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IN THE SUPREME COURT OF QUEENSLAND No. 5874 of 1997

Brisbane

Before the Hon. Mr Justice Shepherdson

[re: Noosa Waters Pty Ltd & Ors]

IN THE MATTER of The Trusts Act 1973;

AND IN THE MATTER of The Corporations Law 1990;

AND IN THE MATTER of the “NOOSA WATERS SYNDICATE UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 1 November 1989 and the ‘BROWNS LAND UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 16 May 1991;

AND IN THE MATTER of NOOSA WATERS PTY LTD (ACN 010 979 414) and NOOSA WATERS DEVELOPMENTS PTY LTD (ACN 006 364 745);

AND IN THE MATTER of an application pursuant to the said Acts in relation to the said trust and to the said companies by FAI DEVELOPMENTS PTY LTD (ACN 010 567 647) and by MOWETE PTY LTD (ACN 002 099 729)

JUDGMENT - SHEPHERDSON J

Judgment Delivered 9 January 1998

No. 5874 of 1997

RE NOOSA WATERS SYNDICATE UNIT TRUST and BROWNS LAND UNIT TRUST

INDEX TO REASONS FOR JUDGMENT

Page1. Introduction and general history 1-92. The decision to sue the FAI Unitholders 9-203. Conduct of Trustees in preferring the interest of

entities controlled by one of the majority 20-32

directors where that director had a conflict of interest

4. Respondent Trustees' attitude to request to audit the Trusts' accounts and inspection of accounts by FAI Unitholders

32-37

5. Conduct provoking the application No. 5874 of 1997

37-39

6. The $2 million loan 39-61

(i) Exclusion of Sproats and FAI interests 43-51

(ii) Invalidity of resolution of 27-6-1997 51-58

(iii) Trustee's defence of its position re $2 million loan and $1 million distribution

59-61

7. Directors' fees 62-64

8. Conclusions (including references to applicable law)

64-74

9. Orders 74-75

10. Schedule 1 7611. Schedule 2 7712. Schedule 3 78IN THE SUPREME COURT OF QUEENSLAND No. 5874 of 1997

Brisbane


[re: Noosa Waters Pty Ltd & Ors.]



AND IN THE MATTER of the “NOOSA WATERS SYNDICATE UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 1 November 1989 and the “BROWNS LAND UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 16 May 1991;



REASONS FOR JUDGMENT - SHEPHERDSON J.

Judgment Delivered 9 January 1998

CATCHWORDS:

TRUSTEES - Removal and appointment - Removal of trustees of deeds of trust - Real estate development - Removal not complete in sense that trustees are appointed custodian trustees (s.19 Trusts Act 1973) - Conduct of the trustees (incorporated private companies) and the majority of directors of the trustees considered - welfare of all the beneficiaries in the trusts the dominant consideration.

Miller v. Cameron (1936) 54 CLR 572; Guazzini v. Pateson (1918) 18 NSW SR 275; Letteerstedt v. Broers (1884) 9 App.Cas. 371; re Whitehouse [1982] Qd.R. 196, Nicholls v. Louisville Investments Pty Ltd (1991) 10 ACSR 723applied.

Dicta of Cross J in re Brook Bond & Co Ltd's Trust Deed [1963] 1 Ch. 357 at 363adopted.

Counsel: Mr H. Fraser QC, with him Mr Sullivan for the applicantsMr P.D. McMurdo QC, with him Ms A.I. Philippides for the respondent.

Solicitors: W.T. Purcell, Chadwick & Skelly for the applicants.Clayton Utz for the respondents.

Hearing dates:

17 to 21 November 1997

IN THE SUPREME COURT OF QUEENSLAND No. 5874 of 1997

Brisbane


[re: Noosa Waters Pty Ltd & Ors.]



AND IN THE MATTER of the “NOOSA WATERS SYNDICATE UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 1 November 1989 and the “BROWNS LAND UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 16 May 1991;



JUDGMENT - SHEPHERDSON J.

Judgment delivered 9 January 1998

FAI Developments Pty Ltd and Mowete Pty Ltd which are incorporated companies having their registered offices at 12th Floor, FAI Insurance Building, 185 Macquarie Street, Sydney have applied to this Court on originating summons for the following orders:—

1. Pursuant to s.80(2) of the Trusts Act 1973, or in the Court's equitable jurisdiction, appointing a new trustee -

(a) of the Noosa Waters Syndicate Unit Trust in place of Noosa Waters Pty Ltd, and

(b) of the Browns Land Unit Trust in place of Noosa Waters Developments Pty Ltd;

1A In the alternative to (1), pursuant to ss.19 and 80(2) of the Trusts Act 1973, appointing -

(a) the respondent, Noosa Waters Pty Ltd, as custodian trustee of the Noosa Waters Syndicate Unit Trust;

(b) the respondent, Noosa Waters Developments Pty Ltd, as custodian trustee of the Browns Land Unit Trust;

(c) a new trustee to be managing trustee of the Noosa Waters Syndicate Unit Trust and the Browns Land Unit Trust;

2. In the further alternative to (1) appointing receivers and managers of

(a) Noosa Waters Pty Ltd including in the alternative, limited to the property of Noosa Waters Pty Ltd held as trustee of the Noosa Waters Syndicate Unit Trust; and

(b) Noosa Waters Developments Pty Ltd including in the alternative, limited to the property of Noosa Waters Developments Pty Ltd held as trustee of the Browns Land Unit Trust;

3. Alternatively, declarations that:—

(a) a resolution of directors of Noosa Waters Pty Ltd passed on 27 June 1997 providing for remuneration of the directors of the company is ultra vires;

(b) any payment of directors remuneration out of the property of Noosa Waters Syndicate Unit Trust will constitute a breach of trust.

4. A consequential order restraining Noosa Waters Pty Ltd from making any payment pursuant to the said resolution of directors.

5. That the respondents other than Noosa Waters Pty Ltd and Noosa Waters Developments Pty Ltd, or in the alternative the respondents, do pay to the Applicants their costs of and incidental to the Application to be taxed.

The orders sought in numbers 3 and 4 above were not pursued at the hearing.

The respondents to the summons are:—

(i) Noosa Waters Pty Ltd (ACN 010 979 414) (“the first respondent”)

(ii) Noosa Waters Developments Pty Ltd (ACN 006 364 745) (“the second respondent”)

(iii) Keenbark Pty Ltd (ACN 010 855 482) (“the third respondent”)

(iv) Oxmead Pty Ltd (ACN 010 346 273) (“the fourth respondent”)

(v) Richdown Pty Ltd (ACN 010 980 800) (“the fifth respondent”)

(vi) Ultraview Pty Ltd (ACN 010 996 011) (“the sixth respondent”)

(vii) Jon Michael Haseler (“the seventh respondent”)

(viii) Geoffrey John Wilson (“the eighth respondent”)

(ix) Alastair Ian Bayles (“the ninth respondent”)

The following matters are not in issue:—

1. The first respondent is and was at all material times the trustee of the Noosa Waters Syndicate Unit Trust (“NWSUT”) created by deed dated 1 November 1989 (“the NWSUT deed”).

2. The second respondent is and was at all material times the trustee of the Brown's Lands Unit Trust (“BLUT”) created by a deed dated 16 May 1991 (“The BLUT deed”).

3. The first named applicant (“FAI Developments”) and the third to fifth respondents are and have at all material times been unit holders in and beneficiaries of both the NWSUT and BLUT.

4. Since on or about 23 November 1990 the second named applicant (“Mowete”) has been a unit holder in and beneficiary of the NWSUT.

5. The sixth respondent is and was at all material times a unit holder in and thus a beneficiary of NWSUT.

6. The directors of the first and second respondents are and were at all material times the following persons:—

Alastair Ian Bayles (“Bayles”) - the ninth respondent

Geoffrey John Wilson (“Wilson”) - the eighth respondent

Jon Michael Haseler (“Haseler”) - the seventh respondent

Raymond John Sproats (“Sproats”)

7. As such directors Bayles, Wilson and Haseler represented and represent the third, fourth and fifth respondents respectively and Sproats who lived and still lives in Sydney represented the applicants.

8. The members of the first respondent are and were at all material times the first named applicant FAI Developments and the third to sixth respondents.

9(a) The members of the second respondent are and were at all material times the first applicant FAI Development, Bayles, Wilson and Haseler.

(b) Bayles either directly or indirectly controls or is beneficially interested in the third respondent.

(c) Wilson either directly or indirectly controls or is beneficially interested in the fourth respondent.

(d) Haseler either directly or indirectly controls or is beneficially interested in the fifth respondent.

(e) Wilson and Haseler together either directly or indirectly control or are beneficially interested in the sixth respondent.

10(a) Since on or about 23 November 1990 the third to sixth respondents have held in aggregate 70 per cent of the issued units in the NWSUT.

(b) Since on or about 23 November 1990 the two applicants have held in aggregate 30 per cent of the issued units in the NWSUT and the BLUT.

11. The NWSUT and the BLUT each owns part of a real estate development at Noosaville commonly known as “The Noosa Waters Estate” (hereinafter called “the Noosa Waters Project”) with both parts being developed by the first respondent. The development is a residential estate incorporating both waterfront and non-waterfront allotments.

The applicants' case is that:—

(a) the affairs of NWSUT and BLUT have been and are being conducted in a manner that is oppressive and

unfairly prejudicial to and unfairly discriminatory against the applicants;

(b) the first and second respondents are administering those trusts in the interests of the third to sixth respondents or in the interests of one or more of Bayles, Wilson and Haseler instead of in the interests of all unit holders in the trusts;

(c) By their conduct Bayles, Wilson and Haseler have demonstrated pursuit of their own self-interest in preference to the interests of all unit holders;

(d) the welfare of the unit holders as a whole in their capacity as beneficiaries of NWSUT and BLUT is opposed to the continuance of the first and second respondents as trustees;

(e) the applicants further allege that by reason of the conduct of the first and second respondents antagonism and distrust now exist between the applicants and the first and second respondents and further the applicants believe that the first and second respondents will continue to administer NWSUT and BLUT in the interests of unit holders (other than the two applicants) and the interests of Bayles, Wilson and Haseler and not in the interests of all unit holders in the two trusts.

The application was tried on affidavit with each side cross-examining certain of the deponents of affidavits.

The cross-examination which I heard gave me a good opportunity of observing those witnesses who gave oral as well as written evidence and of forming my views about their respective credibility and conduct.

I have had reproduced in schedules 1 and 2 two single page documents which are Exhibits 1 and 2 respectively.

Schedule 1 shows the names of each unit holder in NWSUT, the percentage holding of units in NWSUT, the name of the shareholder of each of one share in the first respondent (Noosa Waters Pty Ltd) and the name of the director of the first respondent representing each shareholder.

Schedule 2 shows the names of each unit holder in BLUT, the percentage holding of units in BLUT, the name of the shareholder of each of three shares in the second respondent (Noosa Waters Developments Pty Ltd) and the name of the director of the second respondent representing each shareholder.

On 1 November 1989 a joint venture was formed for the development of Noosa Waters. NWSUT was established. A photocopy of the Trust Deed appears in Exhibit 3 p.A57 et.seq. The trustee named in that Deed was Mademinster Pty Ltd (the former name of the first respondent). The first schedule to the Trust Deed named the original unit holders and units held. They were:—

Richdown Pty Ltd [the fifth respondent] as trustee of the Noosa Agencies Trust

Oxmead Pty Ltd [the fourth respondent] as trustee of the Saint Andrews Place Trust

Keenbark Pty Ltd [the third respondent]

Ultraview Pty Ltd [the sixth respondent] as trustee of the Noosa Discretionary Trust

Plafaire Projects Aust Pty Ltd

Each original unit holder held two $1 units. The control of some of these units and the percentages held subsequently changed, so that they are now as set out in Schedule 1.

Plafaire Projects Pty Ltd is now the first applicant FAI Developments Pty Ltd.

On 30 November 1989 FAI Leasing Finance Pty Ltd (“FAIL”) provided loan facilities to each unit holder in NWSUT on the basis that the unit holders would apply those funds by way of capital subscriptions for units in NWSUT. FAIL took security over lands held by the first respondent together with a charge over the assets of the first respondent and collateral securities.

On 30 November 1989 a deed of variation of NWSUT was executed by Mademinster Pty Ltd, the variation being made to protect the rights of FAIL as lender.

In November 1990 there were changes in the control of certain of the unit holders and changes in the percentages of interest held.

On 16 May 1991 BLUT was established. Lands owned by BLUT were incorporated in the Noosa Waters Project. The Trust Deed for BLUT appears in Exhibit 3 at p. A92 et.seq. The original trustee was named Mount Buggery Pty Ltd (now named Noosa Waters Development Pty Ltd [the second respondent] and hereafter called NWD). The settlor in the BLUT was Ian Russell to whom I shall later refer.

On 31 July 1992 a Deed styled “Unitholders Agreement” was entered into between unit holders in NWSUT and Noosa Waters Pty Ltd as trustee of NWSUT (see Exhibit 3 p.Al 18 et.seq.). FAIL continued to lend to each unit holder under separate loan agreements with the unit holder then contributing those moneys in return for an allocation of units in NWSUT (see Exhibit 3 p.A126 et.seq. - a document also dated 31 July 1992 described as “facility agreement”).

On 28 February 1996 FAIL gave notice to QM Properties the project manager of the Noosa Waters Project that the loan facilities previously provided by FAIL would not be extended and that repayment of loan moneys was required by 1 June 1996 (see letter dated 28 February 1996 addressed to Haseler as managing director of QM Properties - Exhibit 4 pp. 1 and 2).

Correspondence ensued between Rodney Adler the chief executive of the FAI Insurance Group and Noosa Waters Pty Ltd, the letters from the latter emanating from Haseler writing as director of Noosa Waters Pty Ltd and Ian Russell writing as the secretary of Noosa Waters Pty Ltd.

On 20 March 1996 QDDC wrote to the directors of the first respondent Noosa Waters Pty Ltd offering to refinance the Noosa Waters Project (see Exhibit 4 p.8 et.seq.).

One term of QIDC's offer was that unlimited joint and several guarantees be provided from (inter alia) FAI Developments Pty Ltd (the first applicant) and FAI General Insurance Company Limited; this latter company was effectively the ultimate owner of FAI Developments Pty Ltd.

During April and May 1996 these FAI entities refused to give the guarantees sought by QIDC but offered guarantees limited to their proportion of the loan facility, namely 30 per cent, conditional on 100 per cent of net sales proceeds of each parcel of land sold being used to retire debt.

The offers by the FAI entities emanated from Avi Rubinstein with Mr Adler being kept aware of dealings and at times himself engaging in correspondence with Noosa Waters.

On 3 June 1996 QIDC did refinance the Noosa Waters Estate Project. It made an advance to Noosa Waters Pty Ltd (“NW”) as borrower. This method of advance contrasted with the method followed earlier by FAIL which had made loans to each borrower unit holder direct.

QIDC, at the direction of NW, paid to FAIL the debts then owing by each of the unit holders to it.

Copies of correspondence before me show that before 3 June 1996 QIDC agreed to accept 60 per cent of net sale proceeds of parcels of land sold being used to retire debt without guarantees from the FAI unit holders (see Exhibit

10 - a letter dated 30 May 1996 from QIDC to NW which confirmed that QIDC did not require such guarantees).

After FAIL was paid out, the applicant companies notified Ian Russell, the secretary of NW, that they required the financial accounts of both the first and second respondents to be audited “as from the financial year ending 30 June 1996” (Exhibit 4 p.61). This notification was by letter signed by Rubinstein.

This request was not met promptly. On 25 July 1996 the first applicant caused a notice pursuant to S.283C of the Corporations Law to be served on NW requesting NW to prepare in respect of the financial year ended 30 June 1996:—

“1. Financial Statements as required by the Corporations Law

2. Statements as required by Division 5 of Part 3.6 of the Corporations Law

3. A report as required by Division 6 of Part 3.6 of the Corporations Law.”

The notice further stated that the first applicant required such financial statements to be made out in accordance with the applicable accounting standards and to be audited (see Exhibit 4 p.76).

