Bergade v La Provence Developments Pty Ltd [1994] QSC 342

State se q-t( 34- ~ Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bure.r·:-::--------..... REViSED COPIES ISSUED State Reporting Bureau Date .2 I~ 1 J SUPR E COURT OF QUEENSLAND JURISDICTION No 555 of 1993 DANIEL BERGADE Plaintiff and LA PROVENCE DEVELOPMENTS PTY LTD Defendant BRISBANE .. DATE 22/1 2/94 .. JUDGMENT -- 1 of 31 -- 221294 cml/ck (White J) HER HONOUR: In this application I have concluded that the applicants have failed to discharge the onus which lies upon them, and I dismiss the summons. I publish my reasons. 10 Written submissions to the Court on or before 4 o'clock 14 February 1995 with respect to costs. Parties to exchange those· submissions amongst each other. 30 (~ 40(, : ,. 50 60 2 -- 2 of 31 -- 1:- ... :• / Q.tt?15 I IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 555 of 1993 Before the Hon. Justice White BETWEEN: AND: DANIEL BERGADE LA PROVENCE DEVELOPMENTS PTY LTD (ACN 011 028 729) JUDGMENT- WIDTE J. Plaintiff Defendant Judgment delivered 22 December 1994 CATCHWORDS: Counsel: Solicitors: Hearing dates: Decisions of tmstees of p1ivate tmst sought to be reviewed by certain beneficiruies of tmst - Re Whitehouse (1982) Qd.R. 196 considered Mr. L. Bowden for the applicants Mr. B. O'Donnell for the respondent trustees Mr. R. Perry for the respondents Bergade, Perrett and SCI Le Murex Mr G. Diehm for the respondents F. & J. Navarro Stephen Comino Cominos for the applicants McLaughlins for the respondent trustees Hopgood & Ganim for the respondents Bergade, Perrett and SCI Le Murex Pat Flynn for the respondents F. & J. Navarro 28 and 29 March 1994 -- 3 of 31 -- ) IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: DANIEL BERGADE LA PROVENCE DEVELOPMENTS PTY LTD (ACN 011 028 729) JUDGMENT - WHITE J. Judgment delivered 22 December 1994 No. 555 of 1993 Plaintiff Defendant On 20 April 1993 Lee J. by consent of the parties removed La Provence Developments Pty Ltd ("La Provence") as trustee of the La Provence Unit Trust ("the Trust") and appointed Ross Andrew Duus and Mark Trevor Manteit as trustees ("the new trustees") in its stead. By then the persons and entities interested in the Trust were unable to reach agreement as to a great many matters relating to it. Those persons and entities are: • Michel Ferdnand Gaston Gras and his wife Anne-Maree Therese Gras - "the Gras"'; • Francois Navarro and his wife Jacqueline - "the Navarros"; • Daniel Bergade and his wife Viviane - "the Bergades" or "Bergade" as appropriate; • Marc Perrett - "Perrett"; -- 4 of 31 -- 2 • SCI Le Murex - a Noumean corporation in which Bergade, Perrett and Pirel (not concerned in these proceedings) each hold an equal interest; • Gala Kin Pty Ltd, an Australian corporation associated with the Gras' - "Gala Kin". The unit holders and number of units held in the Trust are as follows: • the Gras' - 8 + 249,992 units jointly; • the Navarros - 8 + 249,992 units jointly (the 249,992 units are disputed); • the Bergades - 250,000 units jointly; o Perrett - 250,000 units. The directors of La Provence at the time of the app?intment of the new trustees were each of the Gras', Jacqueline Navarro, Bergade and Perrett. Each of the Gras' and the Navarros hold one one dollar ordinary share in the company. After extensive investigations and consultation with the parties and two applications to the Court the new trustees issued a final report on 19 October 1993 in which they set forth the decisions which they had reached and the action which they proposed to take in respect of those decisions, in effect, to finalise the Trust. The Gras' did not agree with many of these decisions and have brought this application for review pursuant to s.8 of the Trusts Act 1973. They perceive the new trustees to be acting in breach of their obligations as trustees if they carry out their decisions. Mr Bowden, for the Gras', approached the application on the basis of an application for an interlocutory injunction in that he submitted that there were serious questions of fact to be tried. The summons seeks an order that the new trustees be directed to apply to the Court for directions as to their obligation to do certain things which they have indicated in their report that they propose doing. In the alternative it seeks an order that the new trustees be -- 5 of 31 -- 3 restrained from carrying out the decisions and be directed to defend certain claims that might be brought as a consequence thereof; to continue certain litigation which they had decided to discontinue; and to seek to recover certain payments already made. The new trustees were appointed in the within action brought by Bergade against La Provence to recover certain loans made to the company when trustee of the Trust. The Navarros had sought the appointment of a provisional liquidator to La Provence in company application no. 917 of 1992 and the Bergades the appointment of receivers and managers. On 20 April 1993 the parties reached agreement which culminated in the order of Lee J. that the best interests of the Trust were served by the appointment of new trustees. In order to deal with the application it is necessary to set out briefly the history of the Trust and the dealings between the parties prior to the appointment of the new trustees. Some of these matters are disputed and will be dealt with more fully in due course. Background In about October 1990 La Provence (which was then a company controlled by the Navarros) and Gala Kin signed a contract for the purchase of Mariners Village Stage Ill ("Mariners Village") at the Gold Coast with settlement due for 15 January 1991. Francois Navarro and Michel Gras opened a bank account in the name of La Provence and Gala Kin into which the Gras' deposited $500,000 in order to show some substance for obtaining finance for the project. A new account in the names of Francois Navarro and Michel Gras was opened with a transfer of $426,000 from the first account. The balance of $74,000 was used as the deposit for the purchase of the land. Some of the $426,000 was utilised by Francois Navarro for his private purposes with the agreement of Michel Gras and which Navarro asserted would have a benefit to the development. -- 6 of 31 -- 4 The La Provence Unit Trust was created on 18 February 1991 and at the same time La Provence was appointed trustee of the Trust. On that date the Gras' each became shareholders and directors of La Provence. On 25 February 1991 La Provence entered into a contract to purchase Mariners Village. Navarro and Gras had difficulty in obtaining the necessary finance for the settlement of the contract and Bergade and Perrett, property investors and residents of Noumea and strangers to the Navarros and the Gras' became interested in the project. They had together some $1.6 million to invest. They were each issued with 250,000 units in the Trust for which