55 In anticipation of the possibility that I would find against it on the construction issue, the manager has sought rectification of the management agreement. The claim for rectification is based on evidence given by Mr Drapac to the effect that there was an agreement between relevant parties that to determine the net profit of the project it was not appropriate to treat non-cash expenses as an expense. I have already referred to the evidence in passing, but it is worth referring to it again. Mr Pruden raised his concern about the management agreement at the December meeting. Mr Drapac agreed that any benefits obtained from depreciation or other non-cash items, would be applied to the unitholders share of profit. The instructions for the agreement were given to Mr Cookes in the form of the correspondence passing between Mr Pruden and Mr Drapac. I have described the effect of that correspondence.
56 There may be rectification of a written agreement where, as a result of a mistake common to all parties, the written agreement does not embody the mutual agreement concluded between the parties, or does not embody or give effect to the concurrent intention of the parties: Shipley Urban District Council v Bradford Corporation [1936] Ch 375; Joscelyne v Nissen [1970] 2 QB 86; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336. However, "clear and convincing proof" is required to permit a party to circumvent the parol evidence rule.
57 I reject the claim for rectification. The agreement operates in the very way it was intended to operate. It is in the form sought by Mr Pruden, to which Mr Drapac agreed. I do not believe that Mr Drapac instructed his solicitor, Mr Cookes, to draft the agreement so that it would have a different effect. I accept Mr Cookes' evidence, supported as it is by the surrounding circumstances, that he drafted the agreement in accordance with Mr Drapac's instructions. I do not believe that Mr Cookes misunderstood those instructions. Indeed, Mr Drapac understood full well how the management agreement was to operate. It was on the basis of that understanding that some years later Mr Drapac told Mr Cookes, falsely as it turns out, that the agreement had been varied to exclude non-cash expenses as a deduction. Mr Drapac could not have contemplated such a variation unless he understood that, in its unamended form, the agreement required the deduction of non-cash expenses. In the early days of the venture, the requirement to deduct non-cash expenses would not have concerned the manager. However, with the passage of time, cl 9.1.8 had the effect of increasingly diminishing the manager's entitlement and I do not doubt that either Mr Drapac was aware or became aware of this.
58 I now return to the facts. I have already noted that, despite its efforts, the trustee was not able to sell the Mt Alexander Road property within the period originally contemplated. This caused tension between Mr Drapac and some of the unitholders. Fortunately it will not be necessary to burden this judgment with an analysis of the reasons for the delay and whether that delay can be attributed to fault on the part of the trustee or the manager, although much evidence was directed to these issues. I propose to pick up the narrative in August 1998.
59 On 21 August 1998 Mr McCormack wrote to Mr Drapac advising that several unitholders (it turned out that it was only Mr Goulopoulos) had expressed the view that in the trust's accounts, the estimate of the manager's success fee had not been properly calculated because there had been no deduction of non-cash items. Mr McCormack explained:
"If this amount and other expenses are deducted from the proceeds of sale and rentals received, the project would show an overall loss.
…
It is apparent that some unit holders have been under the impression that your entitlement to a success fee was limited to 30% of any profit arising on the sale of the property.
Having regard to the substantial difference in the amount of the Management fee under the alternative scenarios we consider it appropriate to refer the issue to the Solicitors who prepared the Management Agreement for clarification."
60 Mr Cookes was asked to express his opinion on the operation of cl 9.1.8. Mr Cookes re-read his old file. He also took instructions from Mr DeBono. Mr Cookes recorded those instructions in his letter of advice dated 9 September 1998. This is what he was told by Mr De Bono:
"I have now been informed that the Trustee, the investors and the manager intended a [sic] an outcome different to the document prepared pursuant to my instructions. What they really intended was that the unitholders would get the tax benefit from the non-cash tax deductions but that the manager's profit share would be calculated by reference to cash incomes and expenses only."
On the basis of these instructions and his consideration of the relevant documents, Mr Cookes advised that the success fee component of the management fee was based on net profits which were to be calculated without the deduction of non-cash expenses. Given the instructions, Mr Cookes could not have given any other advice.
61 A few weeks later Mr Drapac confirmed with Mr Cookes (through Mr DeBono) that the original management agreement had been amended by a later (oral) agreement between the trustee, the manager and the unitholders to the effect that "the cash basis was to be adopted for calculation of the Manager's fee"; that is, that non-cash expenses were not to be deducted as expenses for the purposes of calculating the net profits of the project.
62 There was a meeting of unitholders on 27 April 1999. According to the management agreement (clause 3.2) the manager was obliged to carry out his duties "in accordance with the reasonable directions of the Trustee or any committee of management of the Trust appointed by the Unitholders for such purpose". The unitholders decided to appoint a committee, for none was in place. Mr Goulopoulos, Mr Abrahams and Mr McCormack were appointed to the committee.
63 The newly appointed committee decided to obtain an opinion as to the correct interpretation of cl 9.1.8. from an independent firm of solicitors. Arnold Bloch Leibler gave that advice. It was to the effect that non-cash expenses should be deducted from the net proceeds of sale and leasing to arrive at the net profits of the project. Mr Drapac was not shown a copy of the advice, but the trustee was asked to pay for it.
64 For some time Mr Goulopoulos had been contemplating the purchase of the units in the trust not already held by Fitzwood. On 26 August 1999 he met Mr Drapac to discuss a number of matters concerning the affairs of the trust. The management fee was one of the topics that were raised. It is not clear whether the competing constructions of cl 9.1.8 were aired. Mr Goulopoulos did say, however, that in the near future he would "submit a formal proposal" about the fee. Mr Goulopoulos also said that he and another party, whom he would not identify, were interested in acquiring all the units in the trust. In a letter confirming the discussion, Mr Goulopoulos stated that if the units were acquired "this would be treated as a sale of the property with a termination of the management agreement and payment of any appropriate outstanding management fee." According to the management agreement a sale of units would not trigger the manager's entitlement to a success fee.
