Longboat Holdings Groupno3 v Zacole Pty Ltd [2021] VSC 280

COSTS - Whether Trustee's costs of the proceeding be paid out of the assets of the trust - Whether costs follow the event where related proceeding stayed by consent.

1 Longboat Holdings GroupNo3 Pty Ltd ('the Trustee') is the trustee of a unit trust known as the LHG3 Property Trust ('the Trust') constituted by a deed of settlement dated 19 February 2016 ('the Trust Deed').

2 The Trust was established in 2016 for the purpose of developing a 30 unit multi-residential apartment site on land at 42-44 Lillimur Road, and at 7A and 9A Leila Road, Ormond ('the Trust Properties').

3 The sole director and company secretary of the Trustee is Theodore Kerlidis ('Mr Kerlidis') who is an experienced architect as well as the co-director and co-owner of K20.AU (ACT) Pty Ltd and K20.AU Pty Ltd (both of which trade as K20 Architecture) ('K20 Architecture'). Mr Kerlidis is also the sole director, company secretary and shareholder of Longboat Holdings GroupNo4 Pty Ltd ('LHG4'). Nickolas Makridis ('Mr Makridis') is an accountant by profession and for many years had been the accountant for Mr Kerlidis and for K20 Architecture. From April 2016, Mr Kerlidis and Nickolas Makridis were co-directors of the Trustee.

4 Around 7 March 2016 the Trustee and Longboat Development Group Pty Ltd ('Longboat Development Group') issued an information memorandum ('the Information Memorandum') to market the acquisition and development of the Trust Properties to potential investors. Mr Kerlidis is the director and company secretary of Longboat Development Group, and an entity associated with him is its shareholder.

5 The Information Memorandum contained a summary of a proposed development of the Trust Properties into 30 residential apartments ('the proposed residential development'). Through the Information Memorandum, the estimated timeframe for this proposed residential development was three years, the estimated costs and returns was set out, as was an anticipated profit of $2,500,000.

6 Longboat Development Group was specified as the development manager, and was to receive a fixed sum of $900,000. Mr Makridis, who was the finance manager of the proposed residential development was to receive a fixed sum of $320,000. The architect for the proposed residential development was identified as K20 Architecture, and its fees were estimated to be $600,000. The reference to the estimated architects' fees stands in contrast to the fixed fees payable to the development manager and the finance manager. Mr Makridis' accounting firm, Accent Accounting Australia, was identified in the Information Memorandum as the accountant for the Trustee. The Information Memorandum contained a standard disclaimer that there was no guarantee that the forecast financial results would be achieved.

7 The unitholders in the Trust include companies controlled by Mr Kerlidis or allied to him, and include a unitholder associated with Anthony Uahwatanasakul, who is a co-director and co-owner of K20 Architecture with Mr Kerlidis (the unitholders allied to Mr Kerlidis are referred to as the 'Stay Unitholders'). The remaining unitholders in the Trust are companies controlled by Mr Makridis, or otherwise associated or allied to him (the 'Leave Unitholders').

8 The Trustee entered into a lease with Red Pepper Property Group Pty Ltd ('Red Pepper') for a term of three years commencing 1 May 2018 ('the lease') at an annual rental of $65,000 payable by monthly instalments for premises at 124 Banks Street, South Melbourne ('the Premises'). Red Pepper is a company controlled by Mr Kerlidis and Mr Uahwatanasakul. The lease was signed on behalf of the Trustee by Mr Makridis and signed on behalf of Red Pepper by Mr Kerlidis and Mr Uahwatanasakul. The Trustee used the premises for marketing purposes by establishing a display suite to market the proposed residential development to prospective purchasers of units.

9 It is not in dispute that the proposed residential development has not performed to the unitholders' expectations. In his affidavit made 22 December 2020, Mr Kerlidis deposed that due to a softening in the market for apartments, the expected presales of apartments were not achieved. Mr Kerlidis deposed that in response to the changed market, around mid-2019 he considered that changing the nature of the development to a specialised residential aged care facility was a course which would secure the best possible return for the unitholders.

10 Mr Kerlidis further deposed that from about March 2019, a number of unitholders expressed their interest in selling units to enable them to exit the Trust, including procuring a release of guarantees provided by related individuals in respect of a facility agreement with the National Australia Bank ('the NAB facility').

11 In his affidavit made 11 March 2021, Mr Makridis deposed to a series of communications from March 2019 onwards between unitholders who wished to exit the Trust (who became the Leave Unitholders) and with Mr Kerlidis and the Trustee. Those discussions and negotiations extended to the preparation of a draft Unit Sale Agreement prepared in June 2019 to facilitate the exit of the Leave Unitholders, but no agreement as to the terms of exit was finalised. Mr Makridis also deposed that, until 7 February 2020, he was not aware that the nature of the development had changed from the proposed residential development to a proposed residential aged care facility.

12 Mr Makridis' affidavit otherwise includes a range of complaints regarding the conduct of the Trustee, and contends that the Trustee, without proper authorisation, issued further units in the Trust during 2020.

13 Unsuccessful in their attempts to exit on agreed terms from the Trust, and troubled by the alleged unauthorised issue of further units, on 25 May 2020 the Leave Unitholders commenced proceedings against the Trustee, Mr Kerlidis, and the Stay Unitholders in proceeding number S ECI 2020 02315 ('the Leave Unitholders' Proceeding').

14 In the Leave Unitholders' Proceeding, the Leave Unitholders alleged breaches of Trust by the Trustee, procured by Mr Kerlidis. They claimed, among other things, that the alleged issue of additional units in the Trust was beyond power, and that the Trustee failed to take action for the adequate protection of the Trust Fund. By way of final relief, the Leave Unitholders sought injunctions restraining the Trustee from relying on a unit register dated 30 April 2020 (which reflected the further issue of units challenged by the Leave Unitholders). The relief sought also included orders that the Trust Properties be sold; alternatively an order that a receiver be appointed or that a new trustee be appointed in place of the Trustee pursuant to s 48(1) of the Trustee Act 1958 (Vic) ('the Trustee Act').

15 On 5 June 2020, the Trustee and Mr Kerlidis filed and served a notice of conditional appearance,[1] and on 19 June 2020, the trustee and Mr Kerlidis filed a summons seeking orders pursuant to s 30 of the Supreme Court Act 1986 (Vic) and/or the Court's inherent jurisdiction (the 'Stay Application'), or seeking that the Leave Unitholders' Proceeding be stayed on the grounds that the Leave Unitholder's Proceeding was a dispute between the Trustee and unitholders, or between unitholders in relation to the Trust Deed or relating to the conduct of the Trust, and was therefore subject to the compulsory dispute resolution procedure which included arbitration contained in clause 45 of the Trust Deed.

16 On 16 July 2020 at the hearing of the Stay Application, the Honourable Justice Sloss made orders by consent which included that the Leave Unitholders' Proceeding be referred to mediation, and that the hearing of the Stay Application be adjourned to take place following completion of the mediation.

17 The mediation took place on 3 September 2020 and was unsuccessful.

18 On 23 December 2020, the Trustee commenced proceeding number S ECI 2020 04766 in the Supreme Court of Victoria (the 'Trustee Proceeding'), in which it named all unitholders in the Trust as defendants and sought relief pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 ('the Rules') for approval of a proposed sale of the Trust Properties by the Trustee to LHG4. In the alternative, it sought an order pursuant to r 54.02 that it would be justified in completing the proposed sale of the Trust Properties to LHG4.

