Fitzwood Pty Ltd v Unique Goal Pty Ltd

R Nolan "A Fiduciary Duty to Disclose" (1997) 113 Law Quarterly Review 220 Lewin on Trusts (17th ed, 2000) IIIA, Scott on Trusts (4th ed) 1988

FITZWOOD PTY LTD v UNIQUE GOAL PTY LTD (In Liquidation), BRIAROAKS PTY LTD, MICHAEL DRAPAC and PINEROSS PROPERTY PTY LTD

BRIAROAKS PTY LTD v FITZWOOD PTY LTD, MAPEKA PTY LTD, MAPWOOD PTY LTD, CEMAK PTY LTD, NEJAT MACKALI and UNIQUE GOAL PTY LTD (In Liquidation)

BRIAROAKS PTY LTD and MICHAEL DRAPAC v PRICE BRENT (A firm), COLTMANS PRICE BRENT (A firm) and MIDDLETONS MOORE & BEVINS (A firm) VG 754 of 1999

JUDGE: FINKELSTEIN J PLACE: MELBOURNE DATE: 19 NOVEMBER 2001

and: UNIQUE GOAL PTY LTD (In Liquidation),

1 The Mt Alexander Unit Trust was established in 1994. The first respondent, Unique Goal Pty Ltd, (in liq) was its trustee. The trust was set up to purchase, manage the leasing of, and resell the building at 641 Mt Alexander Road, Moonee Ponds. The purchase price for the building was made up of the subscription price for units in the trust and borrowed funds. In all, twelve unitholders subscribed for units in the trust. The applicant, Fitzwood Pty Ltd, was one of the subscribers and received 200 units at a cost of $200,000. Later Fitzwood purchased a further 400 units for $500,000. In November 1999 Fitzwood and another unitholder, Mapeka Pty Ltd, made an unsuccessful attempt to gain control of the trust by purchasing all the units not owned by them. The acquisition was blocked by the trustee and the second respondent, Briaroaks Pty Ltd, a company that had been appointed to manage the trust. They blocked the sale because Fitzwood would not pay the share of profits component of the management fee claimed by the manager. Immediately after the aborted sale the trustee appointed an agent to sell the Mt Alexander Road property. The agent found a purchaser a few weeks later. When this was discovered, Fitzwood obtained an interim injunction to restrain the sale, but the trustee signed a contract before it had notice of the order. The injunction was extended to prevent the completion of the sale pending trial. However, the purchaser would not await the trial and rescinded the contract. Ultimately Fitzwood and Mapeka were able to acquire the outstanding units in the trust and the claimed management fee is still outstanding. 2 The main questions that arise in this action are concerned with the obligations that are owed by the "promoters" of the commercial venture for which the trust was established, the nature of the duties owed by the trustee and manager to the unitholders of the trust, and whether those duties were breached. The dispute was precipitated by the claim for the management fee. The claim led to disagreement about the proper construction of the remuneration clause (cl 9), in particular how the manager's share of profits is to be calculated. On one reading there is little or no profit remaining after relevant deductions to be shared with the manager. It will be necessary to resolve this issue and, in the light of the answer, decide whether the management agreement should be rectified to give effect to what the manager says was actually intended by cl 9. If the manager is not entitled to share in the profits of the venture, it alleges negligence against the solicitors who prepared the management agreement, and seeks damages and other relief. 3 With this brief introduction let me now deal with the facts in a little more detail. To begin, I will introduce the principal characters, though not in order of appearance. There are two main actors. The first is Michael Drapac, a property developer. He is a director of both the trustee and the manager. That he held both offices significantly contributed to many of the problems that I will recount. The other main participant is Andrew Goulopoulos, a solicitor with GSM Lawyers. Mr Goulopoulos controls Fitzwood. When Fitzwood and Mapeka decided to purchase the outstanding units in the trust, Mr Goulopoulos was aware the manager would treat the acquisition as a sale of the trust property thereby giving it an entitlement to a fee in excess of $450,000. The immediate cause of this action is Mr Goulopoulos' wish to take control of the trust and not pay the fee. The persons who play a lesser role include Nejat Mackali, a property developer and an acquaintance of Mr Drapac. Mr Mackali helped establish the venture, and first introduced it to Mr Drapac. Throughout the affair Mr Drapac was assisted by Ashley Wain. He was an employee of Mr Drapac's firm, Michael Drapac & Associates. There are a number of solicitors who play a significant role in the dispute, some of whom are parties to the proceeding. The solicitors are partners and employees of Price Brent, which merged with another firm to become Coltmans Price Brent, and merged again to become Middletons Moore & Bevins. Throughout the relevant period the solicitors acted for the trustee. Andrew Cookes, a partner, undertook or supervised the employee solicitors who undertook the legal work. Two other partners of Price Brent, Mark Pruden and Peter Abrahams, played a role. Through their respective family companies, Warwood Pty Ltd and Empara Pty Ltd, they acquired units in the trust. Joseph Cahill was another investor in the trust through his company, Hillcorp Management Pty Ltd. For a time Mr Abrahams and Mr Cahill were appointed to represent the interests of unitholders. Finally there are the chartered accountants, McCormack DeBono and Co. The firm acted as accountant to the trust. John McCormack, whose family company McCormack Investments Pty Ltd owned units in the trust, and Mr DeBono performed the work. 4 The relevant events begin in 1994. In June of that year Mr Mackali discovered that the property at 641 Mt Alexander Road was for sale. The property is an eight storey building comprising strata units, with retail shops on the ground floor and offices on the upper floors. Mr Mackali spoke to Mr Drapac, Mr Cahill and Henry Shapiro, another developer, and proposed that they put together a group of investors and form a unit trust to purchase the property, with money contributed by the investors and borrowed from a bank. 5 Mr Drapac, Mr Mackali and Mr Cahill decided to prepare an information memorandum about the investment. A draft information memorandum (sometimes referred to as an investment proposal) was prepared and given to a number of prospective investors. It is necessary to refer to some parts of the document. The investment is described as: "A sole purpose Unit Trust [to be] formed to purchase and manage the leasing and resale of areas within the building." There is a summary of the "Development Strategy": "The strategy with these areas is to progressively tenant and sell them to crystallise the profit. In the medium term the whole of the property will be resold and the Trust wound up after distribution of cash on hand. It is anticipated that the life of the Trust will be twelve to eighteen months." There is a description of the manner in which the anticipated profits are to be divided: "The profits generated by the development are to be split between the investor and the developer of a 50/50 basis. The investor will receive the first $500,000 profit generated, the developer the next $500,000 generated, and all further profit will be divided half each at the time it is distributed." There is a feasibility study showing an anticipated potential net profit of $2,347,000 comprising total potential gross realisations ($8,012,000) less total project costs ($5,665,000). Two points should be noted. First, the gross realisations are the proceeds of sale of the various strata title units. Second, the project costs include a management fee of $100,000. 6 Mr Mackali was a client of GSM Lawyers and knew Mr Goulopoulos. He asked Mr Goulopoulos if he was interested in investing in the project. He provided Mr Goulopoulos with a copy of the draft information memorandum. Mr Mackali told Mr Goulopoulos that the distribution of the profits between the investors and the developers had altered from that stated in the information memorandum. Instead of the investors and developers each receiving 50 per cent of the profits, it was now proposed that 70 per cent go to the investors and the balance to the developers. Mr Goulopoulos was given an amended information memorandum which recorded the change. The information memorandum explained: "The profits generated by the development are to be split between the investors and the developer on a 70% to unitholders / 30% to the developer basis described. As a cash return is generated by the sale of areas within the building, the funds will be distributed in the following order. · Repay outstanding loan funds. · Return of capital to the unitholders. · Distribute profits on the 70/30 basis." 7 Price Brent became involved at the suggestion of Mr Coe, another prospective investor. Mr Coe and his company Gateway Concepts Pty Ltd were clients of Price Brent. He told Mr Cookes that if his firm could find investors for the venture, the firm would get all the legal work. This is how Mr Pruden and Mr Abrahams, through their respective companies, became unitholders. 8 In late June 1994 Mr Drapac instructed Mr Cookes to prepare a trust deed to establish what became known as the Mt Alexander Unit Trust. Mr Cookes was told that Unique Goal would be the trustee and that its directors were Mr Drapac, Mr Mackali and Mr Spiliotis. Mr Spiliotis was a partner in GSM Lawyers, and had agreed to become a director at the request of Mr Mackali. 9 On 7 July 1994 Mr McCormack asked Mr Cookes to prepare a management agreement under which the trustee would appoint two managers to manage the venture. Mr Cookes was told the managers would be Briaroaks, which was controlled by Mr Drapac, and Cemack Pty Ltd which was Mr Mackali's company. Mr Cookes was instructed that the manager's fee would be "a basic fee of $50,000 plus a success fee equal to 30% of the net profits before tax of the project". To assist in the preparation of the management agreement, Mr Cookes was given a copy of a management agreement between Gateway Concepts, as owner of a particular development, and Mr Drapac its manager. I mention this agreement because the management fee charged by Mr Drapac was "9 per centum, of the gross income collected from the Property (comprising either sale proceeds or rental or both)". 10 Mr Cookes prepared a deed to establish the trust in the first few days of July. A copy was sent to Mr Goulopoulos, probably by Mr Mackali. In mid July Mr Goulopoulos faxed Mr McCormack requesting a copy of the management agreement. Mr McCormack did not have a copy and told Mr Goulopoulos that he would forward the agreement to him when it became available. In fact Mr Cookes had not yet produced a draft agreement. Although a draft was prepared later in the year, Mr Goulopoulos did not obtain a copy until late 1997. 11 The trust deed was executed on 11 July 1994. The original unitholders are listed in a schedule. In all, there were twelve unitholders who between them received 1300 units. Fitzwood is shown as having been allotted 200 units. Later, the trustee issued a further 100 units to bring the total number of units on issue to 1400. The trustee purchased the Mt Alexander Road property shortly after the establishment of the trust. 12 The task of drafting the management agreement was delegated to Mr Dermenzies, an employee solicitor at Price Brent. The drafting history of the remuneration clause is of some importance. In the first draft the remuneration clause (cl 10) provided for the payment to the manager of a base fee of $50,000 (clause 10.1.1) together with a "success fee of 30% of net profits before tax of the Project calculated and payable in accordance with Clause 9" (clause 10.1.2). Clause 9 set out the formula for the determination of the net profit: "9.1 The net profits before tax of the Project shall be calculated by deducting from the net proceeds derived by the Project from the sale and leasing of the Property or part or parts thereof the following: 9.1.1 Firstly, all costs and expenses (including all legal costs, financing costs, registration fees, stamp duty, agent's fees, management fees, broker's fees and all other relevant fees or costs) in relation to the purchase and transfer of the Property to the Trustee; 9.1.2 Secondly, all costs and expenses (including all legal costs, financing costs, registration fees, stamp duty, agent's fees, advertising and marketing fees, management fees, broker's fees and all other relevant fees or costs) in relation to leasing of the Property or part or parts thereof; 9.1.3 Thirdly, all holding, running, maintenance and capital costs (including all rates, taxes, insurances, land taxes, levies, management fees, maintenance and service agreement fees and all other related costs or expenses) which are not otherwise paid or reimbursed by any of the lessees of the Property; 9.1.4 Fourthly, all costs and expenses (including all legal costs, financing costs, registration fees, agent's fees, advertising and marketing fees, management fees, broker's fees and all other relevant fees or costs) in relation to the sale of the Property or any part or parts thereof; 9.1.5 Fifthly, repayment of all loan moneys (including payment of all interest) borrowed by the Trustee for the purposes of acquiring the Property and conducting the Project and payment of all legal fees and financing fees and costs (including registration fees and stamp duty) in relation to obtaining discharges of any mortgages over the Property or part or parts thereof; 9.1.6 Sixthly, any amounts outstanding to the Manager in relation to the base fee of $50,000.00 payable by the Trustee pursuant to Clause 10.1; and 9.1.7 Seventhly, repayment to the Unitholders of all unit subscription contributions made by them in relation to their unitholdings or otherwise." 