65 On 30 September 1999 Mr Goulopoulos discussed his intention to purchase the units with Mr Wain. Mr Goulopoulos told Mr Wain that he and "an associate" wished to purchase the outstanding units at a price calculated on the assumption that the Mt Alexander Road property had been sold for $6.2 million. This conversation may have been prompted by advice from the selling agent to the trustee that the agent was confident of receiving an unconditional offer to purchase the property within a day or two. Mr Goulopoulos' "offer" was confirmed by a facsimile sent on 1 October to Mr Drapac. The facsimile read:
"I refer to yesterday's telephone conversation with you Ashley and confirm that jointly with a client and associate we formally offer to purchase the units other than those already held by Fitzwood Pty Ltd (Fitzwood Pty Ltd as to one (1) unit and my client and associate as to the remaining seven (7) units) at a property value of $6.2M, such purchase to be on an unconditional cash basis, which, subject to what I expect will be fairly simple documentation could be settled immediately upon documentation.
Of course allowances will need to be made for the capital gains tax liability which the unit trust would incur as if on a sale of the property at $6.2M and arrangements would need to be made for payment of the appropriate management fee."
66 Mr Drapac asked Mr Cookes to give advice in relation to this offer. A number of questions were posed for Mr Cooke's consideration. One matter that Mr Cookes was asked to consider was "the break up and distribution of funds to unitholders and the manager upon, firstly the transfer of units and secondly the resignation of the manager."
67 Mr Cookes gave his advice on 6 October with regard to procedures. Mr Cookes indicated a number of agreements would be required to give effect to the proposed arrangement, including a sale of units agreement and a termination of management agreement. The advice stated that the termination agreement "would contain an acknowledgment of the basis for calculation of the Manager's Fees, method of payment of same, the treatment of same for tax purposes (eg as expense of trust, or expense of Unitholders, or otherwise) and be conditional upon completion of a sale of units to Andrew Goulopoulos' group." There was also to be an agreement which would record the resignation of the trustee and provide for the appointment of a new trustee.
68 Mr Drapac, Mr DeBono, Mr Goulopoulos and Mr Wain met Mr Cookes on 11 October. Mr Cookes was instructed to prepare documents to give effect to a sale of units to Fitzwood and Mr Goulopoulos' associate. Around this time Mr DeBono had been asked to calculate the precise value of Mr Goulopoulos' offer, and he wrote to Mr Goulopoulos shortly after the meeting and provided the information. Mr DeBono had determined that the offer should be $1,433.14 for each unit. He provided the calculations that produced that figure. The calculations show that the per unit price was arrived at after taking into account trust expenses including "the management fee payable on a 'Cash' Project Profit basis". Mr De Bono had calculated the management fee to be $563,313.
69 Fitzwood and Mr Goulopoulos' associate (it turned out that the associate was Mapeka) submitted what Mr Goulopoulos described as the "formal offer" to purchase the units on 18 October 1999 in a facsimile to Michael Drapac & Associates. The offer was in the following terms:
"I confirm that Fitzwood Pty Ltd (as to 100 units) and Mapeka Pty Ltd (as to 700 units) wish jointly to offer to purchase the remaining 800 issued units in the Unit Trust being those other than those currently owned by Fitzwood Pty Ltd (which it wants to retain) at a price which is intended to represent a better nett return to unitholders than would be the case in the event of an external sale of the property on the terms and conditions upon which it would be sold to the prospective purchaser at the price of $6.2M."
The offer was said to be based on a number of assumptions. One assumption was that:
"An external sale at a price of $6.2M would result in a figure nett of agents [sic] commission of $5.89M and a return to the unitholders of an amount representing (after tax liability on the $150,000.00 is taken into account) an amount of $1,394.00 for each unit."
The amount offered was $1,410 for each outstanding unit. The offer was subject to a number of conditions including the following:
"6. Termination of the management agreement between the Trust and the manager effective as from the date of settlement.
…
8. The agreement for sale and purchase to be conditional upon acceptance of the offer by each of the other unitholders, but at the election of Fitzwood Pty Ltd and Mapeka Pty Ltd a right to accept any number of units lesser [sic] than the remaining 800 issued units.
9. An allowance being made for the balance of the manager's entitlement (including of course a contribution to be made by Fitzwood Pty Ltd for its appropriate proportion [sic]."
70 It was not seriously in dispute that when this offer was made, Mr Goulopoulos had decided that the manager would not be paid a management fee calculated on a cash profits basis. If the Mt Alexander Road property was sold (or treated as having been sold) for around $6.2 million, Mr Goulopoulos believed that the manager would not be entitled to any success fee. Notwithstanding this, neither in his letter of offer nor in his dealings with the trustee or the manager over the next few weeks, did Mr Goulopoulos give any hint that this was his view. There was a good reason for his silence. Mr Goulopoulos believed that if he could hide his intentions from the trustee and the manager, Mr Drapac would be "so far committed into the [sale of units] transaction that he could not possibly avoid it." Mr Goulopoulos accepted that some might view his conduct as a deliberate attempt to create the impression that the claimed management fee would be paid. I think this is precisely what Mr Goulopoulos intended. This conduct does not put Mr Goulopoulos in a good light. What legal consequences will follow is a different question, and one to which I will return shortly.
71 Mr Goulopoulos, Mr Drapac, Mr Wain, Mr DeBono and Mr Cookes met on 19 October 1999. It is an important meeting because the manager claims that legal rights were altered in consequence of what occurred. Because of this, each witness provided his recollection of the discussion. In his first affidavit Mr Drapac gave this account.
"At this meeting, I instructed Cookes to prepare all documentation for the sale of units. It was at this point that the trustee determined that the offer was at a stage that it should be put to the unit holders. Any sale was subject to the approval of all unit holders."
He was a little more expansive in his second affidavit. There he deposed:
"At [the meeting] a number of matters concerning the Goulopoulos offer were resolved. It was agreed to reduce the purchase price by the amount of an agents fee that would normally have to be paid on the sale of the property. Goulopoulos said that it would normally have to be paid and that it would not make any difference to the amount received by the unit holders. It was agreed that the management fee would be calculated on a cash basis in accordance with the understanding upon which it had always been calculated. Goulopoulos gave no indication that he was not going to pay the fee. The basis of the transaction to purchase the units was agreed at the meeting and was recorded by DeBono."