19 In the alternative to relief sought under r 54.02, the Trustee sought an order pursuant to s 63(1) of the Trustee Act conferring upon the Trustee the power to sell the Trust Properties to LHG4. In addition, the Trustee sought an order that the Trustee's costs of the Trustee Proceeding be paid out of the assets of the Trust. In support, the Trustee relied upon the affidavit of Mr Kerlidis made 22 December 2020 in which, among other things, Mr Kerlidis deposed to the urgency of the application on the basis that the NAB facility was to expire on 31 December 2020.[2]

20 At a directions hearing held in both proceedings on 12 March 2021, the Leave Unitholders stated that whilst they would prefer the Court to determine the issues raised by the Leave Unitholders' Proceeding, if the Trustee persisted with the Stay Application, then the Leave Unitholders were content for the dispute to be determined by arbitration. The Leave Unitholders submitted that they wanted the dispute determined as soon as possible and did not want to delay matters with arguments about jurisdiction, noting that such disputes would inevitably denude the remaining Trust funds. The Leave Unitholders expressly made clear that their agreement to that course did not mean that the Leave Unitholders' Proceeding should not have been commenced and instead should have been referred to arbitration. Accordingly, on 12 March 2021, the Court made orders that the Leave Unitholders' Proceeding be stayed and gave directions for the filing and service of submissions in relation to the question of the costs of the Leave Unitholders' Proceeding.

21 At that same directions hearing, the Court listed the Trustee Proceeding for hearing.

22 By this time, the position of the Leave Unitholders had crystallised to one where they did not oppose the sale of the Trust Properties to LHG4 notwithstanding that LHG4 is an entity related to Mr Kerlidis. However, they contended that the proceeds of the sale of the Trust Properties should be quarantined in the Trustee's solicitors' trust account after settlement of the sale, save for the payment of certain creditors of the Trust, which they accepted were legitimate creditors (the 'Agreed Creditors'). The Agreed Creditors comprised the National Australia Bank ('NAB'), Ernst & Young ('EY), the State Revenue Office, Australian Professionals Property Service Pty Ltd ('APPS'), Gross Waddell,[3] and Napier & Blakeley Pty Ltd.

23 In contrast, the Leave Unitholders did not accept that the following were legitimate creditors of the Trust:

(a) K20 Architecture, now said to be owed approximately $377,529.38;[4]

(b) Red Pepper, now said to be owed approximately $178,094.26;

(c) Longboat Development Group said to have advanced sums of $100,000 and $8,000 to the Trust; and

(d) Atutank Pty Ltd ('Atutank') said to have advanced sums of $100,000 and $4,000 to the Trust.

(Collectively, the 'Disputed Creditors').

24 Mr Kerlidis accepts that K20 Architecture, Red Pepper and Longboat Development Group are entitles related to him. He disputes that Atutank is a related entity in a formal sense, but accepts that it was controlled by his business partner in K20 Architecture, Mr Uahwatanasakul. In any event, Mr Kerlidis contends that each of the Disputed Creditors is a legitimate creditor of the Trust.

25 Prior to the directions hearing on 12 March 2021, the Trustee had asserted that the Trustee Proceeding was an inappropriate means for the Leave Unitholders to obtain what it contended was, in substance, an injunction restraining the Trustee from disposing of the sale proceeds save for the payments to the Agreed Creditors.

26 The Trustee asserted that if such a prohibition was sought, then the Leave Unitholders should do so by making an application for injunctive relief. Accordingly, the orders made 12 March 2021 noted that in the event that the Leave Unitholders issued a summons seeking injunctive relief, that summons would be heard at the same time as the hearing of the Trustee Proceeding.

27 On 19 March 2021, the Leave Unitholders issued a summons in the Trustee Proceeding, seeking a freezing order pursuant to order 37A of the Rules restraining the disposition of the sale proceeds and an injunction requiring the Trustee to pay the sale proceeds into a joint interest bearing account after payments had been made to the Agreed Creditors.

28 Accordingly, the matters necessary for decision are:

(a) whether the Court should grant the Trustee relief pursuant to r 54.02 of the Rules approving and/or authorising the sale of the Trust Properties to LHG4;

(b) whether any approval should be conditioned upon the segregation of the amounts alleged to be due to the Disputed Creditors;

(c) alternatively to (b), whether the Court should, in effect, restrain payments by the Trustee to the Disputed Creditors;

(d) whether the Trustee is entitled to the costs of the Trustee Proceeding out of the Trust Fund; and

(e) what orders should be made in relation to costs, consequent upon the Stay Application.

29 Following the unsuccessful mediation on 3 September 2020, the Trustee forwarded a circular to all unitholders in the Trust on 11 September 2020 (the 'Circular').

30 The Circular noted, among other things, the unsuccessful mediation and the impending expiry of the NAB facility on 31 December 2020, and advised that the Trustee had decided it was in the best interests of the unitholders to immediately sell the Trust Properties under the Trustee's power in clause 34.10 of the Trust Deed. Clause 34 of the Trust Deed grants the trustee a range of general powers and discretions. Clause 34.10 specifically grants the Trustee the power:

... either alone or jointly with any other Person to hold, use, purchase, contract, acquire, construct, demolish, maintain, repair, renovate, reconstruct, develop, improve, sell, invest, transfer, convey, surrender, let, lease, renew leases, dispose of, exchange, manage, take and grant options over or rights in alienate mortgage, charge, pledge, reconvey, release or discharge or otherwise deal with any real or personal corporeal or incorporeal property and in particular with shares, debentures, or securities of any company and with or without deferred, restricted, qualified or special rights relating thereto and in particular to take on bailment lease or in exchange or on hire and otherwise purchase and acquire any real or personal property and in particular (without limiting the generality of the foregoing) any chattels, machinery plant and stock in trade and to exercise any rights in connection therewith ...

31 In the Circular, the Trustee informed the unitholders that it was the Trustee's view that the development[5] was capable of returning a profit for unitholders, and that the unitholders would receive a much better outcome if the development was continued. The Trustee noted, however, that this was not possible because the Leave Unitholders would not permit further funds to be raised.

32 The Trustee further informed the unitholders there was a real risk that the sale price of the Trust Properties after expenses may be insufficient to cover the debt owed to the NAB, and even if repayment of the NAB facility could occur, other creditor claims would likely mean that there was no return to unitholders.

33 The Trustee advised unitholders that Longboat Development Group and Atutank (being entities associated with Mr Kerlidis and Mr Uahwatanasakul respectively) had agreed to loan funds to the Trust to provide immediate working capital, which loans were incurring interest at 10% per annum and which were secured by a charge over the Trust Properties. The Circular invited any unitholder willing to provide funds on better terms to advise the Trustee so that the debts to Longboat Development Group and Atutank could be immediately refinanced.

34 By the Circular, Trustee also informed unitholders that an entity associated with Mr Kerlidis and/or the Stay Unitholders might decide to make an offer to purchase the Trust Properties, and invited any other unitholder to likewise consider making an offer.

35 On about 23 September 2020, the Trustee engaged Paul Doherty, a real estate agent with APPS, to provide advice and manage the sale process for the Trust Properties on behalf of the Trust.

36 Mr Kerlidis deposed that he had first been introduced to Mr Doherty by James Koutsoukus, a registered liquidator at BRI Ferrier, on about 28 August 2020, and prior to that time had no previous dealings with him, APPS or Mr Koutsoukus.

37 On 14 October 2020, APPS obtained valuations and marketing proposals from three commercial real estate agents which included Gross Waddell. Gross Waddell estimated the sale price for the Trust Properties as between $3,600,000 and $4,000,000.

38 On 15 October 2020, the Trustee, on APPS's recommendation, appointed Gross Waddell as the independent marketing agent for the sale of the Trust Properties.

39 On 19 October 2020, Gross Waddell commenced marketing the Trust Properties by an expression of interest campaign and through advertising in The Age newspaper, various websites, and on a physical sales board at the site of the Trust Properties.

40 On 16 November 2020, the Trustee received correspondence from the Leave Unitholders to the effect that they considered that the true market value of the properties was between $4,025,000 and $4,275,000 and that the best method to be adopted for the sale was for each property to be sold separately and not as a joint development site, and that each property should be sold by way of public auction and not by way of expressions of interest. The communication from the Leave Unitholders was supported by a letter from Opteon Property Group Pty Ltd ('the Opteon Letter').

