PROBATE - whether executor can exercise power to take appointment as director prior to grant of probate, considering Lockrey v Barnard James Fussell

ISSUE OF SHARES

1. Whilst the plaintiffs originally sought to wind up Pacific Springs, that relief was not pressed. The plaintiffs sought a declaration that the allotment of 1,800 ordinary shares in Pacific Springs to Dean was made for an improper purpose and was void and of no effect. As the defendants correctly submitted, a declaration that the issuance is void is bad at law as the allotment was voidable, not void: Manthey Redmond (Aust) Pty Ltd (In Liq) v Manthey (2017) 121 ACSR 389; [2017] QSC 145 at [31] per Jackson J, citing Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, 294-295 and 315.

Principles

1. There was no dispute as to the relevant principles. The power of the director to allot shares is a fiduciary power: Ngurli Ltd v McCann (1953) 27 ALJR 349; (1953) 90 CLR 425 at 439 per the court; Howard Smith Ltd v Ampol Ltd [1974] 1 NSWLR 68 at 76; [1974] AC 821 at 834B per Lord Wilberforce (PC); Whitehouse v Carlton Hotel at 289-290 per the plurality. Of course, it is open to the terms of a company's constitution to permit the exercise of a fiduciary power in a manner that would otherwise constitute a vitiating purpose: Whitehouse v Carlton Hotel at 291-292. The burden of proof falls on those who allege a fraud on the power, being the plaintiffs in this case: Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337 at 348-349 per Gibbs J; TC Newman (Qld) Pty Ltd v DHA Rural (Qld) Pty Ltd (1987) 12 ACLR 257 at 268; [1988] 1 Qd R 308 at 320 per Williams J; Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 at [61] per Brereton J.
2. In determining whether a fiduciary has exercised a power for an improper, extraneous or ulterior purpose, the court adopts a two-stage process: ascertaining, as a matter of law, the purposes for which the power may, and may not be, exercised; and determining as a matter of fact the purpose for which the power was exercised and whether that purpose was within the category of permissible purposes: Kokotovich Constructions Pty Ltd v Wallington [1995] NSWSC 54; (1995) 17 ACSR 478 at 490; Hancock v Rinehart at [60] per Brereton J.
3. Turning to the first of these inquiries, it is impossible to define in advance the exact limits beyond which the directors of a company must not ordinarily pass in exercising a fiduciary power to allot shares: Howard Smith Ltd v Ampol Petroleum Ltd at 77 (NSWLR); at 835D (PC); Whitehouse v Carlton Hotel at 289. However, in Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 42 ALJR 123; (1968) 121 CLR 483 at 493, the court (comprising Barwick CJ, McTiernan and Kitto JJ) stated the position as such (citations omitted): [the] ultimate question [as to whether the share issue was valid or invalid] must always be whether in truth the issue was made honestly in the interests of the company... Directors in whom are vested the right and the duty of deciding where the company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts.
4. Where what was done was authorised by the constitution of the company, there must be clear evidence of over-reaching or injustice in some manner such as deceit or oppression before a court will interfere to prevent what has been done having its effect according to the articles: Grant v John Grant & Sons Pty Ltd (1950) 24 ALJR 374; (1950) 82 CLR 1 at 20 per Latham CJ.
5. Directors of a company cannot ordinarily exercise a fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority: see Ngurli Ltd v McCann at 440 per the court; Ashburton Oil NL v Alpha Minerals NL (1971) 45 ALJR 162; (1971) 123 CLR 614 at 640 per Gibbs J; Howard Smith Ltd v Ampol Petroleum Ltd at 70 (NSWLR); at 837D (PC); Whitehouse v Carlton Hotel at 289 per the plurality; HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 at [639] per Emmett J. As the plurality stated in Whitehouse v Carlton Hotel at 290 per Mason, Deane and Dawson JJ: It is simply no part of the function of the directors as such to favour one shareholder or group of shareholders by exercising a fiduciary power to allot shares for the purpose of diluting the voting power attaching to the issued shares held by some other shareholder or group of shareholders.
6. As Dixon J stated in Mills v Mills (1938) 11 ALJR 527; (1938) 60 CLR 150 at 185: Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. Indeed, the exercise of a power for an ulterior or impermissible purpose is bad notwithstanding that the motives of the donee of the power in so exercising it are substantially altruistic: Whitehouse v Carlton Hotel at 293 per the plurality; TC Newman (Qld) Pty Ltd v DHA Rural (Qld) Pty Ltd at 321 per Williams J.
7. Equally, directors of a company cannot ordinarily allot shares with the intention of solely diluting the shareholding of an existing shareholder: Darvall v North Sydney Brick & Tile Co Ltd (1989) 15 ACLR 230; (1989) 16 NSWLR 260 at 336 per Clarke JA; Kokotovich Constructions Pty Ltd v Wallington at 491-492 per Kirby ACJ (Priestley and Handley JJA agreeing).
8. Whilst the power to allot new shares is conferred primarily to enable capital to be raised when required, it is too narrow an approach to say that the only valid purpose for which shares may be issued is to raise capital for the company: Howard Smith Ltd v Ampol Petroleum Ltd at 77 (NSWLR) at 835C (PC). As the Barwick CJ, McTiernan and Kitto JJ (comprising the court) observed in Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL at 493: The principle is that although primarily the power is given to enable capital to be raised when required for the purposes of the company, there may be occasions when the directors may fairly and properly issue shares for other reasons, so long as those reasons relate to a purpose of benefiting the company as a whole, as distinguished from a purpose, for example, of maintaining control of the company in the hands of the directors themselves or their friends.
9. Turning to the second step of the inquiry, in ascertaining the purpose for which the power was in fact exercised, the court is concerned with the state of mind of the director and is informed by the surrounding circumstances. As the Privy Council explained in Howard Smith Ltd v Ampol Petroleum at 77 (NSWLR); at 835A (PC) (citing what Viscount Finlay had said in Hindle v John Cotton Ltd (1919) 56 Sc LR 625 at 630-631): Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.
10. Of course, there can be no complaint about the exercise of power to allot shares if what was done was with the consent of the existing shareholders of the company. In such circumstances, it cannot be said that there has been a breach of fiduciary duty, as what has transpired has occurred with the consent of the fiduciary's principal.
11. Finally, as Young CJ in Eq noted in Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395 at [335] (Meagher JA agreeing with Young CJ in Eq on this issue): …An application to set aside an allotment of shares on the basis that the allotment was an improper exercise of the directors' duties, is a claim in equity. Even though s 175 of the Corporations Act gives statutory authority for the correction of the register, the correction is ordered applying the principles of equity. As such, the relief is equitable in nature and an order seeking rectification under section 175 of the Corporations Act is discretionary: Re Motasea Pty Ltd (2014) 97 ACSR 589; [2014] NSWSC 69 at [47] per Black J; Re Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 at [53] per Black J. Accordingly, the plaintiffs' relief is subject to be refused on the established bases for refusing equitable relief, including by reason of delay, laches, acquiescence and hardship.
12. Thus, for instance, in Ansett v Butler Air Transport Ltd (No 1) (1957) 75 WN (NSW) 299 at 303, Myers J held that resolutions passed by a board of directors issuing certain shares were invalid, being motivated by a desire to ensure there was always a majority of shareholders to carry out the policy which the directors thought best. Notwithstanding, a claim for rectification of the share register made after a delay of some eleven months in commencing the proceedings was refused, although the facts are somewhat different from the case at hand as the company was a public one and there was a real likelihood that persons might have dealt with the shares in the belief that the allotment would not be challenged: at 304-305. See further on this point: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [38-030].

