Family Feud

I find I have been neglecting a fascinating resource.

Since perhaps the beginning of 2011, the High Court has been posting on its internet site materials about cases before the full bench.  After the cases are heard, links are added to the transcript of the hearing and, in due course, the decisions.

There you can find not only a reference to the decision being appealed against and transcripts of the special leave application (and in due course, the hearing of the appeal and the decision), but also pdf copies of submissions filed by the parties and a chronology filed by the appellant.  Publication of the submissions provides a rare opportunity to assay the styles of written appellate advocacy in that court.

Beck v. Weinstock and Ors, to be heard on 21 June (but now adjourned: Now to be heard on 9 November with a “related matter” Weinstock and Anor v. Beck and Anor – see further further update below), is the latest of many rounds or many cases involving the children of Leo Weinstock and various companies established by him before he died in 2003 and his widow, Hedy, died in 2004.  I have written about an earlier round (which is, in fact, a related but separate strand of the dispute between two of Mr Weinstock’s children) here.

This is very much a case for the company-law nerds.  I shall nevertheless try to explain it just a little.

It involves a company founded by Mr Leo Weinstock. Mr Weinstock was born in Germany in 1916 and emigrated to Palestine in 1934. Tami Beck and Ami Beck are his daughter and son. They emigrated to Australia with Mr Weinstock and his second wife, Hedy, in 1954.  Mr Weinstock died in 2003 and Hedy died in 2004. Mr Weinstock was survived by another daughter, in Israel, but she does not appear to be involved in this particular dispute.

After Mr Weinstock’s death, Hedy, had 8 “C” class shares in a  family company.  These shares were described in the articles of the company as redeemable preference shares.  The significance of redeemable preference shares is that these are shares which can be bought back by the company – in effect by repaying the capital contributed for the purchase of the shares in exchange for surrender of the shares and hence any rights they might have to control the company, receive dividends or receive a share of the surplus on a winding up.

Such shares are an exception to what is usually held to be a very fundamental rule about companies, sometimes called the rule for the maintenance of capital, which says that persons dealing with a company are entitled to believe that, whatever a company is worth, the money that the shareholders put into the pot to fund the company is still in the pot and has not been taken out by them.  From this principle, enshrined in the 1887 House of Lords decision Trevor v Whitworth, all sorts of incidental prohibitions arise on transactions which are in effect a return of that capital to shareholders by some other means.  Some of those prohibitions are judge made, some are, one way or another, the result of statute or at least are implied by specific limited exceptions provided for by the statute, of which the power to redeem preference shares is one.

After Mrs Weinstock’s death, the company bought back her shares.  According to the articles, the company had the option to do so, at a nominal price.  The company was controlled (or purportedly controlled: see the separate strand of the dispute referred to below) at this time by Ami.  The result of this was to reduce the value of Hedy’s estate and hence the half share her daughter, Tami, had been left under her will.

Tami said that there was no power in the company to purchase the shares because, regardless of how they were described in the articles, the shares were not preferential shares because they enjoyed no preference over any other share because no such shares had been issued.  The buy-back was instead an impermissible diminution of that money the law strictly requires will still be there in the pot to meet the claims of any creditors. (Never mind that the money itself need not in this case actually still really be within the company. It could be spent and its value lost: the important thing was that it not have been returned to the shareholders.)

Tami succeeded at first instance; Ami on appeal to the Court of Appeal.

On current form, my bet is on the High Court upholding the appeal.  It will appeal to the court’s recent preference for strict legalism even when the results are a bit inconvenient in an area (company law) where strict legalism is considered to be important and there have been ample opportunities to change the law.

That is even though the rationale of the rule has very little if anything to do with the dealing between the company and its shareholders which is challenged.  It would not make the slightest difference to people dealing with the company whether Mrs Weinstock or her children still had those C class shares or whether the company still had the $8 it paid her estate for them.  Indeed the state of share capital is irrelevant to most companies and particularly to most closely held companies such as this.    The paid up share capital is usually nominal. That capital could be entirely wiped out by losses that a company has otherwise incurred.   The real protection to potential creditors of the company comes from the obligation of the directors to ensure that the company remains solvent – an area where the law has developed since 1887.

