Nastas Investments Pty Ltd v Think Partitions Pty Ltd
[2020] VSC 653
•7 October 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 02496
| NASTAS INVESTMENTS PTY LTD (ACN 126 703 491) | Plaintiff |
| v | |
| THINK PARTITIONS PTY LTD (ACN 123 654 160) | Defendant |
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1-2 October 2020 |
DATE OF JUDGMENT: | 7 October 2020 |
CASE MAY BE CITED AS: | Nastas Investments Pty Ltd v Think Partitions Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 653 |
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RECEIVERS – TRUSTS – Application to appoint a receiver, alternatively a new trustee to a unit trust – Trustee offers undertakings as an alternative – Grounds to appoint a receiver made out – Undertakings in modified form an appropriate means of disposition, failing which a receiver is to be appointed – Yunghanns v Candoora No 19 (No 2) (2000) 35 ACSR 34 applied – McNee v Lachlan McNee Family Maintenance Pty Ltd [2020] VSC 273 cited – Miller v Cameron (1936) 54 CLR 572 cited – Supreme Court Act1986 (Vic) s 37(1) – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 39.02, r 52.01 - Trustee Act 1958 (Vic) s 48.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Wodak | Dandanis & Associates |
| For the Defendant | Ms V Bell | Holding Redlich |
HIS HONOUR:
Overview
This dispute concerns what orders should be made on an application by the plaintiff for the appointment of a receiver, or, alternatively, a new trustee, and for related orders concerning a unit trust. The units in the trust are equally held between two families related to one another, the personal relationship has broken down and the purpose for which the trust was originally established has run its course.
The trust has one asset of substance, a factory in Footscray. Both parties are now agreed that the factory premises should be sold. They do not agree whether it is desirable that any such sale be on the basis of vacant possession or whether it is preferable that the property be leased and then sold.
In support of its application the plaintiff relies upon an affidavit of Ljubica Nastas sworn 5 June 2020 and upon several affidavits by Felicity Shaw of Dandanis & Associates, dated 5 June 2020, 12 August 2020, 23 September 2020 and 24 September 2020. Written submissions filed prior to the hearing dated 23 and 30 September 2020 are relied upon.
In response to the application the defendant, the trustee of the unit trust, at the commencement of the hearing, stated its intention to rely upon the affidavit of its director, Camillo Longo dated 29 September 2020, an affidavit of Joshua Fetherstonhaugh of Holding Redlich dated 30 September 2020 (‘Fetherstonhaugh Affidavit’), written submissions dated 30 September 2020 and an email from Mr Frlan of Raine & Horne to Camillo Longo dated 30 September 2020. During the hearing, a further email chain between Mr Longo and the Commonwealth Bank of Australia (‘CBA’), dated between 24 September and 1 October 2020 was tendered in evidence (‘CBA Email Chain’).
The parties filed a joint chronology prior to the hearing (‘Joint Chronology’).
Mr Longo was cross-examined on his affidavit.
The plaintiff submits that the criteria for the appointment of a receiver to the trust are satisfied. Further, that it is an appropriate exercise of the discretion for the Court to appoint a receiver and to make orders for the taking of accounts by a judicial officer. The defendant trustee opposes the appointment of a receiver. It contends there is no proper basis for the making of such an appointment and that if the Court were to do so, that this would constitute an event of default under the bank facilities pursuant to which the trust has mortgaged its only real property asset. The defendant instead proposes a variety of undertakings including as modified towards the end of the hearing, and after the hearing, so as to put the plaintiff in control of the sale of the property. It does not agree to the taking of accounts.
The parties and the Unit Trust
The plaintiff, Nastas Investments Pty Ltd (‘Nastas’), has two directors, Ljubica Nastas and Petros Nastas. It was incorporated on 24 July 2007.[1]
[1]Plaintiff, Affidavit of Ljubica Nastas, dated 5 June 2020, exhibit LN-1 (‘Nastas Affidavit’).
The defendant, Think Partitions Pty Ltd (‘Trustee’), is a company incorporated on 29 January 2007. Camillo Longo is the sole director. The shareholders of the Trustee are Suzana Longo and Camillo Longo, each of who own 50 shares.
The ASIC search of the Trustee, records that on 16 April 2019, ASIC gave Notice of Proposed Deregistration, under s 601AB(1) or (1A) of the Corporations Act 2001 (Cth). On 22 May 2019, the ASIC status of the Trustee was changed to ‘Registered’.[2]
[2]Ibid, exhibit LN-4.
Think Partitions Pty Ltd, is Trustee of the Think Partitions Unit Trust (‘Unit Trust’). The Unit Trust deed is dated 1 June 2007.[3]
[3]Ibid, exhibit LN-2.
The original subscribers to the Unit Trust were Ljubica Nastas, and Camillo Longo and Suzana Longo as trustees for the Longo Superannuation Fund.[4]
[4]Ibid.
Ljubica Nastas and Suzana Longo are sisters. They have not spoken since June 2019.
As recorded in the register of unitholders, upon its incorporation on 24 July 2007, Ljubica Nastas transferred her units in the Unit Trust to the plaintiff, Nastas.[5]
[5]Ibid, exhibit LN-3.
Since 24 July 2007 and continuing, Nastas has been and remains the holder of 50 units in the Unit Trust. The remaining 50 units continue to be held by Camillo Longo and Suzana Longo in their capacity as trustees for the Longo Superannuation Fund.[6]
[6]Ibid [3]-[4], exhibit LN-3.
The Footscray Property
The sole asset of the Unit Trust is the factory premises at 7/103-107 Whitehall Street, Footscray (‘Footscray Property’). The factory premises which comprises the Footscray Property is subject to Owners Corporation Plan Number PS 429674C.[7] The Trustee became registered as proprietor of the Footscray Property on 10 December 2007, subject to a mortgage in favour of the CBA.
[7]Ibid, exhibit LN-5.
The parties to the proceeding are agreed that the original purpose of the Unit Trust was for it to purchase the Footscray Property and for it to be occupied by a company or companies associated with Mr Longo which would in turn pay sufficient rent to cover the mortgage payments to the CBA and outgoings, including to the Owners Corporation. It is clear that with the breakdown in the family relationship between the two sisters and also with the financial failure of the most recent occupier of the property, Buildko Pty Ltd (‘Buildko’), there is no longer a common purpose between the unitholders concerning the Footscray Property and the Unit Trust.
The purchase of the Footscray Property was funded by a combination of approximately $75,000 contributed by each of Nastas and Mr and Mrs Longo on their own behalf or on behalf of the Longo Superannuation Fund, together with a loan from the CBA of which Mr and Mrs Longo are personal guarantors.[8] The original loan, taken out in 2007 was in the sum of $294,000.[9]
[8]Defendant, Affidavit of Camillo Dia Longo, dated 29 September 2020, [16]-[17], exhibit CL-7 (‘Longo Affidavit’).
[9]Ibid.
The terms of the loan agreement between the bank and the Trustee include that an event of default occurs:[10]
[10]Ibid, exhibit CL-7.
(a) if the borrower fails to pay any sum payable on the due date for payment (clause 12.1(a)(i)); or
(b) if in the opinion of the bank a materially adverse change occurs to the financial position of the borrower which makes it less likely that the borrower is able to substantially comply with its obligations (clause 12.1(m)); or
(c) if a receiver or receiver/manager is appointed over the undertaking of the borrower (clause 12.1(f)(ii)).
