MARIA SCAFFIDI By Guardian Ad Litem THE PUBLIC TRUSTEE

MARIA SCAFFIDI By Guardian Ad Litem THE PUBLIC TRUSTEE

Trusts and trustees - Corporations - Deadlock - Ability of a director of a company to retain solicitors without authority of board of directors - No valid retainer for engagement of solicitors - Injunction to restrain solicitors from acting - Application to stay effects of earlier problems

Injunction granted to restrain solicitors from acting for Scaffidi Holdings Pty Ltd

Maria Scaffidi (by her next friend The Public Trustee) v Scaffidi Holdings Pty Ltd [2010] WASC 29

1 EM HEENAN J: This present proceeding, CIV 1487 of 2009, was commenced by originating summons issued 12 March 2009. Part of the history involving the application and the issues between the parties is set out in my reasons for decision given on 13 January 2010 and published on 18 February 2010: Maria Scaffidi (by her next friend The Public Trustee) v Scaffidi Holdings Pty Ltd [2010] WASC 29. Those reasons and the affidavit material indicate that there has been a long-running dispute between various members of the Scaffidi family over the administration and control of what has been referred to as the Scaffidi Family Trust.

2 Those reasons recount how the original trustee of that trust was Scaffidi Nominees Pty Ltd and how changes in the trustees appointed then occurred, leading to Scaffidi Holdings Pty Ltd being appointed as trustee, and then later, in circumstances which were contentious, Montevento Holdings Pty Ltd being appointed as a new trustee. There are other proceedings before the Court still pending which involve new challenges to the validity of the appointment of Montevento Holdings Pty Ltd. There is a final judgment of the Court confirming that Montevento Holdings Pty Ltd is the present trustee and that is not under appeal.

3 In this same cause very recently applications have been made by interests on behalf of Scaffidi Holdings Pty Ltd and Mr Giuseppe Scaffidi to stay the operation of the orders which I made on 13 January 2010. Those applications are being pursued by Mr Giuseppe Scaffidi and Scaffidi Holdings Pty Ltd brought by a firm of legal practitioners purportedly acting on behalf of both those parties.

4 Once those applications were pending a motion has been made by a notice of 21 April 2010 for an interlocutory injunction to restrain those solicitors from acting for Scaffidi Holdings Pty Ltd. The basis of that application rests on two foundations: firstly, that there is no valid retainer from Scaffidi Holdings Pty Ltd to the solicitors for them or for anyone else to act on behalf of the company, and secondly, even if there were, the same solicitors should not, and cannot, act for Scaffidi Holdings Pty Ltd and Mr Giuseppe Scaffidi because of actual and potential conflicts of interest between those two.

5 We come to the question of the retainer. When the retainer was challenged, a letter was received by the solicitors for Montevento Holdings Pty Ltd from the solicitors purporting to act for Scaffidi Holdings Pty Ltd and for Mr Giuseppe Scaffidi. By that letter, the solicitors advised that Mr Giuseppe Scaffidi 'has authority to instruct solicitors on behalf of Scaffidi Holdings and if your client contends that he lacks authority then that is a matter to raise with Mr Scaffidi'. That was a reply to a letter which had recited that the company, Scaffidi Holdings Pty Ltd, had not resolved, by its directors at a properly convened meeting, to instruct the solicitors, asserting that for that reason the solicitors could not act for the company and inviting the solicitors to provide the objectors with a copy of any such resolution. The evidence plainly demonstrates that there has been no meeting of directors called or convened to consider a resolution for Scaffidi Holdings Pty Ltd to instruct the solicitors or to pursue these applications.

6 Furthermore, the evidence discloses that the question of Scaffidi Holdings Pty Ltd acting in this way has not been raised or discussed with the co-director, Mr Eugenio Scaffidi. The evidence also discloses that Mr Giuseppe Scaffidi has been accustomed, for quite some time, to act in an executive fashion on behalf of that company, without any special formalities, saying that it has been the habit of the company for its business to be conducted that way.

7 By this present application, the propriety of such an approach is called into question. This leads to a consideration of the formal arrangements for the control of this company. Scaffidi Holdings Pty Ltd appears to have been incorporated in or about June of 1995. Annexed to the affidavit of Mr Eugenio Scaffidi of 21 April 2010 are extracts of the articles of association of that company. It is a proprietary company with an original capital of $50,000 divided into 50,000 shares of one dollar each. A number of particular articles are specified. In relation to directors, article 57(1) provides that the number of directors shall not be less than two nor more than eight.

The first directors of the company shall be the subscribers to the memorandum of association of the company.

8 Then there are provisions for the proceedings of directors. Article 70:

Subject to these regulations, questions arising at a meeting of directors shall be decided by a majority of votes of directors present and voting and any such decision shall, for all purposes, be deemed a decision of the directors. In case of inequality of votes, the chairman of the meeting shall not have a second or casting vote.

9 The original subscribers to the memorandum and articles were the late Mr Antonio Scaffidi, his widow, Mrs Maria Scaffidi, Mr Eugenio Scaffidi and Mr Giuseppe Scaffidi. It is common ground that the only directors of the corporation in recent times have been the two brothers, Eugenio and Giuseppe Scaffidi, and it is equally apparent that, because of animosity between them, there has been an inability for agreement to be reached upon any major matter of control or for the determination of the affairs of the company.

10 The evidence which I referred to in my earlier decision indicates that that was one of the reasons leading to the removal of Scaffidi Holdings Pty Ltd as trustee of the family trust and the appointment of another trustee in its stead. There is nothing in the evidence to indicate that there ever was a managing director of the company or that any particular director had special powers, including executive powers. Similarly, there is nothing in the evidence to indicate that by resolution of the board of directors or by any provision of the articles, that any delegated authority was conferred on a particular director to act either generally or specially for the company in relation to any matters.

