FEDERAL COURT OF AUSTRALIA

Henry v Sandlewood Aboriginal Projects Limited (No 3) [2021] FCA 728

ORDERS

THE COURT ORDERS THAT:

1.    The parties complete compliance with their obligations to give discovery on or before 9 July 2021.

2.    The proceeding be referred to mediation by a mediator agreed between the parties on or before 9 July 2021 and in default of agreement by the Registrar, such mediation to occur on or before 30 September 2021.

3.    The matter be listed for case management on 8 October 2021.

4.    The seventh applicant have judgment on that part of its claim against the fourth respondent, pleaded in paragraphs 81(d) and (e), 81A(e), (f), and (g), and 83(a)(i), (a)(ii), and (b) of the Third Further Amended Statement of Claim, in the sum of $43,192.01 (including pre-judgment interest of $15,696.34 up to today).

5.    Unless the Court otherwise orders, the fourth respondent pay the judgment sum in order 4 into Court and not otherwise.

6.    The fourth respondent pay the applicants’ costs of those parts of the proceeding referred to in order 4 and the interlocutory application filed 27 December 2019.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    The applicants seek default judgment for some of their claims against the fourth respondent, Kerry-Anne Lacey, pursuant to r 5.23 of the Federal Court Rules 2011, because of her default in the proceeding.

2    On 28 April 2021, I granted the applicants leave to file and serve on Ms Lacey, on or before 7 May 2021, a third further amended statement of claim clarifying their claims against her together with the further amended interlocutory application dated 31 December 2020 and all the affidavits in support of the relief sought against her in the interlocutory application. I ordered Ms Lacey to file and serve, on or before 28 May 2021, any affidavits on which she proposed to rely in opposition to the relief sought in the interlocutory application and, on or before 18 June 2021, any written submissions limited to five pages. I also ordered all the respondents to file and serve their defences to the statement of claim on or before 28 May 2021 and listed the interlocutory application for hearing today.

3    On 7 January 2021, a process server, Peter Wood, served Ms Lacey at her home with, among other documents, the interlocutory application. After Mr Wood informed her of his purpose, Ms Lacey said that she was aware of the proceeding, accepted the documents and signed an acknowledgement of service.

4    On 5 May 2021, Mr Wood served Ms Lacey at her home with a sealed copy of the statement of claim. He informed her what his purpose was. She responded that she was aware of the proceeding but said that she was not prepared to sign any acknowledgment of service, and that she would not be reading the documents, but would be placing them in the garbage bin. There is no evidence that the applicants served Ms Lacey with the orders made on 28 April 2021.

Background

5    In Henry v Sandlewood Aboriginal Projects Limited (No 2) [2019] FCA 2061, I described some of the background to the current proceeding and the role that Ms Lacey played as a director and secretary of Western Downs Group Limited, which I had earlier joined as the seventh applicant under s 237 of the Corporations Act 2001 (Cth): see Henry v Western Downs Group Limited [2018] FCA 1168. I described some of the presently relevant circumstances of the parties and Ms Lacey’s role in the following passages from my reasons in Henry [2018] FCA 1168 at [1], [3]–[13]:

1    This is an application under s 237 of the Corporations Act 2001 (Cth), by six individuals, being Beatrice Henry, Elizabeth Johnston, Gregory Emmerson, Patricia Conlon, Deidre Daylight and George Hopkins, to, in effect, convert Western Downs Group Limited, a company established as a charitable trust, from being the first respondent into being the seventh applicant, and to pursue the proceeding in its name. Some of the applicants, including Ms Henry and Mr Emmerson, became initial directors of Western Downs. The second, third and fourth respondents, Russell Doctor, Jason Jarro and Kerry-Anne Lacey, were also initial, and remain, directors of Western Downs. Mr Doctor and Mr Jarro appear to have arranged for the sixth respondent, Sandlewood Aboriginal Projects Limited, to act as a service provider to Western Downs. The fifth respondent, Lucy Davis, allegedly assisted Mr Doctor in respect of his alleged misuse of trust money.

