FEDERAL COURT OF AUSTRALIA

Alston v Cormack Foundation Pty Ltd [2018] FCA 895

ORDERS

THE COURT ORDERS THAT:

1.    Within 7 days of the date of these orders, the plaintiffs file and serve minutes of proposed orders and short submissions (limited to 3 pages) to give effect to these reasons and on the question of costs.

2.    Within 7 days of receipt of the plaintiffs’ minutes of proposed orders and submissions, the defendants file and serve minutes of proposed orders and short submissions (limited to 3 pages) to give effect to these reasons and on the question of costs.

3.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    The present proceeding has been brought by the plaintiffs as trustees of the Liberal Party of Australia (Victorian Division) (the Liberal Party); I will elaborate on this trustee capacity later. The Liberal Party is separately registered as a political party under Pt XI of the Commonwealth Electoral Act 1918 (Cth).

2    The claims made by the plaintiffs concern various asserted trust interests and breaches of trust involving the assets held by and the shares in the first defendant, Cormack Foundation Pty Ltd (the Cormack Foundation). The wealth of the Cormack Foundation was originally derived from the proceeds of sale of the radio station 3XY licence. But its continuing and compounding financial strength has been due to the financial and investment talents of its directors from time to time. The second to seventh defendants are the current shareholders and directors of the Cormack Foundation. The eighth and ninth defendants are former shareholders and directors.

3    The federal matter enlivening this Court’s jurisdiction concerns the rectification of the Cormack Foundation’s share register under s 175(1) of the Corporations Act 2001 (Cth) in the event that the plaintiffs’ trust claims, which are in the accrued jurisdiction, succeed. Other aspects of the trust claims also require consideration of ss 140(2) and 258D of the Corporations Act in relation to the cancellation of shares in the Cormack Foundation previously held by the eighth and ninth defendants that the plaintiffs assert were held in trust for the Liberal Party.

4    The plaintiffs’ case as originally instituted gave rise to the following trust possibilities.

5    First, did the Cormack Foundation act only as a trustee in respect of its assets such as to hold those assets on trust for the Liberal Party? Now the case as opened by Mr Bret Walker SC for the plaintiffs did not pursue such a possibility. Indeed, the sequence of events that I will describe in more detail later makes it apparent that such a possibility is not reasonably open. Shortly prior to the establishment of the Cormack Foundation, such a trust possibility was considered and rejected. Moreover, the commercial transactions and accounts of the Cormack Foundation from its establishment demonstrate that it was only ever acting in its own right. This was also reflected in its objects, as set out in its initial memorandum and articles of association and later constitution. Further, the case maintained by the plaintiffs that certain shares in the Cormack Foundation were held on trust for the Liberal Party is in one sense an alternative to the Cormack Foundation itself acting as a trustee for the Liberal Party.

6    Second, were all of the shares in the Cormack Foundation held on trust for the Liberal Party? Such a case is also not maintainable given that on any view of the evidence at least one-third of the issued capital at inception was held by Mr Stanley Guilfoyle in his own right and not as a trustee.

7    Third, were two-thirds of the shares in the Cormack Foundation from inception held on trust for the Liberal Party? Such a case, being the plaintiffs’ principal case, was predicated on taking the initial two-thirds shares, being those shares issued to Mr John Calvert-Jones (the eighth defendant) and Mr Hugh Morgan (the ninth defendant), asserting that they were at all times held on trust for the Liberal Party, and seeking orders rectifying the register of members of the Cormack Foundation to reflect that reality, alternatively seeking orders which would result in 100% of the issued share capital of the Cormack Foundation now being held on trust for the Liberal Party given that, incidentally, Mr Guilfoyle’s shares have now been cancelled.

8    In essence, the plaintiffs have said the following. The Cormack Foundation had three foundation shareholders, namely, Mr Calvert-Jones (holding 33 shares), Mr Morgan (holding 33 shares) and Mr Guilfoyle (holding 33 shares), each of whom was also appointed a director. In May 1988, Mr Calvert-Jones and Mr Morgan each signed an undertaking to the Liberal Party in identical terms in which each made declarations, so the plaintiffs say, as to the terms of the express trust upon which each held his shares. Accordingly, two-thirds of the issued share capital in the Cormack Foundation was held on an express trust for the Liberal Party. It is also said that since May 1988, the Cormack Foundation and each of its directors from time to time has had knowledge that Mr Calvert-Jones and Mr Morgan had given their undertakings and the terms thereof, and had knowledge that two-thirds of the issued share capital in the Cormack Foundation was held on an express trust for the Liberal Party.

9    Subsequently, new shares were issued and changes to directors were made resulting in a diminution in the relative significance of Mr Calvert-Jones’ and Mr Morgan’s shareholding, which was held on trust for the Liberal Party, and resulting in an effective loss of control by the Liberal Party of the Cormack Foundation structure. It was said that this was all done in breach of trust.

10    Further, the plaintiffs say that by 2006 and without the Liberal Party’s consent or approval, the Cormack Foundation’s memorandum and articles of association had been replaced by a constitution, which included changes to the effect that:

(a)    upon the death of a shareholder or his termination of office as a director, the board had to cancel without consideration the shares registered in his name; and

(b)    directors could be appointed by a majority decision of the directors.

11    Further, as at the start of June 2017 the directors of the Cormack Foundation were Mr Calvert-Jones, Mr Morgan, Mr Charles Goode (the second defendant), Mr Peter Hay (the third defendant), Mr Frederick Grimwade (the fourth defendant), Mr Richard Balderstone (the fifth defendant), Mr David Williamson (the sixth defendant) and Mr Stephen Spargo (the seventh defendant), with each holding 33 shares.

12    In late June 2017, the Liberal Party wrote to Mr Calvert-Jones and Mr Morgan, which the plaintiffs say the other directors of the Cormack Foundation had knowledge of:

(a)    directing Mr Calvert-Jones and Mr Morgan to transfer their shares to the Liberal Party’s nominees, being Mr Richard Alston (the first plaintiff) and Mr Alan Stockdale (the second plaintiff); and

(b)    requesting that the shares issued to Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, Mr Williamson and Mr Spargo, such issue being without the Liberal Party’s consent or approval, be cancelled and that those persons resign as directors.

13    On or about 28 June 2017, Mr Calvert-Jones and Mr Morgan resigned as directors of the Cormack Foundation and their shares were purportedly cancelled pursuant to r 31 of the constitution. But the plaintiffs say that Mr Calvert-Jones’ and Mr Morgan’s shares were not issued on terms that they could be cancelled upon Mr Calvert-Jones’ and Mr Morgan’s resignation as directors. Accordingly, it is said that the purported cancellation was invalid. Further, it is said that even if Mr Calvert-Jones and Mr Morgan expressly agreed that their shares would be bound by r 31 of the constitution and thus capable of cancellation, that agreement was voidable because it was made in breach of the express trust upon which two-thirds of the issued share capital was held for the Liberal Party. It is said that such an agreement is now voided. Further, it is said that if contrary to the foregoing Mr Calvert-Jones’ and Mr Morgan’s shares were subject to r 31 of the constitution, then r 31 was invalid. It is said that the plain effect of r 31 of the constitution was to destroy the subject of the express trust upon which two-thirds of the issued share capital was held for the Liberal Party.

14    Further, it is said that pursuant to the terms of the express trust and the direction of the Liberal Party, Mr Calvert-Jones and Mr Morgan were obliged to transfer their shares to Mr Alston and Mr Stockdale respectively. In consequence, it is said that the register of members of the Cormack Foundation should be rectified to name each as holding 33 shares.

15    Further, it is said that the resolutions effecting the issue of shares to Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, the transferor to Mr Williamson, and Mr Spargo, and the relevant impugned amendments to the Cormack Foundation’s constitution, were for the ulterior dominant purpose of ensuring that the sitting directors and their nominees, and not the Liberal Party through the express trust upon which two-thirds of the issued share capital was held for it, controlled the Cormack Foundation. It is said that such a purpose was an impermissible purpose and accordingly that the issue of shares and the amendments to the constitution to achieve such a purpose were voidable and now voided.

16    Relatedly, it is said that the resolutions effecting the issue of shares to Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, the transferor to Mr Williamson, and Mr Spargo were passed with knowledge that each resulted in a breach of Mr Calvert-Jones’ and Mr Morgan’s express trust upon which two-thirds of the issued share capital was held for the Liberal Party by:

(a)    the destruction of trust property by issuing new shares and thereby diluting the Liberal Party’s two-thirds holding for no commercial purpose; and

(b)    the transfer of control of the Cormack Foundation from the Liberal Party to Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, Mr Williamson and Mr Spargo.

17    By reason of the foregoing, the plaintiffs say that they are entitled to the following relief:

(a)    A declaration that the 66 shares in the Cormack Foundation registered in the names of Mr Calvert-Jones and Mr Morgan were held on trust for the Liberal Party and are held, when re-instated, on such a trust albeit now to be registered in the names of Mr Alston and Mr Stockdale.

(b)    A declaration that the purported forfeiture and cancellation of the said 66 shares was invalid.

(c)    An order that the register of members be rectified so that Mr Alston’s and Mr Stockdale’s names are entered in the register in relation to 33 shares each.

(d)    An order that the register of members be further rectified by the removal of the names of Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, Mr Williamson and Mr Spargo in respect of their shares, that their share certificates be delivered up and cancelled, and that the Cormack Foundation repay to each of them the consideration each paid for their shares.

(e)    A declaration that the relevant impugned amendments to the memorandum and articles of association and then the constitution of the Cormack Foundation are invalid.

18    The effect of this suite of remedies sought under this third option would be to give the Liberal Party a beneficial interest in 100% of the issued share capital of the Cormack Foundation. This is even beyond the two-thirds beneficial interest as reflected in the trust(s) it asserts as at the inception of the Cormack Foundation. It arises because one-third of the shares held by Mr Guilfoyle in his own right at inception have now been cancelled and the Liberal Party does not now contend that they should be re-instated.

19    In summary, I have rejected this third option. Even if one accepts that Mr Calvert-Jones’ and Mr Morgan’s shares were held on trust, and that they should be re-instated to the register although now in the names of Mr Alston and Mr Stockdale, I cannot unwind the other share issues, the appointments of directors, or the various impugned changes to the original memorandum and articles of association and now constitution of the Cormack Foundation. Equitable principles and remedies have no transmutational properties that would justify me re-writing corporate law principles dealing with directors’ and shareholders’ powers and duties concerning the issue of share capital, the appointment of directors and alterations to a company’s constitution. If later share issues and the appointment of directors have been brought about by any act or omission of Mr Calvert-Jones or Mr Morgan, assuming for the sake of the argument only that any such act or omission was in breach of trust, that is a matter for the Liberal Party to take up with those two individuals, if at all. The alchemy of equity cannot assist. But I would say now that I have not made and do not need to make any such finding of breach of trust at least on that aspect and putting to one side the June 2017 events, as I will explain later. Let me now address the fourth option.

20    Fourth, and as a permutation of the third trust possibility, were the shares held by Mr Calvert-Jones and Mr Morgan in the Cormack Foundation (putting to one side their relative significance as a percentage of the issued share capital) held on trust for the Liberal Party? If so, was their cancellation invalid? If so, should those shares be restored to the register but with no other changes to the register? Now such an outcome would result in a quarter, rather than two-thirds or indeed 100%, of the issued share capital of the Cormack Foundation being held on trust for the Liberal Party. The shares of Mr Calvert-Jones and Mr Morgan being 33 shares each (66 shares) that would be re-instated would be impressed with a trust in favour of the Liberal Party. The other six shareholders being Mr Goode, Mr Hay, Mr Grimwade, Mr Balderstone, Mr Williamson and Mr Spargo, would each hold 33 shares, totalling 198 shares. Hence the total shares on issue and after the re-instatement of Mr Calvert-Jones’ and Mr Morgan’s shares would be 264 shares, with 66 shares impressed with a trust in favour of the Liberal Party.

21    For the reasons that I will now discuss in more detail, I have concluded that this fourth option is the correct solution to the present problem. But first it is necessary to elaborate on some background matters.

BACKGROUND

22    It is convenient to set out some background on the following matters:

(a)    The history of Station 3XY Pty Ltd;

(b)    The sale of the 3XY licence and the origins of the Cormack Foundation;

(c)    Michael Kroger’s knowledge and involvement;

(d)    The activities of the Cormack Foundation;

(e)    The Cormack Foundation’s constitution; and

(f)    The Liberal Party’s constitution.

(a)    The history of Station 3XY Pty Ltd

23    In 1932, an application was made on behalf of the Young Nationalist Organisation (YNO) and the United Australia Party (UAP) for a radio broadcasting licence. It was perceived by those organisations that such a licence was necessary because Trades Hall had a radio station and it was thought necessary for the YNO and the UAP to have a similar facility. On 30 September 1932, a group representing the UAP visited the Director-General of the Postmaster-General’s department seeking a radio broadcasting licence for the UAP.

24    On 4 April 1934, Mr Robert Archdale Parkhill (who was knighted 2 years later), the Postmaster-General, wrote to the Acting Postmaster-General, making an enquiry about a radio broadcasting licence in Melbourne. On 14 August 1934, Mr Parkhill prepared a note stating that Federal Cabinet was favourably disposed towards an application by the UAP in Victoria for a radio broadcasting licence. It was recommended that a licence be issued to Mr EW Willis, the organising secretary of the UAP and its representative in Victoria. Further, on 29 August 1934, Mr Francis William Thring (father of the later well-known stage and film actor Frank Thring) wrote to Mr Parkhill advising that Mr Willis anticipated that a licence would be issued to the UAP, but that the UAP would be prepared to enter into a reciprocal arrangement with Mr Thring for him to operate the proposed radio station on lease, which arrangement was satisfactory to Mr Thring.

25    On 6 December 1934 in Federal Parliament, Mr John McEwen (later Prime Minister of Australia from 19 December 1967 to 10 January 1968 and knighted in 1971) referred to the announcement by the then Prime Minister, Mr Joseph Lyons, that the UAP in Victoria was to be given a radio broadcasting licence. In an exchange between them, Mr Lyons confirmed that such a licence was to be issued to the UAP and that this was as a result of a Cabinet decision.

26    On 16 May 1935, a radio broadcasting licence (the 3XY licence) was issued to Station 3XY Pty Ltd for an initial period of 3 years from 17 May 1935 to 16 May 1938. Station 3XY Pty Ltd had been incorporated as a separate legal entity on 24 October 1934 for the purpose of holding such a licence. The 3XY licence contemplated that the location of the station was to be in the ballroom of the Princess Theatre building, Spring Street, Melbourne. On 2 May 1935, Station 3XY Pty Ltd entered into an agreement with Efftee Broadcasters Pty Ltd (Mr Thring’s company) to operate the 3XY licence.

27    As stated in the 3XY licence, it was issued pursuant to the powers and authorities conferred on the Postmaster-General by s 5 of the Wireless Telegraphy Act 1905-1919 (Cth), and by the regulations under that Act. At the time the 3XY licence was issued, reg 4(6) of the Wireless Telegraphy Regulations 1924 (Cth) provided:

Except with the consent in writing of the Postmaster-General or an authorized officer, a licensee shall not assign, sublet, or otherwise dispose of or admit any other person or firm to participate in any of the benefits of the licence, powers or authorities granted.

That regulation was retained in similar terms in the subsequent version of the regulations being reg 16 of the Wireless Telegraphy Regulations 1942 (Cth). There is nothing to suggest that any such consent was ever sought or given save in relation to the position of Efftee Broadcasters Pty Ltd.

28    As stated in the original memorandum of association of Station 3XY Pty Ltd, the objects for which it was established were general objects which did not mention the UAP or any other political party or organisation (cl 3). Further, the objects of the company contemplated inter-alia amalgamation (cl 3(13)) and the distribution of property amongst members (cl 3(27)). Further, the articles of association did not include discharging the function of trustee in respect of its assets; further, arts 103 and 124 were not consistent with such a trustee only status.

29    The memorandum and articles of association of Station 3XY Pty Ltd were signed by Mr Kingsley Anketell Henderson, Mr Roy Cedric Staughton and Mr Raymond Walter Tovell. Mr Henderson had much to do with persuading Mr Lyons (Prime Minister of Australia from 1932 to 1939) to leave the Australian Labor Party and accept leadership of the non-Labor political forces. He was, for a time, chairman of the central council of the UAP and was a close friend of Mr Lyons. Mr Tovell became a Liberal Party member for Brighton in the Legislative Assembly in 1945. Mr Staughton was employed by Mr Henderson at his architectural practice and became a partner of that firm in 1935. He took over the firm when Mr Henderson died in 1942.

30    From time to time further shares were transferred or allotted in Station 3XY Pty Ltd. New shareholders (and directors) included Mr Edmund Francis Herring (later Chief Justice of the Supreme Court of Victoria and knighted) from 1939 to 1945, Senator John Armstrong Spicer (later knighted) from 1940 to 1942, Mr Clarence Roy Taylor from 1942 to 1974, Mrs Elizabeth May Ramsay Couchman (later a dame) from 1942 to 1972, and Mr William Hewson Anderson (later knighted) from 1953 to 1969. Mr Herring joined the YNO in 1932, unsuccessfully sought pre-selection for the UAP in 1932 and stood as an unendorsed UAP candidate in 1935. Senator Spicer was a friend of Mr Robert Menzies (later knighted and Prime Minister of Australia from 1939 to 1941 and 1949 to 1966), was a founder of the YNO and later Victorian President. In 1940 he was elected to the Senate as a UAP candidate. Mrs Couchman had been the President of the Australian Women’s National League and agreed that that League should merge with the Liberal Party in 1944, notably securing in negotiations equal representation for women at all levels of the Liberal Party. She was later a metropolitan Vice President of the Liberal Party. Mr Anderson had formed the Services and Citizens Party and was the first President of the Liberal Party.

31    In 1944, the non-Labor political forces in Australia, including the YNO and the UAP, agreed to disband and join the new Liberal Party of Australia. The YNO had formed in 1929 as the youth wing of the Nationalist Party (i.e. the party which formed the governments of Mr William Morris Hughes and Mr Stanley Melbourne Bruce (later a viscount) from 1917 to 1929) and kept its name when the Nationalist Party otherwise merged into the UAP in 1932. It kept its separate name despite its association with the UAP before merging into the Liberal Party.

32    Let me move forward somewhat in the chronology.

33    The application for renewal of the 3XY licence on 16 May 1959 showed that Mr Staughton, Mr Tovell, Mr Taylor, Mrs Couchman and Mr Anderson were understood to be nominees of the Liberal Party. Further, the 1961 to 1964 applications showed the same for Mr Tovell, Mr Taylor, now Dame Elizabeth Couchman and Mr Anderson. Later, Senator Magnus Cormack (subsequently knighted) replaced Mr Tovell as a shareholder and director. He became a member of the Liberal Party in 1946 and was elected as a Senator for Victoria in 1951. The 1967 application for renewal of the 3XY licence shows that Senator Cormack, Mr Taylor, Dame Elizabeth Couchman and Sir William Anderson were understood to be nominees of the Liberal Party.

34    In 1960, David Syme & Co Limited purchased part of the Thring family interests and became the owner of 50% of the shares in Efftee Broadcasters Pty Ltd, which leased the 3XY licence from Station 3XY Pty Ltd and operated the 3XY radio station. The lease payments made to Station 3XY Pty Ltd were paid on to the Liberal Party.

35    Now the plaintiffs referred to a number of communications from about the mid-1960s which suggested that Station 3XY Pty Ltd was owned by the Liberal Party. Let me refer to some of them. Some of them assist, some do not.

36    On 6 December 1966, in a letter to Mr Robert Southey the then President of the Liberal Party, Senator Cormack said that he regarded himself as a trustee for the Liberal Party in the matter of the 3XY licence. Senator Cormack wrote:

I regard myself as Trustee for Party in the matter of the licence of 3XY Station and as Trustee I remitted the whole of the monies that were distributed to me in accordance with the Articles of Association; the agreement with the Commissioner of Taxation and requirements of the Companies’ Act. I realise that you have some misgivings about the Station and I am prepared to discuss this with you at any time upon the basis of mutual confidence but not upon the basis of divulging matters that are private to a Boardroom which you will acknowledge does not lie within my competence.

37    But there was correspondence from the same time frame supporting the contrary position. For example, in a letter to Senator Cormack dated 14 December 1966, Mr Southey stated inter-alia:

I fully understand that, for historical reasons, 3XY is not the property of the Party, and the Party has no legal right whatever to control it. Whether there is any moral right would seem to be one of the points at issue. The present directors, if I am correct, “inherited” the Station from what might be termed the ancestors of the Liberal Party of Australia, and it seems (if I have my facts straight) that when the Liberal Party was formed no steps were taken to ensure that the control of the Station passed to the Liberal Party, though it remained in the hands of persons loyal to, and holding important positions in, the Party.

Further, I would note that Mr Southey foresaw the potential problems that could arise from the uncertain relationship and the historical background when he stated that “one must envisage the possibility that at some time in the future ‘a Pharaoh might arise who knew not Joseph’”.

38    On 11 October 1967 Mr Southey wrote to Senator Cormack posing the question: “Is [the sudden death of multiple directors] covered in the Articles of Association in such a manner that the interest of the Liberal Party (insubstantial though it be in legal terms) is protected?”.

39    On 21 August 1969 Mr Southey wrote to Senator Cormack stating: “The President’s Standing Committee recognised that the Directors of 3XY, of which you are Chairman and Managing Director, are not under any legal obligation to consult the Liberal Party as to the management of the Company or the disposal of its assets”.

40    Further, in a memorandum dated 18 November 1969, Mr Southey wrote (emphasis in original):

1.    The original licence was granted to 3XY Pty. Ltd. acting on behalf of the “ancestors” of the Liberal Party in 1934. The original directors included R. W. Tovell and Dame Elizabeth Couchman. Sir William Anderson became a director in the early ‘50’s.

2.    When the Liberal Party was formed, no steps were taken to transfer the asset to the Liberal Party; indeed at that time the Nationalist Party organisation was not fully co-operative, and this being so the Liberal Party felt it would operate best by starting de novo, without deals with, or obligations to, its predecessors.

3.    Successive directors however (notably Sir William Anderson, Senator Cormack and Dame Elizabeth Couchman) have regarded themselves as trustees for the Liberal Party and the financial benefit of the licence has been passed on to the Party.

4.    The Directors of 3XY have consulted with the Party from time to time and the appointment of the Hon. Murray Hamilton to the Board was done, for example, with the State President’s concurrence and the endorsement of the Federal and State Parliamentary Leaders.

5.    The legal situation with regard to ownership is that –

a)    the Directors (as shareholders) are the legal owners

b)    the Directors have treated the Party as beneficial owners BUT

c)    it is possible that there are persons still living connected with the “ancestors” of the Liberal Party, who could establish a better claim at law to beneficial ownership than the Liberal Party.

6.    It should be clear from the above that

a)    the State Executive has no present legal claim to hold the Directors of 3XY accountable;

b)    if the State Executive took steps to establish a legal claim, they could fail, and the benefit could accrue to persons outside the Party.

7.    In the light of the above, it may well be asked whether the Executive should not continue to accept the status quo (as it has done for 25 years). It is, after all, in what might be considered an enviable position, since it is treated as being morally entitled to advantages to which, legally, its claim is very tenuous indeed.

8.    It would seem desirable to lay aside, once and for all, the erroneous idea that the Liberal Party “owns” 3XY. It doesn’t, and to act as if it does would be to risk losing the advantages and privileges which the Party now possesses.

41    During the period April to July 1972, Mr Alan Missen (later a Senator for Victoria from 1974) also gave considered advice to the Liberal Party concerning Station 3XY Pty Ltd and the ownership question; he was married to the champion debater and English literature scholar and teacher, Mollie Missen. He was best known for his work in civil liberties at a time before it became fashionable to use what he would have described as tautological marketing labels such as “human rights lawyer”; a lawyer is by definition a human rights specialist whether dealing with natural persons or humanistic collective constructs. He gave corporate legal advice on the matter that I am now addressing. But again it reflected considerable uncertainty on the Liberal Party’s interest (if any).