they each paid $250,000. The $500,000 initially paid into the joint bank account of La Provence and Gala Kin was said by the Navarros and the Gras' to be a joint contribution ..to the development of the project by them and on that basis the Navarros and the Gras' were each issued with 499,992 units in the Trust. It seems that no more than $296,000 was available for the project as $204,000 had been utilised for Francois Navarro's private purposes. The issue of these units to the Navarros is contested by the Gras'. Bergade and Perrett were appointed directors of La Provence. Prior to May 1991 when the contract was due for settlement Bergade invested some $533,000 and Perrett some $550,000 in the Trust. By around November 1991 further funding was needed to complete the project. At that time allegations were made by Michel Gras that Francois Navarro had defrauded the company of funds and Navarro resigned as director. Some approaches were made to the Macquarie Bank for finance but ultimately Bergade arranged for loans to the Trust by a New Caledonian company SCI Le Murex in which, it seems, he, Perrett and one Pirel were equal owners. Although Bergade indicated to his fellow directors that he had an interest in the company the extent of that interest was not revealed. The total amount loaned was $346,083.78. Repayment has -- 7 of 31 -- 5 occurred in the amount of $406,098.53. Gala Kin also lent money to the Trust at about this time in the sum of $34,000. SCI Le Murex also billed the Trust for certain wages and expenses said to have been incurred by Bergade in respect of the project. He came to the Gold Coast regularly from November 1991 when problems arose with respect to Navarro and the completion of the project. Perrett rarely attended meetings of La Provence and Bergade held his proxy. The building was completed and a great number of the 34 units were sold by the end of 1992. By February 1993 the Bergade/Perrett interests and the Gras' and Navarro interests had reached an impasse about the operation of the project. There was lack of unanimity, inter alia, as to the marketing and price of the re~~ining units and the disposition of the proceeds of sale. Review of Trustees' Decisions Before considering the approach of the trustees to the matters in dispute it is convenient to set out the principles to be applied in reviewing the decisions and acts of trustees of private trusts by the Court. The power to review such acts and decisions of a trustee pursuant to s.8(1) of the Trusts Act 1973 is wide as was recognised by Macrossan J. (as his Honour the Chief Justice then was) in Re Whitehouse [1982] Qd.R. 196 at p.203. His Honour noted that even so it would be wrong to suggest that the Court would lightly interfere with a discretionary decision made by a trustee: "The courts will continue to bear in mind that discretionary trust powers are vested in trustees for the purpose of decision by them and the traditional reluctance to interfere with their decisions will, for good reason, continue. If, notwithstanding this reluctance, a proper case is made out, then I do not doubt that the court has wide power. Speaking for myself, I am not persuaded that it is possible or advisable to attempt to limit in advance the ambit of the cases in which the court will move under its new statutory power of review. Although some similarities may exist with that class of case where courts will review the decisions of liquidators and trustees in bankruptcy, they being officers of the court, there must be differences as -- 8 of 31 -- 6 well when one comes to consider the question of review of the acts of trustees of private trusts. The decision of Dunn J. in Re Koczsorowski [1974] Qd.R. 177 was referred to with his opinion, given in that case at pp. 184 and 185, that the court's task in reviewing decisions under s.8(1) is similar to the task which is performed in reviewing the decisions of liquidators and trustees in bankruptcy. With due consideration for that view and with the greatest of respect, speaking for myself I find it more helpful to think of the practical limitations upon the court's power under s.8(1) of the Trusts Act, as arising out of the traditional reluctance of the courts to interfere with the discretionary acts of private trustees and out of the very good reasons for that approach. I agree that a heavy onus lies upon a person seeking a review of a trustee's decision." Dunn J. in Re Koczsorowski, supra, observed that when examining a proposed exercise of a trustee's discretion under s.8(1) it will always be important to consider such questions as the object of giving the trustee that discretion and whether the discretion has been exercised with an absence of indirect motives, with honesty of intention and with a fair consideration of the subject. Lord Truro L.C. in Re Beloved Wilkes Charity (1851) 3 Mac. & G.441; 42 E.R. 330, at p.448 (p.333) concluded: "... that in such cases as I have mentioned it is to the discretion of the trustees that the execution of the trust is confided, that discretion being exercised with an entire absence of indirect motive, with honesty of intention, and with a fair consideration of the subject. The duty of supervision on the part of this Court will thus be confined to the question of the honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases. If, however, as stated by Lord Ellenborough in The King v. The Archbishop of Canterbury (15 East 117), trustees think fit to state a reason, and the reason is one which does not justify their conclusion, then the Court may say that they have acted by mistake and in error, and that it will correct their decision; but if, without entering into details, they simply state, as in many cases it would be most prudent and judicious for them to do, that they have met and considered and come to a conclusion, the Court has then no means of saying that they have failed in their duty, or to consider the accuracy of their conclusion." The ambit of a trustee's discretion is limited both by the words of the trust instrument which indicates the matters to which the discretion extends and its extent and -- 9 of 31 -- 7 by the standards and rules which the court has imposed on trustees in the past. As to the application of the latter, the construction of the instrument will dictate whether certain equitable standards which would otherwise be applied by the courts have been weakened expressly or by implication,see M. Cullity, "Judicial Control of Trustees' Discretions" in (1975) 25 Univ. of Toronto L.J. 99 for a careful analysis of the approach of English and Commonwealth authorities to review of a trustee's discretion. The Trust Deed provides in cl.l7(8):- "Where in this deed the Trustee is entitled to exercise a power or a discretion, such power or discretion shall be an absolute unfettered power or discretion and no unit holder or other