Our Lady's Mount P/L as T'tee v Magnificat Meal Movement Int Inc
[1999] QSC 319
•13 October 1999
IN THE SUPREME COURT
OF QUEENSLAND
Brisbane
Before Mr Justice Muir
No 4840 of 1999[Our Lady’s Mount P/L as t’tee v Magnificat Meal Movement Int. Inc.] [1999] QSC 319
BETWEEN: OUR LADY’S MOUNT PTY LTD AS TRUSTEE
(ACN 071 386 457) Plaintiff
AND: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Defendant
No 7190 of 1999
[G.C. Geileskey v Magnificat Meal Movement Int. Inc]
BETWEEN: GORDON CHARLES GEILESKEY Applicant
AND: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Respondent
No 6886 of 1999
[Magnificat Meal Movement Int. Inc v G.C. Geileskey]
BETWEEN: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Applicant
AND: GORDON CHARLES GEILESKEY AS TRUSTEE Respondent
REASONS FOR JUDGMENT - MUIR J
Judgment delivered 13 October 1999
CATCHWORDS: CORPORATIONS LAW - consequence of absence of prescribed notice under Corporations Law s 253(1) - whether special resolution can cure defect - validity of “A” class share issue - bona fides on the part of majority directors in purporting to pass resolutions - whether such resolutions were in breach of trust - whether provision of moneys to accompany by way of subscription for “A” class shares in its capital could result in such moneys being held in trust by the company for another unrelated company.
PRELIMINARY ISSUE - whether plaintiff duly authorised to commence and maintain the action.
EQUITY - resulting or constructive trust - unconscionable conduct on part of purchaser of land - fiduciary obligations .
Counsel:Mr L D Bowden for the plaintiff/applicant
Mr A J H Morris QC for the defendant/respondent
Solicitors:Lynch & Co for the plaintiff/applicant
Gilshenan & Luton for the defendant/respondent
Hearing Date: 26, 27, 30, 31 August 1999
IN THE SUPREME COURTOF QUEENSLAND
Brisbane
Before Mr Justice Muir
No 4840 of 1999[Our Lady’s Mount P/L as t’tee v Magnificat Meal Movement Int. Inc.]
BETWEEN: OUR LADY’S MOUNT PTY LTD AS TRUSTEE
(ACN 071 386 457) Plaintiff
AND: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Defendant
No 7190 of 1999
[G.C. Geileskey v Magnificat Meal Movement Int. Inc]
BETWEEN: GORDON CHARLES GEILESKEY Applicant
AND: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Respondent
No 6886 of 1999
[Magnificat Meal Movement Int. Inc v G.C. Geileskey]
BETWEEN: MAGNIFICAT MEAL MOVEMENT
INTERNATIONAL INC. Applicant
AND: GORDON CHARLES GEILESKEY AS TRUSTEE Respondent
REASONS FOR JUDGMENT - MUIR J
Judgment delivered 13 October 1999
The proceedings
The matters before me are -
·Action No. 4840 of 1999 (“the Action”) by Our Lady’s Mount Pty Ltd (“OLM”) as Trustee against Magnificat Meal Movement International Inc (“Magnificat Meal”) in which the plaintiff claims recovery of possession of premises at Gunn Street, Helidon (“the Convent”) as lessor and proprietor from the defendant as lessee.
·Application 7190/1999 by Gordon Geileskey, as trustee for the Helidon Real Estate Settlement Trust, to remove a caveat lodged by Magnificat Meal over land at 11 Railway Terrace, Helidon registered in the name of Mr Geileskey (“lot 1”).
·Application 6886/1999 by Magnificat Meal seeking, inter alia, a declaration that Mr Geileskey holds lot 1 on trust for Magnificat Meal.
On 1 July 1999 an application for summary judgment in the Action was dismissed and it was ordered that there be a trial of a preliminary issue of whether OLM was duly authorised to commence and is duly authorised to maintain the Action. It was subsequently ordered that applications 6886/99 and 7190/99 be tried at the same time as the preliminary issue.
The arguments advanced in the Action
At the commencement of the hearing, there being no pleadings in respect of the issues for determination, I required the parties to identify the contentions to be relied on by them.
Mr Morris QC, who appeared for Magnificat Meal, stated the following propositions in relation to the contention that OLM had commenced and was prosecuting the Action without lawful authority.
The directors of OLM can give and have given no valid instructions in respect of the Action because Mr Geileskey and Mrs Stewart are no longer directors of OLM having been removed at a general meeting of OLM.
The members of OLM were able to pass a resolution removing Mr Geileskey and Mrs Stewart as directors because the “A” class shares, contrary to OLM’s contentions, retained voting rights.
Such voting rights were retained because, although a resolution of members of OLM removing such rights is documented, there was no meeting of members at which such a resolution was passed. Furthermore, if the resolution would otherwise be valid it is invalid, at least against the “A” class shareholders, through want of registration prior to the issue of the shares.
Such resolution is invalid also through “want of any other form of notification to (the “A” class shareholders that) the shares they were receiving were not voting shares”.
The purported termination of the lease of the Convent (“the Lease”) and any steps taken by way of implementing such purported termination are in breach of trust and, in consequence, ineffectual. A trust (“the Overt Trust”) was created by a trust deed dated 12 October 1995 between Jose Teixera as settlor and OLM as trustee (“the Trust Deed”).
The Overt Trust was created with the intention, on the part of the settlor, Mr and Mrs Geileskey and Mr and Mrs Stewart that the property and income of the trust should be applied in furtherance of the religious and spiritual activities of the Magnificat Meal Movement (“the Movement”) and with the further intention that the natural persons named in the Trust Deed as beneficiaries would not benefit personally. A covert trust (“the Covert Trust”) came into existence at least by the time the “A” class shareholders contributed their money and that money was used to purchase the Convent. The Covert Trust supplanted the Overt Trust . The facts relied on to support such allegations are those set out in paragraph one of the defence and counterclaim delivered on 3 June 1999.
Apart from the allegation of intention surrounding the constitution of the Covert Trust the allegations in paragraph one of the defence all deal with matters which took place after the date of the Trust Deed. For example, it is alleged that -
a.the Convent is used by Magnificat Meal for the purposes of the Movement;
b.it is inconsistent with the objects of the Covert Trust that Magnificat Meal be deprived of the use of the Convent;
c.the Geileskeys have recently become estranged and Mr Geileskey has entered into a personal relationship with Mrs Stewart;
d.OLM is the legal entity through which the secular affairs of the Movement are conducted.
Paragraph one further alleges that it is inconsistent with the objects of the Covert Trust that Magnificat Meal be denied possession of the Convent and be denied the use of it for the purposes of the Movement.
The resolution of the Board of Directors of OLM resolving to terminate the Lease and to instruct solicitors in respect of that matter was invalid because -
a.of a lack of bona fides on the part of Mr Geileskey and Mrs Stewart; and
b.the purported termination of lease and steps taken in that regard were in breach of the Covert Trust.
The lack of bona fides was particularised as calling the directors’ meeting with a view to making the timing of the meeting so inconvenient as to exclude Mrs Geileskey.
In relation to the allegation of lack of bona fides, reliance was placed on paragraph 1m of the defence which provided, inter alia -
“1m. The said notices (of meeting) were issued by Geileskey, with the knowledge and concurrence of Mrs Stewart, in bad faith, in that Geileskey and Mrs Stewart:
i.were not acting bona fide in the interests of the Plaintiff;
ii.were not acting bona fide in the interests of the Trust;
...
vi.issued the said notices with the intention to use their majority on the Plaintiff’s board to give effect to a pre-conceived plan, developed by them in consultation with Messrs Lynch & Co, solicitors without regard to the interests of either the Plaintiff or the Defendant, or the objects of the Trust, including the interests of the Movement.”
Application to remove caveat and application for a declaration that Mr Geileskey holds lot 1 on trust for Magnificat Meal
Magnificat Meal’s contentions in the remaining matters, as outlined by Mr Morris at the commencing of the hearing, were as follows.
Lot 1, which is registered in the name of Mr Geileskey as trustee of the Helidon Real Estate Settlement Trust (“the Helidon Trust”) is held on a resulting or constructive trust for Magnificat Meal. The constructive trust arises from unconscionable conduct on the part of Mr Geileskey in procuring the cancellation of a contract of purchase of lot 1 dated 29 July 1999 between the Toffs, as vendors, and Magnificat Meal as purchaser, and substituting a contract of purchase between the vendors and himself as purchaser.
In so acting, Mr Geileskey was aware that he was obtaining the benefit of a heavily discounted purchase price as a result of the purchase price of an adjoining parcel of land (“lot 2") being increased and the purchase price of lot 1 being decreased, to the knowledge of the purchaser of lot 2, Raymond Burke. Mr Burke agreed to the pricing arrangement with a view to benefiting Magnificat Meal.
The resulting trust arises through Mr Burke, in consequence of this distorted apportionment of the purchase price of the two blocks, providing a share of the purchase price of lot 1 for the benefit of Magnificat Meal and not for the personal benefit of Mr Geileskey or the Helidon Trust.
I have set out the case opened by Mr Morris in some detail because, in significant respects, the arguments advanced in his closing submissions were not within it. The consequences which flow from that conclusion are addressed later.
Before dealing with each of the above issues it is convenient to provide a description of the parties and of the persons who play prominent roles in the dispute.
Our Lady’s Mount Pty Ltd
On incorporation on 10 October 1995 OLM had a nominal capital of $1,000,000 divided into a number of classes of shares including “A” class shares which conferred on their holders the right to vote at general meetings. The initial directors were Mr and Mrs Geileskey and Mrs Stewart.
The annual return of OLM dated 12 December 1997, signed by Mrs Geileskey, shows 4 ordinary shares and 2,614 “A” class shares on issue. Mr and Mrs Stewart and Mr and Mrs Geileskey are each recorded as holding one ordinary share. The “A” class shareholders are shown as Mr and Mrs Stewart, 914 shares jointly, Joseph and Antonio Galea, 500 shares jointly and Michael and Valda Bianchi, 1,200 shares jointly.
