Fitzwood Pty Ltd (ACN 005 180 163) v Unique Goal Pty Ltd (In Liq) (ACN 064 926 843) [2002] FCAFC 285 (14 November 2002)

Last Updated: 15 November 2002

FEDERAL COURT OF AUSTRALIA

Fitzwood Pty Ltd (ACN 005 180 163) v Unique Goal Pty Ltd (In Liq) (ACN 064 926 843) [2002] FCAFC 285

TRUSTS - trustee - power of sale exercised for improper purpose - indemnity of trustee - whether trustee acted in good faith

CONTRACT - interpretation - ambiguity - intention of the parties - rectification - whether binding agreement to pay management fee on certain basis - whether oral agreement - physical exchange of contracts - whether contract completed

EQUITY - estoppel - reliance - detriment

PRACTICE AND PROCEDURE - whether primary Judge erred in refusing leave, after hearing finished, to permit appellant to sue the trustee and manager for breach of contract - reasonable opportunity for litigant to present its case

Armitage v Nurse [1998] Ch 241 cited

University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481 referred to

UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 cited

Ashmore v Corporation of Lloyd's [1992] 1 WLR 446 cited

Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22 applied

See JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd (1985) 9 ACLR 593 cited

Balkin v Peck (1998) 98 ATC 4,842 cited

RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 cited

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 cited

Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 cited

Victoria Garden Developments Pty Ltd v Commissioner of State Revenue (Vic) (1999) 99 ATC 4683 cited

Redgrave v Hurd (1881) 20 Ch D 1 cited

FITZWOOD PTY LTD (ACN 005 180 163) AND MAPEKA PTY LTD

(ACN 005 037 088) AND MAPWOOD PTY LTD (ACN 090 880 318)

v UNIQUE GOAL PTY LTD (In Liquidation) (ACN 064 926 843) AND BRIAROAKS PTY LTD (ACN 007 055 745) AND MICHAEL DRAPAC

VG 54 of 2002

LEE, HILL AND DRUMMOND JJ

14 NOVEMBER 2002

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG54 OF 2002

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	FITZWOOD PTY LTD (ACN 005 180 163) FIRST APPELLANT MAPEKA PTY LTD (ACN 005 037 088) SECOND APPELLANT MAPWOOD PTY LTD (ACN 090 880 318) THIRD APPELLANT
AND:	UNIQUE GOAL PTY LTD (In Liquidation) (ACN 064 926 843) FIRST RESPONDENT BRIAROAKS PTY LTD (ACN 007 055 745) SECOND RESPONDENT MICHAEL DRAPAC THIRD RESPONDENT
AND:	BRIAROAKS PTY LTD (ACN 007 055 745) FIRST CROSS-APPELLANT MICHAEL DRAPAC SECOND CROSS-APPELLANT
AND:	FITZWOOD PTY LTD (ACN 005 180 163) FIRST CROSS-RESPONDENT MAPEKA PTY LTD (ACN 005 037 088) SECOND CROSS-RESPONDENT MAPWOOD PTY LTD (ACN 090 880 318) THIRD CROSS-RESPONDENT CEMAK PTY LTD (ACN 060 432 902) FOURTH CROSS-RESPONDENT NEJAT MACKALI FIFTH CROSS-RESPONDENT UNIQUE GOAL PTY LTD (In Liquidation) (ACN 064 926 843) SIXTH CROSS-RESPONDENT
	PRICE BRENT (a firm) SEVENTH CROSS-RESPONDENT COLTMANS PRICE BRENT (a firm) EIGHTH CROSS-RESPONDENT MIDDLETONS MOORE & BEVINS (a firm) NINTH CROSS-RESPONDENT
JUDGES:	LEE, HILL AND DRUMMOND JJ
DATE OF ORDER:	14 NOVEMBER 2002
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. Within seven days the parties are to file submissions, not exceeding two pages, as to the variations, if any, to be made to the orders in respect of costs made by the learned primary Judge in Item 6 of the orders made on 14 December 2001.

2. The parties each prepare Short Minutes of Order setting out the Orders foreshadowed in the judgment along with the cost Orders they submit should be made.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG54 OF 2002

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	FITZWOOD PTY LTD (ACN 005 180 163) FIRST APPELLANT MAPEKA PTY LTD (ACN 005 037 088) SECOND APPELLANT MAPWOOD PTY LTD (ACN 090 880 318) THIRD APPELLANT
AND:	UNIQUE GOAL PTY LTD (In Liquidation) (ACN 064 926 843) FIRST RESPONDENT BRIAROAKS PTY LTD (ACN 007 055 745) SECOND RESPONDENT MICHAEL DRAPAC THIRD RESPONDENT
AND:	BRIAROAKS PTY LTD (ACN 007 055 745) FIRST CROSS-APPELLANT MICHAEL DRAPAC SECOND CROSS-APPELLANT
AND:	FITZWOOD PTY LTD (ACN 005 180 163) FIRST CROSS-RESPONDENT MAPEKA PTY LTD (ACN 005 037 088) SECOND CROSS-RESPONDENT MAPWOOD PTY LTD (ACN 090 880 318) THIRD CROSS-RESPONDENT CEMAK PTY LTD (ACN 060 432 902) FOURTH CROSS-RESPONDENT NEJAT MACKALI FIFTH CROSS-RESPONDENT UNIQUE GOAL PTY LTD (In Liquidation) (ACN 064 926 843) SIXTH CROSS-RESPONDENT
	PRICE BRENT (a firm) SEVENTH CROSS-RESPONDENT COLTMANS PRICE BRENT (a firm) EIGHTH CROSS-RESPONDENT MIDDLETONS MOORE & BEVINS (a firm) NINTH CROSS-RESPONDENT
JUDGES:	LEE, HILL AND DRUMMOND JJ
DATE OF ORDER:	14 NOVEMBER 2002
WHERE MADE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:

1 Before the Court are appeals and cross-appeals from the judgment of a Judge of this Court (Finkelstein J) arising from a dispute involving Unique Goal Pty Ltd (in Liquidation) ("Unique Goal" and also referred to as "the Trustee"), Briaroaks Pty Ltd, ("Briaroaks" and also referred to as "the Manager") and Fitzwood Pty Ltd ("Fitzwood"). Unique Goal was the trustee, Briaroaks the manager and Fitzwood a unitholder of a private unit trust, the Mt Alexander Unit Trust ("the Trust"). The Trust had been established in 1994 to purchase, manage the leasing of and resell a property at 641 Mt Alexander Road, Moonee Ponds ("the property"). The property was an eight-storey building comprising strata units, retail shops on the ground floor and offices on the upper floors.

THE FACTS FOUND

2 Before outlining the matters in dispute in the appeal we set out the facts relevant to that dispute in summary form. This statement of the facts is largely derived from the judgment appealed from omitting reference to conflicting evidence not accepted by the learned primary Judge where that evidence is no longer in contest.

3 In June 1994 a property developer, a Mr Mackali, located the property. After conversations with Mr Drapac, an acquaintance who was also a property developer, Mr Cahill and a Mr Shapiro, another property developer, it was decided to put together a group of investors to subscribe capital via a unit trust to purchase the property. It was proposed that the purchase price would be found in part through the subscriptions for units and in part through bank finance.

4 A draft information memorandum was prepared and given to a number of prospective investors. The document outlined the strategy to be adopted as involving the property being progressively tenanted and sold to crystallise a profit. It was said that in the "medium term" the whole property would be resold and the Trust wound up after distribution of cash on hand. It was envisaged that the life of the Trust (described as "A sole purpose Unit Trust") would be twelve to eighteen months.

5 The document described how the anticipated profits were to be divided:

"The profits generated by the development are to be split between the investor and the developer of [sic] 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."

6 A feasibility study showed an anticipated potential net profit of $2,347,000, derived from gross realisations from sales of the strata units of $8,012,000, less total project costs of $5,665,000. The project costs included a management fee of $100,000.

7 Among the potential investors approached by Mr Mackali was Mr Goulopoulos, who was the senior partner in GSM Lawyers, a firm of solicitors which included Mr Mackali amongst its clients. Fitzwood is Mr Goulopoulos' family company. Mr Goulopoulos was given a copy of the draft information memorandum. By then the percentages of profit share had changed. The information memorandum explained:

"The profits generated by the development are to be split between the investors and the developer on a 70% to unit holders/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."

8 The firm of Price Brent, solicitors, became involved at the suggestion of a Mr Coe, then a prospective investor. Mr Coe told Mr Cookes, a partner in the firm, that if the firm could find investors it would get the legal work. A consequence was that companies associated with Mr Prudens and Mr Abrahams, both partners in Price Brent, became unitholders. Later Price Brent merged with another firm to become Coltmans Price Brent and later still to become Middletons Moore & Bevins. Each of the three firms became cross-respondents in the original proceedings and are cross-respondents in the present appeals. No claim is now made against the partners of Middletons and the appeal, so far as it joins them, must be dismissed with costs. For the purposes of the appeal it is not necessary to distinguish between Price Brent and Coltmans Price Brent. They will hereafter be referred to as "the solicitors".

9 In late June 1994 Mr Drapac instructed Mr Cookes to prepare a trust deed. Unique Goal was to be the trustee. Its directors were Mr Drapac, Mr Mackali and Mr Spiliotis, a partner in GSM Lawyers. On 7 July 1994 Mr Cookes was instructed by Mr McCormack, a chartered accountant in the firm of McCormack DeBono and Co, to prepare a management agreement. A company associated with Mr McCormack became a unitholder. Mr DeBono, a partner of Mr McCormack, was the person who performed the accounting work from time to time for the Trust.

10 The managers of the Trust were to be Briaroaks, a company controlled by Mr Drapac, and Cemack Pty Ltd, a company associated with Mr Mackali. Mr Drapac was a director of Briaroaks, as was Mr Spiliotis. It is clear that Mr Spiliotis did not have an active involvement in the affairs of the Manager for at least some of the time. And at some time Mr Spiliotis wrote that he intended to resign. It may be inferred, however, that he did not carry out this intention for he continued to act as a director of the Manager in 1998 and 1999.

11 Mr Cookes was told that the Manager's fee was to be "a basic fee of $50,000 plus a success fee equal to 30% of the net profits before tax of the project". Mr Cookes was given a copy of a management agreement for another project in which Mr Drapac was involved to use as a precedent in the preparation of the management agreement for the project. The actual preparation of the agreement was delegated by Mr Cookes to Mr Dermenzies, an employed solicitor.