Submissions

1. The plaintiffs submitted that the share issue was in breach of Dean's fiduciary duties as a director. A party to whom fiduciary duties are owed may provide informed consent to a breach of that duty, but only if provided with full and frank disclosure of all material facts: Keech v Sandford (1726) Sel Cas Ch 61; Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Winthrop Investments Pty Ltd v Winns Ltd [1975] 2 NSWLR 666. It was submitted that there was no evidence that Dean provided the plaintiffs with a full account of his purpose in making the allotment, nor that he paid for the shares (the last matter not being pleaded by the plaintiffs and contrary to the financial statements of Pacific Springs, referred to at [109]).
2. The plaintiffs submitted that the absence of any documentary evidence that some formal notice of the share issue had been provided to the plaintiffs led to an inference that the allotment was made for an improper purpose. The evidence of Ricards, Mr Summerfield and Mr Salameh as to what Dean told them about his parents agreeing to the allotment, or that he had sent paperwork to his parents in relation to the allotment, was said not to advance the defendants' case. Their accounts were said to be inconsistent and, the absence of the defendants producing the paperwork, the Court could not conclude that there was any. In oral reply submissions, the plaintiffs submitted that the statements made by Dean to third parties about the allotment "were false statements, designed to give the impression of objectivity and, in truth, designed to obscure the truth". Further, whatever Jorida might have said on the subject was said not to bind Gani. Further, if the parents had agreed to relinquish their ownership of the company in Dean's favour, they would simply have transferred their shares to him. It was submitted that Dean chose to allot the shares behind their backs.
3. The plaintiffs rejected the suggestion that, given that these events occurred 16 years ago, they simply no longer recalled their conversations with Dean in respect of the allotment. Such a finding was said to be inconsistent with the plaintiffs' conduct after the allotment of shares as, if they had appreciated that they were no longer controlling shareholders, they would not have continued to take an interest in the business in the years which followed. The fact that neither of the parents asked for any financial records in respect of the company was said not to detract from this submission as it was said to be consistent with Gani's evidence that he trusted his son and believed that Dean was managing the business profitably.
4. The defendants submitted that the notion of Dean obtaining fully informed consent was a distraction. All that Dean needed to tell his parents was that he was going to be the owner of the shares. The defendants submitted that the allotment was properly and formally effected: a written resolution was executed by Dean as the sole director; a formal share certificate was issued in Dean's name; Dean executed a formal application for shares (section 231(b), Corporations Act), pursuant to which he agreed to be bound by the constitution of Pacific Springs. His name was recorded in the register of members. ASIC was notified by lodgement of a Form 484 within the 28 days required by sections 178A, 178D and 254X of the Corporations Act. This indicated the regularity and propriety of the share issue, which was made known openly. Dean did not issue the shares secretly. If Dean wished to steal the company from his parents, this was not the way to go about it. Any company search would reveal the fraud.
5. The plaintiffs' contention that Dean, having no lawful or legitimate basis to become a shareholder in Pacific Springs, brazenly, and in gross abuse of his power, sought to deprive the plaintiffs of their 100% shareholding by diluting that shareholding to 10% was an allegation akin to dishonesty which should be scrutinised closely by reference to the Briginshaw standard of proof. It was an allegation inconsistent with the plaintiffs' belief that Dean was honest, reliable and of good character. It was an allegation that jarred with the inherent probabilities. It was inherently unlikely that Dean sought to appropriate to himself a 90% shareholding in Pacific Springs, as opposed to his parents consenting to him having that interest in light of the fact that Dean was successfully running the business. That the plaintiffs denied consenting to the share issue was something they had only come later to believe, reflecting an aversion to Ricards inheriting the advantages bestowed upon Dean, or simply forgotten due to the passage of time and coloured by recent events.
6. That the parents consented to the share issued was consistent with their healthy and harmonious relationship with Dean, and the plaintiffs as loving parents keen to assist Dean in his advancement in life, including by financial assistance, as the plaintiffs had done later in Dean's life. Ricards, Mr Salameh and Mr Summerfield gave corroborative evidence that Dean told them something of the share allotment at the time, and to suggest that Dean perpetuated his dishonesty by falsely telling others that his parents had consented to the allotment was inherently unlikely. It beggared belief that Dean had involved others in the ruse.
7. The defendants submitted that the plaintiffs' evidence of numerous conversations with Dean regarding the affairs of the company was entirely consistent with the plaintiffs maintaining a small stake in Pacific Springs and showing, as loving, caring parents, an interest in the activities of Dean. It was evidence that went no higher than displaying ordinary familial interaction between parents and their son as to his career and business. It was also relevant that disinterested third party witnesses gave evidence that the plaintiffs never claimed that they were, or otherwise conducted or identified themselves as, the substantial shareholders of Pacific Springs. The fact that Gani and Jorida never requested or received financial statements in respect of Pacific Springs was inconsistent with conduct one might expect from the sole shareholders of a company and consistent with persons holding a token shareholding.
8. Nor did the plaintiffs' case explain the issue of a C class share to Gani in 2007, which the defendants submitted only made sense in circumstances where the plaintiffs were not the sole shareholders of Pacific Springs, as otherwise there was no need to issue an additional share to Gani. The Court would infer that the share was issued to enable Dean to declare a dividend to Gani alone, which could not be done if the only shares on issue were ordinary shares. Such action was said to be at odds with the dishonesty with which the plaintiff sought to tar Dean in relation to the issue of 1,800 ordinary shares. This explanation was more probable than the plaintiffs' contention that the C class share was allotted without Gani's involvement or approval.
9. The defendants submitted that, as the burden of proof was on the party alleging a fraud on the power, being the plaintiffs, then if the Court did not accept their evidence or was unable to feel an actual persuasion that they did not consent or acquiesce to the allotment, then the plaintiffs failed. Further, "evidence is to be weighed according to the proof which it is in the power of one side to have produced and the power of the other to have contradicted": Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 per Lord Mansfield. This was said to have particular resonance in respect of the plaintiffs' lack of documentary evidence.
10. The defendants submitted that these proceedings were motivated by the fact that, during Dean's life, the plaintiffs and associated family members advanced to him significant sums of money, particularly between 2015 and 2018. That money was not repaid. On Dean's death, the plaintiffs discovered that Dean had left the entirety of his estate to Ricards. Whilst the plaintiffs were content for Dean to own Pacific Springs, that same generosity did not extend to Ricards, as they do not recognise Ricards as Dean's long-term life partner, nor approve of Dean's relationship with him. Thus, the Court would not accept the plaintiffs' denials that they did not consent to the allotment of shares. Rather, they sought to rescind that acquiescence because they disapproved of Ricards inheriting what they saw as a company belonging to their family, which did not include Ricards. At the very least, the Court would find that the plaintiffs have forgotten that they consented to the disputed allotment by reason of the passage of time and in light of their disapproval of Ricards inheriting Dean's shareholding in Pacific Springs. This is consistent with the plaintiffs' failure to recall other significant transactions concerning Pacific Springs, being the issue of the C Class share in August 2007 and the execution of the Loan Agreement and the Fixed and Floating Charge Agreement in February 2010.