41 Following receipt of this communication, the Trustee forwarded the documents to APPS. APPS advised that the opinion expressed in the Opteon Letter was not accompanied by any relevant factual evidence and considered that the opinion expressed in the Opteon Letter was uninformed. Accordingly, on APPS' advice, the Trustee continued with its existing sales campaign.

42 By 20 November 2020, Gross Waddell had received sixty enquiries in respect of the Trust Properties, nine expressions of interest, and three second-round expressions of interest.

43 On 25 November 2020, Kilvington Grammar made an offer to purchase the Trust Properties and provided an executed contract of sale providing for the purchase of the Trust Properties for the sum of $4,325,000 (the 'Kilvington Contract of Sale').

44 On the morning of 26 November 2020, the Trustee notified the Leave Unitholders of Kilvington Grammar's offer and requested that consent be provided by 9:00am on 27 November 2020 for the Trustee to execute the Kilvington Contract of Sale.

45 Later that same day, the Leave Unitholders requested that the Trustee provide confirmation from APPS as to whether Kilvington Grammar's offer was the highest offer that could be achieved. The Trustee accordingly requested this information from APPS, and APPS advised the Trustee that Kilvington Grammar was willing to increase its offer to $4,365,000 and otherwise maintained the conditions of its offer ('the Kilvington Offer'). APPS advised that this was Kilvington Grammar's final and best offer.

46 On 27 November 2020, the Leave Unitholders provided consent to the Trustee to accept the Kilvington Offer subject to two conditions:

(a) that the Leave Unitholders receive written confirmation from the Trustee's solicitor or the director of the Trustee, that Mr Kerlidis would have no involvement and no interest whatsoever in the Trust Properties following the sale; and

(b) that the proceeds from the sale to Kilvington Grammar less:

(i) the NAB facility, which should be discharged at settlement;

(ii) the agent's commission on the sale; and

(iii) the reasonable legal costs for the conveyance;

be retained in the Trustee's solicitor's trust account and not be released without the prior consent of the Leave Unitholders or pursuant to an order of the Court.

47 On 2 December 2020, the Trustee wrote to the Leave Unitholders advising that the condition in relation to the retention of moneys in the Trustee's solicitor's trust account was not acceptable because it prevented the Trustee from paying outstanding creditors of the Trust.

48 On 2 December 2020, LHG4 made an offer to purchase the properties and provided an executed contract of sale to purchase the properties for $4,565,000. This sum exceeded the Kilvington Offer by $200,000 and exceeded the upper limit of the estimate of the market value set out in the Opteon Letter by $290,000. The contract of sale provided for a deposit of 10% of the sale price payable as to $50,000 on signing with the balance of the deposit payable on 31 December 2020, and the balance of the purchase price payable at settlement. Settlement was scheduled to take place on 15 February 2021 or earlier by agreement.

49 On 9 December 2020, APPS, at the request and on the instructions of the Trustee, contacted Kilvington Grammar and informed it of the offer from LHG4 and invited Kilvington Grammar to make a further counteroffer in light of the LHG4 offer.

50 Kilvington Grammar advised APPS that it was not prepared to make any further offer.

51 Each of the Stay Unitholders consent to the proposed sale to LHG4.

52 By a letter dated 11 December 2020, the Leave Unitholders provided consent to the sale to LHG4 but only on the condition that the sale proceeds be retained in the Trustee's solicitors trust account and not be released save with their consent or court order, save for payment of the Agreed Creditors. In substance, there was consent to the sale to LHG4 but an insistence that the Disputed Creditors not be paid out.

53 In that letter, the Leave Unitholders stated that such consent would allow for the sale of the Trust Properties to proceed, the discharge of the NAB debt, and for the discharge of claims by the Agreed Creditors. The letter stated that such a course would preserve the existing position of the parties. It further stated that this course would permit an arbitrator or the Court to consider the conduct of the Trustee, and rule on any claims by the Leave Unitholders as to allegations of breach of trust by the Trustee, which included the incurring of debts to the Disputed Creditors.

The Court's task in an application under r 54.02

54 Rule 54.02(c)(i) of the Rules provides that a trustee may bring a proceeding for an order 'approving any sale ... or other transaction by [a] trustee', whilst r 54.02(2)(a)(i) provides that 'a trustee may bring a proceeding for the determination of any question which could be determined in a proceeding for the execution of a trust (defined as an administration proceeding)' and which question arises in the execution of the Trust.

55 Rule 54.02 of the Rules is the only statutory basis in Victoria for the personal representative of a deceased estate or the trustee of a trust to seek the advice and direction of the Court. Other States, such as New South Wales, contain specific provisions facilitating the making of such applications, including s 63 of the Trustee Act 1925 (NSW) which was considered by the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand ('Macedonian Church').[6]

56 As explained by the majority in Macedonian Church, and as is apparent from the language of r 54.02 of the Rules, the purpose of a procedure of the kind set out in r 54.02 is to enable a trustee to obtain the direction or opinion of the Court on a matter of administration or management of an estate or trust, or as to the construction of a will or trust instrument, without the need to commence an administration suit.[7]

57 The procedure enables the Court to give advice to a trustee, which is private in the sense that the function of the advice is to give personal protection to the trustee in respect of a course of action it proposes to undertake. The procedure is to be deployed in circumstances where the trustee is in doubt as to the course to be undertaken, and where the trustee seeks to obtain personal protection for the contemplated action.

58 The central question for a Court is whether on the material before it, the Court can be satisfied not of the commercial wisdom of the course proposed to be taken by the trustee, nor its correctness, but of its propriety.[8]

59 In determining that question, the Court must consider firstly, whether there is power for the trustee to do what is proposed; and secondly, the propriety of the proposed exercise of power.

60 The exercise of the power will be improper where it is not exercised in good faith, where the trustee did not give real and genuine consideration to the exercise of the power, and where the exercise of the power is not in accordance with the purpose for which the power was conferred or is for an ulterior purpose.[9]

61 In my opinion, there is power for the Trustee to effect the sale of the property to LHG4. Clause 34.10 of the Trust Deed gives the Trustee the power to sell real property, whilst clauses 34.24 and 34.25 of the Trust Deed are clauses of the Deed which evince a permission to self-deal.

deal in any manner whatsoever ... to any company or partnership in all respects as if there were two separate parties to the dealings notwithstanding that the trustee is a shareholder, director or member, or partner of such company or partnership or related to any spouse, child or children of the trustee.

63 LHG4 is any company within the meaning of clause 34.24, whilst the reference in clause 34.24 to 'in all respects as if there were two separate parties to the dealings notwithstanding that the trustee is a shareholder, director or member' evinces an objective intention to permit self-dealing by the trustee.

64 Additionally, clause 34.25 of the trust deed provides that:

the trustee may ... exercise [e] all the powers and discretions contained in this deed ... notwithstanding any person ... being a director or shareholder of a trustee ... has or may have ... a direct or personal interest ... in the mode or result of exercising such power or discretion or may benefit either directly or indirectly as a result of the exercise of any such power or discretion ...

65 A sale of the Trust Properties by the Trustee to LHG4 comes within the scope of clause 34.25, as well as within the power in clause 34.10 enabling the Trustee to sell real property. Mr Kerlidis, by reason of his relationship with LHG4, has a 'direct or personal interest in the mode or result of the exercise' of the proposed sale, 'or may benefit directly or indirectly' from the exercise of such power.

66 In Mandie v Memart Nominees Pty Ltd,[10] the Court of Appeal construed a clause nearly identical to clause 34.25 as 'authoris[ing] the trustee or a director of a corporate trustee to exercise the powers and discretions conferred by the deed notwithstanding a conflict of interest' (emphasis added).[11]

67 Having concluded that the Trustee has the power to sell the Trust Properties to LHG4, the next question is whether the proposed exercise of the power to sell the Trust Properties to LHG4 is improper.

