Cachia v Westpac Financial Services Limited

The background 3 The Growth Trust was established in September 1984. Between January 1985 and February 1985 the appellant acquired 57,387.21 units in the trust for a dollar per unit. The Growth Trust was promoted as a vehicle for long-term capital appreciation arising from the ownership of prime real estate which would maximise the growth of investors' money. The appellant's units in the Growth Trust were acquired before amendments to the tax laws, effective September 1985, introducing a regime of capital gains tax. Unless the appellant traded units as an occupation, the units acquired in early 1985 would not, when sold, attract capital gains tax. 4 In November 1991 amendments were made to the Corporations Law ("the Law") (contained in s 82 of the Corporations Act 1989 (Cth)) by the Corporations (Unlisted Property Trusts) Amendment Act 1991 (Cth). These amendments inserted into the Law a division, Division 5A, dealing with unlisted property trusts. The amendments were, for present purposes, retrospective in their effect operating from 23 July 1991. A somewhat simplified description of their effect (relevant to these proceedings) was first, that a unit holder seeking to redeem or have bought back their units was required to give twelve months notice of the proposed redemption or buyback and second, a special meeting of unit holders could restructure the trust. In a letter dated 3 February 1992 ("the Letter"), Financial Services wrote to unit holders proposing what was described as a merger of the Growth Trust and the Property Trust and the listing of the combined trust on the Australian Stock Exchange. Accompanying the Letter was a document called "Information Memorandum" ("the Memorandum") and a notice of a meeting ("the Notice") to be held on 5 March 1992. The Notice set out the terms of an "extraordinary resolution" to amend the trust deed ("the Deed") of the Growth Trust. 5 An amendment to clause 56 of the Deed was proposed with the effect that unit holders would be deemed to have requested redemption of their units in the Growth Trust and to have agreed to accept units in the Property Trust in satisfaction of the amount payable on redemption. A further amendment to that clause was also proposed with the effect of deeming as of no force or effect any prior request by a unit holder for the repurchase of units. The meeting was held on 5 March 1992 and the resolution passed, though the appellant voted against it. He had earlier written, on 14 February 1992, to Financial Services indicating that he would lose the benefit of the capital gains tax exempt status his units if the restructuring proceeded. He contended that the proposal was a fraud on a minority and he indicated he would seek compensation. He foreshadowed legal action if the proposal was adopted. He also advanced an alternate proposal involving a capital distribution to the unit holders in the Growth Trust. 6 At the meeting, and after the resolution was passed, the appellant gave a letter, dated 5 March 1992, to the chairman of Financial Services which said: Upon the redemption of my units in the Trust -- forcibly because I voted "NO" to the proposal of amalgamation with the Westpac Property Trust -- I hereby require you to remit to me the money value of the units so redeemed. 7 Thereafter correspondence passed between the appellant and Financial Services concerning the effect of the resolution and rights of the appellant and various proposals were put to resolve the appellant's grievance. No agreement was reached. The proceedings in this Court were commenced on 29 October 1996.

The pleadings 8 It is convenient now to consider the pleadings. It should be noted that the appellant's pleadings were to be found in a further amended statement of claim filed pursuant to an order made by Lindgren J on 7 September 1999: see [1999] FCA 1116. The order was made by Lindgren J when disposing of an application by Financial Services for an order striking out an earlier amended statement of claim and an order summarily dismissing the appellant's second further amended application and a reply filed 20 October 1999. The defence of Financial Services was filed on 12 October 1999. 9 Paragraphs 1 to 3 of the further amended statement of claim identified Financial Services and its role as trust manager and recounted the dispatch of the Letter, Memorandum and Notice and the contents of those documents. Paragraphs 4 to 6 alleged that these documents did not contain specified information. Paragraph 7 alleged that by sending the documents with the pleaded deficiencies Financial Services engaged in conduct that was misleading or deceptive or was likely to mislead or deceive. Particulars of that paragraph alleged requests for redemption could be satisfied and the proposed amendments to the Deed were unnecessary (by reference to redemption requests). The particulars included a contention that "moratorium" provisions implied in deeds by s 1076K of the Law did not apply to the Growth Trust and/or the proposals of the appellant. 