Mr Cookes gave this account:
"The principal discussion at this meeting focussed upon the Trustee ensuring that the Fitzwood/Mapeka offer of $1,410 would reflect an equivalent sale of the property for $6.2m, and the manner in which that offer price would be adjusted to reflect a proposed interim distribution to unitholders equivalent to net rents from the [sic] 1 July 1999 to the anticipated date of settlement on or about 31 October 1999. It was agreed at this meeting that the unitholders should be informed by the Manager of the offer at the earliest opportunity."
Mr DeBono's evidence was rather brief. All he could recall was that:
"At [the] meeting the purchase price for the units was discussed."
Finally, we have Mr Goulopoulos' evidence:
"At that meeting the calculation of the price to be paid by Fitzwood and Mapeka was discussed. Michael Drapac proposed figures based on a valuation of $6.2M. I pointed out that the proposed sale at $6.2M would have been subject to agent's commission. Mr Drapac said that the agent's commission payable would have been $310,000.00. No other person made any comment in connection with this. In principle a notional sale price of $6,232,484.00 was agreed which would have given a greater return to the unitholders than if the property had been sold externally at $6.2M on the commission structure that had been authorised by the Manager. Middletons were instructed to prepare sale/purchase agreements and an agreement for termination of the Management Agreement."
72 The manager claims that one legal consequence that arises from this discussion is a contractual (that is, a binding) promise by Fitzwood (or perhaps Fitzwood and Mapeka) to pay the claimed management fee. It has brought action to enforce this alleged promise. I cannot agree that any binding agreement was reached. First, no one attributed to Mr Goulopoulos the language of a promise. Second, there is no consideration for the promise, if any promise was made. Third, even if Mr Goulopoulos had promised to pay the claimed management fee, it is not clear on whose behalf the promise was made. Was it to be paid by Mr Goulopoulos or by Fitzwood or by Mapeka or by Fitzwood and Mapeka jointly? Fourth, the identity of the promisee is unknown. Did the promisor, whomever it was, promise to pay the management fee to the manager or was the promise made to the trustee so that it could discharge its contractual obligation to the manager? Fifth, neither Fitzwood nor Mapeka had agreed to purchase the outstanding units. It could hardly be supposed that Mr Goulopoulos would promise to pay the management fee, a fee which he believed was not owing, without an agreement to purchase the outstanding units.
73 On the other hand, while I believe it was clear that there was no concluded agreement to pay the management fee, I am sure that Mr Drapac was left with the impression that when Fitzwood and Mapeka purchased the units, one of them would pay the management fee calculated on a cash basis. It was for this reason that Mr Drapac wrote to the unitholders to inform them of the offer and to recommend they accept it. The letter was sent immediately after the meeting.
74 Mr DeBono was required to recalculate the offer price to take into account an interim distribution of rental income to unitholders. As a consequence, the offer price was reduced to $1,373 per unit. Unitholders were informed of the change on 21 October 1999. They were provided with information that explained how the offer price had been arrived at. The calculations assumed that there would be payment of a management fee, and that the fee was determined on a cash profit basis.
75 The manager says that if, as I have found, Fitzwood did not contract to pay the management fee, then by its conduct, it is estopped from denying the existence of such a contract. The attempt to impose an obligation to pay the management fee by relying upon doctrines of equity will not easily overcome the problems that exist at law, including the following: Who is to be estopped from denying the existence of a contract? Is the party that is estopped, Mr Goulopoulos or Fitzwood or Mapeka? Who is the party that is able to rely upon the estoppel? Is it the trustee or the manager?
76 Even if these difficulties are overcome, there are other insuperable problems that will prevent the claim from succeeding. It may be accepted that in appropriate circumstances equity will enforce a promise which the common law will not recognise as imposing legal obligations. The basis upon which equity will act is that the plaintiff has assumed that the promise will be performed, that the defendant induced the plaintiff to adopt that assumption, that the plaintiff acted in reliance on the assumption to his detriment and that the defendant knew or intended him so to act: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-429. However, the equitable principle has no application when the transaction remains wholly executory on the plaintiff's part: Riches v Hogben [1985] 2 Qd R 292, 300-301. And further, even if the facts could give rise to an estoppel, the relief that the court will grant should not "exceed what could be justified by the requirements of good conscience" particularly where it "would be unjust to the estopped party": Commonwealth v Verwayen (1990) 170 CLR 394, 445-6. That is, equity will permit the court to do what is necessary to avoid detriment, but no more.
77 In fact, neither the trustee nor the manager relevantly changed its position in reliance on any promise made by Mr Goulopoulos at the 19 October meeting. It is true that the trustee did write to unitholders to recommend Fitzwood's offer. But that is not a change in the trustee's position in any relevant sense. When I deal with the events of early November, they will show that the trustee and the manager executed agreements pursuant to which Fitzwood and Mapeka agreed to purchase the outstanding units. By those agreements the trustee and the manager gave certain warranties. The execution of those agreements could be regarded as a change in position that would support an estoppel. However, the agreements were rescinded by both the trustee and manager the day after they were executed when it was discovered that Fitzwood did not intend to pay the management fee. So neither the trustee nor the manager will suffer any detriment if Fitzwood is permitted to depart from its promise. In those circumstances there can be no estoppel.
78 I return to the facts once more. Ms A Bhatt, an employee solicitor at Middletons, prepared a draft sale of units agreement and a draft termination of management agreement on the instruction of Mr Cookes. A copy of the sale of units agreement was sent to Mr Goulopoulos. He requested certain changes. Important for present purposes is Mr Goulopoulos' requirement that the directors, Mr and Mrs Drapac (but not Mr Spiliotis), be made parties to the agreement and provide certain warranties. Because of their later importance, it is necessary to note the warranties that were requested. Mr Goulopoulos requested the following:
"(a) A warranty that there are no liabilities (including contingent liabilities) of the Trust …
(b) A warranty that the assets of the Trust will not at settlement be encumbered in any way other than the registered mortgage to BankWest. …
(c) A warranty as to the balance to be owed to BankWest as at the settlement date;
(d) A warranty that all accounts, financial and other material records of the Trust have been fully, properly and accurately kept and completed, are true and accurate in all respects and show a true and fair value of the state of affairs of the Trust …"
79 In late October 1999 Mr DeBono advised Mr Cookes that for taxation purposes the transaction should proceed in two stages: the sale of units should be completed first and thereafter the management agreement should be terminated. Mr DeBono explained that this was necessary so that the trustee could obtain a deduction for the management fee. At trial there was a suggestion that this advice was not given in good faith. The events that were to occur within a few days did cast a shadow over the advice, but I am satisfied that the advice was given honestly. Whether or not the advice was correct is not to the point.