On the same day, the first applicant caused a notice in identical terms to be served on NWD the second respondent (see Exhibit 4 p.78).

Correspondence then ensued between the solicitors for the applicants and the solicitors for the first and second respondents NW and NWD.

These requests were not met by 15 August 1996; at 10 am on that date a meeting of directors of the first

respondent was held at 345 Ann Street, Brisbane (see Exhibit 4 p.91).

Those present were Wilson, Haseler, Bayles and Sproats as well as Russell as secretary. Wilson was chairman.

I have before me a copy of the minutes of that meeting (see Exhibit 4 pp.91 to 94) and also a photocopy of Sproats' notes of that same meeting (Exhibit 14). I mention that at the conclusion of that meeting the meeting of the directors of the second respondent was held - 1 find that latter meeting lasted 10 minutes.

The applicants have focused on two aspects of the meeting of directors of the first respondent on that day. For present purposes I mention one only of these aspects and will come to the other later. The first aspect I shall refer to as “the decision to sue the FAI unit holders”.

1. The decision to sue the FAI unit holders

Item 6 of the minutes (see Exhibit 4 p.93) reads:—

“Item 6 - Review of QIDC Refinancing

Mr Russell explained to the meeting the significance of the refinancing with QIDC in that the Company as Trustee borrowed from QIDC to discharge the obligations to FAI of the various unit holders. As such the Company was entitled to record in it's [sic] set of accounts those very obligations that existed of the unit holders to FAI and further advised the meeting that some $24M was owed by the unit holders to the Company in this respect. Mr Russell further advised the meeting that the FAI unit holders did not support the borrowings from QIDC with their guarantees as was the case with the remaining unit holders.

Mr Wilson addressed the meeting and stated that he could see no reason why the Company should not call up those loans owing by the FAI unit holders whilst they, FAI, refused to support the borrowings owing to QIDC. It was therefore RESOLVED to -

(a) issue notices to both FAI Developments Pty Ltd and Mowete Pty Ltd calling up these loans now payable to the Company as a result of the refinancing effected on 3rd June 1996.

(b) to empower the Company and if required to instruct legal counsel to pursue the matter in the appropriate jurisdiction to effect repayment of these loans.

(c) to apply these moneys upon receipt against the debt owing to QIDC by the Company.”

I am well satisfied that the subject of item 6 was not notified to Sproats when the agenda for the meeting of NW directors was faxed to Sproats in Sydney on 13 August 1996. Wilson, when he gave evidence before me admitted that some days before the meeting of 15 August, he, Haseler and Bayles had discussed among themselves the bringing of the action subsequently made the subject of the resolution in item 6. Wilson further admitted that he deliberately withheld from the FAI interests the subject matter of item 6 and gave them no notice prior to that matter being raised at the meeting.

On the evidence before me, I am well satisfied that the failure to give such notice to the FAI interests was quite deliberate on Wilson's part and that that course was assented to by Bayles and Haseler. Haseler did not swear any affidavit in these proceedings and consequently did not appear in the witness-box. Haseler's failure to swear any affidavit has not been explained. On all the evidence I am well satisfied that Haseler and Wilson were the directors of NW and NWD who played major roles in the various decisions to which I refer in these reasons.

Because Haseler has not sworn any affidavit and because he has not given oral evidence and his absence as a deponent of an affidavit is unexplained I infer that any evidence he might have given would not have assisted the respondents' case.

On 16 August 1996 NW (by its solicitors Clayton Utz) made separate written demands upon the FAI unit holders. The amount demanded from FAI Developments Pty Ltd was $4,630,994.99 to be paid within 7 days and the amount demanded from Mowete Pty Ltd was$2,315,497.40 also to be paid within 7 days (see Exhibit 4 pp.101 and 105).

The demands were not met and on 30 August 1996 NW began proceedings (writ 7234 of 1996) to recover against the first applicant the above sum demanded from it and against the second applicant the above sum demanded from it and as against each, interest.

I regard it as noteworthy that NW made no similar demand upon and took no similar action against any of the unit holders associated with the directors Wilson, Bayles and Haseler.

I should at this stage say that I find that the above resolution in item 6 was passed by 3 votes to 1 with Sproats voting against the motion.

I find that the rationale behind the resolution item 6 was based on the perceived view of the majority directors - Wilson, Bayles and Haseler - that the FAI unit holders did not support the borrowings from QIDC with their guarantees as was the case with the remaining unit holders (see the wording of the resolution and a letter dated 29 August 1996 from Clayton Utz to W.T. Purcell Chadwick & Skelly). In that letter (Exhibit 4 p. 124) Clayton Utz who acted for NW, said:—

“There can be no doubt that Noosa Waters Pty Ltd discharged debts owing to FAI Leasing Finance Pty Ltd by Mowete Pty Ltd and by FAI Developments Pty Ltd. There can also be no doubt that it did so with the full knowledge of your clients and that they accepted the benefit of such discharge. In any event, Noosa Waters Pty Ltd was a surety in respect of the obligations paid out. It is therefore clear that Noosa Waters Pty Ltd is entitled to pursue recovery of the funds. It is surprising that you now suggest that the position is otherwise and in any

event, those monies are either due or they are not. Our client only seeks to have its claim determined on the merits. Your clients cannot claim to be prejudiced by proceedings to recover the debt which will be determined on its merits by the Court. The suggestion that recourse to the Court for a determination of our client's claim against your clients is oppressive of your clients is simply misconceived.

We agree that Noosa Waters Pty Ltd has corresponding rights against the other unitholders. However, those other unitholders were willing to assist Noosa Waters Pty Ltd to effect the refinancing by provision of guarantees in respect of its borrowing. Your clients refused to provide such guarantees. This left the other unitholders in an inequitable position. Effectively, they were placed in a position where they had to become guarantors of the project generally, including the funds used to pay out loans to FAI Developments Pty Ltd and Mowete Pty Ltd. In these circumstances, there is nothing inappropriate in seeking recovery from your client whilst not seeking recovery from the other unitholders.”

I accept the submission of Mr Hugh Fraser QC that in light of the terms of the resolution and the above extract from the Clayton Utz letter, the rationale expressed for the demand and the proceedings against the FAI unit holders being the minority unit holders but not against the majority unit holders was that the latter had supported the QIDC refinancing by giving guarantees whereas the minority had refused such support.

Having heard the oral evidence given by Wilson and Bayles, I am well satisfied that the decision of the majority directors to make demands of and sue the first and second applicants was dictated by the desire of the majority directors for revenge for the first and second applicants having declined to provide guarantees.

I find that by 15 August 1996 the majority directors must have been well aware that as far back as 30 May 1996 QIDC had confirmed to NW that it did not require guarantees from the FAI unit holders - Exhibit 10 - a letter dated 30 May 1996 from QIDC to NW - names the companies from which

guarantees were not required and they included FAI Developments Pty Ltd, Mowete Pty Ltd and FAI General Insurance Company Ltd.

It is true that as at 15 August 1996 the unit holders associated with the majority directors were exposed to contingent liability to QIDC by reason of the guarantees each had given. But those liabilities were contingent only. The course of action on which the majority directors resolved on 15 August 1996 must, if successful, have resulted in the FAI unit holders being obliged to pay some $7 million into the coffers of NW who was the trustee of NWSUT. The moneys obtained in such a successful action would be moneys in which all unit holders were entitled to share although the unit holders controlled by the majority directors would not have contributed any moneys on the same basis as that on which it was sought to have the FAI unit holders declared liable.

In making the above finding as to revenge, I reject the evidence of Wilson that his motivation for voting in favour of the resolution in item 6 was not revenge for the FAI interests having refused to guarantee the QIDC loan except on terms which were unacceptable to him (Wilson). Wilson said “I thought it was inequity that they had not guaranteed it because the three other unit holders, the directors, had to personally guarantee the $25 million and FAI didn't, so they were in the project completely unexposed and I thought it was unreasonable and inequitable”. He insisted that FAI was completely unexposed because the FAI companies had given no guarantee of any description for the QIDC loan. In Wilson's evidence the following questions and answers appear:—

“Q. So if the trustee failed those moneys would be called up wouldn't they?

A. Only on the basis of that action that we took.

Q. But at the end of the day you knew that FAI were exposed for the amount of $7 million to the trustee?

A. No, no. On the basis of the loan with QIDC FAI had no exposure. Under that action that we took in order to restore the balance so far as we were concerned we believe that they should pay their proportion by providing the loan funds.

Q. Is the rationale then that you were exposed on the personal guarantee directly to QIDC?

A. Yes

Q. And FAI were not directly exposed to QIDC?

A. That's correct.

Q. You do appreciate that at the end of the day if the development failed FAI would have had to pay the $7 million?

A. There was no obligation on them to pay apart from that action that we took.”

Wilson spoke of having received legal advice concerning the action proposed by the resolution of 15 August 1996. As to when that advice was received and whether it was oral or written is far from clear. It was not introduced in re-examination of Wilson. Wilson appeared to think “we got some written advice before we had the meeting with the lawyers”. I infer that this written advice, if it was obtained, was received after 15 August.

Bayles was of little assistance on this point. He was able to tell me only that he assumed “there may have been legal discussion”. In cross-examination he was asked:—

“Q. Is this the case Mr Bayles that you understood that prior to this meeting Mr Haseler and Mr Wilson obtained legal advice in relation to suing FAI companies for $7 million?

A. Look I can't speak for them.

Q. Did you know on 15 August 1996 whether any director of the company had obtained legal advice in relation to a

possible claim by the company against FAI companies for 7 million dollars odd?

A. I can't answer for that.

Q. Did you not consider it your business to find out whether there was a good claim before embarking the company upon litigation of that nature?

A. The way I saw it and I have to be frank about it is that we all put our guarantees up and FAI didn't. It was explained to me. I agreed with the fact that FAI should put their guarantees up and they didn't so we proceeded - my assumption was we proceeded from there.”

He later said he thought it was fair and reasonable that FAI should actually pay $7 million to the trustee because while he and other unit holders were exposed on their guarantees to the amount of the borrowings, FAI had no exposure.

I thought Bayles was an unsatisfactory and generally unreliable witness. Of the majority directors, I had the opportunity of seeing only Wilson and Bayles in the witness-box. In my view Wilson was by far the more dominant of these two men and I consider that in matters concerning the first and second respondents at board level, Bayles deferred to the views of Wilson and Haseler although he did have some input into discussion.

I must also at this stage mention what I am satisfied was an executive committee formed within the directorate of NW in August 1996. Exhibit 14 which contains Sproats' notes of the meeting of 15 August 1996 shows that he recorded as follows:—

“GW said that in view of what was the perceived attitude of FAI and for the sake of the good management of the project under article 109 of the memorandum and articles of association of Noosa Waters Pty Ltd (NWP/L) he proposed that an executive committee of three (3) persons be appointed to run the project. Those persons to be JH AB and GW.

Motion put and carried 3:1 (RJS against).”

The minutes prepared by Russell do record a resolution “to form an executive committee in the form outlined in a “document tabled”. Russell's minutes do not record the members of that executive committee. I find Sproats' notes in Exhibit 14 accurately recorded the discussion and resolution covering the executive committee. I find the members of that committee were Wilson, Haseler and Bayles. In the witness-box Bayles conceded that such a committee was formed in August 1996 and that in August 1996 he thought that it would be a good idea for the company to be run by himself, Haseler and Wilson.

In my view, at the time the resolution was passed on 15 August 1996 it was not correct to say as Wilson did, that if the development failed then without the action taken, FAI was not exposed to pay the amount of $7 million to the trustee.

In my view, event though the FAI unit holders had signed no guarantee to QIDC, NW as a trustee of a trading trust, if called on to discharge the debt to QIDC was entitled to be indemnified from the FAI unit holders share of the trust assets for (at least) the FAI unit holders' share of such debt (Octavo Investments Pty Ltd v. Knight (1979) 144 CLR 360 at 367). The first and second applicants had at the very least a chose in action in the trusts administered by NW which conferred on each applicant an entitlement to enforce administration of the trust (Commissioner of Stamp Duties (Old) v. Livingston (1964) 112 CLR 12; 1965 ( AC 694)).

In the action No.7234/96, NW by its solicitors Clayton Utz sent to the applicant's solicitors W.T. Purcell Chadwick and Skelly a facsimile letter dated 29 August 1996 which read:—

“We note that you act for FAI Leasing Finance Pty Ltd. As you would be aware our client, Noosa Waters Pty Ltd, has rights of subrogation in respect of all rights and

remedies which were available to FAI Leasing Finance Pty Ltd as against Mowete Pty Ltd and FAI Developments Pty Ltd.

Our client wishes to exercise those rights and remedies. Accordingly it requires the immediate delivery to us of all the original documentation governing those rights and remedies.”

In my view this demand (if correct) had the effect of NW as trustee of NWSUT obtaining a benefit in which all beneficiaries in NWSUT would share but to which only the minority namely Mowete Pty Ltd and FAI Developments would contribute.

The applicants defended this action No.7234/96 and counter-claimed against NW, NWD Pty Ltd, Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd.

In addition to that approach to action No.7234/96, the applicants on 30 September 1996 issued a writ (No.8176 of 1996) against NW and NWD Pty Ltd and Garth Ronald Barrett. Barrett was an accountant and the relief sought against him included a mandatory injunction requiring him to audit (at least) NW's financial statements, accounts and records. It is unnecessary to mention the claim against Barrett further in relation to the decision made on 15 August 1996 to sue the first and second applicants.

I mention now that before the writ 8176/96 was issued on 30 September 1996 the two applicants before me took steps on 16 August 1996 and 4 September 1996 respectively which steps had a profound effect on the life of NWSUT.

On 16 August 1996 the second applicant (Mowete Pty Ltd) gave to NW a notice which read:—

“Pursuant to clause 6A.1(b) of the Noosa Waters Syndicate Unit Trust Deed (“the Trust Deed”) Mowete Pty Ltd (“Mowete”) hereby gives notice that it requires the other Unit Holders holding units in the Noosa Waters Syndicate Unit Trust (“the Trust”) to purchase in equal proportions the 7,266,087 units held by it in the Trust (or, in the

event that Mowete holds more or less units in the Trust - all of the units held by it in the Trust) for the Price to be determined in accordance with the provisions of clause 6A.4 of the Trust Deed.

Further take notice that Mowete requires settlement of the purchase of the units to be effected within six (6) months of the date hereof.

In accordance with clause 6A.2(c) of the Trust Deed please forward a copy of this notice to each of the Unit Holders in the Trust.”

On 4 September 1996 the first applicant FAI Developments Pty Ltd gave a similar notice to NW - this time in respect of all its 14,532,176 units in NWSUT.

The giving of these notices should have come as no surprise to NW because as the minutes of the meeting of directors held on 15 August 1996 prepared by Russell showed in “Item 8 - Other business” - Sproats told the meeting (inter alia):—

“(a) that FAI ‘wanted out of the project’ in that they were seeking for the other unit holders to buy out their interests; and

(b) that on Friday the 16th August FAI intended to serve notice on the company requiring that part of their share holding be purchased by the other shareholders.”

The effect of the giving of these notices meant that “the Trustee shall... proceed to realise all of the assets of the Trust and to convert the assets of the Trust into cash as soon as may be reasonably practical so to do on an orderly basis and shall appoint as the vesting date a date which is not more than two (2) years from the date of receipt of the second notice ...”. (see clause 6A.1(b) of the NWSUT) (Exhibit 3 p.64)

“Vesting date” was defined in cl.23 of NWSUT and in the present application there was, by the time of hearing,

no dispute that that vesting date for NWSUT is 4 September 1998.

The trust determines on that vesting date (cl.24). Clause 24 also deals with distribution of trust property on termination of the trust (see Exhibit 3 p.82).