10 Paragraph 8 pleaded that clause 51 (1) of the Deed (at 14 February 1992) required Financial Services to satisfy within 28 days a request to convert units to cash. Paragraph 9 alleged the Deed contained five covenants ("the Deemed Covenants") which were either express or implied by s 1069 of the Law. Those covenants, it was alleged, required Financial Services to maintain adequate buyback arrangements, to properly and efficiently manage the Growth Trust, to perform its functions in the best interests of the unit holders, to inform the trustee of the Growth Trust and notify unit holders of specified variations in its investment policy and to perform its functions diligently. Paragraph 10 recounted advice given by Financial Services in February 1992 concerning the proposed amendments of the Deed, alleged that the amendments "breached the declarations" made in the prospectus for the Growth Trust (issued in January 1985), that the appellant had relied upon the prospectus and that the declarations had been false, misleading and deceiving. 11 Paragraphs 11 to 14 recited the requests made to Financial Services (on 14 February 1992 and 5 March 1992) by the appellant to convert his units to cash and the alterations to the Deed. Paragraph 15 alleged that by operation of s 1069(1)(a) a covenant ("the Buy Back Covenant") was implied in the Deed requiring Financial Services to satisfy a unit holder's request that units be bought back. Paragraphs 16 and 17 referred to the deemed redemption of units arising from the amendments. Paragraph 18 alleged that the failure of Financial Services to convert the appellant's units in to cash (in accordance with the requests referred to in pars 11 to 14 and the Buy Back Covenant) constituted a breach of clause 51 of the Deed, the Deemed Covenants and the Buy Back Covenant. 12 Paragraph 19 alleged the Deed contained implied terms (which were also said to be fiduciary duties of Financial Services) that firstly required Financial Services to ask the appellant to make application under clause 51(1) or make a request under the Buy Back Covenant if the letters he had written did not constitute such an application or request and secondly required Financial Services to convert the appellant's units to cash, act on the request or use its best endeavours to convert to cash or act upon the request. Paragraph 20 alleged that the amendments to the Deed could not relieve Financial Services of an obligation to repurchase (or cause the repurchase of) the appellant's units pursuant to clause 51 or the Buy Back Covenant or the Deemed Covenants. In par 21 it was alleged the appellant had suffered loss and damage as a result of the breaches of the terms and duties earlier pleaded which was claimed under the general law and also said to be claimed under s 1005(1) of the Law for contravention of s 1073 of the Law. Paragraph 22 alleged the failure to inform pleaded in pars 4 to 6 gave rise to conduct contravening s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"), contravention of s 995 of the Law and regulation 7.12.15(1)(g) made under the Law. In par 23 it was alleged Financial Services was under a duty of care to use due care "in respect of the proposals it made in respect of the amendment of the Deed" and not engage in misleading and deceptive conduct. It was alleged this duty of care had been breached. It was then alleged, in par 24, that Financial Services had not paid adequate compensation for the redemption of the units and in par 25 that the appellant had suffered loss and damage which was claimed under the TP Act, the Law and the general law. Calculations of the loss were particularised. 13 It is not necessary to refer in detail to all aspects of the defence. However, in pars 11 and 13 of the defence, Financial Services denied that the appellant ever sent, or that it ever received, a valid redemption notice under the Deed. In par 18 Financial Services denied that its failure to respond to the letters of 14 February 1992 and 5 March 1992 could be characterised as it had been in par 18 of the further amended statement of claim. In par 21 of the defence Financial Services put in issue the damages claimed (whether loss was suffered, whether there was any relevant causal connection and whether the claimed loss was known to law) raised time limits and alleged laches. Similar matters were raised in par 25 of the defence in answer to par 25 of the amended statement of claim. 14 In his reply, the appellant, in response to pars 11 and 13 of the defence, alleged Financial Services was obliged to buy back the appellant's units "as soon as possible" (in reliance of the hardship provisions of s 1076K) or, in the alternative, to advise the appellant of his right under that section, or to repurchase the units as soon as practicable after twelve months from 14 February 1992 and lastly that the Deed did not provide for the relevant forms in the circumstances. In response to par 18 of the defence, the appellant alleged clauses 51 (10) and/or 56 (1) were ineffective for reasons particularised but, if effective, Financial Services (by procuring the amendments) breached the covenants pleaded in par 9 of the further amended statement of claim. The remainder of the reply dealt with par 21 of the defence and the allegations of delay.

