Re: Noosa Waters Pty Ltd & Ors.

IN THE SUPREME COURT
OF QUEENSLAND

Brisbane O.S.No.5874 of 1997

Before the Hon. Mr Justice Shepherdson

[re: Noosa Waters Pty Ltd & Ors.]

IN THE MATTER of The Trusts Act 1973;
AND IN THE MATTER of The Corporations Law 1990;
AND IN THE MATTER of the “NOOSA WATERS SYNDICATE UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 1 November 1989 and the “BROWNS LAND UNIT TRUST” being a trust constituted pursuant to a certain deed of trust dated 16 May 1991;
AND IN THE MATTER of NOOSA WATERS PTY LTD (ACN 010 979 414) and NOOSA WATERS DEVELOPMENTS PTY LTD (ACN 006 364 745);
AND IN THE MATTER of an application pursuant to the said Acts in relation to the said trust and to the said companies by FAI DEVELOPMENTS PTY LTD (ACN 010 567 647) and by MOWETE PTY LTD (ACN 002 099 729)

CATCHWORDS: COSTS - (1) successful applicants seek costs on indemnity basis against 4 companies who are respondents and parties to O.S. 5874/97 - principles on which such costs awarded discussed
Colgate Palmolive Co v. Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248
re: Wilcox; ex parte Venture Industries Pty Ltd and Others (1996) 141 ALR 727
and other cases
(2) successful applicants in O.S. 5874/97 also seek indemnity costs orders against same 4 companies in respect of writ actions 7234/97 and 8176/97 (to which the successful applicants were parties) - discussion of principles on which such costs are ordered against non-parties
Knight v. F.P. Special Assets Limited (1992) 174 CLR 178
re: Talk Finance & Insurance Services Pty Ltd (1994) 1 Qd.R 558 and other cases
(3) applicants also sought orders that same 4 companies who are beneficiaries in two trusts, indemnify their trustees for the trustees costs of O.S.5874 and actions 7234 and 8176 including costs ordered to be paid by either trustee to the intent that the applicants (also beneficiaries in the same trusts) are not obliged to contribute in any way to such indemnity.

Counsel:H. Fraser QC, for the applicant
Sofronoff QC, with him Philippides for the respondent

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

Hearing dates: 4 March 1998

“NOOSA WATERS SYNDICATE UNIT TRUST”
and “BROWNS LAND UNIT TRUST”

INDEX TO REASONS FOR JUDGMENT ON COSTS

Page

Preliminary matters concerning applications for costs in OS 5874/97,
writ 7234/96 and writ 8176/96 - including legal principles relating to indemnity
costs against parties to a suit .............................................................................................. 1-10

Matters relied on by applicants in application in OS 5874/97
for indemnity costs against four respondents
(1)procuring NW to litigate action 7234/96 and pursue appeal................................... 10-21
(2)excessive increase in fees payable by NW & NWD as trustees
to companies controlled by Haseler....................................................................... 21-29
(3)claim that majority unitholders delayed the trust audit
the subject of action 8176/96 and made false assertions as to
reasons for delay .................................................................................................. 29-34
(4)deliberate attempt to keep the FAI interests ignorant of the QIDC
advance of $2 million.............................................................................................. 34-43
(5)alleged misconduct in timing of distribution of $2 million advanced
by QIDC and other matters relating thereto ................................................................. 43
(6)alleged serious misconduct shown in attempt by Wilson and Russell
to amend minutes of 27.06.97 to cover-up a breach of trust.................................... 43-48
(7)Ultra vires attempt to pay directors fees and relevant matters................................... 48-49
(8)alleged misconduct in false allegations by Wilson in relation to
directors’ fees ....................................................................................................... 49-50
(9)other findings made in reasons of 09.01.98 ............................................................ 50-52

Respondents’ submissions; judges comments and decision................................................. 53-61

Motion in writ No 7234/96 and motion in writ No 8196/96
including matters of law concerning orders for costs against non-parties to a suit...................... 61

The trustees costs - declaration sought.................................................................................... 70

Formal orders in OS5874/97, W7234/96 and W8176/96................................................. 70-73
REASONS FOR JUDGMENT ON COSTS - SHEPHERDSON J.
Judgment delivered 3 April 1998
The above named applicants FAI Developments Pty Ltd and Mowete Pty Ltd have applied on oral notice for orders that Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd who are parties to this originating summons be ordered to pay the costs of the summons.
These orders are not opposed and I shall say more of them shortly.
In addition FAI Developments Pty Ltd has applied for an order that its costs be paid by the above named four companies on a solicitor and own client or indemnity basis. The making of such orders is opposed.
I add that in the action being writ No 7234 of 1996 FAI Developments Pty Ltd and Mowete Pty Ltd have applied for the following orders:-
That the other unitholders of the Noosa Waters Syndicate Unit Trust [NWSUT] namely Keenbark Pty Ltd, Oxmead Pty ltd, Richdown Pty Ltd and Ultraview Pty Ltd do:-
(i)Pay or indemnify the plaintiff [Noosa Waters Pty Ltd] against the costs which by order of 21 April 1997 it has been ordered to pay to FAI Developments Pty Ltd and Mowete Pty Ltd who were defendants in that action.
(ii)Indemnify the plaintiff against the solicitor and own client costs of and incidental to the action which it has incurred.
This application is by notice of motion addressed to each of the four named companies. For the record the plaintiff in writ 7234 of 1996 is Noosa Waters Pty Ltd and the first and second defendants in the original action are FAI Developments Pty Ltd and Mowete Pty Ltd. By counter-claim in 7234 of 1996 FAI Developments Pty Ltd and Mowete Pty Ltd are plaintiffs, Noosa Waters Pty Ltd is first defendant, Noosa Waters Developments Pty Ltd is second defendant and each of the above four named companies are third defendants.
In addition, in writ No 8176 of 1996 FAI Developments Pty Ltd and Mowete Pty Ltd who are the plaintiffs in that action, have by notice of motion sought the following orders:-
That the other unitholders of NWSUT namely Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd do:-
(i)Pay or indemnify the first defendant [Noosa Waters Pty Ltd] against the costs which by order of 21 April 1997 it has been ordered to pay to the plaintiffs;
(ii)Indemnify the first and second defendants Noosa Waters Pty Ltd and Noosa Waters Developments Pty Ltd (herein called NW and NWD respectively) against the solicitor and own client costs of and incidental to the action which they have incurred.
Each of the notices of motion in writ 8176 of 1996 is addressed to NW and NWD and to each of the above named four companies.
I shall deal first with the applications in originating summons 5874/97 and in so doing will refer to the applications in writ actions 7234 and 8176.
Although the reasons I am now giving will be read in conjunction with my reasons for judgment in OS 5874 of 1997 delivered on 9 January 1998, I must say that it seems to me best to make the reasons for judgment I am now giving as self-contained as possible. To do this I shall quote quite extensively from my reasons delivered on 9 January 1998 (herein called “my reasons”). I have decided on this course because:-
(a)In their present applications in 5874/97 the applicants have relied on my reasons.
(b)The matters considered in my reasons largely concerned conduct of three of the directors of NW and NWD.
(c)In the present applications the applicants allege my reasons disclose substantial misconduct by those three directors and other matters which they submit justify my making the orders sought.