12 In the first draft, clause 10 provided for the payment of a base fee of $50,000 together with a success fee of 30% of net profits before tax of the project, calculated and payable in accordance with clause 9. Clause 9 provided as follows:

"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 expense (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 al 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 cost 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 The draft agreement was sent to Mr McCormack on 12 September 1994 with a covering letter saying that it was sent "for consideration by the parties and unitholders of the Mount Alexander Unit Trust". A day later Mr Dermenzies prepared what he described as an "[a]mended formula for calculation of trading, capital profit and distribution" and sent that to Mr DeBono for comment and incorporation into clause 9 of the management agreement. The amended formula 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 10D 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."

14 It will be noted that the principal difference is that the amended formula takes into account "depreciation" and "Division 10D allowance". The latter item is a reference to Division 10D of the Income Tax Assessment Act 1936 (Cth) which allows to a taxpayer a deduction for capital expenditure on certain building works and structural improvements. Division 10D was replaced by Division 43 of the Income Tax Assessment Act 1997 (Cth) pursuant to which parts of the 1936 Act were rewritten in what is supposed to be simple English. The parties at least appear to have referred to these two items as being "non-cash expenses" although they represent deductions to be taken into account in the calculation of the net income of the Trust for income tax purposes. We will return to that matter later in our discussion of the submissions.

15 Mr Dermenzies and Mr DeBono discussed the formula on 19 September 1994. Mr DeBono told Mr Dermenzies that, at a meeting with Mr Drapac, he had been told that the Manager's share of the profit was to be 30% of all profits. 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 passed this information on to Mr Cookes.

16 Execution copies of the management agreement were prepared in November 1994. Clause 9 was in its original form. Mr Cookes sent a copy to Mr DeBono under cover of a 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."

17 The reference to "past concerns" is a reference to a suggestion made by Mr Pruden and Mr Abrahams that the Manager should not receive a percentage of rental, merely of profit from sales. It was because the project was not intended to be on foot for any length of time that Mr Cooks was of the view that a percentage of income would be only a marginal cost for the investors.

18 A meeting of unitholders was held on 19 December 1994 at which the management fee was discussed. Not all unitholders were present. However, Mr Drapac attended the meeting representing both the Trustee and the Manager. There was a conflict of evidence as to what was said at that meeting. The learned primary Judge held that Mr Pruden raised the question of who was to receive the benefit of depreciation and the other non-cash allowances and what effect this was to have on the management fee. According to Mr Drapac, Mr DeBono replied that he would look into the matter. Mr Drapac admitted saying that if there were any benefits from depreciation or other non-cash items these could be applied to the unitholders' share of profit and not the Manager's share. Mr Cahill's recollection was that Mr Drapac had said that he was happy for non-cash benefits to go to unitholders as long as the management fee was calculated at 30% of all cash profits as originally intended.

19 In early January 1995 Mr Cookes had a discussion with Mr Pruden. Mr Pruden told Mr Cookes that, for the purposes of calculating the Manager's remuneration, non-cash items should be included as deductible expenses, that is to say that the remuneration clause should provide that the net profit of the venture should be determined by deducting both cash and non-cash expenses from the gross income derived from the Trust. At or around the same time Mr Cookes asked Mr Pruden to resolve outstanding matters with Mr Drapac and made such amendments to the agreement as were necessary.

20 On 5 January 1995 Mr Pruden wrote to Mr Drapac a letter in which he raised the question of the non-cash expense items. Mr Pruden wrote:

"As foreshadowed, I 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."

21 The matter was discussed at a unitholders' meeting on 25 January 1995. Someone raised the concern that if the profit share was to be calculated so as to include for the purposes of calculating the profit a proportion of the non-cash expenses such as depreciation and the building allowance, the Manager would share in the taxation benefits which these items represented. This was said not to be the usual situation. Indeed, it is unlikely that it would be since a sale of the property, including the depreciated items, might operate to recoup the depreciation claimed and thus subject unitholders to tax, and a sale of the units or distribution of capital to unitholders would likely operate to subject unitholders to tax on a capital gain which would include the building allowance allowed as a deduction. Mr DeBono replied that the non-cash benefits 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.

22 Mr Drapac replied to Mr Pruden's letter on 22 February 1995. The reply 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."

23 Mr Pruden gave Mr Cookes a copy of his letter to Mr Drapac and Mr Drapac's reply. He asked Mr Cookes to include a provision in the management agreement to reflect the correspondence. This resulted in the drafting of a new paragraph 9.1.8 to be inserted into clause 9.1 which read as follows:

"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."

24 The agreement incorporating the amendment was then sent to the Trustee for execution under cover of a letter dated 3 April 1995. That letter notes that there has been inserted a page 10A which "recites" the new clause 9.1.8. The management agreement as amended was then executed under the common seal of the two managers and the Trustee. Mr Drapac was one of the signatories to the affixation of the seal for both the Trustee and Briaraoks. Immediately after execution of the agreement Cemack resigned as a manager and assigned its rights under the management agreement to Briaroaks. As a result, Briaroaks became the sole manager. Mr Mackali then resigned as a director of the Trustee, leaving Mr Drapac and Mr Spiliotis as the remaining directors. At a later meeting Mr Drapac's wife was appointed as alternate director of the Trustee to act as alternate for her husband. There was no evidence that Mrs Drapac was ever appointed as a director of the Trustee in her own right.

25 The Trustee did not succeed in selling the property within the period that had originally been contemplated. The reasons are not important to the present appeal. Accounts were prepared annually for the Trust and apparently distributed to the unitholders. These accounts showed a calculation of the Manager's fee as a contingent liability. It may be inferred that the figure shown in the accounts took no account of the non-cash items, that is to say these were not deducted from the projected proceeds of sale and rentals. Sometime in 1998 it seems that Mr Goulopoulos complained to Mr McCormack that the calculations of the projected management fee proceeded on the wrong basis. Mr McCormack wrote on 21 August 1998 advising that "[s]everal Unit holders" (in fact there was only one) had complained. Mr McCormack noted that if the non-cash items and other items properly deductible were taken off the proceeds of sale and rentals received, the project would show an overall loss. The letter continued:

"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."

26 Mr Cookes was asked for his comment. He read his file and conferred with Mr DeBono seeking instructions. The learned primary Judge noted that Mr DeBono's instructions were then recorded by Mr Cookes in a letter of advice dated 9 September 1998. As so recorded they were as follows:

"I have 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."

27 Given these instructions the advice was self evident, namely that the Manager's profit share was to be calculated without deducting the non-cash amounts.

28 According to the learned primary Judge, a few weeks later Mr Drapac told Mr Cookes through Mr DeBono that the original management agreement had been amended by a later and oral agreement with the unitholders and the Trustee to the effect that the non-cash amounts were not to be taken into account for the purposes of calculating the Manager's share of profit. No such oral agreement was, however, made.

29 A meeting of unitholders was held on 27 April 1999. A committee of unitholders was appointed comprising Mr Goulopoulos, Mr Abrahams and Mr McCormack. They sought advice from another firm of solicitors as to the interpretation of clause 9.1.8. The advice received was that the non-cash expenses were to be deducted from the net cash proceeds of the sale and leasing to arrive at the net profits to be divided between the Manager and unitholders.

30 As the learned primary Judge notes, Mr Goulopoulos had for some time contemplated the purchase of the units in the Trust not already owned by his company, Fitzwood. He met Mr Drapac on 26 August 1999 to discuss a number of matters concerning the affairs of the Trust including the question of the management fee. Mr Goulopoulos said that he would submit a formal proposal concerning the fee and advised Mr Drapac of his intention with another unidentified party to seek to acquire the remaining units. He confirmed later by letter that if the proposal was successful "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". The management agreement was silent as to what was to happen if there was to be a sale of the units by unitholders, rather than a sale of the property by the Trustee.

31 Shortly thereafter, advice was received by the Trustee from an agent appointed to sell the property that he was confident of receiving an unconditional offer for it within a day or two. On 30 September 1999 Mr Goulopoulos discussed with Mr Wain, an employee of Mr Drapac's firm, a proposal that Fitzwood and an associated interest, would purchase the outstanding units at a price calculated on the assumption that the property had been sold for $6.2 million. Mr Goulopoulos confirmed the offer by facsimile sent on 1 October to Mr Drapac. The facsimile made reference for the need for there to be payment of "the appropriate management fee". Mr Drapac consulted Mr Cookes and sought his advice on a number of questions including the break-up and distribution of funds to unitholders and the Manager upon the transfer of units and the resignation of the Manager. Mr Cookes gave advice which, among other things, indicated that an agreement for the termination of the management agreement would need to contain an acknowledgment of the basis for calculating the Manager's fees.

32 There was a meeting on 11 October at which Mr Drapac, Mr Cookes and Mr Goulopoulos, among others, were present. At the meeting Mr Cookes was instructed to prepare documents to give effect to a sale of units to Fitzwood and Mr Goulopoulos' associate. Mr DeBono, who had earlier been asked to calculate the value of Mr Goulopoulos' offer, advised Mr Goulopoulos shortly after the meeting that the value of the offer should be $1,433.14 for each unit. The figure was arrived at after taking into account the Manager's fee on a cash profit basis (i.e. without deducting the non-cash expenditure).

33 Fitzwood and Mapeka (the associated interest) submitted what Mr Goulopoulos described as a "formal offer" to purchase the units (800) not held by them at a price ($1,410 per unit) which the offer described as intended to represent a better net return to unitholders than would be derived in the event of an external sale for a price of $6.2 million. Among the assumptions which the offer was said to be based, was that the external sale would result in a price after agent's commission of $5.89 million and a return to unitholders of $1,394 per unit. Among the conditions was a condition that the management agreement would be terminated on settlement and that an allowance would be made for the balance of the Manager's entitlement.

34 It was not disputed, according to the learned primary Judge, that by the time the offer was made Mr Goulopoulos had decided that the Manager would not be paid a management fee on a purely cash profit basis. Indeed, Mr Goulopoulos believed that if there was a sale or assumed sale of the property for $6.2 million, the Manager would not be entitled to any fee at all. However, in the correspondence, Mr Goulopoulos gave no hint of his view. His Honour found that Mr Goulopoulos kept silent about this in the belief that Mr Drapac would become so committed to the sale of the units that by the time he became aware of the position he could not possibly avoid the transaction. His Honour thought that Mr Goulopoulos set out deliberately to create the impression that the management fee would be paid, although he intended that it would not be.