13 Clause 9 brought about a change to the base fee payable to the manager. The information memorandum stated that the base fee was $100,000 and the fee was now $50,000. Mr Drapac said that at the first unitholders meeting, which was held on 20 September 1994, he "unilaterally decided" to reduce the fee as the initial amount was too high. Mr Drapac must be mistaken. He had decided to reduce the fee before 12 September, when the first draft management agreement came into existence. Perhaps Mr Drapac meant that at the meeting he informed the unitholders of his previous decision to reduce the base fee. 14 Mr Dermenzies sent the draft management agreement to Mr McCormack on 12 September. The covering letter stated it was sent "for consideration by the parties and unitholders of the Mount Alexander Unit Trust." A day later Mr Dermenzies prepared an amended formula for the calculation of the net profit. The evidence does not show what prompted the change: Mr Cookes only said that it was "a possible amended formula for calculation of profit". Mr Dermenzies sent the revised formula to Mr DeBono, describing it as "[a]mended formula for calculation of trading profit, capital profit and distribution … for your comment and approval for incorporation into Clause 9 of the Management Agreement." He asked Mr DeBono to "please telephone to discuss". The amended formula is of some significance. It was in the following terms: "CALCULATION OF PROFITS AND DISTRIBUTION 1. Rent Licence fees Interest received _____ _____ Less Rates and outgoings unrecouped Interest Borrowing expenses Depreciation Division 10D Allowance _____ _____ Net trading profit ________ (To be distributed to unitholders) 2. Total depreciation and Division 1OD allowances from time of purchase to time of sale to be distributed to all unitholders. 3. Net sale proceeds (after deducting priority distribution of total amount of depreciation and Division 10D allowances to unitholders as per item 2 above) = X 30% of X to be deducted from this amount and paid as fee to Manager. Balance (X less 30% fee payable to Manager) to be paid to unitholders for distribution amongst them." 15 The principal difference between the amended formula and that appearing in the draft management agreement is that included among the expenses to be deducted from the income of the trust are amounts for "depreciation" and "Division 10D allowance". The latter item is a reference to Division 10D of the Income Tax Assessment Act 1936 (Cth), which allowed deductions for capital expenditure on certain building work and structural improvements; see now Division 43 of the Income Tax Assessment Act 1997 (Cth). The significance of these items will become apparent when I describe the dispute that subsequently arose about the calculation of the management fee. At this stage it is sufficient to note that the two deductions are of items that are commonly referred to, and the parties referred to them, as non-cash expenses. 16 Mr Dermenzies and Mr DeBono discussed the new formula on 19 September 1994. According to his contemporaneous file note, Mr Dermenzies was told by Mr DeBono that at a meeting with Mr Drapac he had been told that the manager's share of the profit should be "30 % of all profits": (emphasis in original). Mr DeBono understood this to mean that non-cash expenses, such as depreciation and the building allowance, were not to be deducted from income to determine the net profit of the project. Mr Dermenzies relayed this information to Mr Cookes. 17 Execution copies of the management agreement were prepared in late November 1994 and sent to Mr Drapac. Clause 9 remained in its original form. Mr Cookes sent a copy of the management agreement to Mr DeBono under cover of the letter which read, in part: "We note that the profit share formula set out in Clause 9.1 includes for a profit share from sale and leasing of the property. In view of past concerns raised by a few unitholders in this regard it is important to consider whether or not this precise profit share formula should be formally agreed by unitholders. Our recollection is at the end of the day that although an unusual profit share arrangement the 30% of net income proceeds was probably only a marginal cost to the investors in any event." [grammatical errors in original] 18 The reference to "past concerns raised by a few unitholders" relates to a suggestion made in September by Mr Pruden and Mr Abrahams that the managers should receive only 30 percent of the profit on the sale of the property. However, because it was accepted that the Mt Alexander Road property would be sold within a short period (the draft information memorandum said it would be sold within 9 to 15 months, while the final version indicated it would be 12 to 18 months), Mr Cookes correctly observed that if the managers also received "30% of net income proceeds" (a reference to rental income) there would only be "a marginal cost to the investors". 19 An important meeting of unitholders was held on 19 December 1994. One of the topics discussed was the management fee. There is, however, a controversy about what was said. Not all unitholders attended the meeting. The attendees included Mr Pruden, Mr McCormack, Mr DeBono and Mr Cahill. Mr Drapac was also at the meeting representing the trustee and his management company. Mr Drapac recalls that Mr Pruden raised a query about the management fee. In his first affidavit Mr Drapac said: "Pruden raised a question as to who was to receive the benefits of any depreciation and other non-cash allowances and their affect [sic] if any on the management fee." In a later affidavit Mr Drapac expanded on this. He said that he asked Mr DeBono to clarify how non-cash expenses were taken into account and who was to receive the benefit of such allowances, and that Mr DeBono replied that he would look into the matter. Mr Drapac then recalls informing Mr Pruden that: "if there were to be any benefits obtained from depreciation or other non cash items, that these could be applied to the unit holders share of profit and not the manager's share of net profit." Mr Cahill remembers the discussion about the management fee. According to Mr Cahill, Mr Drapac said that: "he would be happy for all non-cash benefits to go to unit holders as long as the management fee was calculated at 30% of all cash profits as originally intended." Mr McCormack and Mr DeBono both recall attending the meeting but neither can remember any discussion about the management fee. This is surprising, especially in the case of Mr DeBono because of his earlier involvement in discussions concerning the management fee and how it was to be calculated. 20 Mr Pruden's evidence stands in marked contrast to that of the other witnesses. He does not recall the meeting at all. In his evidence in chief, Mr Pruden said that on 19 December a number of unitholders met to inspect the Mt Alexander Road property but they did not hold a meeting. I am in no doubt that Mr Pruden is incorrect in his recollection. I am satisfied that there was a meeting of a number of unitholders, as the other witnesses say, and that during the course of the meeting, Mr Pruden said that in calculating their share of the profit, the managers should not get any benefit from the non-cash expenses of the trust. 21 Mr Drapac gives two accounts of his reaction to Mr Pruden's comments. One version is that he spoke to Mr Cookes and instructed him "that any benefits relating to any non-cash items would where possible be applied to the unit holders profit." The second version is that he asked Mr McCormack to speak to Mr Cookes and instruct him to amend the management agreement to take account of Mr Pruden's comments. 22 The second version does not accord with Mr McCormack's evidence. Mr McCormack said that he was not involved in any discussion about the calculation of the management fee, and I am prepared to accept this evidence. Mr Cookes also has a different recollection. He said that in early January 1995 he discussed the management agreement with Mr Pruden and was told that in the calculation of the net profit of the project, non-cash items should be included as deductible expenses. That is, that the remuneration clause should provide that net profit of the venture should be determined by deducting both cash and non-cash expenses from the gross income derived by the trust. Having regard to the correspondence to which I will now refer, Mr Cookes' recollection must be accepted. 23 Mr Pruden came back to the calculation of profits in early 1995. On 5 January 1995 he wrote to Mr Drapac in the following terms: "Thank you for arranging the pleasant and informative inspection evening on Monday 19 December 1994. It is interesting to buy something from a description contained in a prospectus and then be pleasantly surprised on visiting the reality. As foreshadowed, 1 wish to raise two anomalies between the promotional material originally circulated and the Management Agreement. First, there are certain annual non-cash expense items, namely, depreciation, building allowances etc. which result in the build up of a fund within the trust. Over a period of time greater than foreshadowed in the promotional material this fund may amount to a considerable figure. The way the Management Agreement is drafted is that this fund forms part of the Manager's profit entitlement. It was my understanding that the Manager was entitled to 30% of the profit arising on re-sale and a management fee of $50,000.00 and that was all. The matter is not significant over the anticipated time frame of the project but it may become significant in the context of the original time frame being exceeded significantly." It seems that Mr Drapac discussed this letter with Mr DeBono at a unitholders' meeting on 25 January 1995. Although Mr DeBono does not remember reading the letter he recalls the following exchange: "Someone at the meeting, I no longer recall who referred to a query raised by a unit holder regarding the benefits of non-cash expenses. The concern that was raised was that if a profit share was calculated on non‑cash expenses such as depreciation and building allowances, the manager would share in the taxation benefits and that this was not the usual situation. In response I said that the taxation benefits of building allowances and other non-cash expenses would not flow through to the manager, as the fee would be calculated as an expense of the trust rather than as a distribution of profit from the trust." Mr Drapac replied to Mr Pruden's letter on 22 February. In part, his letter read: "I discussed the issue of 'certain non-cash expense items' with the Trust's accountant, Richard DeBono of John McCormack's office. He advised that these items are substantial, however they have not yet been determined. And further, that the full benefits of these would be apportioned to unitholders, and the Manager would not be eligible to any entitlement." 24 Mr Pruden provided Mr Cookes with a copy of his letter and Mr Drapac's reply. Mr Cookes was asked to include a provision in the management agreement reflecting the contents of the letters. He drafted an additional paragraph (cl 9.1.8) to be inserted into cl 9.1. It read: "9.1.8 [P]ayment to the Unitholders of an amount equal to non-cash expenses of the Trust (including depreciation, amortisation and building allowances expensed [sic] by the Trust pursuant to the provisions of the Income Tax Assessment Act as amended from time to time) calculated from the date of purchase of the Property to the date of completion of the Project." The amended agreement was then sent to the trustee under cover of a letter which drew specific attention to the new provision. Thereafter the agreement was executed by the trustee and the two managers, Briaroaks and Cemack, and was dated 9 May 1995. 25 Also on 9 May 1995 Cemack resigned as a manager and assigned its rights under the management agreement to Briaroaks. Contemporaneously Mr Mackali resigned as a director of the trustee leaving Mr Drapac and Mr Spiliotis as the remaining directors. The minutes of a later meeting of the directors record that Cristina Drapac (Mr Drapac's wife) was appointed as an alternate director of the trustee. There is a dispute whether this meeting took place (Mr Spiliotis swore that it did not) and thus whether Mrs Drapac was ever appointed a director of the trustee. Late in the trial Fitzwood sought to amend its pleadings to introduce a number of claims that were dependent upon establishing that Mrs Drapac had not been validly appointed. I refused to allow the amendments because they were sought so late in the day. Thus, it is not necessary for me to determine whether Mrs Drapac was appointed a director of the trustee. Nor is it appropriate for me to decide what consequences would follow if she had not been appointed. 