42    On 4 March 1977 Senator Cormack wrote to the then President of the Liberal Party, Mrs Joy Mein, noting that he had reformed the composition of the board of Station 3XY Pty Ltd to provide a director nominated by each of the Prime Minister and Premier of the day. He also noted that at that time each member of the board was or had been a member of the State Executive of the Liberal Party.

43    Now later shareholders in Station 3XY Pty Ltd included Mr Guilfoyle. He gave evidence in the proceeding in which he said that he had been a member of the Liberal Party for about 70 years, had been a branch chairman, and had been a member of the State Executive and assistant treasurer. His wife, Dame Margaret Guilfoyle, was a Liberal Senator for Victoria and Minister for Education, Minister for Social Security and Minister for Finance in the Fraser Government. Mr Guilfoyle was a shareholder and director of Station 3XY Pty Ltd from 7 August 1972 until that company was deregistered in 2014, save for a period between August 1987 and July 1989. Mr Murray Hamilton was also a shareholder and director from 1968 to 1987. He was President of the McKinnon branch of the Liberal Party from 1955 to 1967, a member of the State Executive of the Liberal Party from 1962 to 1967, and a Liberal Member of the Legislative Council of Victoria from 1967 to 1982.

44    Now it is well apparent from this incomplete chronology that the members and directors of Station 3XY Pty Ltd from time to time were “loyalists” and “friends”, if not members and officeholders, of YNO/UAP and, subsequently, the Liberal Party. But at no stage was there any trust deed or declaration of trust in respect of the 3XY licence in favour of YNO or UAP, or in favour of the Liberal Party after it was formed in 1944. There was also no trust deed or declaration of trust by any Station 3XY Pty Ltd shareholder in respect of his or her shares in favour of YNO, UAP or the Liberal Party. In a letter dated 24 August 1977 from Mr Guilfoyle to the then Prime Minister Malcolm Fraser, and in a letter dated 27 September 1977 from Senator Cormack to Mrs Mein, the history and status of Station 3XY Pty Ltd were described and it was confirmed that at no time since the formation of Station 3XY Pty Ltd had any shareholder (or director) held any shares as trustee or agent for any political party.

45    It is worth extracting the following parts of Mr Guilfoyle’s letter to Mr Fraser of 24 August 1977:

Association with the Liberal Party of Australia (Victorian Division)

At no time since the formation of the Company in 1934 has any shareholder (or director) held any shares as trustee or agent for any political party before 1945 or the Liberal Party since its formation.

The first shareholder who endeavoured to secure some funds for the Liberal Party was (Sir) William H. Anderson in 1953. It was not until 22nd March, 1974 with the resignation of Mr. C. R. Taylor and the appointment of Mrs. A. T. H. Reader that all members of the Board were also members of the Liberal Party.

Since 1970 each shareholder is required under the Act to swear a statutory declaration that he holds the share on his own behalf. This has been observed.

Since Sir Magnus Cormack became a director in 1966 there has been a close association with each President of the Party. The first in-depth study took place with (Sir) Robert Southey and in 1968 he was nominated by the Board of 3XY to be an additional director. However, Southey did not accept the nomination.

The following extract from a letter dated 21st August, 1969 by (Sir) Robert Southey to Sir Magnus Cormack seems relevant.

“The Presidents’ Standing Committee recognises that the Directors of 3XY of which you are Chairman and Managing Director are not under any legal obligation to consult the Liberal Party as to the management of the Company or the disposal of its assets.”

During 1968 Sir Magnus and the Prime Minister of the day the Rt. Hon. J. G. Gorton exchanged letters on 3XY. A copy of a letter dated 9th July, 1968 from the Prime Minister to Sir Magnus is attached. (Attachment 1.)

In 1972 Sir Magnus invited Mr. P. D. Hardie to join the Board.

One share was transferred from Dame Elizabeth Couchman to Peter Hardie on 7th August, 1972 and he retained ownership of this share until 9th November, 1973. The purpose of Hardie becoming a shareholder was for him to become a Director of the Company. He eventually rejected the invitation based on the fact that he was quite satisfied with the relationship between the Party and 3XY.

In 1976 with the election of Mrs. I. P. Mein as President both the Chairman and Executive Director have briefed her on the affairs of the Company. Early this month Mrs. Mein stated that she had no problem with 3XY or had any unanswered questions.

46    On 3 June 1976, the articles of association of Station 3XY Pty Ltd were altered so as to prohibit any distribution by Station 3XY Pty Ltd to any member or relative of any member. On 25 June 1976, some new objects were inserted in the memorandum of association which again did not mention the Liberal Party or any function as trustee. But the 1976 amendments to cl 3 did insert the following as objects of Station 3XY Pty Ltd:

(11)    To maintain liberty of speech, religion and association and to preserve the freedom of the press.

(12)    To promote and preserve the element of individual enterprise as an integral part of the structure of society and to promote the interests of employees or employers or capitalists or others engaged in any trade or business.

47    On 6 June 1977, the articles of association were replaced and then provided inter-alia that upon a winding up or dissolution of Station 3XY Pty Ltd, any surplus property would be given or transferred to some institution(s) having similar objects and a prohibition on distributions to members, such institution(s) to be determined by the members with a default mechanism, and otherwise to some charitable object (art 79). The replacement articles contained provisions (arts 11 to 13) to address broadcasting legislation requirements introduced in June 1969, and which inter-alia required incoming shareholders to deliver to the company a statutory declaration as to whether any third person had a beneficial interest in their shares (art 12). In this regard, s 90M of the Broadcasting and Television Act 1942–1969 (Cth) as amended by the Broadcasting and Television Act (No 2) 1969 (Cth) required that the management of a radio licence holder make and lodge a statutory declaration with the relevant regulator stating the name and address of any person with a “prescribed interest” in a licence, which included a person in a position to exercise control, including as a result of or by means of a trust, of the licence or the licensee through relevant shareholding of more than 15% including where held beneficially. Relatedly, s 90N provided that any trust in a share of a company which held a licence was deemed invalid for any purpose unless notice was given to the company within 3 months of the prescribed date (relevantly 31 December 1969) in writing, of the existence and nature of the trust, and the name of the beneficiary. The declarations in evidence before me relating to these legislative requirements do not name the Liberal Party as a beneficiary or having any prescribed interest.

48    Now from the perspective of the Liberal Party, the limitations of the structure that I have just described became apparent over the years as the Liberal Party attempted to assert more control over Station 3XY Pty Ltd. But the directors and shareholders of Station 3XY Pty Ltd, particularly Senator Cormack and Mr Guilfoyle, resisted those attempts. This caused ongoing tensions and disputes between Station 3XY Pty Ltd and the Liberal Party.

49    In the late 1970s a dispute arose between the executive of the Liberal Party and the directors of Station 3XY Pty Ltd as to the relationship of the two organisations. For example, in 1978 the Liberal Party sought to have the directors and shareholders of Station 3XY Pty Ltd sign a declaration of trust stating that each director’s shareholding was held by him/her as trustee for the Liberal Party. But they refused to sign. After much negotiation, on 28 May 1979 an agreement was signed by the directors of Station 3XY Pty Ltd and representatives of the Liberal Party. By that agreement, a panel was to be established consisting of two representatives of the Liberal Party and two representatives of Station 3XY Pty Ltd. Unanimous approval of the panel was required to appoint a replacement director. It was agreed that the number of shareholders and directors would not increase beyond four and when all the present directors ceased to hold office, the right of future election of directors would reside with the Trustees of the Liberal Party. I will explain the role of a Trustee of the Liberal Party later, which role is recognised under the Liberal Party’s constitution. I will capitalise that title to distinguish it from the more generic description of a trustee that I will be making use of later.

50    The agreement specifically provided:

1.    Panel to be established forthwith consisting of 2 representatives of the Party (being 2 Trustees or State President and 1 Trustee) and 2 representatives of the Directors of whom 1 shall be the Chairman or Acting Chairman of Directors.

2.    So long as any of the existing Directors holds office the Panel by unanimous vote is to have exclusive right to appoint a replacement Director whether an existing Director or a new Director when he/she dies, becomes permanently incapable of discharging duties as Director or resigns or if the Panel unanimously decides to replace such Director.

3.    Either side may submit names for consideration as replacement Directors. In a case of deadlock the Chairman of Vapold shall fill the vacancy until the Panel can decide on a permanent replacement.

4.    Directors and Shareholders will not increase numbers of Directors beyond 4.

5.    Where practicable a Director shall give the Panel 3 months notice of intended retirement.

6.    When all present Directors have ceased to hold office, right of future election of Directors to reside with Trustees.

7.    If so agreed between present Directors and Party, the Panel may appoint a fifth Director.

8.    Any member of the Panel may convene a meeting of the Panel by giving to each member 21 days prior notice in writing of the date and time of the meeting and of the business to be dealt with thereat.

But members of the panel were never appointed. And there is nothing in the evidence before me to suggest that the panel was ever constituted on or after that time.

51    Mr Alston gave evidence concerning the 28 May 1979 agreement. In 1970 he became a member of the Liberal Party. Between 1977 and 1979, he was an elected member of the State Executive, which at that time was the body responsible for the day to day management of the Liberal Party. In 1979 he was elected President of the Liberal Party, and was subsequently re-elected in each of the following two years, in all, serving for the then conventional term of three years. In 1984, he was appointed a Trustee of the Liberal Party, and remained so until he became a Senator for Victoria in May 1986. He was a Senator during the period 6 May 1986 to 10 February 2004; he held various Cabinet portfolios from 1996 to 2003. He was also the Australian High Commissioner to the United Kingdom between 2005 to 2008. In 2015, he was again appointed a Trustee of the Liberal Party and he continues to hold that position. Between June 2014 and June 2017 he was the Federal President of the Liberal Party of Australia. He gave evidence regarding a dispute between the shareholders of Station 3XY Pty Ltd and the Liberal Party concerning whether the shareholders held their shares beneficially or on trust for the Liberal Party. I do not need to descend into the detail save to discuss his evidence concerning the 28 May 1979 agreement.

52    He said that he saw the memorandum dated 28 May 1979 on various occasions while he was President of the Liberal Party. He understood the effect of the memorandum to be that the Liberal Party (via the President and Trustees) would come to control the appointment of directors to Station 3XY Pty Ltd (and its subsidiary), which in turn confirmed the Liberal Party’s power over the ownership of Station 3XY Pty Ltd’s shareholding. So far as he was then concerned, the memorandum of 28 May 1979 ensured that the Liberal Party had effective control over Station 3XY Pty Ltd and, with the effluxion of time, each shareholder would hold his or her shares pursuant to a signed declaration of trust. He said that as each of the then shareholders was a loyal member of the Liberal Party who had given his or her word as to their future conduct in relation to the shareholding of Station 3XY Pty Ltd, he considered the issue of the Liberal Party’s control and ownership of Station 3XY Pty Ltd and the 3XY licence to be concluded by that memorandum. Now I accept that all of this may have been Mr Alston’s genuinely held belief but in my view such a belief is not substantially probative let alone determinative of the issues that I have to consider.

53    In summary, it seems to me that the material in evidence concerning Station 3XY Pty Ltd and the 3XY licence through to the time of the sale of the 3XY licence in 1986 that I will discuss in a moment does not support the proposition either that Station 3XY Pty Ltd was acting as a trustee for the Liberal Party or that the 3XY licence was an asset in which the Liberal Party held a beneficial interest. Moreover, the material in evidence does not establish that any shares in Station 3XY Pty Ltd were held on trust for the Liberal Party, although there was a perception within the Liberal Party that it had some sort of “moral claim” to them or at the least the right to influence who was appointed as a director.

(b)    Sale of the 3XY licence and the origins of the Cormack Foundation

54    On 3 November 1986, Station 3XY Pty Ltd, as vendor, entered into an agreement for the sale of shares and a sale of the 3XY licence with Paul Dainty Properties Pty Ltd, as purchaser. Station 3XY Pty Ltd agreed to sell, inter-alia, the 3XY licence and all the issued shares in Radio 3XY Pty Ltd for the sum of $18.75 million. Radio 3XY Pty Ltd was a wholly owned subsidiary of Station 3XY Pty Ltd and had operated the radio station since 1 July 1978.

55    At around this time it was contemplated that a substantial proportion of that sum ($15 million) would be placed in a trust for the purposes of the Liberal Party. A draft “3XY Trust Deed” was prepared.

56    In October 1986, Mr Calvert-Jones was the Treasurer of the Liberal Party; he held that position from 1984 to 1989. In that role and on 30 October 1986 Mr Calvert-Jones retained Mr Alan Cornell (then the senior partner at Blake & Riggall), to advise the Liberal Party on a structure to be employed for receiving the proceeds of sale of the 3XY licence. Mr Cornell is currently a special counsel with Hope Earle Solicitors. Having been admitted to practise in 1962, he became a partner of Blake & Riggall (now Ashurst) in 1966. He worked as a commercial and litigation lawyer. From 1966 to 1986, Mr Cornell acted as solicitor for the then Stock Exchange of Melbourne. In that capacity he met Mr Calvert-Jones, who was a committee member of the exchange and vice president. Because the then Liberal Party’s principal solicitors Weigall & Crowther were acting for the purchaser of the 3XY licence, Mr Cornell was engaged by Mr Calvert-Jones to advise the Liberal Party on the transfer of the proceeds of sale, initially into a trust for the benefit of the Liberal Party to be controlled by Liberal Party nominees.

57    Mr Morgan, then a member of the State Finance Committee and a Trustee of the Liberal Party, was also involved in giving instructions to Mr Cornell. He held the position as a member of the State Finance Committee and as a Trustee from 1983 to 1993. Mr Morgan has held a number of corporate director positions over his career, most notably Western Mining Corporation where he was chief executive officer from 1990 to 2003. He has a long association with the Business Council of Australia, including serving as its president from 2003 to 2005. He also has a long association with the Minerals Council of Australia, serving as the chairman of various committees (1976 to 1998), as president (1981 to 1983) and as senior vice president (2002 to 2003). He has twice been a board member of the Reserve Bank of Australia (1981 to 1984 and 1996 to 2007). Mr Morgan has been a member of the Liberal Party since around 1980.

58    In terms of the disposition of the proceeds of sale of the 3XY licence, initially what was anticipated was a trust to hold the funds for the benefit of the Liberal Party. That trust was to be controlled by the Liberal Party’s nominated trustees. Mr Cornell prepared a draft trust deed which provided that its principal objects were to support the maintenance of liberty of speech, religion and association and to promote and preserve the element of individual enterprise, with an object of the trust being to “[assist] the Liberal Party of Australia to defray the costs of administration of that organisation or any division thereof”. The draft trust deed provided that in the event of a winding up the net assets would be transferred to the “trustees of the Liberal Party of Australia”. A perpetuity period of 80 years was stipulated. Both Mr Calvert-Jones and Mr Morgan were to be trustees of that trust, as too was Mr Guilfoyle. The draft trust deed was sent to each of Mr Morgan and Mr Calvert-Jones on or around 12 December 1986.

59    On 5 January 1987, Mr Morgan wrote to Mr Cornell in relation to the proposed trust deed as follows (emphasis in original):

Many thanks for your letter of 12th December. I think the draft deed that you have prepared is a vast improvement on anything we have seen previously. In respect of the comments that I would proffer, they are as follows:

(1)    In 2.(4) the presumption I have from the manner in which this is drafted is that all funds will end up with the Liberal Party for there is absolutely no doubt in my mind that the Liberal Party will find ways in which to spend all of the money available. While this is the Liberal Party’s intention, it may be a stumbling block with Stan Guilfoyle and the present 3XY trustees/directors. If it requires amendment we should, I believe, be “flexible”, for so long as we have control of the trustees I believe there will be no practical problem.

(2)    A point made to me by Charles Goode is that the Liberal Party sought to be benefitted is the Liberal Party of Victoria.

(3)    Clause 4.(4) refers to the appointment of three trustees. I think there is a difficulty in limiting it to three because two of the original three trustees are clearly dedicated to representing the Liberal Party of Victoria, namely myself and John Calvert-Jones but that is not the case for Stan Guilfoyle. In the event that either John or myself were no longer to act as a trustee there may be a conundrum as to the appointment of the third by the remaining two. Consequently, I would suggest clause 4 should contemplate there being not less than three trustees nor more than five. This has the advantage of:

(a)    avoiding there ever being a deadlock; and

(b)    enabling the existing three trustees to arrange for the appointment of one or more additional trustees.

Given that John and I will participate we will then be able to ensure such additional trustees are acceptable to the Liberal Party. As you are aware, it is both my and John’s intention to let the Liberal Party of Victoria have our resignations from this trust so that the Liberal Party can remain in control of our appointment as trustees.

Thank you again for the draft. I am sure it is a most helpful contribution to having this matter resolved.

60    It would seem that Mr Morgan may have shown a copy of the draft trust deed to Mr Goode, also then a member of the State Finance Committee and a Trustee of the Liberal Party (see para (2) of the letter); Mr Goode served in those two positions from 1986 to 2017. Apparently, Mr Morgan discussed the arrangements for the $15 million with Mr Goode and consistently with Mr Goode’s suggestion, the ultimate beneficiary was made the “Liberal Party of Victoria”, which in these reasons I have defined as the “Liberal Party”.

61    Now around this time Mrs Eda N Ritchie was President of the Liberal Party; she held that position until 24 July 1987. Mr Calvert-Jones reported to meetings of the Liberal Party’s Administrative Committee and State Finance Committee throughout 1987 about how these negotiations were progressing. Mr Michael Kroger’s evidence was that from the time he took over as President from Mrs Ritchie, Mr Calvert-Jones reported to and took instructions from the Administrative Committee as to these negotiations. Mr Kroger gave evidence that it was his belief that by reason of the 1979 agreement between the shareholders of Station 3XY Pty Ltd and the Liberal Party, which I have previously discussed, that entity was effectively owned by the Liberal Party and that what was happening was a transfer of assets from one Liberal Party vehicle to another. That may have been his sincere belief. The legal significance and characterisation of relevant events is another matter.

62    Now apparently the draft trust deed was subject to negotiations with the directors of Station 3XY Pty Ltd. But it appears that the directors of Station 3XY Pty Ltd insisted that the deed not specifically name the Liberal Party as a beneficiary or provide that the funds be paid to it in the event of a winding up. On 12 May 1987, Mr Cornell had a conference with Mr Calvert-Jones at which the latter gave Mr Cornell a draft trust deed designated draft 12.5.87 and marked “Master Copy”. Although this document had Mr Cornell’s reference on it, it was not a document that he prepared and was in a different font from documents that he had prepared at that time. Mr Calvert-Jones instructed him to incorporate the changes embodied in the “Master Copy” into a new draft trust deed. Mr Cornell did as instructed and produced a new draft. In his covering letter to Mr Calvert-Jones dated 12 May 1987, which enclosed the new draft, Mr Cornell noted the omission of the Liberal Party from cll 2(4) and 9. Mr Cornell does not now recall what specific reason Mr Calvert-Jones gave him for the omission of the Liberal Party from cll 2(4) and 9, however his best recollection is that the document designated “Master Copy” incorporated amendments sought by one or more of the directors of Station 3XY Pty Ltd.

63    Mr Cornell was very concerned about the deletion of the Liberal Party from cll 2(4) and 9 as it contradicted the instructions that he had received from Mr Calvert-Jones on 30 October 1986. As he said in evidence, specific reference to the Liberal Party had been included in all drafts of the trust deed up to that point in time, save for the “Master Copy” produced by Mr Calvert-Jones.

64    Because of this development, Mr Cornell took the view that to protect the interests of the Liberal Party, each trustee of the new trust should sign an undertaking which committed each trustee to, inter-alia, use their best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party. Mr Cornell accordingly prepared undertakings to this effect. Further, at about this time Mr Cornell was instructed by Mr Calvert-Jones to include the names of Mr Cornell and Mr Goode as trustees in the execution copies of the trust deed.

65    On 28 May 1987, a trust deed to be executed together with a form of undertaking to be executed by each trustee was forwarded by Mr Cornell to Mrs Ritchie. At this time the trustees were to be Mr Morgan, Mr Calvert-Jones, Mr Goode and Mr Cornell, but not Mr Guilfoyle. And as I have indicated, to protect the interests of the Liberal Party Mr Cornell prepared undertakings for each trustee to sign. The undertakings provided for each trustee to:

(a)    use his best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party;

(b)    use his best endeavours to ensure that a condition precedent to the appointment of any new trustee would be that the nominee would first sign an undertaking in like terms; and

(c)    resign as a trustee if so required by the Liberal Party.

66    According to a note on Mr Cornell’s file, he received the deed signed by the four trustees on 29 May 1987. He later sent the trust deed to Mr Calvert-Jones in duplicate signed by the four trustees.

67    On 4 August 1987, Mr Cornell received a telephone call from Mr Calvert-Jones in which he asked him to draft an indemnity for the shareholders and directors of Station 3XY Pty Ltd to protect them from any liability as a result of any payment that might be made by Station 3XY Pty Ltd to any new trust from the proceeds of sale of the 3XY licence.

68    On 12 August 1987, Mr Cornell received a further telephone call from Mr Calvert-Jones who confirmed that Mr Guilfoyle had said that he wanted an indemnity for each director and shareholder of Station 3XY Pty Ltd in respect of the handover of any money to any new trust.

69    On 27 August 1987, the board of Station 3XY Pty Ltd resolved to apply its property towards the promotion of its objects by paying the sum of $7 million (of the $7,750,000 which it then had under its control) to the “Magnus Cormack Enterprise Trust”.

70    Also on 27 August 1987, Mr Cornell had a conference with Mr George Raitt of Blake & Riggall who informed him that there had been yet another proposed change to the trustees.

71    On 28 August 1987, Mr Cornell wrote to Mr Calvert-Jones in which he expressed concern as to the ultimate control of the trust. Further, in a memorandum prepared by Mr Cornell on 29 August 1987 to one of his partners who was to handle the file whilst he was overseas, Mr Cornell recorded his instructions as:

It is absolutely essential that a majority of the new Trustees execute a similar undertaking otherwise the basic problem of 3XY, which refused to acknowledge it had any obligation to the Liberal Party, will be perpetuated.

72    On 1 October 1987, it was decided by the Liberal Party’s Administrative Committee that there would be three trustees and that they would now be Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle. As I have already explained, Mr Guilfoyle was a director and shareholder of Station 3XY Pty Ltd, but he would not sign any undertaking. This decision was communicated to Mr Cornell by Mr Calvert-Jones in a telephone conversation that day. Mr Cornell’s file note of 1 October 1987 records that when Mr Cornell pointed out to Mr Calvert-Jones that Mr Guilfoyle had not signed a resignation or an undertaking, Mr Calvert-Jones said that a 2:1 vote would protect the Liberal Party’s position.

73    On 2 October 1987, Mr Calvert-Jones instructed Mr Cornell to provide him with execution copies of the trust deed. On 14 October 1987, Mr Cornell wrote to Mr Calvert-Jones enclosing a new deed for execution with some minor amendments.

74    On 20 October 1987, Mr Cornell was instructed by Mr John Ridley, the State Director of the Liberal Party, to brief senior counsel for his opinion in respect of the proposed trust. Now the need for this arose in the following way.

75    The proposed version of the trust deed at this point in time had objectives that were broadly consistent with the Liberal Party’s objectives, but without specific reference to the Liberal Party, let alone as an object. But this gave rise to doubts as to the validity of the proposed trust. This question had been the subject of legal advice given by Blake & Riggall. Mr Alan Stewart, who was a consultant at Blake & Riggall, had reviewed the then proposed trust deed against the requirement of the three certainties necessary for the creation of a valid trust including the certainty of object(s). As the draft trust deed provided to him did not name the Liberal Party as an object, he expressed the following view:

In the case of the 3XY Trust there are no individual beneficiaries nor do I see how the Court could enforce and supervise the Trusts and therefore there is the gravest reason to doubt the validity of the document as a valid declaration of Trust.

