New South Wales Supreme Court CITATION : Rule & 1 Ors v Mallon & 3 Ors [2000] NSWSC 346 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1793/00 HEARING DATE(S) : 17/04/00 JUDGMENT DATE : 17 April 2000 Marjorie Olive Rule (First Plaintiff) Allan Roy Rule (Second Plaintiff) PARTIES : Susan Gai Mallon (First Defendant) Robert Kirkwood Allan (Second Defendant) Valmai Soler (Third Defendant) Moorings Home Units Pty Limited ACN 000 261 432 (Fourth Defendant) JUDGMENT OF : Santow J COUNSEL : D J Hammerschlag (Plaintiffs) C J Birch, SC (Defendants) Mullane & Lindsay (Plaintiffs) SOLICITORS : Hogan Geikie Poole (First and Second Defendants) Teece Hodgson & Ward (Third Defendant) Blessington Judd (Fourth Defendant) CATCHWORDS : PROPERTY — Surviving spouse — Tenant in common or joint tenant in relation to shares in a home unit company — Effect of Will having regard to s26 of Conveyancing Act 1919 (NSW) — Construction of articles of association — Transmission articles — Held tenant in common. LEGISLATION CITED : Conveyancing Act 1919 (NSW), s7, s26 Guardianship and Administration Act 1996 (Victoria) CASES CITED : Carmody v Delehunt [1984] 1 NSWLR 667 In re Wool Trading Company Ltd (in liquidation) (1927) 28 SR 106 DECISION : Held tenant in common. REVISED — 22 May, 2000 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 1793/00 MARJORIE OLIVE RULE First Plaintiff ALLAN ROY RULE Second Plaintiff SUSAN GAI MALLON First Defendant ROBERT KIRKWOOD ALLAN Second Defendant VALMAI SOLER Third Defendant MOORINGS HOME UNITS PTY LIMITED ACN 000 261 432 Fourth Defendant JUDGMENT — ex tempore 17 April 2000 INTRODUCTION 1 The essential issue before me concerns a situation where husband and wife originally owned "together", to use a neutral word, shares in a home unit company called Moorings Home Units Pty Ltd ("the Company"). The husband died on 6 June 1999. His wife survives. The original transfer of shares to the couple has not been located. The share certificate and it can be taken, the share register, simply describe the two names without the added description of "tenancy in common" or "joint tenancy" or some such synonymous expression. 2 The questions posed by the Plaintiffs' Summons, quoted below, concern whether taking into account the Articles of Association of the Company and in particular Article 26 and the operation of s26 of the Conveyancing Act 1919 (NSW) the ownership interest of the surviving spouse is one of tenant in common rather than joint tenant; the Plaintiff contends it is tenant in common. 3 I should add that there is a Cross-Claim brought by the guardians of the surviving spouse, whose estate is administered under the Guardianship and Administration Act 1996 (Victoria) which seeks a declaration to the contrary, namely that the relevant shares of the surviving spouse were held as joint tenants with the result that upon the death of the deceased husband she became entitled by survivorship to the whole of the interest, both legal and beneficial, in the shares. 4 Turning to the Plaintiffs' Summons, I should note first that their relationship was to the deceased husband, being the Executors of his estate and residuary beneficiaries. Set out below are the declarations and orders sought by the Plaintiffs: "1. A declaration that immediately prior to the death of Ronald George Jermyn ("the deceased") on 6 June 1999 the 1,601 shares ("the shares") held jointly by him and Nellie Jermyn in the share capital of Moorings Home Units Pty Limited ACN 000 261 432 were held and owned by the deceased and Nellie Jermyn as tenants-in-common and not as joint tenants. 2. A declaration that upon the death of the deceased on 6 June 1999 there was no transmission to Nellie Jermyn of the interest of the deceased in the shares. 3. An order pursuant to s175 of the Corporations Law that upon probate being granted to the First Plaintiff and Second Plaintiff in respect of the estate of the deceased, the official register of the Fourth Defendant be corrected so as to reflect the First Plaintiff and Second Plaintiff as holding the shares jointly with Nellie Jermyn." SALIENT FACTS 5 The foregoing introduction sets out broadly the factual position but for completeness, I set out below in short chronological form of the salient facts. "Statement of Agreed Facts 1. In 1971 the late Ronald George Jermyn ("the deceased"), and his wife Nellie Jermyn ("the wife") purchased and took transfer of 1601 shares in the Fourth Defendant Company, Moorings Home Units Pty Ltd (ACN 000 261 432). The shares represent an interest in a home unit. 2. The wife suffers dementia and is the subject of an order under the Guardianship and Administration Act 1996, and the First and Second Defendants are her guardians. 3. The deceased died on 6 June 1999 leaving a will which is annexure B to the affidavit of Mr Robert Lindsay sworn 14 March 2000 in these proceedings. The Plaintiffs are the executors and residuary beneficiaries under it. They have not yet applied for probate. They propose to do so or to refrain from doing so, depending on the outcome of these proceedings. 4. By summons dated 21 March 2000 the Plaintiffs seek declaratory orders that the shareholding was held as tenants in common and not as joint tenants, that there was no transmission to the wife on the death of the deceased and ancillary orders. 