person, except as expressly herein provided, shall be entitled to call into question the exercise of such power or discretion or the failure to exercise such power or discretion. The Trustee shall not be required to assign any ··reason for its exercise of such power or discretion or failure to exercise such power or discretion." In the light of such a formulation the onus upon an applicant in the position of the Gras' wishing to set aside the new trustees' decisions or to subject them to scrutiny by trial must necessarily be very high. The Issues in Dispute The following are the decisions which the Gras' say ought not to have made by the new trustees and the subject matter of which must be tested by a trial of the facts: 1. The Navarros units. The new trustees have concluded that these units were allocated to the Navarros on 19 April 1991 and do not propose to seek the sum of $249,992 relating to that issue from them. The Gras' maintain that these units either were not so allocated or if allocated ought not be recognised by the new trustees or that the new trustees ought to sue the Navarros for their price. -- 10 of 31 -- 8 2. The payment of interest on loans made by SCI Le Murex. The new trustees have concluded that there is to be discerned in the documentation an implied agreement to pay 15% per annum interest on loans made to the Trust by SCI Le Murex (and by Gala Kin) and propose to pay any outstanding amounts. The Gras' maintain that no interest ought to have been paid or should be paid on these loans because there was no agreement to pay interest at that rate to SCI Le Murex (or Gala Kin) and/or that no further amounts ought to be paid and that the new trustees ought to recover interest already paid to SCI Le Murex. The Gras' contend for a further ground for non payment of interest (and for recovery of interest already.. paid) being material non disclosure by Bergade to La Provence of the extent of his interest in SCI Le Murex which would disentitle that company to interest. 3. Interest on loans to the trust by Bergade and Perrett. The new trustees have concluded that there was an implied agreement to pay 15% per annum from 25 November 1991 on these loans. The Gras' argue that there was no agreement to pay interest at 15% per annum or at all on personal loans made to the Trust. 4. Wages and expenses. The new trustees have concluded that a course of dealing with La Provence indicated an agreement by the Trust to pay the wages and expenses of both Bergade and the Gras' for work which they did ., for the Trust. The Gras argue that no wages ought to have been paid or ought to be paid in respect of work done for the Trust by Bergade and that payments already made ought to be recovered by the new trustees. -- 11 of 31 -- 9 5. Bias by new trustees. Allegations have been made by the Gras' that the new trustees have demonstrated bias in favour of the Bergade/Perrett interests. There has been some degree of disagreement by other unit holders as to the outcome of each of the above issues. The Bergade/Perrett and the Navarro interests do not agree with all of the decisions taken by the new trustees but they do not challenge them. The Gras' dispute and challenge them all. The new trustees called a meeting of unit holders in the Trust on 11 May 1993 in accordance with the order of Lee J. Interested parties were invited to make submissions in respect of matters in dispute. The new trustees circulated an interim report on 28 June 1993 but this failed to bring about a resolution of matters. Considerable correspondence ensued between the new trustees and the interested parties. The new trustees concluded that they would have to undertake detailed and extensive investigations in an attempt to reach a decision about each dispute matter, having abandoned their attempts to reach a commercial resolution of the disagreements between the parties. Prior to delivery of their final report they took legal advice to the effect that it was appropriate for them to proceed to make a final decision with regard to the disputed issues when possible and inform the various interested parties of such decisions; to allow a reasonable period of time with regard to such decisions and indicate to interested parties that they intended to act upon such decisions; to leave it to any interested party, if they so chose, to take steps to have those decisions reviewed by the Court pursuant to the provisions of s.8 of the Trusts Act. It was thought that this approach might minimise the unnecessary expenditure of trust funds. The final report was issued on 19 October 1993. -- 12 of 31 -- 10 An impediment in reaching a view about the new trustees' decisions has been the vast amount of argumentative material filed and its supporting documentation. Mr Manteit on behalf of the new trustees has filed, inter alia, an affidavit in which he sets out the details of each particular dispute, the evidence available to the trustees in respect of that dispute and the reasons for the conclusion reached and has filed a further affidavit responding to the Gras' complaints and objections. The first affidavit is a significantly lengthier and much more detailed document than the final report. The Navarro Units The new trustees have taken the vtew that they are bound to recogmse the Navarros' unit holding in the Trust and are not prepared to pursue legal claims against them. The Navarros brought oppress10n proceedings under the Corporations Law 1989 with respect to La Provence and delivered particulars of claim pursuant to an order of \1 Moynihan SJA on I December 1992. In the points of defence and cross-claim it is alleged that although the Navarros stand in the books of the trust as holding 250,000 units they provided no consideration for the acquisition of those units and no other person provided consideration on their behalf and accordingly they are not beneficially entitled to any interest in the property of the trust or they hold their interest on trust for the other unit holders of the trust. Alternatively it is pleaded that they are indebted to the trust for $250,000 for the purchase of their units. No further steps have been taken in that action. As has been mentioned, initially sixteen units in the trust were issued, eight to the Navarros and eight to the Gras' for which they paid $1 each unit. On 19 April 1991 at a meeting of La Provence, Franco is N avarro as chairman proposed that the trustee issue a -- 13 of 31 -- 11 further 249,992 units each in the trust to the original unit holders, namely, the Navarros and the Gras' on the basis that they had already expended in excess of $500,000 towards the development costs relating to the Mariners Village development. The meeting (attended by Michel Gras) agreed "that in respect to the monies already expended by the original unit holders the sum of $499,984 be treated as application money by the original