No.
4252
of
2001
- This is an appeal from a Master of the Court, who on 2 April
2003 ordered that the proceeding be forever stayed and that the plaintiffs
pay
the costs of the proceeding.
- The plaintiffs, John Leonard Chalker ("Mr Chalker Senior")
and Benjamin John Chalker ("Mr Chalker"), are father and son. The first
defendant, Barwon Coast Committee of Management, is a body corporate charged
with the management of the foreshore area at Ocean Grove.
The second
defendant, the State of Victoria, according to the amended statement of claim,
is sued in the right of the Crown as the
administrator and/or trustee of Crown
land.
History of Dispute
- In order to understand the appeal, it is necessary to go back
in time. In the year 1994 Mr Chalker Senior was interested in leasing
premises from the defendants to conduct a restaurant on the foreshore at Ocean
Grove. Eventually a lease was entered into for a
period of five years with a
right of renewal. The lease was entered into by a predecessor of the first
defendant. Mr Chalker Senior
established a unit trust as the vehicle to
lease the premises and operate the business. On 26 August 1994, a deed was
executed by
a company called Chalky's on the Dunes Pty Ltd ("Unit Trust
Trustee") as trustee of the Chalky's in the Dunes Unit Trust "(Unit Trust").
A
company, Caveron Pty Ltd, also executed the deed in its capacity as trustee of
the Chalker Family Trust. The latter trust was
a typical discretionary family
trust. All told there were 1,010 units in the Unit Trust and Caveron Pty Ltd,
in its capacity as
trustee of the Chalker Family Trust, held all the units.
The Unit Trust Trustee executed the lease.
- Mr Chalker Senior was not happy with some of the terms of
the lease and some of the restrictions imposed upon the Unit Trustee by
the
management body. By April 1996 there was a dispute between the parties and
rent was owing. In April 1996 a Notice to Quit was
served on the Unit Trust
Trustee and the lease was terminated.
- On 22 July 1996 an administrator was appointed to the Unit
Trust Trustee and on 22 August 1996 a liquidator was appointed. The
Unit
Trust Trustee company had a number of debts. The company was de-registered on
22 November 2000 pursuant to the Corporations Law. The de-registration
occurred because the liquidation had been finalised. It was de-registered by
operation of law. It follows
that at that date, the Unit Trust Trustee company
ceased to exist and could no longer be trustee of the Unit Trust.
- On 6 June 2000 Mr Chalker Senior was declared bankrupt.
By operation of the Bankruptcy Act, he was automatically discharged on 7
June 2003.
- On 29 January 2001 the plaintiffs Messrs Chalker instituted the
proceeding against the Management Committee and the State of Victoria.
They
purported to bring the proceeding on their own behalf and also as trustees on
behalf of the Unit Trust. Subsequently they
abandoned the claim in their own
name.
- It is clear that at that date they were not trustees of the
Unit Trust. Neither was the Unit Trust Trustee company, which had ceased
to
exist.
- On 23 December 2002 a meeting was held of Caveron Pty Ltd which
claimed to be the sole unit holder and beneficiary of the unit trust,
and it
resolved to appoint the two plaintiffs as trustees of the Unit Trust. In
addition the plaintiffs in their capacity as the
new trustees of the Unit Trust
purported to ratify the proceeding which had been commenced on 29 January 2001.
Caveron Pty Ltd authorised
the two new trustees to do all things necessary to
endorse, ratify and continue the proceeding. Because there was a concern that
since Mr Chalker was bankrupt in December 2002, it may affect his
appointment as trustee and his actions purporting to ratify the
proceeding, on
11 July 2003 Caveron Pty Ltd executed an instrument confirming the appointment
of the plaintiffs as trustees, and
the new trustees and Caveron Pty Ltd
ratified the actions of the plaintiffs in bringing the proceeding on behalf of
the Unit Trust.