The Our Lady’s Mount Trust
The members of OLM met on 13 October 1995 and resolved that OLM accept appointment as trustee of “Our Lady’s Mount Trust” and execute the Trust Deed.
On 18 October 1995 Jose Teixera as settlor and OLM, as trustee, executed the Trust Deed to constitute a trust described as the “Our Lady’s Mount” Trust (“the OLM Trust”). Mrs Geileskey, as director of OLM, witnessed the affixation of its common seal to the deed. The Trust Deed creates three classes of beneficiaries described as “primary”, “secondary”, and “tertiary”. The primary beneficiaries are Mr and Mrs Geileskey and Mr and Mrs Stewart. The secondary beneficiaries are the children, grandchildren, great grandchildren and near relatives of Mr and Mrs Stewart and Mrs and Mrs Geileskey and the spouses of any such children and grandchildren. The tertiary beneficiaries are -
(a)the Queensland Institute of Medical Research Trust;
(b)persons appointed from time to time as tertiary beneficiaries by Mr Geileskey and Mr Stewart, as “principals” under cl.6 of the deed or by the trustee with the consent or at the direction of the principals under cl. 9.2 of the deed;
(c)any corporation in which any of the beneficiaries has a share or any trustee of a trust of which a beneficiary of the OLM Trust is a beneficiary.
Under cl. 3 of the Trust Deed, the trustee has the right, in any year, to pay all or any part of the income of the trust fund to any one or more of the primary, secondary and tertiary beneficiaries or to accumulate such income in whole or in part. In default of appointment in any year, the income is held in trust for such primary beneficiaries who are then living as tenants in common in equal shares.
There was no suggestion that the “principals” had exercised their power to appoint Magnificat Meal or the Movement as additional beneficiaries. The Trust Deed conferred power on the Trustee to make “gifts or advances” to any “persons .. associations or institutions or corporations or charities ...” but no general power to act in such a way as to assist or advance the interests of such bodies.
Magnificat Meal
The defendant was incorporated on 3 August 1996. Its constituting document or documents were not put in evidence. It is probable that Mrs Geileskey is in effective control of that body as its membership appears to consist of her followers. Its directors on 27 May 1999 were Mrs Geileskey, Mrs Stewart and Christina Delahunty. Mrs Stewart and Mrs Geileskey were appointed directors on 3 August 1996. Mr Geileskey was a director between 30 September 1997 and 10 December 1997.
The Geileskeys
I do not regard the evidence of either Mr or Mrs Geileskey as reliable. Their perceptions of each other’s conduct have been distorted by their matrimonial difficulties. Both displayed difficulty in avoiding the use of hindsight when recalling past events and a general inability to make concessions where appropriate or obviously due.
Mrs Geileskey, whether consciously or not, attempted to portray herself as a somewhat naive and subservient person who had allowed herself to be bullied and put upon by aggressive and forceful males such as her husband and Mr McCarthy, OLM’s accountant.
In my view Mrs Geileskey is strong willed and astute. It is likely that she understood at all times the general nature of relevant transactions and of documents signed by her. It is unlikely that she would be pressured into following a course to which she was opposed unless it suited her purposes to do so or unless she regarded the matter as being of little moment. Her evidence, in significant respects, was inconsistent with or contradicted by objective fact or the evidence of witnesses whom I found credible.
The Stewarts
Mr Stewart’s evidence was quite limited in its scope. He was not a director of OLM or Magnificat Meal and had little direct involvement in the conduct of their respective affairs. His recollection of financial matters was hazy, but I gained the impression that he was an honest witness.
Mrs Stewart’s evidence was not without its difficulties. Unlike Mr and Mrs Geileskey, she displayed an ability to give her evidence in a way which was not entirely partisan and to make appropriate concessions. I consider that although her understanding may be coloured to a degree by her falling out with Mrs Geileskey, she attempted to give her evidence honestly.
Peter McCarthy and Sally Woodward
Mr Peter McCarthy was, and is, a consultant with Harper Fox and Associates, a Nambour firm of accountants. He performed accounting services for, and gave advice of an accounting and financial nature to, OLM and Magnificat Meal until July 1998. Miss Woodward, at relevant times, was a conveyancing clerk with Deacon & Milani, a firm of solicitors doing conveyancing work for OLM and Magnificat Meal. Both were reliable witnesses who endeavoured to give their evidence carefully and accurately.
The background to the dispute
The circumstances leading up to the entering into and settlement of the contract for the purchase of the Convent were outlined in the evidence only in a perfunctory way.
Mr and Mrs Geileskey were married in 1973. Mrs Geileskey, then a primary school teacher, was 20 years of age. Mr Geileskey was 21. He has been a real estate agent for most of his working life and from time to time Mrs Geileskey has worked in one of his real estate agency businesses. They moved to Toowoomba in August 1993.
Mrs Geileskey commenced the Magnificat Meal Movement (“the Movement”) before leaving Melbourne. The form the Movement then took and the nature of its activities were not explained in any detail, but it was said that it was an unincorporated association. I gleaned from the evidence that it is and was an evangelical movement comprised of Catholics which places particular emphasis on bible studies and teachings.
The Stewarts and the Geileskeys attended the same Catholic church in Toowoomba and, by the end of 1995, had become friends. Mr Geileskey was then working as a real estate agent in Toowoomba and Mr Stewart was a police officer. The evidence does not disclose whether Mrs Stewart and Mrs Geileskey continued working through this period.
Prior to discussions concerning the prospective purchase of the Convent, Mr and Mrs Stewart became members of the Movement, in a loose sense at least, and followers of Mrs Geileskey. Mrs Geileskey became aware that the Convent was for sale and concluded that it would provide a suitable base from which she could conduct her religious activities. The Convent was originally built as a convent but at some time passed into the hands of the Christian Brothers. It was disused at the time Mrs Geileskey first became aware that it was for sale.
Over a period of many months, a plan of action was formulated between the Stewarts and the Geileskeys, largely at the instigation and direction of Mrs Geileskey, whereby both families would acquire the Convent. The families were to live in it, but it was discussed between them and they contemplated that, apart from providing a home for the two families, it would provide a base for the Movement.
In furtherance of this understanding, Our Lady’s Mount Pty Ltd was registered on 10 October 1995 and Mrs Stewart and Mr and Mrs Geileskey were appointed directors. As noted earlier, the OLM Trust was constituted on 18 October 1995. The contract (“the Convent contract”) for the purchase of the Convent for a price of $210,000 was entered into on 15 December 1995. The purchaser was shown in the contract as “Our Lady’s Mount Pty Ltd as trustee for ‘Our Lady’s Mount Trust’”. A deposit of $5,000 was paid and settlement became due on 15 December 1996.
Mrs Geileskey, in her oral evidence, attempted to convey the impression that the idea of acquiring the Convent by the use of a trustee company was her husband’s and that she went along with the proposal in order to placate him and avoid the emotional distress and family turmoil which, according to her, would have resulted from her failure to accede to his demands. I do not accept that this was the case.
The Geileskeys and the Stewarts caused the OLM Trust to be established with a view to OLM’s purchasing the Convent in its capacity as trustee of the OLM Trust. The understanding of the Stewarts and the Geileskeys at the time of entering into and completion of the Convent contract was that the Convent would be an asset of the OLM Trust and be held by OLM pursuant to the terms of the Trust Deed. None of them gave any consideration to the legal difficulties which might arise out of the incompatibility between OLM’s obligation, as trustee, to comply with the provisions of the Trust Deed and to act for the benefit of the beneficiaries of the OLM Trust on the one hand, and the general desire of the directors of OLM to use the Convent, in part, to further the purposes of the Movement on the other. Such desire though, did not include an intention on the part of the Stewarts or the Geileskeys to give Magnificat Meal a proprietary interest in the Convent.
At no time did the Stewarts or the Geileskeys consider that moneys paid by the Stewarts to OLM in connection with its property or affairs were donations by the Stewarts to OLM or the Movement.
On 3 August 1996, on the advice of Mr McCarthy, Magnificat Meal Movement International Inc. was incorporated with Mrs Geileskey and Mrs Stewart as its directors. Magnificat Meal was registered in Queensland with the ASC on 19 November 1996. It took over the role of the unincorporated association.
The Geileskeys had no moneys from which to contribute their half share of the purchase price of the Convent and a 12 month period for settlement was negotiated in order to enable them to overcome this problem.
Prior to the settlement of the Convent contract, the Stewarts, at the instigation of Mrs Geileskey, had provided some of the moneys intended by them to be used in the purchase of the Convent to OLM to enable it to acquire the St Michael’s Cafe business and the land on which it stood at 14 Railway Street, Helidon.
Mr and Mrs Stewart most probably did not turn their minds to the question of how the Geileskeys would fund their half of the Convent purchase price and associated outlays. It was, however, discussed between them and the Geileskeys that the Stewart’s share would come from the net proceeds of sale of the Stewart’s Toowoomba house and other moneys available to the Stewarts such as Mr Stewart’s income as a police officer and moneys to become available to him on his proposed retirement from the police force. It is doubtful that, at the time of the signing of the Convent contract, the Geileskeys had arrived at any clear understanding as to the source of the funds to acquire their half share.
The Geileskeys’ solution to the funding problem was to enlist the aid of followers or supporters of Mrs Geileskey in the Movement. Foremost amongst those, in relation to the funding of the acquisition of the Convent, were the Bianchis. Mr and Mrs Bianchi expressed to Mrs Geileskey an interest in assisting the Movement. Mrs Geileskey suggested that they might care to purchase from OLM the St Michael’s Cafe business and associated land. Components of the proposal put by Mrs Geileskey to Mr Bianchi were that the Bianchis would pay $160,000 for a two-thirds interest in the land and business, which two-thirds interest would then be leased and made available to OLM in consideration of the payment of a rental by OLM to the Bianchis of $10,000 per annum. Mr Geileskey mentioned the proposed transaction to Mr McCarthy who advised that if the transaction proceeded in the manner then contemplated, OLM would be liable for capital gains tax on a substantial profit realised on the sale of the two-thirds interest. In November 1996 OLM had purchased the land on which the cafe stood for $45,000.