Applications in No 5874/97

In support of his clients’ applications in 5874/97 Mr Fraser QC who represents the present applicants has relied on my reasons delivered on 9 January 1998.
On that day I made orders including the following:-

That on and from that day the respondent NW be removed as trustee of the Noosa Waters Syndicate Unit Trust (NWSUT) and be appointed as custodian trustee of the said trust.
That on and from that day Ian William Donaldson and Paul Desmond Sweeney of Messrs Hall Chadwick, Chartered Accountants of Brisbane be appointed as joint managing trustees of the NWSUT.
That on and from that day the respondent NWD be removed as trustee of the Browns Land Unit Trust [BLUT] and be appointed as custodian trustee of that trust.
That on and from that day Ian William Donaldson and Paul Desmond Sweeney be appointed as joint managing trustees of BLUT.
My reasons show why I made these orders but in order to understand my present reasons I shall restate a number of matters which were not in issue but are referred to in my reasons.
NW was the trustee of NWSUT created by deed dated 1 November 1989.
NWD was the trustee of BLUT created by a deed dated 16 May 1991.
FAI Developments and Keenbark Pty Ltd, Oxmead Pty Ltd and Richdown Pty Ltd at all material times were and are unitholders and beneficiaries in both NWSUT and BLUT and since on or about 23 November 1990 Mowete Pty Ltd had been and is a unitholder in and beneficiary of the NWSUT.
Ultraview Pty Ltd is and was at all material times a unit holder in and thus a beneficiary of NWSUT.
The directors of NW and NWD at all material times have been the following persons:-
Alastair Ian Bayles (“Bayles”) - the 9th respondent in application 5874/97
Geoffrey John Wilson (“Wilson”) - the 8th respondent in application 5874/97
Jon Michael Haseler (“Haseler”) - the 7th respondent in application 5874/97
Raymond John Sproats (“Sproats”)
As such directors Bayles, Wilson and Haseler represented Keenbark Pty Ltd, Oxmead Pty Ltd and Richdown Pty Ltd respectively and Sproats who lived in Sydney represented the two applicant companies.
Keenbark Pty Ltd was the 3rd respondent named in application No 5874/97
Oxmead Pty Ltd was the 4th respondent named in application No 5874/97
Richdown Pty Ltd was the 5th respondent named in application No 5874/97
Ultraview Pty Ltd was the 6th respondent named in application No 5874/97
The members of NW are and were at all material times FAI Developments and the third to sixth respondents.
The members of NWD are and were at all material times the first named applicant FAI Developments, Bayles, Wilson and Haseler.
Bayles either directly or indirectly controlled or was beneficially interested in Keenbark Pty Ltd.
Wilson either directly or indirectly controlled or was beneficially interested in Oxmead Pty Ltd.
Haseler either directly or indirectly controlled or was beneficially interested in Richdown Pty Ltd.
Wilson and Haseler together either directly or indirectly controlled or were beneficially interested in Ultraview Pty Ltd.
Since on or about 23 November 1990 Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd have held in aggregate 70 per cent of the issued units in the NWSUT.
At all material times the two applicants have held in aggregate 30 per cent of the issued units in NWSUT and BLUT. [I have deleted reference in my reasons to 23 November 1990]
I note that although I did not make a specific finding on the matter there was no dispute that Keenbark Pty Ltd, Oxmead Pty Ltd and Richdown Pty Ltd together held 70 per cent of the units in BLUT.
NWSUT and BLUT each owned and owns part of a real estate development at Noosaville, commonly known as “The Noosa Waters Estate” and which in my reasons I called “The Noosa Waters Project” with both parts being developed by NW.
The matters which I have just set out were not in issue.
The applicants’ case on the hearing before me and which resulted in my reasons and judgment was that:-
(a)the affairs of NWSUT and BLUT had been and were being conducted in a manner that was oppressive and unfairly prejudicial to and unfairly discriminatory against the two applicants FAI and Mowete;
(b)NW and NWD were administering those trusts in the interests of Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd or in the interests of one or more of Bayles, Wilson and Haseler instead of in the interests of all unitholders in the trusts;
(c)by their conduct Bayles, Wilson and Haseler had demonstrated pursuit of their own self-interest in preference to the interests of all unitholders;
(d)the welfare of the unitholders as a whole in their capacities as beneficiaries of NWSUT and BLUT was opposed to the continuance of the first and second respondents as trustees;
(e)the two applicants further alleged that by reason of the conduct of NW and NWD antagonism and distrust existed between the applicants and NW and NWD and further that the applicants believed that NW and NWD would continue to administer NWSUT and BLUT in the interests of unitholders (other than the two applicants FAI and Mowete) and in the interest of Bayles, Wilson and Haseler and not in the interests of all unitholders in the two trusts;
The applications for indemnity costs in 5874/97 are against each of the earlier named four companies who were parties to that proceeding in that they were the 3rd, 4th, 5th and 6th respondents.
The jurisdiction to award costs is found in Order 91 rule 1 of the rules of this Court - it is a jurisdiction founded on statute and the costs of proceedings are always in the discretion of the judge.
The general principle is that costs follow the event and in accordance with that principle a court would order the unsuccessful party to pay the costs of the successful party on a party and party basis. That basis falls short of absolute indemnity. Costs on an indemnity basis, that is on the basis of solicitor and client may in the discretion of the court be awarded against an unsuccessful party. “Quick on Costs” contains a very helpful discussion on the jurisdictions both statutory and inherent which the court has to award indemnity costs. Quick (para [4.5707]) defines the inherent jurisdiction as follows:-
“The inherent jurisdiction may be defined as the power that any superior court has to maintain its authority, prevent its process being abused and fairly and effectively implement the jurisdiction it otherwise has.”

In the case before me the applicants do not rely on the inherent jurisdiction. The statutory jurisdiction has been relied on by Moynihan J. as he then was to award indemnity costs against a company which was party to the litigation and also against two persons who are not parties to the litigation. (re Talk Finance & Insurance Services Pty Ltd (1994) 1 Qd.R 558). I shall later refer to this decision.
The decision which I have found of most help and guidance in dealing with the matter before me is that of Sheppard J. in Colgate Palmolive Co and Another v. Cussons Pty Ltd (1993) 118 ALR 248 - a decision of the Federal Court of Australia which was followed by a Full Court of the Federal Court of Australia in re Wilcox; ex parte Venture Industries Pty Ltd & Others (1996) 141 ALR 727.
In Colgate Palmolive Co. (at p.250) Sheppard J., after commenting on the notoriety “that the indemnity for costs which one party recovers from another pursuant to the common order that one pay the costs of the other does not very often provide the party entitled to the benefit of the order with anything approaching a full indemnity for the costs which have in fact been incurred” went on to consider a number of cases with a view to understanding and ultimately stating principles to guide a judge in dealing with an application for costs to be paid on the indemnity basis.
Sheppard J. at pp.256-7 set out a number of principles or guidelines which he had distilled out of the authorities to which he had referred. He said:-
“1. The problem arises in adversary litigation, i.e. litigation as between parties at arm’s length. Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in a like position, eg a government agency or statutory authority.

2. The ordinary rule is that, where the court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis. In this court the provisions of O 62, rr 12 and 19, and the Second Schedule to the rules [of the Federal Court] will apply to the taxation. In many cases the result will be that the amount recovered by the successful party under the Order will fall short of (in many cases well short of) a complete indemnity.

3. This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of court) or a decision of an intermediate Court of Appeal or of the High Court would be required to alter it. No doubt any consideration of whether there should be any change in the practice would require the resolution of the competing considerations mentioned by Devlin LJ in Berry v British Transport Commission and Handley JA in Cachia v Hanes on the one hand and by Rogers J in Qantas on the other. The relevant passages from the respective judgments have been earlier referred to.

4. In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v Barnes (39 Ch D at 141) said the court had a general and discretionary power to award costs as between solicitor and client “as and when the justice of the case might so require”. Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston ([1982] 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo: “the categories in which the discretion may be exercised are not closed”. Davies J expressed (at 6) similar views in Ragata.
5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v. Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Kent (SC(NSW)(CA), 27 Sept 1993, unreported) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or justice.”