At the time of purchase of the Footscray Property, it was an empty warehouse with a small mezzanine with a total lettable area of 228 m². Although there is a dispute concerning the timing, around the time the Trustee purchased the property, and for a period of time thereafter, improvements were undertaken on the Footscray Property (‘Improvements’). The Improvements involved the construction of a ground floor reception, showroom and office areas, the construction of a larger mezzanine floor with separate offices and the renovation of facilities. As a result of the Improvements, the lettable area of the Footscray Property increased to 440 m².
The affidavit evidence of Mr Longo, supported by some invoices and like documents, is that the works were undertaken by and the materials used were invoiced to a company of which Mr Longo was the sole director and secretary called Think Office Fitouts Pty Ltd.[11] It is Mr Longo’s evidence that the cost of the Improvements was approximately $180,000. However the invoices exhibited fall well short of that amount, representing approximately $50,000 in labour and materials.[12] In cross-examination it emerged that some of the documents exhibited and relied upon by Mr Longo relate to work on other sites carried out by Think Office Fitouts Pty Ltd.
[11]Ibid, [54]-[57], exhibits CL-2 and CL-17.
[12]Ibid, [57], exhibit CL-17. The total amount of the invoices is $54,044 inclusive of GST.
It was always expected that the Footscray Property would be occupied by a company or business controlled by Mr Longo. It is to be noted that clauses 8.10 and 8.33 of the Unit Trust deed confer broad power upon the Trustee concerning related party transactions.
Think Office Fitouts Pty Ltd was the occupier of the Footscray Property from approximately December 2007 until 2012. That company was deregistered on 14 January 2018.[13]
[13]Ibid, exhibit CL-2.
After Think Office Fitouts Pty Ltd, another company controlled by Mr Longo, Think Commercial Projects Pty Ltd occupied the Footscray Property.[14] As recorded in the Joint Chronology, that company ceased to occupy the property on 28 November 2017. From December 2017 until March 2020 another company of which Mr Longo was the sole director, Buildko, occupied the Footscray Property.
[14]Ibid, [26].
The occupancy of each of these companies was not pursuant to a written lease. There was no personal guarantee or security provided in support of the obligations of the tenant.
From 2007 until 2013, Ljubica Nastas was employed as the office manager, first of Think Office Fitouts Pty Ltd and then of Think Commercial Projects Pty Ltd.
No complaint was made concerning the occupancy of the Footscray Property pursuant to informal arrangements by companies controlled by Mr Longo, prior to the dispute which crystallised in the issue of these proceedings.
The evidence of Mr Longo is that Buildko ceased to occupy the Footscray Property in March 2020.[15] TTT Bricklaying Pty Ltd petitioned to wind up Buildko on 14 May 2020. On 3 June 2020 there was a creditors voluntary winding up and Gregory Stuart Andrews was appointed liquidator of Buildko.[16]
[15]Ibid.
[16]Plaintiff, Affidavit of Felicity Shaw, dated 5 June 2020, exhibit FS-1.
The evidence reveals and, it is accepted by both parties, that from late 2018 Suzana Longo’s health began to noticeably deteriorate. Her doctors diagnosed her with a number of serious health problems including kidney failure and autoimmune related issues. Following her diagnosis she was required to visit hospital approximately three times per week for kidney dialysis and other related medical appointments. In June 2019 she was admitted into intensive care and was in hospital for five weeks. Her health issues are ongoing. Mrs Longo was again admitted to intensive care in March 2020. The risk to her health is exacerbated by the COVID–19 pandemic.
As well as Suzana Longo experiencing very serious health issues, Mr Longo suffered two separate knee injuries in the second half of 2019 which required surgery.[17] No doubt the stress associated with Suzana Longo’s illness, Camillo Longo’s injuries and the resignation of three senior employees of Buildko between September and December 2019 of which Mr Longo has given evidence,[18] contributed to the financial difficulties encountered by Buildko.
[17]Longo Affidavit, [25].
[18]Ibid.
The Footscray Property is currently vacant. On 10 February 2020 Mr Longo signed a commercial leasing authority in favour of Raine & Horne Brunswick to advertise and seek expressions of interest to lease the property. It was originally intended that the property be offered for lease for $60,000 per annum plus outgoings, including as noted in handwriting on the leasing authority, fees to the Owners Corporation.[19]
[19]Ibid, exhibit CL-8.
No offers were received to lease the property prior to 2 September 2020. On 25 August 2020, Mr Longo instructed the agent to reduce the asking rent to $45,000, plus outgoings. Following that reduction in the asking rent, there have been a number of offers from prospective tenants.[20]
[20]Ibid, [34]-[37].
The Footscray Property was valued at $1.1 million as at 16 May 2019. The valuation is by John Sly of Hay Property Group (‘Hay Valuation’).[21]
[21]Nastas Affidavit, exhibit LN-9.
The Fetherstonhaugh Affidavit exhibits an email which contains the opinion of a real estate agent from Raine & Horne, as to the value of the Footscray Property both with and without the Improvements.[22] The additional email from Mr Frlan to Mr Long dated 30 September 2020 upon which the Trustee seeks to rely, contains opinions as to the estimated selling price should the property be tenanted at a rent of $45,000 to $55,000 per annum net. I accept the Nastas submission that the emails do not constitute admissible evidence as to the current market value of the Footscray Property. There is no expert evidence as to the current market value of the Footscray Property, whether on the basis of vacant possession, or as tenanted based upon the current asking rent.
[22]Fetherstonhaugh Affidavit, exhibit JJF-4.
Both parties are agreed that the Footscray Property should be sold and the Unit Trust wound-up. The parties are unable to agree as the appropriate mechanism to bring about the sale of the Footscray Property, whether it should be offered for sale on the basis of vacant possession or whether it should be tenanted and if so on what terms.
The Owners Corporation
There are significant fees outstanding to the Owners Corporation. Those fees have been outstanding for a number of years, over which time they have both increased and incurred interest charges at a rate of 10 per cent per annum on unpaid amounts.[23]
[23]Nastas Affidavit, exhibit LN-10.
As at 20 May 2017 the accrued debt was $6,483.44.[24] Given that the Owners Corporation fees are in the order of $2,400 per year, it seems that no fees have been paid to the Owners Corporation since approximately 2015.
[24]Ibid.
On 1 May 2020 the Owners Corporation issued a Final Fee Notice to the Trustee showing the Unit Trust owed the sum of $20,375.32.[25] Prior to May 2020, proceedings had been brought in VCAT against the Trustee and an order was made in favour of the Owners Corporation, including that the Trustee pay costs. The current debt owed by the Unit Trust to the Owners Corporation includes legal fees and costs of the Owners Corporation of those proceedings and interest on unpaid levies. Further owners corporation fees are continuing and remain unpaid.[26]
[25]Ibid, [23], exhibit LN-10. The Owners Corporation Fee Notice dated 26 May 2020, which included the quarterly members contribution for the period commencing 1 July 2020 of $596.75, is for a total amount due of $21,392.42.
[26]Ibid. The Owners Corporation Fee Notice dated 26 May 2020 includes the quarterly members contribution in the sum of $596.75.
During the hearing the Court was told that Mr Longo disputes the amount of the debt owing to the Owners Corporation. His affidavit did not refer to the existence of that dispute and there is no evidence as to the details of the alleged dispute. Undertakings put forward on behalf of the Trustee on instructions from Mr Longo as a means of resolving the dispute between the parties include a proposal that the Trustee correspond with the Owners Corporation in order to compromise and resolve that debt. Further, that unless agreement is able to be reached to compromise the debt, Mr Longo will pay personally the amount owed to the Owners Corporation as at 1 December 2020.