McCarthy proposed that the Bianchis pay $30,000 for the two-thirds interest in the land and business and pay the balance of $120,000 by way of subscription for “A” class shares in the capital of OLM. The Bianchis accepted the proposal.
On 16 December 1996 the Bianchis paid $120,000 into the trust account of OLM’s solicitors, Boyce Garrick Eastman. It was not until 5 July 1997 that 1,200 “A” class shares in OLM were issued to the Bianchis.
Mr Bianchi swears, that -
“Prior to the payment of the sum [of $120,000] I had discussions with Mr Gordon Geileskey. He told me that in return for the sum I would receive $1200 “A” class shares. These shares, however, would provide no return by way of dividend.
At that time there was no discussion with Mr Geileskey in relation to the rights which would attach to the ‘A’ class shares except for the fact that dividends would not be payable.”
I accept that Mr Bianchi’s recollection in this regard is generally accurate, although the precise number of “A” class shares to be issued to the Bianchis may not have been determined at that stage. Mr Bianchi denied that, in acting as they did, he and his wife were making a donation to Magnificat Meal or Mrs Geileskey.
I find that the Bianchis were responding to a request by Mrs Geileskey to provide moneys to benefit the Movement. The Bianchis were not concerned to ascertain the detail, or even the general nature, of the course Mrs Geileskey intended to take to implement her aims. Their intention was not so much to donate moneys to the Movement, but to provide moneys in a manner acceptable to Mrs Geileskey, to assist her in furthering the purposes of the Movement. The evidence does not disclose what, if anything, the Bianchis were told about such matters as the respective roles of OLM and Magnificat Meal, any proposal for OLM to lease the Convent premises to Magnificat Meal or whether they drew any distinction between the Movement, as a general concept, on the one hand and Magnificat Meal on the other.
Although the “A” class shares had little commercial value, the part of the transaction involving the cafe probably had the potential to give the Bianchis a relatively high return on their investment of $30,000. I use the word “probably” as, not surprisingly, having regard to the nature of the proceedings, there was no clear evidence as to the likely cost of capital improvements to the cafe premises.
Mr and Mrs Galea paid $50,000 into the trust account of Boyce Garrick Eastman on 16 December 1996. Those moneys formed part of the moneys used by OLM to complete the purchase of the Convent and were described as “loan moneys” in the solicitor’s trust account statement.
A considerable amount of time was devoted in evidence to the exploration of the transaction or transactions involving the Bianchis but very little was said about the circumstances in which the Galeas provided their $50,000. They did not give evidence.
Although it was originally discussed and intended that the Stewarts pay half the purchase price of the Convent (and Mr Stewart was of the belief at the beginning of this hearing that he and his wife had contributed $91,400 towards the purchase price) some of the Stewarts’ money, at the instigation of Mrs Geileskey, was applied to other purposes of OLM. On 31 July 1996 the Stewarts paid $22,000 in connection with the building of a roadway on the Convent land. In September and October 1996 they made further payments of $4,500, $6,000, $5,000, $5,641 and $42,900 to or for the benefit of OLM, mainly in relation to the cafe.
914 “A” class shares were issued to Mr and Mrs Stewart in July 1997. Neither Mr Stewart nor Mrs Stewart explained the circumstances in which they accepted the issue of those shares. Mr Stewart, in an affidavit sworn on 30 June 1999, after asserting that in about June 1996 he paid approximately $20,000 and $71,400 in about December 1996 “to facilitate the settlement of the purchase of the Convent at Helidon” swore -
“At the time of payment I expected some proprietary rights in the company as a result of the contribution of the purchase of the property although at the time it was necessary to act quickly to ensure settlement took place and no discussions took place as to what those rights would be.”
There is some confusion over timing. Mr McCarthy, in cross-examination, conceded that moneys had already been “donated” by the Stewarts, the Galeas and the Bianchis when he advised that “A” class shares should be issued. However, it is reasonably clear from the evidence overall, including other evidence of Mr McCarthy and that of Mr Bianchi, that by the time payment of the $120,000 was made, it was with a view to acquiring “A” class shares in OLM.
A trust account statement of Boyce Garrick Eastman, the solicitors acting for OLM in the purchase of the Convent, shows the purchase price, registration fees of $147, stamp duty of $5,925 and legal fees of $750 to have been provided out of the following moneys -
Date of Payment into
Trust Account Payer Amount12 June 1996 Mr and Mrs Stewart $20,000.00
26 July 1996 Mr and Mrs Stewart $22,000.00
29 August 1996 Mr and Mrs Galea $50,000.00
12 December 1996 Commonwealth Bank drawdown investment $50,162.00
16 December 1996 Transfer from Boyce Garrick
Eastman Trust (Bianchis) $120,000.00
24 December 1996 Transfer from Boyce Garrick
Eastman Trust $1,759.70
Throughout 1996 and 1997 supporters of the Movement made substantial donations for its purposes. A receipt book bearing the inscriptions “Our Lady’s Mount” “donations only” was kept in order to record the donations which, at the instigation of Mrs Geileskey, were paid into a bank account in the name of OLM. Mrs Stewart, on instructions from Mrs Geileskey, wrote out most of the receipts. Some of those moneys were used in effecting improvements to the Convent.
Of the three directors of OLM, Mrs Geileskey was the one most actively involved in the management of its day to day financial affairs. She was also the person who had the most central role in the management of the Movement’s financial affairs. Mrs Stewart’s involvement in such matters tended to be at a merely clerical level and her knowledge of the financial affairs of both entities was modest.
OLM took possession of the Convent prior to settlement. The Geileskeys took up residence in the main Convent building and Mrs and Mrs Stewart and their daughter commenced to live in a cottage in the Convent grounds. The Stewarts separated before long and Mr Stewart went to live elsewhere. He remained a member of the Movement. The Convent, as contemplated by the Stewarts and Geileskeys prior to its purchase, came to be used as the headquarters of the Movement. Also, as contemplated by the Stewarts and Geileskeys, some members of the Movement took up residence in it from time to time.
In May 1997, on the advice of Mr McCarthy, OLM leased the Convent to Magnificat Meal for a term of three years at an annual rental of $1 per annum. It was a term of the Lease that Magnificat Meal pay -
“(a)All rates and taxes imposed on the land and buildings;
(b)all insurance premiums in respect of the land;
(c)the cost of all services supplied to the property including electricity, gas, water, telephone, sewerage and garbage;
(d)the costs of landscaping and gardening;
(e)all costs and expenses of OLM in relation to compliance with the requirements of the Corporations Law and all its “running costs ... incurred in its capacity as trustee of the ... (OLM) trust including legal fees, accountant’s fees, auditor’s fees, income tax, capital gains tax and other charges.”
In December 1994 and April 1996 the Movement, then an unincorporated association, purchased properties in Spain in the name of Mrs Geileskey. On 7 July 1997, Mrs Geileskey, on the advice of Mr McCarthy, executed a Deed declaring that those properties were held in trust for Magnificat Meal.
Prior to 30 June 1997 purchasers of six separate properties in Railway Street, Helidon gave interests in land to Magnificat Meal by purchasing the properties in their respective names and in the name of OLM as tenants in common in the shares, two-thirds and one-third respectively. Mr McCarthy insisted that OLM execute transfers of its one-third interest in the properties in favour of Magnificat Meal. He regarded that as a necessary course having regard to OLM’s trustee status. Another appropriate course would have been the making and registration of declarations of trust by OLM, but there is no evidence that such a course was proposed or discussed.
A property at 22 Railway Street was purchased in the name of OLM for $89,500. The purchase price of that property was provided entirely by Magnificat Meal. In a letter dated 25 July 1998 to Mr McCarthy, signed on behalf of Mrs Geileskey, Mr McCarthy was advised that there was no present intention of transferring into Magnificat Meal’s name the interest in four of the properties registered in the name of OLM. On 28 July 1998, he wrote to Magnificat Meal advising, in consequence of the Movement’s refusing to follow his advice, that he intended to resign as auditor of the Movement.
Relations between Mr and Mrs Geileskey became strained and Mr Geileskey ceased to live in the Convent some time after 20 April 1999. On that day, Mr Geileskey gave Mrs Geileskey written notice of a meeting of directors of OLM to be held at the Convent on 4 May 1999 at 2 p.m. for the purpose of considering matters in relation to alleged defaults under the Lease.
Mr Geileskey and Mrs Stewart met as directors of OLM at the Convent on 4 May 1999. Mrs Geileskey did not attend the meeting. She was in another part of the Convent premises at the time. It was resolved at the meeting -
·to retain solicitors to advise concerning “the dispute” between OLM and Magnificat Meal.
·to instruct the solicitors to serve a notice on Magnificat Meal requiring it to remedy breaches of the lease.
·to retain solicitors to commence proceedings to recover possession should default not be remedied.
A notice to remedy breach of covenant dated 7 May 1999 was served on Magnificat Meal on that day. The notice alleged some 20 breaches of lease including -
(a)construction of speed bumps on an access road into the property;
(b)erection of a gate across the access road and an easement;
(c)erection of a ramp, unauthorised plumbing work;
(d)erection of decking to the front of the building and the roofing part of it;
(e)demolition of a wall and the installation of a sliding door into “the bookshop”;
(f)“three tanks”;
(g)the construction of a book shelf in the dining room;
(h)the subletting of parts of the demised premises, without consent, to some 20 listed persons.
The notice required, inter alia, that Magnificat Meal, within 14 days of receipt of the notice, remedy default by -
“1.removal of all unauthorised structural alterations and additions to the land referred to above and the make (sic) good of the land to its state prior to such breaches;
2.the repair and reinstatement of the door broken down by you in April, 1999 referred to above;
3.the removal of all unauthorised sub-lessees from the land;
4.the effecting of public liability insurance in accordance with the terms of the lease.”
Mrs Geileskey swears that all of such work was done with the approval of OLM and -
“... with the active involvement of ... Mr Geileskey and Mrs Stewart ... Not only did Mr Geileskey and Mrs Stewart participate in carrying out the work but they were resident on the property while it was carried out. The main purpose of the work was to construct a deck, and gazebo and to partition the cottage.”
