Fitzwood Pty Ltd v Unique Goal Pty Ltd

REASONS FOR JUDGMENT 1 The applicant, Fitzwood Pty Ltd, is a beneficiary in the Mt Alexander Unit Trust. The trust is constituted by a deed dated 11 July 1994 between the first respondent, Unique Goal Pty Ltd, as trustee and certain named beneficiaries. The trust is what is known as a unit trust: each beneficiary holds units, each unit comprises an undivided part or share in the trust fund and each beneficiary's interest in the trust fund is in proportion to the number of units held. Initially the trust fund was divided into 1300 units. There are now 1400 units and the applicant holds 600. 2 The unit trust was established to purchase a commercial property in Mt Alexander Road, Moonee Ponds for $4,750,000. The unitholders contributed $1,500,000 by way of application money for units in the trust fund to satisfy part of the purchase price and the balance was raised by the trustee on the security of the property. 3 On 22 or 23 December 1999 the trustee entered into a written contract to sell the Mt Alexander Road property to the fourth respondent, Pineross Property Pty Ltd (Pineross), for $6,150,000. The applicant seeks to set aside that contract. In the meantime it seeks an interlocutory injunction to restrain the completion of the contract. To understand the basis of the applicant's claim it is necessary first to say a little about the structure of the unit trust. 4 In addition to the powers that are conferred upon a trustee by law, the trustee is given extensive powers to manage and administer the trust. Included among them is "the power at [its] absolute discretion to sell, transfer, hire, lease or dispose of any real or personal property … ": cl 20. In the exercise of its powers the trustee need not act personally. It is at liberty "to employ any contractors, manager, solicitor, accountant or clerks, workmen, employees or servants or any agents to transact all or any business of whatever nature required to be done … ": cl 21. In addition, the trustee may "in writing delegate the exercise of all or any of [its] powers or discretionary authorities …": cl 22. Finally it should be noted that the right to remove the trustee or to appoint new or additional trustees is vested "in the Unit Holders who shall so determine from time to time by a resolution passed or agreed to by the holders of 75 per centum in number of the Units issued from time to time": cl 29. 5 In the exercise of its right to appoint an agent and delegate its powers, by an agreement dated 9 May 1995 the trustee appointed the second respondent, Briaroaks Pty Ltd, and Cemack Pty Ltd (a company controlled by Nejat Mackali) to act jointly "as the exclusive agent of the Trustee … to develop, manage, lease, market and sell the [Mt Alexander Road] Property or part or parts thereof from time to time": cl 2. The management agreement provided, by cl 3.2, that the managers would "carry out [their] duties and obligations in accordance with established good management methods and practices with due skill, expertise, diligence and good faith and in accordance with the reasonable directions of the Trustee or any committee of management of the Trust appointed by the Unitholders for such purpose to represent the interests of all Unitholders …" For the purpose of performing their duties the managers were given various powers including the power "to dispose of all assets of the Project or individual parts of the Property in accordance with prior authorisation from the Trustee or the Committee": cl 4.3.6. On the same day as it was appointed to be one of the joint managers, Cemack Pty Ltd resigned. It is not clear why this occurred. 6 In consideration of the remaining manager providing the services and performing the duties required by the management agreement, the trustee agreed to pay to the manager a base fee of $50,000 and a success fee of 30 per cent of the net profit before tax of the project. The base fee has been paid. The balance of the fee is still outstanding. 7 The unit trust was established in the following circumstances. In 1994 Mr Mackali, an investor, ascertained that the Mt Alexander Road property was for sale. He and a property developer, Michael Drapac, the third respondent, decided to put together a group of investors to purchase the property on the basis that Mr Drapac and Mr Mackali would jointly manage the project. They anticipated that the property could be resold in about twelve months at a profit of approximately $2,000,000. When a sufficient number of investors had agreed to fund the project the trust was created. 8 Mr Drapac, Mr Mackali and George Spiliotis were the directors of the trustee at the time of its appointment to the trust. Mr Spiliotis is a solicitor and a partner in the firm GSM Lawyers. Mr Mackali was a client of the firm. He had approached Mr Spiliotis with the request that he become a director of the trustee. Mr Spiliotis remained a director until 24 December 1999. Mr Mackali retired as a director on 13 July 1994 and in 1995 Cristina Drapac, the wife of Mr Drapac, was appointed director. The manager is a company which is controlled by Mr Drapac. He and his wife are its directors. 9 It was the relationship of Mr Mackali and GSM Lawyers that resulted in the applicant taking up units in the unit trust. Andrew Goulopoulos is a director of the applicant. He is also a solicitor and a member of GSM Lawyers. In mid 1994 Mr Mackali suggested that Mr Goulopoulos become one of the investors in the unit trust. Mr Goulopoulos agreed and acquired an interest through his company which is the trustee of his family trust. 10 As events transpired, the expectation that the unitholders would realise a quick return on their investment was not fulfilled. Although considerable effort was made to sell the property no buyer could be found. Perhaps due to this, from late 1997 neither the trustee nor the manager provided information to the unitholders concerning the realisation of their investment. 11 In April 1999 Mr Goulopoulos called a meeting of unitholders to discuss the future of the trust. At that meeting a committee of management was appointed to represent the unitholders in their dealings with the trustee and the manager. It will be recalled that cl 3.2 of the management agreement contemplated the appointment of such a committee. The committee comprised Mr Goulopoulos, John McCormack, who is a principal of McCormack Investments Pty Ltd which holds 50 units in the trust and Peter Abrahams, who is also a unit holder. 