Kanjian v Kanjian

On Appointment of Receivers and Managers

1. [1]

   Effective management of the third defendant, a corporate vehicle of the Kanjian family, is critically impeded by a fundamental breakdown of personal relationships within the family. The critical division is between the first defendant (the eldest son of the family) on the one hand and, on the other hand, the rest of the family.

2. [2]

   The plaintiff (Loris) and the fourth defendant (Sonia) are an elderly married couple, husband and wife respectively.

3. [3]

   There are four (adult) children of the marriage. In descending order of age, they are the first defendant (Ken), Victor, Phillip, and Marianne.

4. [4]

   By a notice of motion filed in these proceedings (commenced by statement of claim, and made the subject of a statement of cross-claim by the first defendant), the plaintiff seeks orders for the appointment of qualified persons as receivers and managers of the third defendant (or, in the alternative, for the removal of the third defendant as trustee of family trusts and the appointment of the same qualified persons as replacement trustees) so as to permit an orderly conduct of third party proceedings, recently commenced against the company by Senses Northbridge Pty Ltd (“Senses”), affecting the following properties held on trust by the third defendant:

5. [5]

   The property the subject of the Metropole Trust includes land in Concord Road North Strathfield as well as the land known as 59-67 Strathallen Avenue in Northbridge.

6. [6]

   The proceedings instituted by Senses affect each of the properties at Northbridge, one the subject of the Metropole Trust and the other the subject of the Kanjian Family Trust. They do not concern the North Strathfield land.

7. [7]

   The third defendant is trustee, not only of the Metropole Trust and the Kanjian Family Trust, but also of a third trust which all parties agree involves no present need for the intervention of the Court.

8. [8]

   The parties to the present proceedings are:

9. [9]

   The second defendant is presently under the control of the siblings of the first defendant and, in these proceedings, is a corporate vehicle through which they have expressed support for the plaintiff, as well as for the perceived interests of the fourth defendant.

10. [10]

    The share capital of the third defendant comprises two "A" class shares and four "B" class shares. The A class shares are the only shares to which a present entitlement to vote attaches. The B class shares are held by the Kanjian children, one share apiece.

11. [11]

    One A class share is registered in the name of the fourth defendant as beneficial owner. The other is registered in the name of the first defendant, ostensibly on trust for the plaintiff by virtue of a declaration of trust executed by the first defendant dated 17 April 1984.

12. [12]

    There is a dispute about beneficial ownership of the A class share registered in the name of the first defendant. The plaintiff (the father) claims that he is the beneficial owner by virtue of the declaration of trust. The first defendant (his eldest son) contends that the plaintiff is estopped from requiring him to transfer legal title to the share to the plaintiff.

13. [13]

    The plaintiff by his amended statement of claim, and the first defendant by his statement of cross-claim, thus make competing claims to beneficial ownership of the disputed share - and, at shareholder level, management of the third defendant is deadlocked.

14. [14]

    Until last year the directors of the third defendant were the fourth defendant (the mother) and the first defendant.

15. [15]

    It is common ground that the fourth defendant's mental capacity declined last year. Without opposition, after an independent medical examination of the fourth defendant, the Court made a declaration (under section 41(1)(a) of the NSW Trustee and Guardian Act 2009 NSW) that she is incapable of managing her affairs and, pending debate about the identity of a "suitable person" to manage her estate, appointed the NSW Trustee as receiver and manager of her protected estate.

16. [16]

    The NSW Trustee has filed a submitting appearance but, at the invitation of the Court and without any objection by any party, it maintains a watching brief in order to remain aware of developments which may affect the fourth defendant's estate, and to assist the Court.

17. [17]

    It is common ground that, by reason of her infirmity, the fourth defendant's office as a director of the third defendant has fallen vacant. It is also common ground that, under the articles of association of the third defendant, the first defendant has power to appoint a substitute director.

18. [18]

    The problem with the first defendant exercising that power is three-fold.

19. [19]

    First, the deadlock in the third defendant at shareholder level means that any decision made by the first defendant, without the agreement of the plaintiff, to fill the fourth defendant's casual vacancy is likely to exacerbate existing divisions within the company without any assurance of orderly governance of the company going forward.

20. [20]

    Secondly, a case sought to be advanced by the plaintiff but contested by the first defendant is that an "agreement for lease" dated 10 May 2018 purportedly entered into with an external party (Senses Northbridge Pty Ltd) was not duly executed on behalf of the company, in the context of which controversy any decision taken by the first defendant to fill the casual vacancy is likely to be the subject of challenge.

21. [21]

    Thirdly, the plaintiff (supported by the second defendant) strenuously opposes, although the first defendant with equal force supports, a prospective development of the properties at Northbridge - in respect of which Senses demands, by reference to the agreement for lease, that the third defendant give its consent to lodgement of a development application with the local council.

22. [22]

    Senses commenced proceedings in this Court (styled "Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd" and numbered 2018/00390352 in the Equity Division of the Court) in which it seeks orders designed to enforce a claimed entitlement under the agreement for lease to obtain from the third defendant a signed consent to it making a development application. Those proceedings are listed for directions later today in circumstances in which Senses has been pressing for an expedited set of directions with a view to an early determination of its claim.