68 In assessing whether an unfettered discretionary power is exercised in good faith, upon fair consideration, and in accordance with the purposes for which the discretion was conferred, it is relevant to look at the evidence and the enquiries made by the Trustee, the information the Trustee had available to it, and its reasons for and manner of exercising their discretion.[12]

69 Whilst the Trust Deed itself is silent as to the purpose of the power of sale, the overriding duty of the Trustee is to act in the unitholders' best interests and in accordance with the provisions of the Trust Deed. Where the purpose of the Trust is to provide financial benefits to the beneficiaries, as in the present case, the best interests of the beneficiaries are normally informed by their best financial interests.[13]

70 In my opinion, the proposed sale by the trustee to LHG4 is an exercise of power which will realise the unitholders' best financial interests.

71 First, in the Circular, the Trustee advised the unitholders that due to the inability to raise further funds, and the impending expiry of the NAB facility, selling the Trust Properties was in the best interests of the unitholders. The Trustee expressed that view at the same time as it informed the unitholders that it believed that the unitholders would in fact be better off if the development continued. Notwithstanding that communication, no unitholder expressed objection to the sale process recommended by the Trustee, or otherwise expressed a preference to continue with the development. Indeed, the sale of the Trust Properties was one of the items of relief sought by the Leave Unitholders in the prayer for relief in the Leave Unitholder's Proceeding.

72 Secondly, I am satisfied that the Trustee took all reasonable and necessary steps to obtain the best sale price for the Trust Properties. Specifically, the Trustee engaged independent estate agents to advise on the sale process; engaged an independent and well-established estate agent, Gross Waddell, to undertake a marketing campaign, received three second-round expressions of interest; and received an offer from Kilvington Grammar which was substantially above the upper limit of both of the estimate provided by Gross Waddell and that contained in the Opteon Letter.

73 Thirdly, and notwithstanding the Kilvington Offer, LHG4 offered an additional $200,000 over and above the amount of the Kilvington Offer.

74 Fourthly, APPS requested that Kilvington Grammar increase its offer in light of the LHG4 offer. It was not prepared to do so. The price offered by LHG4 is therefore the highest price offered following a professional and independent sales campaign.

75 Fifthly, all unitholders (including the Leave Unitholders) have consented to the sale of the property to LHG4 albeit that the consent of the Leave Unitholders is subject to the condition that the Disputed Creditors not be paid.

76 I am satisfied that the Trustee has acted in good faith and given real and genuine consideration to the issues in determining whether it was in the best interests of the unitholders that the LHG4 offer be accepted. I am also satisfied that the exercise of the power of sale is not for any ulterior purpose, in particular any economic interest that Mr Kerlidis may have in the transaction.[14]

77 Following an inability to raise sufficient capital to continue the development, the Trustee managed a professional independent marketing process to sell the Trust Properties with express and repeated instructions to obtain the maximum price.

78 All unitholders now consent to the sale of the Trust Properties to LHG4, and it is only with respect to the distribution of the sale proceeds that the Leave Unitholders take issue.

79 Because of my conclusion that the Trustee has the power to sell the property to LHG4, it is not strictly necessary for me to consider the alternative application pursuant to s 63(1) of the Trustee Act by which the Trustee invites me to confer upon it the power to enter into and complete the proposed sale.

80 In order for the Court to be satisfied that it is appropriate to grant an additional power under s 63(1) of the Trustee Act, the Trustee must demonstrate to the Court that the sale of the properties to LHG4 is 'expedient in the sense that expedient means in the interests of the beneficiaries'.[15]

81 For the same reasons as set out above, I am satisfied that the proposed sale is expedient because it is in the best interests of unitholders, including the Leave Unitholders.

82 I am also satisfied for the reasons as set out above that the Trustee engaged in an independent and professional process with respect to the sale of the Trust Properties up to, and including obtaining the LHG4 offer.

83 In the event that I am wrong as to the existence of the power under the Trust Deed, I would be prepared to grant power under s 63 of the Trustee Act.

Whether any approval should be conditioned upon the segregation of the amounts alleged to be due to the Disputed Creditors

84 In my opinion, it is not appropriate for the Court's approval of the sale to be accompanied by, or otherwise be subject to the condition to segregate the sale proceeds as contended by the Leave Unitholders.

85 First, regardless of whether the sale is to LHG4 or to some other person, the sale of the Trust Properties, in the circumstances, is in the best interests of the unitholders. In that respect, the fact of the sale raises quite different considerations to the subsequent question of how the sale proceeds are then to be disbursed. The subsequent disposition of the sale proceeds is made possible by the transformation of the assets of the Trust from non-liquid real property asset to liquid cash reserves, but the two are separate events and raise separate and unrelated issues (save for being related causally in the sense outlined).

86 Secondly, the Trustee does not seek approval on the conditional basis advocated by the Leave Unitholders. Whilst a beneficiary has standing to seek relief under r 54.02 of the Rules, the application brought by the Trustee in the Trustee Proceeding is for private advice giving the trustee a form of protection in relation to the particular transaction that it proposes to undertake. The transaction proposed to be undertaken in respect of which the Trustee seeks advice is the sale of the Trust Properties to LHG4, not the payment of creditors of the Trust. The Trustee has made no application for private advice in relation to the payments of the Disputed Creditors.

87 Thirdly, the question for the Court on whether to provide the advice sought requires it to consider whether the transaction proposed is within power and if so, whether the exercise of power is not improper. I have concluded that the sale to LHG4 is within power and that the exercise of that power is not improper. The subsequent disposition of the sale proceeds is extraneous to that exercise. To put it another way, the sale does not become within power or amount to a proper exercise of power only if the condition is imposed as to the disposition of the sale proceeds.

88 The Leave Unitholders emphasised that r 54.02 of the Rules allows for the imposition of conditions on the approval or authorisation of the Court. That is so. The authorisation or approval in the present case will be on the condition that authorisation be given to the Trustee to enter into a contract to sell the Trust Properties to LHG4 for the price and generally on the terms proffered[16] and not at large. The power to authorise a course of conduct is one thing; the appropriateness of the particular condition advocated quite another.

89 The Leave Unitholders relied on the decision of Brereton J in Lenyco Pty Ltd; in the matter of the Daquino Family Trust.[17] That matter involved a judicial advice application in which the trustee sought advice that it was justified in defending a legal proceeding. The case provides no real assistance to the Leave Unitholders. In that case, his Honour refused to condition the advice on a requirement that the trustee provide discovery of dealings apparently unrelated to the substantive case in respect of which the advice to defend was sought and unrelated to the matters the subject of the application for judicial advice.

90 I agree therefore with the submissions of the Trustee that the effect of the imposition of the condition is in substance a de facto injunction over the distribution of the sale proceeds to the Disputed Creditors.

91 Having regard to the above matters, I am prepared to grant approval on the terms sought by the Trustee.

92 The question of whether it is appropriate to restrain the making of any payments to the Disputed Creditors from moneys received as a consequence of the sale to LHG4 is a separate question and more properly considered in the context of the application by the Leave Unitholders for injunctive relief.

93 In the alternative, the Leave Unitholders advanced a claim for injunctive relief seeking to restrain payments by the Trustee to the Disputed Creditors. In the first instance, they framed the application for relief as one pursuant to r 37A.02(1) of the Rules. Rule 37A.02(1) empowers the Court to make a freezing order for the purposes of preventing the frustration or inhibition of the Court's processes by restraining the disposition of assets by a defendant.

94 The principles pursuant to which such orders are made, commonly referred to as Mareva orders, are well known. The applicant must establish that:[18]

(a) there is a good and arguable case, or a sufficiently realistic prospect of success in the proceeding;

(b) there is evidence to show that unless the such an order is granted, there is a reasonable apprehension that the defendant will dissipate assets so as to frustrate the action or execution of judgment obtained in the proceeding; and

(c) the balance of convenience requires that an order be made.

95 The Trustee submitted that there was no evidence giving rise to any such apprehension and that all that it wishes to do is pay bona fide creditors of the Trust which include the Disputed Creditors, from the proceeds of the sale to LHG4.