12 At the same time Mr Goulopoulos was considering the possibility of acquiring all of the units in the trust that were not already held by the applicant so that the property could be retained as a long-term investment. Mr Goulopoulos discussed this idea with his brother-in-law, Peter Bosnakis, who indicated that he wished to join Mr Goulopoulos in acquiring the outstanding units. 13 Accordingly on 1 October 1999 Mr Goulopoulos wrote to Mr Drapac advising that the applicant and an associate who was not named but was in fact Mapeka Pty Ltd (Mapeka), a company controlled by Mr Bosnakis, wished to purchase all of the units in the trust other than those already held by the applicant. It was proposed that the applicant and its associate would each hold 50 per cent of the units. Mr Goulopoulos advised that the two companies would make a cash offer for the units at a price which assumed that the Mt Alexander Road property had been sold for $6,200,000. After certain adjustments, that would result in an offer of $1,410 for each unit. 14 On 19 October 1999 the manager informed all unitholders that an offer to acquire their units had been received. The manager recommended acceptance of the offer. Within a few days all but two unitholders advised the manager that they would accept the offer. The unitholders not willing to accept the offer were Mitchell Koroneos and his wife, Jane. Mr and Mrs Koroneos are friends of Mr Goulopoulos and had acquired their units at his suggestion. Mr Koroneos told Mr Goulopoulos that he and his wife also wished to retain their units as a long-term investment. 15 To obtain effective control of the unit trust not only was it necessary for the applicant and Mapeka to acquire all of the units, they also needed to obtain control of the trustee and remove the manager. One simple of method of acquiring control of the trustee was to replace its existing directors with nominees of the applicant and Mapeka and acquire its issued shares. The removal of the manager required its agreement to the termination of the management agreement. Naturally, the manager would not agree to terminate that agreement unless it received an amount equal to the success fee it would have been paid had the Mt Alexander Road property been sold. For reasons which need not be explained, the calculation of that fee, which is a percentage of the net profit derived on a sale of the property, is not a simple task. Various calculations have been performed on the assumed basis that the Mt Alexander Road property has been sold for $6,200,00. On a sale at that notional price, the managers' fee could be less than $50,000 or as high as $560,000. It all depends upon the meaning of the definition of net profit that is contained in the management agreement. All parties accept that the definition is ambiguous and that its proper construction is a matter of real difficulty. There is even a suggestion that it may be necessary for the definition to be rectified before the fee can be ascertained. 16 Mr Goulopoulos was aware of the difficulty in calculating the manager's fee when discussing his proposal to purchase the units with the trustee and the manager during October 1999. He made a conscious decision not to raise the matter in those discussions. Mr Goulopoulos said that he intended to wait until Mr Drapac was so far committed to the sale of the units that he would have difficulty in withdrawing. I understand Mr Goulopoulos to be saying that by biding his time he thought he would be in a good position to compel the manager to accept a fee that was lower than that to which the manager thought it was entitled. This turned out to be a serious error of judgment. 17 The trustee's solicitors, Middletons Moore & Bevins, advised the trustee that the transaction should proceed in two stages. First, the applicant and Mapeka should acquire the outstanding units and take control of the trustee. On the following day the management agreement should be discharged. The reason the solicitors suggested that there should be a delay before the management agreement was terminated was so that the amount paid to the manager to procure that termination would be a deductible expense. 18 Two sale of units agreements were executed. Each is dated 8 November 1999, but according to the evidence they were executed a little earlier. Pursuant to one agreement Mapeka agreed to purchase 600 units from nine unitholders at a unit price of $1,373. This is lower than the unit price that was initially contemplated. The new price was agreed in discussions between Mr Goulopoulos and Mr Drapac. Under the second agreement the applicant agreed to purchase at the same unit price 100 units that were jointly held by two unitholders. The trustee and the manager were parties to each agreement as were Mr and Mrs Drapac. They were made parties to provide certain warranties about the affairs of the unit trust and to give certain indemnities. 19 The agreements provided that settlement would take place on 8 November 1999 at a meeting of the directors of the trustee to be held at the offices of its solicitors. Mr Goulopoulos attended the meeting on behalf of the purchasers. He produced cheques to pay the purchase price for the units. I assume that the trustee or the trustee's solicitors, who were also present, had been appointed to accept the cheques on behalf of those unitholders who were selling their units. Mr Goulopoulos did not produce a cheque for the fee payable to the manager. One reason that he did not do so was because that transaction was not due to be settled until the next day. Nevertheless an employee of Mr Drapac, Ashley Wain, said that the amount payable to the manager should be produced. When Mr Goulopoulos confirmed that it would not be paid until the following day, Mr Drapac said that he was not prepared to settle any part of the transaction until the fee was paid. It is unlikely that Mr Drapac was authorised by any unitholder to insist upon the payment of the management fee before accepting the money due under the agreements and it seems that his conduct placed the vendor unitholders in breach of their respective agreements. In the expectation that the problem would be overcome the parties agreed to meet again on 9 November to effect settlement. 