The Commonwealth Bank of Australia debt
The affidavit of Ms Nastas records that the mortgage to the CBA secures a loan which as at 30 June 2017, was in the amount of $194,796.[27]
[27]Ibid, [19].
In his affidavit, Mr Longo gave evidence that as at 16 September 2020 the loan balance on the CBA loan was $115,406.47.[28] The evidence is that loan repayments in 2020 concerning the CBA loan are at a rate of $3,964.49 per month.
[28]Longo Affidavit, [45], exhibit CL-14.
The bank statements available to Nastas reveal various loan repayment dishonours commencing from 1 May 2019.[29]
[29]Nastas Affidavit, [27]-[28], exhibit LN-11.
The evidence on affidavit from Mr Longo concerning the CBA loan was less than forthcoming. It did not refer to the fact, as emerged during the hearing, that the loan with the CBA was in arrears as at 1 October 2020 in the sum of $31,654.85.[30] The bank records and loan statement exhibited to the affidavit of Mr Longo did not refer to the arrears.[31] On the face of the CBA documents exhibited and Mr Longo’s evidence on affidavit, the loan to the CBA was up to date.
[30]CBA Email Chain, 2-3.
[31]Longo Affidavit, exhibit CL-13 and CL-14.
The failure of Mr Longo, the sole director of the Trustee to disclose and to explain the true position concerning the arrears when he filed his affidavit is unacceptable.
The compensation payment and the application of funds received
On 2 September 2020 the sum of $65,554.56 was paid into the bank account of the Unit Trust with the CBA representing compensation paid for the compulsory acquisition of part of the land comprising the title to the Footscray Property.[32] The Court was informed during the hearing that the acquisition was not of part of the factory premises but was a partial acquisition of common property. Further, that the compensation claim has been finalised and that no further compensation is anticipated to be received by the Unit Trust.
[32]Plaintiff, Affidavit of Felicity Shaw, dated 23 September 2020, [6]; Joint Chronology, 6.
On 17 September 2020, from the compensation funds received, the Unit Trust paid $15,000 to its solicitors, Holding Redlich. On 23 September 2020 the Unit Trust paid the further sum of $19,471.88 to Holding Redlich, from the Unit Trust bank account.[33] Those payments only came to the attention of Nastas after they were made.
[33]Plaintiff, Affidavit of Felicity Shaw, dated 24 September 2020, [2].
It will be observed that whilst two payments were made from the Unit Trust account to cover legal costs of the Trustee concerning this proceeding, nothing was paid from the bank account of the Unit Trust so as to discharge or reduce the debt owing by the Unit Trust to the Owners Corporation.
An amount of $31,654, forming part of the compensation monies received, was shown on bank records first made available to Nastas on or shortly before 23 September 2020, marked ‘hold amount’.[34] Nothing was said on affidavit by Mr Longo by way of explanation about what the reference to ‘hold amount’ signified.
[34]Plaintiff, Affidavit of Felicity Shaw, dated 23 September 2020, [6], FS-19.
As is now clear, the amount marked ‘hold amount’, on the extract of the Unit Trust’s CBA bank account corresponds to the arrears under the mortgage. It is evident from an email from the CBA to Mr Longo dated 24 September 2020, part of the CBA Email Chain, produced belatedly by the Trustee and tendered during the hearing, but to which, due to its late production, reference was not expressly made, that the failure by the Trustee to pay the arrears constitutes an event of default under the CBA loan. That email, so far as relevant, reads:[35]
[35]CBA Email Chain, 2-3.
As discussed, in order to remedy the current position of default, the Bank requires the following be achieved within the next 14 days:
·Full clearance of arrears on the ‘Think Partitions Pty Ltd’ Better Business Loan
·Full clearance of arrears on the ‘Diaollie Pty Ltd’ Home Loan
·Full clearance of the overdrawing on ‘Think Commercial Projects’ account
We understand that you are in a position to clear the arrears on the ‘Diaollie’ Home Loan and will attend to this within a week.
With respect to the ‘Think Partitions’ Better Business Loan, you have advised that you need time to consult other parties to the loan (specifically the trust) and you have undertaken to contact me by close of business next Friday 2nd October 2020, or, if you require more time, you have agreed to contact me to discuss this.
You have informed us that the Whitehall St, Footscray property has been untenanted since March and there are no funds coming in to meet the monthly repayment obligation on the Better Business Loan. You advise however that you are currently in negotiations with prospective tenants and expect to settle on this shortly.
On the assumption that the arrears are cleared on all facilities, the Bank is willing to provide a period of no more than 2 months moratorium on repayments on the Better Business Loan, as a measure of assistance whilst you secure a tenant. Please note that at the conclusion of the 2 month moratorium it is the Bank’s requirement that the monthly loan repayments recommence and the 2 months accumulated arrears be repaid.
…
Should you be unable to comply with the Bank’s request for full clearance of arrears, you will need to provide your proposal for what your intentions are going forward (e.g. refinance with another financial provider, sale of assets or other suitable proposal to remedy default) This proposal must be submitted to me by no later than 9/10/2020.
The application by Nastas to appoint a receiver to the Unit Trust is opposed by the Trustee and by Mr Longo. One of the matters relied upon by them in opposition to the appointment of a receiver is that such an appointment would constitute an event of default under the CBA loan. In that context, the failure on the part of Mr Longo and the Trustee to disclose that there was already an existing event of default is most unsatisfactory.
The claim by Mr Longo for financial compensation concerning the Improvements
Whilst Mr Longo has filed an affidavit in his capacity as director of the Trustee, an issue of significance in that affidavit, upon which he was cross-examined, is whether he should be personally entitled to some monetary payment in consequence of the Improvements made in 2007/2008 to the Footscray Property by Think Office Fitouts Pty Ltd, the now deregistered company.
Mr Longo has not made a separate claim outside this proceeding against the Trustee to be paid for the Improvements.
Whilst it is unnecessary for the Court to determine whether Mr Longo has a valid claim for payment, it seems clear on the evidence, including such documentary evidence as has been produced to which attention was directed, that if any person had a claim for such expenditure that person is the deregistered company, Think Office Fitouts Pty Ltd. Further, as the expenditure was apparently incurred in 2007/2008, any such claim would seem to be statute barred. When cross-examined, Mr Longo was unable to say whether the now deregistered company had recorded the Footscray Property Improvements as an asset in its financial statements. Nor was he able to say whether that company had claimed a deduction in its tax returns for the costs of the works which comprise the Improvements.
Shortly prior to the hearing, proposed undertakings were provided to the court on behalf of the Trustee as a suggested means of disposing of the issues in dispute between the parties. The undertakings offered included a proposed payment to Mr Longo personally of an amount of $40,000 as compensation for the Improvements.[36] As submitted on behalf of Nastas, to seek to propound such a claim demonstrated both a failure on the part of Mr Longo to appreciate a conflict of interest between his own personal interests and those of the Trustee of which he is the sole director, and a lack of awareness of the difference between a claim by a deregistered company of which he was a director and any right that he may have to make a personal claim.
[36]An open offer made earlier, which is exhibit CL-16 to the Longo Affidavit, also included as a condition that the sum of $40,000 be paid to Mr Longo in relation to the Improvements.
These matters give the Court no confidence in the ability of Mr Longo to act as the director of the Trustee in a manner that properly recognises the need to manage conflicts of interest when they arise, in particular, conflicts concerning his desire to personally seek monetary compensation in respect of the Improvements and his obligation to act in the interests of the unitholders.