Now he discussed the rule against perpetuities but thought there was no difficulty given the 80 year stipulation in cl 8. Rather, the problem that he identified was one concerning the uncertainty of the identity of the object(s). It was in that context that it was proposed to seek the opinion of Mr Alan Goldberg QC, an eminent commercial silk and later a member of this Court.

76    On 22 October 1987, Mr Cornell briefed Mr Goldberg QC to advise upon the validity of the trust deed. Those instructions asked for counsel’s opinion as to whether income from the trust could be paid to the Liberal Party. Let me set out those instructions:

1.    Observations for Counsel

(1)    Your instructing solicitors act for The Magnus Cormack Enterprise Trust which is about to be constituted by a Trust Deed.

(2)    Counsel will recently be aware that Station 3XY Pty Limited sold Station 3XY Pty Ltd for the sum of $A15 million. The purchase price is payable in two instalments, the first having been paid and the second being due at the end of this month.

(3)    It is proposed that Station 3XY Pty Limited will pay to the Trustees of The Magnus Cormack Enterprise Trust the sum of $15 million to be applied by them in accordance with the Trust Deed.

2.    Documents for Counsel

Counsel is handed herewith –

(1)    The Trust Deed of The Magnus Cormack Enterprise Trust designated, Final Draft 21.10.87.

(2)    Memorandum and Articles of Association of Station 3XY Pty Limited.

3.    Instructions for Counsel

Counsel is asked to consider the enclosed documents and to advise whether the Trustees are entitled to apply the income from the Trust by paying same pursuant to clause 2.(9) to the Liberal Party of Australia (Victorian Division).

In the first draft of this Deed prepared by Blake & Riggall we had inserted in what is now “Secondly” in clause 2.(9) the following –

“secondly, in assisting the Liberal Party of Australia to defray the cost of administration of that organisation or any division thereof; and

thirdly in furthering the objects of the Trust Funds by such means as the Trustees shall determine;”

In the view of your instructing solicitors this puts the matter beyond doubt, but our instructions are that the Trust Deed should contain no specific reference to the Liberal Party of Australia (Victorian Division).

77    On 23 October 1987, Mr Cornell wrote a memorandum to Mr Geoffrey Hone (also a partner of Blake & Riggall). He recorded that the original draft of the trust deed, which included the Liberal Party as a named beneficiary, had been settled by Mr Beamish Brett and had been looked at by Mr Alan Stewart. He recorded that over the ensuing months, Mr Calvert-Jones had instructed that the clause naming the Liberal Party as a beneficiary be removed. He recorded that Mr Calvert-Jones was then having second thoughts and had sought senior counsel to be instructed on the point. Mr Cornell then stated: “Subject to your comments, I propose to provide Mr Stewart’s memorandum to [Mr Goldberg QC]. In my view it is not embarrassing – the omission of a specific object was on specific instructions”.

78    On 26 October 1987, Mr Cornell provided a further brief to Mr Goldberg QC. Let me set out the further instructions:

1.    Documents for Counsel

Counsel is handed herewith –

(1)    Memorandum, undated and signed “AAS”.

(2)    Extract from “The Law of Charitable Trusts in Australia” pages 101 to 105.

(3)    Producers’ Defence Fund 1954 VLR 246 (Smith J.)

2.    Instructions for Counsel

Counsel is also asked to advise on the matters raised in Mr Stewart’s memorandum and, in particular, whether the Trust is valid despite the lack of a specific legal entity as a beneficiary.

79    As I have indicated, Mr Stewart had opined upon a version of the amended trust deed that did not name the Liberal Party as an object of the trust. Mr Stewart’s memorandum concluded that because the proposed trust had “no individual beneficiaries”, there was “the gravest reason to doubt the validity of the document as a valid declaration of Trust”. According to Mr Cornell’s evidence, Mr Goldberg QC apparently gave telephone advice to Mr Cornell on or around 4 November 1987 agreeing with Mr Stewart. Mr Cornell then formed the view that the trust structure could not proceed without a residual beneficiary.

80    Now I agree with the plaintiffs that the suggestion made by the defendants before me, namely, that Mr Goldberg QC was not opining upon the validity of a trust absent the Liberal Party as an object but rather opining on the validity of the trust assuming that the Liberal Party was a named object, is incorrect. That was not the scenario then in contemplation and that was not what Mr Stewart had been considering. At the time it was contemplated that the Liberal Party was not to be an object. Hence the trust problem; there was a perceived lack of certainty of object. Mr Stewart was concerned with uncertainty as to object where the Liberal Party was not an object. Mr Goldberg QC was briefed with the documents identified in the instructions to advise dated 22 October 1987 and the instructions to further advise dated 26 October 1987, but those documents did not include the Liberal Party’s constitution, which (if the defendants were correct) counsel would have needed to have been briefed with to express any view about whether the Liberal Party could be the object of a trust if it was contemplated that the Liberal Party was to be an object. But the documents and the evidence given by Mr Cornell well demonstrate that the concern at the time related rather, as the plaintiffs correctly contend, to the absence of an object or residual beneficiary. And it is apparent that this difficulty arose because although the original trust structure was contemplated to have the Liberal Party as the beneficiary, this was removed at the request of the directors of Station 3XY Pty Ltd as a condition of transferring the proceeds of sale over to any new structure.

81    In November 1987, it having been ascertained that the contemplated trust would fail as a non-charitable purpose trust, it was then proposed to form a proprietary company to receive the proceeds of sale. This was suggested by Mr Hone on or around 25 November 1987.

82    As matters evolved, the structure proposed was a company (the Cormack Foundation) with three shareholders, each with one-third of the shares, and each with a right to appoint one director. The authorised capital of the Cormack Foundation was to be limited to $99.00, consisting of 99 shares of $1.00 each. A special resolution was to be required to increase the authorised capital (a concept later abolished from 1 July 1998). It was proposed that the memorandum and articles of association would prohibit the payment of dividends to shareholders, but would permit payments for purposes aligned with the Liberal Party’s purposes.

83    Ultimately, on 2 February 1988 Mr Cornell provided to Mr Calvert-Jones a letter in the following terms discussing the four options that had been considered to that point in time including the latest option being the corporate structure:

We have pleasure in enclosing what we trust is the final draft of the Memorandum & Articles of Association of The Magnus Cormack Foundation Pty Ltd (Draft 2.2.88). This document should be read carefully by you before it is agreed to as it will govern the investment of, and disposition of the income on, $15 million for many years to come. While change to the Articles of Association is possible, it is unlikely to occur in the short term because of the checks and balances involved in the document before you. In reviewing this document you should have in mind the other possibilities which have been canvassed in the past 15 months and have been incapable of achievement for various reasons.

The first option was for the directors of Station 3XY Pty Limited to give $15 million to the Liberal Party of Australia (Victorian Division). The sum could then have been placed in a special account and invested. As a matter of negotiation, this option has not been capable of achievement.

The second option discussed was the formation of a trust into which would be paid the sum of $15 million. The drafting of the Trust Deed and the accompanying negotiations with interested parties took place over a period of nearly 12 months. However, during the negotiations all references to the Liberal Party of Australia (Victorian Division) were removed from the Trust Deed with the result that the Trust had no object and, accordingly, could have failed for uncertainty. This option was, therefore, not proceeded with.

The third option was that Station 3XY Pty Ltd could be placed in liquidation and the moneys distributed to the persons beneficially entitled thereto. This option would have required a 75% vote by the shareholders which may not have been forthcoming and then there would have been a dispute as to who was entitled to the moneys on liquidation. Accordingly, this option has not been seriously examined.

The fourth option is that one which is presently before you. This is the incorporation of a new company which will have as its objects the support of Liberal objectives and, as a result, will be enabled to pay to the Liberal Party of Australia (Victorian Division) the income from the $15 million, subject to the value of the fund being maintained in real terms. This option is not an ideal solution as it involves the creation of a new legal entity and with it shareholders and directors who are not controlled by the Liberal Party of Australia (Victorian Division).

84    At a meeting of the Administrative Committee on 4 February 1988, attended by Mr Kroger, Mr Cornell, Mr Calvert-Jones and others, Mr Cornell explained the options that he had set out in his 2 February 1988 letter. The minutes record the following:

7.    RADIO 3XY

The Administrative Committee accepted the resolution put forward by Alan Cornell that the formation of a 3XY Foundation be set up to manage the proceeds of 3XY (this was accepted by the majority of the Admin Committee).

Mr Kroger gave evidence that Mr Cornell advised the Administrative Committee that a company was being set up to house the 3XY sale proceeds that would be controlled by the Liberal Party. Mr Kroger gave evidence that Mr Calvert-Jones had told the Administrative Committee that the 3XY sale proceeds would effectively be held on trust for the Liberal Party. At all events, it would seem that the Administrative Committee resolved to proceed with the fourth option referred to in Mr Cornell’s letter of 2 February 1988.

85    By letter dated 5 February 1988, Mr Cornell sent to Mr Calvert-Jones a copy of a memorandum to counsel also dated 5 February 1988 sent to Mr Goldberg QC, and stated to Mr Calvert-Jones “I have explained to [Mr Goldberg] the background to the proposed compromise and he has undertaken to examine the documents which I trust will be agreed to by Sir Magnus Cormack”.

86    Let me reproduce that memorandum prepared by Mr Cornell for Mr Goldberg QC:

1.    Observations for Counsel

(1)    Counsel is referred to his Brief herein dated 22nd October 1987 and our subsequent conference. Since that conference the concept of a Trust has been abandoned on the basis that it was not possible for the Liberal Party of Australia (Victorian Division) to be specifically referred to as an object and, as a result, the Trust may have failed for uncertainty. The compromise which has been proposed by the shareholders of Station 3XY Pty Limited is that a new company be incorporated with similar objects to Station 3XY Pty Limited and that the $15 million received from the sale of Radio 3XY Pty Limited be paid across to that company.

(2)    This is clearly a compromise solution to the dispute and, as a result, has a number of drawbacks. However, your instructing solicitors believe that it is the best that can be achieved in the circumstances.

2.    Documents for Counsel

Counsel is handed herewith –

(1)    Letter dated 2nd February 1988 to Mr J.A. Calvert-Jones.

(2)    Memorandum and Articles of Association of The Magnus Cormack Foundation Pty Limited.

[(3)]    Deed of Indemnity.

3.    Instructions for Counsel

Counsel is requested to examine the enclosed documents and make any comments he deems appropriate.

Counsel will note that the initial shareholders will be Messrs J.A. Calvert-Jones, S.M.L. Guilfoyle, and H.M. Morgan. Both Mr Calvert-Jones and Mr Morgan have indicated that they will give an executed Deed of Trust in favour of the Liberal Party of Australia (Victorian Division) and undertake to deal with their shares as directed by the Liberal Party of Australia (Victorian Division). In addition, they will hand to the Liberal Party of Australia (Victorian Division), blank share transfer forms together with undated signed resignations as directors.

87    Mr Guilfoyle, a director and shareholder of Station 3XY Pty Ltd, was to be one of the three shareholders and directors, and Mr Calvert-Jones and Mr Morgan were put forward by the Liberal Party as the other two shareholders and directors. Now it is not apparent on the evidence before me what precise advice Mr Goldberg QC then provided. It was put to Mr Cornell in cross-examination by Mr Allan Myers QC for the defendants that Mr Goldberg QC advised that the same problems existed with a deed of trust over the shares as existed with the proposed deed of trust over the assets of the company, but Mr Cornell could not recall. Now there are two points to be noted. First, at this time it was contemplated that there would be some trust over the shares of Mr Calvert-Jones and Mr Morgan. Second, the same uncertainty of object problem did not arise. The previous proposed deed did not have the Liberal Party as an object. But the proposed undertakings did, although a more subtle problem arose which I will discuss later when dealing with the validity or enforceability of the trust(s) asserted. Further, it is interesting that what then occurred over the next few months was very close to what was contemplated in the instructions to counsel, although of course no formal deed of trust over the shares was ever executed. But in terms of intention, in my view it would seem that a trust over Mr Calvert-Jones’ and Mr Morgan’s shares was contemplated in favour of the Liberal Party. Now several months after this time undertakings were given and signed blank share transfer forms and undated resignations as directors were given over by Mr Calvert-Jones and Mr Morgan. I doubt that Mr Goldberg QC gave the advice suggested by counsel for the defendants. If he had it is likely that a different course of events would have transpired.

88    Now there was then a delay caused apparently by the directors of Station 3XY Pty Ltd refusing to adopt the proposed structure. The minutes of a meeting of the Administrative Committee held on 3 March 1988 record the following:

Discussion followed on the budget papers, as attached and included considerable comment on the 3XY situation – it was agreed that Alan Castleman and Eda Ritchie liaise closely with John Calvert-Jones and express the views of the Committee in this matter.

Concern at:

•    the 2 extra Directors now sought

•    proposal to give some funds to another body

See if the Hon Andrew Peacock is prepared to talk to Sir Magnus Cormack.

89    Mr Kroger gave evidence that the nature of this dispute between the directors of Station 3XY Pty Ltd and the Liberal Party was about who would control the allocation of income going forward. Mr Kroger also gave evidence that when Mr Calvert-Jones told him that this dispute had been resolved in favour of the Liberal Party, Mr Calvert-Jones said nothing about the elected officials of the Liberal Party having no control over the funds.

90    The Cormack Foundation was incorporated on 10 March 1988 for the purpose of receiving a gift of the sale proceeds from Station 3XY Pty Ltd. The original subscribers and directors were Mr Calvert-Jones, Mr Guilfoyle and Mr Morgan, who each paid $33.00 for their 33 shares, as Mr Cornell had requested them to do by his letter dated 7 March 1988. At the time Mr Calvert-Jones was Treasurer, and Mr Morgan was a Trustee, of the Liberal Party. Station 3XY Pty Ltd had by this time been renamed “Station Enterprise Pty Ltd”.

91    As set out in the memorandum and articles of association of the Cormack Foundation and adopted upon its incorporation, the objects for which the Cormack Foundation was established and to which its income and capital were to be applied were general objects which did not refer to the Liberal Party or any other person or organisation, but did include objects that appear to me to be associated with the political philosophy of liberalism (cll II and VII of the memorandum and art 69). According to Mr Cornell, cl II(5) of the memorandum of association of the Cormack Foundation was based on para 4 of the objectives of the Liberal Party of Australia as set out in the Official Federal Platform of the Liberal Party of Australia (approved by the Federal Council on 15 November 1960). The memorandum prohibited distributions to members or to any person claiming through them (cl VII), and provided that upon a winding up any surplus property was to be given or transferred to some institution(s) having similar objects and prohibition on distributions to members, such institution(s) to be determined by the members or pursuant to a default mechanism, and otherwise to some charitable object (cl VIII). The articles provided inter-alia the following: shares could be issued by unanimous decision of the directors (art 3); directors could refuse to register any transfer of shares (art 11(3)); each shareholder holding at least one third of the issued shares could appoint one director, and any further appointments were to be made by unanimous decision of the directors (art 38); the directors had no entitlement to receive remuneration (art 41); and acts done by the directors were not invalidated by any defect in appointment of directors (art 60).

92    Mr Cornell gave evidence that with the assistance of Mr Raitt, he drafted the memorandum and articles of association of the Cormack Foundation. In drafting the memorandum and articles of association, he intended that the structure should to the extent feasible reflect the intended structure when there was to be a trust rather than a company. Accordingly, there were to be three directors and shareholders of the Cormack Foundation: Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle.

93    He intended that each of Mr Calvert-Jones and Mr Morgan would execute an undertaking similar to that proposed when the vehicle was to be structured as a trust, with appropriate changes to reflect the fact that the structure was now a company; it was well apparent to Mr Cornell that Mr Guilfoyle was not prepared to give any undertaking. He provided that the authorised capital of the Cormack Foundation would be $99.00, consisting of 99 shares of $1.00 each, all of which would be issued upon incorporation. Each of Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle would be issued with 33 shares. Further, if the authorised capital was to be increased this would at the least require the acquiescence of either Mr Calvert-Jones or Mr Morgan. He also provided in art 38 of the articles of association that the holder of one-third of the shares could appoint a director, thereby ensuring that Mr Calvert-Jones and Mr Morgan (and anyone to whom their shares were transferred) could appoint themselves a director.

94    So far as Mr Cornell was concerned, this all meant that the money from the sale of the 3XY licence would come into a company that was controlled by the Liberal Party, particularly as Mr Calvert-Jones and Mr Morgan were senior office holders in the Liberal Party and were prepared to sign an undertaking. The Cormack Foundation would be controlled by Mr Calvert-Jones and Mr Morgan, who would sign undertakings to inter-alia use their best endeavours to ensure the income of the Cormack Foundation was applied for the benefit of the Liberal Party, use their best endeavours to ensure that a condition precedent to a person becoming a director of the Cormack Foundation or having shares allotted or transferred to them was to sign a like undertaking, to resign as a director if required by the Liberal Party and use their best endeavours to have its nominee appointed and to, if required by the Liberal Party, transfer their shareholding to a person or corporation nominated by the Liberal Party. In this way, as he understood it, the Liberal Party would maintain control of the Cormack Foundation.

95    I have extracted below relevant clauses from the memorandum of association:

II.    The objects for which the company is established are –

(1)    to promote the private sector, supported by a spirit of self endeavour;

(2)    to support the maintenance of liberty of speech religion and association and the preservation of freedom of the press and other media;

(3)    to promote and preserve the element of individual enterprise as an integral part of the structure of society and to promote the interests of employees and employers or others engaged in any trade or business;

(4)    to promote the recognition by society of merit at the earliest possible age and encourage its development;

(5)    to promote an intelligent free and liberal Australian democracy in which –

(a)    executive government is responsible to Parliament;

(b)    the rule of law is paramount;

(c)    the judiciary is independent of government;

(d)    freedom of the individual is recognized, subject to the rights of others;

(e)    people are protected against exploitation;

(f)    individual initiative and enterprise or [sic] encouraged; and

(g)    a national spirit in Australia is developed to the fullest extent possible.

(6)    to promote and support by financial grants or otherwise any corporation institution association or body or any division thereof having as one or more of its objects one or more of the objects of the Company;

(7)    to receive any gift of money or property for any of the purposes and objects of the Company whether subject to any special trust condition or obligation whatsoever or not but so that the Directors may nevertheless decline to accept any gift or donation or to take over any property which has annexed to it any condition or obligation not approved of by the Directors;

(8)    to give any guarantee for payment of money or the performance of any contract obligation or undertaking by any person firm company corporation or association;

(9)    to indemnify and keep indemnified any person firm company corporation or association against any claim, demand, suit or cause of action whatsoever, and the costs and expenses thereof;

(10)    to subscribe to any local or other charity and to grant donations for any public purpose or for any object of the Company;

(11)    to establish and support any company for the purpose of holding any investment or for any other purpose incidental or conducive to any of the above objects;

(12)    to do all such other things as are incidental or conducive to the attainment of the above objects or any of them.

…

V.    The capital of the Company is $99 divided into 99 shares of $1 each with power to increase the same and to issue any shares in the original capital or any new capital with any preferential special deferred or qualified rights privileges or conditions attached to them.

…

VII.    The income and property of the Company whencesoever derived shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association. No part of the income or property of the Company shall be paid or transferred directly or indirectly to the members of the Company or to persons who at any time have been members of the Company or to any person claiming through any of them. No fees shall be paid or given to any director of the Company for acting as a director of the Company. PROVIDED THAT nothing herein shall prevent: –

(a)    the payment in good faith of reasonable and proper remuneration to any director or the Company or to any member of the Company or to any other person in return for any services (other than as a director) actually rendered to the Company or for goods supplied in the ordinary or usual course of business; or

(b)    the payment of interest on monies borrowed from a director or member of the Company at a rate not exceeding interest at the rate for the time being charged by the Company’s Bankers in Melbourne for overdrawn accounts on money lent;

(c)    reasonable and proper rent for premises demised or let to the Company by any director or a member of the Company; or

(d)    the repayment or reimbursement of any expenses properly incurred by any director of the Company in or about the Company business.

VIII.    If upon the winding up or dissolution of the Company there remains, after satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed amongst the members of the Company but shall be given or transferred to some institution or institutions having objects similar to the objects of the Company and the Memorandum of Association or constitution of which prohibits the distribution of its or their income and property among its or their members to an extent at least as great as is imposed upon the Company under or by virtue of Clause VII of this Memorandum of Association, such institution or institutions to be determined by the members of the Company at or before the time of dissolution, and in default thereof by such Judge of the Supreme Court of Victoria as may have or shall acquire jurisdiction in the matter and if and so far as effect cannot be given to the aforesaid provisions then to some charitable object.

96    I have also extracted below relevant articles from the articles of association:

3.    The issue and allotment of shares in the capital of the Company shall subject to the Code be under the control of the Directors and shall only be issued in such manner as all the Directors for the time being may agree.

…

9.    The Company may by unanimous vote of all the members for the time being increase the capital by the creation of new shares of such amount as may be deemed expedient and all the provisions of these Articles shall apply to the shares in the new capital in the same manner in all respects as to the shares in the original capital of the Company.

…

36.    Until otherwise determined by the Company in General Meeting the number of Directors shall not be less than three nor more than five.

37.    The first Directors of the Company shall be:

John Anthony Calvert-Jones

Stanley Martin Leslie Guilfoyle

Hugh Matheson Morgan.

38.    Each member of the Company (or, if applicable, the legal personal representative of such member) holding not less than one third of the issued shares of the Company shall be entitled to appoint by notice to the Company one Director and from time to time by notice to remove any Director so appointed and to appoint another person to fill any vacancy in the office of his appointee however caused. Any further appointments shall be made by unanimous decision of the Directors.

39.    For the purposes of Article 38, the Directors named in Article 37 shall be deemed to have been appointed by themselves in their capacity as shareholders.

…

69.    The whole of the property and assets of the Company shall be invested and re-invested in accordance with these Articles and shall not otherwise be expended or applied in pursuance of the Company’s objects. The income of the Company shall be applied only in accordance with the provisions of the Company’s Memorandum and Articles of Association. Subject thereto the whole of the net annual income of the Company shall be applied as soon as practicable after the end of each financial year of the Company as follows: –

FIRST an amount equal to the lesser of –

(a)    one half of the net annual after-tax income of the Company; and

(b)    the amount by which the Indexed Sum exceeds the net assets of the Company as as [sic] the 30th day of June of the subject year,

shall be capitalised and credited to a reserve in the books of the Company called the Revenue Maintenance Reserve; and

SECONDLY the balance of the net annual income shall be applied in furthering the objects of the Company by such means as the Directors shall determine.

For the purpose of this Article: –

(a)    “Consumer Price Index” means the Consumer Price Index (All Groups – Weighted Average of Eight Capital Cities) or if it ceases to be published by some other similar independent indicator selected by the Directors.

(b)    “Indexed Sum” means the Nominated Sum increased or decreased on the 30th day of June of each year by the percentage increase or decrease in the Consumer Price Index over the intervening period on a cumulative basis (last available figures being applied up to the 30th day of June if the index at that date is not then available).

97    On 11 March 1988, Mr Cornell wrote to the directors of the Cormack Foundation, enclosing draft minutes for the first meeting of directors and noting inter-alia that the “most significant item of business is the approval of the Deed of Indemnity to be entered into by the Company in return for the transfer of funds from Station Enterprise Pty Ltd”.

98    On 16 March 1988, the first meeting of the directors of the Cormack Foundation was held. It was attended by Mr Calvert-Jones, Mr Guilfoyle and Mr Morgan, with Mr Calvert-Jones as Chairman. The minutes relating to the agenda item “Gift from Station Enterprise Pty Ltd” record the following:

Mr. Guilfoyle informed the meeting that the Company expected to receive shortly a letter from Station Enterprise Pty. Ltd. offering a gift to the Company of the sum of $15 million on condition that the Company deliver an indemnity to Station Enterprise Pty. Ltd. and its Members and Directors. A copy of the required Deed of Indemnity is annexed.

It was noted by the Board that the Company has power pursuant to paragraphs (7) and (9) of Clause II of its Memorandum of Association to receive any gift of money for the purposes and objects of the Company, subject to any conditions, and to indemnify and keep indemnified any person or company.