20 At the next meeting Mr Goulopoulos for the first time made it clear that the applicant was not prepared to pay the fee claimed by the manager. Instead he suggested that the amount in dispute be paid into the trust account of the trustee's solicitors until the entitlement of the manager could be established. Mr Drapac said this was unacceptable. He said that if necessary he would sell the Mt Alexander Road property and in that way recover the management fee. Then, in an extraordinary step, Mr Drapac took the various copies of the sale of units agreements and placed a cross and the word "cancelled" over the signature and seals of himself, his wife, the trustee and the manager. He did this to demonstrate that so far as he was concerned the vendor unitholders would not sell their units until the fee had been paid. Again, I doubt that Mr Drapac was acting in accordance with instructions from those unitholders. He seems to have forgotten that the trustee and manager had bound themselves to the sale of units agreements and by striking out the signatures and seals he could not alter the legal status of those arrangements. 21 More importantly, Mr Drapac's conduct demonstrated that his position as a director of both the trustee and the manager had become untenable. In a letter dated 15 November 1999 Mr Goulopoulos pointed out to the trustee's solicitors "that Mr Michael Drapac, being in effective control of each of the Trustee and the Manager is, and has been since the Unit Trust was established, in a situation of irreconcilable conflict of interest which should be addressed forthwith so that settlement of the sale and purchase of the units can be finalised." Perhaps Mr Goulopoulos was going too far in alleging the existence of a conflict from the establishment of the unit trust. But he was surely correct to make that claim as at 9 November 1999. 22 It is not clear whether either the trustee or the manager explained to the vendor unitholders the reason why settlement of the sale of their units had not taken place. Nor does it appear whether those unitholders were advised of their rights and obligations having regard to the manner in which the settlement was aborted. They were certainly entitled to an explanation and, so it seems to me, they should have been told to seek independent advice. The interests of the trust, including its beneficiaries, were no longer coincident with the interests of the manager and Mr Drapac was more concerned to see the manager paid than in taking steps to have the manager's true entitlement, and therefore the trustee's true obligation, properly determined. 23 A short time after the aborted settlement, the committee of management (Mr Goulopoulos, Mr McCormack and Mr Abrahams) met and decided to recommend to the unitholders that the trustee should be removed from office. On 22 November 1999 a notice was sent to all unitholders proposing three resolutions: first, that the trustee be removed as trustee of the unit trust; second, that a new corporate trustee in which Mr Goulopoulos, Mr McCormack and Mr Abrahams would be the directors should be incorporated and appointed trustee; and third, that pending the incorporation of the new company Mr Goulopoulos, Mr McCormack and Mr Abrahams should be appointed the trustees of the unit trust. Attached to the notice was a document styled "Resolution of Unitholders of Mt Alexander Unit Trust". In that document provision was made for each unitholder to record a vote in favour of or against each of the three resolutions. For the first resolution the following was set out: "RESOLUTION NO 1 YES / NO If you are in favour of the resolution please circle YES If you oppose the resolution please circle NO." The same format was adopted to record votes for the second and third resolutions. Provision was then made for the insertion of the date and the signature of the unitholder. 24 Unitholders holding 1,183 units, being more than 75 per cent of all units, indicated that they were in favour of the three resolutions by completing the forms and returning them to Mr Goulopoulos. No unitholder cast a vote against the resolutions. 25 The validity of the removal of the trustee by this process was not called into question at the hearing. It might have been said, for example, that to remove the trustee "by a resolution passed or agreed to" (to quote the language of cl 29) by the requisite majority of unitholders, contemplated the holding of a formal meeting of unitholders at which the resolutions would be considered and either "passed" or "agreed to". The use of the passive perfect participle "passed" gives weight to this construction. But the unit trust deed makes no provision for the holding of meetings. Further, in the ordinary use of language, a resolution can be "agreed to" by any number of persons without the need for a meeting. Thus it is at least strongly arguable that the trustee was removed from office once the outcome of the process was known and the trustee was notified of the result. 26 On the day after the dispatch of the proposed resolutions to unitholders, the trustee gave notice of a meeting of unitholders to be held on 30 November 1999. The agenda that accompanied the notice described the business that was to be conducted at the meeting. It included a report on the aborted settlement of the sale of units, a report on the proposed change of trustee, procedures for resolving the dispute concerning the manager's fee and other business. Mr Goulopoulos, Mr McCormack and Mr Abrahams decided that they would not act on the resolution to remove the trustee before the meeting. 27 All unitholders, in person or by proxy, attended the meeting on 30 November 1999. Also in attendance were the solicitors for the trustee, including Anjana Bhatt, and a solicitor acting on behalf of the manager. Mr Spiliotis took notes of the meeting as did Ms Bhatt. There is a dispute regarding what occurred at the meeting. The notes do not assist in the resolution of this dispute. However they do provide valuable information in other respects. 28 When the meeting commenced Mr Goulopoulos made an announcement. It is recorded in Ms Bhatt's notes as follows: "don't recognise current Trustee Q of res. Meeting proceeds subject to this." There is no record of any dissent from this statement. The notes then summarise what was said on some issues and otherwise mention the topics that were discussed. It is not necessary to set out the contents of the notes. A good deal of what was said is not relevant for present purposes. However it is necessary to mention that Mr Goulopoulos indicated that he did wish to proceed with the purchase of the units and he outlined a process by which the dispute concerning the manager's fee could be resolved. All vendor unitholders acknowledged that they wished the sale of their units to proceed. There was also a discussion about the position of the trustee pending the settlement of the sale. While agreement was reached on all substantial issues, there is a dispute as to whether that agreement resulted in a binding contract. The applicant says that it did. The trustee and the manager say that there was no binding contract made, because everything was "subject to contract": see Masters v Cameron (1954) 91 CLR 353. 