Ffrost (dec'd), Re; Re Collom [1991] QSC 150

IN THE SUPREME COURT OF QUEENSLAND CHAMBERS Counsel: Solicitors: O.S. No. 483 of 1991 IN THE MATTER of SECTION 8 OF THE TRUSTS ACT 1973-1979 - AND - IN THE MATTER of THE ESTATE OF ALICE FFROST (DECEASED) - AND - IN THE MATTER of A DECISION BY MERVYN ALWYN COLLOM TO APPOINT HARRY PAULL AS GOVERNING DIRECTOR OF A. FFROST & CO. PTY. LTD. JUDGMENT - de JERSEY J. Delivered the 7th day of June, 1991 Mr. H.A. Weld for the Applicant Mr. K.J. Lynch for the 1st Respondent Ms. D. Graham (Sol.) for the 2nd Respondent Conwell Kirby & Lilley Barker & Gosling Solicitors for the Applicant Stephens & Tozer Solicitors for the 1 st Respondent Corrs • Chambers & Westgarth Solicitors for the 2nd Respondent Hearing dates: 3rd and 5th June, 1991 -- 1 of 7 -- IN THE SUPREME COURT OF QUEENSLAND O.S. No. 483 of 1991 IN THE MATTER of SECTION 8 OF THE TRUSTS ACT 1973-1979 - AND - IN THE MATTER of THE ESTATE OF ALICE FFROST (DECEASED) - AND :- IN THE MATTER of A DECISION BY MERVYN ALWYN COLLOM TO APPOINT HARRY PAULL AS GOVERNING DIRECTOR OF A. FFROST & CO. PTY. LTD. JUDGMENT - de JERSEY J. Delivered the 7th day of June, 1991 The respondent is the executor and trustee of the deceased. Until 4th April, 1990 he was also the governing director of A. Ffrost & Co. Pty. Ltd. On that day, he resigned as governing director and appointed Mr. Harry Paull in his stead. He was empowered to do that by cl. 14(2)(g) of the company's articles. The applicants are the residuary beneficiaries of the estate of the deceased. Its substantial asset is shares in the company . The applicants complain about the respondent's appointment of Mr. Paull as governing director. They point out that the respondent has no beneficial interest in the company. ( He holds his only share on trust for its holding company.) He should, they would say, have had greater regard to the interests of the beneficiaries of the estate. They would not object to Mr. Paull's being a director of the -- 2 of 7 -- company, but they do object to his being governing director. Mr. Paull holds preference shares in the company. In their correspondence, the respondent's solicitors assert that the respondent appointed Mr. Paull because the respondent thought him to be the person "best equipped to continue the management of (the company) due to his vast hands on experience and years of service with the company and in the industry generally". The company is involved in the clothing industry. In ordinary circumstances, the court could not review such an appointment. The applicants do however invoke the jurisdiction conferred on the court bys. 8(1) of the Trusts Act, to review, at the instance of an aggrieved person, an act or decision of a trustee in the exercise of any power conferred by the instrument creating the trust. Before setting out the way in which that said to apply, I will state shortly how the provision is respondent's appointment as governing director, and his shareholding in the company, came about. The deceased appointed the respondent as alternate governing director of the company by deed dated 10th August, 1962 during any period for which she could not herself act as governing _director. By the same deed, she appointed him to succeed her as governing director from her death, or earlier resignation. As governing director, the respondent had power, by article 14(2)(g), to appoint another person to succeed him as governing director. It is that power which he exercised on 4th April, 1990 in appointing Mr. Paull. Article 11(a) provides that a governing director's shares entitle him to exercise 80 per cent of the voting power of the -- 3 of 7 -- 3 company. On 13th September, 1963 the directors of the company resolved that a share be transferred to the respondent to be held by him in trust for Alice Ffrost Pty. Ltd. (the holding company), "in order to ensure that the governing director ... holds shares ... in order to give effect to the voting power authorised" by the company's articles. By a document dated 13th September, 1963 the respondent acknowledged that he held that share on trust for Alice Ffrost Pty. Ltd. The respondent was at the relevant time both trustee of the deceased estate, by virtue of the will, and trustee of the share in the company beneficially owned by Alice Ffrost Pty. Ltd. The applicants challenge his exercise of the power to appoint Mr. Paull as governing director. For the purpose of decidin~ whether s. 8 may apply, one must first identify the instrument conferring the power which is in question. That is because it is only a decision of a trustee "in the exercise of (a) power conferred by the instrument creating the trust" which may be reviewed. On a narrow view, the articles of association conferred the relevant power. More broadly, one would say that it was the deed dated 10th August, 1962 appo~nting the respondent to succeed the deceased as governing director, taken with the articles, which - her having died - conferred the power. If one stops there, then obviously s. 8 cannot apply, for