Conclusion

1. The first thing to observe is that what Dean is alleged to have done is inconsistent with the plaintiffs' experience of their son throughout his life. Gani and Jorida considered Dean to be honest, reliable and of good character. Although they lived in different countries, they enjoyed a good relationship including regular visits and telephone calls. There is evidence of conflict in respect of money, particularly during the final years of Dean's life when he was concerned to receive his inheritance. That does not mean that Dean did not do what is alleged. But such acts would be at odds with his character as observed over a long period of time and thus less likely.
2. Second, the almost complete absence of documents produced by the plaintiffs is startling in circumstances where, on their case, Pacific Springs was one of the family businesses of the Mualim family, established for 20 years, to which they advanced a loan of $800,000 and which has been operated for their benefit ever since. Whilst one accepts a degree of informality in family businesses, the fact that not a single tax return, bank statement or piece of contemporaneous correspondence has been produced is significant.
3. The lacuna of documentary evidence to support the plaintiffs' case, where the plaintiffs might be expected to be in possession of documents to corroborate their account, may lead to an inference that such documents may not have assisted the plaintiffs' case: Jones v Dunkel [1959] HCA; (1959) 101 CLR 298 8 at 320 per Windeyer J, citing with approval Wigmore on Evidence (3rd ed., 1940), vol. 2, page 162: "The failure to bring before the tribunal some circumstance, document or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party…"; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [134] (Callinan J) Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [44] (Eames JA, with whom Buchanan JA agreed); Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 at [131]-[132] (Croft J); Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 at [112]. I draw the inference in this case. An absence of documents is also consistent with the plaintiffs having no involvement in Pacific Springs, such as they might have if they regarded the company as owned by Dean.
4. Third, the evidence in respect of the incorporation of Pacific Springs, the purchase of "Nice Cream" and the running of the business in the early years is consistent with a loan arrangement rather than the parents buying a business for themselves, to be run by their son. Gani and Jorida were keen to assist Dean in life, including financially and, indeed, generously did so in the final years of Dean's life when he was in poor health. In 2000, Gani and Jorida provided financial assistance with a $800,000 loan to buy a business. Gani and Jorida then left it to Dean to run the business. While Dean spoke to his parents about the business from time to time, the conversations as described by Gani and Jorida are consistent with parents showing an interest in their son's business and their son wanting to keep them involved in what he was doing.
5. Those working in the business had no idea that the parents owned shares in the company, not even Ricards. Those who provided professional services to the company never dealt with Gani and Jorida. There is some inconsistency between what Mr Trood and Mr Summerfield say Dean told them about the parents' interest in the business, but the inconsistency is not material. One expects some variation between witnesses' recollection, genuinely given, of conversations long ago. The impression gained from the evidence of Mr Trood, Mr Salameh, Mr Summerfield, Mr Teuma, Ricards and the parents themselves is that Dean conducted the business of Nice Cream as if he owned it and, beyond regular telephone conversations with his parents in which the business was sometimes talked about, the parents were content for their son to run the business as he saw fit. The parents never sought any financial information or documents to monitor the company's affairs.
6. Fourth, in 2004, the evidence suggests that, given the fact that almost half of the loan had been repaid, Gani and Jorida were content for Dean to be the effective owner of the business as they trusted him to run the business well and continue to repay the loan. By then, Dean was 39 years of age. He had been running the business without his parents' involvement for four years and, it would appear, successfully. It is likely that Dean wanted to be the majority shareholder. I think it likely that his parents were content for Dean to have control as he had proved himself by running the business for four years and generating enough revenue to repay a sizeable amount of the loan.
7. Evidence was given by Ricards, Mr Summerfield and Mr Salameh as to what Dean told them about the allotment of shares. Dean said he had spoken to his parents about it and sent them paperwork. Given the parents' failure to comply with the notice to produce, the fact that no paperwork was produced by the parents does not mean that Dean did not send it to them at the time. I place little weight on Gani and Jorida's denials, given the problems I have with their evidence generally.
8. It is also evident that Dean lived up to his parents' trust. He dutifully continued to make payments after the issue of the 1,800 ordinary shares and even after the loan had been repaid in full. He continued to confer financial benefits on his parents. In 2007, he issued a "C" class share to his father and, in 2010, arranged for a Loan Agreement and Fixed and Floating Charge to be prepared, signed, stamped and registered to record his parents' interest in Pacific Springs. That was when the invoices stopped. Eight months later, Dean and Ricards purchased a property in Wolli Creek, to which Pacific Springs moved its operations. The property was purchased using a different corporate structure, as was the Marrickville property. Whilst the plaintiffs suggest there is something sinister about this, it is also consistent with Dean acquiring assets with his partner rather than his parents, an unremarkable thing for a man in his 40s. Dean may well have spoken to his parents about these transactions, but the fact that Gani and Jorida did not know that the properties were acquired by a different corporate entity may simply be because it was not their concern.
9. At the time of Dean's passing, Jorida was president and commissioner of the family company, PT Gadjah Ruku, Gani was a commissioner, Irwan was a director and each of them together with Yohanna held shares in the company. That is, Dean was not part of this family business. This is because he had his own business in Australia, being Pacific Springs.
10. Given that Gani and Jorida's evidence was so unreliable, I place no weight on their evidence that they did not know or agree to the share issue. I find that they agreed at the time and have either since forgotten or have otherwise chosen to deny that they knew and agreed in order to advance their financial interests in this case. I find that the issue of 1,800 shares to Dean in 2004 was done with the knowledge and consent of the plaintiffs and thus refuse the declaratory relief sought.

APPOINTMENT AS DIRECTOR

1. The plaintiffs sought a declaration that Ricards is not a director of Pacific Springs. Ricards only sought to defend this issue if the Court found against the plaintiffs in respect of the share issue. Ricards contended that the combined effect of Article 36 of Pacific Spring's constitution and clause 8(i) of Dean's Will was that Ricards had the power to apply for and accept directorship of Pacific Springs. Ricards had executed a consent to act as required by section 201D of the Corporations Act. Thus, his appointment was said to have been valid. The plaintiffs submitted that Ricards' appointment as a director after Dean's death was not authorised by a combination of the company's constitution and Dean's Will. Such a proposition was said to be novel, contrary to principle and without any support in authority.
2. In the alternative, the defendants submitted that the Court would cure any irregularity in Ricards' appointment by an order pursuant to section 1322(4) of the Corporations Act as, in this scenario, Ricards could readily appoint himself as a director and secretary at any general meeting of Pacific Springs as he will hold at least 90% of Pacific Springs' ordinary shares. As such, to withhold relief would be to leave Pacific Springs without any directors until a general meeting of shareholders could be properly convened. There was no utility in adopting such an approach, with the power in section 1322(4) of the Corporations Act able to be exercised to address this issue. It was said that there was no risk that "substantial injustice has been or is likely to be caused to any person by making such an order", particularly given Article 62 of Pacific Springs' constitution had already deemed valid all acts performed by Ricards, irrespective of any defect in his appointment. Thus, it was said to be "just and equitable that the order be made": section 1322(6)(a)(iii), Corporations Act.
3. The plaintiffs submitted that Article 62 did not assist as Ricards had not been appointed by the plaintiffs. Article 62 echoed the indoor management rule laid down in Royal British Bank v Turquand (1856) 6 E&B 327 but could not validate the activities of a stranger who has chosen to trespass upon the affairs of the company. The plaintiffs submitted that the matter ought not be validated under section 1322(4)(a) as section 1322(6) required the Court to be satisfied that the act sought to be validated was essentially of a procedural nature, that Ricards acted honestly (said to pose a difficulty for Ricards, not being a matter raised in the plaintiffs' pleadings) and that no substantial injustice had been or was likely to be caused to any person. The plaintiffs submitted that it was incumbent upon Ricards to prove - in respect of every commercial transaction undertaken by the company since his appointment - that no loss had been sustained and that no liability, present prospective or contingent, had been incurred without a corresponding benefit or advantage of value greater than that liability. Absent such proof, it was said that the only inference to be drawn was that the company had incurred losses during Ricards' directorship, to the consequent prejudice of the plaintiffs as its shareholders.

