Practice and procedure - Application for summary judgment by defendants - Turns on own facts

A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation [1951] HCA 36; (1951) 82 CLR 452

Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178

Chang v Registrar of Titles [1976] HCA 1; (1976) 8 ALR 285

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18

Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

Industrial Development Consultants Ltd v Cooley (1972) 1 WLR 443

Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [1958] HCA 33; (1958) 100 CLR 342

Patcorp Investments Ltd v FTC [1976] HCA 67; (1976) 10 ALR 407

Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46

Stuart v Kingston [1924] UKPCHCA 3; (1924) 34 CLR 394

1 MASTER SANDERSON: This is the defendants' application for summary judgment. The application was brought more than 21 days after the appearance was entered. (A conditional appearance was entered by the defendants on 10 September 2001. No application was made by the defendants as is required by O 12 r 6(2) and accordingly the appearance became unconditional on 25 September 2001. Nothing turns on the circumstances in which the appearance was entered and I mention it only for the sake of completeness.) The summary judgment application was brought on 17 October 2001. The application then was only just out of time. Moreover, the plaintiffs raise no objection to leave to bring the summary judgment application being granted. That being the case I gave leave to the defendants in terms of par 1 of the chamber summons.

2 By reference to the statement of claim the plaintiffs' action may be summarised in this way. The plaintiffs are the children of Julian David Maynard Wright ("Julian"). The first-named plaintiff was under the age of 18 when the writ was issued. The second-named plaintiff is still under the age of 18. Although the age of the plaintiffs was not a matter canvassed in this application it may be an issue if the action was to proceed. The defendants are respectively the brother and sister of Julian. (Throughout the hearing the defendants were referred to as "Michael" and "Angela". For the sake of convenience, that is how I will refer to them.) Julian, Michael and Angela are the three children of Ernest Archibald Maynard Wright ("Peter Wright"). These matters are covered in the first three paragraphs of the statement of claim.

3 By par 4 it is pleaded that in June 1956, Wright Prospecting Pty Ltd ("WPPL") was incorporated. It is shares in this corporation which is at the heart of the dispute between the parties. It emerged from the evidence that the late Peter Wright was a business associate of the late Mr Lang Hancock. Between them, these two entrepreneurs were responsible for the development of significant iron-ore mining operations in the north-west of Western Australia. As a consequence of developing these mining prospects, WPPL was left with a royalty stream paid by the present operators of various iron-ore mines. Without going into detail the royalties at present amount to something in the region of $8 million per year. It is immediately apparent that WPPL is a company of some substance and its shares have a significant value. This evidence is uncontroversial.

4 By par 5 of the statement of claim it is pleaded that Michael became a director of WPPL in December 1962. By par 6 it is pleaded that Angela became a director in August 1976. Paragraph 7 pleads the respective shareholdings of Julian, Michael and Angela in WPPL as at February 1987. Without detailing these shareholdings it is enough if I say that as at June 1983 each of the siblings had precisely the same shareholding. Further, as at June 1983, Peter Wright was the owner of one Life Governor's share in WPPL but had no other shareholding in the company.

5 Paragraph 8 pleads an agreement, described as "the First Agreement" made on or about 25 June 1983, pursuant to which Julian granted to Peter Wright an option to buy his shares for an exercise price of $1,070,200. Paragraph 9 pleads the terms of the First Agreement. Importantly, in the context of this application, par 9(f) pleads that it was a term of the First Agreement that:

"in the event of the death of Peter Wright, the Defendants would honour the contractual obligations and abide by the terms of the agreement."

6 By par 10 it is pleaded that Michael and Angela both signed the First Agreement. By par 11 it is pleaded that Peter Wright made certain payments to Julian, pursuant to the terms of the First Agreement. By par 12, a further option agreement described as "the Second Agreement" was reached between Julian and Peter Wright. Once again the exercise price of the option was $1,070,200. Paragraph 13 pleads the terms of the Second Agreement and by par 13(f) it is said that it was a term of the Second Agreement that:

"in the event of the demise of Peter Wright prior to the payment of the final instalment of the purchase price for Julian's Shares the Defendants agreed to fulfil all the obligations of Peter Wright to Julian".

7 By par 14 it is alleged that in July 1985 Peter Wright exercised his option to purchase Julian's shares. It is not pleaded pursuant to which the two agreements the option was exercised, but for the purposes of this application, that is of no moment. By par 15 it is pleaded in the alternative that on their proper construction the First Agreement and the Second Agreement are conditional contracts for the sale of Julian's shares. There then follows par 16 which is in the following terms:

"In the circumstances alleged in paragraph 15, Julian's Shares became the property of Peter Wright at the time of the First Agreement, and the Second Agreement was ineffective to deal further with Julian's shares".