By letter dated 4 September 1996 the two applicants, by their solicitors, sought from Clayton Utz, confirmation that in terms of clause 6A.1(b) of the NWSUT Deed, NW was obliged to realise all the assets of the trust to convert them into cash as soon as reasonably practical and appoint a vesting date.

On 10 September 1996 the solicitors for the two applicants reminded Clayton Utz that no response had been received to their request for that confirmation.

I find this lack of response effectively forced the FAI unit holders to cause the writ 8176/96 to be issued on 30 September 1996. In that action they sought (inter alia) a declaration as to the obligations of NW under cl.6A. 1(b) of the NWSUT Deed.

Both actions nos.7234 and 8176 were contested.

In no.7234 NW on 30 September 1996 issued a summons seeking summary judgment against FAI Development Pty Ltd and Mowete Pty Ltd.

In no.8176 FAI Developments and Mowete issued a notice of motion on 30 September 1996 seeking judgment.

Both applications were heard together by Dowsett J. who on 20 March 1997 delivered his reasons for judgment in both actions. His reasons favoured FAI and Mowete. Ultimately on 21 April 1997 he made formal orders in each action. He dismissed NW's judgment summons in 7234/96 and in 8176/96 he declared that Noosa Waters Pty Ltd was bound by cl.6A. 1(b) of the NWSUT Deed to proceed to realise all of the assets of the trust and to convert the assets of the

trust into cash as soon as may be reasonably practical so to do on an orderly basis and to appoint as the vesting date under that deed a date not later than 4 September 1998.

NW has appealed these decisions (Appeals Nos. 4394/97 and 4414/97). The appeals have not yet been heard. The QIDC debt formerly owing by NW has been fully paid. Despite this the appeals are being pursued.

I heard no evidence to show any rationale for NW's continuing the appeals - an attitude I thought very surprising since no debt is owing to QIDC and the evidence showed that the guarantees given by the unit holders will never be called upon.

Bayles could give me no reason for prosecuting the appeal. He told me he had had no involvement instructing lawyers about the appeal but was aware that others are instructing the lawyers. I infer that the “others” to whom he referred are Haseler and Wilson. I note that on 16 October 1996 Bayles wrote to Russell, the secretary of NW saying (inter alia) “let's hope the summary judgment gets up as I feel it would not be worth proceeding if not” (see Exhibit 21).

When Wilson was cross-examined concerning the prosecution of the appeal I thought he was evasive in his answers to questions which I find he well understood. The following questions and answers illustrate his evasiveness.

“Q. The company is currently instructing lawyers to pursue the appeal?

A. I haven't been privy to any current instructions to the lawyers.”

He was then asked:—

“Q. Who is giving instructions to the lawyers?

A. I don't know. I'm not aware of any current instructions to the lawyers about that. As far as I am concerned it is still on foot. I don't think it has changed.

Q. Well you can't put forward any justification for pursuing the appeal can you?

A. I just gave you that I think.”

I should at this stage stress that Mr Fraser QC does not seek to litigate the correctness or otherwise of Dowsett J's decision.

He relies on the evidence before me concerning the decision to sue the FAI unit holders for some $7 million and take no similar action against the remaining unit holders as showing clearly that NW as trustee of the NWSUT failed in its duty to act impartially between the beneficiaries in the trust.

In Jacobs Law of Trusts in Australia (6th edition) the authors, in dealing with a trustee's duty to act impartially between all the beneficiaries in the trust say (at para. 1711):—

“It is the duty of the trustees to act fairly by all the beneficiaries. ‘Any system of trusts which did not require trustees to act with perfect impartiality as between their cestuis que trust and to bring to the management of trust affairs the same care and diligence which a man of ordinary prudence may be expected to use in his own concerns would be illusory and mischievous.”

The authors cited Knox v. MacKinnon (1888) 13 App.Cas 735 at p.768 per Lord Macnaghten; see also re Sandy's Union of London and Smith's Bank v. Litchfeld (1916) 1 Ch. 511 and continued:—

“The observance of the duty of impartiality involves the proper disposition and employment of the trust property so as to avoid benefiting one beneficiary or set of beneficiaries at the expense of another. . .”

The authors then give certain examples.

Here the trustee NW is a company of which there are four directors. Three of those Wilson, Bayles and Haseler did in my view conspire before the meeting of 15 August 1996 to procure the company to act in a manner envisaged by the resolution in item 6 which I have earlier set out. They caused the resolution to be passed over the objection of Sproats. Not only that but I find that they deliberately failed to give any notice to Sproats that the matter the subject of the resolution was to be discussed at the meeting. These three men have continued to prosecute the trustee's appeals against the decisions of Dowsett J. in circumstances in which liability to QIDC no longer exists and in which their guarantees or their company's guarantees will never be called on. I find that NW has failed to act impartially between the beneficiaries of the NWSUT in respect of the decision to sue the two applicants.

2. Conduct of Trustees in preferring the interest of entities controlled by one of the majority directors where that director had a conflict of interest

PJI Management Consultants Pty Ltd (formerly named Castlelyn Pty Ltd) and which I shall hereafter call “PJI” was registered on 16 March 1981. At all material times its directors have been Jon Michael Haseler, Peter Richard Sandaver and Ian Russell. Russell is also the secretary of PJI. Haseler, Russell and Peter William MacGinley each beneficially hold one share in PJI.

QM Properties Pty Ltd, formerly known as Pasiphae Nominees Pty Ltd was registered on 12 May 1987. Its directors are and have been at all material times Jon Michael Haseler and Ian Russell. The sole shareholder of QM Properties Pty Ltd is QMP Nominees Pty Ltd, which company holds beneficially one A class share and one B class share.

QMP Nominees Pty Ltd was registered on 26 November 1980. Its directors are and have at all material times been Jon Michael Haseler and Ian Russell and each is also a

secretary of the company. The shares in QMP Nominees Pty Ltd are and at all material times have been beneficially held by John Michael Haseler and Colin Raymond Richards - his address is 23 Southern Cross Drive, Cronin Island, Surfers Paradise. Each of them holds beneficially one fully paid share.

NW and NWD appointed PJI as their project manager for the Noosa Waters Development and QM Properties Pty Ltd as their marketing agent for the same development.

I am satisfied that both the project manager and the marketing agent are and were at all material times associated with Haseler the seventh respondent and with Richdown Pty Ltd the fifth respondent and one of the unit holders in the NWSUT and BLUT.

I accept Mr Fraser's submission that the appointments of PJI and QM Properties Pty Ltd to the positions of project manager and marketing agent respectively in relation to NWSUT and BLUT gave rise to potential conflicts of interest and duty on the part of Haseler. This is particularly so when one has regard to the fees which were paid by NW and NWD to those entities. An affidavit of Murray Cameron McDonald a chartered accountant engaged in the audit division of Hall Chadwick, Chartered Accountants of Brisbane shows that he participated in an inspection of the financial records of NW and NWSUT and NWD and BLUT in respect of the financial years ended 30 June 1994, 1995 and 1996. In the course of that inspection he noted management fees had been paid to PJI and sales/marketing fees had been paid to QMP (Sales) Agencies Pty Ltd. As a result of his inspection he extracted information which he has set out in his affidavit sworn 16 July 1997. McDonald's evidence is not challenged. I am satisfied that he extracted from the financial information which he had seen, information which showed project management fees paid during these three years as follows:—

Year NWSUT BLUT1996 $734,600 Nil

1995 $486,077 Nil1994 $935,794 $75,165

Mr McDonald has deposed that, in respect of the 1996 financial year he noted in a ledger of NWSUT dated 7 November 1996 that the $734,600 had been reduced to $495,872 by entries “transfer to Noosa Developments 94/95 $73,814” and “transfer to Noosa Developments 95/96 $164,914”.

Mr McDonald further swore that some entries in a journal did not disclose the identity of the recipient of payments which he believed to have been made to PJI. He went on:—

“In the 1994 financial year some entries in the journal refer to the ‘sales journal’ whilst some entries indicate that an amount of $464,631 was prepaid as project management fees prior to July 1994. The amount which can be identified as having been paid to PJI Management Consultants is $225,000.”

In respect of sales/marketing fees paid during the same 3 years he has produced the following results:—

Year NWSUT BLUT1996 $1,079,250 $357,8681995 $631,764 $161,5501994 $661,690 $162,450

Mr McDonald was not able to identify from the ledger, the recipients of those payments apart from QMP (Sales) Agencies Pty Ltd and, in 1994, QM Properties Pty Ltd.

I find the fees which were paid by NW and NWD to the project manager and the marketing agent for the 3 years above referred to were significant.

I return to events of 15 August 1996 and more particularly another resolution passed at the meeting of the Directors of Noosa Waters Pty Ltd held at 10 am on that day and to which meeting I have already referred.

Item 4(b) appears in the minutes of that meeting as follows:—

“Item 4 - (b) Marketing Aspects of the Project

Mr Haseler detailed briefly the marketing program recently undertaken and explained to the meeting that the recent drop off in sales was due to lack of available developed stock and every effort was being put into having the developed blocks in Stage 14 being completed as early as possible. Mr Haseler then tabled at the meeting QM Properties Pty Ltd's request for an increase in project management and marketing fees. The amount of increase that he sought for QM Properties Pty Ltd was a 1% increase in project management fees to 4% of sales turnover and a 1% in marketing fees from 5% to 6% to be effective 3rd June 1996. Some discussion took place in respect to the increase with support shown by both Messrs Wilson and Bayles given the efforts by QM Properties Pty Ltd in having the project to the point where it could be refinanced successfully with QIDC. At this point Mr Haseler disclosed to the meeting his financial interest in QM Properties and PJI Management Consultants Pty Ltd, the joint project managers and marketers, before the matter was put to resolution. Mr Russell advised the meeting that this did not disqualify Mr Haseler from voting provided he made such disclosure. It was RESOLVED to increase both the project management and marketing fees by a 1% increase in project management fees to 4% of sales turnover and a 1% increase in marketing fees from 5% to 6% to be effective from 3rd June 1996. It was noted that Mr Sproats voted against the resolution.”

What is quite clear from this resolution is that at this meeting, despite opposition from Sproats, the majority directors, Wilson, Haseler and Bayles resolved to increase project management fees and marketing fees payable to what I find were the Haseler controlled entities; those increases being by 1 per cent above their existing levels to respectively 4 per cent of the gross proceeds of sale of the land and 6 per cent of the gross sale price of each sub-divided allotment of land. Furthermore, the effect of such increases was to be back dated to 3 June 1996 (see Exhibit 4 pp.92 and 93).

Sproats' notes of the meeting (Exhibit 14) refer to matters dealt with in this resolution. Exhibit 14 shows that Wilson introduced discussion on “QM's marketing and sales fee”. He recorded Haseler having said that QM was responsible for and total input into:—

• Corporate

• Financial

• Construction

• Marketing

• Sales

and was seeking an increase in project management of 1 per cent to 4 per cent and sales of 1 per cent to 6 per cent effective from the refinancing date of 3/6/96.

He noted that Wilson and Bayles supported the increases as they believed QM's abilities were the reason the project was able to be refinanced and the savings in production costs and interest warranted it. He recorded that he, Sproats “put forward that fees were already above industry standards and not warranted”.

The oral evidence before me shows tawdry, secretive and deceptive conduct on the part of Wilson, Bayles and Haseler. The evidence satisfies me in respect of the following matters:—

(a) the notice of meeting and the agenda sent to Sproats on 13 August 1996 did not mention the subject of proposed increase in payment of fees to the project manager and the marketing agent. In addition, Wilson admitted that quite deliberately notice was not given to Sproats of the proposal before it was raised at the meeting and that he “set out to ambush” FAI interests by not giving them notice and so that it could be “pushed through the meeting”;

(b) before the board meeting Wilson had discussed the proposed increases with Haseler, Bayles and Russell and Wilson, Bayles and Haseler were well aware that the increases might well have been worth a significant amount to Haseler's companies.

(c) I find that the value of the 2 per cent increases (in total) was potentially worth in excess of $1.5 million in fees to the Haseler controlled project management and marketing companies. Bayles anticipated future gross sales would exceed $80 million. He conceded that if gross sales in the future reached $100 million the benefit to Haseler's companies would be $2 million.

(d) the conduct of the majority of the directors in what I find was forcing through this resolution allowed no possibility for negotiations with the project manager and/or the marketing manager despite the high potential value of the increase, that increase to be borne by the trust. Indeed, when Russell gave oral evidence he expressed surprise that the increases were voted on at that time. Bayles understanding was that the matter was to be discussed at the meeting “and to gauge everyone's attitude”.

(e) no sensible justification was advanced for making the increase retrospective to 3 June 1996 and tying it to the date on which the QIDC refinancing advance was made. Bayles was quite unable to offer any explanation.

According to Sproats' notes (Exhibit 14) the only rationale for the increases given at the meeting appears to have been that Wilson and Bayles believed QM's abilities resulted in the refinancing of the project and savings in production costs and interest. In the witness-box Wilson repeated this claim made at the meeting saying:—

“The justification for it being raised at that time was because of the refinancing in particular because it was the involvement of QM that had significantly contributed to our ability to refinance and that saved the project a great deal of money in interest. That is why it was particularly raised at that point but it was in fact the overall performance of the project as well in terms of marketing management, project management that in my terms justified the increase.”

He was then asked:—

“Q. And this was in relation to work that QM had done under prior contractual arrangements with Noosa Waters?

A. Yes”

He agreed that what he had suggested at the meeting was something in the nature of a bonus being paid for past performance.

I find that the effective 2 per cent increase was in point of fact a gift (described by Wilson as a bonus) to the companies controlled by Haseler and in which Haseler had financial interests which companies had performed and continued to perform acts which they were already contractually bound to perform for NW.

(f) I find the proposed increases in fees were excessive. On this topic I prefer the evidence of Sproats to that of Wilson and Boytar the latter being an engineer employed by QM Properties. Boytar's evidence was by affidavit and I shall later mention it.

I thought Sproats was an honest witness. I am satisfied he has had many years experience with the Raby Bay Development not far from Brisbane - a similar type and similar size development to that of the Noosa Waters Project. I accept his evidence that the proposed increases in fees to 4 per cent and 6 per cent respectively were

excessive, and in the case of the project management fee wrongly based.

I should add that Sproats' evidence given from the witness-box satisfies me that before 15 August 1996 he, as the director representing the FAI group of unit holders had often raised with other directors of Noosa Waters that the project management and the sales marketing fees were excessive.

There was evidence of Mr White the valuer relied on by the applicants whose evidence was that 2 per cent of the costs was a reasonable amount for a project management fee. This figure makes the proposed 4 per cent based on gross sales appear excessive. White's evidence was that in his experience project management fees were basically worked on a percentage of the cost of the project and not a percentage of the sale price of the project.

Mr Southwell, the valuer on whom the first and second respondents relied gave evidence touching arrangements for project management and marketing. He spoke of large developers running their own marketing/management teams and project management fees being an internal charge. That is not the method adopted by NW and NWD for project management fees. Southwell thought 4 per cent of gross sales to be at the “upper end of projects”.

I prefer White's evidence on this topic to that of Southwell.

I am satisfied there was no justification for increasing these fees because:—

(a) the future management and marketing work of the project will more likely than not be of no greater intensity that it has been in the past and the evidence shows that the sale receipts are expected to be similar.

(b) the majority directors, quite improperly in my view, resolved to give PJI and QM Properties - both companies controlled by Haseler - a bonus to which neither was entitled.

I do not accept as accurate the contents of para. 14 of an affidavit by Paul Matthew Boytar a consulting engineer employed by QM Properties Pty Ltd since 1985. He describes himself at QM Properties as being part of a team of experienced consultants which deal with the development and sale of major residential estates. As part of this team he says he has been closely involved in the development and subsequent sale of the development at Noosa known as “Noosa Waters”.

His affidavit, sworn on 31 July 1997 dealt primarily with the programme of construction work required to complete the remainder of the total development of this project. He referred particularly to what he described as the obligation imposed upon Noosa Waters to vest the NWSUT by no later than 4 September 1998.