Mr. Guilfoyle declared his interest in the transaction, as a party to the Deed of Indemnity and as a Member and former Director of Station Enterprise Pty. Ltd.

RESOLVED that the Company accept the said gift subject to the condition attaching to it and that the Deed of Indemnity be executed by the Company under its Common Seal.

99    The basis upon which the now Station Enterprise Pty Ltd offered the $15 million to the Cormack Foundation was set out in a letter around this time from the secretary of Station Enterprise Pty Ltd, Mr Leon Slade, to the Chairman of the Cormack Foundation, Mr Calvert-Jones. The letter had the subject matter “Gift of $15 million to the Cormack Foundation Pty Ltd (‘the Foundation’)” and stated inter-alia:

As you will be aware, the Board of Directors of this Company met yesterday to consider, inter alia, the above gift.

The Board of Directors has determined to offer to the Foundation, in furtherance of this Company’s objects, the sum of $15,000,000 on condition that the Foundation executes an indemnity, in the form previously provided to the Foundation, in favour of this Company, its past present and future Members and Directors.

100    Pursuant to the Cormack Foundation’s board resolution made on 16 March 1988, on 11 April 1988 the Cormack Foundation executed a deed of indemnity and accepted the offer of a gift of $15 million from Station Enterprise Pty Ltd, which the Cormack Foundation then received and applied towards the objects for which it was established. Recital A of the deed of indemnity stated inter-alia: “The Members [of Station Enterprise Pty Ltd] are the beneficial owners of all the issued share capital of [Station Enterprise Pty Ltd]”. The fact that the shareholders of Station Enterprise Pty Ltd held their shares beneficially and the fact that Station Enterprise Pty Ltd was making a gift to the Cormack Foundation are not supportive of Station Enterprise Pty Ltd (formerly known as Station 3XY Pty Ltd), its assets or its shares being held on trust for the Liberal Party. If one trustee was handing over assets to a replacement trustee, one would not normally describe this as a gift. And if the shares in Station Enterprise Pty Ltd were held on trust for the Liberal Party then the statements in the deed of indemnity were incorrect.

101    On 27 April 1988, Mr Cornell wrote to Mr Calvert-Jones, and Mr Morgan, in the following terms:

The 3XY Trust – Cormack Foundation Pty Ltd

The above matter is now completed except for the documentation of your and Mr Morgan’s position vis-a-vis the Liberal Party of Australia (Victorian Division). I enclose the following documents and ask that you sign same and return them to me –

(1)    Undertaking

(2)    Share Transfer

(3)    Notice to Cormack Foundation Pty Ltd

102    On 3 and 5 May 1988, Mr Calvert-Jones and Mr Morgan respectively signed a form of undertaking which Mr Cornell had prepared. The form was similar to that which had been prepared when a trust structure for the proceeds of the 3XY licence had been contemplated and a trust deed prepared.

103    In addition to signing the undertakings, Mr Calvert-Jones and Mr Morgan signed blank share transfers to enable their shares to be transferred should the Liberal Party have required them to do so and signed but undated resignations as directors. But such transfers and resignations cannot now be located.

104    The other director and shareholder, Mr Guilfoyle, was not sent a form of undertaking and he did not sign one.

105    As is apparent from the above chronology, the idea of obtaining undertakings had originated in 1987 when the trust option was still being explored and a question arose as to how to protect the interests of the Liberal Party in view of the new wording of the trust which did not refer to the Liberal Party. In that context, Mr Cornell said in his evidence that he took the view that to protect the interests of the Liberal Party, each trustee of the new trust should sign an undertaking which committed each trustee to, inter-alia, use their best endeavours to ensure that all available income from the trust would be applied for the benefit of the Liberal Party.

106    Now the defendants assert that the undertakings did not involve the creation of another trust. Rather, they were concerned with trying to achieve some control over the then proposed trust for the Liberal Party. So, it was pointed out that in August 1987, when the trust proposal was still on foot but the identity of the trustees remained unresolved, Mr Cornell observed in a letter dated 28 August 1987:

The real issue outstanding is the ultimate control of the Trust. It seems to me that the solution of having the Trustees execute an Undertaking to the Liberal Party of Australia (Victoria Division) (“Liberal Party”) is the only acceptable solution for the Liberal Party.

However, you will see that in the Trust Deed to be submitted to you that the names of two of the original named Trustees have been omitted and that the directors of Station 3XY Pty Ltd have nominated in their place, three new Trustees. When you see their names I doubt whether they would agree to sign the Undertaking and if they were asked may not only refuse to do so but may publicise their concern.

The solution is, of course, to increase the number of Trustees to seven, being the original four who signed the the [sic] original Trust Deed and Undertakings, and the three new nominees who have not. While this is not a perfect solution, at least the Liberal Party will have Undertakings from a majority of the Trustees. In my view, you should, therefore, insist that the original four Trustees remain but indicate your willingness to accept their three nominees in addition.

107    As I have already noted, the trust model never proceeded due to doubts as to its validity. When the Cormack Foundation was incorporated, the idea of obtaining undertakings was taken up again, this time as undertakings from a majority of directors / shareholders, instead of from trustees. By this transposed mechanism, the Liberal Party sought to achieve a measure of control. I will return to the proper characterisation of this transposed legal question later.

108    Ultimately, Mr Calvert-Jones’ undertaking (Mr Morgan’s undertaking is in a similar form) signed in May 1988 was in the following form:

UNDERTAKING

TO: The Liberal Party of Australia (Victorian Division)

I, JOHN ANTHONY CALVERT-JONES of 367 Collins Street Melbourne in the State of Victoria acknowledge that I have been requested by the Liberal Party of Australia (Victorian Division) (“the Liberal Party”) to become a director and a shareholder of the Cormack Foundation Pty Ltd (“the Company”). I hereby give the following undertakings and acknowledgements to the Liberal Party –

1.    I will at all times properly perform my duties as a director and a shareholder in accordance with the law and the Memorandum and Articles of Association of the Company and subject thereto will use my best endeavours to ensure that the available income of the Company is applied for the benefit of the Liberal Party.

2.    I further undertake that I will use my best endeavours to ensure that a condition precedent to the appointment of any person as a director of the Company or to any transfer or allotment of shares of the Company to any person will be that that person will first sign an undertaking in or to the effect of this undertaking.

3.    I will if required by the Liberal Party resign as a director of the Company and use my best endeavours to have its nominee appointed in my place.

4.    I will if required by the Liberal Party transfer my shareholding to a person or corporation nominated by the Liberal Party at a consideration designated by the Liberal Party.

5.    I will account to the Liberal Party for any dividends or other benefits which I may receive as a shareholder of the Company.

6.    This undertaking will bind my executors, trustees and assigns.

7.    The Liberal Party may assign its rights under this undertaking to any association or corporation which shall or may be formed to succeed it. The Liberal Party may from time to time delegate to one or more of its officers the powers vested in it by this undertaking.

109    In 1989, Mr Calvert-Jones stepped down as Treasurer of the Liberal Party. From 1991 to 2017, Mr Calvert-Jones served as a member of the State Finance Committee and as a Trustee of the Liberal Party. From 1992 to 2017, he was also a director and shareholder of Vapold Pty Ltd. Vapold Pty Ltd is a private company which holds assets, the shares in which are held for and on behalf of the Liberal Party.

110    In 1993, Mr Morgan stepped down as a member of the State Finance Committee, as a Trustee of the Liberal Party and as a director of Vapold Pty Ltd. He had served in each position since 1983. On 13 July 1993, Mr Morgan wrote to Mr Ted Baillieu (then President of the Liberal Party and Premier of Victoria from 2010 to 2013) mentioning the existence of a pre-signed resignation from the Cormack Foundation:

I cannot recall how many years it has now been that I have served as a member of the Finance Council of the Victorian Liberal Party and a Trustee. However, I do feel it is proper that there be some circulation or change of those positions and I write to ask if you would accept my retirement (some call it resignation!).

I am also a Trustee of the Cormack Foundation and, if it is the wish of the Administrative Committee, I would also retire from being an office bearer of the Foundation. Somewhere in the bowels of the Secretariat you are holding my pre-signed resignation from the Foundation. On the other hand, if you would like me to continue with the Foundation I would be agreeable to do so.

111    Mr Morgan did not resign from the board of directors of the Cormack Foundation and later became its chairman from 2009.

(c)    Michael Kroger’s knowledge and involvement

112    Let me say something further about the evidence given by Mr Kroger. He is the current President of the Liberal Party and also a director of JT Campbell & Co Pty Ltd, a corporate advisory firm and licenced securities dealer.

113    Mr Kroger joined the Liberal Party in 1973 at the politically precocious age of 16 and subsequently held the following positions within it:

(a)    President of the Liberal Party from 1987 to 1992, and ex officio chair of the Administrative Committee and the State Finance Committee;

(b)    Member of the Administrative Committee and the State Finance Committee from 1992 to 1997 (in his capacity as immediate past President); and

(c)    President of the Liberal Party from 2015 to date.

114    Between 1997 and 2015, Mr Kroger held no significant elected position within the Liberal Party and had no responsibility for the day to day governance of the Liberal Party, but was a branch president from time to time and remained involved in the organisation’s activities.

115    As regards the organisation and powers of various Liberal Party organs, Mr Kroger stated that he never understood that any of the Trustees of the Liberal Party, the State Finance Committee or the Administrative Committee had the power to gift any asset to a non-Liberal Party entity. He understood that only the State Council was capable of such action.

116    In or around the mid-1970s, Mr Kroger and other young members of the Liberal Party visited Station 3XY, where he says that it was stated to him that “the Liberal Party owns 3XY”. He also recalled general conversations between party members during this time where Station 3XY was referred to as the Liberal Party’s radio station.

117    Between 1976 and 1978, Mr Kroger met regularly with Ms Peg Pelchen, executive officer of the Women’s Section of the Liberal Party. During their discussions regarding the Liberal Party’s history, he gave evidence that Ms Pelchen told him that the Liberal Party owned the 3XY licence.

118    Before becoming President of the Liberal Party in 1987, Mr Kroger was told about the sale of the 3XY licence. He says that he understood that the Liberal Party considered the proceeds of that sale to be its own asset.

119    Further, around the time of his election in 1987, Mr Kroger had a number of conversations with his immediate predecessor Mrs Ritchie, including in relation to the sale of the 3XY licence. He says that Mrs Ritchie told him that there were ongoing negotiations between the Liberal Party and the directors and shareholders of Station 3XY Pty Ltd, particularly Mr Guilfoyle and Sir Magnus Cormack, regarding the investment of the sale proceeds, and that he ought to leave the negotiations to Mr Calvert-Jones. He said that Mrs Ritchie never said anything to the effect that there was a dispute over ownership of the proceeds. He agreed that Mr Calvert-Jones should continue negotiations on behalf of the Liberal Party.

120    Around this same time, Mr Kroger recalled seeing the 28 May 1979 agreement that I have discussed earlier. He understood it to be an acknowledgement by Station 3XY Pty Ltd’s shareholders that they were holding a Liberal Party asset.

121    After his election in 1987, Mr Kroger spoke with a number of Liberal Party figures, including Mr Calvert-Jones, Sir John Anderson (President of the Liberal Party from 1952 to 1956) and Mrs Mein, for counsel and advice. He said that no current or former office bearer ever denied or cast doubt upon the Liberal Party’s ultimate ownership of the 3XY licence. He said that he never thought to ask Mr Calvert-Jones about the ownership of the proceeds of sale.

122    Mr Kroger said that throughout the negotiations in 1987, Mr Calvert-Jones was reporting to, and receiving directions from, the Administrative Committee. He said that Mr Calvert-Jones was instructing Mr Cornell on behalf of the Liberal Party in relation to the negotiations and that he had no direct communications with Mr Cornell. He also said that Mr Calvert-Jones never reported that he was negotiating a transfer of the sale proceeds to a non-Liberal Party entity.

123    Mr Kroger said that he wanted two key features included in the vehicle for the sale proceeds. First, that the funds should be managed separately from the Administrative Committee so as to avoid pressure being brought to allocate large amounts to election campaigns. Second, that the constituent documents of the investment vehicle prescribe that the corpus of the investment be maintained and grown.

124    In relation to the 1 October 1987 meeting of the Administrative Committee, as I have said earlier it was decided that Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle would be the Liberal Party’s trustees for the sale proceeds. Mr Kroger said that at this time he did not doubt that Mr Calvert-Jones (as Treasurer) and Mr Morgan (as Trustee of the Liberal Party) were acting for the Liberal Party to protect the sale proceeds for the Liberal Party in their participation in the new investment vehicle, and that the Liberal Party therefore would always control the new investment vehicle. Further, he gave evidence that regardless of whether it was a trust or a company, he always understood that the Liberal Party was the beneficial owner of the new investment vehicle and its assets. He said that had he been told that the sale proceeds were being transferred to a third party that the Liberal Party did not control, he would have opposed such a course.

125    In relation to the 4 February 1988 meeting of the Administrative Committee and Mr Cornell’s resolution to form a “3XY Foundation”, Mr Kroger said that he understood that the resolution was to transfer the sale proceeds from one Liberal Party entity (Station 3XY Pty Ltd) to a new Liberal Party entity (i.e. the Cormack Foundation). He said that he would have opposed a proposal where the Liberal Party either did not control the new entity or was not the beneficial owner of that entity’s shares. He said that he understood that the Administrative Committee had approved the establishment of a company on the basis that the funds would effectively be held on trust for the Liberal Party.

126    Further, in or around mid-1988, Mr Kroger said that he had a conversation with Mr Calvert-Jones and that Mr Calvert-Jones told him “don’t worry, we have got control [of the Cormack Foundation] and it is in writing”, and that the dispute between the Liberal Party and Mr Guilfoyle and Sir Magnus Cormack had been resolved. Mr Kroger understood “we” to mean the Liberal Party, and he presumed that there was a document signed by Mr Morgan and Mr Calvert-Jones, but he did not recall seeing the undertakings. Mr Kroger also said that Mr Calvert-Jones did not say anything about the elected officials of the Liberal Party having no control over the monies held by the Cormack Foundation. He said that he had confidence that Mr Calvert-Jones and Mr Morgan were acting on behalf of the Liberal Party and he was not told anything to the contrary.

127    Now I accept that Mr Kroger’s battle-hardened views were sincerely and strongly held, and indeed not without some reasonable basis to support them. Nevertheless the contemporaneous record objectively analysed demonstrates in my view that only Mr Calvert-Jones’ and Mr Morgan’s shares were held on trust for the Liberal Party; all shares were not held on trust and the assets of the Cormack Foundation were not held on trust.

(d)    The activities of the Cormack Foundation

128    The Cormack Foundation board has met regularly over the years and dealt with matters including the investment of the capital fund, requests for funding and decisions about donations. Audited financial reports have been prepared for each financial year.

129    From the initial gift of $15 million in March 1988 to the present, the Cormack Foundation’s capital fund has grown to a gross value of approximately $70 million, with donations from it totalling approximately $60 million during that period. The Liberal Party has received most of these donations (approximately $50 million). The Cormack Foundation has also received requests for funding from various organisations with values consistent with the Cormack Foundation’s objects to which it has made donations. Over the years there has been ongoing dialogue between the Liberal Party and the Cormack Foundation in relation to the Liberal Party’s requests for funding and the decisions made by the Cormack Foundation board about the donations to be made to the Liberal Party, including the amount and timing of donations and whether they were for a particular purpose.

130    Let me return to the chronology.

131    On 10 April 1992, Mr Goode was appointed a director of the Cormack Foundation. On 26 June 2000 he was issued 33 shares for which he paid $33.00. He is a current director and shareholder of the Cormack Foundation and its chairman. He is also currently the chairman of Flagstaff Partners, a corporate advisory firm. He has held many board positions of major public companies including being the chairman of the board of Australia and New Zealand Banking Group Ltd between 1995 and 2010. He first became a member of the Liberal Party around 65 years ago. And as I have already said, from 1986 to 2017 he was a Trustee of the Liberal Party (and chairman of the Trustees from 1988 to 2017) and a member of the State Finance Committee, as well as director and chairman of Vapold Pty Ltd. He said that he could not recall ever being asked to sign any undertaking in favour of the Liberal Party in respect of the Cormack Foundation, nor had he ever signed one.

132    Now when Mr Goode was appointed a director of the Cormack Foundation in 1992, Mr Kroger said that the Administrative Committee resolved to authorise that appointment. Mr Kroger said that he was content with the appointment because Mr Goode was a Trustee of the Liberal Party and because it meant that another Liberal Party loyalist had been appointed to manage the Liberal Party’s money. Mr Kroger said that he was not told about any undertaking or other document similar to that signed Mr Calvert-Jones and Mr Morgan. He said that if he had been told about such a document he would have required Mr Goode to sign one and, if Mr Goode refused, he would have opposed Mr Goode’s appointment. Further, he said that if Mr Calvert-Jones or Mr Morgan had persisted with Mr Goode’s appointment, he would have demanded that they transfer their shares in the Cormack Foundation to Liberal Party nominees.

133    I would note another matter which it is convenient to deal with at this point before proceeding further, given that it deals with an anticipated role for Mr Goode. At a meeting of the Administrative Committee on 5 July 1990 which Mr Kroger chaired, the following was noted in the minutes:

The Treasurer introduced a discussion of the Cormack Foundation and explained its establishment and the appointment of the initial trustees. The current trustees had agreed they would distribute to the Liberal Party 4% per annum of the inflation-protected capital. Unfortunately, it has not been possible to maintain this level of distribution due to only a moderate return on investment. In addition, the Foundation has decided to write off the whole of the remaining loan obtained by the Party in 1988. The result in 1990 is a cash distribution equivalent to only half the level expected.

The meeting authorised, to the extent that it has any influence, any attempts to facilitate the appointment of Mr Charles Goode as a Trustee of the Foundation.

134    This indicated a misconception at the time as there were no “Trustees(s) of the Foundation” as such. Further, the qualifier “to the extent that it has any influence” demonstrated a doubt on the question of control. There were similar if not more extensive misconceptions in a letter dated 7 September 1990 sent by the then Treasurer of the Liberal Party to Mr Calvert-Jones asserting that “the Cormack Trust is an asset of the Liberal Party”. There was no Cormack Trust as such. Moreover, the Cormack Foundation was not set up to act as and did not act as a trustee. A similar error was perpetuated at a meeting of the State Finance Committee on 31 October 1990; I would note that Mr Goode gave evidence that he did not recall attending that meeting.

135    Let me proceed further with the chronology.

136    Now as I have said, from 1 July 1998 the concept of authorised capital was abolished. Two years later on 26 June 2000, Mr Goode was issued 33 shares, totalling 132 shares on issue. Prior to 1 July 1998 this could not have been so easily achieved given the stipulation of the authorised capital in the memorandum of association of 99 shares of $1.00 each. I do not need to dwell on that matter further. Further, on 26 June 2000, art 38 of the articles of association was also altered to change the “one third” stipulation to “one quarter”, to match the fact that there were four directors with now 33 shares each.

137    On 29 November 2000, a new constitution was put in place for the Cormack Foundation in substitution for the then memorandum and articles of association. I will discuss the provisions of the constitution in the next section of my reasons.

138    On 12 September 2002, Mr Mark Rayner was appointed a director of the Cormack Foundation. At around this time he received 33 shares for which he paid $33.00. He resigned as a director on 22 May 2015 and his shares were transferred to Mr Williamson. Mr Rayner has since passed away.

139    On 7 December 2005, Mr Hay was appointed a director of the Cormack Foundation and was allotted 33 shares for which he paid $33.00. He is a current director and shareholder of the Cormack Foundation. He is currently chairman of Newcrest Mining Ltd and a director of Vicinity Centres. He has been a member of the Liberal Party since 2010. Mr Hay did not say anything in his evidence regarding whether he had ever been asked to sign any undertaking in favour of the Liberal Party in respect of the Cormack Foundation, nor regarding any knowledge of such undertakings being given by other directors or shareholders. However, he did say that he had never considered that the assets of the Cormack Foundation or his shares or the shares held by Mr Morgan or Mr Calvert-Jones (or anyone else) were held on trust for the Liberal Party.

140    From 2009, as I have said, Mr Morgan became the chairman of the board of directors of the Cormack Foundation.

141    On 30 June 2011, Mr Guilfoyle resigned as a director of the Cormack Foundation and his shares were cancelled. A new r 31 had been inserted into the constitution on 19 April 2006 prima facie permitting such a cancellation. I will discuss the operation of r 31 later.

142    On 2 April 2012, Mr Grimwade was appointed a director of the Cormack Foundation. On 16 June 2014, he was issued 33 shares in the Cormack Foundation for which he paid $33.00. He is a current director and shareholder of the Cormack Foundation. He is also currently a principal and executive director of Fawkner Capital, a corporate advisory firm. He has been a member of the Liberal Party for approximately 40 years. Mr Grimwade gave evidence to the following effect:

(a)    On 21 March 2012, prior to his appointment as a director of the Cormack Foundation, he met with Mr Tony Snell, the then President of the Liberal Party. Mr Snell asked that he sign an undertaking to the Liberal Party in respect of the Cormack Foundation and he told Mr Snell that he was not prepared to do so and that the Cormack Foundation was independent of the Liberal Party.

(b)    Although he holds his shares in the Cormack Foundation personally, he has not received any dividends and would not receive anything if the Cormack Foundation was wound up.

(c)    He did not consider that the Cormack Foundation held its assets on trust for the Liberal Party nor that his shares or any of the shares of directors were held on trust for the Liberal Party.

143    On 12 December 2013, Mr Balderstone was appointed a director of the Cormack Foundation and was issued with 33 shares for which he paid $33.00. He is a current director and shareholder of the Cormack Foundation. He is also the chairman of directors of JCP Investment Partners, an investment management firm. He has been a member of the Liberal Party since 1982 and has served as a branch president and delegate to the Liberal Party’s Policy Assembly. Mr Balderstone gave evidence to the following effect:

(a)    On 15 May 2014 he had lunch with Mr Snell, and while they discussed Mr Balderstone’s appointment to the Cormack Foundation, he does not recall being asked to sign any undertaking to the Liberal Party and he did not sign such an undertaking.

(b)    He did not consider his shares as material to his net wealth. He had acted in an “honorary capacity”, had not received any money from the Cormack Foundation and would not receive anything if the Cormack Foundation was wound up.

(c)    He had never considered that the assets of the Cormack Foundation, his shares or the shares held by Mr Morgan or Mr Calvert-Jones (or anyone else) were held on trust for the Liberal Party.

144    On 10 March 2015, Mr Williamson was appointed a director of the Cormack Foundation. In May 2015, he took a transfer of Mr Rayner’s 33 shares in the Cormack Foundation as I have said earlier and paid the sum of $33.00 for the shares. He is a current director and shareholder of the Cormack Foundation. He is currently the deputy chairman of Flagstaff Partners. He has been a member of the Liberal Party since the late 1970s. He did not say anything in his evidence regarding whether he had ever been asked to sign any undertaking in favour of the Liberal Party in respect of the Cormack Foundation, nor regarding any knowledge of such undertakings being given by other directors or shareholders. He gave evidence that he had never considered that the assets of the Cormack Foundation or the shares held by Mr Morgan or Mr Calvert-Jones (or anyone else) were held on trust for the Liberal Party.

145    On 26 June 2015, Mr Spargo was appointed a director of the Cormack Foundation and issued 33 shares for which he paid $33.00. He is a current director and shareholder of the Cormack Foundation. He is also currently in private practice as a solicitor, as sole director of Stanbury Consultants Pty Ltd. He has been a member of the Liberal Party since 31 May 2017. He did not say anything in his evidence regarding whether he had ever been asked to sign any undertaking in favour of the Liberal Party in respect of the Cormack Foundation, nor regarding any knowledge of such undertakings being given by other directors or shareholders. He gave evidence that he had never considered that the assets of the Cormack Foundation or the shares held by Mr Morgan or Mr Calvert-Jones (or anyone else) were held on trust for the Liberal Party.