unit holders for the issue to them of a further 499,984 units." The minutes record that it was agreed that conditional upon the approval of the Foreign Investment Review Board and application monies of $250,000 each being paid that the Bergades and Perrett be issued with 250,000 units each in the Trust. By cl.4(1) of the Trust Deed the trustee is empowered from time to time to create.. and issue additional units on such terms and to such persons as it thinks fit. There is no requirement that units be issued conditional upon payment or in satisfaction of any other form of consideration. By cl.3(1) the beneficial interest in the trust fund is vested in the unit holders for the time being in proportion to the units held by them. As appears from the minutes of the meeting of 19 April 1991, the issue of the units to the Navarros and the Gras' was not conditional upon any payment but on the understanding that they had already contributed an equal amount to the development of the project to match the $500,000 about to be contributed by the Bergade/Perrett interests. The Gras' allege that some $204,000 of the initial $500,000 which was contributed by the Gras' was used by Francois Navarro for personal purposes and the Gras' have instituted proceedings against Francois Navarro to recover this amount. At the meeting on 19 April 1991, according to the minutes, Francois Navarro with the concurrence of the Gras' asserted to Bergade (who held a proxy from Perrett) that they had together contributed $500,000 to the Trust and the development project. Navarro and Gras were then the directors of La Provence. It is hard -- 14 of 31 -- 12 to see how the Gras' can argue that there was deception practiced on the trustee, La Provence to issue the units to the Navarros. If there was any deception it was clearly of the Bergades and Perrett who, it would seem, were persuaded to invest $500,000 in the Trust in which they were led to understand that the Navarros and the Gras' had already invested $500,000. A unit trust certificate was issued to the Navarros for 249,992 units dated 19 April 1991 and signed by Michel Gras and Francois Navarro as directors and witnessed. In a letter from the Gras' solicitors of 12 July 1993 to the new trustees they allege that the minutes of the meeting of 19 April 1991 were fabricated. As a consequence of that allegation the new trustees obtained through their solicitors a statement from Mr Kenneth Appleyard, the solicitor who attended the meeting and prepared the minutes. He was at that time a partner in Primrose, Couper, Cronin Rudkin and had the general conduct of the establishment of the Trust, the issue of the original units and the acquisition of Mariners Village. Mr Appleyard says that Michel Gras, Francois Navarro and Daniel Bergade were present at a meeting in his firm's offices on 19 April 1991. He dictated a memorandum and the minutes shortly after the meeting concluded. He has no doubt that amongst other matters discussed, the issue of the units to the Navarros was dealt with and that the Navarros were not to pay for the units in the trust. Consideration for the units was said to be the moneys already expended. Mr Appleyard says that he does not know if Navarro had personally contributed any money - similarly with respect to Michel Gras. Mr Appleyard recalls detailed discussions about the provision of funds because of his concerns for the tax implications to Bergade, a resident of New Caledonia, and bearing in mind that French law did not recognise a concept such as a unit trust. -- 15 of 31 -- 13 Michel Gras has sworn that the only meeting which took place on 19 April 1991 was a short meeting at which Bergade was appointed a director of La Provence. It is possible, as Mr O'Donnell for the new trustees submitted, that two meetings were held one after the other on that day and that there are separate minutes to those meetings. If the meeting did not occur, as Michel Gras asserts, there is no other evidence that units were ever issued to the Gras' and Bergade and Perrett, and yet in all the financial records of the Trust from that time they are recorded as being the unit holders of 249,992 and 250,000 units respectively. The new trustees noted that all financial statements of the Trust prior to December 1992 recognised the Navarros as the holders of 250,000 units in the trust. Michel Gras swore in the corporations action (no. 917 of 1992) that "I agree with the comment that units were issued to Navarro and his wife Jacqueline Navarro ... I deny that Francois Navarro has ever paid to the company any moneys for which he was issued 250,000 $1 units in the trust". Michel Gras wrote to Bergade on 14 November 1992 and enclosed a copy of La Provence's balance sheet to 30 June 1991 which showed that F Navarro held 250,000 units at $1 with a value of $250,000. Michel Gras swears that he was misled by Francois Navarro into signing the unit trust certificate to the Navarros and did not know what it was about. At the time he knew it was a unit certificate, it was clearly one to Navarro and on its face it mentions 250,000 $1 units. It seems extraordinary that he can suggest that he did not understand what it was about. Michele Gras has issued proceedings (No 1186 of 1992) in this Court against the Navarros as first and second defendants respectively to recover the $207,000 allegedly used by Francois Navarro for private purposes. In their defence the Navarros dispute the -- 16 of 31 -- 14 allegation that the $500,000 came from the Gras' own private funds. They assert that it was jointly borrowed from a source in the Cameroun. Francois Navarro asserts that he was compelled to sign an acknowledgment of debt to the Gras' for $207,000 under duress from Michel Gras. The new trustees concluded that they are not in possession of sufficient evidence to succeed in an action to have set aside the issue of the units to the Navarros bearing in mind those matters to which I have referred. They have further concluded that if any action were to be commenced it would be against both Navarro and Michel Gras for the difference between the amount asserted to have been contributed to the Trust and the amount actually contributed. The new trustees have also concluded that it would be imprudent to commence an action against the Navarros because their investigations reveal that Francois Navarro has no assets or means to satisfy a judgment should one be obtained. Although Mr Bowden has submitted that no money judgment would be sought against the Navarros merely declaratory relief, the issue of costs is a factor of some significance. It seems unlikely that matters would be confined and the Trust would be exposed to expensive litigation. There is an arguable case that the Navarros are not entitled to any beneficial rights in the Trust, but there are also complex issues of fact involved in the financial dealings