Supreme Court New South Wales Medium Neutral Citation: Jayne Elizabeth Beaumont v David Martin Peel & Ors [2018] NSWSC 95 Hearing dates: 1 February 2018 Decision date: 01 February 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: Orders made in accordance with draft orders 1-18. Agreement noted between the parties in accordance with the draft short minutes of order. Court approves the settlement of the proceedings and notes agreement in respect of the Tenth Defendant. Catchwords: CORPORATIONS – oppression – whether the Court has jurisdiction to make consent orders sought under s 233 of the Corporations Act 2001 (Cth) PROCEDURE – person under legal incapacity – application for approval of settlement of proceedings commenced against person under legal incapacity – whether proposed settlement is in the interests of the person under legal incapacity Legislation Cited: - Civil Procedure Act 2005 (NSW) s 76 - Corporations Act 2001 (Cth) ss 232, 233, 461 - Supreme Court (Corporations) Rules 1999 (NSW) r 2.13 Cases Cited: - Dean Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd (In Liq)) v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 - Lord v Dernacourt Investments Pty Ltd (unreported 14 March 1994) - Quinlan v Fiboze Pty Ltd (1998) 14 ACLR 312 - Re Spargos Mining NL (1990) 3 WAR 166 - Sutherland v National Roads and Motorists' Association Ltd [2003] NSWSC 829 Category: Procedural and other rulings Parties: Jayne Elizabeth Beaumont (Plaintiff) David Martin Peel (First Defendant) Len Peel Holdings Pty Ltd (Second Defendant) Peel Mungerie Pty Ltd (Third Defendant) Hambledon Park Pty Ltd (Fourth Defendant) Peel-Northhampton Downs Pty Ltd (Fifth Defendant) Len Peel Pty Ltd (Sixth Defendant) Kemsley Pastoral Pty Ltd (Seventh Defendant) Peel New-Merrigal (Eighth Defendant) Harrock Pty Ltd (Ninth Defendant) Margaret Peel (by her tutor David John Rohr) (Tenth Defendant) Representation: Counsel: R Dick SC/J Buncle (Plaintiff) S Golledge (First Defendant) R Forbes (Solicitor) (Tenth Defendant) Solicitors: Maddocks Lawyers (Plaintiff) Bartier Perry (First Defendant) King & Wood Mallesons (Tenth Defendant) File Number(s): 2017/142978 Judgment – ex tempore judgment (revised 2 february 2018) Background 1. By Summons filed on 12 May 2017 the Plaintiff, Mrs Jayne Beaumont sought, by way of final relief, a declaration that the affairs of the Second Defendant, Len Peel Holdings Pty Ltd ("LPH") and several other companies, within the corporate group of which LPH is holding company, were being conducted in a manner that was oppressive to, or unfairly prejudicial to, or unfairly discriminatory against her and sought a range of other relief. An interlocutory order was sought in that Summons for the appointment of a receiver and manager to the assets and undertaking of the relevant companies. Mrs Beaumont proposed to file an Amended Summons (Ex P2) in a form which sought, by way of final relief, leave for her to prosecute proceedings on behalf of LPH, implicitly in respect of the affairs of its subsidiaries, and an order that a receiver and manger be appointed to the relevant companies, on a final basis. It appears that that order was sought with a view to the receiver undertaking a sale of the assets of LPH and the relevant companies. In the event, the Amended Summons was not filed, because Mrs Beaumont and Mr David Peel, also a substantial shareholder in LPH, reached agreement as to a settlement of the proceedings. 2. Mrs Margaret Peel, who is Mrs Beaumont's and Mr David Peel's mother and the wife of the late Mr Len Peel, was initially heard in the proceedings under rule 2.13 of Supreme Court (Corporations) Rules 1999 (NSW) and has since been joined as party to the proceedings. Mrs Peel, who has dementia, was involved in the settlement discussions, by her tutor, and was independently legally represented. The orders that are proposed to be made as between the parties and the companies will protect Mrs Peel's interests. I will return to that matter below. 3. I am now asked to make a series of orders by consent, and to note an agreement reached between the parties. The orders that are sought to be made by consent broadly provide for the resignation of each of Mrs Beaumont and Mr David Peel as directors of each of LPH and the other companies and the reconstitution of the board of LPH and those other companies. They also provide for the sale of all of the assets of LPH's subsidiaries and of the Len Peel Group of Companies Partnership, and the distribution of the proceeds of sale to LPH, subject to qualifications that protect Mrs Peel's interests, by preventing the sale of the property on which she is presently resident during her lifetime without her prior written consent, given by her tutor, and by ensuring that the sale of another property would preserve a right for her and her late husband's ashes to be interred on that property, unless Mrs Peel, by her tutor, releases that right. 4. Other terms are also agreed between the parties, which provide for steps which would be taken for Mrs Peel's further care, and for steps which would be taken in implementing the distribution of the proceeds of sale and other cash held by the subsidiary companies, which the Court is asked to note. 5. I proceed on the basis that, because the Court is being asked to exercise a statutory jurisdiction in making the orders sought, it must be satisfied that the basis for the exercise of that jurisdiction is established. Obviously enough, the Court may be more readily satisfied of that matter where the parties consent to the orders that are sought. I must also be satisfied that the relevant orders are of a kind that the Court could have made on the determination of contested proceedings. Affidavit evidence 1. Mrs Beaumont has read, appropriately, several of the affidavits on which she would have relied in a contested hearing. Because this is not a contested hearing, but an application to make orders implementing a settlement, her evidence will not have been tested, and it will not be necessary for me to reach findings as to a number of the matters that were in dispute between the parties or, in the event, to express any view as to any fault in respect of any party as to matters which are plainly in contest. 