In responding to these assertions, Mr Geileskey referred to Mrs Geileskey’s contention that the works were carried out “with the approval of the company and with the active participation of myself”. He continued -
“I say that these statements are untrue and that the company did not approve the carrying out of the works referred to in the notice to remedy breach and nor did I actively participate in the works, subject to the matters referred to in my earlier affidavit.”
There was little focus in the course of the hearing on the question of Mr Geileskey’s and Mrs Stewart’s participation in the alleged breaches and, in consequence, I am not in a position to make any detailed findings of fact in that regard. What is plain though, is that a substantial part of the works relied on by OLM as alleged acts of default were carried out with the knowledge of Mr Geileskey and Mrs Stewart over a considerable period of time without any attempt on their part to inform Mrs Geileskey or Magnificat Meal that OLM would insist upon its rights under the lease should the works constitute a breach of its terms. Also, it is plain that the persons listed in the notice as being on the premises were there as part of a policy agreed to by all directors of OLM over a lengthy period. There is also documentary evidence that at a meeting at which Mr Geileskey and Mrs Stewart were present, Mrs Geileskey suggested that the decking be roofed and that this course of action was approved without demur.
On 26 May 1999 a notice of termination of lease was served on Magnificat Meal by Mr Geileskey.
Mrs Geileskey convened a meeting of shareholders of OLM on 17 June 1999. At the meeting Mr Geileskey and Mrs Geileskey both purported to take the chair. Mrs Geileskey and those supporting her (the Bianchis, the Galeas, and Mr Stewart) claimed that the “A” class shares had voting rights. On that basis, they purported to pass resolutions which, inter alia, resolved that Mr Geileskey and Mrs Stewart be removed as directors, that the termination of lease be revoked and that Lynch & Co’s appointment as solicitors be terminated.
Mr Geileskey and Mr McCarthy (as proxy for Mrs Stewart) contended that Mr Geileskey was chairman and that the “A” class shares had no voting rights. They voted against all the motions proposed in the notice of meeting and asserted that, as a result of Mr Geileskey’s exercising his casting vote, all motions were lost.
After leaving the Convent, Mr Geileskey commenced (although possibly not immediately) to reside in the house at 22 Railway Street, where Mrs Stewart was living with her daughter. Mr Geileskey lived in a separate part of the house to Mrs Stewart and her daughter. Mr Morris, sensibly, conceded that the evidence did not support a finding that Mr Stewart and Mrs Geileskey were maintaining a sexual relationship. It might, perhaps, be thought odd that the relationship between Mr Geileskey and Mrs Stewart was ever an issue in the case. The point of the allegation seems to have been that, if the allegation could be borne out, it might tend to show that Mr Geileskey and Mrs Stewart were motivated by personal considerations rather than considerations which should have guided their actions as directors of OLM.
The Action was commenced by writ of summons on 26 May 1999.
Magnificat Meal lodged a caveat over lot 1 claiming “an equitable interest ... as beneficiary under a constructive or implied trust with the registered owner as trustee”. Mr Geileskey then made application to have the caveat removed.
I will now deal separately, and in more detail, with the facts relevant to the resolution altering the rights attaching to “A” class shares, the convening and holding of the directors’ meeting of OLM on 4 May 1999 and the purchase of lot 1 by Mrs Geileskey.
The circumstances surrounding the acquisition of lot 1 by Mr Geileskey
In about July 1998 Mr and Mrs Toff listed two adjoining parcels of land, lots 1 and 2, owned by them at Railway Street, Helidon for sale with Mr Geileskey as principal of Helidon Real Estate. Mr Geileskey informed Mrs Geileskey that the properties were for sale and Mrs Geileskey expressed interest in Magnificat Meal’s purchasing lot 1 which had on it a shed, formerly used as a cinema, or which, at least, was part of a former cinema. The lot is 500 square metres in area and located behind lot 2, save for a narrow access strip which runs from the Railway Street frontage down one side of lot 2. Lot 2 is 800 square metres and has street frontage.
Mr Geileskey spoke to an Irish follower of the movement, Raymond Burke, who was then living in Helidon. He was aware that Mr Burke was looking to buy vacant land with a view to erecting a dwelling on it. He told Mr Burke that the two lots were for sale at a total price of $50,000 and asked Mr Burke how much he was prepared to pay for lot 2. Mr Burke said that he was prepared to pay $30,000. It is probable that in the course of discussions between them Mr Geileskey said words to the effect that $30,000 for lot 2 and $20,000 for lot 1 was a reasonable apportionment. Such an apportionment broadly reflects the comparative values of the two lots.
At the instigation of Mrs Geileskey, Mr Geileskey conducted negotiations with the vendors with a view to obtaining a reduction in the sale prices of lot 1. As a result of the negotiations, the vendors agreed to reduce the total price to $36,000. Mr Geileskey then, without consultation with anyone, with the likely exception of Mrs Geileskey, apportioned the total purchase price as to $28,800 for lot 2 and $7,200 for lot 1. How Mr Geileskey explained the figure of $28,800 to Mr Burke is unclear. I think it probable that he told Mr Burke merely that he had been able to negotiate that figure with the vendors. He did not inform Mr Burke that the vendors had agreed to accept a total price of $36,000 for the two blocks and that the price being paid by Magnificat Meal for lot 1 was $7,200.
In order to benefit Magnificat Meal, Mr Burke proposed to Mrs Geileskey that he pay the total purchase price and outgoings for lot 2 but that the land be purchased in the names of Magnificat Meal and himself as tenants in common respectively in one-third and two-thirds shares. Accordingly, the contract of purchase entered into on 29 July 1998 showed Mr Burke and Magnificat Meal as purchasers. Magnificat Meal’s contract for the purchase of lot 1 was signed by Mrs Stewart and Mrs Geileskey on behalf of the Magnificat Meal on the same day.
Shortly before 5 October 1998 Mrs Geileskey informed Mr Geileskey that she did not want Magnificat Meal to proceed with the purchase, saying that Magnificat Meal did not have sufficient funds to proceed, or words which indicated that there were insufficient funds to meet the purchase price as well as Magnificat Meal’s other commitments and contemplated expenditure. He told her that Magnificat Meal was legally obliged to proceed. She had a conversation along similar lines with Mrs Stewart at around the same time.
On 30 September 1998, in a telephone conversation, Mr Geileskey told Miss Woodward, then employed as a conveyancing clerk by Messrs Deacon and Milani, the solicitors acting for Magnificat Meal in the transaction of purchase, that Magnificat Meal was unable to purchase Lot 1 because it had insufficient funds and that he was prepared to purchase the land for the Helidon Real Estate Settlement Trust (“the Helidon Trust”). Miss Woodward telephoned Mrs Geileskey later that day and was told by Mrs Geileskey that the Lord had spoken to her and told her that he did not want her to purchase the land for the Movement. Miss Woodward then said that she had spoken to Mr Geileskey who had offered to purchase Lot 1 for the Helidon Trust. She also explained to Mrs Geileskey that a new contract would have to be entered into. Mrs Geileskey, by words and conduct, indicated acceptance of the purchase by Mr Geileskey on behalf of the Helidon Trust.
On 5 October 1998 Magnificat Meal’s contract for the purchase of lot 1 was terminated and Mr Geileskey, as trustee for the Helidon Trust, entered into a contract for the purchase of lot 1 on the terms and conditions contained in the terminated contract. Settlement of the new contract took place on 14 October 1998.
Magnificat Meal and Mrs Geileskey contend that Mr Geileskey persuaded Mrs Geileskey to agree to the termination of Magnificat Meal’s contract and its replacement with a contract showing Mr Geileskey as purchaser by trickery. Mrs Geileskey swore that her husband asserted repeatedly that Magnificat Meal could not afford the purchase price and the cost of renovating the building on the land. She said that Mr Geileskey offered to pay those costs himself by way of “a gift to the community, as the settlement date was his birthday and he wanted to be generous on that day”. The quotation is taken from an affidavit sworn by Mrs Geileskey on 26 July 1999. I do not find Mrs Geileskey’s version of events credible.
Mrs Geileskey was better acquainted with Magnificat Meal’s financial affairs than was Mr Geileskey. It is unlikely that he would attempt to persuade her that Magnificat Meal could not afford the bargain price of $7,800 for lot 1. It is even more unlikely that she would have believed him to be genuine if he had told her that he would donate the land to Magnificat Meal by the remarkable process of terminating that company’s contract of purchase, purchasing the land in his own name and then transferring it to Magnificat Meal instead of simply giving Magnificat Meal $7,800.
Mrs Geileskey’s version of events is also contradicted in significant respects by the evidence of Miss Woodward.
The resolution altering the rights attaching to the “A” class shares
On 3 August 1996 at a meeting of shareholders of OLM, Mr McCarthy recommended that the Articles of Association of OLM be amended to remove the dividend and voting rights attaching to the “A” class shares. That advice was accepted by those present at the meeting.
After the meeting Mr Peter McCarthy prepared minutes of the meeting which were signed by Mr and Mrs Geileskey and Mr and Mrs Stewart. They were then the only shareholders of OLM.
Mrs Geileskey contended that no meeting of shareholders was held on 3 August 1996. She sought to explain away her signature on the minutes as having come about as a result of her husband, as part of a general pattern of behaviour, placing a number of documents before her for signing and demanding that they be signed instantly without her having an opportunity to peruse them. In such cases, according to her, she would acquiesce in her husband’s demands in order to maintain family harmony. She also asserted that Mr McCarthy arrived unannounced on the third, demanded that a meeting take place and that he and Mr Boyce of Boyce and Garrick shouted at her and threatened her. I reject those explanations. I am satisfied that there was a meeting at which Mr McCarthy discussed the proposed resolutions and the reasons for them and at which it was resolved that the resolutions be passed. Mrs Geileskey did not oppose the resolution and was not subjected to any pressure or threats in relation to the passing of the resolution or the signing of the minutes. That conclusion is supported by the evidence of Messrs McCarthy, Geileskey and Stewart and by that of Mrs Stewart.