35 A further meeting was held on 19 October 1999 at which Mr Goulopoulos, Mr Drapac, Mr Wain, Mr DeBono and Mr Cookes were present. There was a conflict of evidence about what was discussed at the meeting which his Honour did not find necessary to resolve. It is clear that it was agreed at the meeting that Mr Cookes was instructed to prepare the necessary documentation, that the offer should reflect an interim distribution of rental income to unitholders and that the offer was to be presented to a meeting of unitholders. Mr Drapac had given two separate accounts of the meeting in two separate affidavits. In the first affidavit he made no reference to any discussion concerning the management fee. In the second he said that there was agreement at the meeting, not only that the purchase price for units should be reduced by the agent's fee normally payable on a sale, but also that the management fee should be calculated on a cash basis in accordance with the understanding upon which it had always been calculated. He said that Mr Goulopoulos gave no indication that he was not going to pay the fee. No other person who participated at the meeting gave evidence of any discussion of the management fee.

36 Shortly after the meeting Mr Drapac, on behalf of the Trustee, wrote to unitholders informing them of the proposed meeting and recommending that they accept the offer. The offer price was recalculated by Mr DeBono to take into account an interim distribution of rental income. The result was a reduced price of $1,373 per unit. The reduced price was advised to unitholders by letter on 21 October 1999 and they were given information explaining how the offer price was calculated. The calculations assumed that there would be payment of the management fee calculated by reference to cash profit.

37 Draft agreements for sale and for termination of the management agreement were prepared and forwarded to Mr Goulopoulos who requested that the sale agreement be changed so that Mr and Mrs Drapac would be parties and give warranties together with the Manager, including a warranty that there were no liabilities (including contingent liabilities) of the Trust and that all accounts and other financial records of the Trust were properly and accurately kept and were true and accurate in all respects, and showed a true and fair view of the state of affairs of the Trust.

38 In late October Mr DeBono advised Mr Cookes that, for taxation purposes, the transaction should proceed in two stages. First the sale and purchase of units should be completed and thereafter the management agreement should be terminated. This was said to be necessary so that the Trustee could obtain a deduction for the management fee.

39 Mr Cookes ultimately prepared three agreements. Two agreements related to the sale and purchase of the units ("the Sale Agreements"). Under one sale agreement Fitzwood was the purchaser and under the other the purchaser was Mapeka. Mr and Mrs Drapac were parties and were to give the warranties requested. The Trustee was also to indemnify Fitzwood against loss for all claims made against the Trustee and the Trust. The third agreement was an agreement between the Trustee and the Manager for the termination of the management agreement.

40 The agreements and certain accompanying documents were sent to the parties for execution in anticipation that the transaction would be settled on 8 November 1999. By 8 November all vendor unitholders (except perhaps one, the Essendon Football Club) had signed the Sale Agreements. We are prepared to assume that all vendor unitholders had either signed the Sale Agreements or reached an accord with the Fitzwood interests to sell their units. Fitzwood and Mapeka had also executed their parts of the Sale Agreements in anticipation that an exchange of parts and settlement would take place at the same time. Counterparts of the Sale Agreements were also executed by the Trustee, the Manager, and Mr and Mrs Drapac shortly before the time appointed for settlement. No doubt Mr and Mrs Drapac signed the agreements, as indeed did the vendor unitholders, on the basis that the termination of the management agreement would see the Manager paid an amount calculated on a cash profit basis.

41 The learned primary Judge's findings as to what happened on 8 November 1999 were as follows:

"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."

42 His Honour's findings as to what happened the next day were as follows:

"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."

43 Mr Drapac then telephoned a Mr Markowitz, a solicitor at Rigby Cooke. Mr Drapac was advised not to complete the transaction. He then told Mr Cookes that there would be no settlement. He asked Mr Wain to contact the estate agent to enquire whether there was still an interested purchaser for the property. Upon returning to the boardroom he told Mr Goulopoulos that he would not settle the transaction until the management fee was paid. Mr Goulopoulos said that he would not pay the fee. Mr Drapac then picked up the signed Sale Agreements and crossed out the signatures of his wife and himself. He said that he would take the documents and deliver them to Rigby Cooke. He refused permission to Mr Cookes to make copies of the agreements.

44 The next day the Manager wrote a letter to the agent confirming that if an acceptable offer was obtained the property would be sold and the agent's commission would be paid in full.

45 Mr Cookes later advised Mr Drapac that he should convene a meeting of unitholders to discuss the situation. Mr Drapac did not act on this suggestion.

46 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 was a conflict of interest between the Trustee and the Manager because Mr Drapac effectively controlled each company and that the committee proposed that the Trustee should be removed and a new Trustee appointed. The letter enclosed a document entitled "Notice of Resolutions of Unitholders of Mt Alexander Trust" and a ballot paper. Unitholders were asked to sign the ballot paper and return it to Mr Goulopoulos urgently. The Notice of Resolutions document stated that the resolutions had been proposed by Mr Goulopoulos, Mr McCormack and Mr Abrahams in their capacity as the committee of management. There were three proposed resolutions, one being the removal of Unique Goal Pty Ltd as trustee, another being the appointment of Mr Goulopoulos, Mr McCormack and Mr Abrahams as interim trustees in place of Unique Goal Pty Ltd and the third being for the incorporation of a new company of which the interim trustees would be the directors and shareholders, holding their shares beneficially for unitholders in proportion to unit holding. Unitholders were given the opportunity of voting by circling Yes or No for each resolution.

47 Mr Cookes threatened to restrain action on these resolutions but his threat was not carried out.

48 Most unitholders returned their ballot papers to Mr Goulopoulos. According to Mr Goulopoulos, unitholders holding 1,050 units (that is 75% of the units on issue) voted in favour of the resolutions. The original unit deed provided for the removal of the Trustee to be by a resolution passed or agreed to by the holders of 75% of the units on issue. Two of the unitholders, Betery Pty Ltd (with 33 units) and Alzkaz Pty Ltd (with 50 units) did not, however, execute their ballot papers. Each company had, on the same day as they had executed the purchase and sale agreement, given Mr Goulopoulos a limited power of attorney to do on its behalf anything that it might lawfully authorise an attorney to do as a unitholder in the Trust. Mr Goulopoulos had signed the ballot paper but failed to record whether the vote was in favour or against any of the resolutions. Apparently Mr Goulopoulos failed to record how Fitzwood voted in that company's ballot form too. Further, in a letter dated 29 November addressed to Mr Goulopoulos one unitholder, Vanpour Pty Ltd, asked that its vote be withdrawn claiming not to have been informed of all relevant facts.

49 On 29 November 1999 Mr Goulopoulos answered Mr Cookes' threat of an injunction by writing to him suggesting that the threatened action of the Trustee was premature until the result of the vote on the resolutions was known and communicated to the Trustee. He did not claim that the Trustee had been removed from office. The learned primary Judge inferred that Mr Goulopoulos knew that there was a real threat of legal proceedings being taken if the Trustee had been removed so that he did not give his assent to the removal of the Trustee on behalf of Betery, Alzkaz or Fitzwood or, in other words, that the failure to complete the ballot form was deliberate.

50 On 30 November a meeting of unitholders was held in Mr Drapac's office. Initially all unitholders were present in person or by representative. However, one hour into the meeting Mr Abrahams, who represented a unitholder Empara Pty Ltd, which held 150 units left the meeting. When he left nothing had been resolved.

51 There was a conflict of evidence as to what happened at the meeting. In finding as he did, the learned primary Judge relied upon the evidence of Ms Bhatt, a solicitor who took contemporaneous notes. His Honour's findings also took into account notes made by Mr Spiliotis, but not Mr Goulopoulos' evidence based on them. His Honour's account of the meeting was as follows:

"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."

52 Mr Drapac gave the requested undertaking, including importantly the undertaking of the Trustee and Manager not to deal with the Trust assets and the Trust property without the consent of a committee comprising Mr Abrahams and Mr Cahill as representatives of the unitholders. After the meeting Mr Abrahams was informed of the undertaking and his position as a representative of the unitholders. In the weeks following, the consent of the committee was sought and obtained for the entry into a lease of a floor of the property.

53 The meeting adjourned after the giving of the undertaking while the unitholders considered their position. When the meeting reconvened Mr McCormack said that the proposals were confirmed. Mr Markowitz noted that the matters discussed should be reduced to writing. The task of preparing a draft compromise agreement was delegated to Mr Markowitz, Mr Cookes, Ms Bhatt, Mr Spiliotis, Mr McCormack and Mr Pruden. It was not finished that day. Ms Bhatt was asked to complete the task and began to do so the next day. The draft, based as it was on the matters that had been discussed at the meeting, dealt only with matters of broad principle. Some issues of importance, for example what warranties might be given to the purchases, had not been discussed. That topic was only discussed later and was not resolved. The sticking point, as his Honour pointed out, was whether the Manager was prepared to give warranties about the financial position of the Trust.

54 The draft proceeded on the basis that some unitholders would participate in the settlement with the Manager and agree to pay the Manager a share of the fee, others would remain outside the agreement and perhaps not become parties to it. Unitholders had not indicated their preference either way at this time. The draft also recorded the arrangement that the Manager and the Trustee not deal with the Trust property without the consent of Mr Abrahams and Mr Cahill.

55 Mr Goulopoulos became concerned about the delay in finalising the terms of the settlement and suspected that Mr Drapac was deliberately delaying matters. On 20 December he wrote to Ms Bhatt, with a copy to Mr Abrahams and Mr Cahill, saying that in view of the delay the purchasing unitholders had no option but to formally tender settlement monies including for the claimed management fee "on the agreed basis".

56 The Trustee continued with its efforts to find a purchaser of the property through the agent which it had appointed. Progress was reported to unitholders in a letter of 30 November 1999 which indicated that unitholders would be kept informed of future progress of both sale and leasing transactions. A letter a week later noted that discussions with several selling agents indicated a potential sale well in excess of the purchase price offered by Fitzwood.

57 On 17 December 1999 the agent advised Mr Drapac that it was expected that an offer to purchase the property for $5.95 million would be received from the Victor Smorgon Group. A day or so later Mr Wain was instructed to tell Mr Cahill that the offer was imminent. An offer for $6.1 million was submitted by the Victor Smorgon Group on 21 December. Mr Cahill was advised of it and discussed it with Mr Abrahams. Mr Cahill then suggested that Mr Wain get the offer in writing in the form of a contract or sale note. Shortly before midday on the next day the agent produced a contract signed by Pineross Pty Ltd ("Pineross"), a company in the Victor Smorgon Group. The purchase price was $6,150,000. The contract contained a special condition that the offer in it was to expire at 5pm on 22 December 1999.

58 Upon receipt of the contract Mr Drapac sought advice from Middletons. The advice was given by Ms Bhatt who discussed the matter with Mr Cookes. She recommended that the Trustees accept the offer and that they advise all unitholders of the offer and provide them with an analysis comparing the Pineross offer to the previous offer to purchase the units. She said that she so recommended because the original Sale Agreements had not been completed in accordance with their provisions and were, she said, at an end. Further, she wrote, the terms of compromise had not been signed and there was no binding agreement in terms of the compromise.