The decision of the primary judge 15 In his reasons for judgment, the primary judge first set out the background, both factual and legislative, and relevant provisions of the Deed. His Honour then considered the allegations of misleading and deceptive conduct based on the contention that the Memorandum had failed to disclose certain matters and he concluded the allegations had no evidentiary foundation. As to the contention that Financial Services failed to inform unit holders of the matters specified in par 5, His Honour concluded that there was no material or insufficient material to establish the matters relied on or the evidence tended to deny the existence of the matter. His Honour also concluded that the case alleging a failure to put a "no" case of the type contended for was not made out. Of some significance, was the conclusion his Honour then reached that it had not been established that anyone, including the appellant, had been misled or deceived by the conduct of Financial Services at the time the proposal for change was being advanced. His Honour rejected the suggestion, having regard to the conclusions he had reached to that point, that Financial Services had been negligent on the basis that it had breached a duty not to engage in misleading and deceptive conduct. His Honour then dealt with the allegation that there had been misleading and deceptive conduct concerning the publication of the prospectus in 1985. His Honour said there was no evidence that the representations said to have been contained in the prospectus were false or without foundation when made and the claim was misconceived and doomed to failure. 16 His Honour then considered the allegation that Financial Services had been obliged to buy back the units of the appellant or convert them to cash. His Honour concluded that the two letters relied upon by the appellant were neither in substance nor form requests conformable with the buyback arrangements resulting from the entrenched provisions that s 1076K deemed to form part of the Deed. His Honour then dealt with the appellant's submission that the amendments made to the Deed in March 1992 and, in particular, the terms of the new clause 55 (1), had the effect that s 1069 of the Law imported into the Deed a buyback provision which would have authorised the repurchase of his units. His Honour rejected this construction of the Deed having regard to the apparent purpose of the amendments made in March 1992. That is, the purpose of authorising or permitting the compulsory redemption of units in the Growth Trust. His Honour also rejected the submission of the appellant that the amendments to the Deed were ineffective to vary the terms of a prior contract between the appellant and Financial Services based on the pre-existing terms of the Deed. The relevant authorities (Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 (though this case concerned a special contract outside the articles of association), Pepe v City & Permanent Building Society [1893] 2 Ch 311 and Gra-ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65) established, in his Honour's view, a principle that an amendment of a trust deed of the type in question was not invalid because it might defeat what would otherwise have been an entitlement of a unit holder to redeem or have repurchased their units. His Honour also added that the amendment may have been effective to defeat an earlier withdrawal request by operation of s 1076Y of the Law. 17 His Honour then dealt with the question of whether the power in the Deed to alter its terms could be exercised as it had been in this case. His Honour referred to authorities suggesting that a power to vary a trust deed may be held not to extend to a variation that altered the substratum of the trust but concluded that the amendments in question had not destroyed the substratum of the Growth Trust. Moreover, his Honour concluded, the source of the power to vary in the present case was Division 5A and not the terms of the Deed. While his Honour thought it may be that such a power had to be exercised bona fide and expropriation of a minority's units may be beyond such a power, neither circumstance arose in this case. 18 Though, as his Honour said, it was unnecessary for him to do so, he considered the question of whether Financial Management had been under an obligation to inform the appellant his letters did not constitute requests for redemption. His Honour rejected the suggestion that any such obligation arose. His Honour also rejected the suggestion that the amendments to the Deed were procured by Financial Services for an improper purpose resulting in an unfair expropriation of his units and were invalid having regard to the decision of the High Court in Gambotto v WCP Ltd (1995) 182 CLR 432. His Honour concluded there was no evidentiary foundation for any suggestion of dishonesty or impropriety and, in any event, the course adopted was supported by the evidence of an independent expert, Mr Prothero. If the principles in Gambotto had been enlivened then, in his Honour's view, Financial Services had demonstrated (as discussed in Gambotto at pages 446-447) that the effective merger of the two funds was fair both procedurally and substantively. 19 In the result, his Honour dismissed the application with costs.

The issues in the appeal and its disposition 20 In our opinion, and notwithstanding the many grounds of appeal raised by the appellant and the length of the written submissions he made and supplemented orally, no doubt has been cast on the manner in which the primary judge disposed of each of the causes of action which was pleaded. Subject to the remarks which follow, we proceed on the basis that his Honour's reasons adequately explain why the application was dismissed. Many of the issues raised by the appellant in this appeal concern the question of whether the conduct of Financial Services leading to the amendments to the Deed in 1992 was misleading or deceptive conduct. However, irrespective of how the evidence is to be evaluated, the conclusion of the trial judge concerning causation appears to us to be correct. That is, the appellant, astute to what he believed was the erroneous and flawed approach of Financial Services, was not misled or deceived by the impugned conduct (even assuming it was misleading or deceptive). In addition, nothing has been put to us that suggests the trial judge erred when he indicated, in substance, that the material before him did not establish that unit holders would have voted differently or that the resolution to make the amendments would not have passed. Further, many of the submissions made by the appellant ignore or discount the constraining effect of Division 5A on the redemption or buying back of units in a trust such as the Growth Trust. We refer to this matter in a little more detail shortly. 