…

3    On 10 December 2012 a number of individuals, including Ms Henry, Ms Conlon, Mr Emmerson, Mr Doctor, Mr Jarro and Ms Lacey, entered into an indigenous land use agreement (the ILUA) with Arrow Energy Pty Ltd on their own behalf and on behalf of persons who then understood themselves to comprise 11 native title, or potential native title, claim groups (that the ILUA defined as the “Western Downs Unclaimed Area Native Title Group”) with an interest in land and waters in south-east Queensland, in the Western Downs area, not then the subject of any determination of native title under the provisions of the Native Title Act 1993 (Cth).

4    The ILUA recorded that there were no registered native title claims on the Register of Native Title Claims at the authorisation date over the ILUA area, and that Arrow was intending to conduct a project that would, first, involve physical disturbance to land and waters and, therefore, secondly, have the capacity to cause harm to Aboriginal cultural heritage and to the lands and waters of which the indigenous people are spiritual guardians. Under the ILUA, Arrow was to pay a total of $5.75 million (defined as “the Benefits”) to a “Corporate Entity”, that the ILUA defined as an entity established by the native title party (comprising those persons who had signed the ILUA) and that fulfilled the requirements prescribed in cl 7. It is common ground that Western Downs became the “Corporate Entity” for the purposes of the ILUA.

5    Clause 7.2 of the ILUA provided that the native title party had to ensure that Western Downs, as the Corporate Entity, have a constitution or other legally binding rules that provided that, among other matters:

•    only members of the broader native title claim group, that included the 11 identified native title claim groups, could be members, shareholders or directors of it; and

•    “the Benefits received are distributed in a fair and equitable manner to the members of the Western Downs Unclaimed Area Native Title Group”.

6    Under cl 7.2, the native title party also had to ensure that Western Downs became the trustee of a trust established to distribute the benefits to the claim group, and that the trust deed had to contain similar requirements to Western Downs’ constitution.

7    Ultimately, Western Downs was incorporated as a company limited by guarantee. Its constitution provided that:

•    the distribution amounts would be the amounts that it received, pursuant to the ILUA, less a reasonable amount, as determined by its directors, to meet its expenses; and

•    there would be 11 identified groups comprising descendants of named apical ancestors, together with any innominate (but never formed) “group of persons who hold or may hold native title (as defined in the Native Title Act 1993 (Cth)), in the ILUA Area as determined by a resolution passed by more than 75% of the Directors”.

8    The constitution excluded the replaceable rules under the Corporations Act by cl 4.1. Clause 5.1 defined the purposes for which Western Downs was established and would be maintained, namely to promote and benefit the beneficiaries by pursuing, substantively, charitable objects, to the extent that they comprised charitable purposes, as recognised by the law of equity, the Income Tax Assessment Act 1997 (Cth) and Charities and Not-for-profits Commission Act 2012 (Cth) and any other applicable legislation.

9    Importantly, cl 7 provided:

7    APPLICATION OF INCOME AND PROPERTY

7.1    The income and property of the Company however derived shall be applied solely towards the promotion of its Purposes and no part shall be paid or transferred directly or indirectly to or among the Members (in their capacity as Members) PROVIDED HOWEVER that: -

(a)    nothing shall prevent the payment in good faith of interest to any such Member in respect of moneys advanced by him or of remuneration to any Directors, officers or servants of the Company or to any Member, or other person in return for any services actually rendered to the Company; and

(b)    nothing herein contained shall be construed so as to prevent the repayment to any Member of out-of-pocket expenses or interest on money lent, or rent for hire of goods or for premises demised to the Company.

7.2    In the promotion of its Purposes, the Company will pay or distribute the Distribution Amounts in equal shares to, or for the benefit of, the Groups within a reasonable time after receipt.

7.3    The Native Title Party signatories to the ILUA representing a Group or the Director appointed by that Group or other authorised representatives of that Group may nominate in writing to the Company a Group Representative Company, that they have been authorised by that Group to nominate, to receive a Group’s share of the Distribution Amounts.

7.4    The Company may only pay or distribute a Group’s share of the Distribution Amounts to a Group Representative Company if that Group Representative Company at the time of payment or distribution:

(a)    is a “not for profit” entity whose constitution prohibits the payment or distribution of its income or property to its individual members;

(b)    has a majority of members and directors who are members of the relevant Group or which agrees in writing to only use such payments to benefit the relevant Group;

(c)    is not insolvent, the subject of a winding-up application or under the control of administrators, receivers, liquidators or controllers; and

(d)    is not in material breach of financial reporting, audit and other requirements under the legislation regulating that company.