Mr Longo should not have caused the Trustee to incur legal costs in these proceedings so as to seek to advance his personal claim to compensation for the Improvements. It is no part of the role of the Trustee to seek to prosecute such claims.
Accounts of the Unit Trust
The most recent accounts of the Unit Trust prepared by the Trustee which are finalised are the accounts for the year ended 30 June 2017.[37]
[37]Nastas Affidavit, exhibit LN-8.
Those accounts show distributions to each of the unitholders in the sum of $10,502. That is, on the basis of income from rent of $44,200 and bank interest of $20,637. The accounts show that distributions to unitholders were notional rather than actual. Amounts notionally distributed have been recorded in the accounts as Capital Contributions by the unitholders.[38]
[38]Ibid.
Draft accounts for both the 2018 and 2019 financial years have recently been prepared on behalf of the Unit Trust in accordance with instructions given by Mr Longo. Those accounts are yet to be finalised. Although the 2020 financial year has recently ended, there was no evidence concerning proposed arrangements for the finalisation of the accounts of the Unit Trust for the 2020 year.
What is striking about the accounts for 2017 and the draft accounts for the next two financial years is that no reference is made in the profit and loss statement to Owners Corporation fees and no reference is made in the balance sheet to the outstanding debt owed to the Owners Corporation. The explanation for this on behalf of the Trustee and on behalf Mr Longo is that it was always intended that the companies in occupation of the Footscray Property would be responsible for the payment of outgoings which include the payment of amounts owed from time to time to the Owners Corporation.[39]
[39]Transcript of Proceedings, Nastas Investments Pty Ltd v Think Partitions Pty Ltd (Supreme Court of Victoria, Delany J, 1 October 2020), 69 (Delany J, V Bell).
Each of the companies in occupation up to March 2020 are companies of which Mr Longo was the director. The companies controlled by him were responsible for payment of the outgoings, but as is apparent, failed to make payments due to the Owners Corporation as and when required. In his role as the sole director of the Trustee, it was the responsibility of Mr Longo to ensure the Owners Corporation fees were paid whilst companies of which he was a director were in occupation of the Footscray Property.
Towards the end of the hearing the solicitors for the Trustee provided a proposed form of order and revised undertakings. One of those undertakings concerns the Owners Corporation fees. It is in the following terms:
5.In relation to the debt allegedly owed to the Owners Corporation by the Trust as at the date of these orders, it will:
(a)correspond with the Owners Corporation in order to compromise on and resolve the alleged debt; and
(b)by 1 December 2020 cause to be paid from its director’s personal funds, any settlement reached with the Owners Corporation in relation to the alleged debt. If a compromise on the alleged debt is unable to be agreed with the Owners Corporation by 1 December 2020, then the defendant’s director shall personally pay the entire sum alleged to be due and owing by the Owners Corporation on that date.
If that undertaking were to be given it would give comfort to the unitholders, that the Owners Corporation debt will be paid by Mr Longo and that there will not be a liability on the part of the Unit Trust for that long standing debt. The form of undertaking provided after the hearing included provision for reimbursement of Mr Longo of 50 per cent of the amount paid to the Owners Corporation pursuant to the proposed undertaking. Such an adjustment in favour or Mr Longo is not appropriate. The only reason for the historic debt in the sum of $20,375.32, the subject of the Final Fee Notice owed to the Owners Corporation, is Mr Longo’s failure to ensure that Owners Corporation fees were paid as and when they fell due by the occupiers of the Footscray Property, of which he was a director. The fees owing for the period after 1 May 2020 are properly fees borne by the Unit Trust, being fees incurred whilst it has been unable to secure a tenant for the property.
Clearly upon the sale of the Footscray Property all amounts outstanding to the Owners Corporation, being the fees the subject of the Final Fee Notice and fees since 1 May 2020, will need to be paid before the Owners Corporation will agree to a transfer of the property to a purchaser.
Requests for a unitholders meeting and to inspect the books and records of the Unit Trust
On 2 August 2019, Nastas gave notice to Mr Longo, requisitioning the Trustee to convene a meeting of unitholders to be held on 22 August 2019, to consider the sale of the property and to determine the rent in light of the Hay Valuation.[40] The Hay Valuation referred to the passing rent as being below market at the date of the report, being a rent of less than $100m² where market rents were reported in the valuation to be $150 m².
[40]Nastas Affidavit, exhibit LN-12.
Despite the request for a meeting on 2 August 2019, and extended correspondence through to April 2020, no meeting was convened by the Trustee.
At one point it was said that the director of the Trustee, Mr Longo, was in hospital and this was the reason for the failure to call a meeting. Earlier, at the time when the Trustee was represented by Nicholas James Lawyers, the entitlement of the plaintiff to call the meeting was disputed by the Trustee.
As the unitholder register as at 2008 reveals, there can be no doubt that the plaintiff holds 50 per cent of the units in the Unit Trust.[41] There was no proper basis for the Trustee to refuse to hold the meeting when it was requisitioned. Clause 16.2 of the Unit Trust deed, provides that the Trustee will convene a meeting of the unitholders forthwith after receiving a requisition from the holders of units totalling at least 25 per cent of the units of the Unit Trust, giving Nastas the right to call for a meeting. The refusal to convene a meeting was a breach of the obligation of the Trustee under that clause.
[41]Ibid, exhibit LN-3.
It was submitted that Mr Longo was not aware of the transfer of units to Nastas. If that is the case, he should have been. He is the sole director of the Trustee. Upon a request by Nastas for a meeting to be convened, he should have searched the unitholder register. Having done so he would have known that Nastas was a unitholder and entitled to call the meeting.
Not only has a meeting of unitholders not been convened despite requests from Nastas, there has also been a failure and refusal by the Trustee to provide Nastas with access to the books and records of the Unit Trust. Access to the books and records was sought on behalf of Nastas on 23 March 2020.[42] Clause 10.9 of the Unit Trust deed required the Trustee to comply with that request by Nastas as a unitholder.
[42]Ibid, [46].
Mr Longo caused the Trustee to fail to comply with clause 10.9, failing to respond to the legitimate request by Nastas as unitholder to inspect books and records. It seems likely that if there had been proper compliance with the request for inspection of the books and records that the position concerning the arrears under the CBA loan would have become known to Nastas.
It is also the case that by failing to cause the accounts for 2018 and 2019 to be prepared in a timely manner, that the Trustee breached the obligation in clause 10.6 of the Unit Trust deed.[43]
[43]Ibid, exhibit LN-2. Clause 10.6 of the trust deed states that ‘As soon as practicable after the end of each Accounting Period, prepare or cause to be prepared a profit and loss account showing the calculation of the Income of the Trust Fund for the relevant Accounting Period and a balance sheet as at the date to which the profit and loss account is made up. Once these accounts are completed, the Trustee will send each Unitholder a copy of such profit and loss account and balance sheet within a reasonable time after the date to which they are made up’.
Appointment of a receiver
The plaintiff applies to appoint a receiver and manager of the assets and undertaking of the Unit Trust pursuant to s 37(1) of the Supreme Court Act1986 (Vic) and r 39.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’). Section 37 provides:
Injunctions and receivers
(1)The Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver if it is just and convenient to do so.
(2)An order made under subsection (1) may be made either unconditionally or on such terms and conditions as the Court thinks just.
(3)The Court may grant an interlocutory injunction under subsection (1) restraining a party to a proceeding from removing from Victoria or otherwise dealing with assets located within Victoria, whether or not that party is domiciled, resident or present within Victoria.