2. Mrs Beaumont reads, first, her affidavit dated 12 May 2017, which indicates, inter alia, that she is one of the two directors of LPH and its several subsidiaries, and notes that, in circumstances of a breakdown of relationship between Mrs Beaumont and her brother, Mr Peel, there have been no directors' meetings of LPH, or its subsidiaries, since late 2016. 3. Mrs Beaumont also refers to the late Mr Len Peel's death in October 2016, and that Mrs Peel has been diagnosed with dementia and requires significant care. That care is presently being afforded to Mrs Peel by arrangements between Mrs Beaumont, Mr David Peel, and the companies, but there are plainly significant risks as to the stability of those arrangements, when Mrs Beaumont and Mr David Peel are in dispute between themselves in respect of the companies' affairs. 4. Mrs Beaumont's first affidavit also refers to the several subsidiary companies, their property holdings, and concerns which she has in respect of the management of LPH and the companies. For present purposes, it is not necessary for me to determine whether any of those particular concerns are justified, because it is plain enough that there is a fundamental failure in the management of the companies, when LPH is unable to meet or make decisions by its board of directors or exercise control over the affairs of its subsidiaries, and those subsidiaries are also unable to make decisions at board level, because Mrs Beaumont and Mr David Peel are also their directors, and are in deadlock. A general manager has been appointed to the companies, although there have also been difficulties between Mrs Beaumont and that general manager, but the existence of a general manager, who is not a director of the companies, plainly does not substitute for management by the companies' boards in accordance with their constitutions. 5. Mrs Beaumont also reads her further affidavit dated 28 June 2017, which is relevant for present purposes so far as it indicates that Mr David Peel has an unfavourable perception of aspects of Mrs Beaumont's behaviour, and has made assertions as to her behaviour which she contests. Again, I reach no findings as to whether either, or both, Mrs Beaumont's or Mr David Peel's perceptions of the other are justified or unjustified. It is sufficient for present purposes, as Mr Dick who appears for Mrs Beaumont points out, that the assertions which each has made against the other amply demonstrate the breakdown of the relationship between them. Mrs Beaumont also reads her further affidavits dated 6 December 2017 and 14 December 2017. The draft 2017 management accounts of the companies have been put in evidence, which are relevant so far as they indicate the very substantial costs that are involved in the continuing care of Mrs Peel, in her particular circumstances. Orders in respect of oppression claims 1. The first question, then, is whether the Court has jurisdiction to make the orders which are sought under s 233 of the Corporations Act 2001 (Cth). By way of background, s 232 provides that the Court may make an order under s 233 if, inter alia, the conduct of a company's affairs is either contrary to the interests of the members as a whole, or oppressive to a member or members, whether in that capacity or in any other capacity. The section and its predecessors have often been described as extending to "commercial unfairness", but it seems to me that they are also capable of extending to a position where there is a fundamental breakdown within a company's management, with the probability or certainty of damage to members' interests, of a kind that might otherwise justify an application under the just and equitable ground for winding up of a company. Of course, an application under ss 232 and 233 of the Corporations Act allows the Court to make a range of orders, which may be more appropriate than the extreme result of an order for winding up under s 461 of the Corporations Act. 2. I am comfortably satisfied that the Court has jurisdiction to make the orders sought under s 233 of the Corporations Act, on two bases. The first is that, as Mr Dick points out, the authorities recognise that consent orders are from time to time made in applications of this kind, and that, in proposing the making of such orders, the parties implicitly accept the existence of any necessary conditions of the Court's power to make those orders. That principle was applied, in the context of oppression claims, by Young J in Quinlan v Fiboze Pty Ltd (1998) 14 ACLR 312 at 314; by McLelland CJ in Eq in Lord v Dernacourt Investments Pty Ltd (unreported 14 March 1994); and by Campbell J in Sutherland v National Roads and Motorists' Association Ltd [2003] NSWSC 829 at [22]. It has also been applied in other contexts in, for example, Dean Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd (In Liq)) v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 at [27]. 