5. By cross-claim dated 6 April 2000 the First and Second Defendants seek declarations to the contrary affect, and in the alternative, damages." RESOLUTION OF LEGAL ISSUES 6 Section 26 of the Conveyancing Act 1919 provides as follows: " 26 (1) In the construction of any instrument coming into operation after the commencement of this Act a disposition of the beneficial interest in any property whether with or without the legal estate to or for two or more persons together beneficially shall be deemed to be made to or for them as tenants in common, and not as joint tenants. (2) This section does not apply to persons who by the terms or by the tenor of the instrument are executors, administrators, trustees, or mortgagees, nor in any case where the instrument expressly provides that persons are to take as joint tenants or tenant by entireties." 7 It is contended by the Cross-Claimants the Articles of Association of the Company constitute for the purposes of s26(2) "the instrument" which "expressly provides that persons are to take as joint tenants or tenant by entireties". Relevantly reliance is placed upon Article 26 which reads as follows: "26. The executors or administrators of a deceased member (not being one of several joint holders) shall be the only persons recognised by the Company as having any title to the shares registered in the name of such member and in the case of the death of any one or more of the joint holders of any registered shares the survivor shall be the only person recognised by the Company as having any title to or interest in such shares." 8 I should note that that Article is followed by the conventional transmission Article being Article 27 quoted below: "Any person becoming entitled to shares in consequence of the death or bankruptcy or lunacy of any member on producing such evidence that he sustains the character in respect of which he proposes to act under this clause or of his title as the Directors think sufficient may subject to the regulations as to transfer hereinbefore contained transfer such shares. This clause is herein referred to as 'the Transmission Clause'." 9 The Cross-Claimants in asserting that a joint tenancy was created, rely upon the decision of Long-Innes J in the case of In re Wool Trading Company Ltd (in liquidation) (1927) 28 SR 106. There a corporation sought to enforce a liability for calls from a deceased member. As is clear from a number of passages in that decision, what the case concerned was this. Whether, as between company and members, in circumstances where there was a similar article to Article 26, the deceased member and surviving member were to be treated as joint tenants of the shares or tenants in common. The decision is authority for the proposition that the proper characterisation of the ownership interest as against the company was that of joint tenancy with the ordinary incident of survivorship. 10 However, though at 114 the proposition is put in these terms, it is elsewhere qualified by reference to the determination being "as between the company and themselves". Thus at 114 the broad proposition said to constitute the ratio is expressed in these terms: "In my opinion, therefore, the balance of authority is in favour of the view that unless the articles otherwise provide, on the death of one of two or more registered joint holders of shares the survivor is, or survivors are, alone entitled to and liable upon such shares." 11 But that proposition precedes an analysis of the relevant articles of Association including the corresponding Article 41 to Article 26. 12 At 115 the conclusion is expressed in these terms "Article 41, in my view, confirms in the clearest manner the position as (apart from the change effected by s26 of the Conveyancing Act 1919, with which I shall deal hereafter) it would be in the absence of provision to the contrary in the articles, namely that as between the company and themselves joint registered holders of shares must be regarded as joint tenants with the ordinary incident of survivorship. The provision that on the death of one joint holder the survivors shall be the only persons recognised by the company as having any title to or interest in the shares in question imports, to my mind, that such survivors shall be the only persons recognised by the company as being subject to the correlative liabilities and obligations attaching to ownership of such shares." [emphasis added] 13 Earlier, the position is made even clearer at 111 where express reference is made to the paramountcy as between company and members of the relationship of joint tenancy. That result is said to be "quite apart from and irrespective of any private arrangement which may be made between the joint holders inter se". 14 Turning to the more recent authorities, it is clear that s26 of the Conveyancing Act 1919 (NSW) was intended to reflect and reinforce equity's preference for tenancy in common over joint tenancy, such that the gravitational pull of statute applies even to circumstances not within its express purview; see notably Carmody v Delehunt [1984] 1 NSWLR 667 at 669 per Hutley JA and also Priestley JA at 677. 15 That decision followed Buchan v Nash [1983] 2 NSWLR 575 where Needham J recognised that shares could be held by shareholders at law as joint tenants, but that where the contribution was in unequal shares then in equity the shares were held as tenants in common. I do not consider that decision is authority for any more general proposition. 