Bergade v La Provence Developments Pty Ltd [1995] QSC 224

IN THE SUPREME COURT OF QUEENSLAND Brisbane WRT No. 555 of 1993 Before the Hon. Justice Mackenzie [Bergade v. La Provence Developments] BETWEEN: DANIEL BERGADE AND: LA PROVENCE DEVELOPMENTS PTY LTD ACN 011 028 729 JUDGMENT - MACKENZIE J. Judgment delivered 06/09/1995 CATCHWORDS: TRUST AND TRUSTEES - removal of Court appointed trustees and appointment of substitute trustee - whether court can appoint a unit holder as trustee in spite of Trust Deed clause prohibiting such an appointment - consideration of conflict of interest of unit holding trustee vis-a-vis other creditors. Counsel: M. Stewart for applicant trustees J. Sweeney for respondents Bergade, Perrett and SCI Le Murex Solicitors: T.F. Wardrobe as Town Agents for McLaughlins for applicant trustees Hopgood & Ganim for respondents Bergade, Perrett and SCI Le Murex Stephen Comino & Cominos for M and A.M. Gras Hearing date: 15 August 1995 and 6 September 1995 -- 1 of 6 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane WRT No. 555 of 1993 Before the Hon. Justice Mackenzie [Bergade v. La Provence Developments] BETWEEN: DANIEL BERGADE AND: LA PROVENCE DEVELOPMENTS PTY LTD ACN 011 028 729 JUDGMENT - MACKENZIE J. Judgment Delivered 6 September 1995 This is an application by Court appointed trustees of the La Provence Unit Trust No.2 to be removed and that Daniel Bergade be appointed as substitute trustee, with the property of the trust vesting in him as trustee. The affidavit of the applicants discloses that they were appointed by an order of Lee J. on 20 April 1993. The units in the trust are held in equal shares by Daniel and Vivienne Bergade, Marc Perrett, Michel and Anne-Marie Gras and the Official Receiver as trustee of the bankrupt estates of Francios Navarro and Jacqueline Navarro. The trust was established for the purpose of acquiring and developing 34 residential units on land at Runaway Bay. All of the units have been sold. In the course of developing and selling the units substantial disagreements arose between the unit holders resulting in a number of applications to this Court. After delivery of a judgment for costs against Mr and Mrs Gras the trustees formed the view that the trust was insolvent and raised with the unit holders the option of making an application to the court for an order that they be -- 2 of 6 -- 2 receivers and managers. Upon discussion of the matter with solicitors for the Bergades and the Perretts it was proposed that they and a corporate debtor reduce the debts owing to them on a pro rata basis so that subject to a dispute with the body corporate of the project over alleged building defects there would be no other creditors of the trust and the trust would be solvent. Certain other steps were taken under the arrangement. It is not necessary to mention them in detail. At the date of the trustees' affidavit there was approximately $442,000 in cash at a bank. The debts of the Bergades, Mr Perrett and the corporate debtor far exceed that sum. The trustees say that there are three outstanding matters to be resolved before the trust can be finalised. The first is recovery of costs from Mr and Mrs Gras. The second is the building dispute with the body corporate which has, notwithstanding negotiations, remained unresolved. Further, the body corporate has not commenced any legal action in respect of those defects despite being invited to do so. The third matter is the finalisation of seabed leases in respect of marina berths. That requires a meeting of the body corporate to be convened and the passing of a resolution granting subleases to the proprietors of the respective lots. The body corporate has not called such a meeting. The Bergades, Mr Perrett and the corporate debtor all consent to the making of the application. So far as the Official Trustee in Bankruptcy is concerned he has indicated that in respect of the estate of Mr and Mrs Navarro he "remains neutral as to the outcome" of the present application. So far as Mr and Mrs Gras are concerned there are solicitors on the record but Ms Houlihan, a member of the firm, deposed that she received a letter from Michel Gras on 13 June 1995 advising that his retainer of the firm was to cease as from 30 June 1995. On 3 July 1995 she wrote to him requesting that he arrange for a notice of change of solicitor and an address for service to be filed but that did not occur. She stated that on 9 August 1995 she forwarded to Mr Gras the documents relating to this application and despite endeavouring to make telephone contact on at least six occasions she had received no response. She requested leave to withdraw as solicitors on -- 3 of 6 -- 3 the record. This was opposed. One further complication is that cl.14(1) of the Trust Deed provides that the power of appointment of a new trustee is vested in the unit holders in the proportions in which they hold units and is exercisable by a resolution of unit holders holding 75% or more of the units. Clause 14(2) provides:- "The power of appointing a new trustee shall not be exercised in favour of any person who may at any time having been the holder of a unit in the fund." Section 80 of the Trusts Act 1973 provides the court may, whenever it is expedient to appoint a new trustee or new trustees and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, make an order appointing a new trustee. The power given is wide in