7.5    If a Group has not nominated a Group Representative Company or that Group Representative Company does not meet the requirements in Clause 7.4, the Company will pay or apply that Group’s share of the Distribution Amounts for the benefit of that Group as directed in writing by the Native Title Party signatories to the ILUA representing that Group, the Director appointed by that Group or by other authorised representatives of that Group or as reasonably determined by the Board.

(emphasis added)

10    Clause 9 required Western Downs to keep records.

11    In the event, Western Downs held some early directors’ meetings and established a bank account. After this occurred, it is common ground that, on about 10 January 2014, Arrow paid Western Downs $5.75 million.

12    The applicants seek that Western Downs be joined as an additional applicant so that they can make a claim in its name against each of Mr Doctor, Mr Jarro and Ms Lacey, for breach of fiduciary duty in paying, or causing to be paid to themselves or their associates, very large amounts of the trust money, that were intended to be for the benefit of the native title claim groups and their members. The applicants also seek to bring claims, in Western Downs’ name against:

•    first, Sandlewood to recover over $1.6 million in trust money that it received and then, mostly, paid away; and

•    secondly, Ms Davis in respect of nearly $600,000 of trust money that she allegedly received, by reason that each of them allegedly knowingly assisted and participated in primarily, but not exclusively, Mr Doctor’s and Mr Jarro’s breaches of fiduciary duty owed to it.

13    The applicants, through their solicitors, conducted extensive searches, aided by the use of subpoenas, to ascertain what became of the $5.75 million that Arrow paid to Western Downs. They assert that four of the 11 native title claim groups to which cl 7.2 of the ILUA contemplated equal distributions (of about $520,000) of that sum should have been made, received either nothing or very little. A number of allegations that the applicants wish Western Downs to make against Mr Doctor and Mr Jarro require consideration. The applicants allege that Mr Doctor and Mr Jarro received $330,000 or more each, (and they do not appear to dispute) through payments made by Sandlewood in respect of fees for alleged meetings or consultancy work that they undertook for Western Downs during the course of 105 meetings with one another. The minimum rate of their remuneration was $2,500, and in some cases, $3,500 per meeting. In a number of instances, the alleged meetings occurred on sequential days.

(emphasis in original)

6    At an earlier time in the proceeding, on 31 July 2019, Ms Lacey had affirmed an affidavit in which she said, among other things, that:

    all documents that, to that point, had been filed in the proceeding had been served on her personally, by post or email and that the solicitor for the applicants, Trevor Hauff, had requested her to file a defence,

    she had chosen “to bypass” filing a defence for two reasons, namely, first, that she “just wanted the matter to go away, so [she] ignored it”, and, secondly, she could not afford a lawyer,

    she had been appointed as secretary of Western Downs on about 18 November 2013,

    the meetings of that company’s board were “in my opinion… a waste of my personal time”,

    she had been appointed a signatory for Western Downs’ bank account along with Mr Doctor and Susan Maytom,

    Mr Doctor, at a “working party meeting”, had asked her to sign two blank cheques, and when she inquired to whom the cheques were to be paid, he told her that Michael Owens, a lawyer, needed to be paid for his services during the ILUA process, and that “To my utmost stupidity and gullibility I trusted Russell DOCTOR and basically did what was instructed by him”,

    a preliminary working party of Western Downs’ board was established, consisting of Mr Doctor, Mr Jarro, Ms Maytom and herself, of which the first meeting was held on 7 January 2014,

    she had attended up to five meetings of the working party that appeared to have been called by Mr Jarro,

    she said that:

During these meetings nothing was discussed, or nothing of importance or pertaining to the benefit of the WDGL Directors and their groups. A ‘John’ from Sandlewood would meet Russell DOCTOR, Jason JARRO, Susan MAYTOM and myself and hand over an envelope of cash for up to $2500.00. I describe it like a scene out of a mafia movie sitting in a cafe.

    she said that, at the meetings, Mr Doctor, Mr Jarro and ‘John’ would only talk about sports,

    she had received, along with the other members of the board, sitting and travelling fees and sitting fees for five or less meetings of the working party, as well as a “one off reimbursement for monies up to $900.00” that the board had approved for her secretarial expenses,

    during her period as secretary or as a director, she was neither responsible nor aware of what Mr Doctor and Mr Jarro were doing with moneys held by Western Downs for the benefit of the applicants,

    sometime after February 2014, she felt completely alienated from the working party, and after 28 March 2014, she had not heard further from Mr Doctor, Mr Jarro or Sandlewood,

    in March 2014, she resigned as secretary and director and in April 2014 moved to Melbourne,

    she denied that she had been involved in any fraudulent behaviour or in assisting Mr Doctor and Mr Jarro in their conduct the subject of my reasons in Henry (No 2) [2019] FCA 2061.