At a meeting of members of OLM on 5 July 1997, at which Mr and Mrs Geileskey, Mr and Mrs Stewart, Mr McCarthy and Mr Boyce were present, Mr McCarthy advised that it was necessary to issue “A” class shares to the Stewarts, the Galeas and the Bianchis on account of the moneys provided by them to OLM in 1996. It was then resolved that the “A” class shares referred to above be issued.
It is apparent that the notion of issuing “A” class shares originated with Mr McCarthy prior to 3 August 1996.
The directors’ meeting of OLM on 4 May 1999
On or about 20 April 1999 Mr Geileskey gave Mrs Geileskey two notices of a meeting of directors to be held at the Convent on 4 May 1999 at 2 pm. One of the notices stated that the purpose of the meeting was that of -
“... considering the following issues, and if thought fit, approving all the necessary and appropriate actions to be taken in relation to the following issues:
1.To terminate the tenancy agreement between Our Lady’s Mount Pty Ltd (the lessor) and the Magnificat Meal International Inc. (lessee) for the premises situated at Gunn Street, Helidon known as lot 4 on RP 897079.
2.To terminate the directorship of Debra Marae Geileskey of Gunn Street, Helidon.”
The other notice omitted item two. In an affidavit sworn on 1 June 1999 Mrs Geileskey swore that she was unable to attend the directors’ meeting because of a prior commitment to a special training programme which took place at the Convent on the day of the meeting. She swore that it had been -
“... advertised internationally since November last year and locally since February of this year to coordinators involved in evangelisation.”
Mr Geileskey and Mrs Stewart do not contend that they were unaware of the programme or that it was a day on which Mrs Geileskey would be heavily engaged. They contend however that Mrs Geileskey could have attended the meeting had she wished to do so and, further, that she could have requested that the meeting be held at a time more convenient to her if she had any intention of attending. Mrs Geileskey did not request that the proposed meeting be postponed or rescheduled and I find that the date and time of the meeting were not set with a view to preventing or hindering Mrs Geileskey’s attendance.
Conclusions on the validity of the resolution removing the voting rights attaching to “A” class shares - the sham argument
It was submitted that if it was found that no voting rights attached to the “A” class shares the allotment of the shares should be treated as a sham as being “acts done or documents executed by the parties ... which are intended to give to them ... the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create”: Snook v London and West Riding Investments Ltd [1967] 2 QB 786 per Lord Diplock LJ at 802.
There are obvious conceptual difficulties arising from the allotment of shares in a trustee company. There are added difficulties where moneys are subscribed for shares in the capital of one entity while the moneys are intended to be applied for the purposes of another. But those difficulties do not lead, inevitably, to a conclusion that the allotments were a sham. The Bianchis and OLM, through its directors, intended that moneys paid by the Bianchis to OLM be by way of subscription moneys for “A” class shares. The Bianchis, and the other holders of “A” class shares, were intended to have whatever rights the holding of those shares conferred. Those rights included the right to a return of capital on a winding up.
Insofar as the Bianchis were intending to benefit the Movement, the benefit was to be conferred by a transaction which had the allotment of shares as one of its essential elements. In the case of the Stewarts, even though it is likely that Mr and Mrs Stewart had a far from clear understanding of the legal consequences of the transaction, I am satisfied that they understood that “A” class shares were to be allotted to them in respect of the moneys they had contributed to OLM. They also continued in the belief that the Convent was purchased and owned by OLM as trustee of the OLM Trust. As I have already mentioned, there is little evidence in relation to the Galea transaction but such evidence as there is does not permit the conclusion that the allotment of “A” class shares to them was not intended to have legal efficacy.
The alleged representation that the “A” class shares would carry voting rights
Another argument put forward in final address by Mr Morris was that there was a contract between OLM and the Bianchis to issue voting shares. In broad outline, it was submitted that:
·the Bianchis took their shares with the expectation that they would have voting rights attached to them;
·for a person to become a member of a company by allotment of shares there must be a contract to acquire the shares;
·the Bianchis were not informed of the fact that there were no voting rights attaching to their shares and the shares, in consequence, were essentially valueless;
·it was reasonable for the Bianchis to assume that shares with a face value of $120,000 possessed voting rights.
I am unsure where this argument, even if generally successful, would lead Magnificat Meal. The Bianchis have not purported to terminate any contract of allotment or to seek specific performance. In those circumstances, they remain the holders of “A” class shares without voting rights. Apart from that, I conclude that the Bianchis did not turn their minds to the question of whether or not the “A” class shares were to have voting rights prior to the payment by them of the moneys later treated as subscription moneys, or at anytime prior to the actual allotment of shares. As I have said earlier, they intended to benefit the Movement, in broad terms, and in such a way as suited Mrs Geileskey’s purposes. Accordingly, I find no substance in this contention.
The consequences of failing to give the prescribed 21 days notice of meeting and of intention to propose the subject resolution as a special resolution
In his final address, Mr Morris did not pursue the argument that the resolution was invalid for want of registration or that no meeting had in fact been held at which a resolution modifying the rights attaching to “A” class shares had been passed. He submitted that there was no valid special resolution as -
·the subject resolution was not passed at a meeting of the company of which at least 21 days written notice specifying the intention to propose the resolution as a special resolution had been duly given (Corporations Law s 253(1)); and
·it was not agreed that the subject resolution “be proposed and passed as a special resolution at (the) meeting of which less than 21 days notice has been given” (Corporations Law s 253(4)).
Section 9 of the Corporations Law (in the form in which it existed at relevant times) defines “special resolution” as having “the meaning given by section 253". Relevantly a special resolution must be passed at a meeting “of which at least 21 days written notice specifying the intention to propose the resolution as a special resolution has been duly given”. Section 253(4) provides that notwithstanding the requirements of s 253(1) “if it is so agreed by a (95%) majority ... of members a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 days notice has been given”.
In this case the resolution was passed at a meeting of which less than 21 days notice in duration had been given. In Re Joyce Bros Pty Ltd (1938) 55 WN (NSW) 192, Long Innes CJ in Eq. held that a resolution had been passed as a special resolution in circumstances in which less than the requisite notice was given where the resolution was passed unanimously. His Honour concluded that, in those circumstances, “the Court may infer that all the members have agreed within the meaning of the proviso to s 97(2) to the proposing and passing of the resolution as a special resolution”. In that case the notice convening the extraordinary general meeting referred to the proposed resolutions as special resolutions. The decision is thus distinguishable from present circumstances where the term “special resolution” does not appear to have been used in discussion between the shareholders and their advisor.
In re Oxted Motor Company Limited [1921] 3 KB 32 (CA) is authority for the proposition that the requirements of s 69 of the Companies (Consolidation) Act 1908, as to notice of intention to propose a resolution as an extraordinary resolution could be waived by all shareholders meeting and passing the resolution in the absence of notice. In re Oxted Motor Company Limited was referred to with approval by Bowen CJ in Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477 where his Honour said at 141 -
“If all the shareholders of a company are present together in a meeting, and signify their assent to a transaction which is within the powers of the company, their decision will be effective, as if a resolution to that effect had been passed at a properly constituted meeting. This may be so, notwithstanding those at the meeting thought they were conducting a directors’ meeting and the necessary formalities required for the calling of a general meeting had not been observed (In re Express Engineering Ltd [1920] 1 Ch 466). This may also be so where those present thought they were conducting a meeting and passed a resolution, but where, in fact, the requirements of the articles or the Companies Act as to notice had not been observed (In re Oxted Motor Co Ltd [1921] 3 KB 32; In re Bailey, Hay & Co Ltd [1971] 1 WLR 1357). Indeed, it has been held that provided the transaction is intra vires and honest, it is valid if all corporators assent, and that it does not matter whether assent is given at a meeting of some kind, or without a meeting, and whether it is given simultaneously or at different times and places (Parker & Cooper Ltd v Reading [1926] 1 Ch 975). It should be added that the Privy Council in EBM Co Ltd v Dominion Bank [1937] 3 All ER 555 at 566 thought it advisable to say that they found it unnecessary to express any view as to the correctness of this last decision.”
At the time relevant to Bowen CJ’s decision, s 138 of the Companies Act 1961 was in terms generally similar to s 253(4) of the Corporations Law.
In re Oxted Motor Company Limited has been referred to without criticism in other cases. See eg, In re Stanley W Johnson Pty Ltd [1936] VLR 59 and Re Sanders Ltd (1932) 49 WN(NSW) 220.
On 3 August 1996, all members of the company, as I have found, met and resolved in terms of the minutes prepared by Mr McCarthy and signed by all shareholders. All shareholders intended that the resolution take effect and later signed a minute to assist in its implementation. The “A” class shares were then allotted on the basis of an understanding on the part of the members (and directors of OLM) that no voting rights were attached to them. In those circumstances necessary formalities “have been waived by all shareholders acting in concert who want the same substantial result”: cf Herrman v Simon (1990) 8 ACLC 1094, per Meagher JA at 1096. The principle expressed in Re Compaction Systems Pty Ltd clearly applies. Further, Mrs Geileskey, if a party to the action, would be estopped from denying the existence of a valid special resolution, OLM, its members and directors, to her knowledge, having acted on the basis that the Articles had been amended to remove the voting rights attaching to the “A” class shares.
It was not contended that it was not open to Magnificat Meal to advance any of the above arguments and, in view of my findings, it is not necessary for me to consider its right to do so.
Conclusions on the alleged lack of bona fides on the part of the majority directors in resolving to terminate the lease and prosecute proceedings against Magnificat Meal
In final submissions Mr Morris went beyond the case opened by him and contended that -
a.Mr Geileskey was motivated by theological or doctrinal differences of opinion, rather than matters relevant to the best interests of OLM as a corporate entity, or of the OLM Trust; and
b.Mr Geileskey and Mrs Stewart were motivated solely by personal animosity against Mrs Geileskey and differences of opinion concerning the running of the Movement.
He relied on the timing of the meeting only as “some evidence” of the alleged lack of bona fides of Mr Geileskey and Mrs Stewart.