between Navarro and the Gras'. The Bergade/Perrett interests are prepared to accept the new trustees' decision in this matter. They constitute 50 percent of the beneficiaries. The Navarros, of course, accept the decision. There is another factor to be taken into account. Mr. O'Donnell submitted that any claim that the Navarros might have to a share in the proceeds of the Trust would only be in the vicinity of $10,000. The net assets available for distribution to the unit holders after the payment -- 17 of 31 -- 15 of the creditors is $195,297, that is; about $50,000 each. However, Francois Navarro owes the Trust $41,867 on account of Trust property taken by him and accordingly the new trustees would distribute to him less than $10,000. The remaining beneficiaries would receive approximately $60,000. It is not the case that every disputed issue of fact, even if serious, will necessarily require a trustee to resolve it by litigation. I have concluded that the new trustees having proper regard for the assets of the trust, and having taken into account all relevant considerations have reached a prudent decision. 2. Interest on loans from SCI Le Murex The loan to the Trust from SCI Le Murex was the subject of dispute prior to the appointment of the new trustees. There was however no dispute that SCI Le Murex did advance moneys to the Trust on an unsecured basis. The disagreement is with respect to the interest to be paid on the unpaid balance. In their interim report the new trustees had concluded that there was no basis for paying interest and would only do so if there was clear evidence to the contrary. After further investigations the new trustees concluded that there was an implied agreement to pay interest on the outstanding balance of the loans at 15 percent per annum. The Bergade/Perrett interests had argued for this. The Navarros had asserted to the new trustees that no interest was payable, but at the hearing took the position that while they did not like the decision would not seek to have it reviewed. Gala Kin, the company associated with the Gras' had also advanced moneys to the Trust on an unsecured basis and had asserted that interest at 15 percent per annum was payable on any outstanding balance. The most recent affidavits of Michel Gras seem to suggest that Gala Kin no longer maintains this position. The Gras' interests assert that no interest was or is payable because there was no agreement as to interest. They further -- 18 of 31 -- 16 argue that no interest was payable because of non-disclosure by Bergade to La Provence of the full extent of his and Perrett's interest in SCI Le Murex prior to the loans being made. The loan accounts show that SCI Le Murex introduced a considerably greater sum into the Trust than did Gala Kin. In their final report the new trustees concluded after further submissions and consideration of other documentation that they would accept that there was an agreement to pay interest. They also concluded that if there had been non-disclosure by Bergade it was not material. They rejected the assertion by the Navarros that there was no agreement to pay interest and that the recognition of any such agreement was a mechanism to prefer some unit holders over others. The Gras' had also submitted to the new trustees that they should seek to recover interest already paid by the La Provence to SCI Le Murex on the loans. The new trustees concluded that an agreement e~isted to pay interest at 15 percent by reference to the following: • affidavits sworn by Michel Gras, the earlier of which in November 1992 accepted the loan made by SCI Le Murex and impliedly accepted an entitlement to interest; the later affidavit of April 1993 accepted the loan but denied liability in the trustee to pay interest because of non-disclosure by Bergade. The new trustees accepted that Gras became aware of the extent of Bergade's interest in SCI Le Murex only in early 1993. • the financial records of the Trust including statements of loan by SCI Le Murex and Gala Kin; the repayments to SCI Le Murex before the appointment of the new trustees which included an amount which was only explicable as being a component for interest at 15 percent per annum. -- 19 of 31 -- 17 • the very extensive correspondence files to and from Michel Gras including, inter alia, financial statements of the Trust in which interest was included calculated at 15 percent per annum; many of the financial statements have been signed by Michel Gras. • minutes of meetings of the Trust and particularly those of 25 November 1991; 10 March 1993 and 14 April 1993 in which there is reference to interest and the rate. It is unnecessary to consider these documents further, except to say that they amply demonstrate a course of conduct by La Provence to pay interest at 15 percent per annum to SCI Le Murex and Gala Kin as well as to Bergade, Perrett and Michel Gras as lenders to the Trust. That course of conduct was endorsed on numerous occasions by Gras signing, inter alia, the financial statements. The minutes of the meeting of the Trust held on 25 November 1991 at which Bergade, holding Perrett's proxy, Michel Gras and Francois Navarro were present and which they all signed contains a resolution moved by Bergade and seconded by Gras that interest be paid on "own current accounts and creditor accounts", that the net basic rate be fifteen percent per annum free of any tax and be calculated monthly in arrears and capitalised. It was resolved that current accounts and creditor accounts be reimbursed progressively and in such a way that the balance of the accounts became equal amongst the lenders. Michel Gras has alleged that he agreed to fifteen percent per annum under economic duress and necessity as the Trust was urgently in need of funds. That is a curious position to take since Gala Kin claimed fifteen percent interest on its loan until quite recently. In his letter of 15 March 1993 to Mr Steer, the accountant for the Trust, Michel .Gras set out the amounts of the loans by both SCI Le Murex and Gala Kin and -- 20 of 31 -- 18 required Steer to calculate interest in the same way for both companies. Although Michel Gras swears that he signed the minutes of 25 November 1991 under some duress he has relied upon those minutes in other proceedings asserting that they are an accurate record or has relied upon them in for some other purpose. In the minutes of the directors' meeting of La Provence of 10 March 1993 Michel Gras is recorded as acknowledging an obligation to pay interest at the rate of fifteen percent per annum noting that the interest rate was too high and expressing a desire that it be reduced to eight percent. He is recorded as stating that he considered that it would be necessary for all persons involved to agree before any reduction could occur in the interest rate. Those minutes have been signed by Michel Gras as