8 By par 17 it is pleaded that Peter Wright made a will on 13 December 1984 which appointed Julian, Michael and Angela as executors and trustees of his estate. Although it is not pleaded, it is common ground that Peter Wright died on 13 September 1985. Probate of the will was granted on 10 July 1986: par 18. On 24 April 1987 Julian was granted leave to relinquish to Michael and Angela the trust conferred on him by the will and thereafter Michael and Angela continued as executors and trustees of the will: par 19. By par 20 it is pleaded that at all material times at and after the time of Peter Wright's death, Julian's shares were worth considerably more than the exercise price. There then follows par 21:

"In the circumstances pleaded in paragraphs 8 to 16 above, at the date of the death of Peter Wright, the assets of his Estate included Julian's Shares."

9 It is worth pausing at this point to recap on just what is to be found pleaded in par 8 through to par 16. These paragraphs refer to the First Agreement and the Second Agreement. These agreements are said to be either option agreements or alternatively, conditional contracts. It is pleaded that the option agreements were exercised or that payments were made under the conditional contracts. It is common ground that as at the date of his death Peter Wright had not paid to Julian the $1,070,200 being the full price ultimately payable pursuant to whichever contract was operative. Nonetheless, by par 21 the plaintiffs say that the assets of Peter Wright at the date of his death included Julian's shares. As a matter of logic, without any reference to the First Agreement or the Second Agreement, this seems a surprising conclusion.

10 Paragraph 22 pleads an alternative to par 21. It is said that the option granted by the First Agreement, or alternatively the Second Agreement, was an asset of the estate of Peter Wright and was exercisably by Michael and Angela as executors and trustees of the will. It is further said that if the option was exercised, Julian's shares were acquired for the benefit of the estate. As it turns out, par 22 is, at least for the purposes of this application, uncontroversial. By par 23 it is pleaded that Michael and Angela, after the death of Peter Wright, asserted that they were entitled to exercise the option to acquire Julian's shares for the estate and that they "threatened to exercise the option". Paragraph 24 pleads cl 3 of the will. Clause 3 of the will is of some importance and I will quote it in full (see annexure "JDMW6" of Julian's affidavit sworn 13 December 2001):

"I GIVE, DEVISE AND BEQUEATH all my shares in the capital of the company known as WRIGHT PROSPECTING PTY LIMITED free from all funeral testamentary and administrative expenses to be divided as follows:

(a) one third share to my said son Michael John Maynard Wright;

(b) one third share to my said daughter Angela Mary Maynard Bennett; and

(c) the balance to my said son Michael John Maynard and my said daughter Angela Mary Maynard Wright UPON TRUST for such of the lineal issue of my said son Julian David Maynard Wright as shall survive me and attain the age of twenty-one (21) years and if more than one as tenants in common in equal shares."

11 Paragraph 25 of the statement of claim is in the following terms:

(a) the Plaintiffs had an interest in one third of any shares in the capital of WPPL held by the estate;

(b) the Plaintiffs had an interest in one third of Julian's shares if Peter Wright had exercised the option as alleged in paragraph 14 above;

(c) the Plaintiffs had an interest in one third of Julian's shares if the estate exercised the option."

12 It is then said on the basis of the facts pleaded the defendants held Julian's shares on the trust created by cl 3 of the will, or in the alternative, had a duty to exercise the options and acquire Julian's shares for the estate. By par 27 it is pleaded that on 17 January 1987 Michael and Angela purchased Julian's shares for themselves for approximately $6.8 million. In doing so, it is said that Michael and Angela breached the terms of the trust created by the will and they are therefore liable to the plaintiffs. The plaintiffs seek a variety of orders, including an order that Michael and Angela restore Julian's shares to the estate and that they account to the estate for all profits obtained by them by reason of their ownership of Julian's shares.

13 The principles upon which an application for summary judgment is to be determined are well understood. Importantly, in the context of this application, it must be accepted that the pleadings of material fact to be found in the statement of claim can be made good: see Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598. Counsel for the defendants accepted that this was the proper approach. At all times the legal onus remains on the defendant to show that there is no serious question to be tried on any cause of action raised by the plaintiff: Anderson v Effexseven (1999) 10 ANZ Ins Cas 61-424 at 74,756. In this context the defendants conceded for the purposes of this application that Peter Wright had exercised one or other of the First Agreement or the Second Agreement and that the option remained enforceable after Peter Wright's death. But even with that concession, and assuming the plaintiffs were able to establish the relevant material facts pleaded in the statement of claim, the defendants maintained there was no serious question to be tried and the action should be dismissed.