29 Leaving aside whether a binding contract had been concluded, the substance of what was agreed can be gathered from the draft terms of compromise that were prepared by Ms Bhatt the day after the meeting. The recitals read: "A. Unique Gold Pty Ltd is the Trustee of the Mt Alexander Unit Trust (the 'Trust'); B. Briaroaks Pty Ltd is the Manager of the Trust; C. The Committee of Unit Holders is duly appointed under the provisions of the Management Agreement and has appointed Peter Abrahams and Peter Cahill as its representatives; D. Goulopoulos represents Fitzwood Pty Ltd and Mapeka Pty Ltd who are the Purchasers under the Sale of Unit Agreements referred to in this Agreement; E. A dispute has arisen concerning the entitlement to and quantum of the Manager's fee (the 'dispute'); F. (a) Some unitholders wish to proceed with the Sale of Units Agreements dated 8 November 1999 and wish to be released from the Manager's claim to the Management Fee (the 'Released Unitholders'); (b) Other unitholders do not wish to proceed with the Sale of Units Agreements dated 8 November 1999 and do not wish to be released from the Manager's claim to the Management fee (the 'Continuing Unitholders'); (c) Unitholders, not being Released Unitholders or Continuing Unitholders, wish to proceed with the Sale of Units Agreements, but do not wish to be released from the Manager's claim to the Management fee (the 'Other Unitholders')." The following clauses are relevant: "1. The Sale of Units Agreements dated 8th November, 1999 will proceed to settlement in accordance with its terms by no later than … December, 1999 or such other later date as the parties mutually agree to (the 'Settlement Date'). 2. In the event that the Sale of Units Agreements does not proceed to settlement for any reason other than a breach of the terms of this Agreement, then this compromise will stand discharged and any party will be entitled to take whatever legal remedies it or they regard as appropriate. 3. At settlement of the Sale of Units Agreements: (a) the Purchasers under the Sale of Units Agreements will pay to the Released Unitholders and Other Unitholders the Purchase Price for the units as provided for in the Sale of Units Agreements, and (b) The Purchasers and the Continuing Unitholders (but not the Released Unitholders and Other Unitholders), will in addition each pay to the Trustee the respective pro rata proportion of the Manager's fee as claimed by the Manager. 4. The Trustee will pay:- (a) to the Manager the pro rata proportions of the Manager's fee (free of any claim or encumbrance) in the same proportions that the Released Unitholders' unitholdings bear to the total of issued units in the Trust; and (b) the balance of the pro rata proportion of the Manager's fee relating to the Continuing Unitholders and the Other Unitholders to the trust account of Middletons Moore and Bevins (MMB) held in the joint names of the Manager and Trustee from time to time of the Trust to be disbursed in accordance with the provisions of paragraphs [9] and [10] below." Clauses 5 to 10 then provide a mechanism for the resolution of the dispute about the management fee initially by mediation. Finally, cl 11 reads: "Between the date of this Agreement and the Settlement Date, the following provisions will apply to the parties:- (a) the Manager and Trustee will not deal with the Trust property without the consent of the Committee; (b) the Committee and all Unit Holders (however so described herein) will not act on any resolutions which have been passed prior to the date of this Agreement and will not pass any further resolutions before the Settlement Date; (c) McCormack & Partners, Chartered Accountants, will be reappointed as accountants for the Trust and as counter signatories to the bank account of the Trust with the Manager; (d) the Manager and Trustee will make an immediate distribution to the Unit Holders (however so described herein) of surplus cash funds of the Trust such amount to the [sic] determined by McCormack & Partners who will have regard to the actual and prospective liabilities of the Trust; (e) The Manager will not act to frustrate the settlement of the sale of units; (f) At Settlement Date:- (i) the Management Agreement will be terminated; and (ii) the Trustee will retire simultaneously with the appointment of a new Trustee duly appointed pursuant to the provisions of the Trust Deed." 30 I will come to the circumstances in which the Mt Alexander Road property was sold in a moment. Before doing so it is convenient to mention that the validity of the sale is impugned on three bases. First, it is alleged that the trustee did not have power to sell the property. Second, it is said that on 30 November 1999 the trustee or the manager had agreed not to sell the property in view of the pending completion of the sale of units agreements that would result in a change in the control of the trustee and the termination of the management agreement. Finally, it is argued that in bringing about the sale, the trustee and the manager were exercising their respective powers for an improper purpose. 31 As to the first ground, it is not in dispute that if the trustee had been removed from office it would not have power to sell the Mt Alexander Road property. For the trustee it is said that there is no serious question to be tried as regards its position as trustee. It says that at the meeting on 30 November 1999 it was accepted by all parties that it was the trustee. It points to recital A of the draft terms of compromise as evidence of this. Finally it says that the conduct of the parties since 30 November 1999 is consistent with an acceptance of it as the trustee. 