26 The execution of the management agreement brings me to two issues that do require resolution. The first is whether either the manager or Mr Drapac was under a duty to disclose to Fitzwood before it acquired any units in the trust, the nature and extent of the management fee that was payable to the manager. Fitzwood alleges that it should have been informed that the profit share component of the manager's fee would be charged on both the profit from the sale of the Mt Alexander Road property and on the net rental income derived by the trustee before a sale. Mr Goulopoulos says that he believed that the manager would not take any share of the rental income. 27 This claim must be considered against the following background. Fitzwood acquired its first tranche of units in July 1994. At that time there was no draft management agreement in existence, so there was no formulation of the manner in which the fee would be charged. It was not until later in 1994 that there was any discussion as to whether the manager's share of the profit would include a share of the rent. In those circumstances, the real issue is whether the information memorandum made a sufficient disclosure to potential investors of the management fee, and, if it did not, what should be the consequences. 28 The relevant legal principles can be traced back to the cases concerning the duties of promoters of companies. Here I wish to make reference to only two cases, each concerning company prospectuses issued to the public but which, as later authorities show, establish rules that are not confined to that subject matter. The first case is New Brunswick and Canada Railway Co v Muggeridge (1860) 1 Dr. & Sm. 363; 62 ER 418. In that case Lord Kindersley (VC) said (Dr. & Sm. at 381-2; 62 ER at 425): "[T]hose who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as facts that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares …" 29 The second case is Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99. There Lord Chelmsford LC said (at 113): "It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterize their published statements." 30 These propositions are not confined to invitations or inducements to invest in company shares. In United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 the High Court applied Kisch to the case of a person who was negotiating for a joint venture. In United Dominions Corporation Mason, Brennan and Deane JJ said (at 12): "A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation." See also Gibbs CJ at 157 CLR at 5-6 31 The obligation of "utmost candour and honesty" is not one that requires the promoter to disclose every aspect of the proposed dealing that is within his knowledge. That is to place too great a burden on the already onerous obligations of a fiduciary. The extent of the obligation is that the fiduciary must disclose material information. But what information is material? It is, I think, information that will influence a prospective participant in the venture to decide whether or not to become an actual participant: Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815, 837-8. 32 The conclusion that equity will impose a positive duty requiring a fiduciary to act in the interests of another person by disclosing information to that other person, appears to be at odds with principle. It is widely accepted that fiduciary obligations are only proscriptive: Breen v Williams (1996) 186 CLR 71; Pilmer v The Duke Group Ltd (in liquidation) (2001) 75 ALJR 1067. So, that which is often regarded as a fiduciary obligation of disclosure should not be seen as a positive duty resting on a fiduciary, but a means by which the fiduciary obtains the release or forgiveness of a negative duty; such as the duty to avoid a conflict of interest, or the duty not to make a secret profit: R Nolan "A Fiduciary Duty to Disclose" (1997) 113 Law Quarterly Review 220, 224. 33 I do not propose to recast the nature of the fiduciary obligation here under consideration from a prescriptive obligation to disclose to, say, a proscriptive duty of loyalty or to avoid conflicts of interest. I accept that it might sometimes be necessary to be precise in the description of a fiduciary's obligation. But the equitable obligation that is presently being discussed has been spoken of as a positive duty for well over 100 years: eg Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas 1218, 1229. The law will not be seriously injured if I continue to adopt the same language. 34 The allegation that there was a failure to disclose material facts is made against Mr Drapac and the manager, each of whom is said to be a "promoter of the scheme constituted by the Unit Trust". It may be accepted that Mr Drapac is a person whom the law would regard as a "promoter"; that is a person who is obliged to disclose material facts to prospective investors, although the evidence of Mr Drapac's "promoting" activities is somewhat sparse. Mr Mackali and Mr Coe seem to have "promoted" the scheme to greater effect. Whether the manager is also a promoter is more problematic. I note that the manager had no dealings with Mr Goulopoulos. That Mr Drapac was a director of the manager, cannot result in his conduct being attributed to the manager except to the extent that he was acting on its behalf. There is an agreement of 13 June 1994 between the companies controlled by Mr Drapac, Mr Mackali and Mr Cahill which describes the role of these companies in the proposed development. According to a recital the then managers "as joint promoters intend to purchase, raise equity funds, raise mortgage funds, develop, tenant and resell the property at 641 Mt Alexander Rd. Moonee Ponds." It seems that the parties did not proceed with this agreement as the structure is different to that ultimately put into place. There being no other evidence upon which it might be held that the manager was a promoter, I decline to impose any equitable duty upon it. 35 The question now is whether Mr Drapac breached his duty of disclosure. I do not think that he did. I have reached this conclusion for a number of reasons. None of those reasons depend upon the rejection of Mr Goulopoulos' evidence that when he took up units in the trust, he believed that the management fee was not charged on rent. However, I am not satisfied that a careful reading of the information memorandum should have left Mr Goulopoulos with that impression, as he says it did. The draft information memorandum told potential investors that the manager would receive 50 per cent of the "profits generated by the development". It is true that the only "profits" then under contemplation were profits arising from the sale of the property, as the property was to be held only for a short period. From that it may have been assumed that there would be no surplus rent because the rent would be applied to keep down the interest on the borrowed funds. In the final version of the information memorandum investors were advised that the manager would receive 30 per cent of the "cash return ... generated by the sale of ... the building". Here again a potential investor might fairly have assumed that the only "return" would be a profit from the sale of the building. But what if there was surplus rent? Based upon the information memorandum, the only safe conclusion for the investor to draw is that surplus rent would be divided in the same way as the profits on sale. Put differently, the information memorandum should have alerted a potential investor that the manager might take a share of surplus rental income if there was any. 36 This leads me directly to the second reason for rejecting the claim. As I have said, the proposal was that the Mt Alexander Road property be sold within a year or so. If that occurred there would not be any surplus rent. The obligation imposed on a fiduciary, as I understand it, is to disclose material information. The manner in which surplus rental income would be distributed could not be regarded as a material matter in the circumstances of this case. 37 Finally, there is the fact that there was no management agreement in existence in mid 1994. Nor had there been any discussion concerning its terms. Whatever be the nature of the fiduciary's obligation, it does not go beyond a duty to disclose matters of which the fiduciary is aware or, perhaps, matters of which the fiduciary ought to be aware. The equitable obligation does not require the fiduciary to speculate about matters that may or may not occur. That would only cause confusion. I believe that the disclosure in the information memorandum was a sufficient disclosure to satisfy the promoter's duty. 38 As an alternative claim, Fitzwood says that the failure to disclose the precise nature of the management fee was misleading conduct and therefore in contravention of s 52 of the Trade Practices Act 1974 (Cth) and its Victorian counterpart, s 11 of the Fair Trading Act 1999. Section 52 provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive. Section 82 enables a person who has suffered loss or damage by conduct done in contravention of s 52 to recover the amount of that loss or damage. 39 It is well established that to show a contravention of s 52, and of its State counterpart s 11, it is not usually necessary to show that the defendant has acted intentionally. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Gibbs CJ pointed out that the liability imposed by s 52 is unrelated to fault. On the other hand, where, as here, the conduct which is said to be misleading or deceptive is the failure to provide certain information, different considerations arise. A failure to provide information can be misleading conduct for the purposes of ss 52 and 11 because engaging in conduct is defined to include the refusal to do an act: s 4(2) of the Federal statute and s 3 of the State statute. In Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 at 722 I said of these provisions that before conduct constituted by the refusal or refraining from doing an act is actionable, it must have been deliberately engaged in. Thus to determine whether either the manager or Mr Drapac engaged in misleading conduct it is necessary to decide whether their silence was deliberate. There is no doubt in my mind that the evidence does not permit the finding that those persons intentionally withheld information from Fitzwood. I am quite satisfied that Mr Drapac did not turn his mind to the question whether he should disclose details relating to the management fee additional to that found in the information memorandum. 40 Fitzwood's complaint concerning the failure to disclose the method of calculating the management fee is not confined to the occasion upon which it acquired its initial units in 1994. It repeats the complaint in relation to its purchase of an additional 400 units in 1997. Gateway Concepts (Mr Coe's company) held 400 units in the trust. In 1996 it decided to sell those units. Mr Drapac told Mr Coe that Mr Goulopoulos might purchase the units. Mr Coe prepared a "Position Paper" which purported to value Gateway Concept's interest in the trust. The paper contained a calculation of the approximate return from the trust following a sale of the Mt Alexander Road property and the termination of the trust. The calculation brought the management fee into account as an expense. The management fee (referred to as the "Developer[s]" share of "Profit Distribution" being an amount of $421,000) was shown as an unstated percentage of the net proceeds of sale of the property and of the accumulated rental income, which by then stood at approximately $930,000. Mr Coe gave a copy of the Position Paper to Mr Goulopoulos. Mr Goulopoulos acknowledged that he read the Position Paper before he decided to purchase the units. Notwithstanding this, Mr Goulopoulos said he was still of the belief that the management fee was not payable on rental income. So, Fitzwood claims that the failure to disclose the true position as at 1997 was a breach of fiduciary duty owed by Mr Drapac and the manager. It also repeats its claim that the failure to disclose the true position was a contravention by the manager of s 52 of the Trade Practices Act and a contravention by both the manager and Mr Drapac of s 11 of the Fair Trading Act. 41 The statutory claim has not improved since 1994. There is still no evidence that there was an intentional withholding of information from Fitzwood. To the contrary, I am satisfied that Mr Drapac and the manager did not deliberately withhold any information from Fitzwood concerning the terms of the management agreement. By 1996 many unitholders had received a copy of the management agreement. The terms of the agreement, including those which provided for the calculation of the manager's fee, had been the subject of discussions at meetings of unitholders. Both Mr Drapac and the manager were entitled to assume, and they probably did assume, that the unitholders were aware of the manager's rights. It is fanciful to suggest that there was an attempt to hide the agreement from Mr Goulopoulos. 