The Application of Richard Neal in his capacity as administrator of the Estate Late Paula Claire Hewit [2021] NSWSC 1489

Background facts

1. Mr Neal is a solicitor; he was appointed as administrator of the Estate by orders of the Court on 18 June 2020. Letters of Administration with Mrs Hewit's will annexed were granted to Mr Neal on 21 August 2020. By her last will, Mrs Hewit left her Estate (after the payment of debts, legal and funeral expenses and a $10,000 gift to David West, which has been paid) in eight equal parts: (a) one part to Alan; (b) one part to Ron; (c) three parts to be held on trust by David West and Ron for Alan's life, during which time the trust fund was to be invested and the income paid to Alan. On Alan's passing, the capital amount then remaining and any unexpended income of the trust was to be divided equally amongst Paula's living grandchildren; and (d) the remaining three parts were to be held on trust by both Alan and Ron for Ron's three children until they attained 25 years of age.
2. The assets of the Estate recorded in the inventory of property include 9 A-class preference shares in Alon, with an estimated or known value of $702,000, and Mrs Hewit's former residence at Brighton-le-Sands, which Alan currently occupies. At the time of Mrs Hewit's death, the issued capital of Alon comprised 11 A-class preference shares, of which Mrs Hewit held 9 shares, Alan held 1 share, and her other son, Ronald Hewit (Ron), held 1 share.
3. Alon is understood to have assets in its own right and is also the trustee of the Hewit Family Trust which was established by deed dated 3 May 1973. The trust deed for the trust was amended on 11 March 2011. The beneficiaries of the trust include named beneficiaries and a class of potential beneficiaries, essentially Alan and Ron and their extended families. Ron has children, Alan does not. The amended trust deed provides that Alon be both trustee and appointor and otherwise does not provide any separate removal power. The appointment of Alon as trustee and appointor terminates if Alon enters into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction). Accordingly, whoever controls Alon controls the assets of Alon in its own right and the assets of the family trust, of which Alon is trustee, so long as Alon is not placed into liquidation. According to ASIC's records, Alan is currently the sole director and secretary of Alon.
4. In May 2021, Mr Neal commenced proceedings in the Equity Division against Alon and Alan after encountering difficulties with the transfer of Mrs Hewit's 9 A-class shares to himself as administrator. Alan, as the sole director of Alon, had refused to register the transmission application. In those proceedings, Mr Neal also challenged Alan's allotment of 89 A-class shares to himself in February 2021, and the purported transfer of Mrs Hewit's 9 A-class shares to himself in March 2021. The effect of those purported transactions was to defeat the administrator's voting interest (once registered) and create a new majority in favour of Alan, as each A-class share has 1 voting right.
5. On 13 August 2021, Rees J delivered judgment and made orders and declarations, relevantly, to the effect: 1. that the transmission of 9 A-class shares held by Mrs Hewit to Mr Neal be registered; 2. declaring that the purported transfer of the 9 A-class shares held by Mrs Hewit to Alan on about 22 March 2021 was void and of no effect; 3. declaring that, the purported issue and allotment of shares in Alon to Alan on about 8 February 2021 was void and of no effect; 4. declaring that pursuant to Article 73 of the Articles of Association of the company, Alan had and has no power to approve transfer of a controlling share interest in the company without the prior approval of a general meeting; and 5. that Alan pay Mr Neal's costs on an indemnity basis. 6. See: In the matter of Alon Pty Ltd [2021] NSWSC 1021.
6. Mr Neal estimates that the recoverable costs of those proceedings, which have not yet been assessed, are in the order of $49,104.90. A demand for payment was made of Alan in November 2021 and has not been met.
7. Following the orders of Rees J on 13 August 2021, Alan lodged a notice of correction with ASIC on 14 August 2021. However, there was a delay in recording the transmission of Mrs Hewit's shares in the share register of Alon; this ultimately occurred on 3 September 2021. At that time, the 11 A-class shares in Alon were held as to 9 shares by Mr Neal, and 1 share by each of Alan and Ron.