The principles governing the appointment of a receiver to the assets of a trust were identified by Warren CJ in Yunghanns v Candoora No 19 (No 2).[44] Those principles include that the court may, on the application of a beneficiary,[45] appoint a receiver if the security of the trust property is in jeopardy,[46] which may be so because the affairs of the trust are in disorder and the appointment is necessary to secure continuity of management,[47] or where for some other reason the appointment of a receiver is required to protect the trust property.[48] As referred to by her Honour, as receivership is equitable in nature, the remedy is flexible and can be moulded to the needs of the situation.[49]
[44](2000) 35 ACSR 34, [64]-[73] (‘Yunghanns’).
[45]Swale v Swale (1856) 22 Beav 584; 52 ER 1233.
[46]Middleton v Dodswell (1806) 13 Ves 266; 33 ER 294; Barkley v Reay (1843) 2 Hare 306; 67 ER 127; Re Gradfan Pty Ltd (in liq); Nilant v Miling Nominees Pty Ltd (1996) 20 ACSR 689 at 702–3 per Steytler J, SC(WA).
[47]Attorney-General v Schonfeld [1980] 3 All ER 1; [1980] 1 WLR 1182, Ch.
[48]Halsbury’s Laws of Australia, vol 27, [430-5380].
[49]Ibid.
The written submissions on behalf of the Trustee highlight the following observation by Warren CJ in Yunghanns:
[T]he general ground on which the court appoints a receiver is ultimately in every case the protection or preservation of property for the benefit of persons who have an interest in it. The basis upon which a receiver may be appointed has been regarded by the courts on even as wide a basis as when the circumstances render it just and convenient: see Manchester and Liverpool District Banking Co Ltd v Parkinson (1888) 22 QBD 173.[50]
[50](2000) 35 ACSR 34, [65].
In opposing the application to appoint a receiver the Trustee submitted that there was no risk to the Unit Trust property and that something more than a loss of confidence is required.
Nastas submits that the affairs of the Unit Trust are, and have been, in disarray. In its written submissions provided prior to the hearing it relies upon the Trustee’s refusal or failure to call a meeting of unitholders. It relies upon mismanagement and waste of the Unit Trust assets referring to the unpaid Owners Corporation fees, the fact loan repayments have been dishonoured on many occasions and the decision by the Trustee to pay legal fees from compensation received in circumstances where the Owners Corporation debt remains unpaid.[51] It contends that there has been a failure to properly administer the Unit Trust and refers to conflicting evidence about whether or not the Trustee has obtained an extension of time for lodgement of outstanding tax returns.[52]
[51]Plaintiff, ‘Plaintiff’s Submissions on its Application made by Summons dated 5 June 2020’, dated 23 September 2020, [26]-[35].
[52]Ibid, [37]. The plaintiffs rely on the apparently contradictory communications. On 20 July 2020, the Trustee’s solicitors asserted in correspondence that they were instructed an application had been lodged with the ATO requesting an extension of time for the lodgement of outstanding tax returns. On 3 September 2020, Nastas was provided with an email from the accountants dated 21 July 2020 which informed the Trustee that the accountants had not yet applied for an extension of time for lodgement.
In addition, Nastas submits that it has lost confidence in the Trustee as a proper steward of the Unit Trust affairs. The pursuit by Mr Longo of a personal claim concerning the improvements to the property, ostensibly when acting as Trustee in opposing the application to appoint a receiver, provides evidence in support of the loss of confidence allegation.
The Trustee submitted that the issue of management of conflicts of interest must be considered in the context of clauses 8.10 and 8.33 of the Unit Trust deed and the agreed purpose for the purchase of the Footscray Property. The failure to call a meeting was said to be explicable on the basis of a ’misunderstanding‘ as to who was the relevant unitholder, Mrs Nastas personally or Nastas. It was also submitted, as is objectively the case, that at the time the request for the meeting was made Mrs Longo was in intensive care. No doubt there were many issues of concern as a result for both Mr and Mrs Longo. It was submitted that Mrs Longo is no longer in hospital and that as she was the person who previously dealt with books and records on behalf of the Trustee that the Court should take comfort from that being the case. However, there is no evidence about Mrs Longo’s health and indeed, no evidence that she is no longer in hospital.
So far as dishonoured payments of the mortgage are concerned, it was submitted that these were in effect, de minimis, because the dishonoured payments were paid a few days later and the amounts of the dishonour fees were very modest. It was submitted that there is no threat to the Unit Trust property and none of the matters mentioned should cause concern about selling the Unit Trust property and paying creditors.
I do not accept the proposition that there is no risk to the Unit Trust property. To the concerns expressed by Nastas must be added the fact that the Trustee has allowed the loan with the CBA to fall into arrears and for there to be a default which has not been remedied. As submitted on behalf Nastas in final address, it appears that the CBA loan is approximately 7.5 months in arrears. Mr Longo, the sole director of the Trustee made no attempt to disclose the existence or circumstances of that default until during the course of the hearing itself.
Both the fact that the arrears on the loan and the failure on the part of the Trustee to disclose those matters to Nastas and to the Court until they emerged during the hearing is very unsatisfactory. Of more concern is that those events have led to the Trustee being in default of its obligations to the CBA as confirmed by the 24 September 2020 email in the CBA Email Chain.
The evidence given by Mr Longo concerning the Owners Corporation and outstanding fees owed to it is also unsatisfactory. No explanation was given for the failure on the part of the companies of which he was a director to pay those fees and charges which appear to date back to 2015 and include interest charges at 10 per cent on amounts outstanding and legal costs ordered against the Trustee in favour of the Owners Corporation in proceedings at VCAT.
The Trustee would have had sufficient money in its bank account following receipt of the compensation payment to pay the Owners Corporation fees and to discharge the arrears outstanding to the CBA had it not decided instead, to apply approximately $35,000 to meet legal fees. Those legal fees concern work carried out on behalf of the Trustee but also, in pursuit by Mr Longo of his personal claim for compensation for the Improvements. That is, limited liquid funds of the Unit Trust, obtained as compensation for the partial acquisition of the interest of the Unit Trust in the Footscray Property, paid into the account of the Trustee at the CBA were applied not to advance or defend the interests of the Unit Trust, but so as to advance the interests of Mr Longo and his family, one of the 50 per cent unitholders in the Unit Trust. Such actions provide no confidence that the affairs of the Unit Trust are being properly managed and that the Unit Trust property is not as a result, in jeopardy.
The failure to ensure Owners Corporation fees were paid over many years, the application of the compensation monies to pay legal costs, including to seek to advance a personal claim by Mr Longo, and Mr Longo’s pursuit of that claim seeking compensation for the Improvements, demonstrate a failure on the part of Mr Longo to identify and appropriately manage conflicts.
Application to remove the Trustee and the taking of accounts
Separately, as an alternative to the appointment of a receiver to the trust, Nastas seeks an order that it be appointed trustee pursuant to s 48 of the Trustee Act 1958 (Vic). Section 48 provides:
Power of Court to appoint new trustees
(1)The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the assistance of the Court, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
In particular and without prejudice to the generality of the foregoing provision, the Court may make an order appointing a new trustee in substitution for a trustee who is convicted on indictment of any offence, or is a patient within the meaning of the Mental Health Act 2014, or is a bankrupt, or is a corporation which is in liquidation or has been dissolved.
(2)Nothing in this section gives power to appoint an executor or administrator.