146    Let me now turn to some of the events of 2017.

147    Mr Kroger gave evidence that in the afternoon of 23 March 2017, Mr Calvert-Jones telephoned him and asked him whether they could meet to discuss the Cormack Foundation. Mr Kroger responded that he was free to meet him in his office later that day. Mr Kroger attended Mr Calvert-Jones’ office, and he asked Mr Kroger what he wanted to achieve concerning the Cormack Foundation; for the moment, I do not need to elaborate on the background that prompted this precise query. Mr Kroger said to Mr Calvert-Jones words to the following effect:

I want the last 5 directors to resign and their shareholdings in Cormack cancelled and in their place 5 or 6 new directors appointed who have signed declarations that they hold their shares on trust for the Liberal Party. I am concerned that once you and Hugh retire as directors the last remaining links to the founding of Cormack will be lost and as President, this concerns me greatly. Part of my thinking is that I want confirmation that the Liberal Party owns these monies.

148    Mr Kroger says that Mr Calvert-Jones responded by stating: “Of course the Liberal Party owns these monies”; it would seem that Mr Calvert-Jones may have also made similar statements to Ms Helen Kroger (President of the Liberal Party, 2003 to 2006 and Senator for Victoria, 2008 to 2014) over the years. Mr Kroger then said to Mr Calvert-Jones words to the following effect: “It would be good if Hugh [Morgan] would also acknowledge that, then we could probably wrap this matter up”. Mr Calvert-Jones stated that he would talk to Mr Morgan and would come back to Mr Kroger. But Mr Calvert-Jones did not raise with Mr Kroger then or since the outcome of any discussions Mr Calvert-Jones may have had with Mr Morgan.

149    Whether or not such a conversation took place in this form, in my view it does not substantially assist. The key events and contemporaneous documents do not support the contention that the Cormack Foundation was holding any of its assets on trust for the Liberal Party, whatever the perceptions that some of the key individuals may have had or expressed from time to time reflected in the imprecise language used in discussing the matter.

150    On 4 April 2017, Mr Kroger wrote to Mr Morgan as chairman of the Cormack Foundation in the following terms:

I wish to make you aware that there is extreme disquiet amongst our membership that the Foundation saw fit to donate monies to two registered political parties other than the Liberal Party at the July 2016 election. Specifically, the Foundation donated funds to the Liberal Democrats who preferenced the Labor Party ahead of the Victorian Liberal Party in the critical marginal seats of Dunkley & La Trobe and they preferenced the Independent candidate ahead of the Liberal candidate in the seat of Indi. The members of the Victorian Party consider it disappointing that the Foundation donated monies to a political party that was seeking to bring about the defeat of the Turnbull Government.

151    On 22 May 2017, Mr Kroger sent an email to Mr Morgan and Mr Calvert-Jones referring to the ongoing dispute and attaching a draft letter (dated 23 May 2017) for discussion purposes at a meeting to take place on 23 May 2017. The draft letter referred to the issues that are the subject of the present proceeding and asserted a trust in favour of the Liberal Party concerning either the assets of the Cormack Foundation or the shares therein. Reference was made to the undertakings. It is not clear that that meeting took place.

152    On 16 June 2017, a meeting of the board of the Cormack Foundation took place.

153    On 19 June 2017, Mr Morgan wrote to Mr Kroger referring to the draft letter of 23 May 2017 and requesting further details as to the basis for the statements made. He stated that the board of the Cormack Foundation was considering the matters raised in the draft letter.

154    On 21 and 22 June 2017, Mr Kroger wrote letters to Mr Morgan and Mr Calvert-Jones, a short form letter just signed by him and a long form letter signed by him and other officers of the Liberal Party; there was some doubling up in the letters sent to Mr Morgan. The long form letters requested inter-alia pursuant to cl 4 of the undertaking(s) that:

(a)    Mr Morgan transfer his shares in the Cormack Foundation to Mr Alston for the consideration of $3.30; and

(b)    Mr Calvert-Jones transfer his shares in the Cormack Foundation to Mr Stockdale for the consideration of $3.30.

155    But those steps did not occur.

156    At 8.30 am on 28 June 2017, a board meeting of the Cormack Foundation took place. Mr Morgan and Mr Calvert-Jones did not attend. The minutes of that meeting record the following in terms of items 5 and 6:

5.    Directors’ resignations

The Company Secretary tabled letters from Hugh Morgan and John Calvert-Jones resigning as directors of the company.

The letters were discussed and the resignations accepted with regret.

The Chairman then tabled draft letters of appreciation of the service and contribution each of the former directors had made to the company since its inception in 1988. These drafts were accepted by the Board and the Chairman advised he will immediately send the letters to the two former directors.

6.    Cancellation of shares

The Chairman tabled the following resolution:

Pursuant to Clause 31 of the Constitution, the shares owned by Hugh Morgan and John Calvert-Jones are immediately cancelled, without consideration.

The resolution was passed.

It was noted that the Company Secretary is to advise ASIC within 28 days of the resignations of the directors and the cancellation of the shareholdings.

157    In essence, Mr Morgan and Mr Calvert-Jones had resigned as directors, those resignations were accepted, and accordingly under r 31 of the constitution their shares (said by the Liberal Party to be held on trust for it) were cancelled. It is apparent that at this time neither Mr Kroger nor the Liberal Party were aware of these events.

158    Later that day, Mr Peter Matthey, the company secretary of the Cormack Foundation, wrote to Mr Kroger in the following terms:

I refer to your letter of 21 June 2017 addressed to Hugh Morgan. That letter and the accompanying letter were tabled and discussed at a Cormack Foundation board meeting this morning.

The board is considering a response and will reply to you next week.

159    It must be said that this letter does not completely describe what had occurred that morning. But importantly it did indicate that the board had knowledge of the letters sent by Mr Kroger and the Liberal Party to Mr Morgan before the board acted that morning; it is likely that the board were also aware that a similar communication had been sent to Mr Calvert-Jones.

160    On 6 July 2017, Mr Matthey lodged a “Change to Company Details” form with ASIC referring to the share cancellations concerning Mr Morgan’s and Mr Calvert-Jones’ shares. On that same day Mr Matthey wrote to Mr Kroger replying to the letters sent on 21 and 22 June 2017 to Mr Morgan and Mr Calvert-Jones, referring to their resignations and referring to the fact that their shares had been cancelled. Both Mr Morgan and Mr Calvert-Jones separately wrote to Mr Kroger on 6 July 2017 referring to their resignations.

161    On 13 July 2017, Mr Kroger wrote separately to each of Mr Morgan and Mr Calvert-Jones. Each letter stated, inter-alia:

In my letter of 22 June 2017, the Liberal Party asked that you immediately transfer your 33 shares in the Cormack Foundation to [Richard Alston/Alan Stockdale] for a consideration of $3.30. In response, rather than doing as requested by the Liberal Party, in accordance with the written undertaking which you gave, you chose to resign as a director of the Cormack Foundation. As a result of this, the Cormack Foundation purported to cancel your shares pursuant to clause 31 of the Constitution of the Cormack Foundation, thus frustrating the Liberal Party’s request for a transfer of the shares and the performance by you of your undertaking.

The Liberal Party is very disappointed that you have chosen to take this step, rather than acting in accordance with its request, pursuant to your undertaking. We would be glad if you could explain why you have done this.

Further, the Liberal Party contends that as you were issued shares as a subscriber to the Memorandum of Association of the Cormack Foundation on 7 March 1988, and clause 31 of the Constitution was adopted in 2006, your shares are not subject to clause 31 and are not liable to cancellation pursuant to that clause.

In those circumstances, the Liberal Party says that the purported cancellation of your shares is invalid and again asks that you transfer your shares in the Cormack Foundation to [Mr Alston/Mr Stockdale] for a consideration of $3.30 in accordance with the undertaking you have given.

162    On 20 October 2017, Mr Calvert-Jones and Mr Goode resigned as members of the State Finance Committee, as Trustees of the Liberal Party and as directors of Vapold Pty Ltd.

163    On 22 October 2017, the Administrative Committee passed a resolution appointing Mr Stockdale and Mr Russell Hannan (the third plaintiff) as Trustees of the Liberal Party. As I have said, the three current Trustees are the three plaintiffs, Mr Alston, Mr Stockdale and Mr Hannan.

164    It is not necessary to elaborate further beyond this point in relation to the communications between the parties.

(e)    The Cormack Foundation’s constitution

165    Let me turn to developments concerning the Cormack Foundation’s constitution. On 29 November 2000, a new constitution replaced the previous memorandum of association and articles of association. I have extracted relevant parts of the new constitution as follows:

Preliminary

The name of the Company is Cormack Foundation Pty Ltd.

The Company is a proprietary company limited by shares.

The replaceable rules in the Corporations Law do not apply to the Company.

The objects for which the company is established are:

(a)    to promote the private sector, supported by a spirit of self endeavour;

(b)    to support the maintenance of liberty of speech religion and association and the preservation of freedom of the press and other media;

(c)    to promote and preserve the element of individual enterprise as an integral part of the structure of society and to promote the interests of employees and employers or others engaged in any trade or business;

(d)    to promote the recognition by society of merit at the earliest possible age and encourage its development;

(e)    to promote an intelligent free and liberal Australian democracy in which:

(i)    executive government is responsible to Parliament;

(ii)    the rule of law is paramount;

(iii)    the judiciary is independent of government;

(iv)    freedom of the individual is recognised, subject to the rights of others;

(v)    individual initiative and enterprise are encouraged; and

(vi)    a national spirit in Australia is developed to the fullest extent possible;

(f)    to promote and support by financial grants or otherwise any corporate institution association or body or any division thereof having as one or more of its objects one or more of the objects of the Company;

(g)    to receive any gift of money or property for any of the purposes and objects of the Company whether subject to any special trust condition or obligation whatsoever or not but so that the Directors may nevertheless decline to accept any gift or donation or to take over any property which has annexed to it any condition or obligation not approved of by the Directors;

(h)    to give any guarantee for payment of money or the performance of any contract obligation or undertaking by any person firm company corporation or association;

(i)    to indemnify and keep indemnified any person firm company corporation or association against any claim, demand, suit or cause of action whatsoever, and the costs and expenses thereof;

(j)    to subscribe to any local or other charity and to grant donations for any public purpose or for any object of the Company;

(k)    to establish and support any company for the purpose of holding any investment or for any other purpose incidental or conducive to any of the above objects;

(l)    to do all such other things as are incidental or conducive to the attainment of the above objects or any of them.

…

2.    Application of income and property

The income and property of the Company whensoever derived shall be applied solely towards the promotion of the objects of the Company as set forth in this Constitution. No part of the income or property of the Company shall be paid or transferred directly or indirectly to the members of the Company or to any person claiming through any of them. No fees shall be paid or given to any director of the Company for acting as a director of the Company PROVIDED THAT nothing herein shall prevent:

(a)    the payment in good faith of reasonable and proper remuneration to any director of the Company or to any member of the Company or to any other person in return for any services (other than as a director) actually rendered to the Company or for goods supplied in the ordinary or usual course of business; or

(b)    the payment of interest on monies borrowed from a director or a member of the Company at a rate not exceeding interest at the rate for the time being charged by the Company’s Bankers in Melbourne for overdrawn accounts on money lent;

(c)    reasonable and proper rent for premises demised or let to the Company by any director or a member of the Company; or

(d)    the repayment or reimbursement of any expenses properly incurred by any director of the Company in or about the Company business.

…

5.    Board’s power to issue shares

Except as provided by contract or this Constitution to the contrary, all unissued shares are under the control of the Board which may grant options on the shares, issue or otherwise dispose of the shares on the terms and conditions and for the consideration it thinks fit. An issue of shares of the same class as an existing class of shares is not to be considered to constitute a variation of the rights of the holders of shares in the existing class. Any Director or any person who is an associate of a Director may participate in any issue by the Company of securities.

…

8.    Non-recognition of equitable or other interests

Except as otherwise provided in this Constitution, or as required by law, the Company is entitled to treat the registered holder of any share as the absolute owner of the share and is not bound to recognise (even when having notice) any equitable or other claim to or interest in the share on the part of any other person.

…

31.    Transmission on death

The personal representative of a deceased shareholder (who is not one of several joint holders) is the only person recognised by the Company as having any title to securities registered in the name of the deceased shareholder. Subject to compliance by the transferee with this Constitution, the Board may register any transfer signed by a shareholder prior to the shareholder’s death despite the Company having notice of the shareholder’s death.

…

33.    Power to alter share capital

The Company in general meeting may reduce or alter its share capital in any manner provided by the Law. The Board may do anything which is required to give effect to any resolution authorising reduction or alteration of the share capital of the Company and, without limitation, may make provision for the issue of fractional certificates or sale of fractions of shares and distribution of net proceeds as it thinks fit.

…

51.    Number of Directors

The number of Directors (not including alternate Directors) must be not less than three nor more than five unless otherwise determined by general meeting. Each Director is to be a natural person.

52.    Power to appoint Directors

52.1    Each member of the Company (or, if applicable, the legal personal representative of such member) holding not less than one quarter of the issued shares of the Company shall be entitled to appoint by notice to the Company one Director and from time to time by notice remove any Director so appointed and to appoint another person to fill any vacancy in the office of his appointee however caused.

52.2    Any further appointments shall be made by unanimous decision of the Directors.

52.3    Any such appointment or removal will take effect immediately on delivery of the instrument of appointment or removal to the registered office of the Company.

…

69.    General powers of the Board

The management and control of the business and affairs of the Company are vested in the Board, which (in addition to the powers and authorities conferred on it by this Constitution) may exercise all powers and do all things as are within the power of the Company and are not by this Constitution or by law directed or required to be exercised or done by the Company in general meeting.

…

82.    Winding up

If upon the winding up or dissolution of the Company there remains, after satisfaction of all its debts and liabilities any property whatsoever, the same shall not be paid to or distributed amongst the members of the Company but shall be given or transferred to some institution or institutions having objects similar to the objects of the Company and the Memorandum of Association or constitution of which prohibits the distribution of its or their income and property among its or their members to an extent at least as great as is imposed upon the Company under or by virtue of Rule 2 of this Constitution, such institution or institutions to be determined by the members of the Company at or before the time of dissolution, and in default thereof by such Judge of the Supreme Court of Victoria as may have or shall acquire jurisdiction in the matter and if and so far as effect cannot be given to the aforesaid provisions then to some charitable object.

166    On 7 December 2005, the constitution was amended by adding new rr 51 and 52:

51.    Number of Directors

The number of Directors (not including alternate Directors) must be not less than three nor more than six unless otherwise determined by general meeting. Each Director is to be a natural person.

52.    Power to appoint Directors

52.1    The appointment of Directors shall be made by a majority decision of the Directors.

52.2    Any such appointment or removal will take effect immediately on delivery of the instrument of appointment or removal to the registered office of the Company.

167    The power to appoint new directors was given solely to the directors.

168    Rule 59 was also amended at this time to provide:

59.    Termination of office by Director

The office of a Director is terminated on the Director:

(a)    being absent from meetings of the Board during a period of six consecutive calendar months without leave of absence from the Board where the Board has not, within 14 days of having been served by the Secretary with a notice giving particulars of the absence, resolved that leave of absence be granted;

(b)    resigning office by notice in writing to the Company;

(c)    being removed from office by a resolution of majority in number of the other Directors agreeing that the Director concerned is no longer capable of managing his or her affairs or is otherwise acting under a legal disability;

(d)    being prohibited from being a Director by reason of the operation of the Law;

(e)    attaining the age of 75 years unless the other directors unanimously agree to the retention of the director in question provided that this sub-clause shall not apply to Stanley Guilfoyle;

(f)    being removed from office under the Law.

169    Further, on 19 April 2006 certain provisions of the constitution were amended. A new r 3 was inserted, which read:

3    Income and property

In respect of the calendar years commencing after 31 December 2005, the property and assets of the Company shall be applied as follows:

(a)    the net after tax income (excluding any amounts attributable to capital gains) as estimated by the Directors may be expended in furthering the objects of the Company by such means and at such time or times as a majority in number of the Directors determine;

(b)    if at any time a majority in number of the Directors consider that special circumstances warrant a further application of funds, a portion of the capital of the Company’s property and assets may be expended in furthering the objects of the Company by such means and at such time or times as a majority in number of the Directors determine.

(c)    except as permitted by sub-clauses (a) and (b) the property and assets of the Company shall be invested and re-invested in such manner of investment as a majority in number of the Directors determine.

170    A new r 31 was also inserted, which read:

31    Cancellation of shares on death or termination of office as director

The Board must, within 30 days of

(a)    receiving written notification of the death of a shareholder; or

(b)    termination of office of a Director under Rule 59,

cancel, without consideration, the shares registered in the name of the shareholder or the Director in question.

(f)    The Liberal Party’s constitution

171    In order to properly understand and assess the alleged trust over the shares of Mr Calvert-Jones and Mr Morgan, it is necessary to consider certain provisions of the constitution of the Liberal Party. Before me were two versions of the constitution:

(a)    one version was in the form that it was around the time that the undertakings were signed (the earlier version);

(b)    the other version is the present form (the present version).

172    Let me start with the earlier version; I would note for completeness that I was given a version as at July 1989, but it is well apparent from this version which provisions were in existence as at May 1988. It has as its introduction:

1.    Introduction

1.1     Name

The name of the Party shall be “THE LIBERAL PARTY OF AUSTRALIA (Victorian Division)” which is hereinafter referred to as “the Party”.

1.2    Duty of a Member

It shall be the duty of all Members to uphold this Constitution and the Platform of the Party and to work for the election to Parliament of endorsed candidates who shall receive the united support of the Party.

1.3    Object of Party

The object of the Party is:

(a)    to win and hold government, and

(b)    to enhance the freedom, prosperity and security of every Australian.

(Clause 1.3 inserted 9th July, 1988)

173    There were relevant defined terms as follows:

2.1    Defined Terms

In this Constitution

BRANCH – shall save where the context otherwise requires, include a Young Liberal Branch,

BRANCH MEMBER – means a member of the Party who is a member of a particular branch,

CONVENTION – means a pre-selection convention,

DIVISION – means a State or Territory Division of the Liberal Party of Australia,

ELECTORATE – does not include the Senate,

FINANCIAL YEAR – means March 1 to end of February,

MEMBER – means a financial branch member or member at large,

MEMBER AT LARGE – means a member of the Party who is not a member of a particular branch,

POLITICAL PARTY – means an organisation promoting the election to Parliament of a candidate or candidates whom it has endorsed and which is registered under the Commonwealth Electoral Act,

174    The earlier version provided for a State Council:

11.    State Council

11.1    Membership

There shall be a State Council which shall consist of:

(a)    the 1 male and 1 female delegate elected by each Branch which is entitled to be represented at State Council,

(b)    all members of the State Parliamentary Party,

(c)    all Victorian members of the Federal Parliamentary Party,

(d)    the Treasurer,

(e)    the State President of the Young Liberal Movement,

(f)    the Chairman of the Central Committee of the Women’s Sections,

(g)    each past State President (for as long as such person remains a Member of the Party), and

(h)    the State President.

11.2    Annual Elections

State Council shall elect at an Annual Meeting by preferential ballot from among its non-parliamentary members:

(a)    a State President,

(b)    4 Vice-Presidents of whom there shall be 1 male and 1 female representing metropolitan Branches and 1 male and 1 female representing country Branches selected from amongst the respective delegates,

(c)    8 Members of the Administrative Committee of whom there shall be 2 males and 2 females representing metropolitan Branches and 2 males and 2 females representing country Branches selected from amongst the respective delegates,

(d)    4 members of the State Council Agenda Committee of whom there shall be 1 male and 1 female representing metropolitan Branches and 1 male and 1 female representing country Branches selected from amongst the respective delegates, and

(e)    32 Members of the Policy Assembly of whom there shall be 8 males and 8 females representing metropolitan Branches and 8 males and 8 females representing country Branches selected from amongst the respective delegates.

If after 7 places have been filled in any Policy Assembly category no representative of a Young Liberal Branch has been elected, the last place shall (if possible) be filled by the representative of a Young Liberal Branch polling the highest number of votes in that category.

11.3    Treasurer

State Council shall elect at its Annual Meeting from amongst the Members of the Party a Treasurer who shall present a report on the state of the Party’s financial affairs to each Annual Meeting of State Council and shall make a recommendation as to the amount, structure and composition of membership fees for the next Financial Year.

11.4    Power of State Council

(a)    State Council shall be the governing body of the Party and shall determine the Platform of the Party but shall not have control over the internal affairs of the State Parliamentary Party.

(b)    Policy decisions of State Council shall not be binding upon the State or Federal Parliamentary Parties, but shall be dealt with as follows,

(i)    policy decisions relating to State matters shall be forwarded to the State Parliamentary Party as recommendations of the State Council, and

(ii)    policy decisions relating to Federal matters shall be forwarded to the Federal Council as resolutions from the Victorian Division.

175    The State Council is the governing body of the Liberal Party, and at present consists of approximately 1,200 members, who overwhelmingly represent state and federal electorates, out of the total membership of the Liberal Party of around 13,000.

176    The State Council annual meeting elects the President and four Vice Presidents of the Liberal Party, as well as eight members of the Administrative Committee.

177    The President of the Liberal Party is responsible for implementing the decisions of the Administrative Committee and State Council, liaising with the parliamentary parties and volunteer membership and having overall responsibility for the Party’s administrative wing. The President is also the spokesperson for the organisation.

178    The State Council annual meeting also elects the Treasurer of the Liberal Party. The role of Treasurer is to oversee the Liberal Party’s finances and to be active in fundraising for the Liberal Party.

179    The earlier version provided for the Administrative Committee:

13.    ADMINISTRATIVE COMMITTEE

13.1    Membership

There shall be an Administrative Committee which shall consist of:

(a)    the State President,

(b)    the 4 Vice-Presidents,

(c)    the Treasurer,

(d)    the immediate past President if still a Party Member,

(e)    each past President for the period of 3 years after vacating office if still a Party Member,

(f)    the Chairman of the Central Committee of the Women’s Sections,

(g)    the State President of the Young Liberal Movement,

(h)    the 8 persons elected by State Council,

(i)    the Leader of the Federal Parliamentary Party or nominee, and

(j)    the Leader of the State Parliamentary Party or nominee.

…

13.4    Responsibilities

Subject to the direction of State Council, the Administrative Committee shall conduct the business and affairs of the Party other than policy formulation in conformity with the spirit of the policy and Platform of the Party and shall have such other powers and functions as may be conferred upon it from time to time by State Council.

180    The Administrative Committee has, subject to the direction of the State Council, responsibility to conduct the business and affairs of the Liberal Party.

181    The earlier version provided for the management of finances and the management and holding of property through a State Finance Committee and the use of Trustees:

18.    Financial Affairs

18.1    State Finance Committee

There shall be a State Finance Committee which shall consist of:

(a)    the State President who shall be the Chairman,

(b)    the immediate past State President if still a Party Member,

(c)    the Treasurer,

(d)    not less than 5 members appointed by the Administrative Committee each for a period of 3 years and who shall each be eligible for re-appointment, and

(e)    1 member elected annually by and from each Area Finance Committee.

18.2    Duties

Subject to the direction of State Council the State Finance Committee shall deal with the income and expenditure of the Party.

18.3    Rules

Subject to the direction of the Administrative Committee the State Finance Committee may promulgate rules to give effect to the decisions of State Council and the Administrative Committee relating [t]o the financial affairs of the Party.

18.4    Trustees

The Administrative Committee shall appoint 3 members of the State Finance Committee to be Trustees who shall hold the income and property of the Party on trust for its Members.

18.5    The Trustees shall hold office until resignation or removal by resolution of the Administrative Committee which shall have the power to fill any vacancy.

18.6    Area Finance Committee

The State Finance Committee may establish Area Finance Committees which shall be responsible for the finances of electorates in accordance with the rules promulgated by the State Finance Committee and the directions of the Administrative Committee and which shall include 1 delegate from each Branch and the Chairman of each Electorate Committee within the area concerned.