The present claims

7    The applicants seek orders based on the allegations in the statement of claim that Ms Lacey’s receipt of those moneys amounted to a breach of her fiduciary duties owed to Western Downs. The Attorney-General for the State of Queensland, as intervener, supports the applicants obtaining the relief now sought against Ms Lacey.

8    I am satisfied by the affidavits of Trevor Hauff sworn on 24 December 2019 and 25 June 2021 that Ms Lacey received a total of $25,000 for attending, between 16 December 2013 and 6 March 2014, six meetings of the Western Downs’ board of directors and four meetings of the working party, at the latter of which Mr Doctor, Mr Jarro, Ms Maytom and herself were present. She additionally received three payments, totalling $2,495.67, being payments on 17 January 2014 for $800, 13 February 2014 for $776.47 and 28 February 2014 for $919.20.

9    On 7 February 2014, Ms Lacey signed a letter, that appears to have been drafted by lawyers, addressed to each of the native title groups’ representatives under the ILUA. The letter set out a summary of the total $5.75 million compensation which Arrow had paid for the benefit of the 11 Western Downs native title claim groups. It informed the addressees of the establishment of Western Downs, its purposes and that each group needed to ensure that it appointed a group representative director to sit on the board and to attend to other matters that the ILUA and the company’s constitution required. Ms Lacey wrote that once each group had nominated a director and provided appropriate evidence of authorisation of any person nominated to receive funds under the ILUA, the group’s representative director could provide a written direction to Western Downs with the authority of the relevant group and in accordance with its constitution to pay an equal share of the untied benefit to the group representative, being no more than $522,727.27. The letter set out other matters that were necessary to satisfy the requirements of both the ILUA and Western Downs’ constitution and invited people to contact Ms Lacey as the company secretary.

10    In the statement of claim, the applicants alleged that:

    by reason of her position as a director and officer of Western Downs and a signatory to its bank account, Ms Lacey owed fiduciary duties to both it and the 11 native title groups set out in Western Downs’ constitution, namely (as pleaded in par 42):

(a)    an obligation to conduct the affairs of the company, and to distribute the Benefit received from Arrow:

   (1)    fairly and equitably

(2)    in accordance with the Purposes set out in clause 5 of the company’s Constitution; and

(3)     consistently with the agreement, or common understanding, of the Native Title Party to distribute the Benefit by way of 11 equal shares.

(b)    an obligation to not place themselves in a position where their private or personal interests came into conflict with the interests of the members of the native title groups;

(c)    an obligation to not pursue and secure a personal benefit;

(d)    an obligation to not make a profit from their position unless expressly permitted to do so with the informed consent of the native title claim groups;

(e)    an obligation to not place themselves in a position where their personal interests or duties conflicted with duties owed to the native title groups.

    alternatively, Ms Lacey owed Western Downs duties based on ss 180, 181 and 182 of the Corporations Act,

    Ms Lacey had received, from Western Downs’ bank account, the three payments totalling $2,495.67 and, from Sandlewood, payments totalling $25,000 for meeting fees (that had been paid to Sandlewood from Western Downs’ bank account),

    Ms Lacey had arranged for payment of the meeting fees when she knew that no relevant business had been discussed or conducted at meetings of the working party or board,

    Mr Doctor and Mr Jarro had engaged in activities in breach of their fiduciary obligations to Western Downs and were dishonest, including receiving payment for the working party meetings where no business of Western Downs was discussed or conducted,

    Ms Lacey breached her fiduciary duties owed as a director to Western Downs by, among others, attending the working party meetings with Mr Doctor, Mr Jarro, Ms Maytom, and Sandlewood’s John Leslie, with the knowledge that those meetings were for the purposes of the attendees being paid attendance fees of $2,500 each, without any business of Western Downs or the Arrow ILUA being discussed, in circumstances where, to use her own words, the meetings were “like a scene out of a mafia movie sitting in a cafe”,

    Ms Lacey was aware that Mr Doctor and Mr Jarro were engaging in questionable activities, acting improperly and not in accordance with a properly constituted meeting of the board of Western Downs,

    Ms Lacey took no action to address, rectify or prevent any of those matters, or to alert the other native title group members or governing authority of any of the matters pleaded,

    she arranged for the payment, and received the sitting fees, of $25,000 from Sandlewood and payments totalling $2,495.67 from Western Downs in circumstances where she knew she had no entitlement to receive those moneys, they were not being paid to persons entitled to receive funds under the ILUA and Western Downs’ constitution, and therefore the money was being misapplied.