59 Mr Wain sent a copy of the Victor Smorgon Group offer to Mr Cahill requesting him to call as soon as possible. On receipt of that offer Mr Cahill spoke to Mr Abrahams. There were different versions of the conversation in two separate affidavits which Mr Cahill swore, one given to one side of the dispute and the other to the other side. The learned primary Judge accepted the first of the two versions. It was supported also by the evidence of Mr Abrahams. According to the evidence his Honour accepted, Mr Abrahams said that he was not sure if the Trustee still had power to sell the property in the light of the 30 November meeting. He said 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. Mr Cahill said that he too was not prepared in the circumstances to authorise a sale. He said this, notwithstanding that it was, he said, his view that for the sake of commercial certainty it was in the best interests of the unitholders to proceed with the sale to the Smorgon group so long as it was done with the advice and support of the Trust's lawyers. Mr Abrahams in his evidence said that if the Trustee wanted to sell "it would be on his (presumably Mr Drapac's) head and he would have to wear the consequences". It is clear that neither Mr Cahill nor Mr Abrahams authorised the sale and that Mr Abrahams at least was of the view that if the Trustee were to exercise the power then it was the Trustee's responsibility.

60 Thereafter Mr Cahill spoke to Mr Wain and told him that the committee did not authorise the sale. Presumably Mr Wain conveyed the decision to Mr Drapac. Just after midday on that day Mr Wain wrote to all unitholders advising them of the Pineross offer and saying that on the Manager's recommendation, which had been endorsed by the Trustee's solicitor, the offer would be accepted. The letter contained a comparison between the Pineross offer and the Fitzwood unit offer. The comparison suggested that the Pineross offer would produce a 12.81% greater return to unitholders. His Honour noted that it was likely that the Pineross offer would have produced a better return, although not to the extent that Mr Wain suggested. The timing of the letter left little opportunity for unitholders to do anything if they objected to the proposal.

61 Notwithstanding that Mr Cahill and Mr Abrahams had not authorised the Trustee to do so, the Trustee executed the contract of sale at approximately 4pm. The common seal of the company was affixed and the contract signed on behalf of the Trustee by Mr and Mrs Drapac. Fitzwood, in the meantime, commenced proceedings in the Court seeking an ex parte injunction restraining the sale of the property. An injunction was granted at about 4.50pm. By the time Mr Drapac was notified of the injunction at about 5.30pm, the signed contract had been given to the agent who took it with him for the purpose of exchange. Mr Drapac asked Ms Bhatt for advice but did not tell her that there had been, or was soon to be, an exchange. Nor did Ms Bhatt ask. Her advice, as she recorded it, was that the injunction had come too late. It is possible that had Mr Drapac tried, the exchange could have been aborted. But he did not.

62 The injunction was later extended to prevent the completion of the sale pending the trial of the proceedings. However, Pineross was not prepared to wait until the litigation was completed and rescinded the contract. It claimed damages for breach of contract in the order of $25,000. There was also a claim for commission from the estate agent in the sum of $123,000.

63 Ultimately the proceedings as brought by Fitzwood were framed so as to claim that the Trustee, the Manager and Mr Drapac had each been guilty of misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) or the equivalent section of the Fair Trading Act 1985 (Vic) (or that Mr Drapac had an accessorial liability under those acts). Another claim was that the Trustee, the Manager and Mr Drapac were in breach of fiduciary duties owed to Fitzwood. Damages were claimed or, alternatively, it was claimed that the Manager was not entitled to be paid any fee. It was also pleaded that the Trustee was not entitled to any indemnity for the agency fee incurred on the sale of the property or for the damages payable to Pineross as a result of the breach of contract by the Trustee in failing to complete the sale of the property. Reliance was placed, inter alia, on the fact that the sale had been in breach of the undertaking given by the Trustee not to deal with the property without the consent of Mr Cahill and Mr Abrahams, and in breach of the injunction granted by the Court to prevent the contract with Pineross being exchanged. It was claimed that the Trustee had not acted in good faith in entering into the contract of sale.

64 The Manager and Mr Drapac, in addition to filing a defence to the claims brought against them by Fitzwood, cross-claimed against Fitzwood inter alia for payment of the management fee on a cash basis to the Manager. Alternatively, the Manager sought rectification of the management agreement to provide for payment of the management fee on a cash basis.

65 The Manager and Mr Drapac also cross-claimed against the solicitors claiming them to have been negligent and in breach of their fiduciary duty to the Manager in drafting the management agreement and also in acting on the sale of units to Fitzwood and not providing for the management fee to be calculated on a cash basis.

66 The hearing at first instance occupied approximately 9 days of Court time. Given that the amount at issue concerning the management fee, which was the major issue between the parties, was in the order of $450,000 and that the Fitzwood tender offer (assuming it was a bona fide offer) had been made on the basis that the Manager would be paid the fee calculated on a cash basis anyway, it is difficult to see why the case ever came to Court. Indeed, the legal costs now at issue in the appeal are many times the amount of the management fee in dispute.

67 It should here be noted that on the second day of the hearing after the matter had been opened, an application was made on behalf of Fitzwood to amend its pleading so as to permit it to argue that Mrs Drapac, who participated in the resolution to sell the property to Pineross, was not a director of the Trustee and, accordingly, the Trustee was not entitled to an indemnity in respect of the agent's commission or damages payable to Pineross. The application was rejected for a number of reasons. First, his Honour was of the view that the amendment would not have sufficient prospect of success. Second, his Honour was of the view that the matter would require consideration of evidence additional to that which had already been filed. Third, his Honour was of the view that the case had been pleaded and repleaded a number of times and that leave should not be given yet again to do so at such a late stage in the proceedings.

68 An application was also made on behalf of Fitzwood after judgment had been delivered, but before orders to give effect to his Honour's reasons had been pronounced, to amend its pleading to plead that a contract had been made on 30 November 1999 as found by his Honour, under which the Manager and the Trustee agreed not to deal with the property without the consent of Mr Cahill and Mr Abrahams, but in breach of that contract had done so and in consequence of that breach Fitzwood had suffered damage. The application was refused on the basis that it was made too late in the proceedings.

69 The learned primary Judge referred the matter of the calculation of the management fee to a Registrar of the Court. In directions which his Honour gave concerning the calculation to be made, his Honour directed that the fee was to be calculated taking into account rental income from the property derived by the Trustee on behalf of unitholders until 9 August 2000. It is not clear what his Honour's reasons were for directing the calculation to be made for a period which extended beyond 28 February 2000, that being the date when the management agreement came to an end. The Registrar gave a separate judgment dealing with the calculation which resulted in a determination that the management fee was $177,981. There is no challenge to the mathematics of the calculation. There is, however, dispute as to the basis of the calculation, that is to say the dispute is as to whether the amount should be calculated to take into account rental derived after 28 February 2000.

THE JUDGMENT APPEALED FROM

70 As the brief summary of the pleadings given above indicates, there was a large number of issues ventilated in the proceedings at first instance. Many of them have disappeared on the appeal and there is little point in recounting in detail the reasons why his Honour found as he did on the appeals and cross-appeals so far as concerned issues no longer relevant.

71 It suffices here to say that in a long and careful judgment his Honour concluded that Fitzwood should fail in its claims against the Manager and Mr Drapac, except so far as its case concerned the question of the management fee payable to the Manager. His Honour likewise concluded that the Manager should fail in its cross-claim so far as that related to the management fee which his Honour held was to be calculated as contended for by Fitzwood, that is to say, in a manner which took account of the non-cash expenditure. The claim by the Manager for rectification of the management agreement was likewise dismissed. However, the Trustee was successful in obtaining a declaration contrary to the claim of Fitzwood that it was entitled to indemnity out of the Trust assets for the commission payable to the agent and for the damages payable to Pineross as a result of the termination of the contract to sell the property. The cross-claim by the Manager and Mr Drapac against the solicitors was dismissed, it being held that there was neither negligence nor breach of duty by the solicitors as was alleged against them. All other claims and cross-claims made were likewise dismissed. The Trustee was held to be entitled to its costs on an indemnity basis from Fitzwood. Likewise Pineross, which was joined as a party to the principal proceedings became entitled to its costs of those proceedings payable by Fitzwood. Otherwise, his Honour held that Fitzwood, the Manager and Mr Drapac should each bear his or its own costs.

72 For convenience we will outline the reasons given by his Honour for the conclusions he reached on the matters which are still at issue between the parties at the same time as we discuss the several issues raised in the appeal and cross-appeal.

THE ISSUES ON THE APPEAL BY THE FITZWOOD INTERESTS

73 Four issues arise on the appeal brought by Fitzwood and associated interests. These are:

* Whether the sale by the Trustee to Pineross was in breach of Trust or otherwise in breach of fiduciary duties owed by the Trustee to the unitholders.

* Whether his Honour should have given leave to Fitzwood to amend its pleadings to permit it to rely upon the contract not to sell the property without the consent of Mr Cahill and Mr Abrahams.

* Whether his Honour should have given leave to Fitzwood to amend its pleadings to allege that Mrs Drapac was not a director of the Trustee with the consequence that the sale of the property to Pineross was not properly authorised.

* Whether the calculation made by a Registrar of the Court of the management fee upon reference by his Honour was made on an incorrect basis so as to take into account rental income which accrued after termination of the management agreement.

THE ISSUES ON THE CROSS-APPEAL BY THE DRAPAC INTERESTS

74 The issues which arise on the cross-appeal by the Manager and Mr Drapac are as follows:

* Whether the management fee should, as a matter of construction of the management agreement, be calculated on the basis that the non-cash expenditure items should be deducted in calculating the net profit as held by the learned primary Judge or on a basis that excluded those amounts from deduction.

* If, contrary to the submissions of the Manager, his Honour was correct in holding that as a matter of construction the management fee should be calculated on the basis that the non-cash expenditure should be deducted in calculating the net profit, whether the management agreement should be rectified so as to require calculation of the net profit to be made on a basis which excluded those amounts from deduction.

* Whether, alternatively to the last submission, there was an agreement by Fitzwood to pay the Manager a fee on the basis that non-cash expenditure was not deducted in computing the net profit or whether Fitzwood was estopped from asserting that the management fee was an amount other than as claimed by the Manager.

* Whether, contrary to his Honour's finding, there was a binding agreement for the termination of the management agreement reached on 8 November 1999 which agreement was breached entitling the Manager to be paid a management fee calculated on the basis contended for by the Manager.

75 Finally the issues which remained to be determined in the cross-appeal against the solicitors, which cross-appeal would only be relevant if the Manager was unsuccessful in recovering the management fee calculated on a cash basis without reference to the non-cash expenditure are:

* Whether the solicitors lacked authority from Mr Drapac, or a person authorised by him to draft the amendments to clause 9.1 which authorised the deduction of the non-cash expenditure in calculating the management fee.

