] 1 WLR 286, 598, Oliver LJ; Hunter v Hunter [1936] AC 222; Hagan v Waterhouse (1992) 34 NSWLR 308, 388 - 390; and Kawasaki (Australia) Pty Ltd v ARC Strang Pty Ltd [2008] FCA 461; (2008) 247 ALR 333, 348 - 350; Don King Productions Inc v Warren [2000] Ch 291, 335 - 356; and Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268 [100] - [102], Buss JA, but contrast Lyle & Scott Ltd v Scott's Trustees [1959] AC 763, 778 and 785 where, in the circumstances of that case, it was held that a prohibition in the company's articles on the transfer of shares applied to the disposal of the beneficial interest in the shares. Whether Lyle & Scott Ltd supports the proposition for which the plaintiffs cited it (it was distinguished in Safeguard Industrial Investments Ltd v National Westminster Bank Ltd) or not is questionable but it certainly did not involve the transfer of shares to an eligible transferee who held them as an express trustee for others. That case involved an enforceable contract of sale by an existing shareholder to purchasers outside the permitted scope of transferees. Lords Reid and Keith rejected a submission that the article prohibiting such a transfer was not infringed unless and until the transferee became the legal owner of the shares by registration on the company register. The argument involved the proposition that, until this point, the vendor remained the registered proprietor of the shares and could remain on the register, attend meetings of the company, and vote at the direction of the purchaser. It might be said that, in such a circumstance, the vendor is a constructive trustee of the property sold for the purchaser until completion but, with all respect, I doubt that their Lordships' remarks should be regarded as extending to a case such as the present where the transferee is an eligible acquirer of the units and the only criticism is that he may hold them as a trustee beneficially for others.

[221]

94 The plaintiffs' claims for relief depend, to a significant extent, upon their contention, already noted, that the right which a member of the partnership of the Atwell Family Agency had at any one time to insist upon strict observance of the pre-emptive rights provisions is a species of property, an equitable interest, not only which endured after an occasion when it had been wrongly disregarded but which takes priority over subsequent proprietary or equitable interests acquired in the partnership and in the partnership property by persons, whom the plaintiffs allege, were wrongly admitted to membership in disregard of the pre-emptive rights provisions. While they acknowledge that the pre-emptive rights provisions in the 1976 agreement are, in substance, negative contractual stipulations (Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 253 ALR 1 [12]) which could attract the grant of an injunction if sought in time to prevent their infringement, the plaintiffs contend that they hold more than a mere contractual right and do, in fact, enjoy an equitable proprietary interest capable of specific performance. Counsel for the plaintiffs accepted the established distinction between an option and a right of pre-emption and accepted that the grant of a right of pre-emption conferred on the grantee no right to call for a transfer of the property unless the grantor chose to fulfil the conditions on which the right became exercisable: Pritchard v Briggs [1980] Ch 338; [1980] 1 All ER 294, 418; and Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia [2008] WASCA 107 [26]), but submitted that once the pre-emptive right is triggered by a decision to dispose of the property, the grantee has a proprietary interest capable of enforcement in equity which will rank for priority according to the ordinary rules including that, generally speaking, the interest first in time prevails. In support of the proposition that the negative contractual stipulation, once the right of pre-emption is triggered, is converted to an equitable interest capable of specific performance the plaintiffs rely upon Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37, 51; Lyle & Scott Ltd v Scott's Trustees [1959] AC 763; and Chipper v Octra Nominees Pty Ltd [2006] FCA 1633 [84] - [135] (Jessup J). And, for the proposition that the order of priorities of competing equitable interests should usually be determined in accordance with time, they rely upon Heid v Reliance Finance Corp Pty Ltd [1983] HCA 30; (1983) 154 CLR 326; and Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265.

[228]

101 As noted, counsel for the plaintiffs relied on observations by Jessup J in Chipper v Octra Nominees Pty Ltd & Ors [2006] FCA 1633 for the proposition that the combination of the availability of the equitable remedies of injunction to prevent the breach of a negative stipulation in a contract (not to sell without offering the subject matter to a person who had a contractual right of pre-emption) associated with specific performance, or an order in the nature of specific performance, to compel the delinquent vendor to observe the requirements of the right of first refusal, gave rise to a species of property analogous to an equitable interest which would be accorded priority over a later interest of a purchaser acquiring, with notice, property from the vendor in breach of the requirements of a right of pre-emption. Jessup J, at [84] - [125], relied heavily upon Manchester Ship Canal Co v Manchester Race Course Co and appears to have endorsed submissions to that effect. However, an appeal from that decision succeeded in Octra Nominees Pty Ltd v Chipper [2007] FCAFC 92. The appeal was allowed largely because the Full Court of the Federal Court concluded that the holder of the right of first refusal had lost that right upon declining to purchase the property when given the opportunity to do so by the vendor, after which the vendor sold to a third party on the same terms as had been offered. The Full Court held that subsequent minor variations in the terms of the contract of sale to the third party which made the purchase more attractive to the third party did not give rise to an obligation by the vendor to re-offer the property for sale to the holder of the right of first refusal on the modified terms because, by then, a completed and enforceable agreement to sell to the third party purchaser had been reached, notwithstanding that this was later slightly varied in favour of the purchaser. Accordingly, it was not necessary for the Full Court to examine the effect of the alleged breach of the obligation to give a right of first refusal or the nature of equitable relief which would be accessible had that occurred. Nevertheless, Tamberlin, Gyles and Gilmour JJ observed at [56] that:

[234]

106 Moreover, the plaintiffs' submissions depend upon the contention that the right of a surviving partner in the dissolved firm to acquire the units of the deceased or retired partner under the pre-emptive rights provisions, once triggered by the decision to dispose of those units, is akin to the interest of the holder of an option to acquire the property subject to the option. That submission invokes the contention that a purchaser under an executory contract of sale has an equitable interest in the property the subject of the purchase and that the vendor becomes trustee of the property for the purchaser. Such propositions, although found in many authorities, are not unqualified. More recent authority, at the highest level, has shown that they are overstated and potentially misleading. The reasons for this and the dangers in classifying a purchaser's interest under an executory contract of sale as an equitable interest in the subject property are fully examined and exposed in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 in the unanimous judgment of Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ, especially at [43] - [57]. There, their Honours commenced their analysis by addressing the 'interest' of a purchaser in land the subject of an uncompleted contract starting with the observations of Jessel MR in Lysaght v Edwards (1876) 2 Ch D 499, 506 who described the vendor's position at that point as something between a bare trustee for the purchaser and a mortgagee who in equity is entitled to possession of the land and a charge upon it for the purchase money which, so their Honours remarked at [44], suggested that the purchaser had, before completion, an equitable estate in the land. Then, their Honours observed in [53] that the analogies drawn over a century ago in Lysaght are no longer accepted, referring to Chang v Registrar of Titles [1976] HCA 1; (1976) 137 CLR 177 per Jacobs J at 190 and Deane J in Kern Corporation Ltd v Walter Reid Trading Pty Ltd [1987] HCA 20; (1987) 163 CLR 164, 192 who said:

[288]

140 Returning to the example of this issue posed by the estate of Walter Charles Atwell being recorded as a member of the partnership at all times from 1976 in circumstances where, until 1998, there were three trustees of the estate of that deceased and since then two trustees, I turn to the terms of the 1976 agreement itself. Each of the original parties to that agreement is identified by name in a manner which treats each interest as being one so that, in respect of this deceased, in the introduction to the agreement the interest is described as 'the trustee of the will of Walter Charles Atwell (dec'd) of the 15th part' and concluding with 'the trustee of the estate of Frank Pusey Atwell (dec'd) of the 20th part'. In the provision for execution each of those 20 parties is to sign and deliver individually so that, in the case of this deceased, the attestation clause is 'The trustee of the will of Walter Charles Atwell, signed, sealed and delivered by the trustee of the will of Walter Charles Atwell in the presence of'. The original of the 1976 agreement makes it clear that, in all probability, the agreement was signed and delivered as a deed by Mrs Elsie F Atwell, and that her signature was duly attested by a witness. However, the document shows that it was also signed by Mr Malcolm Atwell and Mr Ian Atwell, whose signatures were not witnessed and who signed it, as best they can recall, at the request of their mother, on some subsequent occasion, presumably because she thought that it was necessary or desirable. This has been relied upon by counsel for the defendants for a submission that the document was not formally delivered or duly executed as a deed under s 9 of the Property Law Act because of the absence of attestation of the signatures of the two sons. However, I do not accept that submission. Having regard to the structure of the 1976 agreement, and the description of the parties, I consider that it was always intended that only one person would execute, as a deed, the agreement on behalf of his or her interest or the interest which he or she represented and that, in the case of the estate of W C Atwell (dec'd) the approach was to treat the execution of the document by Mrs Atwell as sufficient to bind the estate and to record her, in her capacity as executor or trustee of the estate, as the member of the partnership in the place of the deceased.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (338 paragraphs)

MALCOLM WALTER ATWELL and IAN GEORGE ATWELL as trustees of the Estate of WALTER CHARLES ATWELL on behalf of all other partners in the Atwell Family Agency other than the first defendants -v- ROBERTS [No 3] [2009] WASC 96 (17 April 2009)

Pre-emptive rights provisions of the 1976 partnership agreement.

The extent of the prohibition against disposal of units in this partnership

Was the 1976 agreement a deed and, if so, did it remain a deed?

Limitation - a specialty involving an action for debt or covenant

Consequences of ineligible partners being admitted as members of the firm or firms by mistake or by ignorance of some admitting partners of the ineligibility

Do Malcolm Atwell or Ian Atwell have the standing to complain?

Legislation Cited (2)

Cases Cited (33)