Consideration

11    As I observed in Henry (No 2) [2019] FCA 2061 at [25]–[28], the level of payments or benefits, such as the $25,000 Ms Lacey was paid for attending 10 meetings at which very little appears to have been achieved other than signing a letter clearly drafted by solicitors, does not appear to reflect an appropriate or proportional level of remuneration for members of a company board or “working party” with simple objects such as that of Western Downs, namely, informing the persons who were entitled that they needed to satisfy certain requirements in the ILUA and the company’s constitution so that they could be paid the very substantial sums of money that Arrow had paid. She arranged for and was paid these large sums of money despite, in her own words, acknowledging that at these meetings “nothing was discussed, or nothing of importance or pertaining to the benefit of the WDGL Directors and their groups”. She participated in those meetings knowing that each of the directors present was receiving the same amount in meeting fees.

12    Sandlewood sent invoices totalling $48,400 to Western Downs for each of the four “working party” meetings at which only Mr Doctor, Mr Jarro, Ms Maytom, Ms Lacey and Mr Leslie were present. Each invoice was for $12,100, comprising a $2,500 meeting fee for each director, together with a 10 per cent administration fee and GST. Sandlewood also invoiced Western Downs a total of $166,541.90 for the six board meetings held between 16 December 2013 and 6 March 2014, comprising a sitting fee of $2,500 for each director per meeting, in some cases venue and catering costs, Sandlewood’s 10 per cent administration fee and GST. Sandlewood addressed each of its invoices for the four working party and six board meetings above to Ms Lacey and she was recorded in them as having requested two of the working party and four of the board invoices.

13    In Henry (No 2) [2019] FCA 2061 at [20]–[21], I summarised the principles upon which the discretion under r 5.23 should be exercised. I also summarised the nature of the fiduciary duties which exist between a director and a company and the usual fiduciary duties that arise where any person is under an obligation to act in another’s interest (at [22] and [23]). As I noted there (at [25]):

The constitution defined “distribution amounts” as meaning the amounts that Western Downs received pursuant to cl 1 of sch 4 of the ILUA, “…less a reasonable amount determined by the Directors to meet the Company’s expenses”.

14    Here, Ms Lacey is in default because she has elected deliberately not to file a defence, as she stated in her affidavit of 31 July 2019, or participate at all in the proceeding. On 5 May 2021, she treated with disdain service on her of the statement of claim. I am satisfied that she has been fully aware of the proceeding and has chosen to do nothing about it, although she was not served with the orders of 28 April 2021. Accordingly, Ms Lacey is in default pursuant to r 5.22 of the Federal Court Rules because, first, she failed to comply with r 16.32 since she did not file a defence to the statement of claim by 2 June 2021, within 28 days after Mr Wood served her on 5 May 2021 (r 5.22(a)), secondly, she has failed to attend a hearing in the proceeding, namely, any hearing, including today (r 5.22(c)) and, thirdly, she has not defended the proceeding with due diligence or at all (r 5.22(d)).

15    I am satisfied that Western Downs is entitled to judgment in default in respect of the claims for the two amounts that it seeks to press, at the present time, while reserving its entitlement to seek relief in due course in respect of other claims against Ms Lacey.

Conclusion

16    For these reasons, I will enter judgment for Western Downs against Ms Lacey for its claims totalling $27,495.67 together with prejudgment interest up to today of $15,696.34. However, as the Attorney-General has proposed, I will also order that any amount of the judgment sum be paid into Court until the Court otherwise orders.

17    Ms Lacey must pay the applicants’ costs of the part of the proceeding as against her, including the interlocutory application decided today, up to today.

Associate:

Dated:    29 June 2021

SCHEDULE OF PARTIES