* Whether the solicitors acted negligently in failing to have the basis of calculation of the management fee clarified.

76 We shall deal with these issues in turn.

THE ISSUES ON THE APPEAL

* Breach of trust and entitlement of Trustee to be indemnified from Trust funds

77 Fitzwood submitted that his Honour erred in failing to find that the Trustee had no right to be indemnified from the funds of the Trust for expenses the Trustee incurred as a result of entering into the agreement with Pineross to sell the property to Pineross. It was submitted by Fitzwood that such an act by the Trustee constituted a breach of trust and was done in the absence of good faith. The principal submissions in response thereto were presented by counsel instructed by Briaroaks and Mr Drapac. Counsel for the Trustee adopted those submissions.

78 It was not in issue that the Trustee, and the Manager, were fiduciaries of the unitholders. Furthermore, it was not contested that a breach of the Trustee's duties as trustee of the Trust would have occurred if the Trustee had acted with an improper purpose, or had permitted the beneficial interests of the unitholders and the interests of the Trustee, or of parties associated with the Trustee, to be placed in conflict.

79 The learned primary Judge stated that the two issues to be resolved to determine whether the Trustee was entitled to be indemnified from the funds of the Trust for the Trustee's liability to pay a commission to the estate agent instructed by the Trustee, and to pay damages to Pineross for the Trustee's breach of contract, were whether the Trustee had acted in breach of trust and, if so, whether the breach had been committed "dishonestly".

80 Although his Honour held that the Trustee "was not in breach of trust in acting as it did", the full context of his Honour's reasons suggests that his Honour found it unnecessary to determine whether the Trustee had acted with an improper purpose or under a conflict of interest once his Honour determined that he was not satisfied "that [the Trustee] was being dishonest when [it] decided to sell the...property to Pineross".

81 Before dealing with the grounds relied upon by his Honour for reaching that conclusion, it is appropriate to set out in more detail some of the relevant background facts.

82 As at 8 November 1999, of the 1,400 units issued in the Trust, Fitzwood held 600 and 100 were held by friends of Mr Goulopoulos, Mr and Mrs Koreonos. Mr Drapac, the promoter of the project, held no units in the Trust. Mr  Goulopoulos had proposed to the holders of the remaining 700 units, the vendor unitholders, that Fitzwood acquire 100 units and Mapeka 600 units. Thereafter, the three remaining unitholders would hold the property as an income-producing asset and the trust for sale would be terminated. The Fitzwood interests were to acquire all shares in the Trustee and the engagement of Briaroaks as manager was to be terminated.

83 By 8 November 1999 the vendor unitholders had agreed to sell their interests in the unit trust to Fitzwood, or to an interest associated with Fitzwood. As noted earlier, they had signified their assent to that sale by executing the two Sale Agreements dated 8 November 1999. Upon execution of the Sale Agreements, Fitzwood and Mapeka obtained a contingent beneficial interest in the 700 units of the vendor unitholders. The Sale Agreements also provided for the Fitzwood interests to purchase the whole of the issued shares in the Trustee, namely, three $1.00 shares. The vendor unitholders agreed to "procure the transfer" of those shares to the Fitzwood interests from the holders thereof. The vendor unitholders undertook to deliver to the Fitzwood interests on settlement a "properly executed transfer" of the shares in the Trustee. How the vendor unitholders could "procure" a transfer of the shares in the Trustee from the Drapac interests to the Fitzwood interests was not apparent from the Sale Agreements.

84 Under the Sale Agreements the vendor unitholders acknowledged that payment to them of the purchase price for the units sold was conditional upon, inter alia, delivery to Fitzwood and Mapeka of a copy of notice of termination of the appointment of the agent appointed by the Trustee on 16 July 1999 to sell the property. In addition Briaroaks, and Mr and Mrs Drapac as "directors", jointly and severally covenanted with Fitzwood and Mapeka that, so far as each of them was aware, all accounts and financial and material records of the Trust had been fully, properly, and accurately kept and completed, and were true and accurate in all material respects, showing "a true and fair value of the state of affairs" of the Trust.

85 Settlement of the sale of the units to Fitzwood and Mapeka, and the transfer of shares in the Trustee, was to take place on 8 November 1999. All necessary documents had been executed as required by the Sale Agreements. At the time and place appointed for settlement Fitzwood and Mapeka tendered the cheques payable to the vendor unitholders. Mr Drapac advised that he would not permit settlement to proceed unless the fee claimed by the Manager was also tendered by Fitzwood. As noted earlier, Mr Drapac apprehended that Fitzwood would deny any obligation to put the Trustee in funds to enable it to pay a management fee to Briaroaks, and would contend that the management agreement did not provide for a fee expressed as a percentage of profit to be paid to Briaroaks if the Manager's appointment was terminated before the property was sold, or if the trust for sale was terminated by a decision of the unitholders.

86 It was agreed on 8 November that settlement of the Sale Agreements would be postponed to the following day. At the time and place appointed for settlement on 9 November 1999, Mr Goulopoulos on behalf of Fitzwood, informed Mr Drapac that Fitzwood did not agree that the amount of the management fee claimed by Briaroaks was payable under the management agreement and stated Fitzwood would not pay that sum to the Trustee to enable the Trustee to pay that fee to Briaroaks. Mr Cookes suggested to Mr Drapac that he agree to the claimed fee being paid into the trust account of the Trustee's solicitors pending resolution of the dispute over the fee. Mr Drapac rejected that proposal. From the point of view of the Trustee, it is difficult to see how that proposal did not protect the Trustee's position. The Manager, however, would remain at risk of receiving no fee unless the property was sold.

87 On the case submitted to his Honour, at all material times Mr and Mrs Drapac, as directors who voted in concert, controlled the Trustee and Mr and Mrs Drapac controlled and held the whole of the beneficial interest in Briaroaks. It followed that Mr and Mrs Drapac had a direct interest in any fee paid to Briaroaks under the management agreement.

88 On 15 November, by letter addressed to the Trustee's solicitors, Mr Goulopoulos, as solicitor for Fitzwood, confirmed that on 9 November 1999 Fitzwood had proposed "that the whole of the claimed management fee be placed and held in trust by your firm pending resolution of the matter of the correct entitlement of the Manager to a management fee", and further confirmed that if any vendor unitholder was content for Briaroaks to receive so much of the management fee claimed by Briaroaks as was commensurate with the number of units held by that vendor, Fitzwood would not object to that amount being released from the amount held on trust. Mr Goulopoulos reiterated the views expressed at that meeting, namely, that Mr Drapac, being in effective control of the Trustee and of Briaroaks, had an irreconcilable conflict of interest which had to be addressed before settlement of the sale of the units could be finalised. On 18 November 1999 Mr Goulopoulos, as director of Fitzwood, wrote to the Trustee's solicitors setting out Fitzwood's contentions on the proper construction of the management agreement as to the management fee payable to Briaroaks. The letter repeated Fitzwood's contention that Mr Drapac was in a position of conflict in respect of his duties as a director and person in effective control of the Trustee and of Briaroaks, and that Mr Drapac could not properly discharge his fiduciary obligations to the unitholders as controller of the Trustee.

89 The learned primary Judge noted that on 8 November 1999 Mr Drapac had been informed by Mr Cookes that "he [Mr Drapac] was in an impossible position of conflict". His Honour stated that the "obvious step for Mr Drapac to take was to resign as director of the Trustee".

90 Counsel for Briaroaks and Mr Drapac submitted that the conflict faced by Mr Drapac as controller of both the Trustee and of Briaroaks had been well-known to all unitholders and accepted by them. However, even if that were so, it would not follow that such a circumstance would prevent a breach of trust arising if the Trustee acted to the detriment of the Trust by reason of that conflict or by reason of acts carried out with an improper purpose.

91 In addition to the foregoing, his Honour found that at a meeting of unitholders, called on 30 November 1999 to discuss the issues raised on 8, 9 November 1999, "there was an agreement between at least the Trustee and [Briaroaks] and Fitzwood that the Trustee and [Briaroaks] would not deal with the Trust property without the consent of the committee, constituted by Mr Abrahams and Mr Cahill". His Honour stated that the consideration for that agreement was that Fitzwood would not take any step to remove the Trustee from office. As noted earlier, Fitzwood had obtained assent from sufficient unitholders to remove the Trustee if Fitzwood decided that such a resolution should be completed and conveyed to the Trustee.

92 The restraint accepted by the Trustee upon its power to deal with the property was not limited to the exercise of the power of sale. It extended to dealings as lessor in respect of the grant or renewal of leases. After the meeting the Trustee did take some steps to deal with lessees of the property and the Trustee's solicitor, through Ms Bhatt, reminded the Trustee, at the request of Mr Goulopoulos, that it could not so act without first obtaining the consent of the committee of management. The acquiescence of the Trustee in the limitation of its powers was grounded on its awareness that the Fitzwood interests and the vendor unitholders had entered negotiations for the Fitzwood interests to acquire the whole of the units in the Trust, and control of the Trustee, for the purpose of determining the Trust as a trust for sale. As at 30 November 1999 the willingness of the vendor unitholders to sell their units to the Fitzwood interests was not in question. The matter left to be resolved was how the dispute over the fee payable to Briaroaks upon termination of its services as manager was to be mediated and whether Fitzwood would make acquisition of the units dependent upon the provision of warranties by the Trustee and/or Mr and Mrs Drapac. A draft "deed of compromise" had been prepared and presented to the meeting of unitholders held on 30 November 1999. It was proposed at that meeting that settlement pursuant to such a deed of compromise be effected on 10 December 1999.

93 Purportedly, negotiation of finalisation of the terms of the deed of compromise was carried out between 30 November 1999 and 21 December 1999. The case submitted to his Honour by Fitzwood was that the Trustee, Briaroaks and Mr Drapac did not act in good faith in those negotiations. His Honour said that there "may have been some justification for this view" and noted that it was possible that Mr Drapac "hoped the agent would find a purchaser for the property" before the deed was completed. Significantly, his Honour found as follows:

"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."

94 In correspondence with the Trustee's solicitors Mr Goulopoulos, as solicitor for Fitzwood, had complained about the lack of progress. On 15 December 1999 the Trustee's solicitors had suggested a suitable form of warranty for the Trustee to provide under the proposed deed of compromise and sought instructions thereon. On 17 December the Trustee's solicitors, through Ms Bhatt, spoke to Mr Goulopoulos and asked if he was insisting on warranties from the Trustee "as previously drafted", that is, as provided in the Sale Agreements executed on the 8 November 1999. Mr Goulopoulos said "not necessarily" and that he just wanted "movement". He would see what was offered by Mr Drapac. Ms Bhatt told Mr Goulopoulos that she was awaiting instructions from the Trustee on whether the warranty drafted by her would be acceptable and when she had instructions she would "come back" to Mr Goulopoulos. It does not appear that the Trustee provided the instructions requested by Ms Bhatt.