Considerable reliance was placed on the passage in Mr Geileskey’s evidence in which he denied that his motivation for trying to remove the Movement from the Convent was a monetary one and explained -
“Mrs Geileskey has chosen to take a path which I find totally anti-Catholic. She’s fighting with the local bishop, she’s fighting with the parish priest, she does things that are schismatic on the property by having adoration there and by having Masses there by a priest who shouldn’t be there. I want them to come back into the fullness of the Catholic Church and that isn’t taking place. The original basis of setting up this place was to foster Catholic doctrine and teaching. That is not happening. That is the basis.”
The affidavit and oral evidence in chief of Mr Geileskey and Mrs Stewart did not attempt to explain their respective purposes in voting at the meeting. Mrs Stewart was not cross-examined about those matters and it was not put to her that she acted wrongfully or improperly when participating in the passing of relevant resolutions.
In her evidence she denied that -
(a)she had any conversation with Mr Geileskey prior to her receipt of the notice of directors’ meeting concerning the date for the holding of the meeting and that she played no part in the selection of the date;
(b)she had a sexual relationship with Mr Geileskey;
(c)that she had contact with Lynch & Co prior to 29 May 1999.
Her evidence in that regard was unchallenged.
Company directors, in the performance of their duties as such, have a duty to act bona fide and in the interests of the company. The principle is expressed in this way in Ngurli Ltd v McCann (1953) 90 CLR 425 at 440 -
“In Mills v Mills (1938) 60 CLR 150 the present Chief Justice said: ‘Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. It is only one application of the general doctrine expressed by Lord Northington in Aleyn v Belchier (1758) 1 Eden 132, at p 138 [28 ER 634, at p 637]: “No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void”’.”
The exercise of a power by the directors, although bona fide, will be subject to challenge if the substantial purpose of the directors in exercising the power is an inadmissible one: Whitehouse v Carlton Hotel Pty Ltd (1986-87) 162 CLR 285 at 293-4. In that case, the majority, in dicta, expressed the view that -
“As a matter of logic and principle, the preferable view would seem to be that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, ‘the power would not have been exercised’; per Dixon J, Mills v Mills (1938) 60 CLR, at p 186.”
The test to be applied is a subjective one except, possibly, where the determination in question is one that no reasonable board acting on proper considerations could have reached: Professor L S Sealy, “Fides” and “Proper Purposes” in Corporate Decisions (1989) 15 MULR p.265. But see the reservations about the validity of the latter test expressed in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 147-148.
In Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 76 the Judicial Committee, in the following passage, discussed the approach to be adopted in determining whether there had been a valid exercise of a fiduciary power -
“In their Lordships’ opinion it is necessary to start with a consideration of the power whose exercise is in question, in this case a power to issue shares. Having ascertained, on a fair view, the nature of this power, and having defined as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls: see per Dixon J in Mills v Mills (1938) 60 CLR 150, at pp 185-186: ‘The application of the general equitable principle to the acts of directors managing the affairs of a company cannot be as nice as it is in the case of a trustee exercising a special power of appointment.’”
The above principles, although easy enough to state and understand, are often difficult to apply, particularly where, as is the case here, the subject corporation is incorporated and managed with a view to achieving a variety of objectives, many of which are non-commercial in nature. Here, the matter is further complicated as Magnificat Meal was not a beneficiary of the OLM Trust although it was always the intention of the Geileskeys and the Stewarts that the Convent be used, in part, for the Movement’s purposes.
If I were to accept Mr Geileskey’s oral evidence that he wished to remove the Movement from the Convent because of doctrinal lapses on the part of Mrs Geileskey and through a desire to bring the Movement “back into the fullness of the Catholic church” it is by no means apparent to me that a finding that Mr Geileskey was not acting in good faith in the interests of OLM would necessarily follow. It would remain necessary to ascertain other existing purposes (if any) on the part of both majority directors. I do not need to grapple with this problem, however, as I do not accept Mr Geileskey’s evidence in this regard.
Also, Mr Bowden, in his written submissions, pointed out that Magnificat Meal’s case in relation to bona fides of the directors, as identified at the commencement of the hearing, was limited to the circumstances in which the meeting of 4 May 1999 was convened. He submits that it is not open to Magnificat Meal to now mount an attack in a substantive way on the majority directors conduct in purportedly passing the resolutions.
I have given very careful consideration to the point taken by Mr Bowden and conclude that the argument advanced by Mr Morris is not open to him.
In opening his case Mr Morris said that “there are two challenges to the validity of the directors’ meeting”. He explained -
“One was the lack of bona fides, if I can put it that way, in scheduling the meeting at a time not convenient to Mrs Geileskey. The other is the fact that what was done at the meeting by Mr Geileskey and Mrs Stewart constituted a breach of their trust.”
In summarising the points to be relied on by Magnificat Meal, I said -
“... the meeting of directors at which it was resolved to terminate the lease and to do related matters, such as instruct solicitors, gave rise to no valid resolution because of the lack of bona fides on the part of Mr Geileskey and Mrs Stewart and because inadequate notice was given to Mrs Geileskey.”
Mr Morris agreed with this proposition.
I then continued -
“The lack of bona fides being - you might need to supplement this. What I have at the moment is the calling of the meeting with a view to excluding Mrs Geileskey by setting the time for an occasion on which, to the knowledge of Mr Geileskey and Mrs Stewart, Mrs Geileskey would be otherwise engaged and unable to attend.
Is there any other aspect of lack of bona fides that you rely on?”
Mr Morris responded -
“Your Honour, in paragraph 1m of my copy of the defence a number of other elements are pleaded as going to lack of bona fides and we’re relying on all of that.”
Paragraph 1m is concerned only with the issuing of notices of meeting. Mr Bowden submits, and I accept, that it is the state of mind of the directors at the meeting of 4 May 1999 which is relevant to the validity of the challenged resolutions rather than their conduct in convening the meeting. He points out that Mrs Stewart was not cross-examined as to her state of mind in voting on the resolutions and that the cross-examination of Mr Geileskey only touched on his relevant purpose or purposes in a peripheral way. Neither Mr Geileskey nor Mrs Stewart in evidence in chief gave evidence of purpose in passing the subject resolutions.
In my view, it would be unjust to permit Magnificat Meal to broaden the scope of its case in this way after the close of evidence. Had the point now sought to be argued been identified, the way in which OLM prepared and presented its case may well have differed substantially.
My conclusion that the challenge to bona fides of the majority directors was intended to be narrow in scope is supported by the fact that it did not extend to a consideration of the nature of the alleged breaches of lease relied on by OLM and the obvious acquiescence in and/or waiver of some of these breaches by OLM. For example, in purporting to terminate the lease, OLM sought to rely on the occupancy of the Convent by members of the Movement, although such occupancy was always expressly or impliedly approved by OLM which had accepted payment from the persons whom it alleged were unlawfully on the premises. No regard was had by the majority directors to other relevant considerations such as the company’s role as trustee of the OLM Trust and any obligations OLM may have incurred through use of moneys provided by Magnificat Meal or donors to Magnificat Meal.
Other examples could be given which strongly indicate that Mr and Mrs Stewart, in resolving as they did, acted for purposes foreign to the power vested in them. As these matters were not fairly raised as issues for determination on this pleading, it is not permissible for me to decide them. I should add that this observation should not be seen as a criticism of the way in which the case was conducted. The object of the exercise was to attempt a prompt resolution of the matter by means of points short in compass which could be conveniently raised and disposed of in a preliminary hearing, not to ventilate all arguments which might conceivably arise on the facts.
Was it open to Magnificat Meal to rely on any breach of duty on the part of directors of OLM?
In the course of his concluding submissions Mr Bowden submitted that, as Mrs Geileskey was not a party to the action, it was not properly constituted and that the attack on the directors’ resolution must therefore fail.
Mr Morris submitted that if such a point was to be taken by Mr Bowden, it should have been taken at a much earlier time and certainly before the conclusion of evidence. I accept that a duty to act bona fide and in the interests of the company is a duty owed to the company and one which should be enforced by the company itself or, alternatively, by a shareholder through a derivative action: Foss v Harbottle (1843) 67 ER 189; 2 Hare 461. The rationale for that approach is explained in Ford’s Principles of Corporations Law paragraph 11.240. The point thus appears to me to be a good one, at least whilst no shareholder of OLM is a defendant. Having regard to the late stage at which the issues for determination before me were articulated, I cannot see that it would be unjust to enable the point to be taken. In view of my findings, however, the point has no practical consequences and it is unnecessary for me to consider whether an opportunity should be afforded to join Mrs Geileskey as a defendant.
Conclusions in relation to the issues concerning lot 1
For the reasons advanced above, I reject the arguments outlined on behalf of Magnificat Meal at the commencement of these proceedings. Mr Geileskey was persuaded by Mrs Geileskey to purchase lot 1, not vice versa. It was plain to both of them that he was not purchasing on behalf of Magnificat Meal. Mr Burke agreed to a price of $30,000, initially, because he concluded that $30,000 was the fair market value of the land. He did not know that the purchaser of lot 1 (initially Magnificat Meal) was paying rather less than market value.
In his closing address Mr Morris advanced another, and quite different, argument. It was that Mr Geileskey was in a fiduciary relationship with Magnificat Meal and that, in purchasing lot 1, he had placed himself in a position in which his interests conflicted with his duty to his principal. It follows, it was argued, that he held lot 1 on trust for Magnificat Meal and was liable to account for any profit made by him in buying and selling the lot.
I drew Mr Bowden’s attention to the fact that this point had not been foreshadowed at the commencement of the hearing but it was not submitted that Magnificat Meal should not be permitted to argue it.
Accordingly, I propose to decide the point but not without misgivings as I consider it quite probable that facts relevant to my determination were not adverted to or put in evidence.
I accept the argument that Mr Geileskey was acting in a fiduciary capacity. He introduced lot 1 to Magnificat Meal as the vendors’ agent but later acted as Magnificat’s agent. He negotiated a lower price for the two parcels and obtained a highly favourable price for lot 1. He accepted that it was not appropriate for him to claim commission as the vendors’ agent because he was acting, in some respects at least, on behalf of Magnificat Meal in dealing with the vendors.