80 As events happened, Mr Cookes prepared three agreements to give effect to the acquisition by Fitzwood and Mapeka of the outstanding units in the trust. There were two sale of units agreements, one by which Fitzwood would purchase a certain number of units and the other for Mapeka to purchase the remainder of the units. It was contemplated that after settlement each of them would hold one half of the issued units. The parties to the sale of units agreements were not only the vendors and purchaser, but also the trustee, the manager and their directors, Mr and Mrs Drapac. The additional persons were to be parties to the sale of units agreement to satisfy Mr Goulopoulos' request that certain warranties be given in favour of Fitzwood and Mapeka. Thus, the directors were to warrant that the financial statements of the trust were true and correct, the trustee was to indemnify Fitzwood against loss for all claims made against the trustee and the trust, and both the manager and the directors were to covenant that there were no undisclosed liabilities of the trust. The third agreement was the termination of the management agreement. Only the trustee and the manager were to be parties to that agreement.
81 Mr Cookes sent the agreements, and certain accompanying documents including instruments of transfer, to the parties for execution in early November. It was anticipated that the settlement of the transaction would occur on 8 November 1999. By 5 November all vendor unitholders had signed their respective sale of units agreements. Fitzwood and Mapeka also executed their parts of the sale of units agreements in anticipation of both the exchange of parts and settlement taking place at the same time. Counterparts of the sale agreements were executed by the trustee, manager and Mr and Mrs Drapac, shortly before the time appointed for settlement.
82 There is no direct evidence to this effect, but it may be assumed that the vendor unitholders agreed to sell their units for $1,373 per unit because they were of the belief that this is the amount per unit that would have been received by them if the trust was terminated after a sale of the Mt Alexander Road property at a price of $6.2 million, and all the obligations of the trust, including a management fee calculated on a cash basis, were discharged. There can be no doubt that Mr and Mrs Drapac signed the agreements on their own account and on behalf of the trustee and manager on that basis. They were soon to discover that their belief was but an illusion.
83 Settlement was to take place at Mr Cookes' office on 8 November 1999. At the settlement meeting, the parties exchanged executed parts of the sale of units agreements. Mr Goulopoulos then produced cheques for the purchase price, one payable to each unitholder. Mr Wain noticed that Mr Goulopoulos did not have a cheque for the management fee. He pointed this out. According to Mr Goulopoulos his response was that the management fee was not payable until the following day, when the management agreement would be terminated. Mr Drapac recalls Mr Goulopoulos saying that he had forgotten to bring the cheque. Neither Mr Cookes nor Mr Wain supported this evidence and I think it unlikely that Mr Goulopoulos would tell an outright lie. I am disposed to prefer Mr Goulopoulos' evidence on this point. At all events, Mr Drapac said that he would not allow the transaction to proceed unless the management fee was paid. Mr Cookes suggested that he retain the executed documents in escrow, and the parties meet the following day to complete the settlement. Mr Goulopoulos and Mr Drapac agreed to this proposal. But, before he left Middletons' offices, Mr Goulopoulos told Mr Cookes that he was not going to pay the claimed management fee and that he would tell this to Mr Drapac the next day. It is not clear why Mr Cookes did not inform Mr Drapac of this conversation, but that is the position.
84 The parties again met in Mr Cookes' boardroom during the afternoon of 9 November 1999. Before the meeting began, there was a private discussion between Mr Goulopoulos and Mr Drapac. Mr Goulopoulos told Mr Drapac that he would not pay the claimed management fee. When they returned to the boardroom, Mr Goulopoulos told those present (Mr Drapac, Mr Cookes, Ms Bhatt, Mr Spiliotis and Mr Wain) that he would not pay the fee. Mr Drapac said that unless the fee was paid the sale of units would not proceed. In an effort to prevent matters breaking down completely, Mr Cookes suggested that the sale of units agreements proceed to settlement without the warranties and indemnities from the trustee, manager and Mr and Mrs Drapac. However, Mr Goulopoulos said this was unacceptable. Mr Cookes then met privately with Mr Drapac and Mr Wain. They discussed the possibility of completing the settlement on condition that the claimed management fee was paid into a trust account pending resolution of the dispute as regards whether the fee was payable. Mr Drapac was not prepared to proceed on that basis. Mr Cookes then advised Mr Drapac that he should obtain independent legal advice because it seemed to Mr Cookes that a position of conflict had arisen between the interests of the trustee and the interests of the manager.
85 Mr Drapac had no alternative but to act on this advice. He immediately telephoned Mr Markowitz, a solicitor at Rigby Cooke. Mr Markowitz's advice confirmed Mr Drapac's view that he should not complete the transaction. Mr Drapac told Mr Cookes that there would be no settlement. Mr Drapac then put into train the events that led directly to this proceeding. He instructed Mr Wain to call the estate agent, Talbot Birner Morley, to enquire whether it still had a purchaser that was interested in purchasing the Mt Alexander Road property. (In a letter written the following day, the manager confirmed to the agent that if an acceptable offer was obtained, the property would be sold and the agent's commission would be paid in full.) Mr Drapac then returned to the boardroom and told Mr Goulopoulos that he would not settle the transaction until the management fee was paid. Mr Goulopoulos reiterated that he would not pay the fee. Mr Drapac then picked up the sale of units agreements that had been lying on the boardroom table and crossed out his and his wife's signatures. He said that he would take the documents and deliver them to Rigby Cooke. Mr Cookes requested permission to take copies of the documents, but his request was denied.
86 The manager contends that at the settlement meeting Mr Goulopoulos or Fitzwood made an agreement to pay the management fee. One of the claims it makes in this suit is for payment of the fee pursuant to that agreement.
87 There are many reasons why I will reject this claim for payment. The first is that it is implicit in the conduct of the parties at the relevant times that no contract would come into existence until all relevant documents had been executed and exchanged. Put another way, any arrangement between the parties was within the third category of agreement mentioned in Masters v Cameron (1954) 91 CLR 353, 360. That is, each party intended to proceed on the basis that written documents would record the transaction between them. Certainly the negotiations proceeded on that assumption and nothing indicates a departure from that position. I note in any event that the vendor unitholders were not involved in the negotiations, and it is clear that they would only be bound to sell their units when there was a written agreement to that effect.