(the highlighting is mine)
In re Wilcox (supra) Black CJ said (at p.729):-
“... the present application for indemnity costs should be considered in accordance with the well established principles discussed by Sheppard J. in Colgate Palmolive as summarised by Hill J. in John S Hayes.”

The latter case is John S Hayes & Associates Pty Ltd v. Kimberly - Clark Australia Pty Ltd (1994) 54 FCR 201.
Cooper and Merkel JJ in re Wilcox said (at p.732) in referring to the applicable principles where indemnity costs are sought said:-
“The principles were stated by Sheppard J in Colgate Palmolive Co v. Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248.”

Their Honours at pp.732 and 733 referred to the principles enunciated in Colgate Palmolive and generally applied in the Federal Court saying:-
“(1) Section 43 of the FCA confers an absolute and unfettered discretion on the court to make orders as to costs but the discretion must be exercised judicially.

(2) In order to exercise the discretion judicially the following principles have been accepted by the court as applicable:

(a) the court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the court in departing from the usual course;

(b) the circumstances which may require departure from the usual course arise as and when the justice of the case so require or where there may be some special or unusual feature in the case to justify the court in departing from the usual course;

(c) while the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.”

After considering a single judge decision which had cast doubt on those principles Cooper and Merkel JJ concluded that the principles enunciated in Colgate Palmolive as stated above ought to continue to be applied in the Federal Court.
I turn now to the particular circumstances of the application 5874/97 in order to consider the applicants’ submission that this action was necessary because of what Mr Fraser describes as serious misconduct of Wilson, Haseler and Bayles, three of the directors of NW & NWD.
In these reasons I shall refer to these three directors as “the majority directors”.
In his submissions Mr Fraser has particularised the alleged serious misconduct and I shall deal with these seriatim.

Procuring NW to litigate action 7234/96 against FAI Developments Pty Ltd and Mowete Pty Ltd (herein called “the minority unitholders” or “the minority”) in a partial manner and to pursue an appeal in that action when no liability to QIDC existed nor any possibility of a call on the majority’s guarantees, such actions being motivated by revenge.
In my reasons I dealt with a topic “The decision to sue the FAI unitholders”. This decision was made at a meeting of directors of NW on 15 August 1996.
In order to better understand what I am about to say I found in my reasons that on 30 November 1989 FAI Leasing Finance Pty Ltd (“FAIL”) provided loan facilities to each unitholder in NWSUT on the basis that the unitholders would apply those funds by way of capital subscriptions for units in NWSUT. FAIL took security over lands held by NW together with a charge over the assets of NW and collateral securities.
On 16 May 1991 BLUT was established and lands owned by BLUT were incorporated in the Noosa Waters Project. On 31 July 1992 a deed styled “Unitholders Agreement” was entered into between unitholders in NWSUT and NW as trustee of NWSUT. FAIL continued to lend to each unitholder under separate loan agreements with the unitholder then contributing those moneys in return for an allocation of units in NWSUT.
On 28 February 1996 FAIL gave notice to QM Properties the project manager of the Noosa Waters Project that the loan facilities previously provided by FAIL would not be extended and that repayment of loan moneys was required by 1 June 1996. Correspondence ensued between the Chief Executive of the FAI Insurance Group and NW, the letters from the latter emanating from Haseler writing as director of NW and Ian Russell writing as secretary of NW.
On 20 March 1996 QIDC wrote to the directors of NW offering to refinance the Noosa Waters Project. One term of QIDC’s offer was that unlimited joint and several guarantees be provided from (inter alia) FAI Developments Pty Ltd (the first applicant) and FAI General Insurance Company Limited; this latter company was effectively the ultimate owner of FAI Developments Pty Ltd.
During April and May 1996 these FAI entities refused to give the guarantees sought by QIDC but offered guarantees limited to their proportion of the loan facility namely 30 per cent, conditional on 100 per cent of net sales proceeds of each parcel of land sold being used to retire debt.
On 3 June 1996 QIDC did refinance the Noosa Waters Estate Project. It made an advance to NW as borrower and this method of advance contrasted with the method followed earlier by FAIL which had made loans to each borrower unitholder direct. QIDC, at the direction of NW, paid to FAIL the debts then owing by each of the unitholders to it.
In my reasons I found that correspondence showed that before 3 June 1996 QIDC agreed to accept 60 per cent of net sale proceeds of land sold being used to retire debt without guarantees from the FAI unitholders and I particularly mentioned a letter dated 30 May 1996 from QIDC to NW which confirmed QIDC did not require such guarantees.
I found that after FAIL was paid out, the two applicant companies notified Ian Russell the secretary of NW that they required the financial accounts of both NW and NWD to be audited “as from the financial year ending 30 June 1996". This notification was by letter signed by Avi Rubinstein writing on behalf of the FAI entities.
The request was not met promptly and on 25 July 1996 the first applicant caused a notice pursuant to s.283C of the Corporations Law to be served on NW requesting NW to prepare in respect of the financial year ended 30 June 1996:-
Financial statements as required by the Corporations Law.
Statements as required by division 5 of part 3.6 of the Corporations Law.
A report as required by division 6 of part 3.6 of the Corporations Law.
I found the notice further stated that the first applicant required such financial statements to be made out in accordance with the applicable accounting standards and to be audited.
On the same day the first applicant caused a notice in identical terms to be served on NWD.
Correspondence then ensued between the solicitors for the applicants and the solicitors for NW and NWD. The requests were not met by 15 August 1996. At 10 a.m. on that day a meeting of directors of NW was held at 345 Ann Street, Brisbane. Those present were Wilson, Haseler, Bayles and Sproats as well as Russell the secretary, Wilson being chairman. I had before me a copy of the minutes of that meeting and a photocopy of Sproats’ notes of that same meeting. At the conclusion of that meeting a meeting of the directors of NWD was held and this latter meeting lasted 10 minutes. In the minutes of the meeting of the directors of NW held on 15 August 1996 the following appeared:-
“Item 6 - Review of QIDC Refinancing
Mr Russell explained to the meeting the significance of the refinancing with QIDC in that the Company as Trustee borrowed from QIDC to discharge the obligations to FAI of the various unit holders. As such the Company was entitled to record in it’s [sic] set of accounts those very obligations that existed of the unit holders to FAI and further advised the meeting that some $24M was owed by the unit holders to the Company in this respect. Mr Russell further advised the meeting that the FAI unit holders did not support the borrowings from QIDC with their guarantees as was the case with the remaining unit holders.

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

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

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

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

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

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

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

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

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

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

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

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

‘There can be no doubt that Noosa Waters Pty Ltd discharged debts owing to FAI Leasing Finance Pty Ltd by Mowete Pty Ltd and by FAI Developments Pty Ltd. There can also be no doubt that it did so with the full knowledge of your clients and that they accepted the benefit of such discharge. In any event, Noosa Waters Pty Ltd was a surety in respect of the obligations paid out. It is therefore clear that Noosa Waters Pty Ltd is entitled to pursue recovery of the funds. It is surprising that you now suggest that the position is otherwise and in any event, those monies are either due or they are not. Our client only seeks to have its claim determined on the merits. Your clients cannot claim to be prejudiced by proceedings to recover the debt which will be determined on its merits by the Court. The suggestion that recourse to the Court for a determination of our client’s claim against your clients is oppressive of your clients is simply misconceived.

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

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

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

I find that by 15 August 1996 the majority directors must have been well aware that as far back as 30 May 1996 QIDC had confirmed to NW that it did not require guarantees from the FAI unit holders - Exhibit 10 - a letter dated 30 May 1996 from QIDC to NW - names the companies from which guarantees were not required and they included FAI Developments Pty Ltd, Mowete Pty Ltd and FAI General Insurance Company Ltd.