32 None of these propositions can be accepted without qualification and the first of them is in any event fallacious. Mr Goulopoulos did not accept that the trustee was the trustee of the unit trust. His position was made clear at the beginning of the meeting on 30 November 1999. I assume that the other members of the committee, and Mapeka as well, were of a similar view. Then there is clause 11(b) of the draft terms of compromise. Ms Bhatt's notes, and what she has deposed in her affidavit, show that the prior resolution there referred to is the resolution to remove and replace the trustee. All that can confidently be said at this stage is that the parties were prepared to proceed to a settlement of the dispute within a short period and in the meantime the trustee could remain in office. If a settlement was not agreed, or if it was agreed but fell through, there was nothing said by Mr Goulopoulos or anyone else to support the assertion made by the trustee that its position was secure. 33 Accordingly, however one might characterise the events of 30 November 1999, there is a substantial argument in favour of the proposition that the trustee had been removed from office before 30 November 1999. If an agreement was reached by the unitholders on that day it was to the effect that the trustee would remain in place for a limited period and with limited powers, but certainly not on the basis that it could exercise all of the powers found in the unit trust deed. One power that it is likely the trustee no longer possessed was a power of sale. If it did have that power then it is at least arguable that the power could only be exercised with the consent of the newly appointed committee: see cl 11(a) of the draft terms of compromise. This is the position according to Mr Spiliotis. The members of the committee, Mr Abrahams and Peter Cahill, do not share that view. They understand that as a result of the meeting the power of the committee was limited to overseeing day to day business decisions. 34 The third basis upon which the applicant seeks to set aside the contract requires me to mention events that occurred both before and after the meeting of 30 November 1999, some of which were not known to the applicant. 35 On the day that the trustee gave notice of the meeting of unitholders, there was a meeting of its directors. I have Mr Spiliotis' account of that meeting. Mr Drapac said that he had spent a considerable amount of time on the project and it was his intention that the management fee be paid. Mr Drapac said that two buyers were interested in purchasing the Mt Alexander Road property. He proposed that Talbot Birner Morley, estate agents, be appointed to sell the property for $5,950,000. Mr and Mrs Drapac voted in favour of that proposal and Mr Spiliotis opposed it. There was then a discussion about the removal of McCormack & Partners as accountants to the trust. That issue is not presently relevant. However, two other items of business should be mentioned. The first relates to a proposed interim distribution to unitholders. Mr Drapac said that a distribution should be made. Mr Spiliotis objected on the basis that this might affect the sale of units. Mr Drapac said that as far as he was concerned "the deal with Fitzwood was dead". A resolution to pay the dividend was then passed with Mr Spiliotis abstaining. The second matter was a proposal that all directors of the trustee keep confidential all matters in relation to the operation of the trust. I assume that this resolution was directed to Mr Spiliotis who was a partner of Mr Goulopoulos and a friend of other unitholders. The resolution was carried with Mr Spiliotis abstaining. 36 The period between 1 December and 15 December 1999 was relatively uneventful. Discussions took place and correspondence passed in relation to the terms of the compromise agreement. It was expected that settlement would take place by 24 December 1999. However on 16 December 1999 Mr Spiliotis was told by Mr Wain that the estate agent had received an offer from a Sydney investor to purchase the property for $6,820,000. Mr Wain suggested "that the directors of Unique Gold communicate this [offer] to the unitholders as a matter of urgency". This was done on the same day. 37 Mr Spiliotis was concerned whether the trustee could accept the offer. On 21 December 1999 he wrote to his co-directors saying, among other things: "1. … 2. In light of the 'agreement' reached between the Unit Holders, the Manager and the Trustee at the unit holders meeting on 30 November 1999, advice should be sought from the Trustee's Solicitors as to whether the Trustee is able to accept an offer for purchase of the property. 3. Further, given the Manager's undertaking and Trustee's undertaking not to further deal with the property, how is it that the offer has come to light some 16 days after the unit holders meeting? Although, on the one hand, I am concerned to ensure that the interest of the Trust and the Unit holders are protected, in terms of obtaining the best possible price for the property/units, I am also concerned to ensure that the Trustee does not breach any of its obligations particularly in relation to the 'agreement' reached with the Unit holders at the meeting on 30 November 1999. This is so, particularly in light of Andrew Goulopoulos' letter to Andrew Cookes sent on 20 December 1999." 38 Mr Drapac was not able to speak with Mr Spiliotis about the contents of his letter, but he did leave a message on Mr Spiliotis' mobile telephone voicemail which was transcribed by Mr Spiliotis' secretary. The message was: "Yeah George, Michael Drapac, just referring to your facsimile, just quickly we don't have a Deed of Compromise signed, there was agreement reached; it hasn't been signed, but even if it had been signed there clearly states in the agreement that we cannot do anything with the property unless we refer to the Committee of Management which we have so there's nothing to worry about, there are three offers on the table, two of them in writing. I think they will be presented to us today. See ya mate." Here Mr Drapac recognises that the trustee is not able to sell the Mt Alexander Road property without the consent of the unitholders although he seems to be of the view that their consent can be obtained through the committee. 39 By 20 December 1999 Mr Goulopoulos was becoming increasingly concerned about the delay in finalising the terms of compromise. He wrote to Middletons Moore & Bevins advising that he intended to tender the money due to the vendor unitholders as soon as possible. 