42 The equitable claim based on the 1997 acquisition has become worse. Not only does it suffer from the same deficiencies as the earlier claim, Fitzwood faces two additional hurdles, each of which is insurmountable in my opinion. First, although I was prepared to find that Mr Drapac was a "promoter" in 1994, he certainly was not promoting the venture in 1997. The time for promotion was well and truly over. Second, by now Mr Goulopoulos had read Mr Coe's Position Paper. Even a cursory reading of that document would indicate that the manager's share of the profit was payable on rental income. Even if Mr Goulopoulos had not appreciated this fact in 1994, I am sure that by 1997 he was aware of the true position. 43 I can now deal with the issue that first brought the parties into conflict, although in simple financial terms it ceased to be an important issue a long time ago. As will soon become apparent to the reader, if it is not already apparent, factors other than financial considerations dominate this unfortunate piece of litigation. The issue to which I refer is the disagreement about the meaning of cl 9. It is convenient to begin by identifying the competing contentions, and then to explain the effect of adopting one position or the other. 44 The question in issue is how to calculate the "net profits before tax", 30 per cent of which must paid to the manager. The manager contends that the net profits comprise the net cash proceeds derived from the sale and leasing of the Mt Alexander Road property. By net cash proceeds the manager means the cash receipts of the trust, namely the proceeds of the sale of the property plus any income (rent or interest), less all cash expenses including the cost of the property, the cost of any capital works, revenue expenses (interest, cost of sale, general operating expenses) and the like. For its part Fitzwood would add to the list of deductions non-cash expenses such as amortisation, depreciation, and the Division 10D building allowance. 45 I have described the opposing positions not only to highlight the area of disagreement, but also to demonstrate the consequence of a finding in favour of one party or the other. Although the arithmetic is not easy to follow by reference to actual figures, in financial terms the result can be stated quite shortly. If the manager is correct, then it would be entitled to a success fee of around $450,000, assuming a sale of the Mt Alexander Road property at a price of $6.1 million. On the other hand, if Fitzwood's construction is adopted, then the success fee will be next to nothing. This is because the non-cash expenses (depreciation and the Division 10D allowance) are annual expenses, and the longer it takes for the project to come to an end, the greater the sum that must be deducted. As those items have accumulated for six years, the net cash proceeds and the non cash expenses are roughly the same. This result might seem irrational at first blush, for the longer it takes to sell the property, the more work the manager will have performed for an ever decreasing return. On the other hand, the parties were obviously keen to see the project completed in the short term. If the original timetable (a sale within 12 to 18 months) was maintained, the manager would receive a reasonable return. And the construction for which Fitzwood contends would certainly induce the manager to complete the project quickly. 46 The resolution of the dispute relating to construction depends upon the effect to be given to cl 9.1.8. The parties led evidence that was said to support their respective positions. The evidence comprised the negotiations that led to the introduction of cl 9.1.8, what a number of unitholders intended by this provision, an opinion as to the meaning of cl 9.1.8 by the solicitor responsible for its drafting, and an opinion of an expert witness, Mr Wight, a well known and highly regarded chartered accountant. As some of this evidence was relevant to other issues, it was received without objection. However, in deciding what meaning is to be given to cl 9.1.8, where no technical term is to be found, none of this evidence can be taken into account. See Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 where the High Court explained that negotiations and the like are not part of the surrounding circumstances, but evidence of the expectations of the parties which cannot be used to construe their written agreement. 47 I will now state the principles upon which I propose to act in deciding the proper construction of cl 9.1.8. The object of construing any contract is to discover the mutual intention of the parties in relation to the legal obligations each assumed by their chosen language: Pioneer Shipping Ltd v B T P Tioxide Ltd [1982] AC 724. This intention is not what the parties actually (that is subjectively) intended, but rather what is taken objectively to be their intention having regard to the language that they used, in the circumstances in which the contract was made: Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. To ascertain that intention it is usually best to begin with the words the parties used and, at least when the parties are knowledgable, experienced and legally advised, to assume that they intended what they have said: Board of Trustees of the National Provident Fund v Shortland Securities Ltd [1996] 1 NZLR 45. Of course, it is always necessary to determine the meaning of the words used in the context in which they are used; that context being the whole contract and the circumstances surrounding the contract. If that approach produces an obviously absurd result, in some cases the absurdity may be avoided in favour of a sensible result: Torvald Klaveness A/S v Arni Maritime Corporation [1994] 1 WLR 1465. This is because the court will assume that the parties did not intend their bargain to bring about irrational consequences. However, a judge must be cautious when there is an attempt to sway a case by reference to commercial good sense, because views may easily differ on what is good sense, and in some cases a party is willing to bargain away a good sense result on one aspect of a contract because of a perceived advantage in another: Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818. 48 How are the "net profits before tax of the project" to be calculated, having regard to the foregoing principles? In most respects the determination of the net profit is free from difficulty, although in saying this it is clear there must be some departure from the literal language of cl 9. The first step is to calculate the "net proceeds derived by the Project from the sale and leasing of the Property": cl 9.1. Here there is an immediate problem. An examination of cl 9 as a whole shows that it is not the "net proceeds" of the venture that must first be ascertained but, rather, the gross proceeds derived from the sale and leasing of the property. In ordinary usage "net proceeds" are those proceeds that remain after the deduction of all relevant expenses. Clauses 9.1.2 to 9.1.7 list the types of deductions that would usually be made from the gross proceeds of a venture to arrive at the net position. I note also that it is only the "net proceeds" from "the sale and leasing of the property" that are to be brought to account. In fact the trust also derived income by way of interest. It was not suggested that interest should be disregarded in calculating "the net proceeds derived by the Project". Mr Cookes said that interest should be included because it reflects surplus borrowings. He meant that if the optimum amount had been borrowed by the trust there would be no interest income. Because it was not suggested that interest should be ignored, and common sense says that it be taken into account, I take "the net proceeds derived by the Project" to mean the sum of the gross proceeds of sale of the Mt Alexander Road property, the rent received from the tenants and interest on any money invested. It is convenient to continue to refer to these items as "net proceeds". 49 The second step is to make a number of deductions from the net proceeds of sale and leasing. In most cases there will be no difficulty in calculating the amounts to be deducted. The specific items include the costs and expenses of purchasing the Mt Alexander Road property (cl 9.1.1); the costs and expenses of leasing the property (cl 9.1.2); maintenance and capital costs which are not reimbursed by tenants (cl 9.1.3); the costs and expenses of sale (cl 9.1.4); the amount applied in the repayment of loans and financing costs (cl 9.1.5); the manager's base fee of $50,000 (cl 9.1.6); repayment of unit subscriptions (cl 9.1.7); and payment to unitholders of an amount equal to non-cash expenses (cl 9.1.8). 50 Mr DeBono suggests that there may be some difficulty with a number of these provisions. For example he said that cl 9.1.5 (repayment of loans) does not make clear whether the deduction is to be of the monies originally borrowed ($4 million) or the balance of the loan after taking into account the repayments during the life of the project. He said that cl 9.1.7 (unit contributions) does not make clear whether the deduction is of the original contributions ($1.4 million) of the balance left after taking into account the payments that have been made to unitholders ($692,000). He also claims that no provision is made for the deduction of the manager's base fee of $50,000, unless that amount is outstanding at the completion of the project. 51 In identifying what he perceives to be the difficulties with a literal application of cl 9.1, Mr DeBono has put his finger on a point that in my opinion has produced many of the discrepancies in the calculation of the "net profits before tax of the project". During the subsistence of the trust, which it will be remembered was established in 1994, the trustee partly repaid the bank loan that was taken out to purchase the Mt Alexander Road property. The trustee also made distributions to unitholders when surplus funds were available. In addition, the manager has been paid its base fee of $50,000. The manner in which these payments should be dealt with in the determination of the net profits has been a source of confusion. However, that confusion, as well as the so called difficulties identified by Mr DeBono, arises from a misunderstanding of the manner in which the calculations required by cl 9 should be performed. The amounts to be deducted from the "net proceeds of sale and leasing", are the gross amounts referred to in clauses 9.1.1 to 9.1.7, putting to one side cl 9.1.8. No account should be taken of the fact, if it be the fact, that during the period of the venture, borrowed money has been repaid, unitholders have received a partial return of the subscription, a portion of the manager's fee has been paid, and so on. Put simply, the net proceeds of sale and leasing are the cash amounts received on the sale, together with rent and interest less the gross cash expenses referred to in clauses 9.1.1 to 9.1.7 (inclusive) and the non-cash expenses referred to in cl 9.1.8 if it turns out that they are also an expense, a point I will deal with in a moment. The amounts, if any, that have been expended in repayment of the loan, as a return of subscription monies or as part payment of the management fee need only be taken into account to determine a particular unitholder's entitlement to the balance of the money held by the trustee. 52 Mr DeBono also makes the point that cl 9.1 does not allow for the amortisation of formation costs or the costs of renovation of the property to be included as expenses. Mr DeBono is correct as to the amortisation of formation costs, but the amount involved is insignificant. He is wrong in relation to the cost of renovation; this is covered by cl 9.1.3. 53 Having put to one side these preliminary matters, attention can now be given to cl 9.1.8. There are two aspects of this clause that should be noted. First, and most importantly, the provision identifies an "amount" of money that is to be "deducted" from the net proceeds of sale and leasing. In other words, cl 9.1.8 involves a step that is the same as is required to be taken by clauses 9.1.1 to 9.1.7: the deduction of an amount (the sum of depreciation and the Division 10D allowance) from another amount (the net proceeds of sale and leasing). Second, the amount that is to be deducted from the net proceeds of sale and leasing is that which is "equal to the [particular] non-cash expenses of the trust". It must be a sum equal to the non-cash expenses because, by their very nature, those "expenses" are not actual (that is cash) expenses of the trust. 54 A payment of an amount equal to the non-cash expenses ensures that the cash position of the trust equates with its accounting position. That is, if an amount equal to the non-cash expenses were not distributed, there would be a corresponding amount of cash left in the trust. This is because of the nature of the non-cash expenses and the fact that they consist in a book entry rather than actual cash expenses. By providing that these amounts are to be "paid" to the unitholders before the calculation of the manager's fee takes place, cl 9.1.8 makes it clear that only the unitholders (and not the manager) are to enjoy the benefit of these items. Although I have disregarded Mr Wight's evidence in determining how cl 9.1.8 operates, I note with interest that our methodology is similar. Mr Wight said that the provision "requires the quarantining of specific amounts of cash to be allocated to the account of the unit holders…" He gave the following illustration: "Net Cash Profit (excluding depreciation) 100 Less depreciation 50 Net profit $50 Cash on hand $100