In para. 14 he said that PJI provided management services to NW and NWD and that QMP (Sales) Agencies Pty Ltd provided marketing services to NW and NWD. He went on to say that “the equivalent full-time staff engaged in providing these services numbers approximately 27”. He then went on to describe the manner in which the numbers were made up. I now set them out:—

“(a) Landscaping and maintenance services for the development. There are 6 full time employees in this area and 3 temporary employees. The temporary employees are employed to deal with seasonal increases in the amount of landscaping or maintenance work required.Equivalent full time 7

(b) Financial and accounting services are provided by a full time accountant and 2 part time assistants.Equivalent full time 2

(c) A full time receptionist is employed at the Noosa Waters office in Noosa.

Equivalent full time 1(d) Engineering and project management services are

provided by myself, an assistant, an on-site supervisor and a secretarial support staff member.Equivalent full time 4

(e) Technical staff providing drafting and design services. This is variable but on average 1 full time person.Equivalent full time 1

(f) Sales services are provided by a general sales manager who supervises both sales and marketing of the project, an on-site sales manager and 3 other staff members.Equivalent full time 5

(g) Management services for the project are provided by John Haseler, Ian Russell, Peter MacGinley and 2 secretarial support staff.

5

(h) Conveyancing services are provided by an in-house conveyancer and an assistant.Equivalent full time 2TOTAL 27

Sproats was cross-examined concerning para. 14 of Boytar's affidavit.

I find that QM Properties at any one time has acted as property manager for approximately 40 estates of which Noosa Waters Project is but one. I reject as totally incorrect the claim by Boytar in sub-para. 14(g) of his affidavit. In my view that sub-paragraph was intended to convey that 5 persons working full-time provided the equivalent of management services provided by Haseler, MacGinley, Russell and two secretarial support staff.

I accept that at relevant times Haseler and Russell had and have secretaries who were and are employed by QM Properties Pty Ltd but I do not accept that Haseler, MacGinley and Russell provided full-time management services for Noosa Waters Project. I accept that each of these persons did provide management services to NW but in my view sub-para. 14(g) grossly misrepresents the true position. I accept Sproats' evidence that Haseler did not work full-time providing management services for the Noosa

Waters Project and that he ran “the rest of QM which from time to time had any number of estates over Queensland which they run” and that Haseler had “extensive horse interests, race horse interests” which consumed a great deal of his time.

I also accept Sproats' evidence that MacGinley was the general sales manager of QM Properties.

Sproats' evidence concerning Haseler's involvement with projects other than the Noosa Waters project was confirmed by Bayles when he told me that his company Keenbark was a developer for three of Haseler's projects in the hinterland of the Gold Coast.

Bayles was uncertain when he became involved in these projects that I find it was more likely than not since mid-1996.

Wilson, when cross-examined, conceded that Haseler did not work full-time on the Noosa Waters Project. He was unable to say what proportion of his time Haseler spent on the Noosa Waters Project but did say “it would certainly be less than half”. He conceded that MacGinley did not work full-time on the Noosa Waters Project. The evidence of Bayles and Wilson confirmed my view that para. 14 of Boytar's affidavit is misleading particularly in sub-para. 14(g).

One other matter has concerned me and that was the wording of para. 5 of Wilson's affidavit sworn 30 July 1997 and paras. 7 and 8 of Bayles' affidavit sworn 31 July 1997.

Paragraph 5 of Wilson's affidavit reads:—

“In my opinion, the development of the estate and the marketing of developed lots in the estate has been extremely well managed by those companies and that good management has resulted in greater profitability than may otherwise have been the case. Given the good management by those companies I regard (and always have regarded)

the fees payable to those companies as being fair and reasonable in the circumstances.”

Paragraphs 7 and 8 of Bayles' affidavit contain exactly the same words but divided into two separate paragraphs. Paragraph 8 contains the last sentence of para.5 of Wilson's affidavit.

The wording in each affidavit is identical even to the words in parenthesis. Wilson swore the words in para.5 were his own words.

I was not impressed with either Bayles or Wilson. I thought that in the witness-box each continued to do his best to justify the decision to increase fees paid to PJI and QM Properties, companies controlled by Haseler. Before the resolved increase Haseler's two companies had been contractually bound to NW as a developer of the Noosa Waters Project and before 15 August 1996 had, it appears, performed their contractual obligations to the satisfaction of the boards of directors of each company and had been paid for the performance of those obligations.

It was clear at the hearing before me that after 15 August 1996 the remaining project management work and marketing work required would be, as Mr Fraser submitted, of no greater intensity than it had been previously and that the sales receipts were expected to be similar.

The effect of the 2 per cent increase dealt with by the resolution was, as I have said, in my view simply a gift or bonus to Haseler through the companies he controlled - a gift made by Haseler and Bayles and Wilson the majority co-directors.

When each of these men and Sproats was acting as a director of NW each was a fiduciary agent of NW (see Mills v. Mills (1938) 60 CLR 150 at p. 185 per Dixon J.). In Ngurli Limited & Anor and McCann & Anor (1953) 90 CLR 425 the High Court of Australia considered the validity of an allotment of shares in a company benefiting a director to

the detriment of minority shareholders. At pp.439 and 440 the Court said:—

“In Peters' American Delicacy Co Ltd v. Heath (1939) 61 CLR 457 at p.482 Latham CJ pointed out that where the validity of acts of directors exercising a fiduciary power is questioned, a higher standard would be required than in the case of shareholders who did not, in voting at a general meeting, exercise any power of a fiduciary nature. ... The boundary between the proper and improper use of such a power is discussed in this Court in Mills v. Mills (1938) 60 CLR 150. The power must be used bona fide for the purpose for which it was conferred ... it must not be used under the cloak of such a purpose for the real purpose of benefiting some shareholders or their friends at the expense of other shareholders or so that some shareholders or their friends will wrest control of the company from the other shareholders.”

(The underlining is mine.)

Although it is true to say that the validity of the resolution in item 4(b) of the minutes of 15 August 1996 is not challenged in the proceedings before me, I consider that if I concluded, as I do, that the real purpose of the resolution was to benefit by way of gift, Haseler and the companies he controlled which were the project management and marketing agent respectively, at the expense of the FAI Group of shareholders in NWSUT then I am entitled to take that purpose into account along with other relevant matters in deciding whether to appoint a new trustee or trustees in place of NW and NWD.

I say that in the light of the following principles:—

1. In exercising my discretion whether to appoint a new trustee I may act on a large variety of considerations which cumulatively show that the continuation of the trustee is opposed to the welfare of the beneficiaries - Miller v. Cameron (1936) 54 CLR 572 at p.580, 581-2

2. I may remove a trustee who continually favours its directors interests over that of the other beneficiaries particularly when there is no reason to believe that such conduct will not continue in the future - Nicholls v. Louisville Investments Pty Ltd (1991) 10 ASCR 723 at 728.

I shall refer again to both these cases.

A consideration of all the evidence before me has led me to conclude that at about the time in early 1996 when FAIL required payment of the debts owing to it by the various unit holders, Wilson, Bayles and Haseler decided that in effect they would, as directors of NW and NWD continue the development of the Noosa Waters Project for an indefinite period of time and in that time financially prefer themselves and their associated companies to the detriment of the FAI unit holders.

I was confirmed in this view by a number of matters. First is the slowness with which NW responded to the notices given in August and September 1996 which effectively required a vesting date for NWSUT. While it is true to say that eventually NW did accept the fact that a vesting date had to be fixed NW was reluctant and slow to do so.

In addition, Haseler swore no affidavit and consequently did not enter the witness-box. Nor was his absence explained. In my view, I am entitled to infer and do infer from his having sworn no affidavit that any evidence he might have given would not have strengthened the respondents' case, nor weakened the views which I have just stated.

I add that I accept the evidence of Sproats that Noosa Waters Project has not been a successful land development project because of the unacceptable internal rate of return measured by taking account of the total cost over the period of time this project has taken. In short, the longer this project lasted, the less successful it became.

3. The respondent trustees' attitude to the request to audit the trusts' accounts and inspection of accounts by Sproats

On 11 June 1996 Avi Rubinstein wrote on the letterhead of FAI Property Services Ltd to Ian Russell and confirmed certain accounting requirements of the two present applicants FAI Developments Pty Ltd and Mowete Pty Ltd.

One of these requirements was that the financial accounts of both NW and NWD be audited - as from the year ended 30 June 1996.

Correspondence ensued and on 24 June 1996 Rubinstein sent a further letter to Russell as secretary of NW. That letter concluded:—

“Failing a satisfactory agreement we regret to notify you that FAI Developments Pty Ltd and Mowete Pty Ltd will not have any choice but to request an appointment of the auditor by the Courts. I hope that this matter can be resolved over the next few days.”

As already mentioned, on 25 July 1996 notices requiring audits were given pursuant to s.283C of the Corporations Law. On the same day W.T.Purcell, Chadwick and Skelly acting for Sproats wrote to NW and NWD asking that the accounting records for the years ended 30 June 1994, 1995 and 1996 be made available for Sproats' inspection, Sproats being assisted by accountants.

At the meeting of directors of NW held at 10 a.m. on 15 August 1996 and to which I have already referred Wilson, Haseler and Bayles, over Sproats' opposition, resolved to accept the financial accounts for 1996 and authorised Haseler and Wilson to sign the accounts on behalf of NW. (Exhibit 4 p.92)

Item 2 shown in the minutes as recorded by Russell read:—

“Item 2 - Financial Accounts for 1996

Noosa Waters Pty Ltd

The accounts of the Company were tabled by Mr Russell for acceptance by the Board. It was noted that Mr Sproats' copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival however stated that he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future.

It was RESOLVED to accept the accounts as tabled and Messrs Haseler and Wilson be authorised to sign the accounts on behalf of the Company. It was noted that Mr Sproats voted against the resolution.

Noosa Waters Syndicate Unit Trust

The Secretary tabled the accounts for acceptance and it was noted that Mr Sproats' copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival however stated that he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future. It was RESOLVED to accept the accounts as tabled and Messrs Haseler and Wilson be authorised to sign the accounts on behalf of the Company. It was noted that Mr Sproats voted against the acceptance of the accounts.

Item 3 - Auditor

It was noted at the meeting that Mr Garth Ronald Barrett was the Auditor appointed previously by the Company and the Secretary put to the meeting whether Mr Barrett be reappointed as Auditor. It was RESOLVED to reappoint Mr Garth Barret as auditor of the Company. It was noted that Mr Sproats voted against the resolution. It was further noted that no Auditor be appointed to audit the Trust.

The meeting was adjourned temporarily at 10.35 am.

The meeting reconvened at 10.45 am.”

I mention in passing that the 10 minutes adjournment referred to in the above extract was of some significance

because in that 10 minute period a meeting of directors of Noosa Waters Development Pty Ltd was held. I shall later refer to the minutes of that meeting and especially in respect of the accounts of that company and the appointment of an auditor.

As can be seen from the above item 2 Sproats had received an illegible copy of the accounts - this was on 13 August 1996 - and on arrival at the meeting had been provided with another copy.

Russell's minutes of NW also recorded (in item 8):—

“Mr Sproats addressed the meeting and advised [inter alia] the following:—

......

(b) in the absence of an auditor being appointed to all entities including all Trusts FAI would be seeking to have auditors appointed by court order”

(c) as to the matters relating to disclosure of information accounts by Mr Sproats detailed in the company's solicitors Clayton Utz's correspondence of the 9th August to Purcell Chadwick Skelly it was the intention of FAI to seek a court order to allow Mr Sproats to make disclosures to FAI and others as they saw fit.”

In Sproats' notes of that meeting (Exhibit 14) he recorded that accounts had been tabled for NW, NWD and NWSUT. He noted that Wilson said that QIDC wanted accounts approved and signed, that the motion had been put to accept and sign and that the motion put was carried 3:1 with Sproats against “arguing insufficient time for FAI to consider;” he noted the reappointment of Garth Ronald Barrett as auditor of NW having been put and carried and that there was a discussion on appointment of auditors to other entities with the meeting voting 3:1 not to appoint as there was no need.

It appears that in Exhibit 14 Sproats, at least so far as concerns the accounts, has merged the meeting of directors of NW and the meeting of directors of NWD.

I accept that generally Sproats accurately recorded a summary of what had occurred and that the motion approving the accounts was carried by the majority despite his having argued that FAI had had insufficient time to consider the accounts.

I turn now to the minutes of the meeting of NWD which lasted from 10.35 am to 10.45 am on 15 August 1996.

The resolutions there passed relating to the 1996 accounts were recorded as follows:—

“Item 1 - 1996 Accounts for Noosa Waters Developments Pty Ltd

The Secretary tabled the accounts of the Company for acceptance and it was noted that Mr Sproats' copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival but stated that he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future.

It was RESOLVED however to accept the accounts tabled and Messrs Haseler and Wilson be authorised to sign the accounts on behalf of the Company and it was formally noted that Mr Sproats voted against the acceptance of the accounts.

Item 2 - 1996 Accounts for the Brown's Land Unit Trust

The Secretary tabled the accounts of the Trust for acceptance and it was noted again that Mr Sproats' copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival but stated that nevertheless he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future.

The accounts for the Trust tabled were accepted and Messrs Haseler and Wilson were authorised to sign the accounts on behalf of the Trust and it was noted that Mr Sproats voted against the acceptance of the accounts.

Item 3 - Auditor

It was RESOLVED not to appoint an Auditor to the Company or the Trust by the Directors, and Mr Sproats voted in favour for the appointment of an Auditor.”

I formed the view that the majority acted in a high-handed fashion when resolving deliberately to accept the accounts and not to appoint any auditor of the NWSUT and BLUT - I say high-handed considering that the notices pursuant to s.283C had already been given and Sproats had requested inspection of the accounting records for the 1996 financial year as well as those for the 1994 and 1995 financial years. I am satisfied that all those present at the meeting knew of the notices and requests. In my view the decisions and resolutions of the majority directors and to which I have referred rode roughshod over the protests of Sproats who they knew represented the FAI unit holders.

I find it was not until 15 October 1996 that the trustees of NWSUT and BLUT agreed to have both the NWSUT and BLUT audited (Exhibit 4 p. 164) I find that they so agreed after the proceedings in writ 8176/96 had been issued on 30 September 1996 in which audits of the two trusts were sought. I find it more likely than not that it was the issue of those proceedings which forced the trustees into the agreement of 15 October 1996.

I further find that despite this agreement it was not until on or about 14 January 1997 that Garth Ronald Barrett a member of Calabro Partners Chartered Accountants was engaged to audit the financial accounts of NWSUT and BLUT for the year ended 30 June 1996.

As has already appeared in these reasons, Barrett had, on 15 August 1996, been appointed to audit the accounts of NW for that financial year.

On 28 August 1996 Barrett completed his audit of those financial statements and on 13 September 1996 the audited accounts and his certificate were forwarded to the solicitors for the two applicants. After his appointment on 14 January 1997 it was not until 25 July 1997 that Barrett signed his audit report in respect of NWSUT and BLUT.

In Barrett's affidavit sworn on 29 July 1997 in O.S.5874/97 he explained the delay in having that audit completed. That explanation in no way blamed the applicants or either of them.

Nevertheless, by letter dated 26 June 1997 and addressed to W.T. Purcell Chadwick and Skelly, Clayton Utz, the solicitors for NW and NWD asserted that the delay in completing the audit of the two trusts was “largely because of the FAI requirement that the accounts be prepared on a ‘general reporting’ basis rather than the ‘special reporting basis’ in which the accounts had been prepared.”

I infer that this letter was written on the instructions of NW and NWD the trustees of the two trusts. The assertion was incorrect and Russell, the secretary of Clayton Utz's clients, in his affidavit sworn on 31 July 1997 (O.S.5874/1997) in effect conceded that that requirement came from the auditor himself. He swore:—

“28. On or about 27 February 1997 Mr Barrett advised NW and NWD that they may have to produce general purpose financial statements rather than special purpose financial statements. NW and NWD sought confirmation from Mr Barrett that they were required to prepare financial reports on that basis and on 8 April 1997 Mr Barrett advised them that the accounts had to be prepared on that basis.”