chairman. In his affidavit of 3 March 1994 · Michel Gras denies that there ever was an instruction to Steer to include interest at 15 percent to SCI Le Murex in the accounts of the Trust. This seems to be quite contrary to contemporaneous documents many of which were signed by Michel Gras or came to his attention and about which no issue was taken at the time. The real complaint of the Gras' is that there was non-disclosure of the extent of the interest of Bergade and Perrett in SCI Le Murex. Clause 17(6) of the Trust Deed provides: 11 All powers and discretions conferred upon the Trustee by this deed or by law may be exercised notwithstanding that any person being a director or shareholder of a corporate trustee, is or may have been a unit holder or has, or may have, a direct, indirect or personal interest (whether as shareholder, director, member or partner of any company or partnership or otherwise) in the manner or result of exercising such power or discretion or may benefit directly or indirectly as a result of the exercise of any such power or discretion and notwithstanding that the Trustee for the time being is the sole Trustee of the Trust. 11 I do not take Mr Bowden to submit that the agreement entered into between SCI Le Murex and La Provence could or should be set aside on the ground that Bergade had an -- 21 of 31 -- 19 interest in SCI Le Murex and was also a director of the trustee. The Gras' do not dispute that the loan must be repaid. What is disputed is that as a consequence of non-disclosure no interest may be paid and that interest already paid should be recovered by the new trustees. The principle to which the new trustees have had regard when considering the issue of non-disclosure is whether Bergade's and Perrett's interest in SCI Le Murex adversely affected the Trust. They noted that 15 percent was the rate that was payable to Gala Kin and to the unit holders on their loans. The new trustees have had regard to the interest rates at the time when the loan was made by SCI Le Murex to the Trust. The loans from SCI Le Murex occurred between November 1991 and June 1992. The interest rate of 15 percent per annum was to be charged monthly. This results in an effective annual interest rate of 16.08 percent per annum. The new trustees as chartered accountants can be expected to have relevant experience about interest rates and to have access to a considerable body of material. Mr Manteit has relied on the Reserve Bank of Australia Bulletin showing historical interest rates for the period June 1980 to November 1993. He had concluded that the final rate charged by a lending institution is dependent upon risk and is generally quoted as the business indicator rate plus a margin which lies between one-half percent and three percent per annum. The business indicator rate does not include an allowance for establishment fees and service fees. · Mr Manteit was informed by various bank staff that the current interest rates for those fees at the relevant time ranged between .55 percent and one percent for establishment and .8 percent and 1.8 percent for service. He compared the effect of the interest rate of 15 percent (effective 16.08 percent) charged by SCI Le Murex with that obtainable from a bank or other comparable financial institution at the date that the loan was made. The result showed that over the period the simple average bank rate -- 22 of 31 -- 20 was 14.32 percent per annum. Accordingly, the SCI Le Murex rate was 1.76 per annum in excess of that rate. Those figures take no account of the margin which might have been added to the indicator rate by a bank if it were to lend to the Trust. The loans to the Trust were unsecured and, at least in the first instance, were made on short notice and were made without an establishment fee. The letter from Macquarie Bank, with which contemporaneous enquiries were being made by La Provence, indicated an establishment fee of $40,000 and a development fee of $350,000 ($170,000 in an earlier letter). The new trustees concluded that an excess interest rate of 1.76 percent per annum without taking into account the bank fees and charges was unlikely to have been productive of loss to the Trust, or, if there was a loss it was so small as to not warrant the expense of an action in the Supreme or Federal Court pursuant to ss.231 and 232 of the Corporations Law. Although Bergade disputes that there was relevant non-disclosure and this too is noted by the new trustees he has not nominated the basis for this. It is recorded that his advice was that he had a small interest. In summary the new trustees reached their decision to pay interest to SCI Le Murex (and Gala Kin) at 15 percent per annum for the following reasons: • the Trust needed funds on an unsecured basis urgently at the time; • the Trust would have had to borrow funds commercially at a similar interest rate if the funds had not been forthcoming from SCI Le Murex and Gala Kin; • SCI Le Murex and Gala Kin were to be treated and were treated equally with respect to the payment of interest; • the documentation and correspondence supported an agreement to pay interest at fifteen percent per annum to the lenders; -- 23 of 31 -- 21 • if SCI Le Murex were to seek to recover interest by way of court proceedings the onus of establishing material non-disclosure occasioning damage or some other matter avoiding the agreement to pay interest would fall on the trustees. A matter not canvassed by the new trustees is the legal basis upon which they could avoid paying interest to SCI Le Murex once the factual obligation was established. That is, whether by virtue of Bergade being a principal both of the borrower and the lender knowledge of any breach of duty to La Provence would be imputed to SCI Le Murex. Knowledge acquired by a person who happens to be a director of a company is not necessarily to be imputed to that company, Re Marsay Extension Railway Company: ex parte Credit Francaer v Mobilier of England (1871) LR 7 Ch.App. 161~ in Re Hampshire Land Company [1896] 2 Ch. 743 particularly at 748~ Consul Development Pty Ltd v. DPC Estates Pty Ltd (1975) 132 CLR 373 at pp.408-13 per Stephen J.