You might say that Tami’s invocation of the rule to invalidate the redemption is opportunistic, but from her perspective so was invocation by Ami of the rule in the articles to enable the purchase of the shares and diminish the value of her mother’s estate and hence her share of it.

If I have the energy, I may supplement the list below (based on that given at the High Court site but adding the first instance decision) to add some of the other strands of this dispute.

Earlier proceedings

Beck v Tuckey Pty Ltd [2004] NSWSC 357

27, 30 April 2004

Unsuccessful application by Tami in relation to dispute with her brother concerning Tuckey Pty Ltd, during the period after their father’s death when their mother was still alive but incapacitated by dementia.

Weinstock v Sarnat [2005] NSWSC 744

19/11/04, 23/12/04, subsequent written submissions, 27 July 2005.

Proceedings brought by Ami in relation to a claim brought against him by Ms Sarnat, Leo Weinstock’s daughter by his first marriage, who lived in Israel, concerning the ownership of Swiss bank accounts established by Leo Weinstock.

Weinstock v Beck in the Estate of Weinstock [2007] NSWSC 193

26 February, 12 March 2007

Unsuccessful application by Tami to prevent Ami and an accountant appointed along with Tami as the three executors of Hedy’s estate from obtaining probate. Tami wanted a neutral administrator (ie, not an executor appointed under the will) to be appointed. The issue appears to have been that the accountant was plainly in Ami’s camp. It appears from the chronology to the High Court appeal that neutral administrators were eventually appointed.

Alem v Brandup [2007] NSWSC 897

11/07/07, 23/08/07

A sidewind. Mrs Beck obtained control of Alem (a company) and disputed (unsuccessfully) a debt claimed by a creditor arising out of dealings with Alem when it was controlled by Ami.

Beck v Tuckey [2007] NSWSC 1065

1, 3 August 2007

Successful application by Mrs Beck to oblige the registration of a share transfer by her to her daughter of shares in Tuckey. Ami (the other director) refusing to co-operate. I think the significance of this was that Mrs Beck needed more than one shareholder on her side to be able to use her controlling voting shares in the company because with only one shareholder she couldn’t have a quorum and Ami could stop anything happening by never coming to a meeting of shareholders. Ami was ordered to pay indemnity costs for the way he resisted this application.

Decision at first instance:

17/09/2010 Supreme Court of NSW (Hamilton AJ)

[2010] NSWSC 1068

[Interruption: other strand of dispute]

Beck v L W Furniture Consolidated (Aust) Pty Limited[2011] NSWSC 235

24, 25 February, 1 April 2011

See my previous post. Barrett J validated appointment by Ami of his wife as a director to fill a casual vacancy when nobody (including Ami himself) was a director and there were not any shareholders who could elect any new director. Overturned on appeal in 2012 (see below).

Lower Court Judgment

17/08/2011 Supreme Court of New South Wales (Court of Appeal) (Giles JA, Handley AJA, Young JA)

[2011] NSWCA 228

Documents

10/02/2012 Hearing (Special Leave Application, Sydney)

24/02/2012 Notice of appeal

09/03/2012 Written submissions (Appellant)

09/03/2012 Chronology (Appellant)

30/03/2012 Written submissions (Respondent)

[Interlude again: appeal of other strand] (see here)

Beck v LW Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76

24, 25 February, 1 April 2012

Decision of Barrett J re appointment by Ami of his wife as a director overturned.

10/04/2012 Reply  (Appellant)

Update

On 21 June the appeal was adjourned to allow a separate special leave application, in relation to whether there were any directors of the company, catch up (if such special leave is granted: it will be expedited) with the appeal in relation to which special leave has already been granted.  Talk about a lawyers’ feast!