Appointment of director by Will?

1. Article 36 of the constitution of Pacific Springs provides: The Directors shall have power at any time, and from time to time, to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, but so that the total number of Directors shall not at any time exceed the number fixed in accordance with this Constitution. The article is a variant on regulation 68 of Table A in the Fourth Schedule to the Companies Act 1961 (NSW).
2. By Article 37, the company can, by resolution, remove a director and appoint another person in their stead. Thus, under Pacific Springs' constitution, both a director and the members in general meeting have power to appoint a director. "The powers are different in their nature", as described in respect of regulation 68 of Table A in its full text in Way v A G Way & Co Pty Ltd [1959] ALR 855; [1959] VR 370 at 378 (Herring CJ) and Worcester Corsetry Ltd v Witting [1936] Ch 640 at 650-651 per Lawrence LJ; see more recently Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 6 ACLC 426; (1988) 13 ACLR 110 at 114, 116 (Bryson J).
3. Articles 43 to 50 of Pacific Springs' constitution is entitled "Powers and Duties of Directors" and Articles 51 to 63 is entitled "Proceedings of Directors", the latter concerning meetings, committees, quora, chairpersons and minutes. Article 53 provides: (emphasis added) Any Director may appoint any person (whether a member of the Company or not) to be an alternate or substitute Director in his place during such period as he thinks fit. Any person while he so holds office as an alternate or substitute Director shall be entitled to notice of meetings of the Directors and to attend and vote thereat accordingly and to exercise all the powers of the appointor in his place and shall ipso facto vacate office if the appointor vacates office or is removed from office as a Director. Any appointment or removal under this clause shall be effected by notice in writing to the Secretary under the hand of the Director making the same. It is reasonably apparent that a director's power to appoint an alternate or substitute director under this article is largely but not solely concerned with the alternate or substitute director attending meetings and voting.
4. Article 62 provides: (emphasis added) All acts done by any meeting of the Directors or of a committee of Directors or by any person acting as a Director shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. Article 62 is largely, but not solely, concerned with a director's actions at a meeting of the board or a committee. But where the company has only one director - as was permitted by Pacific Springs' constitution - the emphasised portions of Article 53 and 62 may gain greater prominence.
5. There is no question that, under the constitution, Dean had power to appoint Ricards as a director of Pacific Springs, either to serve as an additional director together with Dean or instead of Dean, and either for a specified period of time or at large. But as a general proposition, the office of director is personal to the director, vacated on the director's death and cannot be 'handed down' as personal property nor exercised by a director's attorney. As Bryson J explained in Mancini v Mancini (1999) 17 ACLC 1570; [1999] NSWSC 799 at [30]: The office of a director is a personal responsibility, and can only be discharged by the person who holds the office. If there is any exception, it must be found in the constitution of the company and in some authorisation there found to act by an alternate or other substitute or delegate. The office of a director is not a property right capable of being exercised by an attorney or other substitute or delegate of the person holding the office; many rights as shareholder can be distinguished in this respect because they are rights of property.
6. Thus, in Mancini v Mancini, a person could not act as director under a power of attorney. The same result pertained in Saad v Doumeny Holdings Pty Limited [2005] NSWSC 893, where the sole director of the company was in a coma and the holder of the director's power of attorney sought to appoint a director and issue shares. Burchett AJ held that, once the director lapsed into a coma, it was too late for his attorney to seek to perform a duty of a director's office: at [17]. See likewise, Permanent Trustee Co Limited v Bernera Holdings Pty Limited [2004] NSWSC 56; (2004) 11 BPR 21,505 per Young CJ in Eq; Re Ledir Enterprises Pty Limited (2013) 96 ACSR 1; [2013] NSWSC 1332 at [123] per Black J.
7. Pacific Springs' constitution does not specifically refer to the death of a director nor provide for a director to appoint another director to take their place on their death. Article 36 conferred a power on Dean "at any time … to appoint any person to be a Director". As Dean made his last Will whilst still a director, potentially a Will could be an instrument of appointment. However, Dean's power to appoint a director was specified by the constitution to be for two purposes, being "either to fill a casual vacancy or as an addition to the existing Directors". Appointing Ricards as a director, such appointment to take effect after Dean's death, cannot be described as an appointment for either purpose. Once Dean died, any power to appoint a director under Article 36 ceased. As Barrett J observed in Beck v LW Furniture Consolidated (Aust) Pty Ltd [2011] NSWSC 235 in respect of an article in relevantly the same terms, and in circumstances where both directors of the company had died, at [36]: …Under [the article], the directors have a power to appoint directors but, if there are no directors, the power obviously cannot be exercised. His Honour's construction of the article was not in issue on appeal: Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14 at [19].
8. Article 53 does not assist as it authorises a director to appoint an alternate or substitute director "in his place" and, on Dean's death, his "place" as a director ceased to exist. Thus, the constitution of Pacific Springs did not confer a power on Dean as a director to appoint a replacement director after his death. That is not to say that a constitution could not confer such a power, but simply to say that the constitution of Pacific Springs did not.
9. Nor did Dean by his Will seek to appoint Ricards as a director of Pacific Springs. By clause 2 of his Will, Dean appointed Ricards as executor and trustee of his Estate. If Ricards was not willing or able to act as executor, then Mr L'Orange and Mr Trood were to be executor and trustee instead. By Clause 4, Dean directed his trustee to pay all debts of the Estate and distribute the residue to Ricards. Clause 8 gave the trustees a wide range of powers including to sell assets, apply the capital or income of the Estate for the maintenance, education and advancement of a beneficiary, invest, make loans, acquire or lease assets and, in clause 8(i): Trustees Powers My Trustees may in their discretion: … (i) vote in, and apply for and accept directorship of, any company in which my Estate may be interested or concerned; …
10. That is, Dean conferred powers on his trustees which they may choose to exercise, including to apply for and accept directorship of a company in which his Estate was interested or concerned which, of course, included Pacific Springs. Clause 8 can be compared with clause 6 of Dean's Will, where he specifically appointed Ricards as his nominated successor for the purpose of any power of appointment held by Dean in relation to any trust. Thus, the combined effect of Article 36 and clause 8(i) of the Will did not provide a basis for Ricards' appointment as director.
11. The defendants' reliance on Article 62 does not advance matters. The article was considered in Wood v Inglis (2008) 68 ACSR 420; [2008] NSWSC 1147, where Barrett J observed that, "the threshold question it poses is whether the particular case is one of defective appointment or no appointment at all": at [82]. Further, at [83]-[84]: [83] The distinction was explained by Lord Simonds in Morris v Kanssen [1946] AC 459 at 472 in a passage approved by members of the High Court in Grant v John Grant & Sons Pty Ltd [[1950] HCA 64; (1950) 82 CLR 1]: "[T]he section and the article, being designed as machinery to avoid questions being raised as to the validity of transactions where there has been a slip in the appointment of a director, cannot be utilised for the purpose of ignoring or overriding the substantive provisions relating to such appointment." [84] The distinction was further elucidated by Kitto J in this way (at CLR 53): "The section and the article presuppose an appointment in fact made by a person or body having power to appoint, and they refer to a slip in the making of the particular appointment in question."
12. In Wood v Inglis, the constitution provided that the company in general meeting had power to appoint a director and, as no such meeting had taken place, "The situation was not one of defective appointment. It was one of no appointment": at [85]. The same can be said here.

Appointment of executor as director?