40 On the following day Pineross made an offer to purchase the Mt Alexander Road property for $6,100,000 payable in thirty days. Mr Spiliotis was not told of the offer. A copy was sent to Middletons Moore & Bevins on 22 December by which time the trustee had been advised that the offer had been increased to $6,150,000 and would lapse at 5.00pm that day. Pineross signed three copies of a contract to purchase the property and gave those copies to the estate agent to obtain the vendor's signature. 41 At about 12.55pm on 22 December Ms Bhatt provided written advice to the trustee concerning the offer. The advice reads: "I believe that the Trustee should accept the offer shortly prior to 5pm today. My reasons for this recommendation are that the original Sale of Units Agreements with Fitzwood Pty Ltd and Mapeka Pty Ltd did not complete in accordance with its provisions and is accordingly at an end. Further, the Terms of Compromise have not been signed and consequently there is no binding agreement in terms of the Compromise. I recommend that the Trustee immediately inform all unitholders of the offer, providing to each unitholder a copy of the Manager's facsimile, which includes an analysis of the offers from the various purchasers, together with a copy of this advice." 42 The advice might be incorrect in two respects. First, although the sale of units agreements had not been completed it is far from clear that they were at an end. There is no evidence that the parties to those agreements agreed that their respective rights and obligations thereunder would be discharged. Of course it is possible that such an agreement could be implied from the conduct of the parties. But I am not aware of conduct from which the implication could be drawn, at least in so far as all of the contracting parties are concerned. Further, the assertion that the two agreements were discharged by agreement, prima facie at least, is inconsistent with the reservation by the parties of their rights in relation to the breach of those agreements: as to this see cl 2 of the draft terms of compromise. Second, the fact that the terms of compromise had not been signed does not of itself establish that no binding agreement had been reached. That depends upon precisely what was said by all concerned on 30 November 1999. And on this point there is evidence (including the telephone message that I set out earlier) that both Mr Goulopoulos and Mr Drapac considered that an agreement had been concluded. 43 Things moved very quickly after Middletons Moore & Bevins tendered their advice. It was at about 1.30pm that Pineross, after negotiations with the estate agent, increased its offer to $6,150,000. Between 2.00pm and 4.00pm letters were faxed to all unitholders advising them of the offer. The unitholders were also provided with a comparison between the offer and the effect of proceeding with the sale of units agreements. In certain respects the comparison is misleading, but that is not a matter that is not presently relevant. For some reason, and it might be mere coincidence, Mr Goulopoulos was not provided with copies of the documents until 3.47pm. 44 At approximately 3.00pm Mr Wain discussed the offer with Mr Cahill who, it will be recalled, was one of the two members of the committee that was appointed on 30 November 1999. Mr Cahill had already discussed the offer with Mr Abraham, the other committee member. Both of them were of the view that the purpose of their appointment was to monitor the trustee and the day to day activities of the manager. Mr Cahill explained this to Mr Wain and said that in his view, and that of Mr Abrahams, the committee did not have power to direct the trustee to either accept or reject the offer. The trustee says that this constituted permission to the trustee and the manager to go ahead with the sale. I do not agree. The contrary view is clearly arguable. 45 Some time around 4.00pm Mr and Mrs Drapac on behalf of the trustee executed the contract in triplicate. They accept that Mr Spiliotis was not informed of or invited to attend a meeting of directors of the trustee to consider whether to accept the offer and sign the contract. The trustee says that the resolution of 23 November 1999 to appoint Talbot Birner Morley as agent to sell the property was sufficient authority for that purpose. It is enough for me to say that I do not think that the position is so clear. It is at least arguable that the failure to convene a meeting of the directors to consider the offer, particularly when one of the directors was of the opinion that it might not be lawful for the trustee to sell the property, produces the consequence that the contract was executed in the absence of authority. 46 The next thing that happened was that the now fully executed copies of the contract were collected by Michael Lewin of Talbot Birner Morley and taken to his office. It is not clear precisely when this occurred. According to Mr Drapac it was around 4.30pm. Other evidence suggests that it was as early as 4.00pm. At all events, Mr Lewin then telephoned David Leeton, a director of Pineross and told him that his company's offer had been accepted. Again there is conflict in the evidence. Mr Leeton says that he was not informed that the contracts had been signed. Mr Lewin has a different recollection. 47 The reason why this issue is of some importance is that shortly before 5.00pm, upon the ex parte application of the applicant, Goldberg J made an order restraining the trustee from selling the Mt Alexander Road property. A short time later the trustee was informed that the order had been made. At that time Pineross had not been provided with a copy of the executed contract. That did not occur until the following morning when one fully executed copy of the contract was given to Pineross in exchange for its cheque for the deposit. Thus the question that arises, although it does not require resolution on this application, is whether the trustee entered into the contract to sell the Mt Alexander Road property after it had notice of the order that the sale should not take place. 