96 The Leave Unitholders also advanced a related application for an interim injunction[19] restraining the payment of the Disputed Creditors from the sale proceeds by reference to orthodox principles for the granting of prohibitory injunctions, on the basis that the Disputed Creditors are not legitimate creditors of the Trust; or to the extent to which the Trust is indebted to such creditors, the Trustee incurred such debts in breach of Trust, procured by Mr Kerlidis.

97 These principles are well understood and, in effect, require the consideration of two questions:

(a) first, whether an applicant has made out a prima facie case in the sense that if the evidence remains as it is, there is a probability that at the trial the applicant will be entitled to relief; and

(b) second, whether the inconvenience or injury which the applicant would be likely to suffer if an injunction was refused outweighs, or is outweighed by, the injury which the respondent would suffer if an injunction were granted.[20]

98 The Leave Unitholders contended that there was a prima facie case that the debts alleged to be due to the Disputed Creditors are not due and payable, or alternatively, that the Trustee had incurred such debts in breach of trust. In the case of the amounts alleged to be owing to K20 Architecture and to Red Pepper, the Leave Unitholders drew attention to an inconsistency between the financial statements of the Trust for the year ending 30 June 2019 prepared by EY between March and June 2020, which showed only $50,974 in trade creditor liabilities as at 30 June 2019 ('the FY 2019 Financial Statements') and the finalised balanced sheet for the Trust as at 30 June 2020 ('the FY 2020 Final Balance Sheet'). A copy of the FY 2020 Final Balance Sheet, which was also prepared by EY, was included with the Circular and records that the Trust had $623,087.92 in trade creditor liabilities as at 30 June 2020.

99 By way of explanation, Mr Kerlidis made a further affidavit on 4 May 2021 in which he explained, in effect, that the trade creditor amounts in the FY2019 Financial Statements were understated in that they did not include the amounts owing to Red Pepper and K20 Architecture and had been prepared based on the Trust's MYOB file at the time of compilation. In substance, Mr Kerlidis deposed that the amounts alleged to be owing to K20 Architecture and Red Pepper had not been entered into the Trust's MYOB file as at the time of compilation and hence, had not been included in the FY 2019 Financial Statements.

100 In relation to the amounts alleged to be outstanding to K20 Architecture, Mr Kerlidis in his affidavit made 14 April 2021 referred to 48 invoices rendered by K20 Architecture to the Trustee in the period between 30 April 2016 and 31 July 2020 in the total sum of $860,143.71 (including GST). Of this amount, Mr Kerlidis deposed that $482,614.33 (including GST) has been paid by the trustee to K20 Architecture, leaving an amount outstanding of $377,529.38 (including GST). Included in the amount said to be outstanding to K20 Architecture are 12 invoices issued by K20 Architecture to the Trustee on and after 28 February 2019, which total $239,149.25 (including GST). The Leave Unitholders submitted that at least in so far as the unpaid invoices were incurred after about February 2019, they had been incurred by the Trustee in the knowledge that the Leave Unitholders intended to exit the Trust and had been incurred, not for the purposes of the proposed residential development referred to in the Information Memorandum, but rather for the purposes of the residential aged care facility, which was not the purpose of the Trust that they invested in.

101 The Trustee contended that copies of the invoices had been forwarded to Mr Makridis, that the proposed engagement of K20 Architecture had been referred to in the Information Memorandum, and that the Trust Deed permitted the Trustee to enter into transactions, notwithstanding that a director of the contracting party was also a director of the Trustee. Further, and in so far as the complaint was made that the architectural services provided by K20 Architecture were in connection with the proposed residential aged care facility, the Trustee submitted that the terms of the Trust Deed expressly permitted the Trustee to vary any or all of the investments and assets comprised from time to time in the trust fund,[21] and relatedly submitted that whilst the unitholders had all subscribed for units on the basis of an investment as set out in the Information Memorandum, ultimately they received units issued pursuant to the Trust Deed, which was the governing instrument which regulated the dealings by the Trustee with the Trust Fund.

102 In relation to the amount alleged to be owing to Red Pepper, the Trustee contended that this amount represented unpaid rental for the lease of the Premises, which lease was signed on behalf of the trustee by Mr Makridis. The Leave Unitholders variously contended that the amounts were not properly calculated, and separately that it should have become clear that the Trustee did not need to utilise the Premises for the purposes of a display suite, and that the Trustee should have approached Red Pepper and sought to surrender the lease. Alternatively, they alleged that an exchange of emails on or about 19 February 2019 between Mr Kerlidis and Mr Makridis suggested that Red Pepper may have agreed to terminate the Lease.

103 The Trustee denied that any such agreement was reached, and said that the terms of the email did not evidence such agreement. The Trustee noted that the lease had been signed on behalf of the trustee by Mr Makridis.

104 In relation to the amounts owing by way of loan to Longboat Development Group and Atutank, Mr Kerlidis deposed that those monies were loaned to the Trustee so as to enable it to pay the legal fees of Hall & Wilcox in connection with the Stay Application as well as the application by the Trustee for judicial advice in the Trustee Proceeding. The Trustee argued that the legal expenses incurred to Hall & Wilcox were reasonably and necessarily incurred by the Trustee in accordance with the proper performance of its duties as Trustee,[22] and noted that the existence of the loans was disclosed in the Circular along with the invitation for anyone willing to offer more favourable terms to do so, in which case the loans to Longboat Development Group and Atutank would be paid out.

105 The Leave Unitholders contended that such loans as were made by Longboat Development Group and Atutank, each of whom were unitholders in the Trust, were made contrary to clause 10 of the Trust Deed. Clause 10.1 confers a power on the Trustee to at any time request unitholders to make an advance to the trust fund provided that, inter alia, the sum of all advances made during an accounting period should not exceed 50% of the aggregate distribution of net income made during the accounting period immediately preceding the request.

106 Clause 10.2 goes on to provide that in the event that a unitholder does not lend the whole or any part of the advance required to be lent by such unitholder pursuant to the request made by the Trustee, the Trustee is entitled to retain the whole or any part of any further distribution of net income or capital to such unitholder to the extent necessary to satisfy the advance due pursuant to any such request made pursuant to clause 10.1, and to treat such retained amount as the advance from that unitholder.

107 The Trustee argued that Clause 10 had no application and did not limit the circumstances in which the Trustee could borrow monies from a third party, regardless of whether that third party was a unitholder or not.

108 Before turning to consider the Leave Unitholders claim for injunctive relief, it is necessary to first consider an argument raised by the Trustee with respect to the interaction between the Trustee Proceeding and the pending Arbitration.

109 Following the stay granted in the Leave Unitholders' Proceeding on 12 March 2021, it has been accepted by the Leave Unitholders and the Trustee that the disputes identified in the statement of claim filed in the Leave Unitholders' Proceeding will be determined by arbitration.

110 Further, the submissions made by the Leave Unitholders in support of the application for injunctive relief made on 20 April 2021 proceeded on the premise that the challenges to the existence of the propriety of the debts incurred to the Disputed Creditors will be advanced by the Leave Unitholders in the arbitration.

111 Both the Leave Unitholders and the Trustee filed substantial affidavits as to the merits of the claims regarding the existence and propriety of the debts alleged to be owing to the Disputed Creditors. The affidavits included an affidavit of Mr Kerlidis on behalf of the Trustee made 14 April 2021, which condescended to considerable detail as to the legitimacy of the Disputed Creditors.

112 At the commencement of the Trustee's oral submissions on 20 April 2021, the Trustee informed the Court that if the Court was minded to give approval or otherwise authorise the entering into of a contract of sale with LHG4, the Trustee would seek approval and/or authorisation on the basis of a contract of sale which provided for the deposit of $456,000, to be paid as to $50,000 on execution with the balance of the deposit paid within 30 days, and the balance of the price at settlement, 76 days from execution.[23]

113 The significance of the revised terms of the proposed sale in the context of the application for injunctive relief is that it confirms that the sale proceeds have not yet been received and will not be received until mid-June 2021 in the case of the deposit (save for the $50,000 payable on signing) and around August 2021 in relation to the balance due at settlement.