1. The question then becomes whether, under the Will, Ricard was entitled to apply for and accept directorship of Pacific Springs. It must be immediately noted that Ricards was appointed as a director before a grant of probate of Dean's Will. Upon Dean's death, his Estate including his shares in Pacific Springs vested in the NSW Trustee until a grant of probate: section 61, Probate and Administration Act 1898 (NSW). When the grant of probate was made, the Estate divested from the NSW Trustee and vested, as from death, in the executor: section 44, Probate and Administration Act.
2. As to whether acts done by an executor before a grant of probate are valid, the law may presently be said to be unclear. There is much authority for the proposition that in New South Wales an executor cannot effectively commence legal proceedings before a grant of probate: Marshall v DG Sundin & Co Pty Ltd (1989) 16 NSWLR 463 at 473 per Yeldham J; Darrington v Caldbeck (1990) 20 NSWLR 212 at 214 per Young J; Byers v Overton Investments Pty Ltd (2001) 109 FCR 554; [2001] FCA 760 at [28] per Branson, North and Stone JJ; Scallan v Scallan [2001] NSWSC 1129 at [10] per Windeyer J cf Hewitt v Gardner (2009) 3 ASTLR 407; [2009] NSWSC 705 at [74] per Ward J. There is also longstanding authority that an executor cannot issue a notice to quit on behalf of a deceased landlord before a grant of probate: Ex parte Callan; Re Smith [1968] 1 NSWR 443 at 448 per Isaacs J.
3. However, these authorities were reviewed and a different view was taken by White JA in Carolyn Deigan as executrix for the estate of the late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299; (2019) 19 BPR 39,853 (Lockrey v Fussell). In that case, an executor issued two notices to rescind a contract for sale of land which had been entered into by the deceased as vendor. The first notice was issued shortly after the vendor's death and before a grant of probate. The second notice was issued after a grant of probate. White JA gave a learned exposition of the case law and concluded at [173]: In my view, the nettle should be grasped. Is it the case that before a grant of probate a bank cannot transfer moneys standing to the credit of a deceased's account into an estate account in the name of the executor? Can an executor, before or without the grant of probate, not use those moneys to pay debts, funeral or testamentary expenses? Can an executor, before or without grant of probate, not transfer chattels to those entitled under the will? In my view on a purposive construction of ss 44 and 61 of the Probate and Administration Act, considering the background of those provisions, the executor does have such powers.
4. White JA noted that the title of the NSW Trustee under section 61 was a bare legal title with no powers of management or administration: at [174]. Further, under the general law, on the testator's death, the executor was the beneficial owner of the real and personal estate which he or she held for the purpose of carrying out the functions and duties of administration and was a trustee in that sense: at [175], citing Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12 at 17-18. At [176]: Thirdly, an executor has authority derived from the will to collect assets, pay debts, manage the estate for the benefit of the beneficiaries, and make distributions. That authority is removed only to the extent that such removal is necessarily implied by the provisions of ss 44 and 61. Section 61 is concerned only with the vesting of legal title in the NSW Trustee for the limited purpose of preventing a possible gap in legal ownership of the estate. Section 44 provides for the estate of the deceased to pass to and become vested in the executor or administrator upon the grant of probate or administration, but that vesting operates as from death. In the interim there is no restriction on the executor's authority to deal with the assets, except as arises by necessary implication from the fact that legal title is outstanding in the NSW Trustee. The NSW Trustee could not assert title against a person acquiring assets from the executor before grant, even if no grant was ever forthcoming.
5. Thus, his Honour concluded that the notice of rescission issued shortly after the vendor's death was validly given by the executor but, if not, upon the grant of probate, the contractual rights were taken to have been vested in the executor as from the deceased's death and the rescission was taken to be validly exercised: at [180]-[181]. The Chief Justice and Macfarlan JA approached the matter on the basis that the second notice of rescission was valid and thus it was not necessary to decide whether the executor had the power to issue the first notice before a grant of probate. Per Bathurst CJ at [5]: In those circumstances, it is not necessary for me to express an opinion on the question of whether Ms Deigan, although named as executrix in the will, could not before the grant of probate exercise the right of rescission on behalf of and for the benefit of the estate, or on the question of whether if she did her action was retrospectively validated. The issues involved in the latter question are of considerable complexity and as White JA with respect correctly points out the conclusion which he has reached is contrary to at least that of Emmett J in Byers v Overton Investments Pty Ltd (2000) 106 FCR 268; [2000] FCA 1761 and the same conclusion reached by the Full Court of the Federal Court in that case, (2001) 109 FCR 554; [2001] FCA 760 at [24]-[28]. Although there is great force in the reasoning of White JA, it does not seem to me appropriate to decide that the decision of the Full Court of the Federal Court was plainly wrong in circumstances where it is unnecessary to do so.
6. I note Bathurst CJ's description of White JA's reasoning as having "great force". This case does not concern the commencement of legal proceedings by an executor before a grant of probate, with which Byers v Overton was concerned. By parity of reasoning, however, the conclusion reached by the Full Court of the Federal Court in Byers v Overton would produce a different result than the conclusion reached by White JA in Lockrey v Fussell. This issue was not argued before me.
7. The answer in this case emerges from the fact that the appointment of Ricards as director and secretary was ineffective in any event. On 14 September 2018, Ricards consented to act as a director and secretary of Pacific Springs. On 14 September 2018, Ricards signed a "Memorandum of Resolutions of the Sole Director of the Company" in which it was recorded: It was resolved that, having consented to act as a director of the company, [Ricards] be appointed …
8. That is, Ricards resolved that he be appointed. The resolution pre-supposed that he had power to do so. Ricards had no power under Pacific Springs' constitution to appoint a director. Dean's power to appoint a director had ceased on his death. The constitution did not envisage a director appointing a replacement director by a Will and Dean did not attempt to do so. The power to appoint a director thus rested with the company in general meeting. Section 44 of the Probate and Administration Act does not operate to render valid something which was invalid when done: Ex parte Callan; Re Smith.
9. Nor does section 201F of the Corporations Act assist. Section 201F provides: Special rules for the appointment of directors for single director/single shareholder proprietary companies … (2) If a person who is the only director and the only shareholder of a proprietary company: (a) dies; or … and a personal representative or trustee is appointed to administer the person's estate or property, the personal representative or trustee may appoint a person as the director of the company. … (4) A person who has a power of appointment under subsection (2) … may appoint themselves as director. (5) A person appointed as a director of a company under subsection (2) … or (4) holds office as if they had been appointed in the usual way.
10. Section 201F was utilised in Alexiou v Alexiou [2020] NSWSC 748 where the deceased was the sole shareholder in and director of the company and, after a grant of probate, the executrix transferred the share capital to herself and became a director in a company: at [8]. In Mavris v Level 12 Property Holdings Pty Limited [2018] NSWSC 957, Slattery J considered that section 201F(2) did not apply where neither letters of administration nor probate had yet been granted: at [3], [6]. Rather, his Honour appointed the deceased director's wife as an administrator of the estate under section 74 of the Probate and Administration Act, under which the Court may, if it thinks necessary or convenient, appoint an administrator with the administration limited as the Court thinks fit. So appointed, the director's wife could appoint herself as a director of the company under section 201F. But section 201F does not apply here as Pacific Springs had more than one shareholder, including shareholders other than the company's former sole director. Thus, Ricards' appointment as director was invalid.