48 So far I have mentioned many of the events that did occur on 22 December 1999. There are a number that did not and, because of their importance, I should mention them. Both the trustee and the manager were aware that the applicant and Mapeka were anxious to acquire full (albeit equitable) ownership of the Mt Alexander Road property. An offer had been received from Pineross to purchase the property for $6,100,00 which was then increased to $6,150,000. The position that has been taken by the trustee and the manager is that it was their duty to bring about a sale of the property in the interests of all unitholders. If the object of the trustee and the manager was to further the interests of the beneficiaries why then, one might ask, did they not approach the applicant or Mapeka to ascertain whether a higher price for the property could be obtained. If a trustee fails to use reasonable diligence to invite competition in respect of the sale of trust assets there is a strong argument that the trustee is in breach of trust. Here commonsense suggests that an approach should have been made to the applicant or Mapeka to see whether they would purchase the property at a price higher than had been offered. 49 The second matter is that after the trustee was informed that the applicant had obtained an ex parte injunction to restrain the sale of the Mt Alexander Road property, it took no step to prevent the delivery of the signed contract to Pineross. According to the evidence as it presently stands, neither the trustee nor the manager even took the trouble to seek legal advice on their responsibilities following the grant of the injunction. This is how Mr Drapac explained his inactivity: "I do not hold any legal qualifications. Upon execution of the Contract of Sale I believed that a completed Contract had arisen. I did not believe that an exchange of Contracts was necessary to create binding legal relationships. In 21 years of practice I estimate that I have signed approximately 300 contracts. It has always been my belief that a sale is concluded when the vendor executes a contract accepting a purchasers [sic] offer to buy." 50 I find this evidence, particularly the last sentence, to be so improbable that I am not prepared to accept it even for the purposes of an interlocutory application. I think that it is reasonably open to infer that, because the signed contracts had been given to the estate agent, by the time Mr Drapac was informed of the order which had been made by Goldberg J, Mr Drapac was prepared to let events take their course so that a contract might result even though the injunction had been obtained. 51 I am not to be taken as suggesting that the trustee is in contempt of the order made by Goldberg J. The usual practice in Victoria is for parties entering into a contract for the sale of land to exchange signed counterparts of a written contract so that each party has possession of a copy signed by the other: Allen v Carbone (1975) 132 CLR 528 at 533; Sindel v Georgiou (1983) 154 CLR 661 at 665-6. When parties propose to enter into a contract for the sale of land by this customary procedure of exchange they do not contemplate the coming into existence of a binding contract before that exchange: Eccles v Bryant & Pollock [1948] 1 Ch 93 at 99. But an actual exchange is not always necessary. There may be a constructive exchange of parts of a contract sufficient to create a binding contract. For example, in Domb v Isoz [1980] Ch 548 a solicitor employed to act on a contract for the sale of land agreed in a telephone conversation with the other solicitor that they should treat as immediately exchanged by telephone the part of the contract that each was holding. This was held to be a sufficient exchange on the basis that each solicitor was no longer holding the part on behalf of his respective client, but on behalf of the other solicitor's client. There are also cases where parties to a conveyancing transaction do not intend to create a contract by the exchange of written parts of a contract, but by some other method. For example, in Rymark Australia Development Consultants Pty Ltd v Draper [1977] QdR 336, the Supreme Court of Queensland held that when a vendor had signed a contract to sell land and notified the purchaser that the contract had been signed, a binding contract came into existence. The court rejected a submission that the parties intended to be bound only when duly executed parts of the contract were exchanged. 52 Whether or not the order was breached will be decided by ascertaining when the parties intended that their contract should come into existence. That will depend upon a close examination of all of the facts, many of which are not in evidence and those that are have not been tested. But the making of the order and the trustee's conduct thereafter is important, because one issue that does arise is whether the trustee, acting with due diligence, should have made enquiries concerning its position and its obligations, once it became aware of the fact that a restraining order had been made. In my opinion the trustee should have taken advice in that circumstance. Its failure to do so is relevant for reasons that I will come to. 53 So far I have considered two aspects of the applicant's claim, namely whether the trustee had power to enter into a contract and, if it did, whether it was required to and did obtain the consent of the committee. For the reasons that I have given, I have reached the conclusion that it is arguable that the trustee did not have power to enter into the contract or if it did, that it did not obtain the requisite consent. These findings are sufficient for me to consider immediately whether, as a matter of discretion, the applicant should have the interlocutory relief that it seeks. However, in deference to the detailed submissions that were put on the third ground, I propose to deal with it briefly. 54 In virtue of the provisions of the management agreement it may be appropriate to infer that the sale of the Mt Alexander Road property to Pineross was brought about by the manager. Under the agreement the manager was duty bound to bring about the sale and until there was a sale the manager was not entitled to its success fee. I should also mention that the manager accepted this approach although it was denied by the trustee. The reason why the trustee contended that it alone was responsible for bringing about the sale is obvious. By cl 4.3.6 of the management agreement the manager is not entitled to dispose of trust assets without prior authorisation from the trustee or the committee. As I have explained, it is arguable that the trustee had not given its consent because a fully constituted board had not considered the sale and the committee was not asked to do so. However, assuming the existence of the power to sell the property in either the manager or the trustee, it was alleged that in bringing about the sale each of them was motivated, not by a desire to act in the interests of the beneficiaries, but for the