the relevant decision was not made by the respondent in the exercise of a power under a trust. Mr. Weld, who appeared for the applicants, put the matter quite differently. He submitted that because the respondent -- 4 of 7 -- 4 held his share in the company on trust for Alice Ffrost Pty. Ltd. , so he was constrained to utilise the associated voting power for the benefit of that beneficiary. By resigning as governing director and appointing a substitute, he breached that trust, because he effectively stripped the share he held for the holding company, of the 80 per cent voting right. (When it was pointed out that the holding company was not a party to the proceedings, Mr. Weld stated that he acted for it and asked that it be joined as an applicant.) For the instrument creating the trust over the share, Mr. Weld relied on the minute of 13th September, 1963 recording the resolution that the share be transferred and held on trust, and the acknowledgment by the respondent of the trust. But in resigning as governing director and appointing another in his place, the respondent was not exercising a power conferred by those instruments. He was exercising a power arising from his being governing director. Mr. Weld referred to the· purpose of the share transfer stated in the minute of 13th September, 1963, that is, to ensure that the governing director held shares to give effect to the voting power authorised by the articles. That does not mean however that the instrument creating the trust over the shares should be regarded as implicitly containing this relevant power ( to resign and appoint a successor) associated with the position of governing director. As submitted by Miss Graham, who appeared for Mr. Paull, it is not without. significance that the deed appointing the respondent as alternate governing director, and as the -- 5 of 7 -- 5 governing director to succeed the deceased upon her death or earlier resignation, was made in August, 1962, more than a year before the issue of the share which occurred in September, 1963. There is no share qualification for a governing director. Mr. Weld submitted that one should infer that all events were inextricably related: the designation of the respondent as the deceased I s executor and trustee, the appointment of him as governing director, and the transfer of the share to him. I am not satisfied that that is necessarily the correct interpretation. I think it quite conceivable, as Mr. Lynch (for the respondent) submitted, that the deceased appointed the respondent as governing director simply because she wanted to ensure that he retain control of the company after her resignation or death. On that basis, it would be wrong to regard his exercise of rights as governing director ( such as the right to resign and appoint a successor) as constrained in any way by the circumstances of the trust on which he held the subsequently transferred share. In my view, the power exercised by the respondent, of resigning as governing director and appointing Mr. Paull, was a power conferred by the instrument appointing him as alternate and succeeding governing director on 10th August, 1962 taken with the company's articles. It was not a power conferred by the instrument creating the trust over the shares on which Mr. Weld relied. The documents creating that trust (the minute and the acknowledgment of 13th September, 1963) do refer to the voting power of the governing director, but do not "confer" the power in question. Neither of course does -- 6 of 7 -- 6 the will of the deceased. The instruments referred to earlier, power the is conferred by the deed appointing the respondent as governing director taken with the articles of association of the company. I therefore conclude that I have no power to review this decision. But even were there a power, I would not on this material exercise it favourably to the applicants. That is because there is no evidence before me going to the quality of the decision. I have set out above the respondent's solicitors' assertion as to why he took this course. Prima facie that would be a satisfactory explanation. There is no evidence that Mr. Paull would make an unsatisfactory governing director. Neither is there evidence of any loss to Alice Ffrost Pty. Ltd. from the loss of voting power which flowed from the resignation of the respondent as governing director. Mr. Weld submitted that such an action, which automatically deprived the shares of the associated voting power, must have amounted to a breach of the trust on which the shares were held, which should be reviewed. I have already pointed to the separation between the source of the position of governing director,. and the source of the trust over the share. The terms of that trust did not limit the respondent's exercise of his separate powers as governing director. As to the absence of evidence going to what I have called the quality of the decision, see also re Kaczorowski (1974) Qd.R. 177, 185. I therefore refuse the relief sought by para. 1 of the summons. -- 7 of 7 --