14 Before dealing with the substantive issues raised by the application I should make reference to two further clauses in Peter Wright's will. The first is cl 9(j) which allows the trustees to borrow money on such terms as they think fit. The power is in a standard form and would undoubtedly given to the defendants in their capacity as executors of Peter Wright's will, the power to borrow to purchase Julian's shares, had they wished to do so. Also of importance is cl 5 of the will. It deals with the testator's residuary estate:

"I GIVE DEVISE AND BEQUEATH the whole of the residue of my estate of whatsoever nature and wheresoever situate to my Trustees UPON TRUST to sell, call in and convert the same into money with power to postpone such sale calling in and conversion for as long as they shall think fit without being liable for loss and after payment of my debts, funeral, testamentary and administration expenses out of the money arising thereby or out of my ready money to hold the residue for the use and benefit absolutely of such of my children as survive me as tenants in common in equal shares."

15 In my view this application can be simply resolved. To succeed in their claim the plaintiffs must establish that as at the date of the death of Peter Wright, Julian's shares were encompassed within the expression "my shares" to be found in cl 3 of the will. If they were not so included, then they did not form part of the trust property and none of the relief claimed is available. Furthermore, if the trustees had caused the estate to complete the purchase of the shares under the option agreement, these shares, when acquired, would form part of the residuary estate of the deceased and be dealt with under cl 5 of the will. So leaving to one side the question of whether or not the trustees were obliged to borrow to complete the purchase of Julian's shares, the question is whether, in the circumstances, Julian's shares fall within the expression "my shares" in cl 3 of the will. In my view it is clear they do not.

16 In ordinary common parlance the expression "my shares" must be taken to mean shares of which I stand possessed. In Peter Wright's case, at the date of his death he stood possessed of one Life Governing director share. There is no doubt that share is covered by cl 3. If, prior to his death, Peter Wright had paid to Julian any amounts due for purchase of the shares pursuant to either the First Agreement or the Second Agreement, such as would have entitled him to those shares, then, even if all the formalities of transfer had not been completed, there could be no doubt that the shares would fall within the ambit of the expression "my shares". But the evidence discloses that as at the date of Peter Wright's death, only one instalment of 10 instalment payments had been made, namely, an instalment of $170,200 which was due on 1 August 1985: see annexure "MJMW5" to the affidavit of Michael sworn 17 October 2001. The shares remained registered in Julian's name. Pursuant to the option agreement, Peter Wright was not entitled to become the registered holder of the shares until all instalment payments for the shares had been made: see cl 9 and cl 10 of the 1985 option. Taken together all these facts lead to the conclusion that the expression "my shares" could not, as at the date of Peter Wright's death include Julian's shares.

17 It is not to be doubted that as at the date of his death, Peter Wright had certain equitable rights which could have been protected by injunction. For instance, if it had come to his attention that Julian intended to sell his shareholding, then undoubtedly Peter Wright could have acted to enforce the implied negative covenant that Julian would not, during the currency of the First Agreement or the Second Agreement, dispose of his shares. But that does not equate with ownership of the shares on the part of Peter Wright. It is clear from the terms of both agreements that ownership of these shares passed when payment was made by Peter Wright, or his estate, to Julian. Unless and until that was done, the shares remained Julian's property and they were not the property of Peter Wright. On this issue, in my view, the plaintiffs do not have any arguable case.

18 In reaching this conclusion I am mindful of the fact that cl 3 of Peter Wright's will is couched in terms which anticipate that as at the date of his death he will have a significant shareholding in WPPL. After all, there is the reference to "my shares" and the evidence discloses that at the date the will was drawn, he stood possessed of only one Life Governing director's share. But the fact that the will may have anticipated a shareholding does not mean that it in some way acts to cover shares of the deceased which were not his property as at the date of his death. In other words, the fact that the clause may have anticipated the acquisition of WPPL shares does not in any way affect the proper interpretation of the will. Death occurred before the acquisition was complete.

19 There is a question as to whether it is possible that further evidence will emerge at trial such as would justify a different interpretation of cl 3. No such evidence was raised or hinted at by the plaintiffs in their affidavits filed in opposition to this application. As with any summary judgment application, once the formal requirements were met by the defendants, the evidentiary onus - not the legal onus but the evidentiary onus - shifted to the plaintiffs: see Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109. It would seem then that all evidence relevant to this question is before the Court and there can be no basis upon which it can be said that any and further inquiry would justify the defendant's application being refused: see State of Western Australia v Rothmans of Pall Mall (Australia) Ltd [2001] WASCA 25.