SECTION 1322

1. Section 1322 of the Corporations Act provides: Irregularities … (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; … and may make such consequential or ancillary orders as the Court thinks fit. … (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and … (c) in every case-that no substantial injustice has been or is likely to be caused to any person.
2. A case directly on point is the High Court's decision in Weinstock v Beck, which concerned an order made under section 1322(4) in respect of the invalid appointment of a director where the company's constitution was relevantly identical. There, the sole director of a company had been acting as a director for some 30 years. In fact, the director was not validly appointed as his appointment had lapsed by operation of the articles of the company at an annual general meeting in 1973. The director was unaware of this. In 2003, the director appointed another director under the equivalent of Article 36 and it was accepted that, as the appointing director was not himself validly appointed, nor was the additional director. In three separate judgments, their Honour's upheld an order made by Barrett J under section 1322(4) declaring that the appointment of the additional director in 2003 was not invalid by reason of the fact that the appointing director did not hold office as a director at the time. The approach to be taken to construing and applying section 1322(4) was described by French CJ at [39]-[40]: [39] Corporations, in contemporary Australian society, serve the purposes of enterprises, large and small, owned and operated by men and women, some of whom are sophisticated, knowledgeable and well-advised on matters of corporate governance and some, perhaps many, of whom are not. Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. [40] The dispensing power conferred on the Court by s 1322(4)(a) is not in the nature of a general absolution for all past errors. It does not authorise the making of an order declaring that an impugned act, matter or thing is valid. It allows a determination by the Court that the act, matter or thing done "is not invalid" by reason of a provision of the Corporations Act or a provision of the constitution of a corporation. The remedy may be sought by a party fearing or suspecting invalidity on such a ground or, as in the present case, to meet a contention of invalidity advanced by another party in adversarial proceedings. The effect of a declaration under the provision is limited to overcoming invalidity flowing from a particular contravention or contraventions. It could not be otherwise. It is only with respect to particular contraventions that the Court can reach the state of satisfaction required by s 1322(6). See also Hayne, Crennan and Kiefel JJ at [53], [56] and Gageler J at [60]-[65].
3. Before an order can be made under section 1322(4), the Court must be satisfied of any one of the conditions set out in section 1322(6)(a)(i) to (iii) and, as such, the power to make an order under section 1322(4)(a) is not limited to cases of procedural irregularity: Weinstock v Beck at [10] per French CJ. Thus, it is not necessary for the defendants to establish that Ricards' appointment was essentially of a procedural nature or that Ricards acted honestly, as the defendants sought an order on the basis that it is just and equitable that the order be made, that is, under section 1322(6)(a)(iii).
4. Noting the plaintiffs' submissions that it would be difficult for the defendants to prove that Ricards acted honesty, I will address this suggested difficulty. In Re ICandy Interactive Limited (2018) 125 ACSR 369; [2018] FCA 533, Banks-Smith J collected the case law in respect of determining whether someone has acted honestly for the purposes of section 1322: at [54]-[57]. Relevant considerations include whether proper competent and expert advice was sought and obtained and whether the person has acted without deceit or conscious impropriety. Mr Ricards said that he was appointed as director at the suggestion of Mr Salameh. Mr Salameh deposed that he expressed the view that Dean's Will had a provision which allowed Ricards to apply for and accept directorship of Pacific Springs and, given that the plaintiffs had a minority shareholding in the company, lived overseas, had shown no interest in the company in the past and were unlikely to do so now that Dean had died, Mr Salameh asked whether Ricards would like him to prepare the paperwork to make Ricards a director, to which Ricards agreed. Mr Salameh was not required for cross-examination. Thus, the unchallenged evidence is that Ricards acted in accordance with the advice of the company's accountant. Ricards was entitled to assume that the advice was correct. I find that Ricards acted honestly.
5. As to section 1322(6)(a)(iii), "just and equitable" is not defined in the Corporations Act. In The Chinese Cultural Club Limited (2004) 49 ACSR 568; [2004] NSWSC 432, Campbell J, when considering section 1322(6)(a)(iii), adopted Barrett J's review of the authorities considering how the phrase has been construed in other legislation in Eddy Lau Constructions Pty Limited v Transdevelopment Enterprise Pty Limited [2004] NSWSC 273 at [45]-[47]. See likewise in Re Queensland Bauxite Limited (2018) 364 ALR 661; [2018] FCA 2113 per McKerracher J at [37] and Re Novonix Limited (2019) 141 ACSR 636; [2019] FCA 2198 per Jackson J at [27]-[28].
6. Taking the same approach, the words "just and equitable" are words of the widest significance and do not limit the jurisdiction of the Court to any case; it is a question of fact and each case must depend on its own circumstances: Re Bleriot Manufacturing Aircraft Co (1916) 32 TLR 253 at 255. A court directed by statute to proceed according to what is "just and equitable" is given a wide discretion with no necessary limit on the generality of the words, to be applied in their ordinary meaning as calling for the exercise of judgment in the conventional way: Thomas v MacKay Investments Pty Limited (1996) 22 ACSR 294 at 302 per Owen J. In Talga Ltd v MBC International Limited [1976] HCA 22; (1976) 133 CLR 622, Stephen, Mason and Jacobs JJ considered whether it was just and equitable that a transaction be treated as valid under the Banking Act 1974 (Cth). In reaching such a conclusion, at 634: … The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters … which have no rational connexion with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.
7. Before making an order under section 1322(4), the Court must also be satisfied that no substantial injustice will be caused by the order sought: section 1322(6)(c). As to "substantial injustice", detriment per se is not the same as substantial injustice. The question is whether the remedial order is unjust in the sense of causing such prejudice overall as to be unfair or inequitable, taking into account the interests of those directly affected: Super John Pty Limited v Futuris Rural Pty Limited (1999) 32 ACSR 398; [1999] NSWSC 627 at [14]-[15] per Santow J. 'Injustice' requires the Court to consider real, and not merely insubstantial or theoretical, prejudice. It is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice is in favour of making the order: Re Compaction Systems Pty Limited & the Companies Act (1976) 2 ACLR 135 at 150; [1976] 2 NSWLR 477; followed by French CJ in Weinstock v Beck at [11] per French CJ. See also In the matter of DAC Finance (NSW/QLD) Pty Limited [2020] NSWSC 182 at [35] per Gleeson J; Gofur v Bangladesh Islamic Centre of NSW (BIC) [2020] NSWSC 652 at [41] per Sackar J; Re A Bliss Clinic Pty Limited v Goodwin (No 2) [2020] FCA 869 at [104]-[107] per Colvin J; Car Buyers Australia Pty Limited v Australian Securities and Investments Commission [2020] FCA 599 per Gleeson J at [31]-[32].

Conclusion

1. I am satisfied that an order should be made under section 1332(4)(a) of the Corporations Act in respect of Ricards' appointment as a director of Pacific Springs and any actions which he has taken since. The appointment was made on the advice of Pacific Springs' accountant in circumstances where Ricards was the executor named in Dean's Will, the beneficiary of Dean's Estate and thus soon to become the majority shareholder, and the operations manager of the business for 18 years. Ricards was the obvious person for the job.
2. There is no evidence that Ricards has acted in any way untoward in the role of director since his appointment. Ricards is supported by professional accountants and lawyers and a long-serving office manager, Mr Teuma. The minority shareholders had never taken a role in the business and live overseas. Calling a meeting of shareholders will inevitably result in Ricards' appointment, with no particular benefit to be gained from the time and cost involved in that process. Nor should those who have dealt with the company since Ricards' appointment be left in any doubt about the validity of those dealings. I consider it just and equitable to make the order sought, and that no substantial injustice will arise from such an order.