88 Quite apart from the Masters v Cameron point, however, I cannot find in the facts any assent on the part of Mr Goulopoulos or Fitzwood to pay the claimed fee. The objective theory of contract (as to which see Taylor v Johnson (1983) 151 CLR 422) requires an outward manifestation of an intention to form a contract. Traditionally this is established by showing an offer and the acceptance of that offer. This does not mean that contracting parties must use language such as: "I promise to do X if you pay me Y", followed by a statement such as: "I agree". Whether a particular proposal amounts to an offer, and whether a response is to be regarded as an acceptance of that offer, are questions of fact, the resolution of which must take account of the past communications between the parties, the precise language used by them when it is said they reached agreement, and the circumstances in which the parties communicated with one another. It is not appropriate, however, for a court to find the existence of a contract in the absence of some clear indication that the parties are engaged in the process of offer and acceptance, although without the use of such formal language.
89 There are a number of matters that point against the coming into existence of an oral agreement to pay the claimed management fee. It is sufficient to mention only two, which I regard as decisive, though there are others. The first is that Mr Goulopoulos did not say that the fee would be paid. Nor did he say anything else from which a promise to pay could be inferred. Moreover, I believe that on 8 November 1999 both Mr Drapac and Mr Wain were of the view that it was unlikely that Mr Goulopoulos would come up with a cheque for the fee when it was agreed that the meeting should reconvene the following day. The second reason is that Mr Goulopoulos told Mr Cookes that neither Fitzwood nor Mapeka would pay the management fee. In those circumstances there is no basis upon which a court can construct a promise to pay.
90 Fitzwood also alleges that it has a claim arising out of the events of 8 and 9 November. Fitzwood alleges that the trustee and manager breached fiduciary duties they owed to Fitzwood and Mapeka when they did not proceed with the settlement. Fitzwood says that the sole reason the trustee and manager prevented the sale going ahead was Fitzwood's failure to pay the claimed management fee, a fee which in truth was not owing to the manager. Fitzwood says that this conduct was in breach of duty because the trustee and the manager placed the interests of the manager ahead of those of the beneficiaries, including Fitzwood and Mapeka.
91 It is not disputed that the trustee and manager were fiduciaries. They agreed to act for, and in the interests of, the unitholders. In the exercise of the powers conferred upon them (by the trust deed in the case of the trustee and by the management agreement in the case of the manager) they could affect the interests of the unitholders, such that equity would impose duties upon them to act in the interests of the unitholders: see generally Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. But the fact that the trustee and manager were fiduciaries does not mean that everything they did was subject to the obligations that are imposed upon a fiduciary. Thus it is necessary to look more closely at the facts, to ascertain whether the trustee and the manager have acted in a way which would render them accountable in a court of equity.
92 The reality is that the trustee and the manager, as well as Mr and Mrs Drapac, were in a position to prevent the settlement because they were parties to the sale of units agreements. They had given warranties and indemnities in favour of Fitzwood. In giving those warranties neither the trustee, the manager, nor Mr and Mrs Drapac were acting in the performance of any obligation imposed by equity. To the contrary, they were voluntarily subjecting themselves to potential liabilities only to allow the transaction (the sale of units) to proceed. This is not to suggest that the trustee, the manager, or Mr and Mrs Drapac were motivated by any sense of altruism. Commercial considerations were at the heart of their decision to become parties to the agreements. When it became clear that Fitzwood was not going to pay the management fee, the trustee, the manager and Mr and Mrs Drapac were entitled to withdraw their respective promises. A person whose assent to a contract has been produced by misrepresentation, whether fraudulent or not, is entitled to escape the bargain by rescission: Redgrave v Hurd (1881) 20 Ch D 1. Here, although the implicit statement or representation that induced the making of the sale of units agreements was a statement or representation as to a future event (that the management fee would be paid), such a statement or representation implies a statement of the promisor's present intention which, if untrue, can be treated as a misrepresentation: Edgington v Fitzmaurice (1885) 29 Ch D 459, 483. The trustee, the manager, and Mr and Mrs Drapac exercised their right to terminate their obligations, which had been induced by misrepresentation, notwithstanding that the trustee and the manager were fiduciaries. Their conduct in this respect was outside the scope of any fiduciary relationship that subsisted between the parties: Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Stoelwinder v Southern Health Care Network [2001] FCA 115.
93 There is a further reason why it would not have been appropriate for the trustee and manager to complete settlement once they discovered that the management fee would not be paid. The trustee and the manager were acting on behalf of the vendor unitholders at the settlement. They were to receive the settlement cheques on their behalf in exchange for the executed transfers of units. I have already pointed to the likelihood that the vendor unitholders had accepted the price offered by Fitzwood and Mapeka for their units, in the belief that the price was calculated on the basis that the claimed management fee was a liability of the trust. Before the trustee and manager could safely effect settlement on behalf of the unitholders in the changed circumstances (where on a notional termination of the trust, a unitholder would receive in excess of $1,373 per unit), it would have been necessary for them to obtain the unitholders' consent to go ahead with the transaction. Put differently, it is unlikely that the trustee and manager had authority to complete the transaction on behalf of the unitholders having regard to the new position taken by Fitzwood and Mapeka.
94 After the aborted settlement, Mr Cookes advised Mr Drapac that he should convene a meeting of unitholders to discuss the situation. Mr Drapac did not act promptly to convene the meeting. This enabled Mr Goulopoulos to take steps to remove the trustee from office. The trust deed provides that the trustee may be removed by "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." On 22 November 1999 Fitzwood wrote to all unitholders advising that the committee of management (Mr Goulopoulos, Mr McCormack and Mr Abrahams) had "formed the view that there is such an inherent conflict of interest between the Trustee and the Manager, because of the fact that Mr Michael Drapac is in effective control of both of these companies, that the Trustee should be removed and that a new trustee be appointed in its place." Enclosed with the letter was a Notice of Resolutions of Unitholders and a ballot paper. Unitholders were asked to complete the ballot paper and return it to Mr Goulopoulos as a matter of urgency. Set out below is the full text of these documents:
" NOTICE OF RESOLUTIONS OF UNITHOLDERS
OF MT ALEXANDER UNIT TRUST
The following resolutions have been proposed by Andrew Goulopoulos, John McCormack and Peter Abrahams being the Committee of Management of the Mt Alexander Unit Trust ("The Unit Trust") appointed by the unitholders for such purpose to represent the interests of all unitholders in the Unit Trust:
RESOLUTION NO. 1
That Unique Goal Pty Ltd ACN 064 926 843, which is the current trustee of the Unit Trust, pursuant to the provisions of clause 29 of the Deed of Trust of the Unit Trust, be removed as the trustee of the Unit Trust.