114 Accordingly, on 20 April 2021, the Trustee submitted that the Court should not grant the injunctive relief sought by the Leave Unitholders, and instead the question of whether any injunctive relief should be granted is a matter for the arbitrator. The Trustee submits that the arbitrator can determine any application for injunctive relief, given that the sale proceeds will not be received in any substantive sense and are unlikely to be available to the Trustee until the NAB security is discharged at settlement in around August 2021.

115 Mr Kerlidis' affidavit of 14 April 2021 did not set out the revised timelines for the sale, nor contend that the question for interim injunctive relief was a matter for the arbitrator, not the Court. It was a matter first raised at the hearing on 20 April 2021.

116 The Court has power to make interim orders in relation to arbitration proceedings. Section 17J of the Commercial Arbitration Act 2011 (Vic) ('the Commercial Arbitration Act') provides:

(1) The Court has the same power of issuing an interim measure in relation to arbitration proceedings as it has in relation to proceedings in courts.

(2) The Court is to exercise the power in accordance with its own procedures taking into account the specific features of a domestic commercial arbitration.

117 Section 5 of the Commercial Arbitration Act provides that, in matters governed by the Commercial Arbitration Act, 'no Court must intervene except where so provided by this Act.' By s 40 of the Commercial Arbitration Act, s 5 expressly alters, or varies, the unlimited power of the Court found in s 85 of the Constitution Act 1975 (Vic). In other words, the effect of s 5 is to oust the Court's powers in relation to matters governed by the Commercial Arbitration Act, other than as provided in that Act.[24] Accordingly, the Court's power to intervene in matters that are governed by the Commercial Arbitration Act is limited.

118 Under the Commercial Arbitration Act, both the arbitral tribunal and the Court are given power to grant 'interim measures' as defined in s 17(2). Relevantly, under s 17(1), unless otherwise agreed by the parties, the arbitral tribunal may grant interim measures at the request of a party. Interim measures are defined to include ordering a party to 'maintain or restore the status quo pending the determination of a dispute', to 'take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process', and to 'provide a means of preserving assets out of which the subsequent award may be satisfied'.[25]

119 Whilst s 17J(1) provides that the Court has the same power of issuing an interim measure in relation to arbitral proceedings as it has in relation to proceedings in the Court, s 17(J)(2) provides that the Court is to exercise the power in accordance with its own procedures but '[take] into account the specific features of a domestic commercial arbitration'.

120 The purpose of interim measures is to assist the arbitration, not encroach upon it.[26] In Ku-ring-gai Council v Ichor Constructions Pty Ltd,[27] the New South Wales Court of Appeal stated that court-ordered interim measures were 'designed to facilitate and protect the arbitration process'.[28]

121 In Sino Dragon Trading Ltd v Noble Resources International Pty Ltd ('Sino Dragon'),[29] Edelman J, then a judge of the Federal Court of Australia, agreed with the Western Australian Court of Appeal in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd[30] ('Cape Lambert Resources'), that the Court's power to grant interim measures under s 17J of the Act 'should be exercised very sparingly and in circumstances in which such orders were effectively the only means by which the position of a party could be protected until an arbitral tribunal is convened'.[31] (emphasis added).

122 As Lyons J observed in Transurban WGT Co Pty Ltd v CPB Contractors Pty Ltd ('Transurban'),[32] 'this places a significant restraint on the exercise of the Court's power to grant interim measures'.[33]

123 In the present circumstances, if I were to grant approval to the Trustee to sell to LHG4 on the terms sought, the sale proceeds would not be made available to the Trustee until about August 2021, when settlement takes place.[34]

124 On 26 April 2021, The Trustee wrote to the Leave Unitholders requesting that they confirm their previous undertaking to refer the dispute for arbitral determination under the Commercial Arbitration Act, and consistent with that undertaking, refer the dispute to arbitration. On 12 May 2021, the Leave Unitholders wrote to the Trustee advising that the Leave Unitholders would provide an undertaking to the Court on 13 May 2021 that the dispute would be referred to arbitration as soon as possible, and by no later than four weeks from 13 May 2021. In the same letter, the Leave Unitholders nominated three proposed arbitrators.

125 In those circumstances, there is no reason why an arbitrator cannot be appointed quickly and deal with any application for interim injunctive relief. There is ample time for the Leave Unitholders, if so minded, to seek relief from an arbitrator restraining the disposition of the sale proceeds. The sale proceeds will not be available until about August 2021 when settlement occurs and the NAB is paid out.

126 In those circumstances, it cannot be said that interim measures from the Court under s 17J are the only means by which the position of the Leave Unitholders can be protected until the arbitral tribunal is convened.

127 The Leave Unitholders submitted that because the Court had heard full argument on the merits of the claim for injunctive relief, declining to consider the application on the merits and leaving it to the arbitrator would be inconsistent with the overarching purpose in s 7 of the Civil Procedure Act 2010 (Vic),[35] by effectively requiring the parties to argue the application twice, once before the Court and again before the arbitrator.

128 Whilst it is regrettable that the significance of the arbitration on the application before the Court for injunctive relief was not raised earlier, I do not consider that this fact alone means that is appropriate to chart a different course to that followed by a number of judges exercising the same jurisdiction that I am now asked to exercise. The reasoning in Cape Lambert Resources, Sino Dragon and Transurban is strongly expressed, consistent, persuasive and in my view should not be departed from.

129 The Leave Unitholders sought to distinguish those cases on various grounds, and specifically relied upon Marnell Corrao Associates Inc v Sensation Yachts Ltd ('Marnell')[36] In Marnell, the Court granted interim orders in circumstances where an arbitrator had been appointed, but there was no evidence as to when the arbitral tribunal could convene to deal with the application for interim orders. However, that case turned on its own facts; the Court considered that interim orders were necessary to prevent the moulds of a vessel from deteriorating and was not satisfied that the arbitral tribunal could deal with that imminent risk.

130 Whilst it may be accepted that each case calls to be assessed on its own facts, nothing said by the Leave Unitholders affects the fundamental impediments to their present application. The parties have agreed that the underlying disputes will be determined at arbitration and it cannot be credibly submitted that an arbitrator cannot deal with any application for interim relief freezing the sale proceeds which are not to be received for some time. In fact, given the advanced state of the arguments furthered in this application before the Court and the flexibility and speed which is often a feature of arbitration, the arbitrator may well be in a position to determine any dispute on a final, and not interim, basis.

131 Whilst the substance of the Leave Unitholders complaints with respect to the existence and propriety of the Trustee incurring the debts to the Disputed Creditors was fully argued, it is unnecessary for the Court to consider those matters given the conclusion that the grant of such relief is not the only means by which the Leave Unitholders can be protected pending the convening of the Arbitration.