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

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

‘Q.So if the trustee failed those moneys would be called up wouldn’t they?
A.Only on the basis of that action that we took.
Q.But at the end of the day you knew that FAI were exposed for the amount of $7 million to the trustee?
A.No, no. On the basis of the loan with QIDC FAI had no exposure. Under that action that we took in order to restore the balance so far as we were concerned we believe that they should pay their proportion by providing the loan funds.
Q.Is the rationale then that you were exposed on the personal guarantee directly to QIDC?
A.Yes
Q.And FAI were not directly exposed to QIDC?
A.That’s correct.
Q.You do appreciate that at the end of the day if the development failed FAI would have had to pay the $7 million?
A.There was no obligation on them to pay apart from that action that we took.’

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

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

‘Q.Is this the case Mr Bayles that you understood that prior to this meeting Mr Haseler and Mr Wilson obtained legal advice in relation to suing FAI companies for $7 million?
A.Look I can’t speak for them.
Q.Did you know on 15 August 1996 whether any director of the company had obtained legal advice in relation to a possible claim by the company against FAI companies for 7 million dollars odd?
A.I can’t answer for that.
Q.Did you not consider it your business to find out whether there was a good claim before embarking the company upon litigation of that nature?
A.The way I saw it and I have to be frank about it is that we all put our guarantees up and FAI didn’t. It was explained to me. I agreed with the fact that FAI should put their guarantees up and they didn’t so we proceeded - my assumption was we proceeded from there.’

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

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

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

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

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

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

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

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

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

‘We note that you act for FAI Leasing Finance Pty Ltd. As you would be aware our client, Noosa Waters Pty Ltd, has rights of subrogation in respect of all rights and remedies which were available to FAI Leasing Finance Pty Ltd as against Mowete Pty Ltd and FAI Developments Pty Ltd.

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

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

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

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

I mention at this stage that I found that before the writ 8176 of 1996 was issued on 30 September 1996 the two applicants took steps on 16 August 1996 and 4 September 1996 respectively which had a profound affect on the life of NWSUT. These steps were notices given by Mowete Pty Ltd and FAI Developments Pty Ltd respectively to NW. I set out the text of the notice given on 16 August 1996. I found that the giving of those notices should have come as no surprise to NW because as another item of the minutes of the meeting of directors held on 15 August 1996 prepared by Russell showed - Sproats had told the meeting (inter alia) that FAI wanted out of the project in that they were seeking for the other unitholders to buy out their interests and that on Friday 16 August, FAI intended to serve notice on the company requiring that part of their shareholding be purchased by the other shareholders.
I found the effect of the giving of those notices meant that “the trustee shall ... proceed to realise all of the assets of the Trust and to convert the assets of the Trust into cash as soon as may be reasonably practical so to do on an orderly basis and shall appoint as the vesting date a date which is not more than two (2) years from the date of receipt of the second notice ... .” I referred to clause 6A.1(b) of the NWSUT deed.
“Vesting date” was defined in clause 23 of the NWSUT and in my reasons I said there was no dispute that the vesting date for NWSUT is 4 September 1998. The trust determines on that vesting date and clause 24 of the deed dealt with distribution of trust property on termination of the trust.
I went on to find (p.17 of the reasons):-
“By letter dated 4 September 1996 the two applicants, by their solicitors, sought from Clayton Utz, confirmation that in terms of clause 6A.1(b) of the NWSUT Deed, NW was obliged to realise all the assets of the trust to convert them into cash as soon as reasonably practical and appoint a vesting date.”

I found that on 10 September 1996 the solicitors for the two applicants reminded Clayton Utz that no response had been received to their request for that confirmation and I found that that lack of response effectively forced the FAI unitholders to cause the writ 8176/96 to be issued on 30 September 1996. In that action they sought (inter alia) a declaration as to the obligations of NW under clause 6A.1(b).
I found that both the actions 7234 and 8176 were contested.
I now quote from my reasons (p.18):-
“In no.7234 NW on 30 September 1996 issued a summons seeking summary judgment against FAI Development Pty Ltd and Mowete Pty Ltd.

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

Both applications were heard together by Dowsett J. who on 20 March 1997 delivered his reasons for judgment in both actions. His reasons favoured FAI and Mowete. Ultimately on 21 April 1997 he made formal orders in each action. He dismissed NW’s judgment summons in 7234/96 and in 8176/96 he declared that Noosa Waters Pty Ltd was bound by cl.6A.1(b) of the NWSUT Deed to proceed to realise all of the assets of the trust and to convert the assets of the trust into cash as soon as may be reasonably practical so to do on an orderly basis and to appoint as the vesting date under that deed a date not later than 4 September 1998.

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

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

Bayles could give me no reason for prosecuting the appeal. He told me he had had no involvement instructing lawyers about the appeal but was aware that others are instructing the lawyers. I infer that the “others” to whom he referred are Haseler and Wilson. I note that on 16 October 1996 Bayles wrote to Russell, the secretary of NW saying (inter alia) ‘let’s hope the summary judgment gets up as I feel it would not be worth proceeding if not’ (see Exhibit 21).
When Wilson was cross-examined concerning the prosecution of the appeal I thought he was evasive in his answers to questions which I find he well understood. The following questions and answers illustrate his evasiveness.

‘Q.The company is currently instructing lawyers to pursue the appeal?
A.I haven’t been privy to any current instructions to the lawyers.’

He was then asked:-
‘Q.Who is giving instructions to the lawyers?
A.I don’t know. I’m not aware of any current instructions to the lawyers about that. As far as I am concerned it is still on foot. I don’t think it has changed.
Q.Well you can’t put forward any justification for pursuing the appeal can you?
A.I just gave you that I think.’

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

In my reasons I then went on to say that Mr Fraser relied on the evidence before me concerning the decision to sue the FAI unitholders for sum $7 million and take no similar action against the remaining unitholders as showing that NW as trustee of the NWSUT failed in its duty to act impartially between the beneficiaries in the trust.
After citing certain authorities concerning a trustee’s duty to act impartially between all the beneficiaries in the trust I said (at p.20 of my reasons):-
“Here the trustee NW is a company of which there are four directors. Three of those Wilson, Bayles and Haseler did in my view conspire before the meeting of 15 August 1996 to procure the company to act in a manner envisaged by the resolution in item 6 which I have earlier set out. They caused the resolution to be passed over the objection of Sproats. Not only that but I find that they deliberately failed to give any notice to Sproats that the matter the subject of the resolution was to be discussed at the meeting. These three men have continued to prosecute the trustee’s appeals against the decisions of Dowsett J. in circumstances in which liability to QIDC no longer exists and in which their guarantees or their company’s guarantees will never be called on. I find that NW has failed to act impartially between the beneficiaries of the NWSUT in respect of the decision to sue the two applicants.”

I have quoted in some detail from my reasons for judgment and have done so for reasons I have already stated. First, Mr Fraser relies entirely on what I have said in my reasons to support his present applications and secondly the applications before me are based on alleged misconduct of the majority directors disclosed in my reasons.

The second instance of alleged serious misconduct of the majority is in what I found in my reasons to be an excessive increase in fees payable by NW and NWD as trustees to the companies controlled by Haseler amounting to a gift out of trust assets exceeding $1.5 million the real purpose of which was as I have found to benefit Haseler and his companies at the expense of the FAI unitholders.
In my reasons I dealt with the following topic:-
“2. Conduct of Trustees in preferring the interest of entities controlled by one of the majority directors where that director had a conflict of interest.”