23. [23]

    Disputation within the governance structure of the third defendant means that, in the absence at least of a determination of the contest between the plaintiff and the first defendant about beneficial ownership of the disputed share, no decisions can safely be made on behalf of the third defendant with respect to the "Senses proceedings" without exposing the plaintiff and the fourth defendant (if not also the first defendant and his siblings) to risks of financial loss and ongoing litigation.

24. [24]

    Because of beneficial entitlements to the land the subject of the proposed development (held on trust by the third defendant) the financial interests of the plaintiff and the fourth defendant (now a protected person) stand to be particularly affected at a level beyond the internal management of the third defendant whatever decision might be made about the Senses development proposal.

25. [25]

    Senses is pressing for an expedited determination of its proceedings notwithstanding that, as management arrangements within the third defendant presently stand, no person interested in the company has unchallenged authority to make decisions on behalf of the company.

26. [26]

    This state of affairs (properly characterised as a deadlock in management of the third defendant although focused upon, and emanating from, conflict at the shareholder level) invites the Court's attention.

27. [27]

    The fundamental problem with the current state of internal management of the third defendant, and consequently the trusts affected by the Senses litigation, cannot be overcome by permitting the first defendant to fill the fourth defendant's casual vacancy or by any regime of undertakings that might be given by the first defendant short of an undertaking to disclaim the "agreement for lease" under which Senses claims an entitlement.

28. [28]

    The breakdown in the relationship between the plaintiff and the first defendant at a personal level appears likely to render it impossible for them to maintain any objective working relationship should they both, for example, be directors of the third defendant.

29. [29]

    In my assessment, the only practical means of bringing order to administration of the Metropole Trust and the Kanjian Family Trust (given the third defendant's occupation of the office of trustee in respect of both trusts) is to appoint receivers and managers to the property held on trust, and to authorise them to manage the Senses litigation.

30. [30]

    This is a more appropriate course in my assessment than appointment of a receiver and manager to the third defendant (because to do so would affect a third trust, the administration of which the parties agree is in no need of intervention) and a better course than making an order for the appointment of new trustees (which lacks the potential for ongoing control by the Court, if such control be necessary).

31. [31]

    Those who seek the appointment of receivers and managers (not merely the plaintiff) should be required to give the usual undertaking as to damages as the price of the appointment. This is necessary, in part, because the first defendant has given a guarantee in support of the third defendant's bank borrowings and he is anxious to minimise his exposure to liability under the guarantee in the event that the bank calls in the third defendant's loans upon characterisation of the appointment of receivers and managers as an event of default.

32. [32]

    In my judgment, the plaintiff has demonstrated a serious question to be tried in respect of the beneficial ownership of the disputed share such that an order for interlocutory relief is appropriate, subject to the balance of convenience.

33. [33]

    In my judgment, the balance of convenience favours the appointment of receivers and managers to trust property on terms designed to provide reasonable protections to all interested parties, including the interests of the fourth defendant as a protected person.

34. [34]

    Appointment of receivers and managers to the two trusts affected also acknowledges that the Senses proceedings affect the two trusts (not merely one), and it is in the interests of the orderly administration of the trusts, no less than the orderly administration of the third defendant, that they be under common management pending determination of the principal proceedings.

35. [35]

    The parties presently before me, at the time the plaintiff's notice of motion was the subject of hearing, contemplated that the best way forward, procedurally, after the appointment of receivers and managers was for there to be formulated a separate question about beneficial ownership of the disputed share which could then be the subject of an application for an expedited hearing.

36. [36]

    As I was about to deliver judgment on the motion last week, on 21 February 2019, I was invited to make no orders but to adjourn the proceedings until today with a view to settlement discussions taking place. I was given what I understood to be an assurance that the parties would resolve their differences, at least in relation to the Senses litigation, if not in relation to everything, so that the matter might proceed today without the making of orders for the appointment of receivers and managers.

37. [37]

    Today I was informed that the parties have had extensive discussions, but they have been unable as yet to come to any form of agreement. The first defendant, in essence, applied for an adjournment today - which I refused because of the need for order to be brought into the affairs of the third defendant and the trusts of which it is trustee in circumstances in which the Senses litigation is looming large on the horizon.

38. [38]

    On the last occasion the proceedings were before the Court Senior Counsel appearing for the second defendant (Mr Kelly) expressly confirmed that he had instructions to give to the Court the usual undertaking as to damages on behalf of Victor, Phillip and Marianne.

39. [39]

    On the last occasion, confirmed today, the plaintiff, by his Senior Counsel, Mr Condon, gave the usual undertaking as to damages.

40. [40]

    On those undertakings, I make orders in accordance with the short minutes of order that have been initialled by me and dated today.

41. [41]

    In each of the related proceedings respectively numbered 2018/00150768 and 2018/00258352 I make the following notation and orders:

    1. (1)

       NOTE the orders and notations today made in the proceedings numbered 2018/00258352.

    2. (2)

       ORDER that these proceedings be listed before the Expedition Judge on 8 March 2019 (together with the proceedings numbered 2018/00258352) for directions.