132 Not only is it unnecessary, but the expression of any view, strictly obiter, would operate only as some form of non-binding advisory ruling. Even the grant of interim relief must necessarily involve an expression of a view on the merits even in a tentative sense; all the more so if the Court were to decline to order interim relief on the basis that the applicant had not established a prima facie case. Such a course would not assist the arbitral process.[37]

133 Whether interim injunctive orders are appropriate or not is a matter for the arbitrator.

134 Accordingly, the application for injunctive relief is dismissed.

The Trustee's application for costs of the Trustee Proceeding to be paid out of the assets of the Trust

135 By paragraph 4 of the originating motion filed in the Trustee Proceeding, the Trustee seeks an order that its costs of the Trustee Proceeding be paid out of the assets of the Trust. Generally, where the Trustee seeks advice and directions from the Court, the Trustee will be indemnified out of the assets of the Trust for its costs incurred in doing so.[38] The Trustee's ability to be indemnified out of the assets of the Trust for its costs incurred in seeking advice and directions from the Court is not unlimited. A Trustee will not be entitled to indemnity in respect of expenses and liabilities incurred when acting beyond power, in bad faith or without the care and diligence of a person of ordinary prudence.[39]

136 However, where a trustee approaches the Court for leave to purchase the trust property, a different approach may apply. In such a case, the Court may take the view that the trustee is seeking an indulgence, and as such in that circumstance they must bear the costs of the application personally.[40]

137 In my opinion, the Trustee is entitled to have its costs of the Trustee Proceeding paid out of the assets of the Trust. Given that there was a proceeding already on foot by the Leave Unitholders against the Trustee, the Trustee was prudent to seek the consent of the Leave Unitholders to the sale of the Trust Properties to LHG4. Whilst the Leave Unitholders ultimately provided consent to the sale to LHG4, they did so only on the basis of a condition that a portion of the sale proceeds be retained. Such a condition was sought to be imposed even where the proposed sale was to Kilvington Grammar, and was maintained when the sale was later sought to be made to LHG4. Thus, the remaining area of controversy was not whether the Trust Properties should be sold to LHG4, but rather whether a portion of the sale proceeds needed to be retained. Moreover, the controversy arose in circumstances where there was already litigation on foot between the Leave Unitholders and the Trustee. In such circumstances, it was both reasonable and prudent for the Trustee to have sought advice and direction from the Court.

138 Additionally, the cases in which it has been held appropriate that the Trustee ought personally bear those costs are cases where the Trustee sought approval in relation to a course of conduct which was not otherwise within power or otherwise allowed.[41] Here, the Trust Deed specifically empowered the Trustee to sell the assets of the Trust to a related party.[42]

139 Accordingly, the Trustee will be entitled to an order that its costs of the Trustee Proceeding be paid out of the assets of the Trust.

140 The next issue for determination concerns what order for costs, if any, should be made in connection with the Leave Unitholders' Proceeding.

141 The Trustee and Mr Kerlidis submit that the Leave Unitholders should pay the costs of the Leave Unitholders' Proceeding other than those costs which were incurred in relation to the mediation. The carve out of the mediation costs recognises that the dispute resolution process under the Trust Deed requires such a course in any event.

142 They submit that the acceptance by the Leave Unitholders of the appropriateness of a stay of the Leave Unitholders' Proceeding was a capitulation to the relief sought by the Trustee and Mr Kerlidis in the Stay Application, and that costs ought in those circumstances follow the event. Alternatively, but relatedly, they argue that the acceptance by the Leave Unitholders of that position amounted in effect to a discontinuance of the Leave Unitholders' Proceeding by the Leave Unitholders. By analogy, they refer to r 63.15 of the Rules. Rule 63.15 provides that in the event that a party discontinues a proceeding, it shall pay the costs of the other parties to the proceeding, unless the Court otherwise orders.

143 In either circumstance, the Trustee and Mr Kerlidis contend that the default position is that the Leave Unitholders ought pay the costs of the Trustee and Mr Kerlidis unless they can point to special circumstances which would warrant an order to the contrary.

144 The Trustee and Mr Kerlidis otherwise rely on the fact that on 12 June 2020, shortly after the Leave Unitholders commenced the Leave Unitholders' Proceeding, the Trustee and Mr Kerlidis wrote to the Leave Unitholders asserting that clause 25 of the Trust Deed between the parties set out a compulsory dispute resolution process which culminated in an arbitration and required the plaintiffs to discontinue the Leave Unitholders' Proceeding by 16 June 2020. The Trustee and Mr Kerlidis further informed the Leave Unitholders that they had instructions to apply for a stay of the Leave Unitholders' Proceeding if the Leave Unitholders failed to discontinue that proceeding. Further, the Trustee and Mr Kerlidis put the Leave Unitholders on notice that they would rely upon the 12 June 2020 letter in seeking a special costs order against them.

145 That offer was rejected by the Leave Unitholders, who wrote to the Trustee and Mr Kerlidis stating, among other things, that any stay application would be doomed to fail.

146 On 23 June 2020 the Trustee and Mr Kerlidis wrote to the Leave Unitholders inviting them to agree on consent orders that the Leave Unitholders' Proceeding be stayed with no order as to costs. That letter was not responded to by the Leave Unitholders.

147 In contrast, the Leave Unitholders submitted that the rule that costs follow the event did not apply because the relevant event is a determination on the merits which did not happen, because the stay application was not heard. They contend that this was due to their pragmatic acceptance that the disputes could be determined by arbitration.

148 The Leave Unitholders further submit that where there has been no trial on the merits and both parties have acted reasonably in commencing and defending a proceeding, and where their conduct continued to be reasonable until the proceeding was settled or further prosecution became futile, the Court would usually exercise its discretion not to make any order for the costs of the proceeding.[43] They submit that the discretion of the Court to award or not award costs in the present circumstance is absolute and unfettered, albeit one that must be exercised judicially.

149 In my opinion, the appropriate order is that there be no order as to the costs of the Leave Unitholder's Proceeding.

150 As Finkelstein J observed in Gribbles Pathology Pty Ltd:[44]

In the absence of a hearing on the merits it is difficult to see how any order other than an order that each party bear its own costs can be made except in special circumstances because to do otherwise would require some prediction of the outcome of the case.

151 His Honour qualified that observation by accepting that there may be some cases where one party's case was so hopeless that the Court was able to form a clear view about the merits of the case without proceeding to trial.

152 In the present case, I could only form the view that the Leave Unitholders had been unreasonable in either commencing the proceeding or in refusing to accede to the offers made by the Trustee and Mr Kerlidis, if I formed the view that the Stay Application was assured of success, and that the Leave Unitholders' decision to commence the Leave Unitholder's Proceeding was, as a consequence, wholly unreasonable. To do so, I would effectively have to determine the Stay Application. This is not appropriate.

153 Further, when the Stay Application first came before the Honourable Justice Sloss on 16 July 2020, her Honour considered that for a variety of reasons it was appropriate that the parties' dispute be referred to mediation. In that context, her Honour noted that one of the matters that needed to be considered by the parties was how the parties' preference for arbitration manifested in clause 45 of the Trust Deed could be accommodated alongside the other relief that the plaintiffs sought. Among other things, her Honour referred to the decision of Austin J in ACD Tridon Inc v Tridon Australia Pty Ltd,[45] in which the Court held that an application to wind up a company or to rectify a share register may not be arbitrable on the basis of public policy considerations because an order of that nature operates to effect the rights of third parties, not merely the rights of parties to the relevant arbitration clause.

154 Whether those considerations had comparable weight in the instant case may be open to argument, but it is not so obvious on its face that the Leave Unitholders' decision to commence the Leave Unitholders' Proceeding in this Court as opposed to proceeding with an arbitration was so misconceived as to amount to unreasonable conduct such that I should order costs against them. The same reasoning applies with respect to the fact that the Leave Unitholders did not accept the offers made by the Trustee and Mr Kerlidis. For me to conclude that the failure to accept those offers was unreasonable, I would have to conclude that the Leave Unitholders had no prospect of resisting the Stay Application.

155 In addition, when the Leave Unitholders announced at the directions hearing on 12 March 2021 that they were not minded to debate the forum in which the dispute was to be determined, they submitted that a critical consideration was the realisation after receipt of Mr Kerlidis' affidavit sworn 22 December 2020, that the payment of any outstanding creditors would leave little monies in the Trust Fund. As such, they stated that it would be uncommercial for the parties to engage in an argument about the appropriate forum to determine their dispute. This was sensible and pragmatic.

156 Nor do I consider that the discontinuance analogy as put forward by the Trustee and Mr Kerlidis has much merit. The claims advanced by the Leave Unitholders have not been abandoned, they are just being pursued in arbitration rather than in this Court. The closer analogy is to an order transferring a proceeding from one court to another, where it is not uncommon for orders to be made that the costs incurred in the proceeding in the transferor court shall be referred to determination in the transferee court or abide the outcome in the transferee court.