95 On 20 December 1999 Mr Goulopoulos wrote to the Trustee's solicitor referring to the conversation he had had with Ms Bhatt on 17 December and to the fact that instructions from Mr Drapac, as director of the Trustee, were still awaited causing a delay in preparation of the final documents and in settlement. The letter then stated:

"In these circumstances I feel that [Fitzwood, Mapeka] have no option but to formally tender settlement monies, including for the claimed management fee on the agreed basis".

The suggested date of settlement was Wednesday, 22 December or Thursday, 23 December.

96 His Honour noted that:

"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."

97 On its face the offer by Fitzwood and Mapeka was to settle without insisting upon prior execution of a deed of compromise, or the provision of warranties by the Trustee or Briaroaks, and for Fitzwood to pay to the vendor unitholders the sum previously agreed under the Sale Agreements as the price payable for units sold to Fitzwood and Mapeka and to pay to the Trustee or, perhaps, the Trustee's solicitor, the sum claimed by Briaroaks as a management fee.

98 However, what became important at that point was the attitude and conduct of the Trustee in respect of that offer. It is to be assumed that the terms of Mr Goulopoulos's letter were conveyed to the Trustee, although there appears to be no direct evidence to that effect and no evidence as to the instructions provided by the Trustee to its solicitors in respect of that correspondence, in particular, whether the solicitors were directed to obtain clarification of Fitzwood's intentions.

99 On 22 December the agent the Trustee had instructed on 23 November to sell the property informed the Trustee that an offer to purchase the property for $6.1 million had been made by the Victor Smorgon Group, the offer being conditional upon acceptance by 5pm on that day.

100 As his Honour recorded, shortly after midday on 22 December, Mr Drapac's firm wrote to unitholders advising them of the Pineross offer and stating that on the recommendation of Briaroaks, endorsed by the Trustee's solicitor, the offer would be accepted. The letter enclosed what purported to be a comparison between the Pineross offer to purchase the property and the Fitzwood/Mapeka offer to purchase the units of the unitholders. No doubt when his Honour noted that it was likely that the Pineross offer would have resulted in a better return to unitholders, although not to the extent suggested by the comparison, his Honour had in mind that the comparison stated, incorrectly, that the return to unitholders by the sale of the units to Fitzwood and Mapeka would be reduced by $122,000 for a commission payable to the agent instructed by the Trustee.

101 It is important to note at this point that his Honour had found that the Trustee had been informed by the members of the committee of management that they did not consent to the sale, and that if the Trustee decided to sell the Trust property such an act would be at the Trustee's risk. His Honour said that the reason the committee withheld its consent was not material but they were probably concerned that they would become involved in litigation.

102 With regard to the claim that the Trustee's solicitors had endorsed the recommendation of Briaroaks, the relevant circumstances were as follows. On 22 December, the Trustee sought advice from Ms Bhatt on the Pineross offer. Ms Bhatt provided the following advice to Mr Drapac:

"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."

103 The finding by his Honour that the Trustee had not acted "dishonestly" turned on his Honour's view that the Trustee was entitled to act on this advice. It is important to note several points about the circumstances in which that advice was given to assess what it revealed about the probity of the Trustee's conduct. Ms Bhatt was a junior practitioner who commenced employment with the Trustee's solicitors "as a first year solicitor", on 4 October 1999. That circumstance would have been well known to the Trustee. Notwithstanding the assistance Ms Bhatt could receive from Mr Cookes as supervising principal, the pressure upon Ms Bhatt would have been substantial when the Trustee presented the Pineross offer for advice with instructions that it remained open only until 5pm that day. Furthermore, the instructions given by the Trustee to Ms Bhatt did not reveal that the committee of management had withheld consent to the sale, nor the understanding of the Trustee that there was a likelihood that litigation would follow if the Trustee purported to breach its contract with Fitzwood by dealing with the Trust property without obtaining that consent. Further, the Trustee did not disclose to Ms Bhatt that it would be seeking to be indemnified from the funds of the Trust in respect of any costs, or liability for damages, the Trustee might incur by attempting to sell the property. All of this would have been necessary information for Ms Bhatt to consider before providing any advice to the Trustee on how the Trustee may act in respect of the Pineross offer and before that advice could stand as advice on which the Trustee could act in good faith. The failure of the Trustee to disclose such information to Ms Bhatt was significant in any assessment of the Trustee's conduct.

104 Just as the members of the committee of management apprehended that they would be involved in litigation if they purported to consent to the sale of the property by the Trustee, so it would have been equally apparent to the Trustee that Fitzwood would move to protect its position under its contract with the Trustee as indeed it did. As noted earlier, by 4.55pm on 22 December 1999 Fitzwood obtained an injunction restraining the Trustee from selling the property. Furthermore, the Trustee could have anticipated that the injunction obtained by Fitzwood would prevent the Trustee taking any steps to complete any contract of sale it had purported to enter. The injunction did so restrain the Trustee, resulting in Pineross rescinding the contract and claiming damages from the Trustee for breach.

105 At all material times it would have been evident to the Trustee that it was reasonably likely that such events would occur. If the Trustee intended that it would be indemnified from Trust funds for any liability incurred to Fitzwood or Pineross for its actions, the Trustee could not have held a conscientious belief that it would be acting in the interests of unitholders by purporting to sell the property in breach of the undertaking it had given to Fitzwood not to sell the property without the consent of the committee of management.

106 The material before his Honour presented the clear inference that the Trustee, under the control of Mr Drapac, acted as it did to attempt to prevent the Fitzwood interests acquiring control of the units in the Trust before the property was sold and that, contrary to the interests of the beneficiaries of the Trust, it incurred the cost of the agent's commission and put the Trustee at the risk of suit by Fitzwood in an attempt to sell the property to crystallize an entitlement to a management fee for Briaroaks and, thereby, to further the interests of Mr Drapac. Such circumstances provided strong grounds for the conclusion that by reason of such a conflict of interest the Trustee acted in breach of its fiduciary duty to the unitholders and in breach of trust, and did so in indifference to the interests of the unitholders. In such event the Trustee could not be seen to have acted in good faith and would not be entitled to rely on any entitlement to indemnification provided by the trust deed. (See:  Armitage v Nurse [1998] Ch 241 at 251.)

107 His Honour found the argument that the Trustee had acted with an improper purpose, or in breach of trust by reason of conflict, to be very powerful but stated that in the end he was not persuaded that [Mr Drapac] had been "dishonest" when [he] decided to sell the property to Pineross. His Honour stated that the two grounds on which he reached that conclusion were first, that Mr Drapac made no secret of the fact that he was seeking to find a purchaser for the property and, second that Mr Drapac had been advised by the Trustee's solicitors that the Trustee should sell the property.

108 With regard to the first ground, whether Mr Drapac made any secret of the fact that he, as controller of the Trustee, was seeking to find a purchaser for the property was of little weight in determining whether the Trustee was acting, first, in breach of trust or, second, in absence of good faith. Of more significance was the failure of the Trustee to have regard to the interest of the unitholders by informing Pineross that the time limit for acceptance of the offer was impracticable when the Trustee had to obtain the consent of a committee of management before it could act and had to advise unitholders of the offer and allow them time to consider it. No explanation was offered by the Trustee for failing to seek an extension of time in which to accept the offer, and the inference arises that it satisfied the Trustee's purpose not to do so.

109 In respect of the second ground, as set out above, the advice obtained from solicitors, on which the Trustee contended it was entitled to rely, was advice the Trustee knew had been provided on limited instructions and, in particular, without disclosure of information that could have caused the solicitors to provide contrary advice. It may also be assumed that the Trustee had been advised by its solicitors to inform the unitholders that on 22 or 23 December Fitzwood would tender monies to complete the settlement of the sale of their units and had declined to do so.

110 Insofar as his Honour considered that the advice offered by Ms Bhatt enabled the Trustee to act with a clear conscience, we are unable to agree. On the facts found by his Honour it would have been patent to the Trustee that the confirmation it sought and obtained from Ms Bhatt that it could proceed to sell the Trust property, provided no excuse for the Trustee to act as it did when it knew that relevant facts had not been disclosed to Ms Bhatt.

111 Furthermore, his Honour found that when Ms Bhatt advised Mr Drapac later on 22 December that an order had been made by this Court that the Trustee not sell, or enter a contract of sale, in respect of the Trust property, Mr Drapac told Ms Bhatt that the Trustee had already "signed the contract". His Honour noted that Mr Drapac did not disclose to Ms Bhatt that he was aware that the "signed contract" had not been given to Pineross and that no binding contract was then in existence. By use of such misleading instructions, Mr Drapac caused Ms Bhatt to provide the advice that she "didn't think the injunction would apply". There was no evidence that Mr Drapac caused the Trustee to make any attempt to recover the "signed contract" from its agent and the inference is plain that he deliberately refrained from doing so. Such conduct provided further support for the conclusion that the Trustee did not act in good faith in attempting to sell the property.

112 His Honour held that in purporting to rely on the advice in respect of the injunction Mr Drapac, and through him the Trustee, acted in good faith. We are unable to agree. Consideration of the circumstances we have outlined shows that the Trustee misled Ms Bhatt to obtain the advice it wanted and that purported reliance on that advice provided no evidence that the conduct of the Trustee was carried out in good faith. None of the conduct of the Trustee described was consistent with the conclusion that Mr Drapac, and through him the Trustee, had acted in good faith when it engaged in the breach of trust described.

113 The appeal must succeed on this issue and the declaration that the Trustee is entitled to be indemnified by the Trust in respect of the claims against the Trustee for commission and damages for breach of contract, must be set aside.

* Should Fitzwood have been permitted to sue the trustee and the Manager upon the contract not to sell the property without the consent of Mr Cahill and Mr Abrahams?

114 In one respect, this statement does not correctly identify the issue here in question: though counsel who appeared for all appellants focused in argument only on Fitzwood's position, the appellant Mapeka, who with Fitzwood entered into agreements in November 1999 to purchase the units held by the other unitholders, and the appellant Mapwood, the new trustee in place of Unique Goal, have joined with Fitzwood in appealing the learned primary Judge's refusal of permission to sue upon this contract. By their second amended notice of appeal, all the appellants, not just Fitzwood, complain of this refusal and seek the following relief:

"4. The appellants have leave to amend the statement of Claim to include the following claims:

(a) ...