- The defendants contend that at the time when the proceeding
was instituted in this court, the plaintiffs were not trustees of the
Unit
Trust, were not authorised by the Unit Trust of its trustees to bring the
proceeding, lacked capacity to do so and accordingly,
the proceeding is a
nullity. Because the proceeding is a nullity it was submitted by Mr Bick
QC who appeared with Mr M. Scott for
the defendants, that the purported
ratification was of no effect and accordingly the proceeding must be dismissed.
The Summons and Appeal
- On 4 October 2002 the defendants filed a summons seeking an
order that the proceeding be dismissed on the ground that the amended
statement
of claim did not disclose a cause of action; was scandalous, frivolous or
vexatious; was an abuse of process of the court;
and that the defendants had a
good defence on the merits.
- On 2 April 2003 Master Wheeler ordered that the proceeding be
forever stayed on the ground that the proceeding was brought by plaintiffs
who
had no authority or capacity to bring the proceeding.
- The plaintiffs filed a notice of appeal. The appeal is an
appeal by way of re-hearing de novo. See Rule 77.05(7) of the Rules
of Court.
As the hearing is a re-hearing de novo, the court on appeal considers the
application afresh. The application made by
the defendants is for an order
dismissing the proceeding on the ground that the proceeding was instituted by
persons who had no cause
of action against the defendants and did not have any
authority to represent the unit trust. They had no standing to bring the
proceeding.
Trustee of the Unit Trust?
- According to the statement of claim attached to the writ, the
plaintiffs, Messrs Chalker, "sue in their capacity as the trustees
of the
Chalkie's in the Dunes Unit Trust". Mr Chalker Snr also sued as "the sole
unit holder and beneficiary under the Chalkie's
in the Dunes Unit Trust". This
claim has been abandoned.
- It is common ground between the parties that Messrs Chalker
were not the trustees of the Unit Trust at 29 January 2001. The statement
of
claim alleges that a lease agreement was executed on 19 December 1994 between a
body known as the Ocean Grove Foreshore Committee
of Management and the Unit
Trust. The cause of action is a claim for damages by the Unit Trust for breach
of the terms of the lease.
It is also alleged that there was a background
agreement and a breach of same causing damage, claims founded on three
variations
of the lease and a breach of a duty of care. As the plaintiffs
allege that their actions in instituting the proceeding have been
ratified by
the trustee of the Chalker Family Trust and themselves as trustees appointed in
December 2002 and June 2003, it is necessary
to determine who was the trustee
at the relevant times.
- On 26 August 1994, a trust deed was executed by Chalkie's on
the Dunes Pty Ltd and Caveron Pty Ltd. The trustee was Chalkie's on
the Dunes
Pty Ltd. The name of the trust was the "Chalkie's in the Dunes Unit Trust".
There were 1,010 $1 units issued and they
were taken up by Caveron Pty Ltd in
its capacity as trustee of the Chalker Family Trust. The Chalker Family Trust
was a typical
discretionary family trust. The plaintiffs were discretionary
beneficiaries.
- It is clear that Chalkie's on the Dunes Pty Ltd was trustee of
the trust from the date of its inception. It entered into the lease
in respect
of the property on the foreshore at Ocean Grove.
- The Unit Trust Trustee operated the business on behalf of the
Unit Trust and incurred debts. The business reached the stage that
it was
unable to pay its debts. On 22 July 1996, an administrator was appointed of
the Unit Trust Trustee, and on 22 August 1966,
a liquidator was appointed.
- The question then arises as to what effect, if any, these
appointments had upon the trustee and in particular, the legal estate
held by
the trustee on behalf of the Unit Trust.
- By July 1996, the Unit Trust Trustee had ceased business on
behalf of the Unit Trust.
- Mr Herbert of counsel on behalf of the plaintiffs
submitted that the effect of the appointments was governed by clause 19 of the
Trust Deed which dealt with the retirement and removal of a trustee. Clauses
19.1, 19.2 and 19.3 deal with retirement and removal
of a trustee. Clause 19.1
enables the trustee to retire upon giving notice, and 19.3 gives power to the
unit holders to remove a
trustee. Neither of these powers were exercised.