157 . Accordingly, I propose to make the following orders in the Trustee Proceeding:

1. The Trustee is justified in entering into a contract of sale with LHG4 on the terms set out in the contract of sale undated but executed on behalf of LHG4 which is at pages 1039 to 1222 of TXK1 ('the Contract of Sale'), the paginated bundle of documents which is exhibited to the affidavit of Mr Theodore Kerlidis sworn 22 December 2020, save that the balance of the deposit specified in the Contract of Sale after payment of the amount of $50,000 on signing shall be paid within 30 days of execution of the Contract of Sale and the settlement date shall be 76 days from the date of execution of the Contract of Sale;

2. The Trustee's costs of the Trustee Proceeding be paid out of the assets of the Trust.

3. The application by the first to eighth defendants for injunctive relief by the summons filed 22 March 2021 is dismissed.

158 In the Leave Unitholders' Proceeding, the only order made will be that that each party bear their own costs of the proceeding.

LONGBOAT HOLDINGS GROUPNO3 PTY LTD (ACN 610 861 348) AS TRUSTEE FOR THE LHG3 PROPERTY TRUST

ZACOLE PTY LTD (ACN 110 631 224) AS TRUSTEE FOR THE ZACOLE SUPERANNUATION FUND

JIM SERAFIM AS TRUSTEE FOR THE MATOLI INVESTMENT TRUST

SCORCHER ENTERPRISES PTY LTD (ACN 080 795 133) AS TRUSTEE FOR THE SCORCHER FAMILY TRUST

LADONGOLD HOLDINGS PTY LTD (ACN 617 587 416) AS TRUSTEE FOR THE LADONGOLD HOLDINGS TRUST

ORMOND PROJECT PTY LTD (ACN 617 606 765) AS TRUSTEE FOR THE ORMOND PROJECT FAMILY TRUST

NICK MAKRIDIS & ASSOCIATES PTY LTD (ACN 007 300 781) AS TRUSTEE FOR THE MAK SUPER FUND

HARRY CONSTANDARA AND ELIZABETH CONSTANDARA AS TRUSTEES FOR THE H&E SUPER FUND

LAURENCEJANE PTY LTD (ACN 603 558 425) AS TRUSTEE FOR THE GL PARKER SUPER FUND

ZANTREV PTY LTD (ACN 146 192 458) AS TRUSTEE FOR THE ACHTYPIS FAMILY TRUST

HSPF CORP PTY LTD (ACN 105 628 215) AS TRUSTEE FOR THE HSPF CORP SUPER FUND

YANNIS NOMINEES PTY LTD (ACN 093 109 392) AS TRUSTEE FOR THE OAKLEIGH PROPERTY TRUST

ATUTANK PTY LTD ACN 111 184 724 AS TRUSTEE FOR THE AU SUPER FUND AND AS TRUSTEE FOR THE TWO TS TRUST

LONGBOAT DEVELOPMENT GROUP PTY LTD (ACN 146 232 340)

KERLIDIS NOMINEES NO.2 PTY LTD (ACN 634 955 445) AS TRUSTEE FOR TK FAMILY TRUST NO.2

WARD INVESTMENT AUSTRALIA PTY LTD (ACN 127 273 956) AS TRUSTEE FOR THEODORE KERLIDIS SUPERANNUATION FUND

[1] The Stay Unitholders did not file a notice of appearance.

[2] At the hearing on 20 April 2021, the Court was informed that notwithstanding the expiry of the NAB facility, NAB had not sought to exercise its rights given the impending hearing of the Trustee Proceeding.

[3] APPS and Gross Waddell are real estate agents who were involved in the sale of the Trust Properties.

[4] The figures are taken from paragraph 13 of Mr Kerlidis affidavit of 14 April 2021.

[5] The development in the form of a residential aged care facility.

[6] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66.

[8] Re Primary Securities Ltd [2016] VSC 536 [10]; see also Morris v Smoel [2013] VSCA 11[25] ; Re Centro (2012) 35 VR 512.

[9] Karger v Paul [1984] VicRp 13; [1984] VR 161, 164-5.

[10] Mandie v Memart Nominees Pty Ltd [2016] VSCA 4.

[12] Karger v Paul [1984] VicRp 13; [1984] VR 161, 164.

[13] Cowan v Scargill [1984] 2 All ER 750, 760.

[14] I do not lack sufficient information to form a view as to the question of power and the propriety of the exercise of the power cf Re AGW Funds Management Limited [2017] VSC 124, 7 [24].

[15] Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202, 214.

[16] The terms set out in paragraph [48] above have been superseded by events. The Trustee seeks approval on the same terms as in the contract of sale save that the balance of the deposit of 10% of the price after payment of the $50,000 on signing is payable within 30 days of signing with settlement to take place 76 days after signing.

[17] Lenyco Pty Ltd; in the matter of the Daquino Family Trust [2009] NSWSC 846.

[18] Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49, 49, 52-4; Hyder Consulting (Victoria) Pty Ltd v Transfield Pty Ltd [2002] VSC 315 [16].

[19] In either case, the Leave Unitholders sought orders of an interim nature in the sense that they would apply until the hearing and determination of the arbitration. In oral argument, the Leave Unitholders submitted that such interim orders were justified under s 17J of the Commercial Arbitration Act 2011 (Vic) being interim orders in the nature of s 17(2)(a) or (c).

[20] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 [65].

[22] Which included enforcing the trust deed by way of bringing a Stay Application such as to ensure that disputes between unit holders and the trustee were determined by arbitration.

[23] As noted the contract of sale with LHG4 exhibited to Mr Kerlidis' affidavit sworn 22 December 2021 is a contract signed by LHG4 (but not yet signed by the Trustee) which provides for the price of $4,560,000 with the deposit of $456,500 payable as to $50,000 on execution of the contract of sale, the balance of the deposit payable on 31 December 2020, and the balance of the purchase price payable at settlement specified as 15 February 2021 or earlier by agreement. The proposed contract upon which approval was initially sought had, by time the matter came on for hearing been overtaken by events.

[24] Hancock v Rhodes [2020] WASCA 77, 322 (Quinlan CJ), [465] (Beech and Vaughan JJA agreeing).

[25] Section 17(2)(a)-(c).

[26] Channel Tunnel Group Ltd v Balfour Beatty Ltd [1993] AC 334, 365.

[27] Ku-ring-gai Council v Ichor Constructions Pty Ltd (2019) 99 NSWLR 260.

[29] Sino Dragon Trading Ltd v Noble Resources International Pty Ltd (2015) 246 FCR 47 ('Sino Dragon').

[30] Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666 ('Cape Lambert Resources')

[31] Sino Dragon (n 29) 495 [105], quoting Cape Lambert Resources [96].

[32] Transurban WGT Co Pty Ltd v CPB Contractors Pty Ltd [2020] VSC 476.

[34] 76 days from execution of a contract of sale which has not yet occurred and which is the subject of the Trustee Proceeding.

[35] The overarching purpose of the Court in relation to civil proceedings is found in s 7(1), and 'is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute'.

[36] Marnell Corrao Associates Inc v Sensation Yachts Ltd (200) [2000] NZHC 1229; 15 PRNZ 608.

[37] Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, 367-8.

[38] Wales v Wales [2015] VSCA 345 [41] ('Wales'); Re Olrey Pty Ltd (No 2) [2016] VSC 18 [27].

[39] Wales (n 38) [41] (citing Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287 [53]).

[40] Re Chomley [2014] VSC 220 [27], referring to Hordern v Bull [1905] NSWStRp 84; (1905) 5 SR NSW 518; Re Ryrie's Settled Estates [No 2] [1886] NSWLawRp 21; [1907] 2 WN (NSW) 87.

[41] See, inter alia, Re Chomley (n 40); Patros v Patros [2007] VSC 83; (2007) 16 VR 182.

[43] See Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qi [1997] HCA 6; (1997) 186 CLR 622, 625; applied in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 28 ('Gribbles Pathology')4; Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494; Patsios v Glavinic [2006] VSC 92.

[45] ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896.