9.1 Calculation requires Net Cash Proceeds 100 Allocation of amount equal to non-cash 50 Cash to distribute per calculation 50 Manager 30% 15 Unitholders 70% 35

Cash distribution Mgr Unitholder Total Manager 30% 15 15 Unit Holders 70% 35 35 Depreciation Benefit 50 50 TOTAL CASH DISTRIBUTED 15 85 100"

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.

121 I should observe here that the trustee did not contend that an agreement to refrain from dealing with trust property without consent is contrary to public policy and therefore void. Speaking generally, a trustee is not entitled to fetter the exercise of a discretionary power (for example a power to sale) in advance: Thacker v Key (1869) LR 8 Eq 408; In re Vestey's Settlement [1951] Ch D 209. If the trustee makes a resolution to that effect, it will be unenforceable, and if the trustee enters into an agreement to that effect, the agreement will not be enforced (Moore v Clench (1875) 1 Ch D 447), though the trustee may be liable in damages for breach of contract (Coronation Syndicate v Lilienfeld [1903] TS 489, 497, (South Africa)).

122 In any event, in my view, the general rule has no application to the present case. It is not contrary to public policy for a trustee to agree to limit his activities for a short time to enable the resolution of a dispute as to whether the trustee still holds office. It often happens that, for example, a trustee will give an undertaking not to dispose of a trust property pending the completion of litigation concerning the trustee's powers to deal with that property. Indeed, in some cases if such an undertaking is not given, an injunction to that effect will go. Indeed, public policy will be advanced if the trustee is able to give the undertaking rather than force the parties to go to court. This case is no different.

123 Following the meeting of 30 November 1999, events progressed on two separate fronts. The first was the effort to reach agreement on the form of the terms of settlement. This was left to the solicitors; Mr Goulopoulos representing his clients, Ms Bhatt for the trustee and Mr Markowitz who was acting for the manager. Although much work was done, no final agreement could be reached. The sticking point seems to be whether the manager was prepared to give warranties about the financial position of the trust.

124 Mr Goulopoulos was becoming concerned about the delay in finalising the terms of settlement. He began to suspect that Mr Drapac was deliberately delaying matters. On 20 December 1999 Mr Goulopoulos wrote to Ms Bhatt (with copies to Mr Abrahams and Mr Cahill) saying that in view of the delay "the purchasing unitholders have no option but to formally tender settlement monies, including for the claimed management fee on the agreed basis." The letter indicated that tender would occur on either on 22 December or 23 December. It is by no means clear on what basis Mr Goulopoulos was preparing to tender. There was no settlement agreement, and certainly no "agreed basis" upon which money could be tendered.

125 The second front was the continuing effort by the trustee to find a purchaser for the Mt Alexander Road property through the agency of Talbot Birner Morley. It should not be thought that these efforts were kept secret. The trustee was quite open about its activities in this regard. By letter dated 30 November 1999, which was probably received shortly after that date, the trustee reported to unitholders about the progress being made in relation to the leasing of parts of the property. The letter concluded with the statement "[w]e will keep you updated on any future progress on both leasing and sale negotiation."

126 A week later the trustee sent another report to unitholders. The letter provided information about new leases that had been entered into, and reported that "[d]iscussion with several selling agents has indicated a potential realisation well in excess of the purchase price offered by Fitzwood Pty Ltd/Mapeka Pty Ltd."