Mr Herbert relies upon Rule 19.2 which provides -
"19.2 If the Trustee goes into liquidation or ceases to carry
on business or a Receiver or an Official Manager of its undertaking
is
appointed the Trustee shall forthwith give notice in writing to all Unit
holders of that entry into liquidation, cessation or
appointment and shall
convene a meeting of unit holders. The Trustee shall be deemed to have
resigned effective on the date of such
liquidation, cessation or appointment
and by Special Resolution at a meeting of the Unit holders a new Trustee shall
be appointed."
- It is clear that by August 1996 a liquidator had been
appointed to the Trustee and secondly, that it had ceased to carry on business.
However, it did not give notice to the unit holder which was Caveron Pty Ltd in
its capacity as trustee of the Chalker Family Trust,
nor did it convene a
meeting of unit holders. It did nothing. Mr Herbert submitted that the
second sentence in the clause had the
effect that the trustee had resigned. In
my opinion, that is not correct. Clause 19.2 provides the machinery whereby a
trustee
is deemed to have resigned but only after notice is given and a meeting
of unit holders by special resolution has appointed a new
trustee. In my
opinion, clause 19.6 confirms that conclusion. It deals with what happens on
retirement or removal, namely, that
the trustee ceases to be a trustee and all
property rights and benefits vest in the new trustee "on the new Trustee
executing the
instrument of appointment."
- Whilst clause 19 provided the machinery for the retirement and
removal of a trustee, the procedure was never activated and in my
opinion did
not apply. It is clear that at that time the Unit Trust Trustee was not
removed and that no new trustee was appointed.
- To determine the effect of the appointments, it is necessary
to go to the Corporations Law. Section 474 authorises the liquidator to
get in the company's property. In Octo Investments Pty Ltd v Knight,[1] Stephen, Mason, Aitken and Wilson JJ stated
-
"In the case of the winding up of the company the legal title to
all company property, including trust property, remains in the company.
The
liquidator of a company takes the position of the directors and, in the absence
of a court order ... the company acquires no
title to the company property."[2]
- There is no evidence of any court order to the contrary and it
follows that the Unit Trust Trustee remained the owner of the legal
estate
which it held for the benefit of the Unit Trust.
- In my opinion, as at 23 August 1996 on the appointment of the
liquidator, the Unit Trust Trustee still held the legal estate for
the benefit
of the Unit Trust.
- On 22 November 2000, the company was de-registered. The
effect is dealt with by Corporations Law.
- Section 509 deals with the final meeting and de-registration
of the company. By reason of s.509 a liquidator, as soon as the affairs
of the
company are fully wound up, shall make an account and convene a general meeting
of the company or the creditors as the case
may be. The meeting is to be
convened by an advertisement. The liquidator shall within seven days after the
meeting lodge a return
of the holding of the meeting. By reason of s.509(5),
ASIC must de-register the company at the end of the three month period after
the return was lodged. The evidence revealed that the meeting took place, and
ASIC de-registered the company on 22 November 2000
pursuant to s.509.
Counsel for the defendants submitted that the effect of the de-registration was
dealt with by s.576(1) which vested
the property in the commission. However,
s.576 was repealed in 1999.
- Section 601AD deals with the effect of de-registration. By
reason of sub-s.(1) the company ceased to exist on de-registration.
According
to sub-s.(2), on de-registration all the company's property vests in ASIC.
Sub-section (3) is important and it provides
-
"(3) Under sub-section (2), ASIC takes only the same property
rights that the company itself held. If the company held particular
property
subject to a security or other interest or claim, ASIC takes the property
subject to that interest or claim."
- It follows that the legal estate held by the Unit Trust
Trustee company prior to its de-registration was held thereafter by ASIC.