11 Therefore, Mr Giuseppe Scaffidi's actions in giving instructions and acting for the company as of recent times has been an attempt to exercise authority on behalf of the company which he considers he is entitled to exercise or which he has attempted to exercise in the absence of challenge but neither of those factors renders it legitimate or competent.

12 I turn to the questions of legal principle and I read from Ford's Principles of Corporations Law (13th ed) par 13-080, the following passage:

In any company, whether public or proprietary, with several directors, a director acting individually has no usual authority to bind a company: Northside Developments Pty Ltd v The Registrar General [1990] HCA 32; (1990) 170 CLR 146 at 205; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VicRp 68; (1992) 2 VR 279 at 303 on appeal [1992] VicRp 68; (1992) 2 VR 279, 361.

In such a company a director's normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors. If a director is to have power, as a single director, to bind the company, he or she must either have that power as an agent, delegated by the appropriate organ, or - sometimes, in a family company - have predominant power under the company's constitution as a governing director. An individual director may be expressly authorised by the company to carry out formal functions for the company, such as executing a document on behalf of the company, but whether the transaction underlying it binds the company depends on whether it was authorised by some person or persons with sufficient authority.

14 There is nothing in the evidence to indicate that Mr Giuseppe Scaffidi was possessed of any such special or general authority and indeed the evidence is directly to the contrary. I am therefore satisfied that he does not have the authority to give instructions to commence, defend or pursue legal proceedings by the company and that his attempts to do so are incompetent.

15 In the light of that conclusion it is not necessary for me to address the second ground upon which the applicant seeks an interlocutory injunction in the present proceedings, namely, the existence of an actual or potential conflict of interest between Scaffidi Holdings Pty Ltd and Mr Giuseppe Scaffidi, sufficient to prevent the one firm of solicitors acting for both interests. All I can say is that upon the materials advanced before me I would have reached the conclusion that there was a sufficiently strong case indicated to justify the grant of an interlocutory injunction on that ground but it is unnecessary for me to explore that matter in the light of my earlier conclusion.

16 This raises the question of what particular relief should be granted. On the materials I am satisfied that the plaintiff Montevento Holdings Pty Ltd is entitled to an interlocutory injunction to prevent the solicitors acting for Scaffidi Holdings Pty Ltd but it also seems to me that it would be possible and perhaps appropriate to treat this as an application for final relief because the factors which I have mentioned are unlikely to change and that being the case there would seem to be no reason why there should not be a final injunction.

17 Alternatively or perhaps additionally to relief restraining the solicitors from so acting the proceedings brought by Scaffidi Holdings Pty Ltd could be struck out on the grounds of want of authority. I will hear counsel as to the relief sought.

18 For the reasons which I have given, I am satisfied that these proceedings or this application in the name of Scaffidi Holdings Pty Ltd, should never have been brought because there was no-one able to give valid instructions on behalf of the company. The application therefore being incompetent, I have been asked to consider granting interlocutory relief rather than final relief and because of some expectation or possibility that if events were to unfold in certain ways, some other interests might be validly appointed to act on behalf of Scaffidi Holdings Pty Ltd, which might then decide to adopt and pursue these proceedings.

19 There is no reason to suppose that that is an imminent or indeed a likely eventuality but even if it were, it would not overcome the basic fact that this application was incompetent from the beginning and therefore should not have been instituted. If there are grounds upon which Scaffidi Holdings Pty Ltd, by proper authority, can seek relief from this court, then when there is someone able to act on its instructions, those proceedings can be instituted and considered. Accordingly, I consider that I should deal with this matter on the basis that it is for final relief.

20 I am now addressing the application by Scaffidi Holdings Pty Ltd and Mr Giuseppe Scaffidi in action CIV 1487 of 2009 for orders staying enforcement of the orders which I made on 13 January 2010, until further order. This application is brought by chamber summons issued 10 March 2010.

21 In light of my conclusion and orders in the matter that I have just recently been addressing, I am satisfied that Scaffidi Holdings Pty Ltd had not given any competent authority for the institution of this application and that insofar as the application has been brought by Scaffidi Holdings Pty Ltd, it should be and has been struck out.

22 That leaves the application pending by the second defendant, Mr Giuseppe Scaffidi. The basis of his application is to protect the interests of Scaffidi Holdings Pty Ltd to seek from the assets of the Scaffidi Family Trust, of which Montevento Holdings Pty Ltd is the trustee, an indemnity for liabilities or obligations which Scaffidi Holdings Pty Ltd properly incurred while acting as a trustee.

23 I adverted to this possibility in my reasons for decision of 13 January 2010, indicating the basis upon which such a right of indemnity may exist and I made orders that the delivery and transfer of any property from the former trustee to the new trustee should not impair or encroach upon any such right of indemnity or charge. Accordingly there does not seem to be any basis upon which it could be justifiably claimed that that right of indemnity, if it exists at all, is jeopardised.

24 At any event, as any such application is to be brought by Scaffidi Holdings Pty Ltd, the same obstacle exists, namely that there is no person presently authorised to bring such proceedings on behalf of Scaffidi Holdings Pty Ltd, nor any imminent prospect of the appointment of such a person. If and when some person or authority, a liquidator, a receiver or a new board of directors, is appointed to control the affairs of Scaffidi Holdings Pty Ltd, and if after proper diligence they decide that an application for an indemnity can and should be brought, that can be brought in the future.

25 The possibility of that happening provides no reason to suspend the operation of the orders which I made on 13 January 2010. Accordingly, I consider that the chamber summons seeking a stay of judgment, now being pursued only by the second defendant in the light of my earlier order, should be dismissed with costs.