In my reasons I found that PJI Management Consultants Pty Ltd (which I called “PJI”) was registered on 16 March 1981 and at all material times its directors had been Haseler, Peter Richard Sandaver and Ian Russell, Russell being also the secretary of PJI. I found that Haseler, Russell and Peter William MacGinley each beneficially held one share in PJI.
I found that QM Properties Pty Ltd was registered on 12 May 1987, that its directors were and at all material times had been Haseler and Russell and that the sole shareholder was QMP Properties Pty Ltd holding beneficially one A class share and one B class shares.
I found QMP Nominees Pty Ltd was registered on 26 November 1980, that its directors were and had at all material times been Haseler and Russell and each was also a secretary of the company; that the 2 shares in QMP Nominees Pty Ltd had at all material times been beneficially held by Haseler and a Colin Raymond Richards as to 1 share each.
I found that NW and NWD appointed PJI as their project manager for Noosa Waters Development and QM Properties Pty Ltd as their marketing agent for the same development. I was satisfied that both the project manager and the marketing agent had at all material times been associated with Haseler and with Richdown Pty Ltd one of the unitholders in NWSUT and BLUT.
I accepted the submission that the appointments of PJI and QM Properties Pty Ltd to the positions of project manager and marketing agent respectively in relation to NWSUT and BLUT gave rise to potential conflicts of interest and duty on the part of Haseler and I said:-
“This is particularly so when one has regard to the fees which were paid by NW and NWD to those entities.”

I considered evidence placed before me as to the project management fees and marketing fees paid to those entities in the 1994, 1995 and 1996 years and found that those fees were significant.
Once again the meeting of directors of NW held at 10 a.m. on 15 August 1996 concerned a matter in issue before me and that was an increase in the project management fees and marketing fees to be paid to PJI and QM Properties.
I now quote from my reasons (at p.23):-
“Item 4(b) appears in the minutes of that meeting as follows:-
‘Item 4 - (b) Marketing Aspects of the Project

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

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

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

·Corporate
·Financial
·Construction
·Marketing
·Sales

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

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

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

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

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

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

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

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

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

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

He was then asked:-

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

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

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

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

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

I should add that Sproats’ evidence given from the witness-box satisfies me that before 15 August 1996 he, as the director representing the FAI group of unit holders had often raised with other directors of Noosa Waters that the project management and the sales marketing fees were excessive. There was evidence of Mr White the valuer relied on by the applicants whose evidence was that 2 per cent of the costs was a reasonable amount for a project management fee. This figure makes the proposed 4 per cent based on gross sales appear excessive. White’s evidence was that in his experience project management fees were basically worked on a percentage of the cost of the project and not a percentage of the sale price of the project.

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

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

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

(a)the future management and marketing work of the project will more likely than not be of no greater intensity that it has been in the past and the evidence shows that the sale receipts are expected to be similar.
(b)the majority directors, quite improperly in my view, resolved to give PJI and QM Properties - both companies controlled by Haseler - a bonus to which neither was entitled.”

I then considered an affidavit of Paul Matthew Boytar a consulting engineer employed by QM Properties Pty Ltd since 1985. He described himself at QM Properties as being part of a team of experienced consultants which dealt with the development and sale of major residential estates and said that as part of that team he had been closely involved in the development and sale of “Noosa Waters”. In para.14 of his affidavit Boytar said that PJI provided management services to NW and NWD and that QMP (Sales) Agencies Pty Ltd provided marketing services to NW and NWD. He went on to say that “the equivalent full-time staff engaged in providing these services numbers approximately 27" he described the manner in which those numbers were made up and I set them out in my reasons.

In sub-para 14(g) he said:-
“(g) Management Services for the project are provided by John Haseler, Ian Russell, Peter MacGinley and two secretarial staff 5.”

I rejected that sub-paragraph as totally incorrect saying - “In my view that sub-paragraph was intended to convey that 5 persons working full-time provided the equivalent of management services provided by Haseler, MacGinley, Russell and two secretarial support staff.” While I accepted that at relevant times Haseler and Russell had and have secretaries who were and are employed by QM Properties Pty Ltd I did not accept that Haseler, MacGinley and Russell provided full-time management services for the Noosa Waters Project. I accepted that each of those persons did provide management services to NW but considered that sub-para.14(g) grossly misrepresented the true position. I said:-
“I accept Sproats’ evidence that Haseler did not work full-time providing management services for the Noosa Waters Project and that he ran ‘the rest of QM which from time to time had any number of estates over Queensland which they run’ and that Haseler had ‘extensive horse interests, race horse interests’ which consumed a great deal of his time.

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

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

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

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

After considering the identical wording in each of para.5 of Wilson’s affidavit and paras.7 and 8 of Bayles’ affidavit and the fact that Wilson swore that the words in para.5 were his own words, I went on to say:-
“I was not impressed with either Bayles or Wilson. I thought that in the witness-box each continued to do his best to justify the decision to increase fees paid to PJI and QM Properties, companies controlled by Haseler. Before the resolved increase Haseler’s two companies had been contractually bound to NW as a developer of the Noosa Waters Project and before 15 August 1996 had, it appears, performed their contractual obligations to the satisfaction of the boards of directors of each company and had been paid for the performance of those obligations.

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

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

I then went on:-
“When each of these men and Sproats was acting as a director of NW each was a fiduciary agent of NW (see Mills v. Mills (1938) 60 CLR 150 at p.185 per Dixon J.). In Ngurli Limited & Anor and McCann & Anor (1953) 90 CLR 425 the High Court of Australia considered the validity of an allotment of shares in a company benefiting a director to the detriment of minority shareholders. At pp.439 and 440 the Court said:-

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

(The underlining is mine.)

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

..................

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

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

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

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

The third matter of alleged misconduct of the majority directors relies on findings which I made in dealing with “the respondent trustees’ attitude to the request to audit the trusts’ accounts and inspection of accounts by Sproats”.

Claim that the majority delayed and made false assertions as to reasons for the delay in the trust audit which was the subject of action 8176/96.
Again, the directors meeting of 15 August played a part and again it is necessary for me to quote fairly substantially from my reasons.
As I have already said, on 11 June 1996 Avi Rubinstein had written to Ian Russell confirming certain accounting requirements of the two applicants FAI Developments and Mowete and one of these was that the financial accounts of both NW and NWD be audited - as from the year ended 30 June 1996.
Correspondence ensued and on 24 June 1996 Rubinstein sent a further letter to Russell as secretary of NW; - that letter concluded:-
“Failing a satisfactory agreement we regret to notify you that FAI Developments Pty Ltd and Mowete Pty Ltd will not have any choice but to request an appointment of the auditor by the Courts. I hope that this matter can be resolved over the next few days.”

I found that on 25 July 1996 notices requiring audits were given pursuant to s.283C of the Corporations Law. I also found that on the same day WT Purcell, Chadwick and Skelly acting for Sproats wrote to NW and NWD asking that the accounting records for the years ended 30 June 1994, 1995 and 1996 be made available for Sproats’ inspection, Sproats being assisted by accountants.
I found that at the meeting of directors of NW held at 10 a.m. on 15 August 1996 Wilson, Haseler and Bayles, over Sproats’ opposition, resolved to accept the financial accounts for 1996 and authorised Haseler and Wilson to sign the accounts on behalf of NW.
I then recorded in my reasons Item 2 of the minutes of that meeting as follows:-
“Item 2 - Financial Accounts for 1996
Noosa Waters Pty Ltd
The accounts of the Company were tabled by Mr Russell for acceptance by the Board. It was noted that Mr Sproats’ copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival however stated that he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future.

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

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

Item 3 - Auditor

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

The meeting was adjourned temporarily at 10.35 am.
The meeting reconvened at 10.45 am.”

Shortly afterwards in my reasons I went on to say:-
“As can be seen from the above item 2 Sproats had received an illegible copy of the accounts - this was on 13 August 1996 - and on arrival at the meeting had been provided with another copy.