RESOLUTION NO. 2
That a new corporate trustee be registered of which:
(a) The Directors are Andrew Goulopoulos, John McCormack and Peter Abrahams; and
(b) The shareholders are Andrew Goulopoulos, John McCormack and Peter Abrahams to hold the shares beneficially for and on behalf of the unitholders in proportion to their respective number of units which they hold in the Unit Trust.
RESOLUTION NO. 3
Pending registration of the new corporate trustee that Andrew Goulopoulos, John McCormack and Peter Abrahams be appointed as trustees of the Trust in the place of Unique Goal Pty Ltd.
RESOLUTION OF UNITHOLDERS
OF MT ALEXANDER UNIT TRUST
RESOLUTION NO. 1
YES / NO
If you are in favour of the resolution please circle YES
If you oppose the resolution please circle NO.
RESOLUTION NO. 2
YES / NO
If you are in favour of the resolution please circle YES
If you oppose the resolution please circle NO.
RESOLUTION NO. 3
YES / NO
If you are in favour of the resolution please circle YES
If you oppose the resolution please circle NO."
95 The trustee obtained a copy of these documents and sent them to Mr Cookes for advice. Mr Cookes wrote to Mr Goulopoulos on 25 November threatening to take proceedings to restrain any action on the resolutions. He asserted that the unitholders had been misled in various respects by the material that Mr Goulopoulos had sent to them. In the event, however, no proceedings were instituted.
96 In the meantime, most unitholders returned their ballot papers to Mr Goulopoulos. According to Mr Goulopoulos, unitholders holding 1,050 units (that is, 75 per cent of the units on issue) voted in favour of the removal of the trustee. If the trustee was removed from office, as Fitzwood contends, that will have important consequences on later events. The assertion that the trustee was removed is challenged, though not by the trustee itself. The manager, strongly supported by Middletons, put forward a number of reasons why I should hold that the trustee remained in office, notwithstanding the votes of unitholders.
97 The first ground is an allegation that the unitholders were not given necessary information to enable them to make an informed decision on the proposed resolutions. It is said that Mr Goulopoulos was under a fiduciary obligation to provide that information, as he was a member of the committee of management and wrote to the unitholders in that capacity when calling for the removal of the trustee.
98 I am prepared to accept that a power of removal of a trustee may be a fiduciary power that must be exercised for the benefit of the beneficiaries and not for the benefit of the donee of the power, at least when the donee is not a beneficiary, although much will depend upon the terms of the trust instrument: In re Skeats' Settlement (1889) 42 Ch D 522, 526; Inland Revenue Commissioners v Schroder (1983) STC 480, 500. However, it is not likely that such an obligation will be imposed when it is the beneficiary that has been given the power of removal. In that circumstance it may usually be assumed that the beneficiary is entitled to act in his own interests when exercising the power. Unitholders are not trustees for the trust or for one another, and the relations between them cannot be compared with the relations between fiduciaries such as trustee and beneficiary, partners, principal and agent, and so on. However, while a beneficiary may act in his own interests, I do accept that there should be some limitations on the exercise of a power of removal. One restriction that I would adopt is that the power must not be exercised fraudulently. There may be other limitations as well.
99 Be that as it may, neither Mr Goulopoulos, as a member of the committee, nor the committee as a whole, owed duties of a fiduciary character in relation to the power of removal. In the first place, the trust deed confers that power on unitholders and not on the committee. Under the trust deed the committee plays no role in the removal of the trustee. That is not to say that when it comes to exercising the powers conferred by the trust deed, the committee is not in a fiduciary relationship with unitholders. But that relationship only exists to the extent, and for the purpose, of the committee's functions, and not otherwise. That Mr Goulopoulos wrote his letter to unitholders on behalf of the committee does not advance the position. Clothing his conduct with a status it did not have, is not a sufficient reason to impose equitable obligations in this case.
100 Nevertheless I should also deal with this point on the assumption (which is contrary to what I have found to be the true position) that Mr Goulopoulos had a fiduciary obligation when proposing the resolutions for the removal of the trustee. I will also assume for the moment that Mr Goulopoulos did not provide accurate information to the unitholders, so that it might be said that they have a right in equity to have their votes disregarded.
101 The difficulty with this argument is that any misconduct on the part of Mr Goulopoulos in procuring votes for the removal of the trustee at best gives rise to a personal right in each unitholder to decide whether to withdraw his vote. After giving the matter due consideration, a unitholder might wish his vote to stand, although he has been misled. Put another way, a unitholder's vote will not automatically be disregarded even if it be shown that it was procured by misrepresentation or incomplete information. This is important, for in this case only one unitholder, Vanpour Pty Ltd, has sought to withdraw its vote. Moreover, none of the parties to this suit have standing to ask that a unitholder's vote be disregarded. That is a claim that is personal to each unitholder.
102 The second ground raises an interesting point. The manager challenges the assertion that a sufficient number of unitholders voted in favour of removal. It says that two unitholders, Betery Pty Ltd (which held 33 units) and Alzkaz Pty Ltd (which held 50 units) failed to execute their ballot papers and hence did not signify their assent to the removal. The manager also points to the fact that Vanpour (100 units) asked to have its vote withdrawn. It refers to a letter dated 29 November 1999 from Mr Iva, a director of Vanpour, to Mr Goulopoulos that relevantly states "I would like to withdraw my Resolution because I feel I was not informed of all the facts associated with Mt Alexander Unit Trust." Before he sent his letter Mr Iva discussed the matter with Mr Wain. Mr Iva told Mr Wain that he had voted in favour of removal because Mr Goulopoulos said that Vanpour "would receive [its] money quicker if the trustee was removed." Mr Wain told Mr Iva "that Goulopoulos had refused to provide all the monies at settlement, in particular the management fee." This was partially untrue, as Mr Wain well knew. Mr Goulopoulos had produced cheques to pay the purchase price for all the units. Nevertheless, as Mr Wain says, Mr Iva was concerned that he voted in favour of the resolution and sought to withdraw his company's vote.