3. I am also satisfied that quite apart from any acknowledgement or admission that is implicit in the parties' consent to the consent orders, the Court can be comfortably satisfied that LPH's affairs are being conducted in a manner that is oppressive to its members, and very likely both Mrs Beaumont and Mr Peel, so far as they are left in a position where the board is in deadlock, unable to conduct its affairs with appropriate decision-making by the board, and with no apparent means of resolving that deadlock. That does not require any finding of fault on the part of either of Mrs Beaumont and Mr David Peel as to the circumstances in which that deadlock arose. I recognise that, as Mr Dick fairly pointed out, a breakdown of relationship is not necessarily in itself sufficient to establish oppression, but here, as I have noted, that breakdown of relationship is combined with a consequential inability to manage the company's affairs in a proper manner. 4. The orders which are sought effectively fall into two categories. A series of orders provide for the reconstitution of the boards of LPH and the subsidiaries by the replacement of Mrs Beaumont and Mr Peel with two other directors, who I infer have their respective confidence, and the appointment of an independent director. I am comfortably satisfied that the Court has jurisdiction to make such an order under s 233(1)(c) of the Corporations Act, which allows the Court to make orders regulating the conduct of a company's affairs in the future, and such an order was made in Re Spargos Mining NL (1990) 3 WAR 166 at 194–196. Where the orders are consented to by the parties, it is not necessary for the Court to form any independent view as to whether they are justified, although the Court could readily have formed the view that the reconstitution of the board, in the manner proposed, was a possible means of addressing a deadlock in the present board. 5. The orders sought also extend to the position of the subsidiaries. It seems to me that the Court has jurisdiction to make such orders in respect of the subsidiaries, on several alternative bases. I note that the subsidiaries are each party to the proceedings so as to be bound by the orders, and their directors, Mrs Beaumont and Mr Peel, have consented to those orders. The first, and possibly most direct basis for making such orders, is that the oppression which exists in respect of LPH also exists in respect of the subsidiaries, where the boards of the subsidiaries are also deadlocked, and are unable to make decisions in respect of the subsidiaries. Second, Mr Dick points out, and I accept, that the authorities have recognised what has been described as a "short circuiting procedure". Where the Court could grant leave to bring derivative proceedings, by Mrs Beaumont on behalf of LPH in respect of the affairs of its subsidiaries, it can avoid delay and costs which would be involved in such proceedings, by making orders that would be made in those proceedings. In this case, it seems to me that the orders that are proposed in respect of the subsidiaries fall within that scope. 6. The orders which are proposed include, as I noted above, orders for sale of the companies' assets, with the qualifications that I have noted that are directed to protecting Mrs Peel's interests. Again, it seems to me that the Court could have made such orders in oppression proceedings, and they are therefore open to be made by consent, where the sale of the companies' assets and their division between interested persons may be an appropriate way of addressing the breakdown of the relationship between them. Section 76 of the Civil Procedure Act 1. The parties appropriately drew my attention to s 76 of the Civil Procedure Act 2005 (NSW) which applies to proceedings commenced, inter alia, against a person under legal incapacity. In this case, the proceedings were initially not commenced against Mrs Peel, although she has been joined in them so far as she is a person whose interests would potentially be adversely affected by the orders sought, and particularly by a sale of the property in which she presently lives, which is owned by one of the subsidiaries of LPH. It seems to me that, having regard to the interests which s 76 of the Civil Procedure Act protects, I should treat it as at least potentially extending to the position where, although Mrs Peel is not a target of the proceedings in a direct sense, she would be adversely affected by the orders sought, which is why she has been joined as party to them. It seems to me that, at least in one sense, proceedings are "against" a person, where that person is party to them and their outcome will adversely affect that person's interests. 2. Section 76(4) in turn provides that, if an agreement for the compromise or settlement of any matter in dispute in any such proceeding is made, relevantly, on behalf of a person under legal incapacity, as Mrs Peel is, the Court may approve or disapprove the settlement. Section 76(5) provides that an agreement disapproved by the Court does not bind the relevant person and s 76(6) provides that an agreement approved by the Court binds the person on whose behalf it was made as if that person was of full capacity. 