16 The Plaintiffs' essential argument is that, accepting that a share register or even articles may represent a dispositive instrument for the purposes of s26 of the Conveyancing Act, nonetheless the present Article 26 is not capable of satisfying s26(2). That is to say, it is in a conventional form dealing simply with the Company's right to disregard the deceased joint holder and recognise only the survivor. Thus it deals with what the company may do in the context of a vertical relationship between company and members. But it says nothing as to the horizontal relationship between the two joint holders. Indeed Article 26 could not as between the two joint holders, work an expropriation of the interest of one of them who failed to survive. The reductio ad absurdum of the contrary is brought out if one hypothesises that the relevant members were described as tenants in common. On that reasoning, even the interest of a non-surviving tenant in common would be expropriated, notwithstanding the later effect of the transmission article. 17 Article 27, the transmission article, indeed represents essential context to the preceding Article. While Article 26 directs the Company only to recognise the survivor, Article 27 provides conventionally for the transmission of the deceased's interest (and like situations) permitting a transfer to be registered so as to restore recognition to the party succeeding by operation of law to the interest of the deceased member. 18 Indeed that is why the Plaintiffs seek order 3 of the Summons as well as the earlier declarations. 19 When one turns to the text of s26, it is clear that the instrument there referred to must be one that actually works a disposition of the beneficial interest in the relevant shares. That is, accepting as I do, that "property" includes by virtue of s7 of the Conveyancing Act 1919 (NSW) shares being a chose in action. Clearly enough Article 26 does not purport to work a disposition of the beneficial interest as between survivor and deceased joint holder. Rather it directs the Company whom to recognise until such time as Article 27 is activated to add the transmittee to the register of members. 20 When one turns to s26(2) it is clear that not only must there be a dispositive instrument but it must be one that "expressly provides that persons are to take as joint tenants or tenant by entireties". The meaning of "expressly provides" is helpfully explained by reference to the relevant authorities in Peter Butt "Land Law" (LBC, 1996) at 227, quoted below. "Under s26(2), persons take as joint tenants where the instrument "expressly provides" that they are to take as joint tenants. This does not require use of the precise formula "as joint tenants"55 It is sufficient for the instrument to indicate "plainly" or "clearly" that a joint tenancy is desired.56 Nevertheless, it is prudent to use the formula "as joint tenants", since it is uncertain what other formula will suffice. For example, a devise to persons "as joint legatees" is ineffective to create a joint tenancy.57 In the absence of a sufficiently precise formula, the court can look to the whole of the instrument, including what the instrument discloses about the nature of the property and the relationship of the co-owners, to ascertain whether a joint tenancy was intended.58" 55 Hircock v Windsor Homes (Development No 3) Pty Ltd [1979] 1 NSWLR 501 at 503, 506 56 Ibid at 503; Mole v Ross (1950 1 BPR 9101 at 9102. In a series of cases in Missouri, where by statute a grant or devise to two or more persons creates a tenancy in common "unless expressly declared … to be in joint tenancy", an early insistence on the need for use of the precise term "joint tenancy" has given way to a less formal requirement that the instrument "expressly declare or by plain implication manifest the intention to create" a joint tenancy (see State; ex rel Ashauer v Hostetter (1939) 127 SW (2d) 697; Powers v Buckowitz (1961) 347 SW (2d) 174; Johnson v Woodard (1962) 356 SW (2d) 526); but a grant or devise to two or more persons "jointly" is not sufficient to create a joint tenancy ( Montgomery v Clarkson (1979) 585 SW (2d) 483). See also Neagle v Johnson (1966) 261 F Supp 634. 57 Mole v Ross (1950) 1 BPR 9101 58 Hircock v Windsor Homes (Development No 3) Pty Ltd [1979] 1 NSWLR 501 at 503, 506, 508 (lease of one-bedroom home unit to a husband and wife for a term of ten years plus option, with proviso that the lease or any extension of it was to cease on the death of the survivor of the lessees; held, as a matter of construction, the lessees took as joint tenants). 21 It could not reasonably be said that Articled 26 "plainly" or "clearly" indicates that a joint tenancy is desired merely because the deceased and his surviving spouse took a transfer of shares in a company containing for the benefit of the company the recognition provisions of Article 26. CONCLUSION AND ORDERS 22 The Plaintiffs are successful in the contentions they have made and orders should be made in terms of paras 1, 2 and 3 of the Summons. That is to say the surviving wife is tenant in common of the relevant property, not joint tenant. Each party should pay their own costs. I so order. ********** Last Modified: 09/25/2000 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.