127 As events turned out, a prospective purchaser was found before the terms of compromise could be finalised. On 17 December 1999, Mr Lewin of Talbot Birner Morley advised Mr Drapac that the agent expected to receive an offer to purchase the Mt Alexander Road property for $5.95 million from the Victor Smorgon Group. A day or so later Mr Wain was instructed to tell Mr Cahill that such an offer was imminent. The information was provided to Mr Cahill in anticipation of the need to obtain his and Mr Abrahams' approval for the sale. 128 On 21 December the Victor Smorgon Group did submit an offer to purchase the property. The offer price was $6.1 million, subject to certain conditions. Mr Cahill was told of the receipt of the offer letter. After discussing the matter with Mr Abrahams, Mr Cahill suggested that Mr Wain get the offer in writing in the form of a contract or a sale note. Shortly before midday on the next day, Talbot Birner Morley produced a contract of sale which had been signed by Pineross Pty Ltd, a company in the Victor Smorgon Group. Under this contract Pineross agreed to purchase the property for $6,150,000. However, the contract contained the following special condition: "1. Offer expires at 5pm, 22 December 1999". 129 Immediately upon receipt of the contract, Mr Drapac informed Middletons and asked them to advise. Ms Bhatt provided that advice, after discussing the matter with Mr Cookes. She recommended to Mr Drapac that the trustee accept the Pineross offer, and that the trustee should advise all unitholders of the offer, and provide them with an analysis comparing the Pineross offer to the previous offer from Fitzwood and Mapeka. 130 In the meantime the trustee had begun to implement steps to enter into the contract. It was aware that before it could sell the property to Pineross, it was required to obtain the approval of Mr Cahill and Mr Abrahams. To that end Mr Wain sent a copy of the Victor Smorgon Group offer letter to Mr Cahill with the request: "PLEASE CALL ASAP". Mr Wain explained: "We were waiting for the response from Peter Cahill and Peter Abrahams. We were to get their authority. They were there representing every single other unitholder. They were there representing the interests of the unitholders. They were appointed by all the unitholders …" 131 Upon receipt of the letter Mr Cahill spoke to Mr Abrahams. What they discussed is controversial. One reason for the controversy is that Mr Cahill has given different accounts of the discussion. One account is to be found in an affidavit he provided to Fitzwood for use in this proceeding. The other version is contained in an affidavit he provided to Rigby Cooke, who are on the record for Mr Drapac. I suspect that when the first affidavit was sworn, the importance of Mr Cahill's evidence in relation to his discussion with Mr Abrahams was not readily appreciated. 132 In his first affidavit, this is what Mr Cahill deposed: "On 22 December 1999 I telephoned Mr Abrahams. I said that I had received a fax from Ashley Wain relating to a proposed sale of the Property to the Smorgon Group. Mr Abrahams and I discussed this offer. Mr Abrahams said he was not sure if the trustee still had power to sell the property in the light of the 30 November meeting. He said words to the effect that he did not want to give his consent to any actions that might not be appropriate and might result in legal action against him. I said that I was also not prepared to authorise a sale under the circumstances. I said that I would pass what we had discussed on to Mr Wain. However, my personal viewpoint at the time was that for the sake of commercial certainty, it would have been in the best interests of unitholders to proceed with the sale to Smorgons, providing it was done with the advice and support of the Trust's lawyers in case the Trust was exposed to legal action from Goulopoulos, which I expected would be the situation even though a legally binding agreement did not appear to be in place. Subsequently on 22 December 1999 I telephoned Mr Wain and said to him that the committee did not have the power to direct the trustee of the Unit Trust to either accept or reject the offer to purchase the Property." In the affidavit he provided to Rigby Cooke, Mr Cahill gave the following account of his conversation: "Upon the offer from Pineross being obtained by the trustee, I had a conversation with Abrahams in relation to the offer. Both Abrahams and I agreed that we did not want to find ourselves in the position whereby we lost both the Pineross deal and the Goulopoulos deal. In one of the conversations, with Abrahams, he suggested that I contact Goulopoulos and inform him of the Pineross deal as it appeared to be a better deal than he was currently offering." 133 Mr Abrahams also gave evidence about this conversation. In his affidavit he deposed: "On about 22 December 1999 Mr Cahill telephoned me. He said that he had received a fax from Ashley Wain relating to a proposed sale of the Unit Trust's property to the Smorgon Group. I discussed this with Mr Cahill. I said I did not know whether or not the trustee still had power to sell the Unit Trust's property in the light of the 30 November meeting. I said that I did not want to give my consent to any actions that might not be appropriate. I said words to the effect that if the trustee wanted to sell it would be on his head and he would have to wear the consequences. Mr Cahill told me that he would also not authorise a sale. He said that he would pass what we had discussed on to Mr Wain. I have never authorised the sale of the property belonging to the Unit trust." During his cross-examination, Mr Abrahams was taken to this paragraph and asked a number of questions: "Q: You said to the trustee, 'You make your own decision and be it on your head?' A: It was in the context of the committee being required to consent to any dealings in the property. Now, I was not prepared to give my consent to that sale for that reason, that I thought it would cause a dispute and I said that I would not consent to it and I would not take any responsibility for it and then if the trustee went ahead and did it then he would have to wear the consequences. Q: So that's what you said - in your position as representative of the unit holders you said, 'If you want to do it, go ahead, but you bear the consequences?' A: I don't want you [counsel for the manager] to say that I encouraged him [the trustee] to go ahead in any way. I just said, 'If you go ahead you will have to bear the consequences. I'm not consenting to it'." … Q: And you never said to the trustee, the manager or anybody, 'Don't go on with the sale. Go and see the unit holders. You don't have power', did you? … A: "I discussed [the offer] with Mr Cahill and basically my understanding was that we were appointed as committee just to oversee the running of the property pending the resolution of the sale. Now, I didn't think that it was up to us to either - well, I didn't think we had any power to authorise a sale and when I knew that there was a possibility a sale was going through I said to Mr Cahill that I think there was a real doubt as to whether the trustee had any power but I was not going to authorise it. So that if he [the trustee] did exercise the power then it would be his [the trustee's] responsibility." 134 Having seen each of the witnesses give their evidence, I am convinced that I should accept Mr Cahill's first account of the conversation. That account is supported by the evidence of Mr Abrahams, a witness who was plainly telling the truth. I am sure, as I said earlier, that when Mr Cahill swore his first affidavit, the significance of the conversation was not apparent to him. By the time he was asked to prepare an affidavit for Rigby Cooke I believe that Mr Cahill had decided to lend his assistance to the Drapac side in the litigation, perhaps because he believes that the manager has been wrongly deprived of its fee. 135 Following his discussion with Mr Abrahams, Mr Cahill spoke to Mr Wain. According to Mr Wain, Mr Cahill said that "the committee … didn't want to make the decision [to accept the offer and that] it was a decision for the manager to make". Mr Wain said that he was left with the impression that the trustee was authorised to make the decision itself. Although Mr Drapac said very little about the role of the committee at this point, it must be assumed that Mr Wain passed on whatever he had been told by Mr Cahill. 136 This is what occurred, in my opinion. Mr Abrahams and Mr Cahill decided that they could not consent to the sale. Their reason for withholding consent is not material, but they were probably concerned that they may become involved in litigation. They agreed to tell the trustee that they would not consent to the sale, and that if the trustee decided to sell the Mt Alexander Road property, it would be at the trustee's risk. I do not accept that Mr Cahill and Mr Abrahams agreed to tell the trustee that the property could be sold if the trustee regarded it as prudent. Nor do I accept that Mr Cahill said anything to Mr Wain that would cause Mr Wain to believe that the committee was leaving it to the trustee to decide whether or not to sell the property. Indeed, I do not believe that Mr Wain was ever of that view. He was told that the committee did not authorise the sale, and I infer that he passed this information on to Mr Drapac. 137 Notwithstanding the lack of authority, the trustee executed the contract of sale at approximately 4.00 pm on 22 December 1999 and gave it to Mr Lewin for exchange with Pineross. The trustee was encouraged to sell the property because of the advice that it received from its solicitors, and it was prepared to assume the risk of whatever consequences followed from the breach of its undertaking. What those consequences might be is a matter to which I will return. To deal with that issue there are more facts that I must recount. 138 On the ex parte application of Fitzwood, an order was made restraining the sale of the Mt Alexander Road property. The order issued at about 4.50pm on 22 December, that is after the trustee had executed its part of the contract, but before there had been an exchange with the purchaser. Ms Bhatt advised Mr Drapac of the existence of the order at around 5.30 pm. Mr Drapac told her that the trustee had already signed the contract. Mr Drapac did not say that there had been an exchange of parts of the contract, and Ms Bhatt did not make any inquiry in that regard. If she had made some enquiry, she would have discovered that the signed contract had not been given to the purchaser, and as a result no binding contract had come into existence. Nonetheless, Ms Bhatt formed the opinion that Fitzwood was too late in obtaining an injunction. She made a file note recording her advice to Mr Drapac that she "didn't think injunction would apply." In this state of affairs, no one, including the trustee, can be criticised for failing to prevent the exchange. Mr Drapac was entitled to act on the advice of Ms Bhatt, and take no further action. 139 In due course the injunction was extended to prevent the completion of the sale pending the trial of the action. Pineross was not prepared to await trial to learn whether or not the trustee would complete the contract. Exercising its legal rights, Pineross rescinded the contract. Later it made a claim against the trustee for damages for breach of contract. The quantum of the claim is in the vicinity of $25,000. The sale also produced a claim for commission from the estate agent. The amount of the commission is $123,000. 140 The trustee does not dispute that it is liable to make good the damage suffered by Pineross, or that it is required to pay commission to the estate agent. It seeks to be indemnified out of the trust in respect of those expenses. Fitzwood denies the trustee's right to be indemnified. I will now deal with that matter. 141 To determine whether the trustee is entitled to be indemnified in respect of the two claims, it will be necessary to investigate, separately, the circumstances which gave rise to each liability. It is quite possible for the trustee to be entitled to an indemnity in respect of one set of expenses and not the other. On the other hand, the trust fund may be required to bear both claims, or indeed, neither. 142 I will begin by considering the commission due to the agent. It will be remembered that the trustee first appointed the agent, or requested the agent to go ahead with its efforts to find a purchaser, in November 1999 when the sale of units agreements were rescinded because Fitzwood would not pay the management fee. Two weeks later the agent's appointment was reduced to writing. To decide whether there is a right of indemnity in respect of the commission it is necessary to identify the event upon the occurrence of which the agent became entitled to its commission. Then it will be necessary to determine whether that event was one which the trustee was entitled to bring about. 143 I shall begin a consideration of the first issue by stating one or two obvious propositions. An estate agent is generally employed to bring about a particular event. Usually the commission to which the agent is entitled only becomes payable upon the happening of that event. What that event is will depend upon the terms of each particular agency contract. The form of contract under which Talbot Birner Morley was appointed agent is known as the Exclusive Sale Authority and is published by the Real Estate Institute of Victoria Ltd. This form of authority provides that the estate agent is entitled to his fee "if the Vendor sells the Property during the currency of [the] Agreement". Clause 1.14 defines "Sale" as "the result of obtaining a Binding Offer" and "sell" and "sold" have corresponding meanings in the same situations. Clause 1.5 defines "Binding Offer" as "an offer on the terms set out in the Particulars of Appointment which, if obtained in compliance with this Appointment, would (or does) result in a contract enforceable against the Purchaser." Thus, the agent is entitled to his commission once he obtains an offer which "would (or does)" result in an enforceable contract. 144 There is no difficulty in deciding when an offer has resulted in an enforceable contract. If there is an unconditional offer to purchase a property on the terms provided in the agency agreement (in this case at a price not less than $6 million payable within 90 days of the contract) and the offer is accepted by the agent or his principal, an enforceable contract comes into existence at the moment of acceptance. At that point the commission is payable. 145 What if the agent receives an offer, but no contract is made? It is possible that an owner may bind himself to pay commission on receipt of an offer, but that would require clear and unequivocal language: Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 129. On one view of its provision that this is what is intended by the Exclusive Sale Authority. The word "sell" is defined to include the situation where the owner has received an offer which "would result in a contract" (my emphasis). This is not a clear expression. An offer which "would result in a contract" may be an offer which is capable of acceptance, and once accepted will give rise to a binding contract. This may be too simple a meaning to give to the phrase. An offer which "would result in a contract" appears to assume the occurrence of some future event which, when it occurs, will produce the contract. The only relevant event that the draftsman is likely to have had in mind is acceptance of an offer. 