The Trustee opposes the order for its removal and replacement by Nastas. It submits, amongst other things, that a court will not remove a trustee simply because the beneficiaries lost confidence in the trustee.[53] Further, that the dominant considerations in determining whether to remove a trustee is the preservation of trust property and the welfare of the beneficiaries.[54] The Trustee contends that the court will only exercise its jurisdiction to remove a trustee where absolutely necessary.[55]
[53]Horwath Corporate Pty Ltd v Huie (1999) 32 ACSR 413.
[54]Porteous v Rinehart (1998) 19 WAR 495.
[55]Defendant, ‘Outline of Defendant’s Submissions’, dated 30 September 2020, relying on McKenna v Lowe (1878) 1 SCR (NS) (NSW) Eq 10; Hobkirk v Ritchie (1933) 29 Tas LR 14; Re Wrightson [1908] 1 Ch 789; Nissen v Grunden (1912) 14 CLR 297 at 299; Princess Ann of Hesse v Field [1963] NSWR 998; Kantor v Wilding [2005] VSC 266 (citations in original).
The Trustee referred during the hearing to the decision of Moore J in McNee v Lachlan McNee Family Maintenance Pty Ltd,[56] where his Honour applied the well-known statement of Dixon J in Miller v Cameron, concerning the nature of the jurisdiction to remove a trustee:
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. Judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised.[57]
[56][2020] VSC 273 (‘McNee’).
[57](1936) 54 CLR 572, 580-1.
It was submitted that unlike the position on the facts of McNee,[58] in the present case, applying Miller v Cameron,[59] there was no proper basis for removal of the Trustee.
[58][2020] VSC 273.
[59](1936) 54 CLR 572.
An order is sought by Nastas for accounts and inquiries pursuant to r 52.01 of the Rules. The making of such an order is also opposed by the Trustee. Rule 52.01 of the Rules provides that the court may at any stage of a proceeding make an order for the taking of any accounts for the making of any inquiry. It may be accepted as submitted on behalf of the Trustee that the remedy of accounts will not be ordered if an account will serve no useful purpose.[60]
[60]Mulherin v Quinn Villages [2007] QSC 231.
In the present case, the claim by Mr Longo concerning the Improvements, and also, the outstanding debt to the Owners Corporation, are appropriate matters for an inquiry and for the taking of accounts, if these matters are not resolved. That is, an order for inquiry and the taking of accounts concerning these two issues by a judicial officer is likely to provide a convenient and cost-effective means of dealing with these matters.
Consideration and disposition
The evidence discloses that there is a proper basis in this case for the appointment of a receiver to the assets of the Unit Trust. That is so for two reasons. First, because the affairs of the Unit Trust are in disorder and disarray. Second, in order to protect the Unit Trust property.
That the affairs of the Unit Trust are in disorder and disarray is demonstrated by the following matters:
(a) the failure and refusal of the Trustee to convene a meeting of the unitholders when requested to do so;
(b) the failure and refusal of the Trustee to provide access to the books and records of the Unit Trust when requested by Nastas as unitholder;
(c) the failure of the Trustee to attend to finalising the accounts of the Unit Trust for the 2018 and 2019 financial years. The Trustee only has one director, Mr Longo. Based upon the content of the 2017 accounts as finalised and the draft accounts for 2018 and 2019, to provide relevant information to the accountants to finalise both the accounts and tax returns of the Unit Trust is a simple and straightforward task which should have been attended to by Mr Longo as the director. It is true that in 2019 his wife was very ill and that he also experienced health issues. However those events provide no explanation for the failure on the part of the Trustee to finalise the accounts for 2018 in the second half of the 2018 calendar year;
(d) the failure to pay the debt to the Owners Corporation. The outstanding fees are a liability of the Unit Trust. On the evidence those fees should have been paid by the companies associated with Mr Longo who occupied the Footscray Property. Mr Longo was in a position of conflict between interest and duty. His failure to deal with and pay debts due on behalf of companies controlled by him to the Owners Corporation from at least as early as 2017, thereby enabling debts to accrue for which the Trustee in its capacity as Trustee of the Unit Trust is liable, is a failure of management. It is a failure that occurred in the context of a conflict between the personal interests of Mr Longo and the occupying companies of which he was a director and the interests of the Trustee of which he was the sole director;
(e) finally, under the stewardship of Mr Longo the CBA loan secured over the Footscray Property is now in default. It appears likely it has been in default for approximately 7.5 months. That default should have been disclosed in a transparent manner to the unitholders. It is a matter about which they should have been fully informed. If the books and records of the Unit Trust had been made available as requested on behalf of Nastas, and as is required pursuant to clause 10.9 of the Unit Trust deed, it is likely that Nastas would have known both of the arrears and of the loan default.
The issue of protection of the Unit Trust property arises because of the default on the CBA loan. The Unit Trust has no source of income with which to service that loan other than the amount of $31,000 in the account of the CBA which the bank has placed on ‘hold’. It is clear from communications by email with the CBA that it is necessary that there be certainty about the sale of the secured Footscray Property. Without certainty there is a heightened risk that the CBA will itself move to sell the property as mortgagee. The protection of Unit Trust property requires that as soon as possible and, no later than at the time of settlement of any such contract of sale, there is no ongoing dispute and no amount outstanding to the Owners Corporation as might place in jeopardy settlement of the sale of the secured property.
For those reasons it is clear that the criteria for the appointment of a receiver to the Unit Trust as discussed at paragraph 74 above are satisfied. However, the existence of a proper basis to appoint a receiver to the Unit Trust property is only the first step. The second step is for the Court to determine whether in the exercise of its discretion an order for appointment should be made. Is there a better alternative available to maximise the prospect of a greater return to the unitholders?
One option available to the Court, applying Miller v Cameron,[61] is to appoint Nastas as the replacement trustee. The threat to the security of the Unit Trust property due to the arrears and ongoing event of default under the CBA loan, combined with the conflict that exists concerning the claim by Mr Longo for monetary compensation for the Improvements are such as to justify removal of the Trustee of which Mr Longo is the sole director.
[61](1936) 54 CLR 572.
Although the option of removing the Trustee is available, to replace control of the Unit Trust by one family in place of the other, in circumstances where there are disputes concerning Mr Longo’s claim for compensation for the Improvements and also concerning amounts outstanding to the Owners Corporation, may be productive of further disputes. That is, rather than constituting an efficient and cost-effective mechanism to enable the orderly sale and realisation of assets and distribution of Unit Trust property. Given those two disputes, unless the issues can be resolved by some other means, the appointment of an independent receiver is a preferable outcome. The consent by Mr Rohrt of Hamilton Murphy to act as receiver has already been filed by Nastas and there is no opposition to his appointment, should an order be made.
However, it may not be necessary to appoint a receiver. It will not be necessary if suitable undertakings are given by the Trustee and by Mr Longo that provide for the proper management of the affairs of the Unit Trust, and orderly sale of the Unit Trust property and a mechanism for dealing with the disputed claims concerning the Improvements and the Owners Corporation fees.
The amended undertakings put forward on behalf of the Trustee following the second day of the hearing and final addresses provide the basis, subject to appropriate modifications, for an alternative means of dealing with the problems presently confronting the Unit Trust, problems due to the management of the Trustee by Mr Longo.