purpose of securing the payment of the fee claimed by the manager whether or not the amount claimed was in fact due. 55 In the discharge of his duties and the exercise of his powers a trustee must act honestly and with the standard of care which would be shown by a reasonable and prudent man of business. A trustee will not act honestly if the trustee acts oppressively, corruptly, spitefully or with any improper motive: Underhill & Hayton, Law Relating to Trusts and Trustees (15th ed, 1995) 667. What if there is a difference of opinion between the trustee and his beneficiaries as to whether a particular power should be exercised? The leading case is In re Brockbank [1948] Ch 206. The beneficiaries wished to appoint a person as a new trustee against the wishes of the existing trustee. It was held that the appointment of the new trustee, which power lay with the existing trustee, could not be controlled by the beneficiaries. However, in the exercise of his power, a trustee must take account of the wishes of the beneficiaries, because those wishes will often effect the exercise of the trustee's discretion: Parker & Mellows, The Modern Law of Trusts (7th ed, 1998) at 634. 56 There are two respects in which both the trustee's and the manager's conduct may be called into question. First, as the applicant says, there is a powerful argument that can be made in favour of the proposition that the sale was effected out of spite, for the reason that the applicant would not agree to pay the fee that had been claimed by the manager. The conduct from which this conclusion can be drawn has already been mentioned. In particular there is the refusal to allow the sale of units agreements to be completed; there is the failure to consider whether the sale should take place at a properly convened meeting of the directors of the trustee; there is the failure to approach the applicant and Mapeka to enquire whether they would purchase the property at a price in excess of that offered by Pineross; and there is the failure to enquire what the trustee could do to comply with the order that had been made by Goldberg J. 57 I think that an improper purpose may also be inferred from the sale of the property at a time when the beneficiaries did not wish it to be sold. The attitude of the beneficiaries is manifest from the two sale of units agreements and the compromise reached on 30 November 1999. Even if the compromise was not binding it was clear to the trustee and to the manager that the beneficiaries were concerned to deal in their units and that the property was to be retained. It is true that the trustee sought the opinion of the beneficiaries on the offer that had been made by Pineross. A number of beneficiaries had up to two hours within which to express their views. Others had merely a few moments. In each case the beneficiaries were not given either adequate or accurate information upon which to reach an informed opinion. Moreover insufficient time was given to make a decision. In any case I suspect that neither the trustee nor the manager had any intention of taking into account the wishes of the beneficiaries. As presently advised, I consider that the only reason why the beneficiaries were given notice of the offer was because the trustee's solicitor had advised this should be done. 58 In the result I am satisfied that the applicant has shown there to be a serious question to be tried at the hearing as regards whether the trustee had power to enter into the contract and, if it did, whether that power was properly exercised. 59 Should I grant an interlocutory injunction restraining the completion of the sale pending trial? First, I should say that I do not think it necessary to enquire whether the applicant will suffer irreparable harm if the injunction is not granted. That is a matter that must be taken into account when equitable relief is sought in aid of a legal right. However, it is a different matter when the court is asked to exercise its exclusive equitable jurisdiction: Heavener v Loomes (1924) 34 CLR 306 at 326. What the court must do is decide whether there is a serious issue to be tried and then whether the balance of convenience justifies the grant of relief. 60 In this regard I propose to be guided by what was said by James LJ in Dance v Goldingham [1873] 8 Ch App 902 at 911 in a dictum that was followed by Asprey J in Park v Dawson [1965] NSWR 298. James LJ said: "[T]he purchaser, under a mere contract for purchase, is not entitled to insist upon a transaction being completed which, as between the cestuis que trust and the trustees, is a breach of trust. He has a mere contract for purchase which could not be enforced against him under the circumstances, and which he could not have enforced against the trustees. He has, therefore, no right to call upon the trustees, or to ask the Court to allow the trustees, to execute a conveyance, having its origin in a breach of trust when before the thing was completed he had notice of the irregularity which had been committed." 61 Then what is the balance of convenience? The object of an interlocutory injunction is to keep things status quo so that if at the hearing the applicant succeeds, the trustee would have been prevented in the meantime in dealing with the property so as to make that judgment ineffectual. Clearly the convenience is in favour of granting it. If it is not granted, the applicant and Mapeka may be deprived of a valuable asset. If it is granted the position of the remaining beneficiaries will be protected by the undertaking in damages. After all those beneficiaries do not seek to retain an interest in the property, but wish to have their money and any profit returned to them. Pineross is innocent of any wrongdoing. If it desires to keep the contract on foot and the applicant ultimately fails, it will acquire the property. If the applicant succeeds, or if the contract goes off, Pineross may have an action in damages against the trustee. However that may be, its rights should not, at this point in time, be placed above those of the beneficiaries. 62 Accordingly, upon the applicant giving the usual undertaking in damages I will order that the first respondent be restrained from settling the sale of the Mount Alexander Road property, and paying any money to the second respondent on account of management fees. That this latter relief should be granted was not seriously contested. Costs will be reserved. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.