146 I incline to the view that there will be no "binding offer" within the meaning of cl 1.5 until there is a binding contract between vendor and purchaser. For reasons which I will now explain, it is not necessary for me to resolve this difficult issue of construction upon which I have not had the assistance of argument. I can dispose of the point in the following way. If it were correct to hold that commission became payable merely upon the receipt of an offer, neither the Victor Smorgon's Group offer of 21 December, nor the offer constituted by the submission of the signed Pineross contract on the following day, was an offer of the kind that would trigger the obligation to pay the commission. The Victor Smorgon Group's offer was not capable of acceptance so as to create binding obligations. First the offer was conditional upon a number of events, one of which was an "exchange of contracts". Thus there would be no binding contract with the Victor Smorgon Group until both vendor and purchaser had signed and exchanged a formal contract of sale. Second, the Victor Smorgon Group had not been provided with a statement under s 32 of the Sale of Land Act 1962 (Vic)so even if its offer was capable of acceptance, there would only be a voidable contract (see s 32(5) of the Sale of Land Act) and that would not give rise to an obligation to pay commission at least before the contract had been affirmed. The Pineross offer was also conditional; the condition being that the offer was open for acceptance within six hours. That is not the type of offer contemplated by the Exclusive Sale Authority. It follows that the agent first became entitled to its commission when the trustee and Pineross exchanged contracts. Only then was there an "offer [of the kind contemplated by the vendor] … which … result[ed] in a contract enforceable against the Purchaser." 147 The result of this analysis is that both the claim for damages by Pineross, and the obligation to pay commission to the agent, arose because the trustee had entered into the contract with Pineross. It follows that in this case the trustee's claim for indemnity is dependent only upon it showing that it ought to be indemnified for the costs and expenses incurred as a result of entering into the contract. 148 The general principle is that, subject to the terms of the trust, a trustee is entitled to be indemnified out of trust property in respect of the liabilities, costs and expenses properly incurred in connection with the performance of his duties and the exercise of his powers and discretions as trustee: Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360. The rule has been given statutory force, and in Victoria the relevant provision is s 36 of the Trustee Act 1958 (Vic). 149 Ordinarily a trustee is not entitled to indemnity for costs and expenses improperly incurred by him in the administration of the trust. Expenses will be improperly incurred if in incurring them the trustee exceeds his power, or otherwise acts in breach of trust. For example, if the trustee enters into an unauthorised agreement he may be personally liable to the other contracting party but is not entitled to indemnity from the trust estate. So, too, if the trustee acts in breach of duty. 150 In some cases a trustee may be entitled to indemnity, even where he has entered into an unauthorised transaction. The trustee is entitled to indemnity if, and to the extent that, he has acted in good faith, and the unauthorised transaction benefits the trust estate: Vyse v Foster (1872) 8 Ch App 309, aff (1874) LR 7 HL 318. It is not clear whether this indemnity is a matter of right or discretion: Lewin on Trusts (17th ed, 2000) at 539. On the other hand, where the trustee acts in bad faith, he is not entitled to an indemnity, though the trust estate is benefited: IIIA, Scott on Trusts (4th ed) 1988 par 245.1. 151 The trustee's right of indemnity may be improved by the terms of the trust. It is common to find provisions authorising a trustee to recover expenses incurred in respect of unauthorised transactions, provided they have been entered into in good faith. There is a provision to that effect in the Mt Alexander Road Unit Trust. Thus, cl 36.1 of the trust deed provides: "The Trustees when acting in good faith shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund in respect of all liabilities incurred by them relating to the execution or attempted execution or as a consequence of the failure to exercise any of the trusts authorities powers and discretions hereof or by virtue of being the Trustees hereof." 152 "Good faith" in this context is used to signify "honesty". In Karger v Paul [1984] VR 161, a beneficiary sought to challenge the exercise by his trustee of a power to apply the capital of the trust estate to another beneficiary. McGarvie J said that the exercise of the discretionary power could only be examined if the trustee failed to act "in good faith, upon real and genuine consideration, and in accordance with the purposes for which the discretion was conferred": [1984] VR at 164. His Honour said that the test of acting in good faith was the same as the test of acting honestly. This recognises that in the administration of a trust, a deliberate breach of trust may not be dishonest. It is not unknown for a trustee to breach a trust, believing it to be in the best interests of the beneficiaries: Armitage v Nurse [1998] Ch 241. However, if the trustee acts in breach of trust not believing it to be in the interests of the beneficiaries, or if the trustee is indifferent to their position, he will be acting dishonestly and would not be entitled to claim the benefit of a provision such as cl 36.1: [1998] Ch at 251. 153 To apply these principles to the present case, I must address two issues. The first is whether the trustee acted in breach of trust when it entered into the contract. If that question is answered affirmatively, the second issue is whether that breach was dishonest. Both issues must be considered against the following background. At the meeting on 30 November 1999 most unitholders indicated their willingness to sell their units to Fitzwood and Mapeka. By mid December the only issue that prevented the resolution of the dispute, and thus the acquisition of the units by Fitzwood and Mapeka, was the insistence by Fitzwood that the manager give certain warranties. By 20 December 1999, however, Mr Goulopoulos was of the view that Mr Drapac was deliberately delaying the finalisation of the terms of compromise. There may have been some justification for this view. The correspondence between solicitors suggests that Mr Drapac was probably taking a very relaxed attitude to the negotiations, perhaps because he hoped the agent would find a purchaser for the Mt Alexander Road property. The delay in reaching agreement caused Mr Goulopoulos again to press for Mr Drapac's resignation as a director of the trustee. There is no doubt that if the matter was not resolved quickly, Mr Drapac would have been required to give up his position, otherwise the trustee would have been removed from office, either by the unitholders or by the court. I assume, as is likely, that Mr Drapac was given advice to that effect. We know that Mr Cookes told Mr Drapac that he was in an impossible position of conflict on the day of the aborted settlement. It is also important to bear in mind the advice that Mr Drapac received from the trustee's solicitors, and the circumstances in which that advice was given. 154 Shortly before midday on 22 December Ms Bhatt wrote to Mr Goulopoulos. Her letter stated, among other things: "I believe Michael and Cristina Drapac are acting in the best interests of the Trust and cannot agree with your views that they should resign. Turning to your proposed tendering of monies to settle the sale, I am not clear on what basis you envisage this occurring. The original Sale of Units Agreements did not complete pursuant to its provisions and is accordingly at an end [sic]. The terms of compromise have not been executed because the warranties are not agreed. Should you wish to purchase the units directly from individual unitholders you can of course do so. Further, as a unitholder, you are no doubt aware that there is now at least one other potential purchaser. Having spoken to Peter Cahill yesterday, it was agreed that in view of this development, the unitholders must decide how they wish to proceed. I had suggested that he contact the unitholders to discuss the offer." Approximately one hour later Ms Bhatt sent the following written advice to Mr Drapac and Mr Spiliotis: "I refer to the telephone conversations with both of you of today and enclose copies of Andrew Goulopoulos' facsimile of 21 December and my response. Further I note from my conversation with Michael this morning that there is now an unconditional offer to purchase the property, such offer being open until 5pm today. I enclose a copy of the fax from the Manager in this regard. 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 [sic]. 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." 155 The advice is important. It suggests to the trustee that it may be obliged to accept the Pineross offer. The advice assumes that the Pineross offer will produce a better return to unitholders than the Fitzwood offer, or, in any event, that the trustee should accept the Pineross offer on the basis that a bird in the hand is worth two in the bush: Buttle v Saunders [1950] 2 All ER 193, 195. Mr Drapac went so far as to say that Ms Bhatt told him that the trustee would be in breach of trust, and potentially liable at the suit of the unitholders, if it did not accept the Pineross offer. I do not believe that Ms Bhatt gave that advice. 156 Shortly after midday Mr Wain wrote to all unitholders advising them of the Pineross offer. The letter stated that on the recommendation of the manager, which recommendation had been endorsed by the trustee's solicitor, the offer would be accepted. Enclosed with the letter was a comparison between the Pineross offer and the Fitzwood offer. The comparison suggested that acceptance of the Pineross offer would produce a 12.81 per cent greater return to unitholders. It is likely that the Pineross offer would have resulted in a better return to unitholders, but not to that extent suggested. 157 If the trustee was acting on the advice of its solicitors, and was doing so honestly, when it decided to accept the Pineross offer, Fitzwood would fail in its attempt to deny to the trustee its indemnity for the agent's commission and the Pineross claim. Fitzwood's case is that when the trustee made its decision to sell the property, it was actuated by malice towards Fitzwood in general, and Mr Goulopoulos in particular. This is what it says as supporting its case. The overriding concern of Mr Drapac was to recover the management fee. If the fee was not paid, Mr Drapac would receive no payment for the considerable amount of work he had done over a five year period. That was an intolerable position to be in. To avoid remaining in that position, Mr Drapac wanted to ensure that Fitzwood and its associate did not acquire control of the trust and thereby prevent the payment of the disputed management fee, a fee that the trustee knew was not payable. If the Mt Alexander Road property was sold, Fitzwood and Mapeka would not acquire the outstanding units and Mr Drapac would be reasonably well placed to secure the payment of the management fee. If Fitzwood and Mapeka gained control of the trust before the fee was paid, the manager's position was hopeless. Moreover, to establish dishonesty, Fitzwood points to the day of aborted settlement when Mr Drapac told Mr Goulopoulos that he would sell the property. Fitzwood says this was a threat which was ultimately carried out. True, the threat was made in a moment of anger, but Mr Drapac was not entitled to allow his anger towards Mr Goulopoulos to influence the manner in which he procured the trustee to exercise its powers. The obvious step for Mr Drapac to take was to resign as a director of the trustee. But this was an unpalatable step to take. 158 This is a very powerful argument, and one that I was attracted to for some time. In the end, however, it is not sufficient to persuade me that Mr Drapac was being dishonest when he decided to sell the Mt Alexander Road property to Pineross. The factors that have influenced me to arrive at that conclusion are as follows. First, Mr Drapac made no secret of the fact that he was seeking to find a purchaser for the property. He told this to Mr Goulopoulos in November, and he informed all unitholders of the progress that was being made on at least two occasions in early December 1999. Mr Drapac also advised unitholders of the impending sale shortly before the contract for sale was entered into, though he did not give them much time to do anything about the sale if they objected to it. Second, Mr Drapac had been advised by Middletons that the trustee should sell the property. When that advice was given it was by no means certain that Fitzwood and Mapeka would acquire the outstanding units in the trust. It was certainly not clear whether they would acquire all the outstanding units. If they did not, and the Pineross offer was not accepted, then the general body of unitholders would have had just cause for complaint. After all, they had expected to receive a return on their investment many years earlier. It is difficult to criticise Mr Drapac for acting on his solicitor's advice, and he no doubt believed that there was some risk of litigation if he acted otherwise. 159 The trustee was not in breach of trust in acting as it did. This disposes of the trustee's claim for indemnity, in its favour as it turns out. Thus it is not strictly necessary for me to deal with the trustee's assertion that even if it sold the Mt Alexander Road property in breach of trust, it is nevertheless entitled to be indemnified because the contract benefited the trust estate. 160 Previously I explained that if a trustee acts in good faith when entering into an unauthorised transaction, the trustee will be entitled to an indemnity to the extent the transaction benefits the estate. To be entitled to an indemnity in the circumstances, the beneficiaries must adopt the unauthorised transactions. If the transaction is rejected (that is falsified) the right of indemnity will not exist: In re Salmon; Priest v Uppleby (1889) 42 Ch D 351. In this case it cannot be said that the unauthorised transaction was adopted because the beneficiaries (or at least Fitzwood, by bringing this proceeding) caused the contract to come to an end. This is tantamount to falsifying the sale. In reality the trust estate did not receive any benefit from the contract such as would give a right of indemnity. 