In substance what is proposed by the amended undertakings is as follows:
(a) That Nastas be appointed to manage the Footscray Property and the sale of the property until sold;
(b) That if not sold before 1 December 2020 on the basis of vacant possession, the Footscray Property be advertised for lease on specified terms and thereafter, attempts be made to sell the property as tenanted until sold;
(c) The Trustee and Mr Longo to be given power and authority to negotiate with the Owners Corporation to see whether the amount of the Owners Corporation debt can be reduced by agreement, but in any case Mr Longo is to personally pay the amount due and owing to the Owners Corporation by 1 December 2020;
(d) From the sale of the Footscray Property the proceeds are to be applied, first, to meet the costs of sale and to repay the CBA loan, secondly, to pay all creditors of the Unit Trust and thirdly to pay the balance of the Unit Trust funds to the unitholders;
(e) The Trustee is to instruct the accountants to finalise the accounts and tax returns of the Unit Trust for the 2019 and 2020 years within seven days of these orders but to do so only in accordance with the joint instructions of Nastas and the Trustee. If the accounts are not finalised within two months of the accountants receiving instructions then the Trustee is to engage an alternative nominated accountant to finalise the accounts.
The Trustee proposes that upon such undertakings being given that the application to appoint a receiver, or alternatively to appoint a new trustee and the taking of accounts should be dismissed.
It is notorious that if a receiver were to be appointed to the Unit Trust that there would be additional expenses incurred. It must also be recognised that if the property is sold by a receiver, or by the CBA as mortgagee in possession, particularly in the current COVID-19 impacted property market, the sale will be perceived as a distressed sale. As a result, in what is already no doubt likely to be difficult market, the price obtained on sale may be adversely impacted. For those reasons, that part of the modified undertakings that places Nastas in control of management of the sale of the property is clearly attractive as a means of an orderly sale being conducted which is likely to achieve a more favourable outcome for the unitholders than if such a sale is conducted by a receiver.
It is also in the interests of the unitholders that Mr Longo is personally bound to pay the debt owing to the Owners Corporation, as is included in the proposed undertakings. The liability for those amounts up until 1 May 2020 as identified in the Final Fee Notice should clearly be borne by Mr Longo or the companies associated with him that previously occupied the Footscray Property. There is an advantage to the unitholders if the personal undertaking offered is able to be taken up. That is because the undertaking can itself be enforced and future disputes that might arise concerning the obligation to pay such amounts can thereby be avoided.
The proposed undertakings appropriately give control of an orderly sale process to Nastas and include a suitable regime for sale. In addition to what is already provided a dispute resolution mechanism is desirable in case the Footscray Property remains unsold after 12 months and the parties are unable to agree to an appropriate sale price.
The proposed undertakings do not deal with the taking of accounts. They do not resolve the question of any potential claim by Mr Longo or by one of his companies in relation to the Improvements, no matter how speculative such a claim. A timely mechanism needs to be built into orders or undertakings that deal with this issue. That can be achieved by requiring Mr Longo or any of the companies of which he is a director to bring any such claim within 30 days. If no claim is made within that time then the issue will have been put to rest. If a claim is made, then unless agreed within a further 30 days, it is appropriate that there be an order for the taking of accounts and inquiries by a judicial officer, in particular, concerning that issue.
Annexed to these reasons is the Trustee’s proposed form of undertakings provided to the Court following the hearing, marked up by the Court in a manner that seeks to deal with these issues (‘Modified Undertakings’).
As matters presently stand, the Trustee and Mr Longo have not signified their willingness to give undertakings in the form of the Modified Undertakings. If they are prepared to do so then orders can be made upon the giving of the Modified Undertakings for the taking of accounts and inquiries by a judicial officer if the process governing the making of any claim for compensation for the Improvements does not result in resolution.
If the Trustee and Mr Longo are not prepared to give the Modified Undertakings, then the Court has no alternative other than to appoint a receiver and to make an order for the taking of accounts.
I direct the Trustee and Mr Longo to advise the Court and Nastas by no later than 2.00 pm on Thursday, 8 October 2020, whether they are prepared to give undertakings in or substantially in accordance with the Modified Undertakings. If they are not prepared to do so then by 4.00 pm on Thursday, 8 October 2020 Nastas should provide the Court with a draft order for the appointment of a receiver and for an inquiry and the taking of accounts by a judicial officer.
Costs
As foreshadowed during the hearing, I will hear further from the parties in relation to the question of costs. I do not wish the costs issue to add unnecessarily to the already high cost burden of this litigation compared to the value of the assets in question. For that reason I direct the parties to provide short written submissions not exceeding four pages concerning costs orders. Costs submissions should be filed and served by 4.00 pm on Thursday, 8 October 2020.
In addressing costs questions it will be relevant to bear in mind that:
(a) the Trustee refused requests by Nastas as unitholder to convene a meeting of unitholders and also refused its request to access the books and records of the Unit Trust; and
(b) although the named defendant to the proceeding is the Trustee, in reality this dispute is between the two families. In defending the proceeding and both in the form of the affidavit of Mr Longo and the form of undertaking that was originally proffered on behalf of the Trustee and Mr Longo, it is clear that Mr Longo was seeking to advance his interests and those of his family in competition to the interests of Nastas and the Nastas family; and
(c) the sum of approximately $35,000 has been paid from the CBA account of the Unit Trust to Holding Redlich in relation to the Trustee’s costs of this proceeding.
As correctly acknowledged in submissions on behalf of the Trustee, costs are in the discretion of the Court.[62]
[62]Defendant, ‘Outline of Defendant’s Submissions’, dated 30 September 2020, relying on Earnshaw v Loy (No 2) [1959] VR 252, 253 (Sholl J); Maradval Pty Ltd v Admarval Pty Ltd [2017] VSC 745 (McMillan J) (citations in original).
The costs submissions should address:
(a) who should pay the costs of the proceeding;
(b) whether the Trustee should be entitled to be reimbursed for its costs, or part of them, out of the assets of the Unit Trust; and
(c) whether any and if so, what adjustment should be made in relation to costs, by reason of the payment previously made to Holding Redlich from the Unit Trust account.
The matter will be listed on Friday, 9 October 2020, at a time to be advised for final orders.
ANNEXURE
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2020 02496
BETWEEN
NASTAS INVESTMENTS PTY LTD
In its capacity as trustee of the Nastas Family Trust
Plaintiff
and
THINK PARTITIONS PTY LTD
In its capacity as trustee of the Think Partitions Unit Trust
Defendant
ORDER
___________________________________________________
JUDGE: The Honourable Justice Delany
DATE MADE: October 2020
ORIGINATING PROCESS: Originating motion filed on 9 July 2020
HOW OBTAINED: At the hearing of the plaintiff’s application on 1 October 2020
ATTENDANCE: T Wodak for the plaintiff
V Bell for the defendant
OTHER MATTERS: The defendant and its director provide to the Court the undertakings set out in Schedule 1 to these Orders (the Undertakings).
THE COURT ORDERS THAT:
In the event notice of a claim is given, in accordance with paragraph 13(b) of the undertakings in Schedule 1 to these Orders, and that claim made is not agreed to or resolved, as between the claimant and the plaintiff within a further 30 days then, pursuant to r 52.01 of the Supreme Court (General Civil Procedure) Rules 2016 (Vic), there shall be an inquiry and taking of an account by a judicial officer of that issue.
The plaintiff’s application is dismissed.The proceeding is otherwise dismissed
. The plaintiff’s costs and the defendant’s unpaid costs of this Proceeding be paid out of the proceeds of sale of the assets of the Think Partitions Unit Trust.