103 I am satisfied that Vanpour was entitled to withdraw its vote. Generally speaking, a person entitled to vote for or against a particular proposition, may change or withdraw his vote before the result is finally announced: Missouri v McGann 64 Mo. App. 225 (1895); Zachary v Milin 293 NW 770 (1940). Here I think that Vanpour was entitled to withdraw its vote because it attempted to do so before the result of the resolution was known. Clause 29 of the Trust Deed allows unitholders to either pass or agree to a resolution to remove the trustee. I will assume (without deciding) that for a resolution to be "passed", there must be some type of meeting, however informal, where the resolution may be passed. A meeting is not the only manner in which there may be a valid resolution for the removal of the trustee. The unitholders are able to "agree" on removal. Agreement merely requires a meeting of minds. But I cannot accept that there will be a relevant meeting of minds, unless there is some outward manifestation of the agreement. By saying this I do not wish to deny the possibility that there can be a provision for the automatic removal of a trustee in certain circumstances. I am sure that many such provisions can be found. However, when unitholders are required to "agree" to the removal of a trustee, there must be some indication that such an agreement has been reached, otherwise it is not possible to know whether the trustee still holds office. There was no such indication as at 29 November 1999, as I will show when I deal with another aspect of the evidence.
104 I must now deal with the ballots of Betery Pty Ltd and Alzkaz Pty Ltd. Each company had agreed to sell its units to Mapeka on 23 November 1999. On that day each company gave Mr Goulopoulos a limited power of attorney "to do on its behalf anything that it may lawfully authorise an attorney to do in its capacity as a unitholder of the Trust". Mr Goulopoulos signed the ballot paper on behalf of both Betery and Alzkaz, but failed to record a vote for or against any of the resolutions. It seems that the ballot paper of Fitzwood suffers from the same deficiency.
105 It may be assumed that Mr Goulopoulos intended to vote on behalf of Betery, Alzkaz and Fitzwood in favour of the removal of the trustee. But as I have said, the trust deed requires the unitholders to "agree" to the removal of the trustee, and there must be evidence of their agreement. Here there is a difficulty for Fitzwood. Let me explain why that difficulty arises.
106 On 29 November 1999 Mr Goulopoulos replied to Mr Cookes' threat of injunction proceedings. In his letter Mr Goulopoulos did not claim that the unitholders had removed the trustee, though it seems that by then Mr Goulopoulos had received all the ballot papers. This is what Mr Goulopoulos did write:
"I suggest that the threatened action of the Trustee would have been premature and unnecessary if at that time there was an insufficient number of unitholders in favour of the resolutions proposed which of course the Trustee was then not in a position to know.
Until the result of the resolutions was known and communicated to the Trustee I suggest that the Trustee would be in breach of its duty to the unitholders if any proceedings were to be issued. After all is not the interest of the Trustee the interest of the unitholders, and if they resolve to remove the Trustee, what is the loss to the Trustee?
If on the other hand the unitholders were to resolve not to remove the Trustee, what is the loss to the Trustee and/or the unitholders?"
107 The clear implication behind these statements is that not all unitholders had yet agreed to the removal of the trustee. The facts show that the only unitholders who could fall into this category are Fitzwood, Betery and Alzkaz, all of whom were acting through Mr Goulopoulos. In other words, if I take Mr Goulopoulos at his word, the result is that none of these three companies could have agreed to the removal of the trustee. This may seem strange, because it would have suited Mr Goulopoulos to remove the trustee then and there. Yet Mr Goulopoulos knew that there was a real risk of legal proceedings if that occurred. I suppose that this risk is what held him back. I am of opinion that at this point in time Mr Goulopoulos did not wish to have the matter taken to court so he did not give his assent to the removal of the trustee on behalf of Betery, Alzkaz or Fitzwood. In these circumstances, it is not possible to conclude that as at 29 November 1999 the requisite number of unitholders had agreed to remove the trustee.
108 The next relevant event that occurs in this saga is a meeting of unitholders on 30 November 1999. The meeting was held at Mr Drapac's office. All unitholders were present, either in person or by a representative. The manager and Mr Drapac contend that one unitholder was absent, but they seem to have overlooked the fact that Betery was present through Mr Goulopoulos. Others who attended the meeting included Mr Cookes and Ms Bhatt from Middletons, Mr Markowitz from Rigby Cooke, all the directors of the trustee including Mr Spiliotis, and Mr Wain. There is a good deal of controversy about what occurred at the meeting. The principle dispute is whether the parties reached an agreement to settle the dispute between Mr Goulopoulos on the one hand and the trustee and the manager on the other. One other dispute is whether the trustee undertook not to deal with the property without consent. To determine what actually occurred I rely particularly on the evidence of Ms Bhatt, especially the notes that she took at the meeting. Her recollection of events appears to be much better than that of the other participants. I have also been assisted by the notes of the meeting made by Mr Spiliotis, but I have ignored Mr Goulopoulos' reworking of those notes.
109 I will set out, as well as I can, what transpired. But first I will dispose of the claim by Fitzwood that there was final agreement to resolve the dispute between the parties. I include the unitholders as parties to the dispute because they did not complete their respective contracts in November. At the beginning of the meeting all unitholders were in attendance. One of the unitholders was Empara Pty Ltd, the holder of 150 units. It was represented by Mr Abrahams. The meeting lasted for several hours, but Mr Abrahams only stayed for about one hour. He said, and this was not disputed by anyone, that when he left "nothing had been resolved". In his absence there could be no resolution of the whole dispute. There are other reasons why the dispute was not resolved, and they will be mentioned later.