Further update – yet another strand previously overlooked

Beck v Weinstock Beck v LW Furniture (Consolidated) Pty Ltd[2011] NSWSC 1195

18 August 2011, 11/10/2011

There was another company, Zipor.  While Hedy was still alive, Ami used a power of attorney to transfer one of her shares in Zipor to his wife, Helen.  The effect was to give control of Zipor (and in particular, the power to declare dividends, which, unusually, was vested in the shareholders) to Ami and Helen.  Dividends were declared to Ami and Helen and also to LW Furniture Consolidated Pty Limited.

This had been litigated in proceedings commenced in 2007 (these are the proceedings which are now, on other issues, already in the High Court) and consent orders made about that in 2010 which dealt with some of the Zipor dividends, though in fact there were other dividends that Tami said were not disclosed to her at that time.  By a notice of motion in these proceedings Tami sought fresh orders in those proceedings as to the construction of the consent orders or to vary them. Tami also commenced fresh proceedings in 2011 to similar effect, claiming, amongst other things, that Ami had breached his fiduciary duty to his mother and so as to deprive Tami of a share which should have been hers and hence also deprived her of the dividends which he had obtained with the control so obtained.  She sought restitution of this.

The Ami parties said that the question of the Zipor dividends had all been settled by the consent orders and that it was therefore res judicata – that is, a concluded matter which could not be relitigated.  That’s a bit of a simplification but it will have to do for now. Justice Gzell agreed with them.

Beck v Weinstock;Beck v L W Furniture (Consolidated) Pty Ltd[2012] NSWCA 289

The Court of Appeal upheld Tami’s appeal though along the way it was conceded by her counsel that some things would need to be recast.

The basic reason for this was that the consent “orders” which she was seeking to revisit were not properly orders of the court, but rather an agreement between the parties which the court “noted.”  Res judicata did not apply to these.  It might have been different (probably would have been different) if the noting of the agreement was coupled with an order that the proceedings were “otherwise dismissed,” since this would lead to an estoppel of all other claims brought which were dismissed by that order (and an Anshun estoppel which is a kind of extended bar to bringing claims in new proceedings which should have been brought in earlier proceedings).

Sigh.  The struggle continues.

Further further update: Original interlude resumed

07/09/2012 Hearing (Special leave application on the “are there any directors?” point – Ami’s interests are the appellants on this) – Special leave granted by Hayne and Gummow JJ – Richard McHugh unable to dissuade them from a course to which they appear to have been predisposed.

21/09/2012 Written submissions (Appellants)

21/09/2012 Chronology (Appellants)

10/10/2012 Written submissions (First Respondents)

17/10/2002 Reply (Appellants)

There is a tantalising hint in the final submission by Mr McHugh for the respondents in the special leave hearing that if the point on the “just and equitable winding up” point goes against Tami, there could still be an application on the oppression ground.  Tell me it isn’t so! (Tell me, that is, because I have tired of delving into the details to see if it could be.)

Even further update: a day and a bit in the High Court

Transcripts from the hearing of the appeals on 14 and 15 November are:

Weinstock and Anor v. Beck and Anor [2012] HCATrans 283 (14 November 2012)

Beck v. Weinstock and Ors [2012] HCATrans 284 (14 November 2012)

Beck v. Weinstock and Ors [2012] HCATrans 285 (15 November 2012)

The last word?  Judgment day

In judgments handed down on 1 May 2013 (1) and (2) Ami’s side (the Weinstock side) was successful in both matters.  It isn’t the last word really, of course, in the fullness of the issues between the parties, but I haven’t time to digest it all yet.

4 Responses to “Family Feud”

  1. Victor Says:

    I imagine there are not many family get togethers with this pair.

  2. Tami Beck Says:

    Seems you’ve missed the latest episode. A Section 63 application.

    • marcellous Says:

      Ms Beck, I’m dependent on the courts to report what is going on, so inevitably I will be a bit behind the times. Forgive my ignorance then: s 63 of which Act?

    • marcellous Says:

      On reflection, I suppose you mean the Trustee Act, though the Succession Act isn’t entirely out of the question if somebody has died recently enough.

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