It is clear, and I find that the assertion that the applicants had delayed the audits was false. This false assertion and the other matters which I have mentioned in dealing with this topic and particularly the delay of some 3 months from 15 October 1996 until an auditor of the trusts was actually appointed are among matters which I

take into account when deciding whether the trustees should be removed and new trustees appointed.

4. Conduct provoking the application O.S.5874/97

On the applicants' case there were a number of matters which provoked the two applicants into making the application now before me. Before I come to any of those matters in detail I mention that I find that by 16 October 1996 NW had not disclosed its attitude or position in respect of the notices from the two applicants pursuant to cl.6A.1(b) of NWSUT.

Correspondence ensued between the solicitors for each side. On 4 November 1996 W.T. Purcell Chadwick & Skelly wrote to Clayton Utz putting forward its clients' contentions as to the manner in which NW's obligation under cl.6A.1(b) should be performed and offered on behalf of the FAI Group Property Division to contribute its expertise and assistance in the task of realising the assets of the Noosa Waters Project.

Clayton Utz replied stating it preferred to await the court's decision that being the decision of Mr Justice Dowsett which His Honour had reserved.

On 15 November 1996 Sproats wrote to Russell the secretary of NW requesting a meeting of directors of NW as 3 months had expired since the last meeting. He listed items to be placed on the agenda including realisation of NWSUT assets in accordance with cl.6A.1(b).

On 15 December 1996 a meeting of directors of NW was held at 345 Ann Street, Brisbane. All four directors plus Russell the secretary were present. I find 345 Ann Street contained the office of QM Properties and PTI.

The minutes of that meeting, prepared by Russell show:—

(a) Sproats did not agree that the minutes of 15 August 1996 meeting were a correct record;

(b) the minutes noted his objections to the financial accounts for 1996 namely that he was not given enough time to consider the accounts “rather than his comment that he was not allowed to approve the accounts given the pending litigation between the parties”;

(c) Russell was instructed to prepare a report (including cash flow models) for discussion at the next meeting that would address the different options NW might have in the orderly realisation of the assets of the NWSUT;

(d) the meeting asked Sproats to make enquiries as to whether FAI would consider extending the time frames for sale of the trust assets.

On 5 March 1997 a meeting of directors of NW was to be held at 345 Ann Street - to consider (inter alia) a report from Russell as to 3 options in respect of sale of the project.

As already mentioned, on 20 March 1997 Dowsett J handed down his reasons for judgment in favour of FAI and rejected the contention that NW was entitled to an indemnity from the FAI entities.

On 11 April 1997 the FAI entities brought an application (O.S.3252/97) for a review of NW's conduct in respect to the realisation of all the assets of NWSUT and sought appointment of auctioneers and directions.

On 21 April 1997 Dowsett J made formal orders dismissing the summary judgment application and declaring that NW was obliged to appoint a vesting date (to be not less than 2 years from 4/9/96) and to realise trust assets as soon as reasonably practicable. On that same day O.S.3252/97 was adjourned sine die.

I find that on 23 April 1997 a meeting of the directors of NW was held: that at that meeting the three options (a), (b) and (c) were considered; that Sproats requested an independent assessment by a valuer to be engaged by the Board; that the majority directors refused his request and determined that NW should pursue option (b). I find also that the majority directors over Sproats opposition resolved to appeal the decision of Dowsett J. Option (b) required auction and sale of all assets in August 1998. Option (b) contained a number of basic assumptions; one of these was that the trust would continue to develop and sell stock at an accelerated rate so that sales by the normal trading method were maximised during this period. Another was that on the scenario proposed for option (b) there would be no balance area remaining to be auctioned in June/July 1998 but only a developed inventory of 22 parcels described as “wets” and 80 parcels described as “drys” at auction prices estimated at 65 per cent of listed prices. It was further expected that option (b) would yield a surplus of $25 million.

I now come to the first of the matters of conduct of the directors.

The $2 million loan

By letter dated 26 May 1997 QM Properties Pty Ltd wrote to QIDC a letter headed “Additional Loan Facility - Noosa Waters”. The letter which is Exhibit 6 was signed by Barry Keegan as financial controller and it commenced:—

“Further to recent discussions of Ian Russell we now submit our formal application for an additional loan facility of $1.0M to assist in the completion of all remaining development/construction work at Noosa Waters.”

The letter enclosed managements accounts at 31 March 1997 and a document described as “monthly cash flow until total sale of remaining estate”.

On 13 June 1997 Peter MacGinley wrote on behalf of “Noosa Waters Pty Ltd” over the title “group financial manager” a letter addressed to Mr Brad Hosking, Business Development Manager Property Finance QIDC. The letter was headed “re Additional Facility Noosa Waters” and relevantly began:—

“Further to Mr Barry Keegan's letter of 26 March (sic) 1997 and recent discussions I confirm that we wish to increase the amount to be borrowed under the existing facility from $1.0M to $2.0M. The additional $1.0M is for distribution purposes to the unit holders.”

At 9 am on Friday, 27 June 1997 a meeting of directors of NW was held at 345 Ann Street, Brisbane. All four directors were present plus Russell the secretary plus Paul Boytar described in the minutes as “invitee”. At that meeting the majority directors, over the objection of Sproats, who represented the FAI entities, resolved to borrow an additional $2 million from QIDC and authorised NW to execute the necessary documents under the Common Seal of NW. The majority also resolved to “repay to each of the Unit holders the various loans received by the company as trustee”.

Russell prepared two different sets of minutes for this particular meeting. The first minutes I find were faxed to Sproats on 4 July 1997. Item 4 of those minutes reads:—

“Item 4 - QIDC Annual Review

Mr Russell advised the meeting that the annual review of the project facilities had been carried out but as a result of the Metway merger takeover of QIDC difficulties could arise in that Metway had always adopted a “hungry” approach to their borrowers.

It was also advised to the Board that QIDC/Metway were concerned that they had not received the audited accounts of the Trust. Because of the current litigation and the anticipated termination of the Trust in September 1998 the Auditors, Calabro Partners, were experiencing

difficulty in both the form of the preparation and their qualification of these accounts.

Notwithstanding these obstacles and also due to the impressive performance of the loan account with QIDC (in that some $19.00m had been retired in the past 12 months) QIDC/Metway were quite prepared to lend the project additional borrowings.

Mr Russell tabled an offer of further facilities dated 26 June from QIDC which contemplated additional borrowings of some $2.00m. The borrowings had been arranged with QIDC on the following basis:

• $1.00m working capital requirements

• $1.00m in return of invested funds to Unit holders

The return of funds to Unit holders thereby representing a loan repayment to each Unitholder in respect to monies originally contributed in August 1992.

It was therefore resolved to

(a) borrow the additional monies from QIDC and that the Company be authorised to execute the documents under the Common Seal of the Company.

(b) repay to each of the Unit holders the various loans received by the Company as Trustee.

It was noted that Mr Sproats voted against both resolutions.”

As recorded above, item 4 showed that in the preceding 12 months NW had repaid some $19 million of the loan made to it on 3 June 1996. I mention now the document described in item 4 as “offer of further facilities dated 26 June from QIDC”. I find this was in fact a letter which is Exhibit 8 and which showed that some $5.8 million was then still owing and the proposed additional advance of $2 million would bring the total to $7.8 million. Exhibit 8 shows QIDC consented to NW distributing “up to $1 million to the unit holders”.

The letter contained what is called “BORROWER'S ACCEPTANCE”. Exhibit 4 shows that this was signed and accepted on 27 June 1997 under the Common Seal of NW. Bayles and Russell testified to the affixing of the seal.

The minutes described the return of funds to Unit holders as “representing a loan repayment to each Unitholder in respect of moneys originally contributed in August 1992”. The actual resolution mentions the repayment of “the various loans received by the company as trustee”.

The second set of minutes prepared by Russell was faxed to Sproats on 17 July 1997. I now set out item 4 as appearing in the second set of minutes and I have highlighted the changes which were made in the second set of minutes.

“Item 4 - QIDC Annual Review

Mr Russell advised the meeting that the annual review of the project facilities had been carried out but as a result of the Metway merger takeover of QIDC difficulties could arise in that Metway had always adopted a “hungry” approach to their borrowers.

It was also advised to the Board that QIDC/Metway were concerned that they had not received the audited accounts of the Trust. Because of the current litigation and the anticipated termination of the Trust in September 1998 the Auditors, Calabro Partners, were experiencing difficulty in both the form of the preparation and their qualification of these accounts.

Notwithstanding these obstacles and also due to the impressive performance of the loan account with QIDC (in that some $19.00m had been retired in the past 12 months) QIDC/Metway were quite prepared to lend the project additional borrowings.

Mr Russell tabled an offer of further facilities dated 26 June from QIDC which contemplated additional borrowings of some $2.00m. The borrowings had been arranged with QIDC on the following basis:

• a further $1.00m to meet working capital requirements.

• to distribute the amount of $1.00m to the Unit holders which is equivalent to those funds invested by the Unit holders in August 1992.

Mr Russell also advised the meeting that he estimated that the net profit available for distribution for the 1997 year could be in the vicinity of $10.00m and suggested that given this performance it was quite appropriate to pay to the Unit holders a distribution of profits.

It was therefore Resolved to

(a) borrow the additional monies from QIDC and that the Company be authorised to execute the documents under the Common Seal of the Company

(b) to pay or distribute to the Unit holders the amount of $1.00m proportionate to their interests


The changes made were significant and it is necessary to state in some detail various aspects of this loan which in my view not only bear heavily on the question of removal or otherwise of the trustees but also give objective indications of the character of the majority directors particularly Wilson and also the character of Russell the secretary.

The majority directors' conduct concerning the $2 million loan possessed a number of aspects which were:—

1. The exclusion of Sproats and FAI interests from the transaction.

2. The invalidity of a resolution passed on 27 June 1996.

3. NW's defence of its position.

I shall deal with these matters seriatim.

(i) Exclusion of Sproats and FAI interests

I am well satisfied that NW had made arrangements to borrow $2 million before the matter had been considered at a Board Meeting by the directors of NW (other than Sproats) and without prior notice to Sproats or FAI of intention to pass a resolution to borrow that sum. I find that at about 4 pm on 25 June 1997 Sproats received a notice of meeting of the directors of NW to be held at 345 Ann Street, Brisbane on Friday 27 June 1997 at 11 am. A photocopy of that notice is in Exhibit 4 at p.227. Sproats I find had no notice, prior to the meeting of 27 June 1997 of the proposal to borrow the $2 million.

The following matters have confirmed me in my view that the majority directors and Russell deliberately kept Sproats and the FAI unit holders he represented in the dark concerning this borrowing:—

(a) The letter dated 26 May 1997 from QM Properties to QIDC (Exhibit 6) in which the loan of $1 million was sought was not disclosed at a directors meeting of NW which had been held on 28 May 1997 and which had been attended by Sproats. I find that Haseler, the main spring of QM Properties was present at that meeting which was held at the office of QM Properties at 345 Ann Street. As I have said he has sworn no affidavit and his absence is unexplained. I infer that the failure to disclose at that meeting the sending of the letter of 26 May 1997 was a deliberate act intended to keep Sproats ignorant of the approach to QIDC.

(b) The letter of 13 June 1997 addressed to Hosking at QIDC (Exhibit 7) and signed by Peter MacGinley, who described himself as group financial manager of “Noosa Waters Pty Ltd” was dated a fortnight before the meeting was to be held - yet no notice of it was given to Sproats before the actual meeting of 27 June. Exhibit 7 did not on its face emanate from QM Properties the company who, on the evidence of

Bayles and Wilson deserved the “bonus” increase in its management fees partly because of its efforts in securing the $2 million loan. In saying this I realise MacGinley was an employee of QM Properties but nevertheless on its face this letter purports to emanate from the trustee itself.

(c) I find that the majority directors of NW consciously and deliberately set out to ensure that Sproats was kept in the dark until the actual meeting and that they instructed Russell to see that their wishes were carried out.

In his oral evidence before me Russell very reluctantly conceded as much. When cross-examined by Mr Fraser QC the following questions and answers appeared:—

“Q. Prior to the meeting you set out to ensure that the first notice the FAI unit holders would get of the proposal to borrow the $2 million from QIDC was when Mr Sproats heard of it at the meeting on 27 June 1997?

A. I gave no formal notice to Mr Sproats of the borrowings.

HIS HONOUR. That doesn't quite answer the question I'll have the question read back. Listen carefully would you Mr Russell.”

The question was read back and he answered “Yes this was intended”.

“Q. (by Mr Fraser) And did you do that on the instructions of Mr Haseler?

A. I did that on the instructions of the three other directors in Noosa Waters.”

Although he was evasive initially I thought Russell gave truthful though reluctant answers in the above questions.

Wilson, who had given oral evidence before Russell, was at first evasive in answering similar questions. I now set out part of his cross-examination.

“Q. Now, was it the case that you appreciated, on 27 June 1997, prior to the meeting, that the FAI companies had had no notice that a resolution would be put authorising the borrowing of 28 million dollars from QIDC?

A. Was I aware of it?

Q. Yes, were you aware FAI had no notice of that?

A. Yes.

Q. And was that arranged with your assistance deliberately?

A. I'm not sure what you mean by that.

Q. Did you ensure - set out to ensure that FAI had no notice that this was to occur?

A. FAI were not given any notice of it, no.

Q. Sorry, it was done with your knowledge.

A. I was aware FAI had no notice of it, that's correct.

HIS HONOUR: No, that's not quite the point. Was it done so that the first notice they would get was when they sat down at the meeting and the matter came up.

A. Yes.”

A little later in his cross-examination the following questions and answers appeared:—

“Q. Could we put it this way, was it arranged between yourself, Mr Haseler and Mr Bayles that the company would apply to QIDC for the $2 million loan.

A. Sorry yes yes.

Q. And that was done deliberately excluding Mr Sproats in the process.

A. I don't know whether you could put it that way Mr Sproats only attended the meetings of the board.

Q. HIS HONOUR. I'm sorry what did you say? You wouldn't put it this way?

A. I wouldn't put it that way. I mean Mr Sproats wasn't there in daily management of the company is really what I meant.

Q. MR FRASER. You don't suggest that the application for the $2 million loan was part of the daily management of the company do you Mr Wilson?

A. Oh it was a large project. Money was applied - large amounts of money were applied to and fro as a matter of course.

Q. But you realised that the application for a loan of 1 million dollars for the purpose of distributing it to the unit holders was not something that had ever been done before?

Q. But you realised that the application for a loan of 1 million dollars for the purpose of distributing it to the unit holders was not something that had ever been done before?

A. Yeah no sure yes.

Q. It was quite out of the course of the ordinary day to day ...

A. That was yes quite.

Q. So far as that was concerned Mr Sproats was deliberately excluded from the decision to make that application.

A. Yes.”

Bayles gave oral evidence before Wilson did. He said that around about June 1997 he had contact with Wilson “regularly once a week I suppose”. He also said he spoke to Haseler “roughly, I appreciate roughly, every fortnight”. Bayles lived at Noosa, Haseler lived at Bridgeman Downs (a

northern suburb of Brisbane) with his office in Ann Street and Wilson lived at Indooroopilly in Brisbane. Noosa is some 90 miles north of Brisbane. Bayles said he understood that Sproats was the individual representative of the FAI unit holders.