LACHES

1. It is not necessary for me to consider the defences of laches and estoppel. I will however do so briefly. The defendants submitted that the proceedings were not commenced until almost 15 years after the 1,800 shares were allotted to Dean. Since that time, a significant amount of irremediable prejudice made it unconscionable to sanction the plaintiffs' relief. First and foremost, Dean had passed away. His evidence may have "cast a different complexion on the matter ". It was likely that documentary evidence had been lost by reason of the passage of time. Assuming that Dean owned the company, Ricards allowed Dean to make advances from their personal joint accounts to Pacific Springs as and when the company required working capital. Dean routinely paid business expenses incurred by Pacific Springs using his credit cards, particularly when the company was not generating sufficient cash flow to cover these expenses when they fell due for payment. Ricards marked-up a bundle of credit card statements identifying such payments. Dean then paid his credit card using Dean and Ricards' personal bank account. Ricards marked-up a bundle of bank statements identifying such payments. Dean told Ricards that Pacific Springs would reimburse their joint bank account when the company was generating enough cash; amounts remaining unpaid would be recorded in the company's accounts payable ledger in the meantime and, if Pacific Springs could not reimburse the monies in the short term, Dean would record the amounts as a loan to the company. An aged payables report for Pacific Springs indicates that some $300,000 of business expenses is yet to be reimbursed.
2. Ricards would not have agreed to this if he had known that Dean's parents claimed to be substantial shareholders in the company. Nor would he have agreed to work for Nice Cream for the modest annual salary which he received, being from $20,000 to $40,000 a year from 2013 to 2016. Nor would Ricards have agreed to Pacific Springs Investments making unsecured loans to Pacific Springs, recorded in Pacific Springs' balance sheet for 2016 at $183,467, being rent owed by Pacific Springs to the Pacific Springs Trust, which amount of indebtedness has since increased as Pacific Springs has not paid any rent since. Nor would Ricards have allowed Pacific Springs to occupy the Wolli Creek and Marrickville properties without paying market rent to the Pacific Springs Trust.
3. Even if the Court were not satisfied that the plaintiffs consented to or acquiesced in the share allotment, the plaintiffs were said to have been put on notice of the allotment many years ago. The plaintiffs were informed by Dean of his desire to be the effective owner of Pacific Springs. The plaintiffs stopped being involved in the annual general meetings of Pacific Springs from 2004 onwards, in circumstances where they had previously been involved. Such a fact, along with the lack of any financial reports delivered to the plaintiffs, would have indicated that Dean had decided to take over and operate the company as if it were his own consistent with his stated desire. The plaintiffs refrained from taking any steps to monitor the company or their shareholding, including by consulting publicly available material or the records of Pacific Springs, to ensure it remained unaffected notwithstanding indications that Dean had decided to take it over as if it was his own. It was implausible that the issue had not arisen earlier, in circumstances where the plaintiffs were receiving substantial payments from Pacific Springs, which they were treating as dividends. It was difficult to see how the shareholding of Pacific Springs would not have arisen whilst the plaintiffs managed their own tax affairs. In light of these matters, the Court would be satisfied that it would be practically unjust to grant the relief sought.
4. The plaintiffs contended that the equitable doctrine of laches had no application as the parents had not acquiesced in the allotment of shares as they had no knowledge that it had occurred. Any prejudice from the passage of time was said to have been attributable to Pacific Springs' failure to maintain proper books and records as required under the Corporations Act throughout the period during which Dean was its director. The plaintiffs' evidence indicated that they continued to be involved in the affairs of the company throughout, which was inconsistent with an appreciation by them that they were no longer the controlling shareholders. The Loan Agreement and Fixed and Floating Charge were also said to demonstrate that the defence of laches lacked substance as the documents established the plaintiffs' continuing involvement in the affairs of Pacific Springs (a submission perhaps inconsistent with the plaintiffs' insistence that they did not execute the documents). Gani said that if he had known that he and his wife's shareholding in Pacific Springs had been diluted, he would have taken steps to rectify the position earlier.

Principles

1. There was no dispute as to the principles. In Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410 at [163], Young JA (Allsop P and Macfarlan JA agreeing) identified the elements of the defence of laches as comprising three components: knowledge of the wrong, delay and unconscionable prejudice caused by the delay. This summary has been approved in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [415] per Gleeson JA (Meagher and Barrett JJA agreeing); Chung-Yi Pty Ltd v Chih-Yang Chang (No 2) (2018) 128 ACSR 585; [2018] NSWSC 1112 at [96] per Ball J; Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664 at [568] per Riordan J; Clementi v Rossi [2019] VSC 725 at [330] per McMillan J.
2. In Crawley v Short, Young JA also stated (at [164]): "the key element is whether, in all the circumstances, "it would be practically unjust to give a remedy ... Normally, that means that the defendant must show both delay and detriment suffered by the delay". As Young JA further stated in that same case (at [175]): …all three elements must be taken together and the ultimate question asked as to whether, in all the circumstances, the plaintiff has impliedly, in equity, released the defendant from his or her claim or has so acted as to make it unfair that the claim should now succeed.
3. This evaluative analysis accords with what Meagher JA stated in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [73] (with whom Beazley P and Emmett JA agreed): The doctrine of laches is directed to a broader and different question. That question is whether, as between the parties, it would be practically unjust to give relief which otherwise would be just. In answering that question, account is taken of the length of any delay, the nature of acts done during the period of that delay, whether the plaintiff had sufficient knowledge to justify the commencement of proceedings, whether there has been prejudice to the defendant or others and the nature of the relief claimed…
4. In respect of the element of knowledge, as Young JA noted in Crawley v Short at [168], the authorities give little guidance as to the extent of the knowledge required. Further, as Young JA observed in Crawley v Short at [180], "it is an unrewarding task to search for some formula as to just what degree of knowledge must exist in any particular case". Instead, it is a "question of fact and degree in each case to be taken together with all the other facts of the particular case ": at [169]. Importantly, however, knowledge encompasses knowledge of the facts giving rise to the cause of action and, as such, the "availability of the means of knowledge is as good as knowledge": Savage v Lunn [1998] NSWCA 204 (unreported) at 3 per the court; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) (2008) 39 WAR 1; [2008] WASC 239; [2009] WASC 107 at [9306] per Owen J. As the learned authors of Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) state (at [38-070]): …in the kind of laches which consists of a plaintiff's long delay leading to the defendant (or third persons) reasonably altering their position to their detriment in reliance thereon, there seems to be no reason why the fact that the plaintiff is ignorant of his or her rights should bar a defence of laches.
5. This accords with the authority confirming that it is not necessarily universally, but rather "ordinarily... necessary that there should be sufficient knowledge of the facts constituting the title to relief": Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 241 per Lord Selborne; Savage v Lunn [1998] NSWCA 203 (unreported) at 28 per the court. As Dr I. C. F. Spry states in his treatise, Principles of Equitable Remedies (9th ed, 2014), p 447: "It is ordinarily sufficient that the plaintiff has been put on suspicion, that is, that he is aware of sufficient matters to raise in his mind a doubt whether an infringement of his rights has taken place ".
6. In respect of the element of unconscionable prejudice, there must be substantial detriment, not merely a trivial inconvenience, caused by the plaintiff's delay: Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415 at [153] per Doyle CJ; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) at [9314] per Owen J. The classic example of prejudice is where the defendant has reasonably acted to his or her detriment in reliance on the plaintiff's delay: Lamshed v Lamshed (1963) 109 CLR 440; [1964] ALR 321; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) and (No 10) at [9312] per Owen J. Prejudice may also arise where evidence is lost or witnesses have passed away. In this respect, the issue is not whether evidence per se may have been lost; rather, it is whether evidence that "may have cast a different complexion on the matter has been lost": Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 at 330 per Wilson, Toohey and Gaudron JJ; Gillespie v Gillespie [2013] QCA 099; [2013] 2 Qd R 440 at [94]-[95] per Margaret Wilson J (McMurdo P and White JA agreeing).
7. Ultimately, as noted above, an evaluative analysis must be conducted, cognisant of the matters identified by Meagher JA in Gerace v Auzhair Supplies at [73], as well as "the type of transaction" under consideration (see Crawley v Short at [180]). As Dixon CJ, Webb and Kitto JJ said in Fysh v Page [1956] HCA 13; (1956) 96 CLR 233 at 243: …If a plaintiff establishes prima-facie grounds for relief the question whether he is defeated by delay must itself be governed by the kind of considerations upon which the principles of equity proceed. If the delay means that to grant relief would place the party whose title might otherwise be voidable on equitable grounds in an unreasonable situation, or if, because of change of circumstances, it would give the party claiming relief an unjust advantage or would impose an unfair prejudice on the opposite party, these are matters which may suffice to answer the prima-facie grounds for relief…