Russell’s minutes of NW also recorded (in item 8):-

‘Mr Sproats addressed the meeting and advised [inter alia] the following:-
. . . . . .
(b)in the absence of an auditor being appointed to all entities including all Trusts FAI would be seeking to have auditors appointed by court order’

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

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

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

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

I then went on to consider the three resolutions relating to the 1996 accounts of NWD passed at a meeting of the directors of NWD which lasted from 10.35 a.m. to 10.45 a.m. on 15 August 1996.
I now quote from my reasons:-
“The resolutions there passed relating to the 1996 accounts were recorded as follows:-
‘Item 1 - 1996 Accounts for Noosa Waters Developments Pty Ltd
The Secretary tabled the accounts of the Company for acceptance and it was noted that Mr Sproats’ copy which was forwarded to him by facsimile was not clear and he stated that he was unable to read them. Mr Sproats was provided with another copy of the accounts upon arrival but stated that he was specifically advised by FAI not to accept the accounts given the potential litigation that may arise in the near future.

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

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

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

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

Item 3 - Auditor

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

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

I find it was not until 15 October 1996 that the trustees of NWSUT and BLUT agreed to have both the NWSUT and BLUT audited (Exhibit 4 p.164) I find that they so agreed after the proceedings in writ 8176/96 had been issued on 30 September 1996 in which audits of the two trusts were sought. I find it more likely than not that it was the issue of those proceedings which forced the trustees into the agreement of 15 October 1996.
I further find that despite this agreement it was not until on or about 14 January 1997 that Garth Ronald Barrett a member of Calabro Partners Chartered Accountants was engaged to audit the financial accounts of NWSUT and BLUT for the year ended 30 June 1996.

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

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

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

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

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

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

It is clear, and I find that the assertion that the applicants had delayed the audits was false. This false assertion and the other matters which I have mentioned in dealing with this topic and particularly the delay of some 3 months from 15 October 1996 until an auditor of the trusts was actually appointed are among matters which I take into account when deciding whether the trustees should be removed and new trustees appointed.”

The deliberate attempt to keep the FAI interests ignorant of the QIDC advance of $2 million

In my reasons for judgment I dealt with “The $2 million loan”.
This was a loan of $2 million made by QIDC to NW on 27 June 1997. Again, because it is the conduct of the majority directors on which the present applicants focus it is necessary for me to mention some of the facts as I found them in my reasons. By letter dated 26 May 1997 QM Properties Pty Ltd had written to QIDC. The letter which was headed “Additional Loan Facility - Noosa Waters” commenced:-

At p.358 His Honour said:-
“I do not wish to repeat what I had to say in my reasons for judgment about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course of the litigation and in the witness-box. It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross defendant. As well as that she so conducted herself in the proceedings by multiplying allegation upon allegation and by prevaricating in the witness-box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues.”

(the underlining is mine)
In respect of application 5874 it is my firm view that had the majority directors candidly faced up to and admitted to their legal advisers what their real conduct was then there was no need for this matter to have been begun and come to trial and costs incurred by the two applicants should never have been incurred . As appears from my reasons and the present reasons a number of admissions of misconduct were made during the hearing before me and the cumulative effect of these has been such that any objective observer must have readily concluded that then the trustees would be removed from the NWSUT and BLUT.
I am firmly of the view that because of the conduct of the majority directors (representing the majority unit holders) the two applicants have been forced to issue application 5874 and thereby incur costs which they would not otherwise have incurred.

Motion in writ no 7234/96

Motion in writ no 8196/96

I propose to deal with these two notices of motion together. In 7234 of 1996 the applicants FAI Developments Pty Ltd and Mowete Pty Ltd seek orders that:-
(1)The other unit holders of NWSUT namely Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd do-
(i)pay or indemnify the plaintiff against the costs which by order of 21 April 1997 it has been ordered to pay to the defendants;
(ii)indemnify the plaintiff against the solicitor and own client costs of and incidental to the action which it has occurred.

The plaintiff in writ 7234 is Noosa Waters Pty Ltd and the first and second defendants respectively are FAI Developments and Mowete Pty Ltd. The notice of motion now before me is addressed to the plaintiff and also to the four above named “other unit holders”. FAI Developments and Mowete counter-claimed in that action against NW (first defendant) NWD (second defendant) and the above named “other unit holders” (third defendants). The writ 7234 was specially endorsed and issued on 30 August 1996. The defence and counter-claim was delivered on 27 September 1996. On 30 September 1996 the plaintiff by original action (NW) filed a summons for judgment pursuant to Order 18 of the rules of the Supreme Court seeking judgment for the whole of the plaintiff’s claim against the defendants. On 30 October 196 Dowsett J heard that summons together with the notice of motion in action 8176 of 1996 issued by FAI Developments and Mowete. I pause to say that writ no 8176 of 1996 was issued on 30 September 1996. The plaintiffs were FAI Developments Pty Ltd and Mowete Pty Ltd. The defendants were NW (first defendant) NWD (second defendant) and Garth Ronald Barrett (third defendant). On 30 September 1996 the plaintiffs in action 8176 filed a notice of motion seeking:-
(i)orders in respect of the audit of the financial statements of NWSUT and BLUT of which the first and second defendants were respectively trustees;
(ii)a declaration that certain moneys paid by QIDC to FAI Leasing Finance Pty Ltd were proceeds of a disposition of property of NWSUT within clauses 5 and 6 of a Unitholders Agreement made between the plaintiffs the first defendant and others dated 31 July 1992;
(iii)a declaration that the first defendant was bound under cl.6A.1(b) of NWSUT deed to proceed to realise all the assets of the trust as soon as might be reasonably practicable and to appoint a vesting date.

As already mentioned this notice of motion was heard by Dowsett J together with the judgment summons in 7234/96.
As a result of the circulation of roving resolutions of directors of both NW and NWD on or about 16 October 1996 it was unnecessary for the plaintiffs to pursue the relief sought by para.(i) of the notice of motion which I have earlier set out.
On the hearing of the notice of motion before Dowsett J the first defendant chose not to make any submissions in respect to the relief sought in (iii) set out above. On 21 April 1996 Dowsett J made a formal order dismissing the judgment summons in action 7234. By that order his Honour directed that if the defendants in the action wished to pursue an application for an order that the other unit holders of NWSUT do pay or indemnify the plaintiff against the costs which by his order of that day he had ordered it to pay to the defendants, they should file and serve a notice of motion seeking such order. The present motion in 7234 is the result of such order.
In writ 8176 his Honour, on 21 April 1997 made a similar order.
In writ no 7234 none of the four “other unit holders” is a party to the original action although each is a party to the counter-claim made by FAI Developments and Mowete. In writ 8176 none of the “other unit holders” is a party to the action.
There was no argument before me concerning my jurisdiction to order the costs sought in each of these notices of motion. In Knight v. FP Special Assets Limited (1992) 174 CLR 178 the High Court of Australia held that Order 91 rule 1 of the Rules of the Supreme Court of Queensland conferred jurisdiction to make an order for costs against the receivers of companies who were unsuccessful parties in proceedings, the receivers themselves not being parties to those proceedings.
At p.192 in their joint judgment Mason CJ and Deane J said:-
“The conclusion that the wide words of O.91, r.1 should not be read down so as to preclude jurisdiction to make an order for costs against a non party does not, of course, mean that a judge has an unfettered discretion to make any order that he or she chooses. The wide jurisdiction conferred by the rule ‘must be exercised judicially and in accordance with general legal principles pertaining to the law of costs’ to take up the words of Lambert JA in Oasis Hotel Ltd v. Zurich Insurance Co (1981) 124 DLR (3d) 455 at p.462.”

Knights case is authority that this Court’s jurisdiction to order costs against persons who are not parties to the action does derive from Order 91 rule 1.
Furthermore, in Knight Mason CJ and Deane J went on to say (at p.192):-
“Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus for example there are several long established categories of case in which equity recognised that it may be appropriate for such an order to be made (see the discussion in Oasis Hotel ibid at pp.458-459).