8. On 1 September 2021, Alan caused Mr David Whitty to be appointed as a director of Alon. On 14 and 20 September, Alan purported to convene general meetings of Alon on 28 and 22 September 2021 respectively. Mr Neal and Ron took steps to convene a general meeting of Alon. That meeting was held on 21 October 2021 attended by Mr Neal, Alan, and Mr Shah Rusiti (a solicitor). According to minutes of that meeting, signed by Mr Neal on 26 October 2021, various motions were carried which had the effect of removing Alan and Mr Whitty as directors, appointing Mr Neal and Mr Rusiti as directors and appointing Mr Rusiti as secretary. Alan has disputed that the motions were carried. According to minutes prepared by Alan, the resolutions were not carried because, at the date of the meeting, he held 11 A-class shares and accordingly controlled the vote at a meeting of members.
9. Searches of records of the Australian Securities and Investments Commission (ASIC) on 21 October 2021, after the meeting, indicate several documents including a Form 484 'Changes to Company Details' were lodged with ASIC on that date. As Alan holds the "corporate key" for the company, it can be inferred that he caused these documents to be lodged with ASIC. The ASIC records indicate that Alon now has 21 A-class shares, with a total amount paid of $800,000, which are held as to 9 shares by Mr Neal, 11 shares by Alan and 1 share by Ron. That is, 10 A-class shares were issued to Alan on or about 21 October 2021.
10. Mr Neal commenced the present proceedings on 11 November 2021 seeking urgent interim relief restraining Alan from dealing with the share register of Alon and from appointing any person to any office of Alon until further or other order. An interlocutory order to that effect was made on that date up to and including 4 pm on 18 November 2021, or earlier further order, pursuant to s 233(1)(i) of the Corporations Act 2001 (Cth). On 18 November 2021, that order was continued, by consent of Alan, up until the determination of these proceedings, or earlier further order.
11. The substantive relief sought in the originating process includes a declaration that the purported issue of 10 A-class shares to Alan on or around 21 October 2021 was invalid and an order that the issue of shares be set aside, declarations that Mr Neal and Mr Rusiti were validly appointed as directors of Alon on 21 October 2021 and that Mr Rusiti was also validly appointed secretary of Alon, orders for the correction of the register of Alon, orders for delivery up of books and records of Alon held by Alan and Mr Whitty, an order directing ASIC, if joined as a party to the proceedings, to issue a new corporate key to Alon to Mr Neal, and a winding up order pursuant to s 461(1)(k) of the Corporations Act on the just and equitable ground, or alternatively, pursuant to s 233(1)(a) of the Corporations Act.
12. One further background matter should be mentioned. Immediately before the hearing of this application, counsel appearing in the matter for Alan raised the possibility that the Hewit Family Trust had vested on 10 June 1995 being "21 years after the death of last survivor of the issue now living of His late Majesty King George V", because it was said the last child of King George V had died on 10 June 1974. This was a reference to the vesting day in cl 1 of the original trust deed; the vesting day was amended by the amending trust deed of 11 March 2011. Counsel for Mr Neal submitted that the trust had not vested before the amending trust deed took effect, as the meaning of the word "issue" in cl 1 of the original trust deed included "descendants", which as at 3 May 1973 included the daughter of King George VI, the present Queen Elizabeth II. After a short adjournment to enable discussions between counsel, counsel for Alan indicated that this issue had been "taken off the table".
13. It is sufficient to observe that Mathews v Williams (1941) 65 CLR 639 at 650; [1941] HCA 32 is clear authority that the ordinary meaning of "issue" is "descendants or progeny", not just children, and that the word "issue" ought not to be given a restricted meaning "unless, upon a consideration of the whole document, it satisfactorily appears that it was so intended": at 651. The Court was not taken to any suggested contrary indication in the original trust deed.