scope. Reliance was placed on In Re. Wilson (deceased) (1923) VLR 277 and Global Funds Management (NSW) Ltd v. Burns Philp Trustee Co Ltd (1990) 3 ACSR 183 as support for the proposition that a restriction of the kind in s.14(2) did not apply to an appointment by the court. However it was conceded that the matter remained discretionary in nature. It was submitted on behalf of the applicant trustees that several factors justified the appointment of Mr Bergade as a new trustee. They were:- (a) the purpose of the unit holders in seeking the order that the applicants be appointed as trustees has been achieved; (b) there is no other trustee willing to act; (c) there is no prospect of a distribution to the unit holders; (d) the parties who seek the appointment of Mr Bergade as trustee are the only ones who have any practical interest in the finalisation of the trust after the conclusion of the dispute with the body corporate; (e) Mr Bergade is familiar with the business of the trust; and (f) none of the unit holders object, in the sense that some have consented, the Official -- 4 of 6 -- 4 Trustee is neutral and that Mr and Mrs Gras have expressed no view on the subject. The respondents represented by Mr Sweeney relied on the circumstances that the court appointed trustee sought to be discharged and there is no other trustee willing or able to act. They also relied on the proposition that his clients were the only persons beneficially entitled to an interest in the trust property and that the court should have primary regard to their interests. It was submitted that the remaining duties of the trustee are largely matters of winding up the trust and in particular to finalise the seabed leases, to settle the defects claim with the body corporate, to recover the trustees' costs from Mr and Mrs Gras and to pay the balance to Bergade, Perrett and the corporate debtor in their capacity as creditors. It was submitted that maintaining the court appointed trustees would result in a further significant portion of the trust estate being spent in costs. I accept that the provision in the trust deed does not prevent a court from approving, pursuant to the Trusts Act, a person who has been a unit holder if a sufficient case is made out. The most probable explanation for its presence was to protect the interests of the various groups of unit holders. At this point the disputes as between unit holders in relation to the administration of the project itself appear to have been finalised. The question of recovery of costs from Mr and Mrs Gras is simply the pursuit of a debt. Finalisation of the seabed leases depends upon action by the body corporate of the project to call a meeting. The matter which gave me some concern after the matter was originally argued was that there is still a significant defects claim raised by the body corporate which is still in dispute notwithstanding negotiations to settle it. In the event that the body corporate was successful a debt would be owed by the trust. Apart from the potential debt to the body corporate, the only other debts are to Bergade and Perrett interests and to the corporate creditor. Ordinarily, where a fund of money exists from which a potential debt which may be established by litigation can be paid, the potential creditor is not entitled to any special consideration in the ordering of the trust's affairs. -- 5 of 6 -- 5 Where the trustee and people aligned with him are debtors of the trust it becomes a question of whether he should be put in a position where by paying those debts as trustee to himself and the others as creditors he can render the body corporate effectively insolvent and leave a potential creditor whose debt arises from the project upon which the trust was engaged with a worthless remedy. It is true that the body corporate has not shown an inclination to commence legal proceedings to enforce that right. However, Mr Sweeney foreshadowed reliance on s.68 of the Trusts Act in the event that the present application were to be granted. The matter was relisted for further argument after the nature of my concern was brought to the attention of the parties. Mr Sweeney read an affidavit by Mr Bergade offering an undertaking to pay to the trust account of his solicitors the sum of $160,000, which is the sum suggested by the solicitors for the body corporate as an appropriate sum to be quarantined pending the determination of the dispute between the body corporate and the Trust. Further, Mr Sweeney was prepared to offer an undertaking substantially in accordance with the agreement referred to in ex."C" to Mr Manteit's affidavit concerning the foregoing of a proportion of the debts owing to his clients so that the trust might remain solvent. In my view these undertakings are sufficient to remove the concerns which led to the further listing of the matter. At the conclusion of further submissions I indicated to the parties that I would make an order in terms which incorporated the undertakings and the terms of an order handed up to me in draft form at the first hearing. I also indicated that I would publish reasons setting out the basis upon which the orders were made. So far as Ms Houlihan's application is concerned I give leave for Stephen Comino and Coninos solicitors on the record for Michel Fernand Gaston Gras and Ann-Marie Terese Gras to withdraw as solicitors on the record as from the date of this judgment. -- 6 of 6 --