(Clause 18.6 amended 22nd July, 1989)

18.7    Each Area Finance Committee shall determine the appropriate amount which shall be paid from the Electorate Fighting Fund to each Electorate Committee.

18.8    Income & Property

All income and property of the Party shall be applied towards the objects of the Party and no portion shall be paid in any manner by way of dividends, bonus or otherwise by way of profit or benefits to the Members of the Party.

18.9    Remuneration

Nothing herein shall prevent the payment in good faith of remuneration whether by way of salary or honoraria or otherwise for any service actually rendered to or for the Party, to any officers or servants of the Party or to any Member or other person.

182    As is apparent, the State Finance Committee has, subject to the direction of the State Council, responsibility to deal with the income and expenditure of the Liberal Party. Further, the Administrative Committee appoints three members of the State Finance Committee to be Trustees, who hold the income and property of the Liberal Party on trust for its members; currently these are the three plaintiffs. I would note that the only separate trust deed put into evidence relevant to this aspect is a trust deed dated 15 September 1972 stipulating the Liberal Party and its members as objects, with the then Trustees being Sir Edward Cohen, Mr Wilfred Brookes and Mr James Johnston. But it would seem that this deed may have had continuing operation; see for example the text of the declaration of trust executed by Mr Goode concerning his shares in Vapold Pty Ltd dated 20 May 1986.

183    The earlier version also provided for its amendment in the following terms:

27.1    Amendment

The Constitution may be amended by resolution of State Council passed by a two-thirds majority of those present and voting.

184    Further, the earlier version provided the following concerning winding up:

28.    WINDING UP

28.1    If upon the winding up or dissolution of the Party, there remains after satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid or distributed amongst the Members of the Party, but shall be given or transferred to some company, association, society or other body having objects similar or in part similar to the objects of the Party and which shall prohibit the distribution of its or their income and property amongst its or their members to an extent at least as great as is imposed on the Party under or by virtue of this Constitution.

28.2    An appropriate company, association, society or other body shall be determined by State Council at the time of dissolution and in default thereof by such Judge of the Supreme Court of Victoria as may have or acquire jurisdiction in the matter.

28.3    The Party may be dissolved upon the passing of a resolution by State Council passed by a 2/3 majority of those present and voting.

(Clause 28.3 inserted 12th November, 1988)

185    Let me turn now to select parts of the present version. I would note that the objects had not changed. Further, the makeup of the State Council had changed but not its powers:

11.    STATE COUNCIL

11.1    MEMBERSHIP

There shall be a State Council which shall consist of the following members:

(a)    the State Council delegates elected by each Electorate Conference which is entitled to be represented at State Council;

(b)    all members of the State Parliamentary Party;

(c)    all Victorian members of the Federal Parliamentary Party;

(d)    the Treasurer;

(e)    the State President of the Young Liberal Movement;

(f)    The Chairman of the Liberal Women’s Council (Victoria);

(g)    each past State President (for as long as such person remains a Member of the Party);

(h)    the State President;

(i)    each permanent member within the meaning of Clause 11.15 who is also a financial member of the Party;

(j)    All Victorian non-parliamentary members of the Federal Executive of the Liberal Party of Australia.

186    The present version included similar provisions to the earlier version relating to the Administrative Committee and the State Finance Committee and their roles and powers. The present version also contained similar provisions to the earlier version as to the constitution’s amendment and as to the winding up of the Liberal Party.

A TRUST OVER THE SHARES?

(a)    Some trust principles

187    In order for an express trust to be substantiated, there must be a clear intention to create a trust; I am here referring to an “express trust” in the sense of a trust which is not a resulting or constructive trust. In the absence of a manifestation of a clear intention to create a trust, an express trust will not normally be substantiated (Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 618 per Mason CJ and Dawson J). Indeed, in In re Schebsman, Deceased; Ex parte Official Receiver v Cargo Superintendents (London) Ltd [1944] Ch 83 at 104, du Parcq LJ stated that:

… unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention.

188    But the absence of language specifically expressing an intention to create a trust is not fatal. As Mason CJ and Dawson J said in Bahr v Nicolay at 618 and 619:

If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred.

189    This passage from Bahr v Nicolay was cited with approval in Legal Services Board v Gillespie-Jones (2013) 249 CLR 493 at [118] per Bell, Gageler and Keane JJ.

190    In this regard, subject matter and context are important. Indeed, in ascertaining intention in some cases, the subject matter and the context may be more revealing than the actual language used (Registrar of the Accident Compensation Tribunal v Commissioner of Taxation (1993) 178 CLR 145 at 163 per Mason CJ and Deane, Toohey and Gaudron JJ).

191    Now in dealing with intention, one is not here dealing with subjective intention as such. As was said by Heydon and Crennan JJ in Byrnes v Kendle (2011) 243 CLR 253 at [113], the question is what the settlor(s) did, not what he intended to do. They went on to say at [114] and [115]:

That truth tends to be obscured by constant repetition of the need to search for an “intention to create a trust”. That search can be seen as concerning the first of the three “certainties” – what Dixon CJ, Williams and Fullagar JJ called in Kauter v Hilton:

“[T]he established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries.”

But the “intention” referred to is an intention to be extracted from the words used, not a subjective intention which may have existed but which cannot be extracted from those words. This is as true of unilateral declarations of alleged trust as it is of bilateral covenants to create an alleged trust. It is as true of alleged trusts which are not wholly in writing as it is of alleged trusts which are wholly in writing. In relation to alleged trusts which are not wholly in writing, the need to draw inferences from circumstances in construing the terms of conversations may in practice widen the extent of the inquiry, but it does not alter its nature.

As with contracts, subjective intention is only relevant in relation to trusts when the transaction is open to some challenge or some application for modification – an equitable challenge for mistake or misrepresentation or undue influence or unconscionable dealing or other fraud in equity, a challenge based on the non est factum or duress defences, an application for modification by reason of some estoppel, an allegation of illegality, an allegation of “sham”, a claim that some condition has not been satisfied, or a claim for rectification. But subjective intention is irrelevant both to the question of whether a trust exists and to the question of what its terms are. [citations omitted]

192    As they also said at [105], the search for intention is a search for the intention as revealed in the words the parties used, amplified by facts known to them.

193    Now undoubtedly where the alleged trust is not wholly in writing, the extent of the inquiry may be broader but its nature is not altered. It is still an objective inquiry. Regard may be had to all the relevant circumstances but only to “show the intention manifested by the words and actions comprising those circumstances” (Gummow and Hayne JJ at [65]). They are not to show what the relevant actor “meant to convey as a matter of ‘real intention’”. The object of the evidentiary odyssey that I have embarked upon earlier in these reasons, which considers all the relevant circumstances, is still to determine “whether in substance a sufficient intention to create a trust has been manifested” (Gummow and Hayne JJ at [55], quoting In re Kayford Ltd (in liq) [1975] 1 WLR 279 at 282 per Megarry J). And the principal question is to consider the outward manifestation of intention. The question is “What is the meaning of what the parties have said?” rather than the question, “What did the parties mean to say?” (Gummow and Hayne JJ at [53]).

194    At this point it is now convenient to address whether there was a trust in favour of the Liberal Party over Mr Calvert-Jones’ and Mr Morgan’s shares.

(b)    The undertakings

195    I would note the following concerning the form of the undertaking given by each of Mr Calvert-Jones and Mr Morgan.

196    First, it is not in deed form. Moreover, it does not take the form of a declaration of trust. This may be contrasted with the form of declaration of trust used in respect of shares in Vapold Pty Ltd, where the express intention was manifested in a formal declaration of trust. Now without more, such a contrast favours the defendants. But as I have indicated, it is too narrow to focus merely on the form or express language used to glean intention. I will return to the declarations of trust concerning the shares in Vapold Pty Ltd shortly.

197    Second, on its face the undertaking does not record any consideration flowing from the Liberal Party. Indeed, the undertaking in each case was signed after the shares had been issued. Nevertheless, the reality was that the parties contemplated that the share issue and the undertaking in each case were part of the same transaction. The chronology of events demonstrates that it was contemplated at the time of the share issue that some form of undertaking be given. Indeed, the language of the undertaking reflects this. It records “… I have been requested by the [Liberal Party] to become a director and a shareholder … I hereby give the following undertakings and acknowledgements to the Liberal Party”. Further, the consideration flowing from the Liberal Party may be considered (at least from an objectively ascertained perspective as distinct from the subjective perspective of Mr Calvert-Jones or Mr Morgan) to be the conferral of status upon Mr Calvert-Jones and Mr Morgan within the Liberal Party and its membership of being given such a role and responsibility. In any event, the undertakings are relevant in determining whether there has been a manifestation of the requisite intention irrespective of whether there was consideration passing from the Liberal Party.

198    Third, cl 1 in part is not inconsistent with some form of trust: “use my best endeavours to ensure that the available income of the Company is applied for the benefit of the Liberal Party”.

199    Fourth, cl 3 reflects the language of a nominee director, which again is not inconsistent with some form of trust.

200    But I accept that cll 1 and 3 are explicable irrespective of whether a trust over shares was contemplated.

201    Fifth, in my view cl 4 is consistent with a trust over the shares. Now the clause can be read in one of two ways. It can be read as consistent with a trust not operating immediately but coming into existence in the future if the Liberal Party in the future requires a transfer. But the other way to read it is that it assumes that a trust is immediately created at the time of the undertaking being executed, with the legal title to the shares being transferred in the future if required by the Liberal Party. So, it speaks of a “transfer”, which is the instrument executed to transfer legal title. Further, the fact that the Liberal Party can stipulate the nominee and the consideration bespeaks the Liberal Party having beneficial ownership.

202    Sixth, there is another dimension to cl 4 when read with cl 2. The combination suggests that the Liberal Party as the beneficial owner of two-thirds of the shares (the two parcels of 33 shares each at the time the subject of the undertakings, with the third parcel of 33 shares held by Mr Guilfoyle) was seeking to ensure that it at the least maintained control over that relative ratio in terms of the shareholding in the Cormack Foundation. Again, this is all not inconsistent with an intention to create a trust.

203    Seventh, cl 5 is also consistent with the existence of a trust over the shares. Moreover, it is also consistent with the trust operating immediately, in the sense that no future request by the Liberal Party was required (cf the language of cl 4). Whenever dividends or other benefits were received, they had to be accounted for. Moreover, the very language used of “I will account” suggests some form of fiduciary relationship. The existence of cl 5 is a strong indicator of an intention to create a trust over shares. And I say this even though under the then memorandum and articles of association of the Cormack Foundation, no dividend or other benefit could be paid by the Cormack Foundation to a member. Clause 5 may have proceeded on a misconception, but at the least it is a powerful pointer to an intention to create a trust.

204    Eighth, cll 6 and 7 also point to the undertaking as being assignable and having enduring effect, consistent in some respects with treating the undertaking as some form of trust instrument, albeit an informal one.

205    In summary, and just considering the form of the undertakings, it seems to me that they manifest an intention on the part of Mr Calvert-Jones and Mr Morgan to hold their shares on trust for the Liberal Party.

(c)    Other matters relevant to intention

206    At this point it is appropriate to address some other topics relevant to the question of objectively ascertaining intention.

207    First, and as I have said, the form of the undertakings may be contrasted with the instruments headed “Declaration of Trust” concerning shares held by, for example, Mr Calvert-Jones and Mr Goode in Vapold Pty Ltd. So, on 20 May 1986, Mr Goode executed an instrument in the following form:

DECLARATION OF TRUST

I, CHARLES GOODE, of 325 Collins Street, Melbourne, DO HEREBY ACKNOWLEDGE AND DECLARE that the one share (“the said share”) of which I am registered as the holder in the Register of Members of Vapold Pty. Ltd. (“the Company”) is the property of The Liberal Party of Australia (Victorian Division) and is held by me solely as nominee of the Trustees therefor under the Trust Deed made the Fifteenth day of September, One thousand nine hundred and seventy-two (“the said Trust Deed”). And is so held upon the terms and conditions set out in the said Trust Deed.

I AUTHORISE the Trustees for the time being under the said Trust Deed to at any time complete the transfer of the said share that I have this day signed in blank as to the consideration particulars of the transferee and date of sale and lodge the same with the Company for registration.

208    In June 1992, Mr Calvert-Jones executed an instrument in similar form.

209    Now it may be said that when a declaration of trust was intended, a formal declaration was made. The undertakings that I have discussed do not appear in this form. Nevertheless I do not think that too much can be made of the difference as I have explained.

210    Second, let me deal with some formal aspects concerning the shares issued to Mr Calvert-Jones, Mr Morgan and Mr Guilfoyle.

211    It would seem and I am prepared to assume that each of them paid from their own funds the sum of $33.00 as subscription moneys; the memorandum from Blake Dawson Waldron to these individuals dated 7 March 1988 is consistent with that proposition. Without more, that is consistent with each of them subscribing for shares as the proposed beneficial owner. But again, given the very modest amounts paid by the individuals involved, I do not think that too much can be made of this point when one considers the form of the undertakings and all of the circumstances.

212    Further, Mr Calvert-Jones and Mr Morgan at or around the time of the signing of the undertakings apparently signed and gave to the Liberal Party blank share transfer forms concerning their shares in the Cormack Foundation, presumably to be held in escrow consistent with the terms of the undertakings. They also signed and gave to the Liberal Party undated resignations as directors. All of these documents have been lost. But such conduct is more consistent with the asserted trust over their shares than not.

213    Further, I made enquiry with the parties concerning the whereabouts of the original share certificates and whether these had also been delivered over to the Liberal Party with the blank share transfer forms. If they had been, this would also have been consistent with the trust(s) over the shares asserted by the plaintiffs. But there was no evidence concerning whether certificates had originally been issued or what became of them.

214    Third, the defendants have strongly emphasised the following matters of context that they say are inconsistent with a trust intention.

215    They correctly point out that the idea of obtaining undertakings had originated early in the process in 1987, when the trust option was still being explored and a question arose as to how to protect the interests of the Liberal Party in view of the new wording of the trust which did not refer to the Liberal Party. In that context, Mr Cornell took the view that

to protect the interests of the Liberal Party, each trustee of the new Trust should sign an undertaking which committed each trustee to, amongst other things, use their best endeavours to ensure that all available income from the Trust would be applied for the benefit of the Liberal Party.

In May 1987, Mr Cornell prepared undertakings to that effect.

216    The defendants say that, self-evidently, the undertakings did not involve the creation of another trust. Rather, they were concerned with trying to achieve some control over the then proposed trust for the Liberal Party. Now I agree that this is true so far as it goes at that time. For example, in August 1987, when the trust proposal was still on foot but the identity of the trustees remained unresolved, Mr Cornell observed:

The real issue outstanding is the ultimate control of the Trust. It seems to me that the solution of having the Trustees execute an Undertaking to the Liberal Party of Australia (Victoria Division) (“Liberal Party”) is the only acceptable solution for the Liberal Party.

However, you will see that in the Trust Deed to be submitted to you that the names of two of the original named Trustees have been omitted and that the directors of Station 3XY Pty Ltd have nominated in their place, three new Trustees. When you see their names I doubt whether they would agree to sign the Undertaking and if they were asked may not only refuse to do so but may publicise their concern.

The solution is, of course, to increase the number of Trustees to seven, being the original four who signed [the] original Trust Deed and Undertakings, and the three new nominees who have not. While this is not a perfect solution, at least the Liberal Party will have Undertakings from a majority of the Trustees. In my view, you should, therefore, insist that the original four Trustees remain but indicate your willingness to accept their three nominees in addition.

217    The defendants point out that the trust model never proceeded due to doubts as to its validity. Now they accept that when the Cormack Foundation was incorporated, the idea of obtaining undertakings was taken up again, this time as undertakings from a majority of the directors/shareholders, instead of from trustees. And they accept that by this transposed mechanism, the Liberal Party sought to achieve a measure of control over aspects of the Cormack Foundation’s affairs having been, so the defendants expressed it, thwarted in its preferred options of an outright gift to the Liberal Party or the establishment of a trust for its benefit.

218    The defendants also emphasised that before the undertakings were prepared and provided by Mr Cornell to Mr Calvert-Jones and Mr Morgan to sign, Mr Goldberg QC was again consulted. As I have discussed earlier, Mr Cornell sent a memorandum to Mr Goldberg QC on 5 February 1988, a copy of which he sent that day to Mr Calvert-Jones. As recorded in the memorandum, Mr Cornell provided Mr Goldberg QC with his letter dated 2 February 1988, the memorandum and articles of association of the Cormack Foundation and the deed of indemnity. As I have set out earlier, Mr Cornell made the following observations for counsel:

(1)    Counsel is referred to his Brief herein dated 22nd October 1987 and our subsequent conference. Since that conference the concept of a Trust has been abandoned on the basis that it was not possible for the Liberal Party of Australia (Victorian Division) to be specifically referred to as an object and, as a result, the Trust may have failed for uncertainty. The compromise which has been proposed by the shareholders of Station 3XY Pty Limited is that a new company be incorporated with similar objects to Station 3XY Pty Limited and that the $15 million received from the sale of Radio 3XY Pty Limited be paid across to that company.

(2)    This is clearly a compromise solution to the dispute and, as a result, has a number of drawbacks. However, your instructing solicitors believe that it is the best that can be achieved in the circumstances.

219    Mr Cornell’s instructions to Mr Goldberg QC included the following:

Counsel will note that the initial shareholders will be Messrs J.A. Calvert-Jones, S.M.L. Guilfoyle, and H.M. Morgan. Both Mr Calvert-Jones and Mr Morgan have indicated that they will give an executed Deed of Trust in favour of the Liberal Party of Australia (Victorian Division) and undertake to deal with their shares as directed by the Liberal Party of Australia (Victorian Division). In addition, they will hand to the Liberal Party of Australia (Victorian Division), blank share transfer forms together with undated signed resignations as directors.

220    The defendants point out that in giving his evidence, Mr Cornell could not recall what Mr Goldberg QC advised. He agreed that there was a proposal for a deed of trust over shares when he went to Mr Goldberg QC. But after the conference with Mr Goldberg QC, what was prepared and then executed by Mr Calvert-Jones and Mr Morgan was an undertaking and not a deed of trust.

221    The defendants contend that it is to be inferred that when Mr Goldberg QC was again consulted in February 1988 he advised that a trust over the shares in favour of the Liberal Party would fail and that this was the reason why no deed of trust was prepared or executed by Mr Calvert-Jones and Mr Morgan. But I disagree that that is the more probable inference. I have set out my views earlier on why I so disagree. Mr Goldberg’s earlier advice concerned a proposed trust where the Liberal Party was not an object. The advice sought on 5 February 1988 seemed to be more of a “sign off” of the new structure. It made no reference to advice being sought concerning the validity of declarations of trust over the shares where the Liberal Party was an object.

222    Now the defendants’ contention has an elegant simplicity to it. They say that the Liberal Party, having considered a deed of trust over the shares and sought advice from Queen’s Counsel, did not pursue that option and no deed of trust was prepared. Instead, undertakings were prepared which did not refer to any trust. It is said that it is difficult to imagine a clearer manifestation of an intention not to create a trust. I do not agree. It seems to me that when all the relevant circumstances are considered including the text and context of the undertakings, the better view is that the relevant intention to create a trust was manifested, and that it was thought that no formal declaration of trust was necessary.

223    Fourth, the defendants say that aside from the critical absence of any reference to a trust, the subject matter of the undertakings tells against any trust-making intention. It is said that for the most part the provisions of the undertakings are concerned with the exercise of powers reserved for the directors, which must be exercised for the benefit of the company as a whole and cannot be the subject of any trust in favour of a third party. It therefore cannot be supposed that those provisions were intended to create obligations qua trustee. In essence the defendants contended that the plaintiffs were in truth contending for a trust over the Cormack Foundation’s directors’ powers, including the power to allot shares.

224    Now of course a person cannot be a trustee of his director’s duties, and the plaintiffs accept this. But as the plaintiffs correctly contend, the trusts contended for are over property, being the relevant shares in the Cormack Foundation. The trust is not over directors’ duties. Further, the undertakings make it apparent that the obligations of the trustee(s) are subject to the proper performance of their duties as a director (cl 1). There is no fetter whether express or implied upon the director acting in the best interests of the Cormack Foundation. Further, the obligations of the trustee were to use best endeavours. The plaintiffs point out that one of the breaches alleged was a failure to inform the Liberal Party if, having used his best endeavours, Mr Calvert-Jones or Mr Morgan intended nonetheless to support making a person who refused to sign a like undertaking either a director or a shareholder of the Cormack Foundation. It is said that such a breach was a breach of a term of the express trust that they created in favour of the Liberal Party. But I agree with the plaintiffs that any such requirement of the undertaking did not encroach on their obligation to exercise their duties as directors in the best interests of the Cormack Foundation as a whole. I reject the defendants’ submission that the trust(s) are in substance over directors’ powers.

225    Fifth, it is said that the fact that the undertakings are expressed to be in favour of the “Liberal Party of Australia (Victorian Division)”, an unincorporated association, is another indication that no trust was intended thereby to be established. It is said that clear words were required to create a valid trust for the members of the Liberal Party, as distinct from an invalid trust for non-charitable purposes or a trust which offended the rule against perpetuities. All this must have been appreciated so the defendants say and front of mind at the time the undertakings were drafted. Further, they say that the solicitors who drafted the undertakings can reasonably be expected to have understood the problem and the need for clear expression of the trust and its objects if a valid trust was sought to be created. But the foundation for this argument of the defendants fails, as I have rejected their invalidity and unenforceability arguments as I explain later.

226    Sixth, in evidence are various annual returns lodged by the Cormack Foundation with the Australian Securities and Investments Commission. There are a number of interesting features to be noted.

227    For many years the shareholdings of each of Mr Guilfoyle, Mr Calvert-Jones and Mr Morgan were shown as being held non-beneficially. But when new shareholders were introduced through the issue of new shares, namely, Mr Goode and later individuals, all of the later shareholders were shown as holding their shares beneficially. In other words, those charged with preparing and filing these annual returns made a clear distinction between the original shareholders and later shareholders.

228    Further, it was only on 1 May 2009 that a correction was made to the return filed on 30 January 2003 and then in respect of Mr Guilfoyle’s shares only. The correction was made to show that he held his shares beneficially. But no change was made concerning the shares held by Mr Calvert-Jones and Mr Morgan, which were still shown as being held non-beneficially. What is also to be noted is that the Request for Correction form filed on 1 May 2009 was signed by Mr Calvert-Jones. If Mr Calvert-Jones perceived that he also held his shares beneficially and notwithstanding his undertaking, why did he not correct the position at that time at the latest for himself as well as perhaps Mr Morgan? The inference is open that at least to 2009, Mr Calvert-Jones and Mr Morgan perceived that they were holding their shares non-beneficially.

229    Now on 7 May 2014 a further request for correction was completed and then submitted to ASIC in respect of Mr Calvert-Jones’ and Mr Morgan’s shares seeking to correct the position to show that they held their shares beneficially. On one view there was a change of position at this time, in part informed by the views of the then company secretary and also Mr Hay.

230    Now generally I accept that not too much should be taken from these company forms prepared by the company secretary from time to time and lodged with ASIC. Nevertheless they were until relatively recently consistent with the plaintiffs’ contention concerning a trust in favour of the Liberal Party over the shares held by Mr Calvert-Jones and Mr Morgan.

231    Seventh, I would note that the balance sheet(s) for the Liberal Party in its annual accounts, which were audited, for each of the financial years subsequent to the incorporation of the Cormack Foundation did not record as an asset any beneficial interest in shares held in the Cormack Foundation. Contrastingly, the Liberal Party’s beneficial ownership of shares in Vapold Pty Ltd was recorded as an asset in the balance sheet of the Liberal Party’s annual accounts. Now the non-recording of any beneficial interest in shares in the Cormack Foundation may be a contra-indicator to the existence of the trust asserted. Mr Kroger said that this omission was a mistake. Maybe. But it also must be observed that, in one sense, the shares in the Cormack Foundation had at most nominal value given that no capital or income distributions were permitted to be made to members of the Cormack Foundation under its constitution; for all I know the constitution of Vapold Pty Ltd may have been different. Perhaps this could explain why it was not seen fit to record the beneficial ownership in the shares as an asset in the balance sheet(s) of the Liberal Party from time to time, as contrasted with the accounting treatment of the beneficial ownership of shares in Vapold Pty Ltd. The real value was perceived to be in and only in potential control rather than in quantifiable money terms.