Section 601AE provides for what ASIC can do with the property. Section
601AE(1) is concerned with property vested in ASIC which
was held by the
de-registered company on trust. ASIC may continue to act as trustee or to
apply to a court for appointment of a
new trustee. Clearly, ASIC has the power
to transfer the legal estate to a new trustee appointed pursuant to the trust
instrument.
In my opinion, as at 22 November 2000, ASIC held the legal estate
originally held by the Unit Trust Trustee prior to its de-registration,
and
held the legal estate for the benefit of the Unit Trust. No application was
made to the court to appoint a new trustee and no
steps were taken pursuant to
the Unit Trust Deed to appoint a new trustee. It follows that at the date of
issue of the writ, ASIC
held the legal estate of the Unit Trust for the benefit
of the beneficiary under the Unit Trust Deed. The only property comprised
in
the legal estate was the cause of action (if any) which the Unit Trust Trustee
had on behalf of the Unit Trust against the defendants.
Hence, the position as
at 29 January 2001 was that if there was a cause of action against the
defendants or either of them, the
cause of action formed part of the legal
estate of the trust. The property in that cause of action was vested in ASIC
who held the
estate for the benefit of the beneficiary under the Unit Trust,
that is, Caveron Pty Ltd in its capacity as trustee of the Chalker
Family
Trust. What is clear is that neither plaintiff was the trustee of the Unit
Trust when the proceeding was commenced. They
had no right to bring the
proceeding. Further, they could not prove a cause of action against the
defendants on behalf of the trust.
They did not have any interest in the cause
of action. If there was one, it was a legal chose in action and part of the
legal estate
of the trust then vested in ASIC.
- The general rule is that where a party has the equitable right
in the claim, the person having a legal right should be a party to
the
proceeding.[3] Hence in a proceeding by a
person claiming under a trust, the trustee in whom the legal estate is vested
is the party who must bring
the proceeding. If the proceeding is brought by
the holder of the equitable estate, the holder of the legal estate is a
necessary
party and may be added as a party.[4]
- But here, two persons who were neither a beneficiary nor a
trustee of the Unit Trust purported to bring a proceeding in their own
name as
trustees when there was a trustee who held the legal estate. The latter should
have brought the proceeding and was a necessary
party to it.
- This was not a case where the proceeding was brought in the
name of a trustee without authority. In such a case if the trustee
does not
later ratify the proceeding, the proper course is to dismiss the proceeding.[5] As that case makes clear, a beneficiary cannot
give authority to a solicitor to bring a proceeding in the trustee's name to
recover
a legal interest unless the trustee consents to that course.
- The present case is not one where the trustee refuses to bring
the proceeding. In such a case any beneficiary, however remotely
interested,
may go to court to compel the trustees to assert their legal property and if
necessary to permit their names to be used
in the proceeding.[6] The modern approach is to permit a beneficiary to sue when
the trustee is unwilling to do so.[7] In the
present case, there was a trustee, ASIC, but it was not requested to bring any
proceeding and that rule does not apply.
In any event the plaintiffs were not
beneficiaries. The beneficiary was Caveron Pty Ltd.
- It was submitted by counsel for the defendants that the
plaintiffs were strangers to the trust, and that their interest in the trust
property was contingent and extremely remote and dependent upon the trustee of
the Chalker Family Trust in its discretion resolving
to benefit either of them.
They were not beneficiaries, and were strangers to the proceeding. It was
submitted that in those circumstances
the proceeding was a nullity.
- Mr Herbert relied upon the principles of ratification.