It was submitted also that he was involved with Mrs Geileskey in giving instructions to the Movement’s solicitors in respect of the transaction. This submission appears to come from Ms Woodward’s evidence in cross-examination that -
“... in those days I had full contact with both Debra and Gordon on a regular basis and they were both kept fully informed of what was happening on the files.”
She was not asked to elaborate on that observation. It is possible that some of Ms Woodward’s contact with Mr Geileskey was in his capacity as agent and it is apparent that Ms Woodward’s comment refers to a number of matters. On balance, the evidence supports Mr Morris’ contention that Mr Geileskey was more than a mere go-between for Magnificat Meal.
Mr Geileskey’s role in the transaction in relation to Magnificat Meal was akin to that of a real estate agent. It is well established that the relationship of real estate agent and client is likely to be a fiduciary one: McKenzie v McDonald [1927] VLR 134 and Gathergood v Blundell & Brown Ltd [1991] 1 NZLR 405.
Here the relationship between Mr Geileskey and Magnificat Meal was one of mutual trust and confidence. Mr Geileskey was in a position in which his actions might adversely affect the interests of Magnificat Meal. For example, he could have assisted the vendors in obtaining a higher purchase price or Mr Burke in obtaining a more favourable apportionment of the overall purchase price. He was also in possession of information confidential to Magnificat Meal, namely the prices for which the Toffs were prepared to sell lots 1 and 2. In those circumstances the relationship was a fiduciary one: see the observations of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984-85) 156 CLR 41 at 96-97.
Mr Bowden submitted, that if contrary to his contentions, Mr Geileskey owed fiduciary obligations to Magnificat Meal, he had acted with the informed consent of Magnificat Meal and thus escaped liability.
A fiduciary may avoid liability to account to its principal if the principal consents to the fiduciary’s conduct after “full and frank disclosure of all material facts”: New Zealand Netherlands Society v Kuys [1973] 1 WLR 1126 or, as it was put in Queensland Mines Ltd v Hudson (1978) 52 ALJR 399, if the principal gives its “fully informed consent”. Such consent need not be given expressly: Queensland Mines Ltd v Hudson (supra) and Woolworths Ltd v Kelly (1991) 22 NSWLR 189.
I find that Magnificat Meal, by Mrs Geileskey, gave its fully informed consent. Mrs Geileskey was informed by Mr Geileskey of the initial price sought by the vendors and that: Mr Burke was prepared to pay $30,000 for lot 2; Mr Geileskey had persuaded the vendors to reduce the total sale price to $36,000; Mr Burke was to pay $28,800 of this sum and that the price of $7,200 for lot 1 was well below market value. I have little doubt that Mrs Geileskey was kept informed of Mr Geileskey’s dealings in relation to lot 1.
There is no evidence as to the composition of the board of directors or management committee of Magnificat Meal. It is plain enough though that Mrs Geileskey was in effective control of its governing body.
It was not argued by Mr Morris that any consent given by Mrs Geileskey on behalf of Magnificat Meal may have been ineffectual because of the existence of a conflict of interest on her part - she was a beneficiary of the Helidon Trust. If any such point had been taken it would have become necessary to reconsider whether, in the light of the late notice of the fiduciary relationship point and consequent inability of Mr Geileskey to adduce relevant evidence, Magnificat Meal should have been permitted to persist with its argument.
Conclusions on the Covert Trust argument
It is apparent from the above findings that I am unable to accept the argument advanced at the commencement of this hearing that there was a “Covert Trust” which arose out of the matters referred to in paragraph four of these reasons and which supplanted the Overt Trust created by the Trust Deed.
Constructive or resulting trust
In Mr Morris’ final submissions the emphasis of the trust argument shifted to the provision of moneys by the Bianchis and the Galeas who, it was submitted, “were making benevolent contributions for the purposes of the Movement”. Having regard to the contributions of the Bianchis, the Galeas “and others” to the acquisition and improvement of the Convent, it was submitted that OLM held the property (or at least an appropriate interest in it) on a resulting trust for the Movement, it being the intended recipient of the donors’ beneficence. Alternatively, it was submitted that the Convent was held on a constructive trust for the Movement. In relation to the resulting trust argument, it was submitted that a resulting trust arises where a person has purchased property in the name of another, or provided funds for such a purpose, in the absence of -
(a)a “presumption of advancement”, arising from a relationship of blood or marriage; or
(b)a positive finding of an actual intention to advance the interests of the person in whose name the property was purchased; or
(c)a finding that the transaction has some entirely different character, such as a loan or payment for services rendered.
See Napier v Public Trustee (WA) (1980) 55 ALJR 1 per Aickin J (Mason, Murphy and Wilson JJ concurring) at 3-4 and Calverley v Green (1984) 155 CLR 242 per Deane J at p 266.
In his outline of submissions, after quoting a passage from Guimelli v Guimelli (1999) HCA 10 (24 March 1999) explaining the concept of the constructive trust and after referring to Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137, Mr Morris submitted -
“In the present case, the contributions made by the Bianchis, the Galeas and others were made in the expectation of an on-going endeavour, namely the operation of the Movement from the convent premises. The case is:
(a)‘a case where the substratum of a joint relationship or endeavour is removed’ by the attempt of Mr Geileskey and Mrs Stewart, purporting to control OLM, to terminate the Movement’s lease of the convent building;
(b)‘... and where the benefit of money or other property contributed by one party on the basis and for the purpose of the relationship or endeavour would otherwise be enjoyed by the other party [namely, Mr Geileskey and Mrs Stewart, as beneficiaries of OLMT] in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it’.”
Reference to paragraph four of these reasons will show that this was a very different case to the one opened which was concerned with the Covert Trust arising as a result of the matters alleged in the defence. In the case opened, the contribution by the “A” class shareholders was referred to only for the purpose of fixing the latest time at which the Covert Trust was alleged to have come into existence.
However, no objection was taken to these further arguments and I regard myself free to entertain them.
In order to determine the preliminary point it is not necessary for me to conclude that an interest in the Convent is held in trust and, on the state of the evidence I am reluctant to make any final determination in that regard. As mentioned earlier, there is not a great deal of evidence as to the circumstances in which the Galeas paid over the sum of $50,000. It is also unfortunate that Mr and Mrs Stewart and Mr and Mrs Geileskey, who have a clear and immediate interest in any determination as to how the Convent is held, are not a party to the action and are thus not bound by any determination I might make. I am also reluctant to make any final determination in relation to the existence and scope of any trusts or equitable obligations which may exist because it seems to me that there are a range of considerations and facts which were not addressed in evidence or final submissions. One difficulty is whether the “Movement”, in the broad sense of that which is embodied by Mrs Geileskey, her followers and their respective activities and beliefs, is interchangeable for present purposes with Magnificat Meal, the incorporated body. It is not entirely clear, particularly in relation to the Galeas, that subscribers for “A” class shares were intending to benefit the incorporated entity rather than the “Movement” in a loose sense.
The arguments advanced by both parties do not appear to me to take into account other potentially decisive considerations. Although the moneys provided by the Bianchis (and probably the Galeas) were provided to and held by OLM for the purposes of Magnificat Meal (which I have generally treated as being interchangeable with the Movement), there was no obligation on Magnificat Meal to use them in any particular way. They were funds made available for Magnificat Meal’s purposes. The use of these moneys to subscribe for “A” class shares in OLM introduces an added complexity. The fact of subscription ensured that the subscription moneys could not be regarded as loans to OLM. The moneys became part of the issued capital of OLM and subject to the obligations imposed by the Corporations Law and OLM’s Articles of Association. I think it unlikely that the result of the subscriptions is that the moneys, being part of the assets of OLM, could be used by OLM for its own purposes. The intentions of the Bianchis and Galeas, as donors, and of OLM and Magnificat Meal were to the contrary. It is thus likely that the payment and receipt of the moneys gave rise to a relationship “of a fiduciary character” or “trust in favour of Magnificat Meal”: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 580-81 per Lord Wilberforce.
The consequences, if any, flowing from Magnificat Meal’s complicity in the way in which the subscription moneys were used (i.e. to provide a substantial benefit to OLM) were unexplored. It may be that both OLM and Magnificat Meal are in breach of trust and/or fiduciary obligations in connection with the use of the subject moneys. There is no doubt that the directors of OLM were aware that a substantial part of the purchase price of the Convent came from the subscription moneys and that the Bianchis (and most probably the Galeas) wished to benefit the Movement. Magnificat Meal, through Mrs Geileskey, was at all times aware of the use to which OLM was putting the moneys. It was also aware that OLM was the trustee of the OLM Trust and that the Convent was purchased by OLM, as trustee, of that trust for the benefit of the Geileskey and Stewart families. The entering into of the Lease was further acknowledgement by Magnificat Meal of OLM’s ownership of the Convent.
It is also relevant that the imposition of a trust does not necessarily follow from the misuse of property by a fiduciary. As was pointed out in the joint judgment in Guimelli v Guimelli (supra) -
“The trust institution usually involves both the holding of property by the trustee and a personal liability to account in a suit for breach of trust for the discharge of the trustee’s duties. However, some constructive trusts create or recognise no proprietary interest. Rather there is the imposition of a personal liability to account in the same manner as that of an express trustee.”
Another possibility is the creation or recognition of a charge over property to secure the interests of beneficiaries.
The resolutions passed at the meeting on 4 May 1999 were that -
I.solicitors be retained to advise the company generally concerning the dispute between OLM and Magnificat Meal;
ii.such solicitors be authorised to engross and serve a notice to remedy breach of covenant;
iii.the company resolve in the event that Magnificat Meal does not remedy the breaches of lease specified in the notice “to terminate the lease ... forthwith”;
iv.the solicitors be authorised to draw, engross and serve a notice of termination of lease in the event of non-compliance with the notice to remedy breach;
v.such solicitors be authorised to demand possession of the premises in the event that the notice to remedy breach not be complied with;
vi.the solicitors be authorised to commence any necessary proceedings to seek possession of the premises, should notice to remedy breach and demand for possession not be complied with.