232    Eighth, it would seem that Mr Morgan at some stage perceived himself as having some form of trustee capacity in relation to the Cormack Foundation. As I described earlier, on 13 July 1993 he wrote to the then President of the Liberal Party Mr Ted Baillieu in the following terms:

I cannot recall how many years it has now been that I have served as a member of the Finance Council of the Victorian Liberal Party and a Trustee. However, I do feel it is proper that there be some circulation or change of those positions and I write to ask if you would accept my retirement (some call it resignation!).

I am also a Trustee of the Cormack Foundation and, if it is the wish of the Administrative Committee, I would also retire from being an office bearer of the Foundation. Somewhere in the bowels of the Secretariat you are holding my pre-signed resignation from the Foundation. On the other hand, if you would like me to continue with the Foundation I would be agreeable to do so.

233    Now undoubtedly, loose expressions may be used in correspondence of this type and certainly esoteric equitable theory and its subtleties was not to the forefront of the minds of the commercial and political participants. Nevertheless, the author did seem to consider that he was acting in some trustee capacity, although precisely what is unclear.

234    Ninth, in 1996 an issue arose as to whether the Cormack Foundation was an “associated entity” of the Liberal Party within the then s 287(1) of the Commonwealth Electoral Act 1918 (Cth) and therefore was required by the then s 314AEA to file annual returns with the Australian Electoral Commission. Legal advice was obtained by the Cormack Foundation from Blake Dawson Waldron in the form of an aide memoire dated 7 March 1996. The aide memoire discussed two relevant possibilities as to whether the Cormack Foundation was an associated entity, namely:

(a)    whether it was controlled by a registered political party(s); or

(b)    whether it operated wholly or mainly for the benefit of a registered political party(s).

235    Relevant to the present context is what was said on control, namely:

The question nevertheless remains, whether under this definition of control, Cormack is controlled by the LP. Under Article 38 of the Articles of Association of Cormack, each member of the Company holding 33% of the issue of shares is entitled to appoint (and remove) one Director to the Company. There are currently four directors. Prima facie therefore, the Members through their power of appointment of three Directors, have control of the Company and their actions are not directly referable to the LP.

Two of the Members/Directors are however, obliged to use their best endeavours to ensure that the available income of Cormack is applied for the benefit of LP. In addition, they are obliged to resign as directors at the request of LP and use their best endeavours to have an LP nominee appointed in their place. They are also required to transfer their shareholding to a person nominated by LP. However, they have not acknowledged that they hold their shares in trust for LP or made a declaration of trust in respect of those shares.

However, these constraints apply to only two of the four Directors of Cormack. While under Cormack’s Articles, this would amount to control of only half of the Board, there is some authority that this would amount to de jure control …

…

However, the Articles of Association of Cormack do not give two Directors/Shareholders the power to appoint half the board of Cormack. Their specific power under the Articles to appoint one director exists only while they hold one third of the issued shares. All other appointments must be by unanimous decision of the incumbent directors. Accordingly, we do not consider that the above case necessarily applies to Cormack. However, as an excess of caution, consideration might be given to the Board of Cormack appointing a fifth director which should demonstrate that LP does not control the Board of Directors.

236    The board of the Cormack Foundation met on 7 March 1996, considered the aide memoire, and expressed the view that the Cormack Foundation was not an associated entity and no action was required.

237    A further opinion was sought on 30 August 1996 in which Blake Dawson Waldron expressed the view that the Liberal Party did not beneficially own any shares in the Cormack Foundation, that the first limb of the “associated entity” definition concerning control did not apply, but that reasonable minds might differ concerning whether the second limb dealing with benefit was satisfied.

238    Ultimately, the Cormack Foundation lodged annual returns with the Australian Electoral Commission although maintaining its position with the Australian Electoral Commission that it was not an “associated entity”.

239    What can be gleaned from this material? In my view it does not directly support the trust contended for by the plaintiffs. But it must be noted that the advice obtained from Blake Dawson Waldron was procured for the Cormack Foundation and is consistent with how it saw the matter. Now Mr Cornell was cross-examined on some of this material to suggest an inconsistency with his own position. But at the end of the day I do not consider that any of this material is definitive on the issues that I need to resolve; it is too tangential to the question that I have to consider being the manifestation of intention by, inter-alia, Mr Calvert-Jones and Mr Morgan at the time they signed their undertakings.

(d)    Conclusions

240    First, in terms of the trust over shares contended for by the plaintiffs, there is no imprecision concerning the property the subject of the trust, the identity of the trustee or the object being the Liberal Party, putting to one side an issue that I will discuss later concerning the object.

241    Second, and contrary to the defendants’ contentions, it is not necessary to use words such as “trust” or “declaration of trust” in order to establish an intention to create a trust.

242    Third, in my view it is apparent from each undertaking and its provisions discussed above that it manifested an intention on the part of Mr Morgan and Mr Calvert-Jones to divest themselves of the beneficial interest in the shares. Indeed subsequent events support such a position, including the corporate records of the Cormack Foundation through until 2014 and how, for example, Mr Morgan referred to himself in 1993.

243    Fourth, the offices which Mr Calvert-Jones and Mr Morgan held at the time of execution of the undertakings are also not unimportant and confirm rather than falsify the existence of such a trust intention in respect of their shares. Mr Calvert-Jones at the time was the Treasurer of the Liberal Party. Mr Morgan at the time was not only a member of the State Finance Committee but he was also a Trustee of the Liberal Party. It is unlikely that holding such capacities, they could at the same time be taken to have intended to hold the shares in the Cormack Foundation beneficially.

244    Fifth, there is also important context. Mr Guilfoyle never considered that he held shares in Station 3XY Pty Ltd non-beneficially. And when he was issued shares in the Cormack Foundation, he did not give an undertaking. There is a symmetry. The undertaking was given by those who did not assert a beneficial interest in shares in the Cormack Foundation at the time. The undertaking was not given by the person who did so assert a beneficial interest.

245    Sixth, if each undertaking was not to be taken as a manifestation of an express intent to create a trust, why one asks rhetorically was it ever given? What other purpose was it intended to serve? The defendants have not proffered satisfactory answers other than to accept that it was to give the Liberal Party an element of control. But if one accepts this, one is a substantial way along the spectrum towards an intention to create a trust (see the observations that I have set out earlier of Mason CJ and Dawson J in Bahr v Nicolay at 618 and 619 concerning an intention to create or protect an interest in a third party).

246    Seventh, it is apparent that the original genesis for the undertakings was the trust structure that was abandoned and that when the corporate structure was put in place, Mr Cornell and Mr Calvert-Jones sought to put in place some measure of control over the ownership of shares in the Cormack Foundation. This is well apparent from the memorandum to counsel of 5 February 1988, which Mr Calvert-Jones had knowledge of. Now true it is that a “Deed of Trust” over the shares was referred to, but the instrument used was the undertakings. But I consider that as a matter of substance rather than form, the intention was clear.

247    Eighth, Mr Calvert-Jones and Mr Morgan at the time gave over signed share transfer forms and resignations as directors. Again such conduct was consistent with the intention to create an express trust.

248    Ninth, the fact that a trust structure was rejected to hold the proceeds of sale of the 3XY licence does not entail that there was no trust intended concerning the relevant shares in the corporate structure used, i.e. the Cormack Foundation.

249    Tenth, the defendants have relied upon cl VII of the memorandum of association of the Cormack Foundation (and r 2 of the constitution that replaced it) as evidence that the requisite intention to hold their shares on trust for the Liberal Party was not held by Mr Calvert-Jones and Mr Morgan in 1988. The clause states that “[n]o part of the income or property of the Company shall be paid or transferred directly or indirectly to the members of the Company … or to any person claiming through any of them”. The defendants contend that by reason of this clause the Cormack Foundation would be prohibited from making any distributions of income or property to the Liberal Party through the shareholding. But the Liberal Party now in these proceedings is not claiming any funds through its beneficial ownership of the Cormack Foundation’s shares as such. The Liberal Party receives gifts from the Cormack Foundation. Rather the value in the shares is in the rights conferred upon a shareholder. The fact that the shares may have only nominal money value at most is not inconsistent with them being held on trust because of their potential control value.

250    Eleventh, the defendants point to the fact that the Cormack Foundation gave a loan to the Liberal Party in 1988 as being inconsistent with the intention that the Liberal Party was the beneficiary of any trust. But what occurred is that the Liberal Party spent $500,000 on the mid-term campaign, and those funds were loaned by the Cormack Foundation because it then did not have that income, and giving the Liberal Party a capital sum was outside its charter. But in any event, the Liberal Party falls within the objects of the Cormack Foundation. Moreover, this point goes nowhere concerning whether there is a trust over the shares.

251    Twelfth, the defendants say that the Liberal Party should have recorded its beneficial interest in the Cormack Foundation’s shares in its annual accounts, and did not. Mr Kroger said that that failure was an error in the accounts. I have discussed this earlier.

252    In summary, by reason of the undertakings considered in context and with all the relevant circumstances, there was manifested an intention by Mr Calvert-Jones and Mr Morgan to create a trust over their shares. Moreover, and if I need to say it, the Liberal Party also manifested such an intention.

IS THE ALLEGED TRUST ENFORCEABLE?

253    Even if there was a trust-making intention, the defendants have asserted that in any event there was no operative or enforceable trust. Various arguments were put. Let me deal with each in turn.

254    First, the defendants have submitted that the undertakings are not expressed as deeds and they are not supported by any consideration given that they were signed by Mr Calvert-Jones and Mr Morgan some six or so weeks after they were each issued with the shares that they had paid for. Accordingly, it is said that the undertakings are not binding or enforceable instruments. Now as to this, clearly the undertakings are not in deed form. And as to the question of consideration, I have discussed this previously. But even absent deed form, and even absent consideration, that does not necessarily entail that the trust(s) contended for are invalid or unenforceable.

255    Second, the defendants have also submitted that in respect of the alleged trust over the shares held by Mr Calvert-Jones and Mr Morgan, the form of the undertakings and the other circumstances attending the creation of the alleged trust do not reflect an intention to create a trust which operated immediately. It is said that the undertakings constitute a promise to create a trust in the future. So, cll 3 and 4 both commence, “I will if required by the Liberal Party …”. It is said that for a trust to be enforceable, the relevant intention must be to create a trust that is operable immediately, otherwise the trust is not enforceable.

256    It is said that the cl 4 stipulation that Mr Calvert-Jones and Mr Morgan transfer their shares for consideration, and the fact that it held signed transfer forms in blank, shows that the Liberal Party could force a sale of those shares to its nominee if it so required. However, this does not evince an intention that the shares be held in trust for the Liberal Party immediately. For example, the undertakings do not address or restrict the manner in which Mr Calvert-Jones and Mr Morgan may exercise their rights to vote as members pending a requirement that they transfer the shares for consideration. The relevant intention must be to create a trust in the present rather than the future, otherwise the trust is not enforceable, and so the fact that the relevant obligation is only enlivened upon the occurrence of an event in the future (i.e. a requirement by the Liberal Party) is another indication that no trust could have been intended.

257    Now the question is whether:

(a)    there was an intention to create a trust in the future; or

(b)    there was an intention to create a trust immediately with a postponement of any enjoyment by the beneficiary.

258    It is well accepted that in the former case there is no or no enforceable trust if the beneficiary is a volunteer. In the latter case the trust is enforceable even if the beneficiary is a volunteer. Again, the approach to determining intention is an objective one as I have previously discussed. For the reasons that I have already discussed, in my view the form of the undertakings do reflect an intention to create a trust operating immediately.

259    Third, the defendants have submitted that the alleged trust is a trust to further the non-charitable purposes of the Liberal Party, an unincorporated association, and is therefore void. It is said that it is not possible to save the alleged trust by construing it as an immediate gift to the individual members of the Liberal Party personally or as a gift to them subject to their contractual obligations to one another as members of the Liberal Party. It is said that such a construction cannot be sustained having regard to the subject matter of the alleged trust, being shares in the Cormack Foundation, and the other attending circumstances including the large and fluctuating membership of the Liberal Party and its constitutional prohibition upon distributions of income or property to members such that they could not divide up the property between themselves beneficially. It is also said that they did not do this within the perpetuity period (s 6(1) of the Perpetuities and Accumulations Act 1968 (Vic)). For example, the constitution of the Liberal Party as it stood in 1988 (and since) provided that “[a]ll income and property of the Party shall be applied towards the objects of the Party and no portion shall be paid in any manner by way of dividends, bonus or otherwise by way of profit or benefits to the Members of the Party” (cl 18.8). Further, it was provided that upon the winding up or dissolution of the Liberal Party any surplus property (cl 28.1):

shall not be paid or distributed amongst the Members of the Party, but shall be given or transferred to some company, association, society or other body having objects similar or in part similar to the objects of the Party and which shall prohibit the distribution of its or their income and property amongst its or their members to an extent at least as great as is imposed on the Party under or by virtue of this Constitution.

Further, it was contemplated that the beneficial interest in the shares would be retained indefinitely so as to allow the Liberal Party ongoing control of the Cormack Foundation.

260    Further, as to the problem that the trust would in substance be a trust to further the non-charitable purposes of the Liberal Party and therefore void, the defendants say that this is an illustration of the problem addressed in the legal advice given in 1987, and which was adverted to by Mr Cornell in his letter dated 2 February 1988 in explaining why a trust over the proceeds of the sale of the 3XY licence was not proceeded with.

261    I would reject the defendants’ submissions.

262    Let me make some brief observations concerning unincorporated associations and the interaction of trust law in terms of property said to be held on trust for an unincorporated association.

263    First, if the trust is construed as for the then members of the unincorporated association at the time the trust was created, then there is no difficulty with its validity or enforcement.

264    Second, if the trust is for the purposes of the unincorporated association, rather than being a trust for the members, and those purposes are charitable, then there is no difficulty. One has a plain vanilla charitable purposes trust which is valid and enforceable. But if the purposes of the unincorporated association are not charitable, then the trust will fail.

265    So far, so good. These are the easy cases in principle. But in any event they can be put to one side for present purposes. That is because I am not dealing with either type of case. I am not dealing with a trust for a purpose. And nor am I dealing with a trust only for the then members of the Liberal Party at the time the undertakings were given. Rather, I am dealing with a trust(s) of the shares of each of Mr Calvert-Jones and Mr Morgan for the benefit of the present and future members of the Liberal Party or the members from time to time.

266    Now I accept that this is a question of construction. But applying an objective theory to the question of construction, it seems to me that the undertakings cannot reasonably be construed as constituting a non-charitable purposes trust. The Liberal Party, and by implication its fluctuating membership from time to time are clearly the objects, as with the main trust constituted or recognised under the Liberal Party’s constitution and, apparently, the deed of trust made on 15 September 1972 that I have previously referred to. Further, whatever the prima facie rule, the objects cannot simply be construed as limited to the then members at the time the trusts were created.

267    But it is here that things become tricky. If the trust(s) over the share are for the benefit of present and future members of the Liberal Party, then such a trust(s) may fail as not vesting within the perpetuity period (Bacon v Pianta (1966) 114 CLR 634 at 638); indeed the Liberal Party’s main trust arguably could have a similar vulnerability.

268    I think the answer lies in taking a commercial approach to solving this problem rather than an approach whose only advantage is to maintain strict adherence to doctrinal purity. I favour the second approach of Cross J discussed in Neville Estates Ltd v Madden [1962] Ch 832 at 849 which he expressed in the following terms:

I turn now at last to the legal issues involved. The question of the construction and effect of gifts to or in trust for unincorporated associations was recently considered by the Privy Council in Leahy v. Attorney-General for New South Wales. The position, as I understand it, is as follows. Such a gift may take effect in one or other of three quite different ways. In the first place, it may, on its true construction, be a gift to the members of the association at the relevant date as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member of the association. Secondly, it may be a gift to the existing members not as joint tenants, but subject to their respective contractual rights and liabilities towards one another as members of the association. In such a case a member cannot sever his share. It will accrue to the other members on his death or resignation, even though such members include persons who became members after the gift took effect. If this is the effect of the gift, it will not be open to objection on the score of perpetuity or uncertainty unless there is something in its terms or circumstances or in the rules of the association which precludes the members at any given time from dividing the subject of the gift between them on the footing that they are solely entitled to it in equity.

Thirdly, the terms or circumstances of the gift or the rules of the association may show that the property in question is not to be at the disposal of the members for the time being, but is to be held in trust for or applied for the purposes of the association as a quasi-corporate entity. In this case the gift will fail unless the association is a charitable body. If the gift is of the second class, i.e., one which the members of the association for the time being are entitled to divide among themselves, then, even if the objects of the association are in themselves charitable, the gift would not, I think, be a charitable gift. If, for example, a number of persons formed themselves into an association with a charitable object – say the relief of poverty in some district – but it was part of the contract between them that, if a majority of the members so desired, the association should be dissolved and its property divided between the members at the date of dissolution, a gift to the association as part of its general funds would not, I conceive, be a charitable gift. [footnote omitted]

269    This second approach or what has come to be known as the “contract-holding theory” requires one qualification to be made. Cross J added the proviso to its application being “unless there is something … in the rules of the association which precludes the members at any given time from dividing the subject of the gift between them on the footing that they are solely entitled to it in equity”; see also the Privy Council in Leahy v Attorney-General for New South Wales (1959) 101 CLR 611 at 621, 627 and 628. Now the constitution of the Liberal Party has that impediment. But the constitution can be changed through a practically available procedure (see cl 27.1 of the earlier version that I have set out previously). There is a practical capacity to wind up the Liberal Party and distribute its assets to the members conditional upon invoking the amendment power.

270    Let me elaborate on some aspects of the Liberal Party’s constitution, whichever version is used.

271    Pursuant to the earlier version of cl 18.4 of the Liberal Party’s constitution, three Trustees appointed by the Administrative Committee “shall hold the income and property of the Party on trust for its Members”. The term “Members” is defined in cl 2.1 to mean “a financial branch member or member at large”. Other provisions of the constitution address membership and prescribe rules about who is and who ceases to be a member.

272    The members have contracted as to how their funds will be spent as reflected in the following provisions:

(a)    Clause 18.2 states “[s]ubject to the direction of the State Council the State Finance Committee shall deal with the income and expenditure of the Party”.

(b)    Clause 18.8 states “[a]ll income and property of the Party shall be applied towards the objects of the Party and no portion shall be paid in any manner by way of dividends, bonus or otherwise by way of profit or benefits to the Members of the Party”.

273    Now the defendants have strongly relied upon cl 18.8 of the constitution which limits personal distributions to members. But that clause is a contractual term that the present members can amend, as cl 27.1 makes clear.

274    Now the contract holding theory is my preferred solution. But another way to approach the problem is to say that if the objects of the trust were the members from time to time, the members from time to time could always deal with the shares the subject of the trust(s) through the organs of the Administrative Committee or the State Finance Committee at any time on and after the time when the trust(s) were created. And if that characterisation be correct, no question of perpetuity relating to any postponed vesting arises. At the time the trust(s) were created, the shares immediately vested and could be immediately dealt with. I am here dealing with vesting in interest rather than vesting in possession. For vesting in interest to be established, the beneficiaries (in this case the members) must be ascertained or ascertainable, the quantum or subject matter must be definitely fixed, and there must be no other events to occur to enable the interest to come into possession (in the present case there is no question of the determination of any other prior estate or interest). In my view each of those conditions would be satisfied at any point in time on and from the inception of the trust(s). At any point in time one could always ascertain who were then the members. And at any point in time the organs of the Liberal Party could deal with them. The disposition of the shares did not necessarily tend to a perpetuity.

275    Yet another way to approach the present perceived problem is to put aside the above theories and assume for the moment that the rule against perpetuities applies. But a “wait and see” approach can be taken (see s 6(1) of the Perpetuities and Accumulations Act 1968 (Vic)). I am entitled to take the position that if the trust(s) over the shares would otherwise be void on the ground that the interest disposed of might not become vested until too remote a time, nevertheless the trust(s) can be treated until such time as it becomes established that the vesting must occur, if at all, after the end of the perpetuity period, as if the disposition were not subject to the rule against perpetuities. In that context I must say that I am not satisfied that we are now beyond any relevant perpetuity period. Now as no perpetuity period has been stipulated in the relevant trust instruments, i.e. the undertakings, the default position is that the relevant perpetuity period is a life or lives in being plus 21 years or, if no life in being is expressed or necessarily implied, a period of just 21 years. Now no measuring lives are expressly specified in the undertakings let alone any royal lives clause dealing with say the personage and lineal descendants of Her Majesty Queen Elizabeth II. But I am not satisfied that one could not necessarily imply measuring lives, which I do not at the moment need to identify, from the terms of the undertakings considered in context, which lives were in existence at the time the undertakings were given and are still in existence being relevant office holders or Trustees of the Liberal Party at the relevant time. In other words I am not satisfied that one is even close to a perpetuity period coming to an end. Accordingly, a “wait and see” approach is still now permissible even if there was a potential “rule against perpetuities” difficulty, which as I have indicated is not my primary position.

276    Finally, there is also another solution to the problem if none of the above solutions are feasible. Given the position of the Trustees of the Liberal Party and the recognition of that status under the Liberal Party’s constitution, it may be that the reference to the Liberal Party in the undertakings is in reality to be taken to be a reference to the Trustees. If the trust(s) constituted by the undertakings operated immediately, as I have found, then there was an immediate vesting in the Trustees. There is no uncertainty of object(s). There is no non-charitable purpose trust question. There is no perpetuities difficulty concerning vesting. And the rule against perpetuities can be put back in its box. The validity of any sub-trust is also not in play. Mr Myers QC expressly side-stepped the potential consequences flowing from his arguments relating to the trust over Mr Calvert-Jones’ and Mr Morgan’s shares concerning the broader trust relating to the Trustees of the Liberal Party.

277    In summary I reject the defendants’ arguments concerning invalidity and unenforceability.

ALLEGED BREACHES OF TRUST

278    On the foundation of the trust(s) over shares, which I have now found, the plaintiffs have alleged that there were two distinct classes of breach of trust. It is convenient to deal with each in turn.

(a)    Breach of trust – loss of control

279    The plaintiffs assert that Mr Calvert-Jones and Mr Morgan breached their respective trusts by failing to act in accordance with cl 2 of the undertaking, that is, by failing to:

use [their] best endeavours to ensure that a condition precedent to the appointment of any person as a director of the Company or to any transfer or allotment of shares of the Company to any person will be that that person will first sign an undertaking in or to the effect of this undertaking.

280    It is said that necessarily, cl 2 must be read with cll 3 and 4, by which the Liberal Party could replace Mr Calvert-Jones and Mr Morgan as directors and shareholders of the Cormack Foundation. To give cl 2 operative effect, it is said that each of Mr Calvert-Jones and Mr Morgan were required to inform the Liberal Party if, having used his best endeavours, he intended nonetheless to support making a person who refused to sign a like undertaking either a director or a shareholder of the Cormack Foundation.

281    It is said that Mr Calvert-Jones and Mr Morgan caused the Cormack Foundation to make Mr Goode the fourth director and shareholder of the Cormack Foundation. But Mr Goode was never asked to sign an undertaking. Further, Mr Morgan gave no evidence that he or Mr Calvert-Jones did anything in relation to asking Mr Goode whether he would hold his shares on trust for the Liberal Party and sign an undertaking before appointing him a director or issuing him shares. Further, Mr Morgan gave no evidence that either he or Mr Calvert-Jones reported to the Liberal Party their intention nonetheless to appoint Mr Goode a director or to issue him shares in circumstances where he had not given an undertaking in like terms to their undertakings. I would note that Mr Calvert-Jones did not give evidence before me for reasons that have been adequately explained and upon which it is unnecessary to elaborate.