When cross-examined, Bayles would not agree that Sproats had no notice of the proposal to distribute $1 million to unit holders. The most he would concede was that Sproats had “short notice”. He conceded that notice of a proposal to distribute $1 million to unit holders was not on the agenda sent to Sproats on 25 June 1997. He conceded that the tabling of an offer of further facilities from QIDC dated 26 June 1997 came as a surprise to Sproats

I found Bayles evasive and in many way unreliable as a witness. Having had the opportunity of seeing and hearing Wilson and Bayles give evidence and also having seen and heard Russell I have not the slightest doubt that well prior to the meeting of 27 June 1997 Bayles, Wilson and Haseler had arranged between themselves that the application for the $1 million loan to QIDC would be varied by adding a request for the additional $1 million and that probably Haseler or Wilson, speaking for the three of them, instructed MacGinley to write the letter dated 13 June 1997 to QIDC (Exhibit 7) seeking the increase of $1 million. I find that the actions of Wilson Haseler and Bayles in respect of the $2 million loan exemplified these three men as the executive committee, to which I have already referred, carrying out their recorded intention to run NW.

(d) I find that the $2 million loan from QIDC was approved before the application for it was considered by the board (see Exhibit 8 and also Exhibits 17 and 22). Bayles in his evidence confirmed this fact.

(e) I find that on 27 June 1997 the QIDC facility offer of $2 million was accepted and relevant documents executed, the loan was drawn down and NW drew cheques totalling $1 million for payment to the unit

holders. Wilson was given his company's (Oxmead's) distribution cheque of $233,333.33 on the same day.

These findings must be looked at against the backdrop of Wilson's evidence, which I accept, that he wanted his share of the $1 million distributed quickly in order to meet his personal tax obligations - he “needed to have it before 30 June”. The speed with which the making of the loan was implemented points to necessary arrangements being in place before the meeting began at 9 am on Friday 27 June 1997. I find the meeting concluded at 10.45 am. I find that all documentation required by QIDC before making the loan was signed on 27 June 1997. Exhibit 17 shows the completion on that day of the following:—

Borrowers acceptance of the $2 million loan by NW (under seal)

Guarantors acknowledgements by:—

Richdown Pty Ltd (under seal) Oxmead Pty Ltd (under seal)

Keenbark Pty Ltd (under seal)

Ultraview Pty Ltd (under seal)

Noosa Waters Developments Pty Ltd (under seal)

Jon Michael Haseler

Geoffrey John Wilson

Alastair Ian Bayles

I find that on 27 June 1997 and after the meeting NW drew cheques totalling $1 million for payment to the unit holders. Wilson was given Oxmead's cheque on that day. Bayles was given Keenbark's cheque on 27 June 1997. Oxmead's cheque (of which Wilson was one of NW's signatories) was banked probably on 27 June 1997 (a Friday) and debited to NW's account on 30/6/97.

The letter from Clayton Utz to W.T.Purcell Chadwick & Skelly dated 7 July 1997 confirms that the cheques were drawn on 27/6/97.

The cheque for Keenbark Pty Ltd (controlled by Bayles) was not banked until 8 July 1997. I shall comment on this matter later.

The $2 million loan was credited to NW's account on 27/6/97. A photocopy bank statement of that account (Exhibit 25) shows the credit of $2 million and under the heading “transaction details” the letters “QIDC”. I infer from this that the funds went to NW's credit by electronic funds transfer.

It is obvious that, given the above cheques were not signed until after the meeting, that special arrangements had been made to have the $2 million electronically transferred to the credit of NW on 27 June 1997.

I am left with the irresistible conclusion that the prime moving force behind the extra $1 million for distribution among the unit holders was Wilson who had a need for his company's share of the monies by 30 June. I infer that he was not willing to run the risk that the FAI interests, if given notice of the $2 million loan and application therefor prior to 27 June 1997 might stymie or delay or otherwise prevent his company obtaining its share of the $1 million by 30 June.

Haseler's company's cheque for its share of the distribution was debited to NW's account on 8 July 1997.

(f) I am satisfied that the cheques for $200,000 and $100,000 respectively which were drawn on 27 June 1997 in favour of each of the two applicants were not handed over to these applicants until sent under cover of the above letter dated 7 July 1997 from Clayton Utz to W.T.Purcell Chadwick & Skelly.

I am well satisfied that the delivery of these two cheques to the applicants was deliberately delayed by NW at the behest of the majority directors.

Wilson, when cross-examined, conceded, reluctantly I thought, that such was the case. The following questions and answers during his cross-examination made this clear.

“Q. Is it the case Mr Wilson that the cheques were drawn and handed over quickly in order to avoid the possibility that action might be taken by the FAI interests to prevent the cheques being cleared in favour of the other unit holders?

A. Can you just ask me that question again please.

Q. Is it the case that the cheques were drawn and handed over to yourself and other unit holders apart from FAI quickly in order to ensure that the FAI interests could take no action to seek to prevent the money flowing to the unit holders?

A. Yes.”

Russell, towards the end of his cross-examination was asked:—

“Q. Mr Russell you know don't you that delivery of those cheques to the payees on them was deliberately withheld?

A. I think deliberately withheld for a short period would be the correct way to answer that.”

This admission contradicted oral evidence he had earlier given. His cross-examination included the following:—

“Q. And you also deliberately refrained from handing over a cheque to Mr Sproats?

A. I wasn't sure whether Mr Sproats should have been the recipient of that particular cheque.

Q. Well did you deliberately refrain from informing him that the cheque was available for the FAI unit holders on that day?

A. I didn't deliberately refrain I didn't think of that.

Q. All right it occurred to you to give the cheques to other units holders on that day?

A. I think one unit holder received the cheque on that day the others the following week.

Q/HIS HONOUR. When you say ‘didn't occur to you’ that is what was put to you it didn't occur to you. Are you telling me one of them came along and said in effect look let me have that cheque now.

A. When the cheques were signed yes that is correct.

The above letter from Clayton Utz enclosing the two cheques for the applicants was written in response to a letter dated 4 July 1997 (a Friday) by W.T. Purcell Chadwick & Skelly to Clayton Utz (Exhibit 4 p.242).

The final paragraph of the letter dated 4 July read:—

“Finally please advise by return if your clients are prepared to undertake in the event that funds are drawn down under the current QIDC facility for the purposes of the 27 June 1997 resolution to which we have referred that your client will not make any payment by way of a return of capital to unit holders pending the determination of the current proceedings. In the absence of such an undertaking our client will have little alternative but to move the court on Monday for an injunction to restrain such payment.”

I am satisfied that when he sent that letter which was received by Clayton Utz by facsimile transmission at 4.37 pm on 4 July 1997, Skelly was quite unaware that $1 million of the QIDC advance had been drawn to pay moneys to the unit holders - as Mr Fraser put it - he was unaware the horse had bolted.

Clayton Utz sent by hand delivery on 7 July 1997 (the following Monday) a letter in reply, to which I shall later return, but I infer that the concluding paragraph of Skelly's letter of 4 July 1997 had flushed out the two

cheques which I find were being held indefinitely by Russell acting on the instructions of the majority directors. The two cheques in favour of the applicants were certainly not handed over within the week following 27 June.

Exhibit 28, the bank statement of NW shows that two cheques each for $233,333.33 were debited to NW's account on 8 July 1997. I find that these cheques were the cheques in favour of Keenbark Pty Ltd (Bayles' company) and Richdown Pty Ltd (Haseler's company).

I find that the cheques - one payable to FAI Developments Pty Ltd in the sum of $200,000 and the other payable to Mowete Pty Ltd in the sum of $100,000 - which were sent with the letter of 7 July 1997 have not been banked. I infer that Skelly's letter of 4 July caused the above two cheques which were debited on 8 July 1997 to be presented for payment in order to avoid what Russell and the majority directors saw as a threat of court action which might prevent the distributions to Haseler's company and to Bayles' company being put into effect.

(ii) Invalidity of the resolution

Exhibit 12 is a diary note prepared by Sproats of the board meeting of NW held on 27 June 1997. I find that he composed ex.12 from handwritten notes he had made while at the meeting. I find he probably prepared ex.12 on 29 June 1997 and I find that he sent it by facsimile transmission to Skelly on Friday, 4 July 1997. Sproats noted in ex. 12 under the heading “Item 4”:

“As a consequence of Item 3 QM had approached QIDC to increase the loan by $2M. to

• cover cash flow shortfall

• return $1M capital contribution made in 1993

RJS stated that it was unreasonable for the board to vote as we had no notice and accordingly time for the shareholders to consider.

Motion put and carried 3:1 (RJS voted against).”

I accept that in that passage Sproats accurately recorded his summary of what had occurred.

I note also that when he faxed the diary note to Skelly he did so under cover of a document on his company's letterhead on which he wrote (inter alia):

“Ian Russell spoke to future (sic) funding & cap. repayment.”

The evidence of Sproats to which I have just referred was consistent with the following:—

(a) the first edition of the minutes prepared by Russell in which he recorded (inter alia):—

“The borrowings had been arranged with QIDC on the following basis:

• $1.00M working capital requirements

• $1.00M in return of invested funds to unitholders

the return of funds to unitholders thereby representing a loan repayment to each unitholder in respect of moneys originally contributed in August 1992.

It was therefore resolved to:

(a) ...

(b) repay to each of the unit holders the various loans received by the Company as trustee


(b) The letter dated 4 July 1997 written by W.T.Purcell Chadwick & Skelly to Clayton Utz (ex.4 p.242) in which Skelly said (inter alia):—

“As we understand the position the funds to be borrowed from QIDC are to be applied -

...

(ii) as to a further $1M to repay to unit holders capital which they contributed to the project.”

and

(c) The letter dated 7 July 1997 from Clayton Utz to W.T.Purcell Chadwick & Skelly in which Clayton Utz said:—

“The resolution of the Board passed on 27 June 1997 was to borrow $2M from QIDC so that $1M could be used for working capital requirements and $1M could be used to repay loans which were made by the unit holders to the Trustee in August 1992. That resolution is consistent with the obligations (mentioned above) which the Trustee is under by reason of your clients having exercised their rights under subclause 6A.1(b). The repayment to the unit holders of the loan is part of the process of vesting the trust. . .”

[The underlining is mine]

A little later in the same letter the solicitors wrote:—

“The $1M which was borrowed to repay the unit holders had already been distributed by cheques drawn on 27 June prior to the time we received your letter dated 4 July. That letter contained the first request by your clients for an undertaking from our client not to make those distributions, notwithstanding that your clients have known of the prospect of those distributions being made

since 27 June. We enclose the following cheques payable to your clients pursuant to the resolution for repayment of the loans . . .”

I add that Russell admitted in cross-examination that the letter of 7 July 1997 to which I have just referred was written on his instructions and that in particular he had told Clayton Utz

“repayment of unit holders of the loans is part of the process of vesting the trust”.

Thus far there can in my view have been no doubt that those voting at the meeting intended the payments to the unit holders totalling $1 million to be payments of a capital nature.

Sproats' evidence, which I accept, made this clear and as I have pointed out his views on the nature of the payments are consistent with those expressed by Clayton Utz in their above letter of 7 July 1997 written on Russell's instructions.

Thereafter Russell and Wilson, as I so find, attempted to amend the minutes to alter the character of the payments to unit holders from capital in nature to income in nature.

I find that Skelly's above letter of 4 July 1997 written to Clayton Utz raised with the latter the possibility that payments of a capital nature had a breach of trust consequence. In the course of that letter Skelly had said:—

“Having regard to the fact that our clients have exercised their rights pursuant to 6A1(b) of the Noosa Waters Syndicate Unit Trust Deed can you offer some explanation of the basis upon which the trustee is empowered (having regard to the obligations under that provision of the Trust Deed) to borrow moneys for either purpose.”

On 11 July 1997 W.T.Purcell Chadwick and Skelly wrote again to Clayton Utz raising the same matters concerning payments of a capital nature. In addition, Skelly said:—

“Further, the Board's decision to repay capital to unit holders is a ‘capital expenditure’ and in that regard, article 107(k) of the Articles of Association has not been complied it.”

Russell made a diary note (Exhibit 27) of a discussion he had had with Wilson. He thought this discussion was on 10 or 11 July 1997. Exhibit 27 which I am satisfied is in Russell's handwriting is headed “GJW changes to minutes of 27 June 1997” reads:—

“• make deletions

• purpose of borrowings was to make distn to the Unitholders of S1.00M equivalent to that amount invested by the unit holders in 1992.

Resolution:

(a) alter the resolution so that the $1.00M distn paid proportionate to their interests;

(b) put on footnote satisfying the roving resolution of 4 July [indecipherable] the payment of directors fees.”

Wilson in evidence thought this discussion with Russell occurred on 17 July. Which ever date is correct I find the discussion resulted in Exhibit 27 and the discussion occurred sometime after 4 July 1997 and probably on or about 11 July 1997 on which date I am satisfied Russell at least and probably Wilson knew that the applicants' solicitors were saying that the payments to the unit holders of a capital nature had breach of trust consequences.

I find that after Russell had made his diary note Exhibit 27 he prepared a second set of minutes of the

directors meeting which had been held on 27 June 1997. This second set appears in Exhibit 4 pp.254-257. This second set showed in respect of item 4 alterations so that the relevant portions of item 4 now read:—

“• to distribute the amount $1.00M to the unit holders which is equivalent to those funds invested by the unit holders in August 1992;

Mr Russell also advised the meeting that he estimated that the net profit available for distribution for the 1997 year could be in the vicinity of S10.00M and suggested that due in this performance it was quite appropriate to pay to the unit holders a distribution of profits.

It was therefore resolved to:—

(a) .....

(b) to pay or to distribute to the unit holders the amount of $1.00M proportionate to their interests ...”

I find that on 17 July 1997 Russell sent to Sproats (in Sydney) by facsimile transmission a copy of the second set of minutes. Accompanying the minutes was a message which read:—

“Ray

Please find minutes of meeting directors which have been amended as a result of my consultation with each of the other directors. These will require confirmation by the board at our next meeting.

Kind regards,

Ian.”

I find that Russell did not amend the minutes as a result of his consultation with each of the other directors as he had stated in the above message to Sproats. I find

the amendments arose after he had consulted with Wilson only. I shall later refer to this message.

On 31 July 1997 Bayles swore an affidavit (OS 5874/97) in which he said:—

“20. At the meeting of NW's board on 27 June 1997 a resolution was passed for a borrowing and distribution of $1M proportionately amongst the unit holders of the NWSUT. I do not recall any discussion at that meeting about that distribution being a return of capital. Rather, I recall that there was discussion about that distribution being a distribution of income.”

When cross-examined before me Bayles said it was “absolutely correct” that at the meeting of 27 June no-one had used the phrase “distribution of income”. In other words he resiled from the phrase shown in the above para.20.

Bayles said “distribution of profits” or a phrase involving the word “profits” was used. Bayles oral evidence is inconsistent with his affidavit. Bayles was an unsatisfactory witness and on this aspect I reject his evidence.

On 30 July 1997 Wilson swore an affidavit in OS 5874. In that affidavit he dealt with the resolution to borrow $2 million from QIDC.

In para. 19 he paraphrased item 4 and then went on:—

“20. Originally, the secretary of NW, Mr Russell, made a mistake in preparing the minutes for item 4. A true copy of the incorrect minutes he prepared is exhibit “RJS2.2” to the affidavit of Mr Sproats.

21. Upon receiving the draft minutes which were incorrect, I requested Mr Russell to correct the error and he has done so. It is not the first time Mr Russell has made mistakes in preparing minutes; there have been 2 occasions which I can recall where

he has made mistakes within the last 12 months or so which have required correction.

22. I moved the motion for the borrowing to effect an interim distribution of income of $1M to the unitholders in proportion to their units in the NWSUT. I do so because I was concerned that Oxmead and other unitholders would have a significant income tax liability because of income that would be received by them from the project for the financial year ended 30 June 1997 but would have no cash from the project with which to meet that liability. I picked $1M as the amount of the distribution because, in or about August 1992, the unitholders had (in the proportions in which they hold units in the NWSUT) paid $1M to NW to acquire one million $1 units (in their relevant proportions) in the NWSUT using their own funds rather than using funds lent by FAILF; that acquisition having been a condition of continued lending to the unitholders by FAILF. I recall saying at the meeting that I thought that $1M was an appropriate amount to be distributed for that reason.