3. Many of the cases in respect of s 76 of the Civil Procedure Act appear to be directed to the position where the person who lacks capacity is a party seeking relief in the proceedings, and such orders would then turn upon whether the proposed settlement is reasonable in that party's interests. In the present case, that analysis is not directly applicable, where Mrs Peel is not seeking such relief in the proceedings. It seems to me, however, that the Court should approach the question whether to approve the proposed settlement of the proceedings, so far as they affect Mrs Peel, by first comparing that settlement with the position if the proceedings were not settled, and proceeded to completion, and second, reviewing the terms of the settlement, as well as giving weight to the circumstances in which it has been reached. Had there not been a settlement of the proceedings and they had proceeded to completion, one possibility is that Mrs Beaumont would have succeeded, and there could have been a sale of the relevant properties or, possibly worse, a winding up of the relevant companies, which would also have forced a sale of the relevant properties, potentially in more disadvantageous conditions. A second possibility is that the proceedings may have failed, either on their merits, or because orders would not have been made of the kind that were sought, where they would have adversely affected Mrs Peel's interests. However, as Mr Forbes, who appears for Mrs Peel points out, that position was itself potentially disadvantageous to Mrs Peel, so far as she presently occupies one of the properties with the consent of the relevant company, through Mrs Beaumont and Mr Peel, and those arrangements are exposed to the breakdown of the relationship between them. It seems to me that the continuance of the proceedings, to either success by Mrs Beaumont or to failure, or to any of the range of intermediate outcomes that might have existed between the two, would have involved a significant degree of risk for Mrs Peel, arising both from the uncertainty of the outcome and the likelihood that any outcome would impact upon the arrangements by which she occupied the relevant property. 4. I have regard to the fact that the settlement confers a number of protections upon Mrs Peel. First, Mrs Peel has a right under earlier arrangements to exercise an option to acquire an interest in the companies, which is not extinguished by the relevant settlement. The settlement also allows her, by her tutor, a right to approve the person proposed as independent director, and she would have the ability to be heard in opposition to any application to the Court to appoint such a person. Third, and more fundamentally, the settlement provides, in a proposed order of the Court, that the property where Mrs Peel resides, known as Kemsley Park, is not to be sold during her lifetime except with the prior written agreement of Mrs Peel, by her tutor. That arrangement plainly promotes Mrs Peel's interests, so far as she has been resident at the property for many years and, I infer from the terms of the appointment of her enduring guardian which are in evidence, she wishes to continue to reside in that property as long as possible. That arrangement provides Mrs Peel legal certainty in respect of the preservation of that property, which would not have been available to her had the matter gone to a contested hearing. The arrangement also reflects, in a Court order, a provision that seeks to preserve Mrs Peel's ability to inter Mr Peel's and her ashes, on her death, in another property, even if it is sold, again reflecting their wishes. Each of those arrangements is subject to Mrs Peel's consent to any alteration in them, by her tutor. That seems to me to be plainly appropriate where, for example, developments in Mrs Peel's health may be such that she may no longer be able to occupy Kemsley Park at some point in the future. 5. It seems to me that the recognition of Mrs Peel's rights, by these orders, is advantageous to her, and provides a certainty which the continuance of the proceedings would not. The agreement of the parties, which will be noted by the Court, also provides that a very substantial amount will be set aside by LPH, from the distributions made to it, and placed on trust for the ongoing care and maintenance of Mrs Peel. That amount is substantial by any standards, although it must also be recognised that the costs of Mrs Peel's care are large. Again, it seems to me that that term is a significant aspect of the protection of Mrs Peel's interests. 6. I also give substantial weight, in reaching a conclusion that the Court may approve the settlement so far as it involves Mrs Peel, to the fact that Mrs Peel has been represented by an experienced solicitor, who is her tutor, in the negotiation of that settlement, and has been represented by independent solicitors in the proceedings. The Court may properly have regard to that aspect of the process of the settlement, because the adequacy of Mrs Peel's representation in that manner is likely to deliver a result that her interests are adequately protected. The Court should readily infer that, where Mrs Peel's tutor and her independent legal representatives are satisfied, as Mr Forbes has confirmed, with the outcome, then that outcome is in her interests. 7. I am therefore satisfied that the Court should, for the purposes of s 76 of Civil Procedure Act, approve the agreement reached between the parties, and the orders made, so far as they affect Mrs Peel's interests. I will hear the parties as to whether the orders should be amended to record that matter. Orders 1. In these circumstances, I will make orders 1–18 of the draft orders that were provided to the Court, with the amendments that have been discussed in the course of submissions. I will also note the agreement between the parties as set out in paragraphs 19–28 of the draft short minutes of order. The parties agreed that I should make, and I will make a further order, 18A, for the purposes of s 76 of Civil Procedure Act 2005 (NSW), that the Court approves the settlement of these proceedings as recorded in these orders and the agreement noted by the Court in respect of the Tenth Defendant. ********** 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. Decision last updated: 20 February 2018