21 In our opinion, two matters raised during the hearing of the appeal warrant specific attention. The first is the construction and operation of clause 55(1) of the Deed in its amended form and second is the scope of the power to amend the Deed (deriving from the Deed) prior to its amendment in March 1992. 22 It is to be recalled that Division 5A contained several provisions which, in early 1992, limited the effect of provisions in a trust deed of the type in question which may otherwise have authorised or required the redemption or purchase back of units in the trust. Section 1076K of the Law declared that a trust deed (of a trust of the type the Growth Trust was) was to be taken to include provisions dealing with the buy back and redemption of units. Under those entrenched provisions and with certain exceptions which are presently not relevant, the management company or trustee could not, until 12 months after the request had been received, act on a request to buy back or redeem units. Section 1076L contemplated the amendment of an entrenched provision by a special variation proposal: see also ss 1076U and1076T. If such a proposal was passed and also approved by the then Australian Securities Commission, the entrenched provision was taken to have been amended. 23 In the present case the Deed contained in clause 51 (and ignoring for the moment the entrenched provisions deriving from Division 5A) before the amendments made in March 1992, a covenant requiring Financial Services to arrange for the redemption by the trustee of units or their repurchase in response to a written request of a unit holder. One clause introduced by the amendment in March 1992, clause 56, deemed all unit holders to have requested the redemption of the units in accordance with clause 51. Another amendment was made adding a new clause 55. In the opening provisions of that clause the parties agreed to comply with the covenants which s 1069(1) of the Law required to be contained in a deed. That section directed that a deed contain, inter alia, a buy-back covenant. At the conclusion of the new clause 55(1) there was a provision that: Nothing in this Deed shall derogate from or affect the operation of or limit the interpretation of this covenant. 24 As the trial judge pointed out there was an apparent tension between the opening and concluding words of the new clause 55 (1) and certain of the provisions in the new clause 56. However, we agree with the analysis of the trial judge leading to the conclusion that the new clause 55 was not intended to derogate from the mechanism for the compulsory acquisition of units arising from the amendments embodied in clause 56 and, in particular, clause 55 did not revive the entitlement for the redemption or buying back of units arising under clause 51 (apart from the operation of Division 5A) of the Deed in its unamended form. 25 The second matter we wish to refer to in a little detail concerns that part of the judgment below under the heading "The Scope of the Amendment Power" (pars 67 to 76). Financial Services submitted in this appeal, that his Honour's analysis of the question went far beyond the case articulated by the appellant below. Having examined the pleadings and the written submissions below, we agree. Indeed, it appears that the point was one raised by the judge. There may be a question as to the extent to which cl 38 and cl 43 of the Deed authorised the amendments made in March 1992. However, even if it is open to the appellant to pursue the point, and even if it is good, it does not lead to the monetary relief claimed against the respondent in these proceedings. To lead to either damages or equitable compensation, it would have been necessary to plead a common law duty of care, a relevant breach of it in this respect and damage ensuing, or the participation by the manager in a breach of trust. The only claim for breach of duty of care was held by his Honour to relate to a duty not to engage in misleading and deceptive conduct (par 40 of the judgment) and there is no ground of appeal directed to that aspect of the judgment of the primary judge. As his Honour pointed out in par 18, there is no claim against the trustee or the majority unit holders, and no claim that the redemption of the units was invalid or that the merger was in some way ineffective. The trial judge, having rejected the point on the merits, did not need to examine what the consequences would have been if it had been made good. In our opinion, it is clear that in this case it could not have led to the relief claimed. That being so, there is no need for us to consider the correctness or otherwise of the merits of the point. 26 Furthermore, the point is one which should not have been dealt with in an informal way. If it was to be entertained, it should have been properly raised and the pleadings amended accordingly. Whilst this is generally true, it has special point in this case. If good, the argument would involve effectively finding a breach of trust in relation to a transaction long past which affected the interests of many members of the public and the trustee. If the only relief was money relief against the manager then possibly there would not have been a strict deficiency of parties (as to which we need not come to a final view), but the absence of those parties would point to the necessity of ensuring that the point was properly available to be taken. If raised properly, it would no doubt have raised issues as to possible cross-claims, applications to excuse any breaches of trust, the leading of evidence and so on. 27 We venture to suggest that what happened in relation to this point illustrates one of the difficulties of litigants appearing in person to which we adverted earlier. A judge may feel compelled to ensure that all available points in favour of the litigant in person are taken, even those not taken by the litigant in person, without due regard for the interests of the other party to the litigation and to others who may have interests impinged upon by the litigation. Whilst the problem is masked here because the judge rejected the point on the merits, it does not detract from the unfortunate consequences which would have ensued if he had come to the contrary opinion, and which might have ensued if we had dealt with the merits of the point. 28 We dismiss the appeal and order that the appellant pay the costs of Financial Services.

I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Whitlam, Moore and Gyles.

Solicitor for the respondent: Mallesons Stephen Jaques