Conclusion

1. The elements of delay and prejudice are clearly present. The shares were allotted in 2004 and no issue was taken with the propriety of the allotment until 2018, 14 years later. Prejudice is obvious: Dean is no longer able to give evidence; his evidence would have been pivotal. Whilst some documents survive, it is likely that other contemporaneous records would have been available if this claim had been brought sooner. Further, Dean and Ricards worked in the business in the intervening 14 years and engaged in a series of transactions which may not have occurred if the parents had asserted their ownership of the business sooner, such as providing funds to the business to support cash flow, leasing properties to the business at below market rent and not taking steps to recover unpaid rent.
2. If, contrary to what I have found, Dean allotted the 1,800 ordinary shares to himself without his parents' knowledge and consent, the following matters are relevant to the element of knowledge: 1. Gani and Jorida are experienced businesspeople. They have been engaged in a manufacturing business and hotel business for some years. Jorida is the president of PT Gadjah Ruku. 2. At no time did the parents involve themselves in the operations or management of Pacific Springs, nor request any financial information from the director of the company. 3. Since 2004, a record of the share issue has been publicly available from a search of ASIC's records. 4. Although Pacific Springs made regular payments to the parents or at their direction for several years, no payments were made after February 2010. Notwithstanding this, eight more years passed before the parents suggested that they were sole shareholders of the company.
3. If, as the parents said: the purpose of the business was to make money for the Mualim family; Dean regularly told Gani that the business was making money for Gani; the moneys which were paid to them were profits, then the fact that they had not received any money since 2010 must have raised a doubt as to whether the company was profitable as Dean said, or whether their rights as shareholders had been infringed. If the plaintiffs did not know that Dean had allotted 1,800 ordinary shares to himself in 2004, then the plaintiffs had the means of knowledge by performing a simple and inexpensive search of public records. As experienced businesspeople, it would have been within their field of competence to arrange for such searches to be undertaken. Where the parents left the running of the business to the director without any involvement nor return for a protracted period, I consider that the parents were either on notice that the shareholding had changed or were no longer interested in the shareholding of the company. Taking all three elements together, I consider that the defence of laches is established. The plaintiffs acted as to make it unfair that their claim should now succeed.

ESTOPPEL

1. Further, it was said that the plaintiffs did not claim to be substantial shareholders of Pacific Springs and, by their silence, impliedly represented to Ricards that they were not the substantial shareholders of Pacific Springs and, induced by and acting in reliance upon this representation, Ricards acted to his detriment in the manner already described such that the plaintiffs are now estopped from asserted that they are the substantial shareholders of the company. The defendants submitted that, in failing to say anything about Dean's shareholding in Pacific Springs (of which they had sufficient knowledge), they impliedly represented that Dean and not them was the majority shareholder and owner of Pacific Springs. Dean and, more particularly, Ricards have acted to their detriment in reliance upon the aforementioned representation. Ricards gave evidence as to conduct he only undertook, and permitted to be undertaken including working for Pacific Springs for below minimum wage, and allowing Dean to meet company expenses with their joint funds, because he believed that Dean was the owner of Pacific Springs. That conduct flowed, in part, from the implied representation stemming from the plaintiffs as to the shareholding ownership in Pacific Springs as their conduct reinforced that Dean was the owner of the company. As Gageler J observed in Sidhu v Van Dyke (2014) 251 CLR 505 at [90]: "The respondent did not need to establish that the belief to which she was induced by the appellant's representations was the sole or predominant cause of the course of action or inaction she took but, in the language of Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd, she did need to establish that the belief was a "contributing cause".
2. The defendants submitted that this was met in the present case, as was the proposition that the plaintiffs' implied representation caused Ricards to alter his position: Sidhu v Van Dyke at [92] per Gageler J. If the plaintiffs were not held to their implied representation, prejudice would be sustained by Ricards: Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 at 674-675 per Dixon J.
3. The plaintiffs submitted that their silence could not give rise to an estoppel as a representation must be clear and unambiguous to give rise to an equitable or promissory estoppel: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 435.

Conclusion

1. It has been held that "mere silence or inaction cannot amount to a representation unless there be a duty to disclose or act": Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947; [1986] AC 80 at 110 per Lord Scarman for the court. However, silence can found an estoppel if the omission to communicate, in conjunction with other surrounding circumstances, creates an implied representation: Amaya v Everest Property Holdings Pty Ltd; Firmstone v Everest Property Holdings Pty Ltd; Sarkar and Islam v Everest Property Holdings Pty Ltd (2010) 15 BPR 28,695; [2010] NSWCA 315 at [156] per Young JA (Beazley P and Campbell JA agreeing); K. R. Handley, Estoppel by Conduct and Election, (2nd ed, 2016, London, Sweet & Maxwell) at [4-005] (citing Black CJ in Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31 at 32).
2. On the plaintiffs' evidence, the only person they spoke to about Pacific Springs was Dean. They never talked to Ricards about the business. It must have been apparent to Gani and Jorida, on their regular visits to Australia, that Dean and Ricards were devoting themselves to a business which Gani and Jorida owned. The question is whether the parents had a duty to disclose their shareholding to Ricards. I am not satisfied that they did. The plaintiffs were entitled to think that Dean would inform his partner about the company's shareholders, to the extent that Ricards needed to know. The plaintiffs were entitled to think that it was a matter between Dean and Ricards as to how much of Ricards' time and resources were devoted to the company. The parents were entitled to assume that adequate arrangements had been made to compensate Ricards for his efforts, such as a wage acceptable to Ricards. The plaintiffs were entitled to think that, even if Dean was giving Ricards wrong information about Pacific Springs, then Ricards was unlikely to believe what they told him in preference to what his husband told him. In the circumstances, the plaintiffs' silence did not amount to a representation that Dean was the majority shareholder in the company as I do not consider that the plaintiffs had a duty to inform Ricards of the true position.

Orders

1. For these reasons I make the following orders: 1. Dismiss the Third Amended Originating Process filed on 19 June 2019. 2. Order pursuant to section 1322(4) of the Corporations Act 2001 (Cth) that the appointment of Ricards Dzelme as director and secretary of Pacific Springs Pty Ltd, and any act performed by him as a director or secretary of Pacific Springs Pty Ltd, is not invalid. 3. Order the plaintiffs to pay the defendants' costs of the claim and cross claim. 4. Grant liberty for any party wishing to be heard in respect of any variation of Order 3 to apply within 7 days.

Amendments 10 February 2021 - Correction to representation on coversheet. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 February 2021