For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category an order for costs should be made against the non-party if the interests of justice require that it be made.”

I should add that earlier in their reasons for judgment (at p.185) Mason CJ and Deane J when discussing the question whether Order 91 rule 1 conferred jurisdiction to award costs against a non party had said:-
“According to their natural and ordinary meaning, the words of the rule are sufficiently expansive to enable the Court to make an order for costs against a person whether that person is formally a party to the proceedings or not. The jurisdiction and the discretion thereby conferred are not limited. Because they are not limited it is easy to postulate a variety of circumstances where an exercise of the jurisdiction against a non-party would be extravagant and unjust. However, the existence of that possibility provides no justification for the imposition by the courts, by way of implication, of an arbitrary limitation upon the general jurisdiction conferred by the rule. To do so would, as will appear, deny power to the Court to order costs against a non-party in cases in which, in the interests of justice such orders should be made.”

This passage (applied by the Full Court of the Federal Court of Australia in Caboolture Park Shopping Centre Pty Ltd v. White Industries Pty Ltd (1993) 117 ALR 253) confirms the “interests of justice test” and at the same time makes clear that the jurisdiction and discretion conferred by the rule are not limited.
In Knight, Gaudron J agreed with the reasons for judgment of the Chief Justice and Deane J. At p.203 of Knight, Dawson J, after having said “... in general costs are not awarded against non- parties but that is because it is generally inappropriate to do so” went on to say - “But I see nothing in the rule to prevent it being done in the exceptional case where it is appropriate to do so.”
I think it is import to bear in mind that Knight was a case concerned with the jurisdiction of the Supreme Court of Queensland to make an order for costs against persons who were not parties to litigation. It was not a case concerned with indemnity costs nor was it a case concerned especially with party and party costs although it seems that the costs which were the subject of the appeal were party and party costs.
The “interests of justice” referred to by the Chief Justice and Deane J must in my view be considered bearing in mind:-
(a)the circumstances of a particular case; and
(b)the prima facie general principle that costs orders are only made against a party to the litigation.

Obviously, if a costs order is to be made against a non-party the circumstances of the case must be such as to take the case beyond the general principle and, in the interests of justice, require the making of such an order. Dawson J has used the adjective “exceptional” to describe such a case. His Honour was not speaking of party and party costs nor was he speaking of indemnity costs.
I propose to apply the “interests of justice” test bearing in mind the circumstances of the case against each of the four non-parties against whom the present applicants have sought costs orders. I also propose to proceed on the basis that if any costs order is to be made against any one of them I must be satisfied that the case is an exceptional one and such that the interests of justice justify departure from the prima facie general principle sufficient to warrant a costs order. I agree with Garland J when, in H Leverton Limited v. Crawford Offshore (Exploration) Services Limited (unreported decision on costs by Garland J in Queens Bench Division dated 11 October 1996) he said “an order against a non-party is exceptional and should be approached with caution”. His Honour was here following Symphony Group Plc v. Hodgson (1994) QB 179 at p.193.
The costs orders sought in the notice of motion are intended to achieve a result whereby each of the applicants in the notice of motion is not to be out of pocket in respect of costs incurred by NW and NWD as trustees including costs which NW and/or NWD have been ordered to pay and the costs of NW and NWD in respect of which they are entitled to an indemnity from the beneficiaries in the trusts. It is apparent that whenever NW and NWD or either of them might seek to exercise its right to indemnity from all the beneficiaries in respect of costs then the two present applicants FAI Developments and Mowete will in effect be contributing 30 per cent of each trustee’s costs. Such a result will be in inequitable particularly when the costs in respect of which indemnity is sought by the trustee are costs which a court has ordered the trustee to pay to FAI Developments and Mowete.
Thus, in respect of each trustee’s right to indemnity in respect of its costs of and incidental to each action (apart from the costs which each trustee is actually ordered to pay) the costs subject to that indemnity are intended to indemnify fully the trustee. It seems to me that in respect of para.1(ii) of each notice of motion I am required to consider whether or not the two applicants are entitled to have an indemnity costs order made against each of the four “other unit holders”.
That being so it seems to me a further matter of principle arises and this concerns the level at which circumstances of a case become sufficiently exceptional to justify the making of an indemnity costs order.
As is well known a party and party costs order does not amount to an indemnity to the party in whose favour that order is made in respect of that party’s costs. (see the discussion by Sheppard J in Colgate Palmolive (supra)). The indemnity costs order, usually expressed as costs on a solicitor and client basis, is intended to be exactly that - an indemnity for the party’s costs. I would expect that when a costs order is sought against a non-party the application for such order will specify whether those costs are party and party or solicitor and client. If the latter level of costs is sought, it is my view that the circumstances of a case justifying the making of such an order must be stronger or more compelling than the circumstances applying when a party and party costs order is made against a non-party. I add that if in respect of any one of the cases I am about to consider I am not satisfied that an indemnity costs order should be made I may nevertheless be satisfied that a party and party costs order should be made against the non-party concerned.
Since Knight v. FP Special Assets, the jurisdiction to order costs against non-parties has been exercised in subsequent Queensland cases. One of these cases is re Talk Finance & Insurance Services Pty Ltd (supra).
Other cases - all unreported - are A Whistle & Co (1979) Ltd v. Gorham Supreme Court, Byrne J No 58 of 1992 Library Reference in O92 - O14; re Agricultural Services Pty Ltd Supreme Court, White J No 8 of 1995 - Library Ref No 96 - 086 and re Carey Builders Pty Ltd White J No 2938 of 1996 - Library Ref No 97 - 134.
Bahai v. Rashidian (1985) 1 WLR 1337 (followed in Symphony Group Plc v. Hodgson (supra)) is authority for the proposition that an application that a non-party pay costs should normally be determined by the trial judge and the further proposition that the fact that the trial judge may in the course of his judgment have expressed views on the conduct of the non-party, constitutes neither bias nor the appearance of bias. Both these cases were decisions of the Court of Appeal; I mention that in Symphony Group Plc, Balcombe LJ (with whose reasons Staughton and Waite LJJ agreed) referred to a number of reported decisions where the court had been prepared to order a non-party to pay costs of proceedings and he summarised those decision under a number of heads. I do not deem it necessary to refer to what His Honour had to say.
The categories of cases where costs orders against non-parties can be made are neither rigid nor closed.
Mr Sofronoff does not oppose the making of an order in each of actions 7234 and 8176 that Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd do pay or indemnify Noosa Waters Pty Ltd against the costs which by each order of 21 April 1997 Noosa Waters was ordered to pay to FAI Developments Pty Ltd and Mowete Pty Ltd.
He does oppose the making of any order which effectively requires these other four unitholders to indemnify NW and NWD or one of them against the solicitor and own client costs of and incidental to each action which both NW and NWD or either has incurred.
He submits that the applicants have not shown that in either action the interests of justice make the case so exceptional that the costs on an indemnity basis should be ordered.
Mr Sofronoff has referred to the use of the phrase “special circumstances” by Moynihan J (as he then was) in re Talk Finance and Insurance Services Pty Ltd (supra). In that case His Honour said (at p.560):-
“It is of course unusual for such an order to be made in contests between party and party but there is no doubt that it can be made if some circumstance, often described as special circumstances, can be pointed to as justifying it.”