282    It is said that Mr Calvert-Jones and Mr Morgan each thereby breached the terms of their trust in favour of the Liberal Party. They appointed Mr Goode a director and caused the Cormack Foundation to issue shares to him without first informing the Liberal Party that it was about to lose control of the board and potentially control of any general meeting of the Cormack Foundation.

283    It is said that but for Mr Calvert-Jones’ and Mr Morgan’s breaches of the undertakings in relation to Mr Goode, 66 of 99 shares in the Cormack Foundation would still be held on trust for the Liberal Party.

284    The plaintiffs contend that the counterfactual is what Mr Goode would have done if asked to sign an undertaking in like terms to Mr Calvert-Jones’ and Mr Morgan’s undertakings as a precondition to becoming a director in 1992 in the Cormack Foundation. Now Mr Goode’s evidence is that he would have refused to sign the undertaking if requested to do so. The plaintiffs then say that if Mr Calvert-Jones and Mr Morgan had told the Liberal Party that they would nonetheless have persisted in the appointment of Mr Goode, the Liberal Party would have replaced them with people nominated by the Liberal Party. It is also said that given Mr Morgan’s evidence in relation to his attitude to new appointments to the Cormack Foundation, namely, that he and the other directors could appoint whomever they liked regardless of the Liberal Party’s direction and that the Liberal Party could always exercise his and Mr Calvert-Jones’ undertakings if it wished to replace them, it is likely that the Liberal Party would have replaced Mr Calvert-Jones and Mr Morgan with other Liberal Party nominees.

285    It is also said by the plaintiffs that even if it is assumed that Mr Goode would in any event have been appointed a director of the Cormack Foundation without signing an undertaking because the Liberal Party needed his financial expertise to grow the Cormack Foundation’s funds, the counterfactual then is what Mr Goode would have done if he had been asked to sign an undertaking but refused as a precondition to taking shares in 2000 in the Cormack Foundation. From 1996, Mr Goode knew that Mr Calvert-Jones and Mr Morgan had signed the undertakings and their terms. Mr Goode knew that the Liberal Party could have called for the transfer of each of their shares and appointed directors to replace them. Mr Goode accepted that the Liberal Party’s right to have the shares transferred was a valuable right. Now Mr Goode was a Trustee of the Liberal Party and the plaintiffs say that he accepted that he had a conflict of interest as a Trustee in taking shares in the Cormack Foundation personally. He said that had he seen the conflict, which he did not previously see, he would not have taken any shares himself if otherwise he had to give an undertaking.

286    Let me divert from the plaintiffs’ pleaded case for a moment and say something on this conflict of interest question, which I might say no one on either side seems to have turned their minds to until the trial before me.

287    In the cross-examination of Mr Goode by Mr Michael Wyles QC for the plaintiffs, which transcended the boundaries of the pleaded case and the plaintiffs’ opening, Mr Goode was questioned about the possibility of a conflict of interest arising between his position as a Trustee of the Liberal Party and as an actual or potential shareholder of the Cormack Foundation but without giving any undertaking. Now as a Trustee, Mr Goode was required to protect the property of the Liberal Party, which I accept would have included any trust interest in the shares held by Mr Calvert-Jones and Mr Morgan arising from their undertakings. Now when Mr Goode was offered shares in the Cormack Foundation in 2000, he was not asked to give any undertaking in favour of the Liberal Party and, as he said, even if he had been asked he would not have done so. And in those circumstances he never turned his mind to any potential conflict of interest. But the effect of the issue of shares to him was that the proportion of the Cormack Foundation’s shares captured by the undertakings was diluted from two-thirds (66 of 99 shares) to one half (66 of 132 shares). And this also resulted in the consequence that Mr Calvert-Jones’ and Mr Morgan’s shareholding could only appoint two of a potential four directors. These circumstances were put to Mr Goode as the basis for a conflict of interest between his position as a Trustee of the Liberal Party and as a shareholder of the Cormack Foundation without giving any undertaking:

If I could take you back to just for fairness, let’s say around May 2000, if you had turned your mind to the effect of the undertaking which you knew Mr Calvert-Jones and Mr Morgan had given, it would have occurred to you that you had a conflict of interest between the party’s position and your position in not wanting to give an undertaking before you received shares; that’s correct? — I didn’t think of it. There was harmony between the party and Cormack. I imagine we changed the articles so that a quarter holding could nominate a director to preserve their position. Otherwise if we hadn’t changed the articles, they would have been under a third and wouldn’t have been able to nominate any director.

Okay. But can we just deal with the question I’m putting to you please, Mr Goode, because what we’re trying to do is understand. You accept now that looking back, I think you said to me before that looking back you can understand how there was a conflict between your position as a trustee of the party with this undertaking right being valuable to the party and your position as Mr Charles Goode, the person who is happy to be a shareholder in Cormack, provided you do not have to give the same undertaking; that’s correct? — Yes.

288    Now I accept that Mr Goode gave frank and honest evidence on this topic and in a manner one would expect from a man of his considerable distinction in the commercial community. And I accept that these issues might raise a possible question regarding whether Mr Goode found himself in a conflict of interest in 2000. But that is as far as the matter goes. It was not asserted by the plaintiffs in their pleadings that there was such a conflict of interest. Moreover, in their closing submissions they expressly disclaimed wanting to introduce such a cause of action. In such circumstances, I can set this all to one side. Such allegations could have been introduced by the plaintiffs at an earlier point in time (assuming no limitation period that would bar such a claim or associated remedy), but they chose not to pursue this.

289    Further and more generally, Mr Kroger and Ms Kroger both gave evidence that as Presidents and if they had been made aware of all relevant circumstances they would have taken all necessary steps to stop the Liberal Party losing control of the Cormack Foundation. It is said that it cannot reasonably be suggested that if the Liberal Party had ever been told that it would lose its control of the Cormack Foundation, that the Liberal Party would have acquiesced to that course.

290    Further, it is also said that while each new share issue to Mr Rayner in 2002 (his shares were transferred to Mr Williamson in 2015), to Mr Hay in 2005, to Mr Grimwade in 2012, to Mr Balderstone in 2013, and to Mr Spargo in 2015, involved breaches of the undertakings, the Liberal Party’s control was lost with Mr Goode taking shares in the Cormack Foundation.

291    In summary, it is said that the effect of Mr Calvert-Jones’ and Mr Morgan’s breaches was the Liberal Party’s loss of control of the Cormack Foundation. It is said that the removal of the Liberal Party’s control of the Cormack Foundation, which control had otherwise been conferred by the trusts upon which each of Mr Calvert-Jones and Mr Morgan held their shares in the Cormack Foundation, was achieved only because those two trustees each repudiated their duties as trustee. It is said that if they had performed their trust obligations to the Liberal Party, they would have informed the Liberal Party that Mr Goode was not giving an undertaking to hold on trust for the Liberal Party the shares to be issued to him. If that had happened, Mr Calvert-Jones and Mr Morgan would not have continued to hold their shares. Their shares would have been transferred to trustees who would have refused to cause the Cormack Foundation to issue the shares to Mr Goode, alternatively who would have insisted that Mr Goode agree to hold the shares on trust and sign the undertaking before the shares were issued. It is said that such breaches of trust can only be rectified by restoring the position that prevailed prior to the appointment of Mr Goode as a director and prior to the issue of shares to him.

292    Now let me assume in favour of the plaintiffs for the sake of the argument only that Mr Calvert-Jones and Mr Morgan did act in breach of trust as contended for. I do not need to determine the matter as it goes nowhere in terms of giving the plaintiffs the remedy they seek in terms of the Cormack Foundation and the share register save and except in relation to re-instating their shares which were cancelled which I will discuss later when dealing with the second category of breach of trust. I say this for the following reasons.

293    First, if there was a breach of trust by Mr Calvert-Jones and Mr Morgan, that does not impact upon any directors’ resolutions or any shareholders’ resolutions of the Cormack Foundation dealing with the appointment of directors, the issue of shares or changes to the constitution. The validity of none of the resolutions has been successfully impugned in terms of plain vanilla corporate law principles. The Cormack Foundation under its constitution has never been bound to consider equitable interests in shares. Further, the resolutions of directors from time to time concerning appointments and share issues have been in their capacity as directors, and such directors’ powers are not and cannot be held on trust for anyone as I have already said.

294    Second, it may be accepted that later resolutions and new share issues have diluted the “value” of the shareholdings of Mr Calvert-Jones and Mr Morgan. But that is not a diminution in or destruction of trust property as such. It was not disputed that one could have a trust over a share. But a share is a bundle of rights or a chose in action rather than a chose in possession, giving the shareholder the rights conferred under the company’s constitution or by legislation and subjecting him to the liabilities (if any) arising thereunder; see also in this regard s 140(1) of the Corporations Act. Of course, in the present case the rights of shareholders in the Cormack Foundation to receive capital or income were removed. But a share in the sense that I have described is personal property and, subject to the company’s constitution, is transferable and transmissible (see also s 1070A of the Corporations Act). Now if the trust property is shares, an issue of new shares to third parties which may dilute the relative significance of the trust shares does not change the trust property. It still remains the trust shares, with the shares subject to the rights under the constitution from time to time. Further, if the constitution is modified to change the rights attaching to shares, the trust property has not changed as such. The shares are only ever the “bundle of rights” as varied from time to time.

295    Third, the plaintiffs say that they have established that had Mr Calvert-Jones and Mr Morgan not acted in breach of the trust, the plaintiffs would now hold 66 of 99 shares in the Cormack Foundation. It is said that where there has been a breach of trust, the nature of the case will determine the appropriate remedy available for selection by a plaintiff. They say that the objective to which equity will strive upon breach of trust is the restoration of the trust fund. It is said that equity’s jurisdiction to restore a trust can be invoked in relation to property in the hands of third parties. They also say that a recipient of trust property may become bound to account for it independently of the operation of the first limb in Barnes v Addy (1874) LR 9 Ch App 244. And they have also prayed in aid the pellucid analysis of Leeming JA in Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732 at [45] where he explained:

[L]iability under the first limb of Barnes v Addy is not the only way in which a recipient of trust property may become bound in conscience to account for it. A person who receives trust property, otherwise than as a bona fide purchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with it in a manner inconsistent with the trust, will also be liable as a constructive trustee. Although this is similar to first limb Barnes v Addy liability, it is conceptually distinct, because it is the subsequent dealing, rather than the receipt of property, that founds liability … [emphasis in original]

296    Further, the plaintiffs say that there is an analogy here with a “straightforward” constructive trust, where an innocent recipient takes property and later becomes aware of the breach and cannot then maintain those property rights.

297    Further, they say that where a wrongful act is conducted by the director of a company through the company, the director’s knowledge is imputed to the company, thus making the company’s conduct unconscionable, thus justifying an equitable remedy against the company.

298    It is said that each of these analytical pathways justifies my exercising a discretion as to the treatment of the shares in the hands of each of Mr Goode, Mr Hay, Mr Williamson, Mr Grimwade, Mr Balderstone and Mr Spargo. The plaintiffs say that in order to vindicate the plaintiffs’ rights which have been infringed in the events that have transpired, it is just and equitable to strip from each of Mr Goode, Mr Hay, Mr Williamson, Mr Grimwade, Mr Balderstone and Mr Spargo their shares. It is said that they are not bona fide purchasers for value without notice of the Liberal Party’s interest.

299    But I agree with the defendants that even if there did exist a trust over the shares of Mr Calvert-Jones and Mr Morgan as the plaintiffs allege, and Mr Calvert-Jones and Mr Morgan breached their duties as trustees, which I have not decided, that does not afford any continuing basis for relief. Before it can be said that the Cormack Foundation bears responsibility for a breach of trust or a breach of fiduciary duty of another, the second limb of the rule in Barnes v Addy must be properly invoked and it must be shown that the relevant breach of trust or fiduciary duty was dishonest or fraudulent. But as the defendants correctly point out, the plaintiffs have not alleged any involvement by the other directors and shareholders in the alleged breaches of trust by Mr Calvert-Jones and Mr Morgan and they have identified no juridical basis for obtaining relief against those other persons or the Cormack Foundation as a consequence of the alleged breaches of trust. It is not alleged that the other directors and shareholders or the Cormack Foundation itself knowingly induced the breaches of trust or knowingly assisted in the breaches of trust. Moreover, the Cormack Foundation was entitled to treat the registered holder of any share as the absolute owner of the share and not bound to recognise any equitable or other claim to or interest in the share on the part of any other person. I also agree with the defendants that the recipient of trust property scenario also has little to do with the present case; diluting the relative significance of the trust shares by the issue of new shares to third parties does not change the trust property let alone give rise to recipient liability in someone else.

300    Further, with respect to the company in general meeting, at all times the members of the Cormack Foundation had power to amend the constitution, which they did in each instance by unanimous resolution in a valid exercise of the said power.

301    Further, the alleged conflict of interest which it is said Mr Goode had does not provide the plaintiffs with any basis to impugn the decision of the directors acting in that capacity and in the best interests of the Cormack Foundation to issue Mr Goode with shares. The directors in 2000 were free to do so.

302    Further, I also agree with the defendants that even if that decision could now be impugned by the plaintiffs, it would not render ineffective or invalid the subsequent decisions by the board to appoint further directors and issue them with shares, nor would it render invalid any of the amendments to the company’s constitution which the members have resolved to make.

303    In summary, if there has been any breach of trust on this aspect, in my view it does not sound in any remedy against the Cormack Foundation or the current directors or shareholders, and putting to one side Mr Calvert-Jones or Mr Morgan.

(b)    Breach of trust – failure to transfer

304    The other dimension to the plaintiffs’ case is that it is said that each of Mr Calvert-Jones and Mr Morgan in June 2017 breached their trusts by failing to act in accordance with cll 3 and 4 of their undertakings, that is, failing to “use my best endeavours to have [the Liberal Party’s] nominee appointed in my place” as a director and failing to “transfer my shareholding to a person or corporation nominated by the Liberal Party”. I agree with the plaintiffs that there was non-compliance with the undertakings by Mr Morgan and Mr Calvert-Jones in June 2017. The more difficult question is the one of remedy.

305    Now the plaintiffs have pointed to the following matters.

306    On 21 and 22 June 2017, the Liberal Party called upon Mr Calvert-Jones’ and Mr Morgan’s undertakings and directed each to transfer his shares to the Liberal Party’s nominees. So much is not in doubt.

307    On 28 June 2017, Mr Calvert-Jones and Mr Morgan resigned as directors of the Cormack Foundation and their shares were purportedly cancelled pursuant to r 31 of the Cormack Foundation’s constitution. The plaintiffs point out that although the Cormack Foundation purportedly cancelled these shares on 28 June 2017, it wrote to Mr Kroger simply noting that the Liberal Party’s directions to Mr Calvert-Jones and Mr Morgan were tabled and discussed at the Cormack Foundation’s board meeting that morning. No reference was made at that time to the share cancellations. It was not until 6 July 2017 that Mr Kroger and the Liberal Party were informed of the share cancellations, after ASIC notification had been given. Now so much is also true.

308    The plaintiffs say that in 2006, the shareholders of the Cormack Foundation without the Liberal Party’s consent or approval amended the Cormack Foundation’s constitution by the replacement of r 31, by which the board must, upon the death of a shareholder or his termination of office as a director, cancel, without consideration, the shares registered in the names of the shareholder or the director in question. So much is also apparent.

309    Now the first point that the plaintiffs make is that Mr Calvert-Jones’ and Mr Morgan’s shares were not issued on terms that they could be cancelled upon Mr Calvert-Jones’ and Mr Morgan’s resignation as directors. Accordingly, the purported cancellation was invalid and contrary to s 258D of the Corporations Act. Section 258D relevantly provides:

A company may, by resolution passed at a general meeting, cancel shares that have been forfeited under the terms on which the shares are on issue.

310    The second point that the plaintiffs make is that if Mr Calvert-Jones’ and Mr Morgan’s shares were subject to r 31 of the constitution, Mr Calvert-Jones’ and Mr Morgan’s agreement that their shares be bound by r 31 is voidable and voided because it was made in breach of trust, being a breach of cll 3 and 4 of the undertakings, and to the knowledge of the Cormack Foundation.

311    The third point that the plaintiffs make is that even if the constitution could be read to operate under r 31 retrospectively to cause the cancellation of existing shares, there is no evidence that either Mr Morgan or Mr Calvert-Jones agreed in writing that their shares were to be bound by that rule. In this regard, reference was made to s 140(2) of the Corporations Act which provides as follows:

Unless a member of a company agrees in writing to be bound, they are not bound by a modification of the constitution made after the date on which they became a member so far as the modification:

(a)    requires the member to take up additional shares; or

(b)    increases the member’s liability to contribute to the share capital of, or otherwise to pay money to, the company; or

(c)    imposes or increases restrictions on the right to transfer the shares already held by the member, unless the modification is made:

(i)    in connection with the company’s change from a public company to a proprietary company under Part 2B.7; or

(ii)    to insert proportional takeover approval provisions into the company’s constitution.

312    The fourth point that the plaintiffs make is that even if it were said that Mr Calvert-Jones and Mr Morgan somehow did agree that their shares were to be bound by r 31, in circumstances where Mr Calvert-Jones and Mr Morgan held their shares on trust for the Liberal Party their first duty was to protect the trust property. Thus any agreement by them for their shares to be bound by the modification to the constitution which enabled those shares to be cancelled upon their resignation as directors of the Cormack Foundation was a breach of trust. Accordingly, any such agreement is voidable by the Liberal Party, has now been avoided and consequently the purported cancellation of their shares is void.

313    Accordingly, the plaintiffs seek a declaration that the purported cancellation of Mr Calvert-Jones’ and Mr Morgan’s shares is void and an order that the register be rectified. In addition, in accordance with the requests of the Liberal Party of 21 and 22 June 2017 they seek an order that Mr Calvert-Jones and Mr Morgan transfer their shares to Mr Stockdale and Mr Alston respectively. The plaintiffs also seek orders that Mr Alston’s and Mr Stockdale’s names be entered in the register in relation to 33 shares each. Further, the plaintiffs also contend that the rights attaching to those shares at issue, namely the appointment of a director, must be re-instated.

314    Now in my view r 31 did not apply to the shares held by Mr Calvert-Jones and Mr Morgan at the time r 31 was modified or at any later time. It seems to me that the r 31 modification in essence imposed or increased restrictions on the right to transfer the shares already held by those members. By providing that the shares were to be automatically cancelled on the termination of office as a director, r 31 effectively imposed or increased restrictions on the right to transfer. Moreover, I am not satisfied that Mr Calvert-Jones or Mr Morgan gave any agreement in writing to be bound. I am not convinced that the method of passing the relevant resolution in 2006 amending r 31 sufficiently constitutes such an “[agreement] in writing to be bound”. Indeed, for all I know a member then voting on the resolution may have considered it to have prospective effect. In any event, one could vote on a resolution applying generally but consider that one’s own shares were grand-fathered. At all events, s 140(2) is not expressed in terms “unless a member votes in favour of the resolution effecting the modification …”. In my view there must be an individual act by the member manifesting in writing an agreement that his shares are now to be so restricted. The general agreement to a resolution is not sufficient. Now I accept that an instrument constituting a circular resolution under s 249A of the Corporations Act may also serve the dual function of being an “[agreement] in writing to be bound” within the meaning of s 140(2), but the instrument must make that dual function clear. Not without some hesitation, in my view the signed instruments of circular resolution in the present case did not make such a dual function clear. They referred to being in favour of a special resolution to amend r 31, and of course s 140(2) assumes that there is the necessary resolution to make the constitutional modification. But something more was required by s 140(2). They did not separately stipulate that r 31 was agreed to as a restriction on the rights to transfer Mr Morgan’s and Mr Calvert-Jones’ shares.

315    As r 31 does not apply to Mr Calvert-Jones’ and Mr Morgan’s shares, they ought not to have been cancelled. Accordingly, their shares should be re-instated to the register. Moreover, in circumstances where in my view they always held their shares on trust for the Liberal Party and in circumstances where they did not in late June 2017 comply with the directions of the Liberal Party contemplated under the undertakings and transfer their shares to new nominees, in my view Mr Calvert-Jones and Mr Morgan should execute transfers of their shares in favour of the Liberal Party’s nominees and the shares on re-instatement to the register should be registered in the names of such nominees.

316    Having reached this conclusion, I do not need to concern myself further with questions as to whether the current directors of the Cormack Foundation had by 28 June 2017 been put on notice of any breach of trust, whether they were bound to take notice of any such trust or breach of trust, or indeed whether even if they were bound to do so, r 31 automatically operated in any event (if it applied to Mr Morgan’s and Mr Calvert-Jones’ shares, which I have now found otherwise) so that as directors they were bound to cancel the shares under r 31.

317    Now the defendants have contended that r 31 did apply to Mr Calvert-Jones’ and Mr Morgan’s shares, but as I say I have taken the contrary view. But there is one aspect of the defendants’ submissions that I agree with concerning whether, as the plaintiffs argued, the resolution effecting the modification to r 31 was invalid.

318    In my view the plaintiffs’ argument based on the principle discussed in Gambotto v WCP Limited (1995) 182 CLR 432 fails. The circumstances considered in that case are different from the present case.

319    In Gambotto v WCP Limited, the purpose of the amendment to the articles was to enable the majority shareholders to immediately expropriate the minority-held shares. As was recognised by Mason CJ, Brennan, Deane and Dawson JJ, circumstances which do not involve an expropriation of valuable property rights attaching to shares would not offend the principle (at 444):

It seems to us that, in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations.

320    Further, even if there was an expropriation, there is the following exception to the principle (at 445):

In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs – resulting in detriment to the interests of the existing shareholders generally – and expropriation is a reasonable means of eliminating or mitigating that detriment.

321    In my view the resolution achieving the modification to r 31 did not of itself achieve an expropriation of the type contemplated in Gambotto v WCP Limited. Moreover, it was for a proper purpose and did not operate oppressively in relation to minority shareholders. On its face, the modification applied and operated generally, subject of course to the point I have made concerning s 140(2). In summary, the modification to r 31 is not invalid.

322    Let me finally deal with two other points.

323    First, I reject the plaintiffs’ case under s 258D. As the defendants correctly contend, the plaintiffs’ reliance upon s 258D is misplaced. That section is directed to the particular circumstance where shares that “have been forfeited under the terms on which the shares are on issue” are cancelled by resolution passed at a general meeting. That is not the present case, where the shares were not “forfeited” in the ordinary sense of a forfeiture arising from a failure to pay monies owing on partially-unpaid shares, but rather were cancelled by the board purportedly under r 31. Moreover, s 258D is merely permissive. It does not establish an exhaustive mechanism by which forfeited shares may be cancelled. Moreover, it does not prohibit the cancellation of shares in other permissible circumstances.

324    Second, the plaintiffs assert that the rights attaching to Mr Calvert-Jones’ and Mr Morgan’s shares at issue, namely, the right to appoint a director, must be re-instated. I disagree. The resolutions which effected relevant changes to the constitution decoupling shareholding from an entitlement to appoint directors have not been shown to be invalid. Moreover s 140(2) has no application. The decoupling has removed an entitlement. It has not imposed or increased a restriction. Moreover, this decoupling has nothing to do with the right to transfer. The plaintiffs’ challenge requires establishing a causal chain justifying a remedy commencing with a breach of trust and ultimately leading to the infection of the relevant resolutions. But none of this works for the reasons I have previously explained.

CONCLUSION

325    In summary, I have reached the following overall conclusions.

326    First, Mr Calvert-Jones and Mr Morgan have at all relevant times held their shares in the Cormack Foundation on trust for the Liberal Party.

327    Second, the cancellation of those shares should be set aside, those shares should be transferred to nominees of the Liberal Party, and the register of members of the Cormack Foundation should be rectified accordingly with such nominees being entered in the register as the shareholders.

328    I will hear further from the parties as to the precise form of orders to give effect to these reasons. On the question of costs, I am inclined to make no order as to costs as each side has had some measure of success. But I will give the parties an opportunity to make submissions on that question if they so choose.

Associate:

Dated:    14 June 2018

SCHEDULE OF PARTIES