Jurisdiction

1. Section 63 of the Trustee Act 1925 (NSW) relevantly provides: (1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.
2. The principal purpose of giving advice under s 63 is the protection of the interests of the trust. Another purpose is the protection of a trustee who is acting in that regard and upon advice. As Kiefel J observed in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 (Macedonian) at [196]: Securing the latter purpose may ensure the attainment of the principal purpose, by removing the concern of a Trustee about exposure beyond their usual indemnity.
3. The only jurisdictional bar to relief under s 63 is that the applicant must be able to demonstrate the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument: Macedonian at [58]. Accordingly, a trustee may obtain judicial advice about the commencement and pursuit of litigation, since obtaining judicial advice may resolve doubt about whether it is proper for a trustee to incur the costs and expenses of such litigation. The interests of the trust will, in that case, not be subordinated to the trustee's fear of personal liability for costs: Macedonian at [71].
4. On an application for judicial advice, the Court must determine whether, on the material available, it would be proper for the trustee to commence and pursue the proceedings. That question is totally different from the questions that are to be agitated in the proceedings in which the trustee sues as plaintiff: Macedonian at [74]
5. In this case, the legal proceedings brought by Mr Neal are themselves concerned with the management or administration of the trust property. First, the claims for relief made by Mr Neal seek to protect an asset of the Estate from the diluting effects of the purported share issue in favour of Alan. Second, the claims for relief seek to effectuate the realisation of the value of the Estate's shareholding in Alon by appointing a liquidator to wind up the company, in circumstances where, in its current configuration, the company is in what Barrett J described as a "predicament of paralysis" in Shenouda v Work Life Medics Pty Ltd [2011] NSWSC 45 at [5]. Those claims necessarily involve the management or administration of an asset of the Estate, being the 9 A-class shares in Alon.
6. Third, in bringing and pursuing the litigation, Mr Neal will necessarily commit some of the assets of the Estate to legal costs associated with the claims for relief. Again, that necessarily involves a question concerning the management or administration of the Estate. Accordingly, I am satisfied that the Court has jurisdiction to give the advice sought by the trustee.