23. However, I did not say that the $1M distribution to unitholders was by way of a return of capital. I do not recall any discussion at that meeting about the distribution being by way of a return of capital, not by way of redemption of units. Rather, as is shown in the minutes, the resolution was immediately preceded by a discussion of the profitability of the project. The corrected minutes are an accurate record of the passing of the resolution to borrow and utilise $2M and the discussion which took place immediately prior to that resolution being passed.”

Having seen and heard Wilson give evidence I have no hesitation in rejecting the matters to which he swore in the above paragraphs. I find that Russell did not make a mistake when he prepared the first set of minutes and

recorded item 4. I find that Item 4 in those minutes accurately recorded the character or nature of the payments resolved to be made to the unitholders. I find that Russell consulted with Wilson as to how to amend the minutes in such a way as to avoid any suggestion that the distribution to the unit holders was in breach of trust.

In short, I find that the resolution in item 4 was intended to repay the unit holders capital which they had invested in August 1992.

In para.22 of Wilson's affidavit which I have set out above he had mentioned the matter of “interim distribution”. Paragraph 20 of Bayles' affidavit, which I have above set out, does not mention interim distribution and, neither of these two sets of minutes prepared by Russell showed the payments to the unit holders to be “interim in character”. Exhibit 27 mentions nothing of an interim nature. As I have said the resolution was passed with the intention that the unit holders were being repaid capital which they had invested in August 1992.

I am satisfied that payments to the unit holders as recorded in the first set of minutes were in breach of trust for the following reasons:—

(a) the capital contributions of August 1992 had been satisfied, as required by the “Unitholders Agreement”, by the issue of units in NWSUT. Clause 4 of the “Unitholders Agreement” dated 31 July 1992 read:—

“4. In so far as any funds shall be provided to the Trustee by a Unitholder (out of funds provided pursuant to a concurrent loan or pursuant to a requirement to make a payment referred to in cl. 1(b)) those funds shall be treated as having been paid on account of the units to be allotted to the unitholder in accordance with this Agreement until such time as the aforesaid units are allotted.”

I find that each payment to a unit holder in terms of the resolution was a return of capital and the procedure required by cl.7 of the NWSUT (see Exhibit 3 p.67) was not followed. Clause 7 prescribes “rights of pre-emption” for units except for a sale, purchase or redemption pursuant to cl.6 or 6A of the deed.

The resolution in question was not passed with the consent of all beneficiaries of NWSUT - the FAI entities did not consent (see clause 7). I find that by reason of the late notice to their nominee, Sproats, and his being in effect refused an opportunity to consult with them and obtain their instructions the FAI entities were effectively denied any opportunity of considering if they wished to consent to the resolution.

In addition there is cl.3.10 of the NWSUT which appears under the heading “THE UNITS”. It reads:—

“3.10 the Trustee may at any time with the consent of all the Unit Holders redeem any unit or units held by any Unit Holder by payment to such Unit Holder of a sum equal to the redemption value of the unit or units being redeemed (or such other amount as is consented to by all of the unit holders) whereupon the unit holder shall deliver to the trustee for cancellation any relevant unit certificate. For the purposes of this cl.3.10 the redemption value shall be calculated by dividing the value of the trust fund at the time of redemption by the number of units then issued.”

In my view this clause alone operated to prevent any redemption by NW of units without the consent of all unit holders. Such consent was absent.

In addition, I find that the payments resolved to be made to the unit holders were not interim distributions of income. I have already dealt with this aspect.

I accept Mr Fraser's submission that it would be quite wrong and inappropriate to make “interim distributions of income” by way of actual payments of borrowed moneys at a

time when the unit holders concerned owed some $79 million to the trustee. This latter figure appears in a management report attached to the notice of meeting of directors to be held on 27 June 1997 (see Exhibit 4 at p.229 showing loans to unit holders of approximately $79.26 million).

In addition to that document, the “estimated balance sheet” of NW as at 30 June 1997 and the notes thereto (see Exhibit 3 Part B pp.78 and 79) show loans to unit holders totalling approximately $81.6 million.

I accept Mr Fraser's submission that any distribution to the unit holders should have been by way of a book entry reducing the amount of the respective unit holders debt - as the evidence showed had been done on prior occasions.

(iii) The Trustees' Defence of its Position

Mr Fraser has submitted that the trustee's attempts to defend its position in regard to the $2 million loan from QIDC and its resolution concerning the $1 million to be distributed to the unit holders have been improper.

By the time NW first sought the extra $1 million from QIDC on 13 June 1997 FAI Developments Pty Ltd and Mowete Pty Ltd had, on 30 September 1996 commenced litigation against NW and NWD (W8176/96) and on 11 April 1997 the same two companies had issued OS 3252/97 against NW seeking a review of NW's alleged failure to proceed to realise all the assets of NWSUT as well as seeking other relief.

I find that certainly by June 1997 the majority directors and Russell must have known that their actions and behaviour in respect of NW and NWD and the two trusts were being scrutinised by the FAI Unitholders. The present proceedings (OS 5874/97) had been commenced on 3 July 1997.

Despite that knowledge, Wilson and Russell set about amending the resolution passed on 27 June 1997 - probably on or about 11 July 1997 - in such a way that the character of the payment to each unit holder was to be changed from

capital to income. I find that not only did they attempt to make such an amendment but Russell I find lied to Sproats when he sent the message to Sproats on 17 July 1997 which accompanied the second set of minutes. I find he lied when he told Sproats in the message that the minutes had been amended “as a result of my consultations with each of the other directors”. I find that Russell probably made this statement in the hope that it would persuade Sproats to agree with the amendment.

I accept Sproats' evidence that at the conclusion of the meeting of 27 June 1997 he had “no idea at all” that the $2 million advance from QIDC was to be made that day and that he assumed the payments to the unit holders would happen in due course.

I have already noted and made findings concerning the speed with which the $2 million advance was received by NW and the cheques drawn thereon in favour of the unit holders as well as arrangements made to achieve that end; of all of these matters I am satisfied Sproats was unaware he not being privy to the conspiracy of the majority directors which had preceded that meeting.

Rubinstein gave evidence that he instructed FAI's solicitors to pursue the $2 million loans. On 27 June 1997 Skelly wrote to Clayton Utz concerning a resolution passed on that day for payment of directors' fees and said he would deal separately with the $2 million borrowing from QIDC (see Exhibit 4 p.232). I find Skelly wrote this letter following instructions from Sproats. Then on 4 July 1997 Skelly wrote on the issue of the $2 million borrowing (see Exhibit 4 p.242). In that letter he asked for the undertaking (to which I have already referred) that NW would not make any payment by way of return of capital to unitholders pending determination of the present proceedings which had been issued on 3 July 1997.

This request drew what I consider a highhanded response from Clayton Utz (no doubt acting on Russell's instructions) when, after telling Skelly that the cheques

for the unitholders had been drawn on 27 June 1997 they said:—

“That letter [dated 4 July] contained the first request by your clients for an undertaking from our client not to make those distributions notwithstanding that your clients have known of the prospect of those distributions being made since 27 June.”

Given the trouble to which I find the majority directors and Russell went to ensure that Sproats did not know before the meeting of the proposal or plan to pay $1 million to the unitholders and given that Sproats had no idea at all that the payments were to be made immediately after the meeting I thought that comment was as I said highhanded.

I accept Mr Fraser's submission that the correspondence between the solicitors at this time and especially the letters between 27 June 1997 and 7 July 1997 (inclusive) show that the FAI Group were concerned about both the resolution to pay directors' fees (to which I shall shortly come) and the distribution to unitholders and that FAI incorrectly initially focused only on the directors' fees. It is a matter of inference but I accept Mr Fraser's submission and infer that that incorrect focus was planned and intended by the majority directors.

I do not overlook that at the hearing before me, when Sproats was cross-examined, counsel for NW, no doubt acting on instructions, questioned Sproats in such a way that it appeared to me NW was seeking some sort of admission from Sproats which might be used to justify its actions concerning the payment of the $1 million to the unitholders. I instance the following questions and answers at pp.60 and 61 during cross-examination by Mr McMurdo QC:—

“Q. May we also assume that you said nothing at that meeting to the effect that it could be beyond power to pay 1 million of 2 million to be borrowed from QIDC to unitholders?

A. Could I have the question again I'm sorry.

Q. Yes may we also assume you said nothing at the meeting to the effect that it would be beyond power for 1 million of the 2 million to be borrowed from QIDC?

A. No.

Q. To be paid to unitholders?

A. No I didn't.

Q. That matter that is the matter of the $2 million borrowing and the application of $2 million was something which you reported to FAI after the meeting or to someone representing it?

A. I certainly told Mr Skelly and I think I just - I rang Skelly after the meeting.”

I am satisfied after hearing Sproats that he was not in a position to be able to raise questions concerning the legality or appropriateness of this distribution to unitholders at the meeting because the majority directors had in my view improperly ensured that he had no notice of it until after the meeting began. Sproats I might add is not a lawyer.

I find the conduct of Wilson, Bayles, Russell and Haseler in connection with this $2 million advance from QIDC and more particularly the use of the $1 million advance to pay the unitholders to be that which one expects of a shyster (Shorter Oxford English Dictionary “one who conducts his business in a tricky manner”).

Directors Fees

At the directors meeting held on 27 June 1997, a resolution was passed (with Mr Sproats voting against it) approving payment of $40,000 for directors' fees and $10,000 for out of pocket expenses for the year ending 30 June 1997 to be paid to each director “next week in July” and thereafter paid quarterly to each director.

Both sets of minutes for that meeting, as prepared by Russell, showed under “Item 6 - Other Business” the following:—

“Item 6 - Other Business

The matter pertaining to both Directors fees and reimbursement of Directors out of pocket expenses was raised by Mr Wilson.

Mr Sproats advised the meeting that he had already had discussions with his shareholder and Mr Skelly (his solicitor) and explained that he would be unable to vote for this resolution. He informed the meeting that his advise [sic] from their solicitors was that the payment of fees was not to be agreed upon as the project managers undertook the overall management of the project and therefore it was inappropriate that the Directors receive any fees.

However, discussions ensued between the Directors as to the quantum of what Directors fees would be appropriate in the circumstances.

Given the history of the project to date and the added responsibility of the Directors in their obligations particularly due to the litigation between the Company and FAI it was therefore considered reasonable that the amount of $50,000 per annum to each Director originally put forward by Mr Wilson was not unreasonable. Due to certain Directors having to bear considerable expense in relation to travel and accommodation costs it was considered appropriate that the annual fee be paid as follows:

• $40,000 fee

• $10,000 out of pocket expenses

It was therefore resolved to approve the payment of these fees upon this basis for the financial year ending 30 June 1997 to be paid to each Director next week in July and thereafter that these fees be paid quarterly to each Director.

It was noted that Mr Sproats voted against the resolution.

The meeting closed at 10.45 am.”

I find that the matter of directors' fees had been raised at a directors' meeting of Noosa Waters held on 28 May 1997. The minutes of that meeting record that on that day Mr Wilson raised the matter of the payment of directors' fees and suggested an amount of $50,000 per annum for each director and that Mr Sproats stated he would be unable to vote on this issue but would take the matter on advisement to FAI and await their response.

I am satisfied on the evidence that it was on 23 April 1997 after a board meeting held on that day that Sproats first raised with Wilson the possibility of directors' fees. He told Wilson that he didn't get anything out of being on the board, that he didn't get fees from Noosa Waters and that he didn't get fees from FAI and got no reimbursement for expenses.

I find that after some conversation ensued Sproats drove to Raby Bay where after arrival he telephoned and spoke to Russell saying he did not believe the payment of directors fees was a good idea but wished to pursue the matter of reimbursement of expenses.

I find that on 27 June 1997. Sproats voted against the motion concerning directors fees and did so on instructions from Mr Rubinstein (see Exhibit 13).

I am satisfied that the resolution concerning directors' fees was beyond the powers of the directors (see article 92 of the Articles of Association of NW Exhibit 3 at p.A41).

I find it was only when the resolution was challenged by the applicants' solicitors and the present proceedings were instituted that the resolution was revoked. The letters from Clayton Utz of 27 June 1997 and 3 July 1997 and especially the latter concede that the resolution was beyond power.

As I have earlier mentioned Haseler has not given evidence in this matter. There has been no affidavit from him and given the evidence of Wilson as to the wonderful job QM Properties and PJI (controlled by Haseler) had done in respect of the management and marketing of the Noosa Waters project and given the fact that board meetings of NW were held only five or six times a year, I find that the payment of $40,000 to each director for directors' fees was wholly unjustifiable. Haseler as I have already noted was, to use Mr Fraser's phrase “already richly rewarded” and I am satisfied this was so from the benefits which flowed by way of fees paid, pursuant to contract, to QM Properties and PJI.

Again, no notice concerning the proposed directors fees was given before the actual meeting of 27 June. Had clear and proper notice been given before the meeting it may well have been that lack of the power to pass the resolution could have been discovered.

I am left with the firm impression that Wilson particularly was keen to reward Haseler ostensibly for (as he said he saw it) arranging the $2 million loan and $40,000 per annum director's fees was his way of achieving this.

Despite the fact that the resolution was invalid I found it surprising that the majority directors and particularly Wilson continued to attempt to defend their conduct in passing the resolution. In Wilson's affidavit, on three occasions he alleged that it was Sproats who raised the issue of directors fees on 27 June 1997. I am satisfied that these allegation were quite false and it was not until Wilson was cross-examined on 19 November 1997 that he conceded that it was he Wilson who had raised the matter of directors fees and that Sproats did not.

Conclusions

So far I have reviewed conduct of the trustees during 1996 and 1997 and I have made findings in respect of that

conduct. I have not mentioned all conduct but limited what I have said to conduct which in my view is relevant to the matters in issue before me.

The applicant's counsel Mr Fraser QC has labelled much of this conduct as misconduct which he says justifies my ordering complete removal of the trustees or alternatively resorting to the custodian trustee structure envisaged by s. 19 of the Trusts Act 1973 and at the same time appointing a new trustee or trustees as managing trustee or trustees.

I refer now to other relevant legal principles applicable to the matters before me - I have already mentioned some. There is no dispute about this Court having power to remove the trustees.

1. In determining whether or not it is proper to remove a trustee the welfare of the beneficiaries is the dominant consideration. In Miller v. Cameron (1936) 54 CLR 572 at p.575 Latham CJ said:—

“It has long been settled that in determining whether or not it is proper to remove a trustee, the court will regard the welfare of the beneficiaries as the dominant consideration. (Letterstedt v. Broers (1884) 9 App. Cas. 371 at p.387).

In Miller v. Cameron Dixon J (as he then was) said at pp.580-1):—

“The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued

occupation of the office. Such a judgment that must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised.”

In Guazzini v. Pateson (1918) 18 NSW SR 275 the Chief Judge in Equity referred to the principles by which the court should be guided when asked to remove trustees for misconduct. He said (at p.292-3):—

“Story in his Equity Jurisprudence says (at s.1289): “But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not, indeed, every mistake or neglect of duty or inaccuracy of conduct of trustees which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property, or to show a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.”

Commenting upon this, Lord Blackburn, in delivering the judgment of the Privy Council in Letterstedt v. Broers ( 9 A.C. 371), says (at p.386): “It seems to their Lordships that the jurisdiction which a Court of Equity has no difficulty in exercising under the circumstances indicated by Story, is merely ancillary to its principal duty, to see that the trusts are properly executed. This duty is constantly being performed by the substitution of new trustees in place of original trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in resisting them, and the Court might consider that in awarding costs, yet if satisfied

that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.” And (at p.387) he says: “In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries.” Again in Re Wrightson ( [1908] 1 Ch. 789), Warrington, J., says (at p. 803): “You must find something which induces the Court to think either that the trust property will not be safe, or that the trust will not be properly executed in the interests of the beneficiaries.” In considering the interests of the beneficiaries, I have to consider the interests of all, not those of the plaintiff only, and I have to ask myself whether the facts disclosed in the case establish that it is for the welfare of the trust estate as a whole that the trustees should be removed.”