(b) A claim that the respondents had breached a contract with the unitholders by selling the property without the consent of the committee of unitholders appointed on 30 November 1999.

...

11. Order the respondents to pay the appellants damages for breach of contract to be assessed.

12. Alternatively to pars ... 11 in the event that the Full Court upholds the appeal in respect of his Honour's Orders ... (but is not disposed itself to deal with those matters) that there be a new trial of these issues on the basis that the refusal to [sic] leave to permit the Appellants to raise these matters constituted a miscarriage of justice so far as the Appellants are concerned."

115 There can be no doubt that Mapeka, as well as Fitzwood, intended to rely on this ground of appeal first, to minimise the loss that they each would have incurred but for their success in overturning the order at trial giving the Trustee its indemnity and second, to recover other losses.

116 This issue remains a live one in the appeal: Fitzwood and Mapeka contend that they can recover for breach of this contract damages beyond the loss they would have suffered if the Trustee had held its judgment for the indemnity. The damages claimed, as outlined in par 90 of the appellants' written submissions and in the "Calculation of Damages in Fitzwood's Contract Claim" handed up during argument, include the costs incurred by Fitzwood in connection with its proceedings for the interlocutory injunction to restrain the Trustee's sale to Pineross and by Fitzwood and Mapeka in connection with the entire action, i.e. all the costs, not just those that Fitzwood and Mapeka could expect to recover under a party-and-party award.

117 On appeal, as at trial, counsel for the appellants relied on the agreement not to sell without consent as demonstrating that the Trustee's conduct in subsequently doing that was of such a character as to deprive it of its entitlement to the indemnity claimed. But neither Fitzwood nor Mapeka pursued at trial a cause of action for damages for breach of contract by reason of the Trustee's sale to Pineross.

118 In the reasons delivered by his Honour on 19 November 2001, he found that at the meeting of 30 November 1999, a binding agreement was made "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" (at [120]); that Mr Abrahams and Mr Cahill decided they would not consent to the sale of the property to Pineross when asked to do so on behalf of the Trustee on the day of that sale (at [136]); and that: "Notwithstanding the lack of authority, the trustee executed the contract of sale at approximately 4.00 pm on 22 December 1999 ..." (at [137]). After having concluded that the Trustee was entitled to the indemnity it claimed, his Honour also said, at [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."

119 On 5 December 2001, having realised that these findings provided it with an argument for recouping from the respondents the loss that fell on it because the Trustee was held entitled to the indemnity it claimed in respect of the Pineross transaction, Fitzwood, as sole applicant in the action, gave notice that it wished to claim damages for breach of this agreement. By this letter, the solicitors for Fitzwood contended that it had raised in its written submissions to the primary Judge the issue whether or not an agreement was reached at the 30 November 1999 meeting; they accordingly asked the primary Judge to determine the matter "as though the Applicant had pleaded a claim for breach of contract arising out of the sale of the property in the face of the undertakings given on 30 November 1999". On 7 December 2001, at a further hearing held before he made the formal orders that disposed of the proceedings, his Honour refused the application. He rejected the applicant's contention that, though it had not pleaded the claim, it had still litigated this contractual damages claim, saying:

"I disagree completely with the contents of the letter. I accept that there was a reference to the contract and the breach of the contract, for the purposes of establishing either breach of fiduciary duty or breach of trust, but I have no doubt that you did not pursue a claim for breach of that contract as an independent cause of action ..."

120 In support of this ground of appeal, the appellants referred to the evidence of the various witnesses relevant to the finding in [161] of his Honour's reasons set out above. But they did not suggest that his Honour was wrong in the reasons he gave for rejecting the application to make the amendment now the subject of this ground of appeal. Instead, they argued the appeal on the basis that they should nevertheless have been permitted to pursue the issue once they raised it on 5 December.

121 The learned primary Judge expressly refrained from determining whether any unitholders other than Fitzwood were parties to the agreement: he limited himself to the tentative opinion that "at least" the Trustee, the Manager and Fitzwood were parties. If his Honour had on 7 December 2001 permitted the contractual damages claim to be opened up, it is likely that Mapeka would have claimed, as it has by the notice of appeal, the right to damages on the same basis as Fitzwood. It is difficult to see how his Honour could have denied Mapeka that opportunity, if he had thought it appropriate to allow the contractual claim to be raised. He would have had to embark on a further hearing after the trial was long over first, to determine if Mapeka was a party to that contract and second, to determine the quantum of the damages to which Fitzwood and Mapeka would be entitled. His Honour's tentative finding of a contract provides no ground for concluding that that further hearing would have been a mere formality. The present respondents would undoubtedly have contested the claims by Fitzwood and Mapeka, as they have opposed the relief sought by them on appeal.

122 It is true that his Honour had not made the orders disposing of the proceedings when Fitzwood first sought to raise the point on 5 December 2001: he therefore retained jurisdiction to deal with this matter. But his Honour, in the exercise of his discretionary control over the pleadings, the conduct of the trial and the litigation generally, refused to permit Fitzwood to litigate it. We do not accept that Fitzwood and Mapeka's position with respect to this contractual claim can be equated to that of a litigant who wishes to appeal against a final judgment on the ground of an erroneous interlocutory ruling, such as a ruling with respect to the admission of evidence or the amendment of pleadings made before or during the trial. The trial was over before Fitzwood raised the point now in issue; the Judge had published his reasons and had outlined the orders he intended to make to dispose of the entire action. After making all this clear, his Honour said, in the last paragraph of his reasons:

"As to the precise formulation of the orders, I will direct Fitzwood to bring in short minutes within fourteen days."

123 The only matter he left open for further argument was the question of costs.

124 The trial was set down for five days. The taking of evidence was completed in that time in circumstances in which the learned primary Judge sat extended hours and imposed limits on the time allowed to counsel for cross-examination. Voluminous written submissions were then filed and a further four days were devoted to oral argument. The parties had the opportunity to litigate a wide range of complex factual and legal issues. They took full advantage of that opportunity. The point the subject of this ground of appeal cannot be finally determined by this Court if the appellants were permitted to rely on it now: the matter would have to be remitted to the learned primary Judge for a further hearing. The appellants have no claim to depart from the way they conducted their case at trial for the reasons stated by the High Court in University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481 at 483:

"It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so."

125 There is another consideration that requires dismissal of this ground of appeal. A litigant has a right to a fair hearing. This is achieved by the litigant having a reasonable opportunity to present its case. Courts in recent times have rejected the notion that a party is not given this opportunity unless it is permitted to raise every point it wishes whenever it chooses. In UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457, the Victorian Court of Appeal refused leave to counsel to amend the grounds of appeal at the start of the appeal and to advance substantial new arguments for attacking the decision appealed from. Hayne JA, giving the judgment of the Court, said, at 459:

"Counsel for the appellant was quick to make repeated appeals to the need for the court to give his clients a full and fair hearing. But fairness is fairness for all parties and is not to be judged only by reference to whether one party has been able to indulge itself in as many changes of tack as it chooses at whatever time it may wish."

126 His Honour referred to the decision of the House of Lords in Ashmore v Corporation of Lloyd's [1992] 1 WLR 446 at 448. Lord Roskill there said:

"The Court of Appeal appear to have taken the view that the plaintiffs were entitled of right to have their case tried to conclusion in such manner as they thought fit and if necessary after all the evidence on both sides had been adduced. With great respect, like my noble and learned friend, I emphatically disagree. In the Commercial Court and indeed in any trial court it is the trial judge who has control of the proceedings. It is part of his duty to identify the crucial issues and to see they are tried as expeditiously and as inexpensively as possible. It is the duty of the advisors of the parties to assist the trial judge in carrying out his duty. Litigants are not entitled to the uncontrolled use of a trial judge's time. Other litigants await their turn. Litigants are only entitled to so much of the trial judge's time as is necessary for the proper determination of the relevant issues."

127 There is no ground for concluding that his Honour's discretion miscarried when he refused, on 7 December last, to permit the new claim for damages for breach of contract to be raised.

* Should the learned primary Judge have given leave to Fitzwood to amend its pleadings to allege that Mrs Drapac was not a director of the Trustee?

128 We have held that, contrary to the view of the learned primary Judge, the Trustee is not entitled to an indemnity in respect of the liabilities it incurred in connection with this sale. The only impact determination of this ground of appeal can therefore have now is on the costs of the appeal (and the costs of that part of the trial devoted to the point).

129 Fitzwood sought leave on the second day of the trial to expand the case to include a number of new issues in its "proposed fourth amended statement of claim". The amendments concerning whether Mrs Drapac had been validly appointed a director of the Trustee are contained in pars 26B to 26F of this document. On the third day of the trial, when the learned primary Judge ruled on Fitzwood's application, he deferred ruling on the amendment concerning Mrs Drapac's status because he wanted clarification of the evidence that suggested that, even if Mrs Drapac had not been formally appointed a director, Mr and Mrs Drapac were at the relevant times the sole shareholders of the Trustee. Late on the afternoon of the last day of the trial, the question of this amendment was reagitated. There was further argument. In opposing the amendment, counsel for the Trustee submitted that, if it were allowed, the Trustee would need to consider recalling one of its then directors, Mr Spiliotis, and two of the three persons who by then had been identified as the shareholders of the Trustee. The learned primary Judge refused to allow the amendments, saying:

"First, I don't think they've got sufficient prospects of success to further burden the trial at this stage. There are enough substantive grounds being argued by the applicants which have taken up a good deal of time and a good deal of evidence and that really leads me to the second reason. It's by no means clear to me that you could introduce these amendments and require the respondents to rely on the present evidence."

130 After commenting further on the possible need for further evidence if the amendment was allowed, his Honour concluded with the observation that the applicants had repleaded their case at least four times and that was "more than enough to raise all the issues that the applicants are entitled to raise".

131 The appellants were not denied opportunity at the trial to make what they could of Mrs Drapac's involvement in the Trustee's activities. In examining the evidence relevant to whether the Trustee was entitled to the indemnity because it had acted bona fide, the learned primary Judge repeatedly referred to her involvement in those activities leading up to and including entry by the Trustee into the sale contract with Pineross. But the point the appellants sought to make by the rejected amendment was that if Mrs Drapac was not validly appointed a director of the Trustee, that would of itself be sufficient to establish that the Trustee's decision to sell the trust property was not a bona fide exercise of its powers as Trustee and that, in consequence, it should not have the indemnity claimed. This point is emphasised in the second amended notice of appeal, which seeks the following relief:

"4. The appellants have leave to amend the statement of claim to include the following claims:

(a) A claim that Mrs. Cristina Drapac was not validly appointed as a director of Unique Goal and by reason of the invalid appointment there was no proper or bona fide decision to sell the property to Pineross in December 1999; and ..."