161 Although the trustee did not act in breach of trust when it entered into the contract of sale, a possible claim against the trustee might have arisen from the fact that it sold the property in breach of its promise not to do so without the consent of the committee constituted by Mr Cahill and Mr Abrahams. This seems to be a clear breach of contract. Yet there is no claim for that breach before the court, so I need not be concerned with the consequences. This will probably be of no practical relevance to Fitzwood because it is unlikely to have suffered any loss attributable to the breach of undertaking, apart from some legal costs. In the end most of those costs will be dealt with as part of the costs of this action. 162 I can now turn to another claim that Fitzwood brings against the manager. It is a claim in contract. Fitzwood says that in June 1994 Cemack and the manager agreed to pay Fitzwood a sum of $25,000 for each 100 units purchased by an investor introduced by Mr Goulopoulos or Fitzwood (apart from the initial 100 units purchased by Fitzwood itself). The evidence given to support this so called agreement is rather sparse to say the least. In his evidence in chief Mr Goulopoulos said that: "[A]bout this time [June 1994] Mr Mackali informed me that for each subscription of 100 units which I could make, or could find someone else to make, after my first subscription of 100 units, an amount of $25,000.00 would be rebated back to me out of the promoter's manager's share of profits." Later in his evidence Mr Goulopoulos said: "On 26 August 1999 I met with Mr Drapac and discussed various matters. One of the matters discussed was the issue of the management fee. I said words to the effect that the management fee was not payable on depreciation and building write-off allowances and that it also should not be payable on income. Mr Drapac said he disagreed. I said that I would discuss this with the other members of the committee. I also said words to the effect that Fitzwood was entitled to a $50,000.00 rebate calculated at $25,000.00 for each additional 100 units purchased by or through Fitzwood after its initial 100 units. Mr Drapac said the amount Fitzwood was entitled to was $45,000.00 calculated at $15,000.00 for each 100 units. I said I would not argue with him about $5,000.00 and was prepared to accept the $45,000.00 figure." 163 I need not dwell too long on this claim. It must fail for any one of the following reasons. First, according to Mr Goulopoulos' evidence any promise to pay a finder's fee was made to Mr Goulopoulos and not to Fitzwood. Second, there is nothing to suggest that the promise, if one was made, was binding on the manager. It will be remembered that at the commencement of the project, there were two managers, Cemack and Briaroaks. Mr Mackali was a director of Cemack. No doubt he was authorised to make such a promise on its behalf. But his authority to do so on behalf of Briaroaks has not been established, even as a director of that company. Third, the fee was to be paid out of the manager's share of the profits. I take this to mean that if there be no profits, there will be no obligation to pay the fee. As events have turned out, the manager will not take any share of the profits. 164 I can now deal with an altogether different series of actions. By third party proceedings, the manager and Mr Drapac seek damages against the solicitors. Before I discuss the causes of action upon which the claims for damages are based, it is first necessary to repeat that as a result of changes in the constitution of the firm, the third party proceedings are brought against three firms of solicitors: Price Bent for the period up to 29 February 1996, Coltman Price Brent for the period up to 1 July 1999 and finally Middletons Moore & Bevins for the events after 2 July 1999. To resolve the proceeding, nothing will turn on the fact that three separate firms have been involved in the transactions. 165 The second preliminary matter to note is that the manager brings its claim against the solicitors principally under a contract of retainer allegedly made with Price Brent in 1994 which it is said has been adopted by the successor firms when they came into existence. In the alternative, Briaroaks and Mr Drapac assert that the solicitors owed them duties at law, or in equity, that would give rise to obligations similar to those that would exist if there was a contract of retainer. Accordingly, whether the source of the obligation lies in contract, under the common law of negligence, or in equity, Briaroaks and Mr Drapac say that the solicitors owed to each of them a duty to exercise the skill, care and diligence of a reasonably competent solicitor, a duty to act in the utmost good faith and fidelity towards each of them, and a duty to explain fully to each of them all matters concerning the particular transaction in question. 166 Whether or not there was a contract of retainer between Briaroaks and Price Brent was a hotly contested issue. The evidence went both ways. Mr Cookes was the principal party involved at the solicitors' end and he said that his client was the trustee and not the manager. In the absence of written evidence of a contract, I would be reluctant to reject Mr Cookes' evidence. Mr Cookes went so far as to suggest that it was his opinion that the manager may have had its own lawyers to advise it on the various transactions with which this case is concerned, although he did not know who those solicitors were. I suppose that Mr Cookes was not really inviting me to find that he really believed that the manager had its own solicitors. I took him to be saying that because Mr Cookes' firm had not been retained by the manager, it was possible that the manager may have retained its own solicitors. 167 Initially Mr Pruden, who of course was not involved in carrying out any legal work for the manager, said that Price Brent was acting for both the manager and the trustee. He later accepted that this was only an assumption that he made, based on the fact that Mr Drapac was a director of both the trustee and the manager. Perhaps it was a reasonable basis for an assumption, but it is not sufficient to support a finding that the firm was acting for the manager. 168 Interestingly there is one piece of written evidence that does suggest that the manger retained Price Brent, at least for the preparation of the management agreement. When the agreement had been finalised Price Brent wrote to the then joint managers Briaroaks and Cemack advising them of completion. The letter is worth setting out in full: "We refer to our letter dated 3 April 1995 [a letter which was addressed to the trustee alone] and enclose herewith stamped counterpart management agreement for retention by the manager. Stamped counterparts have also been forwarded to Mr. Henry Shapiro and Mr. Richard DeBono. The stamped original has been retained in our deeds system for production when required. Thank you for your kind instructions in this matter." Any person reading this letter would be forgiven for thinking that Price Brent was writing to its clients. 169 There is other evidence which points both towards and against the existence of a retainer. For example a number of accounts that the solicitors rendered recorded "attendances on the Trustee and the Manager", yet no account for any work was ever sent to the manager, nor was an account ever raised in the name of the manager and sent to the trustee for payment. Nor are there any internal documents that refer to the manager as a client of the firm, although much advice was given that benefited both the trustee and the manager. 170 In the end, it will not be necessary for me to determine whether the solicitors were retained by the manager for I am satisfied that until 9 November 1999 the solicitors owed a duty of care to the manager in respect of the matters the subject of the claim. To explain why I have reached this conclusion I will again state what I believe to be uncontroversial legal propositions. First, as a general rule, a solicitor will owe a duty of care to his client, but not to the other parties with whom his client is dealing in the relevant transaction: Hill v Van Erp (1997)188 CLR 159, 236-237. Second, a solicitor, like any other professional person, may owe a person other than his client a duty of care. In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 502-3 Lord Morris said: "… if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise." Perhaps this puts the matter too broadly. To establish the existence of a duty of care at common law the plaintiff must show, not only the foreseeability of harm flowing from the act or failure to act as alleged, but also that the solicitors ought to have realised that they were being trusted to give advice as a basis for action on the part of the plaintiff: Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1. 171 Third, it is unlikely that a duty will arise in favour of a third party, when the third party's interests are in opposition to those of the solicitor's client: Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642, 659; Kamahap Enterprises Ltd v Chu's Central Market (1990) 64 DLR (4th) 167. On the other hand, where there is an identity of interest between the solicitor's client and that of the third party, and the solicitor knows that his advice will be acted upon by both the client and the third party without any independent legal advice, there is good reason to impose the duty. 172 I have no difficulty in finding that the solicitors owed a duty of care in relation to the transactions prior to 9 November 1999 that were the subject of the claim in negligence. It is evident (and was evident to the solicitors) that the manager, through Mr Drapac, relied upon the solicitors to give proper advice in relation to those transactions, prepare appropriate documents to give effect to those transactions and give related advice. It is true that both the manager and Mr Drapac could have obtained independent legal advice. I believe that Mr Cookes suspected that they did not have their own solicitor, and would rely on his advice to the trustee as a basis for their own conduct. 173 Having dealt with the existence of the duty, I must now determine whether the duty has been breached. To do so, I must deal with particular transactions in respect of which it is said that the solicitors were acting negligently or otherwise in breach of duty. I will not deal with each separate claim, for many of them are contingent upon adverse findings being made against the manager or Mr Drapac, and I have not made those findings. In the end, I will confine my attention to the two claims that remain relevant. Each arises because of my finding that the manager is not entitled to a share of the profits derived from the project. The first basis for denying the manager's claim results from the construction that I have placed on cl 9.1.8. The second basis for denying the manager any share of the profit is the failure to establish the contract that was said to come into existence in November 1999. 174 The particular complaint relating to the preparation of the management agreement, and the drafting of cl 9.1.8 in particular, are explained in the following way. First, it is said that the solicitors failed to prepare the management agreement in accordance with their instructions. Second, it is said that the solicitors failed to consider the implications of cl 9.1.8 as drafted by them. Finally, it is asserted that the solicitors failed to advise as to those consequences. 175 On the facts as I have found them, the claim must be rejected. The reasons are simple enough. First, cl 9.1.8. reflects the actual intention of the trustee, the manager and those beneficiaries who were involved in the discussions that lead to its introduction. Second, a solicitor is under no obligation to advise his client, or the person to whom he owes a duty of care, what the client or that other person already knows. So much must be obvious. And I have found that Mr Drapac knew exactly how cl 9.1.8 was to operate. 176 The second claim for negligence is concerned with the events of 8 and 9 November. Here the pleading asserts that the documents prepared by Mr Cookes to bring about the sale of units to Fitzwood and Mapeka did not make adequate provision for the payment of the management fee. I think it is accepted by the cross-claimants that if I find, as I have, that there was no concluded agreement between Fitzwood, Mr Goulopoulos and the manager to pay the claimed management fee, this claim would fail. It would in any event fail on the merits, for the solicitors did make provision for the payment of the fee. The draft termination of management agreement contained an express provision requiring the payment of the fee and provision was made for the insertion of the amount of that fee. The problem for the manager is that this agreement was never executed. If it had been executed, the fee, or so much of it as had been written into the agreement, would have been paid, or at least would be owing, if it was not paid. There is no negligence on the part of the solicitors in these circumstances. 177 The result of these findings is that the litigation should be disposed of in the following way. In relation to Fitzwood's claims, there will be a declaration that the manager's share of the profit is not to be calculated on a cash basis. It will be necessary to determine precisely what, if anything, is due to the manager under the proper construction of cl 9, and then to order that such amount be paid to the manager. I trust the parties will now be able to agree on the correct amount. If not, the task will be referred to a registrar. It will also be necessary to make declarations as to the subsistence of the trustee's right to an indemnity in respect of the amounts claimed. The claims against the solicitors will have to be dismissed. As to the precise formulation of the orders, I will direct Fitzwood to bring in short minutes within fourteen days. This leaves the question of costs. My present view is that the parties should bear their own, save for the solicitors, who should have their costs paid by Briaroaks and Mr Drapac. If any party wishes to dissuade me from this position, I will take written submissions on costs, which are also to be filed within fourteen days. I certify that the preceding one hundred and seventy-seven (177) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 19 November 2001 Counsel for the Applicant and first to fifth Cross-Respondents: Mr P Hayes QC Mr P Collinson Mr A Paterson

Solicitor for the Applicant and first to fifth Cross-Respondents: G S M Lawyers

Counsel for the first Respondent and sixth Cross-Respondent: Mr D MacLean

Solicitor for the first Respondent and sixth Cross-Respondent: Voitin Walker Davis

Counsel for the second and third Respondents, Cross-Applicant and Cross-Claimants: Mr E N Magee QC Mr I Jones Mr J Pennell

Solicitor for the second and third Respondents, Cross-Applicant and Cross-Claimants: Ribgy Cooke

Counsel for the seventh, eighth and ninth Cross-Respondents: Mr G McEwen

Solicitor for the seventh, eighth and ninth Cross-Respondents: Minter Ellison

Date of Hearing: 4, 20, 23, 24, 25, 26 and 27 October 2000 1 and 4 December 2000

Date of Judgment: 19 November 2001