20 If I am wrong in that conclusion, it still seems to me that the plaintiffs' claim must fail. If it is the case that pursuant to the First Agreement or the Second Agreement, Julian's shares were the property of Peter Wright so that they were "my shares" within the terms of cl 3 of the will, it was still necessary for the trustees to make payment to Julian of the remainder of the purchase price before his shares could be transferred to the estate. It is common ground that as at the date of the death of Peter Wright his estate was insolvent. Perhaps put more correctly, it is common ground that as at the date of Peter Wright's death, his estate did not have sufficient assets to allow it to make payment of the outstanding balance of the purchase price. To complete the purchase it would have had to borrow funds. The question is whether it was incumbent upon the trustees to borrow funds to complete the purchase.

21 For the purposes of this application it must be assumed that the value of Julian's shares was substantially more than the $1,070,200 set as the purchase price in the First Agreement and the Second Agreement. As Michael and Angela were prepared to pay $6.8 million for Julian's shares, it is fair to say, as is pleaded, that the value of the shareholding was "substantially" more than the purchase price set in the First Agreement and the Second Agreement. On that basis it can be assumed that the trustees would have had little or no difficulty borrowing the funds necessary to make the purchase of the shares. Counsel for the defendants accepted, at least for the purposes of this application, that was the case.

22 But the question remains - were the trustees under any duty in equity to borrow to fund the purchase of Julian's shares. There is no doubt that pursuant to cl 9(f) of the will they had the power to borrow and it was not an issue that as trustees they had the right to do so. The question is whether they had a duty to do so. Counsel for the plaintiffs was unable to point to any authority which supported the existence of such a duty. A trustee investing trust funds has a duty to exercise care and caution which an ordinary man of business, regardful of the pecuniary interests in the future of there having claims upon him, would exercise in the management of his own property: see Re Whiteley, Whiteley v Learoyd [1886] 33 Ch D 347 per Lopes LJ at 358. The question is whether, in the context of this case, that duty would extend to borrowing funds for which the trustees, faced with an impecunious estate, would be personally liable to purchase Julian's shares.

23 As I have indicated above, it is the case that both Michael and Angela were signatories to the First Agreement and the Second Agreement and that they undertook to complete those agreements after Peter Wright's death. It was submitted on behalf of the defendants that there was no consideration for their undertaking and, as neither agreement was a deed, they were not bound by its terms. In my view that submission is correct. But even if Michael and Angela were under some contractual obligation, it is difficult to see how the present plaintiffs have any right to enforce that obligation. They were not parties to the First Agreement or the Second Agreement. If the agreements are said to impact in some way upon the duties of Michael and Angela as trustees of the estate, they would not, in my view, be sufficient to impose upon them a duty to borrow to complete the purchase of Julian's shares.

24 It must be remembered in all of this that it was not simply a matter of Michael and Angela borrowing to complete the purchase of Julian's shares. Julian maintained that on Peter Wright's death, both agreements ceased to have any force and effect. He denied that the estate had any right to acquire his shares. The evidence makes it plain that he would not yield on this issue. Michael and Angela would almost undoubtedly have been forced to resort to the Courts to enforce the agreements. In other words, apart from borrowing to fund the purchase they would also have had to borrow to fund litigation. In my view, it could not be said that a prudent trustee would have taken that course.

25 Both in written and oral submissions counsel for the plaintiffs drew attention to the fact that as a consequence of a course of dealing between Julian on the one hand and Michael and Angela on the other, Michael and Angela wound up with Julian's shares - all this while they were trustees of Peter Wright's estate. It was submitted that this course of conduct, and the way the negotiations took place, suggested that Michael and Angela in some way abused their position as trustees to the detriment of the plaintiffs. It is somewhat difficult to give precise form to the complaint advanced by the plaintiffs. If, as I have concluded, Julian's shares were not covered by cl 3 of Peter Wright's will and if, in any circumstances, there was no obligation on the defendants to fund the purchase of Julian's shares, then the plaintiffs had no interest which was affected in any way by the dealings between Julian, Michael and Angela. There was no circumstance which could give rise to a conflict of interest. Any vague allegation of a breach of trust falls away because there was no property held in trust for the plaintiffs.

26 In all the circumstances I am satisfied that the plaintiffs have failed to disclose any cause of action in this matter. There should be summary judgment for the defendants in terms of their application.