2.3. Costs [to be determined].
SCHEDULE 1 – UNDERTAKINGS
The defendant, as trustee of the Think Partitions Unit Trust (‘Unit Trust’), undertakes to the Court that, until further order:
It will formally and subject to the terms below, irrevocably, appoint the plaintiff, Nastas Investments Pty Ltd, to manage the sale of the property situated at 7/107-109 Whitehall Street, Footscray (‘Footscray Property’) on behalf of the Unit Trust, on the following terms:
(a)The plaintiff will be permitted to appoint:
(i) a real estate agent of its choice to conduct the sale; and
(ii) a solicitor of its choice to conduct the conveyance on behalf of the Unit Trust;
(b)The plaintiff
willmay not accept any offer to purchase the Footscray Property unless:(i) the proposed purchase price is equal to or in excess of $1,100,000: or
(ii) any lesser amount agreed to by the unitholders in writing: or
(iii) in the event a lesser amount is not agreed, and the Footscray Property is not sold within 12 months of the date of these undertakings, at such price as a qualified valuer acting independently but engaged by the plaintiff on behalf of the Unit Trust determines to be an appropriate price for the sale of the property (Minimum Price),
and on settlement terms of no more than 60 days;
(c)The plaintiff shall continue to offer the Footscray Property for sale for at least 12 months from the date of these
Ordersundertakings, subject always to the condition that the Footscray Property be sold for at least the Minimum Price and subject to any lease entered into pursuant toparagraphparagraph 3 below; and.(d)All proceeds from sale of the Footscray Property will be paid by the plaintiff into the Think Partitions bank account (CBA Account No. 063491 10107513) (‘CBA Account’).
It will promptly execute any contract of sale which satisfies the terms in
orderparagraph 1 above.If a contract of sale is not entered into before 1 December 2020, it shall advertise and lease the Footscray Property, subject to the following minimum requirements:
(a)Three (3) year term; and
(b)Rent of not less than $120,000 over that three year term plus outgoings.
It will not enter into a lease with Mr Camillo Longo or any entity related to or concerned with Mr Longo.
It will ensure that any proceeds from rental of the Footscray Property or any other income received by the Unit Trust (‘Trust Funds’) will be paid into the CBA Account.
6.1.In relation to the debt allegedly owed to the Owners Corporation by the Trust as at the date of these orders, it will:
(a)correspond with the Owners Corporation in order to compromise on and resolve the alleged debt; and
(b)(a)by 1 Decemmber 2020 cause to be paid from its director’s personal funds, any settlement reached with the Owners Corporation in relation to the alleged debt. If a compromise on the alleged debt is unable to be agreed with the Owners Corporation by 1 December 2020, then the defendant’s director shall personally pay the entire sum alleged to be due and owing by the Owners Corporation on that date.
7.6. It will not pay any amounts out of the CBA Account except with the joint written instructions of a director of the defendant and a director of the plaintiff, or by court order, save for:(a)mortgage repayments due and payable to CBA in accordance with the loan on the Footscray Property (‘CBA Loan’);
(b)any Owners Corporation fees and charges which are incurred and become due and payable in respect of the Footscray Property from
the date of these Orders1May 2020 (‘Owners Corporation Fees’);
(b)(c) Utility fees and charges due and payable in respect of the Footscray Property (‘Utility Fees’); and
(c)(d) Any accounting fees due and payable relating to the preparation of the financial accounts by the Unit Trust (‘Trust Accounting Fees’).
8.7. Upon any sale of the Footscray Property, it will apply the payment out of the Trust Funds in the following order, subject to receiving the express written consent from the plaintiff:(a)to meet the costs of sale of the Footscray Property (including the costs of the solicitors engaged to act on the conveyance and the costs of a qualified valuer should a valuation be required) and to repay the CBA Loan; and
(b)full reimbursement of any amounts contributed towards the CBA Loan by Camillo and Suzana Longo between the date of these
Ordersundertakings and the date of sale of the Footscray Property, in the event that the Unit Trust has insufficient funds to pay one or more repayments owing to CBA under the terms of the CBA Loan.(c)to pay all creditors of the Unit Trust, including without limitation:
(i)The Australian Taxation Office, to the extent taxation is due;
(ii)Any Owners Corporation Fees which become due and payable
fromin respect of the period commencing on 1 May 2020the date of these Orders;(iii)Any Utility Fees due and payable;
(iv)Any Unit Trust Accounting Fees due and payable;
(v)Nicholas James Lawyers, being the lawyers engaged on behalf of the Unit Trust to negotiate the settlement arising from the compulsory acquisition of the common property on which the Footscray Property is located (‘Acquisition’) by the Major Transport Infrastructure Authority (‘MTIA’), in relation to any invoices issued in connection with the Acquisition after 21 July 2020; and
(vi)The defendant’s director, in reimbursement of any accountant’s invoices paid since 1 July 2017 in connection with the preparation of Tax Returns and Financial Statements of the Unit Trust.
(A) 50% of the amount paid in order to compromise the alleged debt owed to the Owners Corporation in accordance with paragraph 5 6 above;
(B)any accountant’s invoices paid since 1 July 2017 in connection with the preparation of Tax Returns and Financial Statements of the Trust.
(d)to pay the balance of the Trust Funds to the unitholders in accordance with their unitholder entitlements.
9.8. It will not take any steps to prevent Ljubica Nastas from continuing to have access to the CBA Account online for the purpose of transparency.
10.9. It shall:(a)within 7 days of the date of these
Ordersundertakings, instruct DHL Business Group to:
(i)(vii) finalise the accounts and tax returns of the Unit Trust for FY2018, FY2019 and FY2020 (‘the Accounts’); and
(ii)(viii) act only on the joint instructions of the defendant and the plaintiff;
(b)not withdraw or vary any instructions to DHL Business Group without the prior written consent of the plaintiff; and
(c)cooperate with DHL Business Group to prepare the Accounts and will use best endeavours to provide all information required to prepare the Accounts within 21 days of these
Ordersundertakings.
11.10. In the event that DHL Business Group does not finalise the Accounts within 2 months of the date of receipt of instructions in accordance with paragraph 9 of theseOrdersundertakings, the defendant shall engage Garry Fettes of Rodgers Reidy to finalise the Accounts.
12.11. Upon the satisfaction of the above conditions, it shall do all things reasonably necessary to allow for the Unit Trust to be determined by resolution of the unitholders.Mr Longo personally undertakes to the Court that:
In relation to the debt allegedly owed to the Owners Corporation by the Unit Trust, being the debt the subject of the Final Fee Notice dated 1 May 2020,
as at the date of these orders,he will:(a)correspond with the Owners Corporation in order to compromise on and resolve the alleged debt; and
2(b) by 1 Decemmber 2020 cause to be paid fromits director’shis personal funds, any settlement reached with the Owners Corporation in relation to the alleged debt the subject of the Final Fee Notice. If a compromise onf the alleged debt the subject of the Final Fee Notice is unable to be agreed with the Owners Corporation by 1 December 2020, thenthe defendant’s directorMr Longo shall personally pay the entire sum the subject of the Final Fee Notice, together with any interest attributable to the amount the subject of the Final Fee Notice, due and owing to thealleged to be due and owing by theOwners Corporation on that date.He undertakes to give notice in writing to Nastas within 30 days of the date of these undertakings either:
(a)that neither he, nor any company of which he is or was a director, will make a claim for financial compensation from the Unit Trust in respect of the Improvements made to the Footscray Property; or
(b)that he personally, or a company of which he is or was a director claims financial compensation from the Unit Trust in respect of the Improvements made to the Footscray Property, providing with notice of such claim all documents and evidence relied upon.
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