As I said earlier I propose to apply the “interests of justice test” bearing in mind the circumstances of the case against each of the other four unitholders against whom the present applicants have sought indemnity costs orders. I also proceed on the basis as I said earlier that I must be satisfied that the case is an exceptional one and such that the interests of justice justify departure from the prima facie general principle sufficient to warrant a costs order.
As to action No 7234, I found that the bringing of this was motivated by revenge on the part of Wilson, Haseler and Bayles. Each of these men was a director of NW and NWD and each represented his own company which was one of the four other unitholders mentioned in the notice of motion.
In my view this circumstance of revenge alone is one which brings the case into the exceptional category and in the interests of justice justifies my ordering the four other unitholders to indemnify completely NW and NWD and each of them for their solicitor and own client costs incurred in respect of that action and for the costs which NW and NWD or either of them are ordered to pay to the present applicants.
Apart from the issue of revenge there are other circumstances to which I attach considerable weight and which have caused me to decide the indemnity costs orders sought should be made. The first circumstance is this - the two applicants were forced to defend this suit which in my view was unreasonably brought and which if successful would have resulted in FAI Developments and Mowete being obliged to pay into the trusts, sums totalling some $7 million in which each unitholder was entitled to share when none of the four other unitholders had paid any moneys (although each was contingently liable on the guarantee it had given). In addition the majority directors caused the trustees unreasonably to resist the defence and counter-claim and to continue unreasonably to prosecute appeals after there was no possibility of the majority being liable on their guarantees.
The interests of justice test strongly indicates that, given circumstances leading to the institution and prosecution of this action 7234 and the defence to the counterclaim and the findings which I made in my reasons concerning it, the two applicants should not be obliged to contribute in any way to NW’s, and NWD’s costs incurred on a solicitor and own client basis and incurred by costs orders against them or either of them but that the four other unitholders should completely indemnify NW and NWD for those costs.

Furthermore, the majority unitholders were the real parties behind the plaintiff in action 7234 - the action was prosecuted and the counter-claim defended at their behest. The majority unitholders had an interest in the outcome of 7234 - they stood to gain from a decrease in trust liabilities or an increase in trust assets which would have resulted from success in the action and that decrease or increase would have been funded solely by the FAI interests.
As to action 8176/96, I found in my reasons that the conduct of the majority directors forced the FAI interests to commence the action seeking the relief to which I have already referred and the majority then in effect capitulated.
I accept Mr Fraser’s submission that the majority unitholders patently played an active part in this action as they did in 7234.
I should add that in respect of the applications for indemnity costs in each of action 7234 and 8176, I consider the interests of justice really demand that the four other unitholders which are controlled by the majority directors must indemnify the trustees for their solicitor and client costs incurred in each action and for the trustees costs (on a solicitor and client basis) ordered to be paid by them because if that were not done then each of the two applicants would effectively bear 30 per cent of that cost. In my view the applicants should not be out of pocket in that respect.

The Trustees Costs

Mr Fraser has sought a declaration that the trustees NW and NWD have no right of indemnity out of the assets of each trust in respect of their own costs of the three actions 5874, 7234 and 1876 and that if and to the extent that the trustees’ costs have already been paid out of such trust funds a declaration that Keenbark Pty Ltd, Oxmead Pty Ltd, Richland Pty Ltd and Ultraview Pty Ltd are obliged to indemnify the trustees and reimburse those costs.
Mr Fraser points to the proviso to Order 91 rule 1 and submits correctly that it does not apply because the proviso is limited to cases where the trustee has not unreasonably instituted, carried on or resisted proceedings. In light of findings I made in my reasons and in these reasons it cannot be said that the proviso applies. In addition, I accept his submission that it would be unjust to allow the trustees own costs to be met from the trust funds which would effectively require the FAI interests to bear 30 per cent of those costs on an indemnity basis.
In his oral submissions Mr Fraser made it clear that his clients wished to ensure as far as possible that each Trustee NW and NWD was fully indemnified as to their costs by the majority unitholders so that the applicants were not obliged to contribute towards those costs. In light of the orders which I now make, I do not think it necessary to make the declaration sought but I give liberty to the two present applicants to review such application for a declaration if so advised either to this Court or to the Court of Appeal - I understood during argument on the present applications that an appeal against my judgment delivered on 9 January 1998 has begun but is not yet heard and it is hoped that the judgment I am now writing will, if appealed, be dealt with at the same hearing.

ORDERS
Orders in application no 5874 of 1997
IT IS ORDERED THAT:

On a monthly basis the managing trustees will provide to each of the parties a written report as to their charges.
Any party may within 21 days from receipt of the managing trustees charges report, object in writing to the charges or any of them and shall at the time of objecting, particularise their objections - for the purposes of this paragraph any charges report sent by post shall be deemed to have been received at the time when the letter containing the report would be delivered in the ordinary course of post.
In the event that there is an objection received by the managing trustees in the terms of paragraph 2 hereof, the managing trustees are to:
(a)prepare a bill of costs for those items objected to, detailing remuneration claimed by them pursuant to paragraph 4 of the Order of 9 January 1998; and
(b)submit the said bill of costs to the Taxing Officer of the Supreme Court at Brisbane for taxation.
If any party requests the managing trustees to prepare and/or tax a bill of costs for taxation as aforesaid then:
(a)the managing trustees shall prepare such bill of costs and submit the same for taxation;
(b)subject to paragraph 4(c) the provisions of Section 9 of the Legal Practitioners Act 1995 shall mutatis mutandis apply to the determination of the costs of any such taxation of the preparation of any such bill of costs;
(c)the objecting party may make an offer to agree to payment of an amount which the objecting party believes to be a reasonable amount for the charges and should the managing trustees not accept that offer and the taxed bill (excluding the costs of preparation and taxation of the bill) be less than the amount so offered, the managing trustees shall pay the objecting party’s costs of and incidental to the taxation.
Should no objection be received to the managing trustees’ charges within 21 days of their providing their charges report, the managing trustees shall be entitled to their charges as set out in their report.
The managing trustees remuneration shall be limited for the time being to $100,000 provided that the managing trustees are entitled to apply pursuant to paragraph 9 hereof to have such limit increased.
The third, fourth, fifth and sixth respondent shall jointly and severally, pay the applicants’ costs of and incidental to this application No 5874 of 1997 (including all reserved costs) on a solicitor and own client basis to be taxed except in so far as the applicants’ costs are of an unreasonable amount or were unreasonably incurred so that subject to such exceptions each of the applicants will be completely indemnified for its costs.
The third, fourth, fifth and sixth respondents shall indemnify the first and second respondents against their solicitor and own client costs of and incidental to this application No 5874 of 1997 to the intent that neither the first nor second applicants are to contribute to such costs in any way.
Any party and the managing trustees shall have liberty to apply for directions or other orders upon two clear days’ notice in writing.

Orders on Motion in Writ 7234 of 1996
IT IS ORDERED THAT:

Keenbark pty Ltd, Oxmead pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd do jointly and severally:-
(i)pay or indemnify the plaintiff in this action against all costs which by Order made 21 April 1997 the plaintiff has been ordered to pay to the defendants in this action to the intent that neither FAI Developments Pty Ltd nor Mowete Pty ltd are to contribute to such costs in any way.
(ii)indemnify the plaintiff in this action against the solicitor and own client costs of and incidental to this action which the plaintiff has incurred to the intent that neither FAI Developments Pty Ltd and Mowete Pty Ltd are to contribute to such costs in any way.

Orders on Motion in Writ 8176 of 1996
IT IS ORDERED THAT:

Keenbark Pty Ltd, Oxmead Pty Ltd, Richdown Pty Ltd and Ultraview Pty Ltd do jointly and severally:-
(i)pay or indemnify the first defendant in this action against all costs which by Order made 21 April 1997 the first defendant has been ordered to pay the plaintiffs in this action to the intent that neither FAI Developments Pty Ltd nor Mowete Pty Ltd are to contribute to such costs in any way.
(ii)indemnify each of the first and second defendants against the solicitor and own client costs of and incidental of the first and second to this action which each defendants has incurred to the intent that neither are to contribute to such costs in any way.

[1998] QSC 47

3 April 1998