The argument, now under consideration, advanced on behalf of Magnificat Meal assumed that any purported termination of lease (and any steps in support of that termination) was necessarily in breach of trust. I cannot accept that argument. It was no part of the case before me that the lease was a sham or itself void as being in breach of trust. That being the case, even if Magnificat Meal has an interest in the Convent premises (or if OLM owes fiduciary duties to Magnificat Meal in respect of the Convent premises) the parties have chosen to assume the rights and obligations which flow from the Lease. If there are breaches of lease, I can see no reason why OLM cannot exercise those rights which arise under the terms of the Lease. Whether the Lease is terminated or remains on foot, whatever beneficial interest Magnificat Meal may have in the Convent premises or alternatively, whatever fiduciary obligations OLM may owe Magnificat Meal in respect of that premises (or the subscription moneys) will remain. I doubt that those fiduciary obligations extend to an obligation on the part of OLM to permit Magnificat Meal to remain in possession of the premises indefinitely or a right on the part of Magnificat Meal to so remain.
For the above reasons I am unable to conclude that merely by passing the above resolutions OLM was in breach of any fiduciary duty or in breach of trust.
It was not argued that the failure to take into account the existence of a trust or fiduciary obligations in respect of the Convent premises and/or the subscription moneys demonstrated that Mr Geileskey and Mrs Stewart, in making relevant decisions, acted for purposes foreign to the power vested in them and that, in consequence, they failed to act in good faith and in the interests of OLM in passing the resolutions. The way in which the point was opened and argued was simply that there was a trust which obliged OLM as trustee to permit Magnificat Meal to continue in the use and enjoyment of the property. I have found against the existence of such a trust. Accordingly the preliminary points fail. Again, I do not mention the confined scope of the argument by way of criticism.
Summary of conclusions
The action between Our Lady’s Mount Pty Ltd as plaintiff and Magnificat Meal Movement International Inc as defendant
1.The complexity of the legal issues for determination in this matter arises, to a considerable degree, from the fact that the directors of OLM and Magnificat Meal have tended to act in disregard of legal entities and concepts when dealing with the large sums of money donated for the purposes of the Movement. Whilst harmony existed between the Stewarts and the Geileskeys, it was possible for the rights and interests of these individuals and of OLM, the OLM Trust, Magnificat Meal and the Movement to be to be blurred and, at times, regarded as interchangeable. Mr Geileskey’s marital discord put an end to this thoroughly unsatisfactory position and precipitated this litigation.
2.There was a valid resolution passed at a meeting of members of OLM on 3 August 1996 which was effective to remove the voting rights attached to the “A” class shares.
3.The allotment of the “A” class shares to the Stewarts, the Bianchis and the Galeas was not a sham. The allotments were intended to give rise to legal rights and obligations even though the allotment of shares was far from being an appropriate way of documenting the relevant transactions.
4.There was no contract between OLM and the Bianchis under which it was agreed that the shares issued to the Bianchis possess voting rights. The Bianchis did not turn their minds to the question of whether or not the “A” class shares would have voting rights prior to the allotment.
5.Failure to give the prescribed 21 days notice of the meeting held on 3 August 1996 and of the intention to propose the subject resolution as a special resolution did not result in the resolution’s invalidity. All four members of OLM met, passed the resolution and signed minutes prepared by Mr McCarthy. All members intended that the resolution take effect. In those circumstances necessary formalities were “waived by all shareholders acting in concert”: Re Compaction Systems Pty Ltd (supra) and Herrman v Simon (supra).
6.There was no “covert trust” arising as a result of the creation of the OLM Trust by deed of trust dated 12 October 1995 with an alleged intention on the part of the settlor, Mr and Mrs Geileskey and Mr and Mrs Stewart that the property and income of the OLM Trust be applied in furtherance of the religious and spiritual activities of the Movement and with the alleged intention that the natural persons named in the trust deed as beneficiaries would not benefit personally.
7.At the time the OLM Trust was constituted it was intended by the Stewarts and the Geileskeys that the trust deed take effect in accordance with its terms. It was also intended that the ownership of the Convent be vested in OLM as trustee of the OLM Trust for the benefit of the Stewart and Geileskey families. The trust deed created three classes of beneficiaries. The primary beneficiaries are Mr and Mrs Geileskey and Mr and Mrs Stewart. The secondary beneficiaries are children, grandchildren, great grandchildren and near relatives of Mr and Mrs Stewart and Mr and Mrs Geileskey and the spouses of any such children and grandchildren. The tertiary beneficiaries include the Queensland Institute of Medical Research Trust, and persons appointed as tertiary beneficiaries from time to time by Mr Geileskey and Mrs Stewart as “principals”. No such appointments were made and Magnificat Meal is not a tertiary beneficiary.
8.The Geileskeys and the Stewarts, in causing OLM to purchase the Convent, did intend that the Convent be used for the purposes of the Movement, as well as for their own private and domestic purposes. That intention, of itself, could confer no proprietary interests in the Convent on Magnificat Meal, particularly as OLM purchased the property as trustee of the OLM Trust. It was not intended by the directors of OLM that Magnificat Meal have any proprietary interest in the Convent.
9.The Bianchis, OLM and Magnificat Meal all intended and understood that the $120,000 subscribed by the Bianchis for “A” class shares be used for the benefit of Magnificat Meal or, possibly, the Magnificat Meal Movement in its more general sense. None of them intended that OLM have the use of the moneys for its own purposes. It is thus highly likely that the payment and receipt of the moneys gave rise to a relationship “of a fiduciary character or trust”: Barclays Bank Ltd v Quistclose Investments Ltd (supra).
10.Determination of the precise nature of the interest (if any) of Magnificat Meal in the Convent premises will not resolve the preliminary point in Magnificat Meal’s favour and it is not desirable that I make such a determination. The determination of the existence and extent of any such interest will affect not only Mr and Mrs Stewart and Mr and Mrs Geileskey but the beneficiaries of the OLM Trust who include a much broader range of persons, some of whom are minors. The Geileskeys and the Stewarts are not parties to the action and, therefore, are not bound by any findings in it. When referring to beneficiaries I am, of course, referring to the objects of the trustee’s power of appointment, the trust being a discretionary trust.
11.There are other reasons which make it undesirable that any concluded view be expressed concerning Magnificat Meal’s interest in the Convent. They are expressed in paragraphs 12, 13 and 14 below.
12.There is little evidence as to the precise circumstances in which the Galeas provided their subscription moneys of $50,000. It is likely that the same legal consequences result from the use of this money as result from the use of the Bianchis’ but it is desirable that more be known about the circumstances in which the Galeas’ money was provided.
13.The argument proceeded on the assumption that the Lease of the Convent was valid and binding. If it is valid, Magnificat Meal and OLM have accepted that the right of occupancy and other rights in relation to the Convent be governed by the terms of the Lease. Magnificat Meal is thus not in a position to argue that the mere existence of a trust or fiduciary obligations gives it a right to possession of the Convent regardless of the terms of the Lease.
14.The way in which the case was presented, not surprisingly in the case of Magnificat Meal, left unexplored the question of whether Magnificat Meal itself was in breach of fiduciary obligations in relation to the subscription moneys. Mrs Geileskey was a director of Magnificat Meal and OLM and the guiding force of Magnificat Meal at all times. She was aware that the subscription moneys were being used by OLM to acquire the Convent for the OLM trust and acquiesced in that course of conduct. The consequences, if any, which might flow from the fact that such moneys were part of OLM’s paid up capital and thus not free to be returned or dealt with except in accordance with the provisions of the Corporations Law was not addressed in argument (except in relation to the sham point). In light of the conclusions I have reached, there is no need for me to further consider that matter.
15.The owing of fiduciary obligations by OLM to Magnificat Meal in respect of the trust property does not mean, of necessity, that the resolutions purportedly passed by the majority directors on 4 May 1999 with a view to terminating the Lease, in the event that alleged acts of default were not remedied, were in breach of such obligations and invalid. It may well be that the majority directors in acting as they did were not acting bona fide and in the interests of OLM. There are considerations which strongly suggest that that was the case. I instance the reliance by OLM on alleged breaches of lease such as the erection of a roof over the patio and permitting members of the Movement to reside in the Convent premises against a background of clear acquiescence, if not specific consent by OLM. These matters however are not within the scope of the issues for determination in these proceedings.
16.It is perhaps worth observing that it would be rather unfortunate if more moneys were expended in a trial of the issues between the parties relating to the Lease. Having regard to the circumstances surrounding the acquisition of the Convent, it would be rather surprising if, notwithstanding proof by OLM of breaches of covenant on the part of Magnificat Meal giving rise to a right on the part of OLM to terminate, Magnificat were not given relief against forfeiture, provided it undertook to comply with the terms of the Lease. It would be even more remarkable if Magnificat Meal was not able to establish acquiescence or waiver on the part of OLM in respect of many of the alleged breaches. As I observed earlier, reliance on the untenable in connection with the purported termination of lease appears to me to demonstrate an intention on the part of the majority directors to determine the lease irrespective of lawful entitlement and casts doubt on the bona fides of the majority directors.
Application to remove the caveat and application for a declaration that Mr Geileskey holds lot 1 in trust for Magnificat Meal
17.Mr Geileskey did not procure, by misleading conduct, the cancellation of the contract for purchase of lot 1 between the vendors and Magnificat Meal and the substitution of his own contract for purchase. He did not offer to purchase it on behalf of Magnificat Meal to make up for arrears in tithings or in order to be generous on his birthday, as Mrs Geileskey suggested. Rather, he took over the transaction of purchase when Mrs Geileskey became reluctant to have Magnificat Meal proceed with the transaction.
18.Mr Geileskey had fiduciary obligations to Magnificat Meal arising from the relationship between them but he purchased lot 1 with the fully informed consent of Magnificat Meal (by Mrs Geileskey who effectively controls it) and thus does not hold lot 1 in trust for Magnificat Meal. Nor is he liable to account for any profit he may make on the sale of lot 1.
I will hear submissions as to the orders which ought be made in consequence of these reasons.
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