There is no doubt that where a proceeding is brought without authority in
the
name of a person or entity which has a cause of action against a defendant, the
named party may later ratify the unauthorised
issue of the proceeding in
accordance with the principles concerning principal-agent. In Danish
Mercantile Co Ltd v Beaumont,[8]
Jenkins LJ stated the principles[9] -
"I think that the true position is simply that a solicitor who
starts proceedings in the name of a company without verifying whether
he has
proper authority so to do, or under an erroneous assumption as to the
authority, does so at his own peril, and that, so long
as the matter rests
there, the action is not properly constituted. In that sense, it is a nullity
and can be stated any time provided
that the aggrieved defendant does not
unduly delay his application; but it is open at any time to the purported
plaintiff to ratify
the act of the solicitor who started the action to adopt
the proceedings, to approve all that has been done in the past, and to instruct
the solicitor to continue the action. When that has been done, then, in
accordance with the ordinary law of principal and agent
and in accordance with
the ordinary doctrine of ratification, in my view, the defect in the
proceedings as originally constituted
is cured; and it is no longer open to the
defendant to object on the ground that the proceedings thus ratified and
adopted were,
in the first instance, brought without proper
authority."
- But that is not this case. This proceeding was brought by
persons alleging they were the holders of the legal estate, held in trust
for
the unit trust for the benefit of the trustee of the Chalker Family Trust,
Caveron Pty Ltd. On no view were the plaintiffs the
holders of the legal
estate. The holder was ASIC. In my opinion, the principle of ratification
cannot apply. The principle applies
where a writ is issued without authority
and the nominal plaintiff adopts the writ or ratifies its issue. Here the
nominal plaintiffs
did not have a cause of action. The trustee at the time,
ASIC, was not a party, was unaware of the proceeding and did not ratify
anything.
- In my opinion, the proceeding was a nullity. It cannot be
cured. The plaintiffs did not have a cause of action against the defendants
either in their own capacity or as trustee of the unit trust. There was a
trustee. It was ASIC. My conclusion is supported by
what Taylor J said in
Minister of State for the Interior v R.T.Co. Pty Ltd.[10] His Honour said -
"To my mind principle and authority admit of only one answer to the
problem; it is incumbent upon the plaintiff to establish the existence
of his
cause of action as at the date of his writ and the failure or success of his
action will not depend upon whether the trial
takes place promptly or happens
to be delayed until after he is entered into possession. It seems to me that
the problem is analogous
to that which has arisen in cases where a plaintiff
has, before actual grant of administration, commenced proceedings as an
administrator.
Notwithstanding that upon grant the administrator's title
relates back to the death of the deceased whom he represents it has been
consistently held that this element of retroactivity is incapable of sustaining
a writ issued before grant."
- In my opinion, the same principles apply here. The plaintiffs
never had any authority or capacity to bring the proceeding against
the
defendants either in their personal capacity or as trustees of the Unit Trust.
The proceeding was a nullity from the very beginning
and cannot be cured.
- In my opinion, the proceeding should be dismissed. The Master
ordered that the proceeding be forever stayed. Since the plaintiffs
had no
cause of action at any point against the defendants, the proper order to make
is that the proceeding be dismissed.
- Subject to any submissions by counsel I propose to make the
following orders -
(i) That the appeal from the orders made by Master Wheeler on
2 April 2003 is dismissed.
(ii) That the plaintiffs' proceeding be dismissed.
(iii) That the Orders made by Master Wheeler, being paragraphs 2 and 3 of the
Order authenticated on 7 April 2003, are affirmed.
(iv) That the plaintiffs pay the defendants' costs of their appeal, including
any reserved costs.
[1] [1979] HCA 61; (1979) 144 CLR 360.
[2] At 371.
[3] See Daniell's Chancery Practice,
8th edition at p.151.
[4] See Bowden's Patents v Smith [1904]
2 Ch 86.
[5] See Crossley v Crowther [1851] EngR 898; (1851) 9
Hare 384 at 386; [1851] EngR 898; 68 ER 556.
[6] See Foley v Burnell 1 BCC 274 at 276
and Lechmere v Carlisle 3 PW 215.
[7] See Lamru Pty Ltd v Kation Pty Ltd
(1998) 44 NSWLR 432 at 436-8 and Fried v National Australia Bank and Ors
[2001] FCA 907; (2001) 111 FCR 322.
[8] [1951] 1 Ch 680.
[9] At 687.
[10] [1962] HCA 29; (1962) 107 CLR 1 at 7.
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