110 I now turn to the meeting. It was opened by Mr Cookes. Before matters progressed, Mr Goulopoulos raised the position of the trustee. He said that unitholders had resolved to remove the trustee and that he did not recognise that the trustee still remained in office. He was, he said, prepared for the meeting to proceed subject to this reservation. I should mention in passing that shortly before the meeting Mr Goulopoulos, Mr McCormack and Mr Abrahams met and agreed that unitholders should not act on the resolution to remove the trustee pending the outcome of the meeting.
111 Mr Cookes reported on the aborted settlement of November 1999. He explained briefly why settlement had not taken place and what had occurred since then, summarising the correspondence that had passed between the parties. He asked both Mr Goulopoulos and Mr Drapac to comment. Each made statements justifying his position. Mr Goulopoulos said that he had offered to pay the disputed fee into a trust account pending resolution of the dispute, and accused Mr Drapac of a conflict of interest. Mr Drapac explained that the management fee was due and that he had given extensive warranties to enable settlement to take place.
112 Mr Cookes then led a brief discussion about the committee of management, and its powers under the management agreement. The proposal to change the trustee was then raised, but discussion on the topic was deferred by agreement.
113 The next item was how the dispute about the management fee could be resolved. Mr Cookes outlined a number of alternatives (litigation, mediation and simple agreement between the parties). He stated that the trustee's recommended solution was to submit the matter to a barrister for advice, provided that the parties agreed to act on that advice.
114 Mr Goulopoulos then put forward a settlement proposal. He said he would purchase the units of all unitholders who did not wish to participate in whatever settlement arrangement was approved. The proposal contemplated that unitholders who wished to sell their units and pay a proportionate share of the management fee could do so, unitholders who wished to sell their units but dispute the management fee could do that, and unitholders who wished to retain their units and stand outside any dispute, would be free to take that course.
115 The meeting broke up to consider this proposal. When it reconvened, with two participants missing, Mr Markowitz on behalf of the manager, said that his client would not accept the proposal. The manager's position, as explained by Mr Markowitz, was that it would agree either to mediate the dispute with individual unitholders with a view to entering into a formal agreement with all the unitholders which could be enforced by action, or have the dispute resolved by litigation.
116 The meeting then turned to consider the status of the trustee. Mr Goulopoulos indicated that unitholders would reserve their position on the resolution to remove the trustee provided the trustee undertook not to deal with the trust assets without the consent of unitholders, and for that purpose Mr Cahill and Mr Abrahams would represent the unitholders. He also said that the trustee should reinstate McCormack & Partners, which had recently been removed as the trust's accountants, and that the trust should make certain interim distributions to unitholders provided sufficient money was retained to meet the trust's liabilities.
117 The evidence indicates that Mr Drapac gave an undertaking that the trustee would do each of the things requested. With regard to the undertaking not to deal with trust assets, Mr Cahill said that he could recollect the undertaking being given. The undertaking is referred to in Mr Spiliotis' notes. Ms Bhatt also made a record of it. Her note reads "trustee and manager U/T not deal with trust assets and trust property w/o consent of U/H. P Abrahams & P Cahill to be the rep of U/H." After the meeting Mr Abrahams was informed of the undertaking, and of his appointment to the "committee". The existence of the undertaking is confirmed by the conduct of the trustee and manager in the weeks following the meeting. For example when it was necessary to enter into a lease, the consent of the committee was sought. Ms Bhatt also wrote a letter to that effect to Mr and Mrs Drapac on 10 December 1999. In that letter she reminded Mr and Mrs Drapac that "both the Trustee and the Manager agreed not to deal with the Trust property without the consent of the Committee. In view of this I would advise the Trustee that all future dealings of this nature should first be put to the Committee for its consent". She advised that this agreement covered the grant of a lease of level 4 of the Mt Alexander Road property. According to Mr Wain, there was "constant communication" with the committee, through Mr Cahill, as he was the easiest person to contact.
118 There was another short adjournment while the unitholders considered their position. When the meeting reconvened Mr McCormack said that the proposals were "confirmed" but Mr Markowitz noted that the "conditions were to be set out". By this Mr Markowitz meant that the matters that had been discussed should be reduced to writing. The meeting then broke up with Mr Markowitz, Mr Cookes, Ms Bhatt, Mr Spiliotis, Mr McCormack and Mr Pruden being delegated the task of preparing a draft agreement. The group began to prepare a draft terms of compromise. The document was not finalised that day, but I should mention some of its principal features. The terms assumed that some unitholders would participate in a settlement with the manager and agree to pay the manager a share of its fee, and some unitholders would remain outside such an agreement, perhaps not even becoming parties to it. The draft document did not indicate which unitholders fell into each of the two categories, no doubt because unitholders had not indicated a preference one way or the other. Provision was made for the dispute to be referred to mediation, and some machinery clauses were set out. The draft terms also recorded the arrangement that the manager and the trustee would not deal with the trust property without the consent of Mr Abrahams and Mr Cahill. Ms Bhatt was asked to complete the document. She began that task the following day.
119 I said earlier that what occurred at the meeting did not result in a concluded agreement. I gave one reason for that conclusion, and said that there were others. The other reasons include the following. First, the comment of Mr Markowitz shows that the manager did not intend to be bound by any agreement until it had been documented. Second, the proposed arrangement was very complex. What had been discussed at the meeting only dealt with matters of broad principle. Many issues, including issues of some importance, still required attention. For example, and this is only one important matter, there was still an outstanding question concerning the warranties, if any, that should be given to the purchasers. This was the subject of detailed correspondence between Mr Goulopoulos, Ms Bhatt and Mr Markowitz after the meeting, and was a matter of obvious importance to Mr Goulopoulos. Yet this had not been discussed at the meeting. In such circumstances it could not be supposed that the parties had arrived at an agreement: Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 131. Third, it was not known which unitholders would sell their units, which unitholders would retain their units and which unitholders were willing to pay a part of the management fee to the manager.
120 On the other hand, I do accept that there was an agreement between at least the trustee and manager and Fitzwood that the trustee and manager would not deal with the trust property without the consent of the committee, constituted by Mr Abrahams and Mr Cahill. There was consideration for that agreement, namely that Fitzwood would not take any step to remove the trustee in implementation of the resolution of unitholders. That the resolution for the removal of the trustee may not have been effective is not to the point: Miles v New Zealand Alford Estate Company (1886) 32 Ch D 266.