Determination

1. Plainly, the administration of the Estate of Mrs Hewit has been beset by difficulties in obtaining control of Mrs Hewit's shareholding in Alon and exercising the voting rights attached to that shareholding to control Alon with a view to realising the value of those shares. Those difficulties have been compounded by the diluting effects of the purported share issue(s) by Alan. It is appropriate to give advice to the administrator so that he can have confidence going forward that he is not personally exposed by pursuing the claims in these proceedings.
2. Five main claims for relief are presently made in the originating process against Alan. The first concerns the validity of the impugned issue of 10 A-Class shares to Alan on about 21 October 2021. The effect of this share issue was to defeat the administrator's voting interest in Alon and create a new majority in favour of Alan. The questions raised are whether Alan breached his fiduciary duties as a director of Alon in approving this share issue to himself in all the circumstances and if so, whether he obtained the fully informed consent of the other shareholders to this share issue. As to the latter, Mr Neal says that he did not consent to this share issue. The second concerns the validity of the resolutions carried at the meeting on 21 October 2021, on the majority vote of Mr Neal, assuming the invalidity of the share issue to Alan. The third concerns obtaining the books and records of Alon from Alan and Mr Whitty. Mr Neal proposes to defer seeking this relief. The fourth concerns obtaining a new corporate key from ASIC to permit the lodgement of documents on behalf of the company. As a corollary, Mr Neal seeks to join ASIC as a defendant to obtain this relief, which is necessary to facilitate the lodging of documents by Mr Neal on behalf of the company with ASIC. The fifth concerns the winding-up of Alon, essentially on the ground that the shareholders are "deadlocked".
3. In considering whether Mr Neal is justified in pursing the claims for relief and having recourse to the Estate of Mrs Hewit to pay his costs of doing so, it is appropriate to have regard to the prospects of the administrator's success in pursuing the claims against Alan, based upon counsel's confidential advice.
4. I have also had regard to the limited funds available to the administrator to conduct this litigation and the likely benefits to the Estate of a successful outcome, relative to the likely costs of the litigation. In addition, I have considered the evidence that Alan has evinced an intention, by calling a further general meeting on 13 December 2021, to exercise his purported majority voting power to seek to control the affairs of Alon. It is readily apparent that the shareholders of Alon are deadlocked.
5. Having regard to the confidential advice of counsel, the statement of facts supplemented by the affidavit evidence, and my review of the documents in the exhibits, I am satisfied that it is appropriate for Mr Neal to pursue the first, second, third and fifth claims for relief in these proceedings, and to defer seeking the fourth claim for relief, and to have recourse to the property of the Estate in so doing.
6. After the conclusion of the hearing, the Court raised by email sent to counsel for Mr Neal the potential consequences of a winding up of Alon, given that cl 48 of the trust deed (as amended) provides that if the trustee "enters into compulsory … liquidation", then the appointment of a trustee "terminates automatically" and cl 53 provides that if the sole company appointer - Alon - "enters compulsory … liquidation … then the named beneficiaries or the surviving named beneficiary becomes appointor". The named beneficiaries in the trust deed, are, in the order in which they appear: Ron, Alan, Kim Hewit, Timothy Hewit, Sarah Hewit, Isaac Hewit and Alon.
7. By clause 47 of the trust deed, the appointor "may appoint an additional or replacement trustee at any time by a written statement to that effect. If there is no appointor, the first named beneficiary who is still alive may exercise the power". Clause 73 of the trust deed provides that "if there is more than one appointor at any time, the powers exercisable by the appointor are only exercisable by the appointors jointly".
8. Mr Neal provided a supplementary confidential counsel's opinion addressing this issue. Of the named beneficiaries, it seems that only Mrs Hewitt has died. Accordingly, upon any winding up of Alon, the surviving named beneficiaries being Ron, Alan, Kim Hewit, Timothy Hewit, Sarah Hewit and Isaac Hewit would collectively have the status of appointors. The language of cl 73 is consistent with the requirement - connoted by the words only "exercisable" and "jointly" - for unanimity as between the voting group of appointors (the, "named beneficiaries" who are surviving). Mr Neal anticipates a potential problem in the present circumstances that Alan, for example (and not knowing the attitudes of the other appointors) may frustrate the administration of the trust giving rise to a further "deadlock". Absent unanimity in the voting group, there will be no consensus as to any replacement trustee capable of appointment under cl 47.
9. Mr Neal considers that it would be expedient to seek the appointment by the Court of a new trustee in these circumstances, due to the very real likelihood of deadlock amongst the group of appointors, who could not effectuate a replacement trustee without unanimity: see, for example, Rosenbaum v Bairdarman (No 2) [2021] NSWSC 574 at [678]. Thus, Mr Neal seeks further advice under s 63 that he would be justified at an appropriate time to seek the Court's leave to file an amended originating process seeking the appointment of a new trustee (after identifying a suitable candidate) under s 70 of the Trustee Act. I am satisfied that Mr Neal would be justified in seeking this relief. An appropriate time to make such application would be after the Court-annexed mediation ordered to be held on 10 December 2021.
10. For these reasons, I make the following orders: 1. Pursuant to s 63 of the Trustee Act 1925 (NSW), the Court advises that: 1. the plaintiff is justified in pursuing the claims for relief in pars 4, 5, 6, 7, 8, 11 and 12 of the originating process filed 11 November 2021; 2. the plaintiff is justified in not pursuing the claims for relief in pars 9 and 10 of the originating process filed 11 November 2021; 3. the plaintiff is justified in seeking leave to amend the originating process to join the Australian Securities and Investments Commission as an additional defendant to the proceedings; 4. the plaintiff is justified in seeking leave to amend the originating process after 10 December 2021 to seek the appointment of a new trustee of the Hewit Family Trust under s 70 of the Trustee Act 1925 (NSW); and 5. the plaintiff is justified in having recourse to property of the estate of the late Paula Claire Hewit (the Estate) to pay his reasonable costs of pursuing the claims set out in the originating process, referred to in pars (a) and (d) above. 1. Order that the costs of the plaintiff in relation to this application be paid out of the Estate. 2. Order that Australian Securities and Investments Commission (ASIC) be joined as an additional defendant to the proceedings. 3. Order that the plaintiff file and serve an amended originating process on or before 23 November 2021 joining ASIC as the third defendant.

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