In Re Whitehouse (1982) Qd.R 196 Macrossan J (as he then was) applied Letterstedt v. Broers and Miller v. Cameron and more particularly the extract from the judgment of Dixon J which I have earlier set out.

2. A trustee who is in an antagonistic relationship with his beneficiaries or some of them may be removed (Re Whitehouse (supra)) where at p.206 Macrossan J said:—

“In the present case, while giving full credit to CM Whitehouse for his part in building up the assets of the trust and while acknowledging that his disputes with the two beneficiaries may be due, in part, to unavoidable clashes of personality, I think, nevertheless, that the disputes and the state of

animosity which exists have been attributable to him to an extent sufficient to make me apprehensive as to his future administration of the trust... I am however moved to act by his obstructive attitude and by his general unwillingness to attend promptly to the beneficiaries' rights and by the deficiencies which have been permitted to exist in the keeping of proper accounts and in the general administration of the trusts, all of which have accompanied the animosity which has existed in the past and which with it will, in my estimation, if uncorrected, continue in the future.”

(The underlining is mine)

3. A trustee who continually favours its directors interests over that of the other beneficiaries may be removed, particularly where there is no reason to believe such conduct will not continue in the future.

In Nicholls & Anor v. Louisville Investments Pty Ltd; Nicholls & Anor v. Rajetta Pty Ltd (1991) 10 ACSR 723Louisville Investments Pty Ltd and Rajetta Pty Ltd were respectively trustees of the CMI Safe Co Trust and the Berry Family Trust. Some family members who were beneficiaries of the trusts sought to set aside a series of determinations by the directors of the company who were trustees of those trusts as to the division of income among the various family groups which were beneficiaries of the trusts. In page 728 Needham J said:—

“The evidence establishes to my satisfaction that both Louisville and Rajetta are under the de facto control of the Berry brothers. The decisions as to distribution of trust income clearly indicate that the Berry brothers have continually made decisions favouring themselves as against the other beneficiaries. This is a clear breach of trust and there is no reason to believe that in future years similar decisions will not be made. While cl.2(b) gives the power to discriminate, it is in my opinion

improper for those in control of the trustee to use that power regularly to advance their own interests... .”

This case is in my view an example of one of the “considerations” to which Dixon J referred in the above quoted extract from his judgment in Miller v. Cameron.

The manner in which in these reasons I have found the affairs of NW and NWD (companies which administer the NWSUT & BLUT) have been conducted since about the second quarter of 1996 plainly shows that a state of antagonism has existed between the trustees who are effectively controlled by Wilson, Haseler and Bayles (who represent the majority unit holders) and the applicant minority unitholders and that state has existed for upwards of some 18 months.

This antagonism of itself might not suffice for me to order the removal of NW and NWD as trustees; however the antagonism is but one of a number of considerations which I take into account. When I take these considerations into account I conclude that the welfare of all the beneficiary unit holders dictates the removal of the trustees from office. In saying that I recognise that the question whether or not to remove the trustee is a delicate one; however, in the instant case I am left in no doubt at all that removal is necessary.

The considerations which have led me to this conclusion are evident from the findings I have already made. I note also the following matters which I regard as significant.

1. None of Wilson, Bayles and Haseler appears to have the slightest conception of a trustee's duties and all in my view were and are oblivious to the fact that when performing their directors' duties they were directors of a company which was and is trustee of a trust. None of these 3 men seems to appreciate that as a director he is a fiduciary agent of the company trustee. Bayles in particular seemed not to appreciate what were his duties as a company

director let alone duties as a director of a trustee company.

2. Wilson connived with Haseler and Bayles to make what in my view were important decisions concerning each trust and in such connivance excluded quite deliberately their fellow director Sproats and the unit holders he represented.

3. From a practical point of view Sproats has been effectively excluded from the board of directors and his views have been overridden by the majority directors. The conduct of Wilson, Bayles and Haseler has been such that the interests of the beneficiaries whom Sproats represented have been clearly overlooked and on occasions overridden. I find these 3 directors have made and continued to make decisions favouring themselves and their companies as against the applicant companies.

4. On 15 August 1996 Wilson, Haseler and Bayles resolved that they as a committee would run each of the trustee companies. As the findings I have made in these reasons show, each of Wilson, Bayles and Haseler has resorted to tricky conduct of a type which has caused me to label their conduct as befitting “shysters” - although this word has its origin in slang it is one which I am sure each fully understands.

5. Haseler joined with Wilson and Bayles in promoting his own interests at the expense of all the unit holders and this is shown from the manner in which he was party to obtaining the resolution of the board effectively increasing by 2 per cent the fees to QM Properties and PJI. I have earlier commented on his failure to swear any affidavit, his not giving any oral evidence and lack of explanation for his absence. Such failures and his absence from the witness-box has enabled me to infer as I do that the 2 per cent increase was excessive and what was

described in argument as “an improper diversion of trust property” (if implemented). Haseler appears to have adopted a hard-nosed approach to this increase in fees. Liability to the two companies controlled by him has been recognised in the trustee's books of accounts. It is true that the increase has not yet been paid but in my view this aspect is of little moment because the majority of directors in QM Properties and PJI appear to assert that the trustee is liable to pay the increase.

My decision to remove NW and NWD as trustees of the NWSUT and BLUT respectively is to be implemented in such a way that there will be no change in the outward manifestations of NW and NWD and in the hope that there will be no harm done to the Noosa Waters Project concerned as it is with development and sale of land.

NW and NWD will not be removed entirely but will be appointed custodian trustees of their respective trusts.

I propose to appoint Ian William Donaldson and Paul Desmond Sweeney of Hall Chadwick and Co to be joint managing trustees of each trust.

The form of orders I propose to make will shortly appear but before I proceed further I now set out s.19 of the Trusts Act 1973 from which section I derive the power to appoint NW and NWD as custodian trustees.

“19. Custodian trustees. (1) Subject to the provisions of this section and to the instrument (if any) creating the trust, any corporation may be appointed to be custodian trustee of any trust in any case where, and in the same manner as, it could be appointed to be trustee.

(2) Subject to the provisions of the instrument (if any) creating the trust, where a custodian trustee is appointed of any trust-

(a) the trust property shall be vested in the custodian trustee as if the custodian trustee were the sole

trustee, and for that purpose vesting orders may, where necessary, be made under this Act;

(b) the management of the trust property and the exercise of all powers and discretions exercisable by the trustee under the trust shall be and remain vested in managing trustees other than the custodian trustee (in this section called ‘the managing trustees’) as fully and effectually as if there were no custodian trustee;

(c) the sole-function of the custodian trustee shall be to get in and hold the trust property and invest its funds and dispose of the assets as the managing trustees in writing direct, for which purpose the custodian trustee shall execute all such documents and perform all such acts as the managing trustees in writing direct;

(d) for the purposes of paragraph (c), a direction given by the majority of the managing trustees, where there are more than one, shall be deemed to be given by all the managing trustees;

(e) the custodian trustee shall not be liable for acting on any direction to which paragraph (c) refers; but if the custodian trustee is of opinion that any such direction conflicts with the trusts or the law, or exposes the custodian trustee to any liability, or is otherwise objectionable, the custodian trustee may apply to the Court for directions in the matters and any order giving directions shall bind both the custodian trustee and the managing trustees; and the Court may make such order as to costs as it thinks proper;

(f) the custodian trustee shall not be liable for any act or default on the part of any of the managing trustees;

(g) all actions and proceedings touching or concerning the trust property shall be brought or defended in the name of the custodian trustee at the written direction of the managing trustees, and the custodian trustee shall not be liable for the costs thereof apart from any payable out of the trust property;

(h) a person dealing with the custodian trustee shall not be concerned to inquire as to any direction, concurrence or otherwise of the managing trustees or be affected by notice of the fact that the managing trustees have not concurred; and

(i) the power of appointing new trustees, when exercisable by the trustee, shall be exercisable by the managing trustees alone, but the custodian trustee shall have the same power as any other trustee of applying to the Court for the appointment of a new trustee.

(3) On the application of the custodian trustee or of any of the managing trustees or of any beneficiary and on satisfactory proof that it is the general wish of the beneficiaries or that on other grounds it is expedient to terminate the custodian trusteeship, the Court may make an order for that purpose and may also make such vesting orders and give such directions as in the circumstances seem to the Court to be necessary or expedient.”

This section can be beneficially used in the present case.

First, the trust property in each case is already vested in NW and NWD. Secondly, pursuant to s.19(2)(b) the management of the trust property and the exercise of all powers and discretions exercisable by the trustee under each trust shall be and remain vested in managing trustees other than the custodian trustees as fully and effectually as if there were no custodian trustees. Thirdly, in accordance with s. 19(2)(c) the sole function of the custodian trustee shall be to get in and hold the trust property and invest its funds and dispose of the assets as the managing trustees in writing direct for which purpose the custodian trustee must execute all such documents and perform all such acts as the managing trustees in writing direct.

I respectfully adopt the following words of Cross J. in Re Brook Bond & Co Ltd's Trust Deed (1963) 1 Ch. 357 at p.363 where his Honour, in speaking of a custodian trustee created by s.4 of the Public Trustee Act 1906 said:—

“It is apparent that the duties of a custodian trustee differ substantially from those of an ordinary trustee. If the trust instrument or the general law gives the trustees power to do this, that or the other, it is not for the custodian trustee to consider whether it should be done. The exercise of powers or directions is a matter for the managing trustees with which the custodian trustee has no concern, and he is bound to deal with the trust property so as to give effect to the decisions and actions taken by the managing trustee unless what he is requested to do by them would be a breach of trust or would involve him in personal liability.”

I add that s.4(2)(b) of the Public Trustee Act is couched in terms very similar to s. 19(2)(b) of the Trusts Act of 1973.

I have considered and rejected the offer made by Mr McMurdo Q.C. that this Court accept certain undertakings by NW and NWD and permit NW and NWD to remain as trustees but empowering Messrs Sweeney and Donaldson to monitor the affairs of each trust and report to the unit holders.

Before I come to the form of the orders I should say that during addresses Mr McMurdo said that he proposed to make submissions on the matter of costs after he has had an opportunity to consider the findings which I have now made. Consequently, I am not today making any order as to costs but will do so later.

Another matter I mention is the matter or remuneration of the joint managing trustees. There is evidence of hourly charge rates for Messrs Sweeney and Donaldson. These rates range from $36 per hour for a junior to $250 for a partner other than a partner business advisory. They are based on the scale of charges adopted by the Insolvency Practitioners Association of Australia. I do not propose to allow the managing trustees carte blanche in calculating their remuneration. The managing trustees are chartered accountants and I am bound by the decision of the Full Court of the Supreme Court of Queensland in Re Queensland Forests Limited (in liquidation) (1966) Qd.R. 180. In that

case the Court was called on to decide whether the claim by a chartered accountant for his remuneration as liquidator in the winding up of a company was reasonable. He had based his claim on the rates recommended by the Institute of Chartered Accountants in Australia. The Full Court held that a scale of charges compiled and recommended by a reputable professional body should, by virtue of the very fact that it is so compiled and so recommended, be regarded as reasonable; Re Queensland Forests Ltd (in liquidation) was not followed by the Full Court of the Supreme Court of Victoria in Re Standard Insurance Co Ltd (in liquidation) (1967) VR 600. Although the present case does not concern a liquidator's remuneration, nevertheless the hourly charge rates are, as I understood the evidence, amounts slightly less than the hourly charge rates compiled and recommended by the Insolvency Practitioners Association of Australia. I propose that if it be necessary and possible, there be some overseeing of the quantum of the managing trustees' remuneration. I shall hear from the parties on this aspect. That the trustees are to be paid for their services is beyond dispute. If I do not provide for machinery fixing their remuneration then the managing trustees will be unable to charge without offending the principle that a trustee cannot make a profit out of his trust. Section 101 of the Trusts Act 1973 enables me to authorise the managing trustees to charge for their services.

Section 101(1) reads:—

“101.(1) The court may, in any case in which the circumstances appear to it so to justify, authorise any person to charge such remuneration for the person's services as trustee as the court may think fit.”

In my view the managing trustees must keep accurate records of work as managing trustees performed by them or any of their employees including the time spent in the performance of such work. In short, I consider the managing trustees should keep records so that, if necessary a bill of costs in the form mentioned in Order 91 Rule 47 can, if necessary be readily prepared.

The orders I make are as follows:—

1. Pursuant to ss.19 and 80(2) of the Trusts Act 1973 (as amended):—

(a) on and from today the respondent Noosa Waters Pty Ltd (ACN 010 979 414) be removed as trustees of the Noosa Waters Syndicate Unit Trust and be appointed as custodian trustee of the said trust;

(b) on and from today Ian William Donaldson and Paul Desmond Sweeney of Messrs Hall Chadwick, Chartered Accountants of Brisbane, be appointed as joint managing trustees of the said trust.

2. Pursuant to ss. 19 and 80(2) of the Trusts Act 1973 (as amended):—

(a) on and from today the respondent Noosa Waters Developments Pty Ltd (ACN 006 364 745) be removed as trustee of the Browns' Land Unit Trust and be appointed as custodian trustee of the said trust;

(b) on and from today Ian William Donaldson and Paul Desmond Sweeney of Messrs Hall Chadwick, Chartered Accountants of Brisbane, be appointed as joint managing trustees of the said trust.

3. The powers of the said managing trustees may be exercised either jointly or severally.

4. The said managing trustees shall be remunerated for their services (and for the services of those assisting them) in accordance with the rates contained in Schedule 3 to these reasons, a copy of which is to be annexed to the formal order of the Court.

Noosa Waters Pty Ltd [“NW” - First Respondent]

Noosa Waters Syndicate Unit Trust [“NWSUT”]

SCHEDULE 1

Name of unit holder in NWSUT

% holding of units in NWSUT

Shareholder of 1 share in NW

Director of NW representing shareholder

FAI Developments Pty Ltd [First Applicant]

20% FAI Developments Pty Ltd [First Applicant]

Sproats

Mowete Pty Ltd [Second Applicant]

10%

Keenbark Pty Ltd [Third Respondent]

23.33% Keenbark Pty Ltd [Third Respondent]

Bayles [Ninth Respondent]

Oxmead Pty Ltd [Fourth Respondent]

20% Oxmead Pty Ltd [Fourth Respondent]

Wilson [Eighth Respondent]

Richdown Pty Ltd [Fifth Respondent]

20% Richdown Pty Ltd [Fifth Respondent]

Haseler [Seventh Respondent]

Ultraview Pty Ltd [Sixth Respondent]

6.66% Ultraview Pty Ltd [Sixth Respondent]

Haseler and Wilson are the only two directors of and shareholders in Ultraview Pty Ltd, but it has not formally nominated any representative to the board

Noosa Waters Developments Pty Ltd [“NWD” - Second Respondent]

Browns Land Unit Trust [“BLUT”]

SCHEDULE 2

Name of unit holder in BLUT

% holding of units in BLUT

Shareholder of 3 shares in NWD

Director of NWD representing shareholder

FAI Developments Pty Ltd [First Applicant]

20% FAI Developments Pty Ltd [First Applicant]

Sproats

Mowete Pty Ltd 10%

[Second Applicant]Keenbark Pty Ltd [Third Respondent]

23.33% Bayles [Ninth Respondent]

Bayles

Oxmead Pty Ltd [Fourth Respondent]

23.33% Wilson [Eighth Respondent]

Wilson

Richdown Pty Ltd [Fifth Respondent]

23.33% Haseler [Seventh Respondent]

Haseler

SCHEDULE 3

Hourly Charge Kate $Partner Other 250Partner Business Advisory 224Manager Other 157Manager Business Advisory 185Manager Property 100Supervisor Other 102Supervisor Business Advisory 95Senior 1 Other 91Senior Business Advisory 85Senior 2 Other 73Senior 2 Business Advisory 67Intermediate 1 Other 63Intermediate 1 Business Advisory 60Secretary 85Junior 36

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