~ and Jacobs Law of Trusts 5th Ed. (1990) paras.l334-9. In Romano v. Chapple [1993] 1 Qd.R. 461 Chapple, a solicitor, fraudulently misappropriated certain money and lent it to a company of which he was a shareholder and director. The Court held that since the only other director of the company had no knowledge of the original source of the money by misappropriation Chapple's knowledge as director would not be imputed to the company. Moynihan S.J.A. held at p.463: "As I understand the basis of the imputed notice rule derived from the cases to which I have referred, is that once a director becomes possessed of knowledge which he is obliged to communicate and which the company, through its board, is obliged to receive it will be assumed that these things have happened and the knowledge is imputed to the company. I am inclined to agree with Vaughan Williams LJ in Re Hampshire Land Company (at 749) that commonsense leads to the conclusion that it is impossible to infer that duty was fulfilled where doing so would expose the agent's fraud albeit to a party other than the victim of the fraud. I would therefore not impute to the company knowledge of Chapple's fraudulent · misappropriation." -- 24 of 31 -- 22 In Re David Payne & Co. Ltd. [1904] 2 Ch. 608 a director of company A who was also interested in company B had ascertained that company B proposed to borrow a sum of money for a purpose ultra vires its business. He induced company A to advance the money to company B and the money was applied by company B ultra vires. No other director of company A knew how the money was intended to be applied. Vaughan Williams LJ referred to his own judgment in Re Hampshire Land Co, supra, where he had held that knowledge which has been acquired by the officer of one company will not be imputed to the other company unless the common officer had some duty imposed upon him to communicate that knowledge to the other company and had some duty imposed upon him by the company which was alleged to be affected by the notice to receive the notice. He held that there was no duty to make any enquiry by the lending company on the subject nor was it the duty of the directors of the company to receive any information (at pp.616-7). There appears to be no duty imposed upon Bergade vis-a-vis SCI Le Murex to disclose to it that the extent of his interest in SCI Le Murex was not revealed to La Provence, the borrower. Neither can it be said that there was any obligation by SCI Le Murex to receive that knowledge. Once the factual basis to pay interest is recognised there is no basis in law for failing to do so. The new trustees decision to pay interest to SCI Le Murex was taken after due and proper consideration of the relevant material, including submissions, and with a proper regard for the interests of the beneficiaries as a whole. Interest on Unit Holders' Accounts Mr Bowden submitted that there was an agreement made in or about May 1991 for a fixed figure of $55,000 for six months to be paid on the loans by unit holders and -- 25 of 31 -- 23 thereafter bank interest plus two to three percent. The major problem with sustaining that argument are the minutes of the meeting of 25 November 1991 which record interest to be paid at fifteen percent and the acknowledgment by all the directors to Mr Steer that interest was payable on all loans at fifteen percent per annum; At Item 6 of those minutes appears the following: "Own current accounts and creditor accounts Daniel Bergade moves the motion that: - and interest be paid for such accounts - the nett basic rate be 15% per annum free of any tax - these interests will be calculated monthly in arrears and capitalised. ) Motion seconded by Michel Gras and carried." The expression "own current accounts", to sustain Mr Bowden's argument, must mean something other than the accounts of the four persons with loan accounts. Apart from Gala Kin and SCI Le Murex only the four unit holders had loans with the company. There was no other individual or entity to which reference could otherwise be made. If ) there was an agreement on 2 May 1991 as submitted by Mr Bowden it would have been subsumed by the subsequent agreement in November. The material considered by the new trustees and their approach was similar to the issue of interest to SCI Le Murex. The decision by the new trustees to pay interest at 15 percent per annum on outstanding unit holder loans is consistent with the documentary evidence and no irrelevant considerations intruded in the decision-making process. Wages and expenses SCI Le Murex made a claim from the new trustees in respect of wages and expenses incurred by Bergade in working for the Trust. Bergade came to the Gold Coast at a time when there were serious disputes between Navarro and Gras about the development. -- 26 of 31 -- 24 Bergade and Gras then managed the project. Gras made claims for wages from La Provence from that time and SCI Le Murex claimed for Bergade. The expenses include air fares, motor vehicle expenses, accommodation and telephone. SCI Le Murex submitted its first claim for wages and expenses with La Provence at the end of December 1991 and made further claims during 1992. SCI Le Murex was paid in full by La Provence and acknowledged by Gras. The new trustees propose to recognise an amount of $37,306, which is less than claimed, as owing to SCI Le Murex for the services of Bergade from 1 October 1992 to 20 April 1993 being for wages, vehicle expenses, travel expenses and accommodation. Michel Gras had a claim from the new trustees the sum of $33,388.30 in respect of wages and car expenses. Michel Gras and Francois Navarro were each paid wages and car expenses from 7 December 1990 until 10 June 1991. From 1 July 1991 that amount was increased and they were paid until 21 November 1991 by La Provence. Francois Navarro who resigned as director on 25 November 1991 was paid up to that date and Michel Gras agreed not to claim wages after 31 July 1992. The new trustees' calculations are set out in their report. Michel Gras in his affidavit of 25 November 1992 which was filed in the company application stated that both Bergade, Perrett and himself had worked extensively with respect to the development and were drawing wages. There is no evidence to indicate that any payments were made to Bergade or Perrett personally, all the contemporary documentation indicates that La Provence accepted that Bergade and Perrett worked for SCI Le Murex. The new trustees concluded that the trust clearly needed management by November 1991 and that it would have had to acquire such management elsewhere if it were not provided by the unit holders. Further, there was an equality of position between SCI Le -- 27 of 31 -- 25 Murex with respect to the expenses and wages of Bergade and the position of Michel Gras. The new trustees also took into account that if SCI Le Murex were to seek to recover those wages and expenses by way of court proceedings from the new trustees the onus of establishing material non-disclosure or other improper conduct by Bergade would be on the trustee. The Navarros had raised no objection to those payments. The new trustees propose paying both the Bergade and Gras' claims for wages and expenses as indicated after making due corrections on minor amounts drawn to their attention. Allegations of Bias by the New Trustees On 29 April 1993, shortly after their appointment, the new trustees informed the unit holders that they intended engaging Hopgood and Ganim to act on behalf of the trustees except where that firm has a conflict of interest in relation to its representation of Daniel Bergade. That firm had been Bergade's and Perrett's solicitors for some time. The Gras• solicitors objected vehemently to this proposal. The Navarros' solicitor recorded his clients' objection at the meeting on 11 May 1993. The new trustees explained to those unit holders that they hoped to reduce costs by retaining Hopgood and Ganim to act on the conveyance of the units in the development as they were already familiar with the Trust's ,, affairs. It was most unfortunate that having become appraised of the strength of the Gras• views on this matter the new trustees did not immediately agree to retain different solicitors. Even though they required Hopgood and Ganim to undertake to advise of a conflict of interest that was quite insufficient in the circumstances. The Gras• threatened legal action by letter of 27 May 1993 and thereafter the new trustees withdrew all instructions from Hopgood and Ganim. No demonstrated bias in favour of the Bergade/Perrett interests can be seen to have flowed from this most -- 28 of 31 -- 26 unfortunate commencement of the new regime when it was important to dispel suspicion and apprehension of bad faith amongst the unit holders. There are general allegations of bias on the ground that the new trustees have favoured the Bergade/Perrett interests because they have been successful on a number of issues. That is insufficient to found a claim of want of evenhandedness. The bases for their decisions are on contemporaneous documents, the evidence of those persons apparently independent from the unit holders, (although there are suggestions that Mr Steer, the accountant, and Mr Appleyard, the solicitor, are not free from favouring Bergade) and Michel Gras' own early affidavit material. The Bergade/Perrett interests did not support the decision of the new trustees over the Navarro units. Bergade and Gras and SCI Le Murex and Gala Kin have each been accorded equal treatment. The discernible complaint is that the Bergade/Perrett interests invested far more money in the project than the Gras/Navarro interests and because of a failure to provide for a variable interest rate on the loans the Bergade/Perrett interests will do well financially. There is nothing in the material or in the submissions of counsel to indicate that the new trustees have sought to advantage or disadvantage any unit holder or lender company over any other. Indeed correspondence, for example in August 1993, from Bergade's solicitors to the new trustees shows a less than enthusiastic support for the approach of the new trustees to a number of matters. Conclusion The new trustees have taken into account legal costs that would be involved in pursuing or defending the matters raised by the Gras'; what assets are at their disposal and the prospects of recovering anything (including costs) from Francois Navarro. There is approximately $200,000 remaining to be distributed. There has been no offer of funding -- 29 of 31 -- 27 from the Gras' or their interests and this is an important factor for a trustee when considering the institution of proceedings. Another relevant consideration is the capacity of the Gras' and Gala Kin to bring proceedings on their own behalf. Where there are special circumstances and the relief sought is in the equitable jurisdiction of the court a beneficiary may take proceedings in his own name, the trustee and other beneficiaries being added as defendants, Jacobs Law of Trusts 5th ed. para. 2303; see also Ramage v Waclaw (1988) 12 NSWLR 84 per Powell J at p.91 and 93. The court will take into account the limited nature of the assets available to bring the action. None of the heads of dispute the subject of the application would be precluded from an action by the Gras'. The Navarro and the Bergade/Perrett interests are opposed to any litigation being undertaken by the new trustees. Together they represent three-quarters of the units in the Trust, or, putting to one side the Navarros' units, at least fifty percent of the units. There would be difficulties associated with the new trustees taking instructions from Michel Gras as to the conduct of any litigation, (although Mr Manteit has indicated that they will abide any direction of the Court) because they have already informed themselves of all of the facts and circumstances on these matters and have reached a conclusion. These matters would seem to be among the special circumstances which would allow the Gras' to bring any action arising out of the impugned decisions of the new trustees. As I have already mentioned, there has been an extraordinary amount of material filed in this application. Many assertions have been made by the Gras' as to why the new trustees' decisions are flawed. The new trustees issued their first report in June 1993. The Gras' maintain that they were not aware that it was an interim report. Nonetheless there has been ample opportunity for them to put their submissions to the new trustees since then and they have done so. I have not dealt in these reasons with every contested fact. I -- 30 of 31 -- 28 am satisfied, having read all the material and heard the submissions that the new trustees have continued to keep an open mind and have given due consideration to each fresh matter raised by the Gras' to ascertain if a position taken by them ought to be altered as a consequence. They have, I have concluded, remained flexible in their approach to all the matters raised. Where mistakes have been revealed they have readily accepted the correct . position. Their affidavits and reports evidence evenhandedness in respect of the unit holders, reasonable prudence in dealing with the trust assets and a readiness to take into account relevant considerations, and to make all reasonable enquiries. The cost associated with this application will, no doubt be considerable. I note that the new trustees suggested to the parties that they consider arbitration as the most effective means of resolving any disputed issues. This was not taken up. The cost of litigating these issues would be daunting. As Macrossan J. noted in Re Whitehouse, supra, powers are vested in trustees for the purpose of decision by them and there has long been a reluctance to interfere with their decisions. There is thus a requirement that an interested party demonstrate to a high degree that a trustee has exercised a discretion inconsistently with the terms of the trust and/or the accepted general standards which a trustee is required to observe in the exercise of a discretion. I have concluded that the trustees have not exercised their decision- making powers inconsistently with the Trust Deed, nor have they fallen below general standards for trustees recognised in the cases. Accordingly, I have concluded that the applicants have failed to discharge the onus which lies upon them and dismiss the summons. I will hear submissions as to costs. -- 31 of 31 --