132 In Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22, Gaudron, McHugh and Hayne JJ adopted, as the formulation of the proper principle to be applied when a party challenges the correctness of a final judgment on the ground that an interlocutory decision was wrong, the following statement at par [6]:

"[O]n an appeal from the final order an appellate court can correct any interlocutory order which affected the final result."

133 Their Honours added, at par [7]:

"It is necessary to make the qualification, `which affected the final result', at least to reflect the well-established principle that a new trial is not ordered where an error of law, fact, misdirection or other wrong has not resulted in any miscarriage of justice."

134 The appellants have not demonstrated that, if Mrs Drapac was not in fact entitled to act as a director of the Trustee when she participated in the decisions in question, that would be sufficient, of itself, to justify the Trustee being denied the indemnity claimed.

135 The trustee's right of indemnity against liabilities properly incurred by the trustee in the execution of the trust is not limited to the trust property, but extends where the trust assets are insufficient to satisfy the indemnity, to a right of indemnity against the cestuis que trust personally where the cestuis que trust are all (as here) persons sui juris. See JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd (1985) 9 ACLR 593. The trustee is entitled to this indemnity because he incurs personal liabilities as a principal in his dealings with others though not acting in his own interests but for the benefit of the trust's beneficiaries. In JW Broomhead, McGarvie J said, at 635:

"The basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens unless he can show some good reason why his trustee should bear the burdens himself."

136 In In re Johnson; Sheaman v Robinson (1880) 15 Ch D 548, Jessel MR, in explaining the reason why the creditors of a trading trust are entitled to be subrogated to the trustee's lien for his indemnity gave the same explanation for the trustee's entitlement to that indemnity. He said, at 552:

"The trust assets having been devoted to carrying on the trade, it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities; therefore the Court says to him, You shall not set up a trustee who may be a man of straw, and make him a bankrupt to avoid the responsibility of the assets for carrying on the trade: the Court puts the creditor, so to speak, as I understand it, in the place of the trustee. But if the trustee has wronged the trust estate, that is, if he has taken money out of the assets more than sufficient to pay the debts, and instead of applying them to the payment of the debts has put them into his own pocket, then it appears to me there is no such equity, because the cestuis que trust are not taking the benefit."

137 In Balkin v Peck (1998) 98 ATC 4,842, Mason P, with Priestley JA and Sheppard AJA agreeing, said, of the trustee's right to indemnity against beneficiaries who are sui juris, at 4,847:

"It is understandable why Lord Lindley [in Hardoon v Belilios [1901] AC 118 at 123] emphasised the equitable basis of the right in a trustee context. However, the notion of a right to contribution, recoupment or indemnity is not peculiar to equitable relationships. Such rights, unless grounded in contract or statute, derive from the unfairness of a person who gets all or part of the benefit of property or a legal transaction not bearing all or the proportionate part of the burden associated with it."

138 It is because the trustee's right of indemnity is founded on this equitable consideration that requires beneficiaries who benefit from the activities of their trustee to meet the liabilities incurred by the trustee in generating these benefits that trustees are not disentitled to indemnity merely because they have been guilty of breach of trust or other misconduct. Even a trustee who improperly incurs a liability is entitled to be indemnified in respect of that liability to the extent to which, acting in good faith, he has benefited the trust estate. Nor does a trustee liable to compensate the trust for loss caused by his misconduct necessarily lose his right of indemnity: if there is a balance in favour of the defaulting trustee between what is due to the trust from the trustee by way of compensation and what is due to the trustee from the trust by way of indemnity, the trustee can recover the balance (and he can do that without first paying what is due by way of compensation). See RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 396 and 397 - 398.

139 The ground of appeal now in question is based upon the proposition that, solely because Mrs Drapac was not validly appointed a director, the indemnity claimed by the Trustee against liabilities it incurred in respect of its sale of the property to Pineross to which Mr and Mrs Drapac committed the trustee, is not available. The appellants do not suggest that the Trustee lacked power to sell the property. Nor do they suggest that the Trustee's retainer of the selling agent and its entry into the contract with Pineross in the exercise of its power of sale were not legally enforceable transactions. The equitable principle upon which the Trustee's right of indemnity rests explains why the indemnity is not lost merely because the rules for making decisions internal to a corporate trustee are not followed. So far as concerns this ground of appeal, the beneficiaries obtained from the Trustee the exercise of the power of sale in a manner that was legally effective as between the Trustee and the purchaser providing a financial benefit to the beneficiaries. The exercise by the Trustee of that power in that way, if otherwise bona fide, is not converted into conduct engaged in by the Trustee improperly or in bad faith, for the purposes of the indemnity rule, solely because Mrs Drapac may not have been validly appointed a director.

140 The learned primary Judge was correct in refusing the amendment now the subject of par 4 of the claim for relief in the notice of appeal because it lacked prospects of success.

141 As Gerlach shows, even if it were clear that the Trustee had no right to the indemnity claimed solely because Mrs Drapac was not validly appointed as a director when she took part in the Trustee's decision to sell to Pineross, the appellants would still need to show that the learned primary Judge's exercise of the discretion against them to permit the point now in issue to be pursued at the end of the trial had miscarried. The appellants do not dispute the Trustee's contention, made to the learned primary Judge and repeated on appeal, that if the amendment had been allowed, it would have been entitled to the opportunity to call further evidence on the point. Whether Mrs Drapac was properly appointed a director and whether the appellants are, in any event, barred from relying on any defect in Mrs Drapac's claim to be entitled to act as a director of the Trustee, given the evidence suggesting that Mr Goulopoulos acting on behalf of Fitzwood accepted her as such, are all issues that we think would have to be investigated before a conclusion could be reached on the point. Since further evidence would have been required, it is impossible to say that the learned primary Judge's decision to refuse the amendment pursued so late in the trial was an erroneous exercise of his discretion.

* Was the Registrar's calculation of the management fee made on an incorrect basis?

142 His Honour published his reasons on 19 November 2001; the parties failed to agree on the amount of the management fee payable to Briaroaks so his Honour held a directions hearing on 7 December 2001 to deal with this matter. Counsel for the appellants described his Honour as having then given "de facto directions" to the Registrar to calculate the amount of the management fee on the basis of a deemed sale of the property as at 9 August 2000. On 2 July 2002, the Registrar certified that he had calculated the management fee in the sum of $177,981. On 9 July 2002, Fitzwood gave notice that it objected to the Registrar's calculation of this amount; no grounds were stated. On 16 July 2002, the learned primary Judge dismissed Fitzwood's objection and ordered it to pay to Briaroaks the amount of the management fee certified by the Registrar.

143 By the appellants' second amended notice of appeal filed by leave granted at the start of the hearing of the appeal, Fitzwood appealed his Honour's order of 16 July 2002 and sought an order from this Court that "the question of the quantum of the management fee be referred back to the trial judge for determination". Fitzwood asserted in this notice of appeal that the order fixing the amount of the management fee was flawed with numerous errors, including its reliance on "a deemed sale price determined as at 9 August 2000" rather than as at 9 November 1999. However, in the course of the appeal, Fitzwood abandoned all its complaints about the order of 16 July 2002, save only that in par 37(c) of the amended notice of appeal. It is now said that the order of 16 July 2002 is erroneous only in so far as the calculation of the management fee took into account lease income from the project from 28 February 2000, when the management agreement was terminated, up to 9 August 2000. If the post 28 February income is excluded, the management fee will be much less than that which his Honour ordered Fitzwood to pay to Briaroaks.

144 At the hearing of the appeal, Fitzwood produced a calculation of the management fee showing the figure that it says should be adopted if 28 February 2000, rather than 9 August 2000, were the correct cut-off date for lease income. This calculation gives a spurious air of simplicity to the point Fitzwood now wants to run for the first time. It was made on the simple basis of pro rata-ing the lease income derived through the period 1 November 1999 to 9 August 2000 of $347,259 (the figure used by the Registrar in his calculation) over the whole of that period and then deducting that part of the whole assumed to have been derived in the period 28 February 2000 to 9 August 2000 from the figure arrived at by the Registrar for "net proceeds [of sale and leasing of the property] less deductions". Determination of the proceeds derived from the leasing of the property to 28 February 2000 is not, however, a matter for pro rata estimation: the precise figure should be ascertainable from the accounts. Briaroaks does not agree that Fitzwood's calculation should be accepted as showing the amount of the management fee to which it is entitled if Fitzwood were permitted to argue this point now. Fitzwood's calculation cannot be forced on Briaroaks: the fee suggested by it will differ from, and may turn out to be less than, that which Fitzwood should properly pay to Briaroaks if the actual lease income to 28 February 2000 is identified, as it can be, and the calculation of the fee is made by reference to that date instead of the 9 August date.

145 Fitzwood's contention that it is illogical and unjust to give Briaroaks the benefit of lease income earned after its management agreement was terminated would be compelling but for the fact that the payment here in question was not the fee which the Trustee was bound by clause 9 of the management agreement to pay to Briaroaks, but rather the fee which Fitzwood promised to pay under the special agreement it made with Briaroaks and Mr Drapac to resolve the dispute between them. Further, to accede to Fitzwood's contention would result in Fitzwood being allowed to depart from the position it deliberately adopted in the proceedings until after the Registrar issued his certificate.

146 As Fitzwood correctly pointed out in its outline of submissions filed in the appeal on 26 August last when it was challenging the entirety of the order made by the learned primary Judge that gave effect to the Registrar's certificate, the Manager was only entitled by the management agreement to a management fee (payable by the Trustee) on the sale of the property and the property has never been sold: instead, Fitzwood and Mapeka ultimately purchased all the units in the Trust not already held by them (save for the units still held by another). In these submissions, Fitzwood goes on to say: "Despite this Fitzwood agreed that it would pay a management fee, properly calculated, on a `deemed sale'" which should be taken to have occurred on 9 November 1999 when Fitzwood and Mapeka entered into the agreements to purchase the other units in the trust. Fitzwood also acknowledged in these submissions that: "The express basis on which Finkelstein J fixed the date of the deemed sale as 9 August 2000, was that this was the date that the last of the units were acquired" by them. (The order of 16 July 2002 did not require Mapeka to pay this fee jointly with Fitzwood presumably because Mapeka was not party to the special agreement between Fitzwood and Briaroaks and Mr Drapac.)

147 If Fitzwood is permitted to pursue its challenge to the amount of the fee now, the calculation of the management fee would, as it correctly recognises in its second amended notice of appeal, have to be referred back to the primary Judge for determination after receiving such further evidence as the parties might put before him. The history of this litigation gives no reason to think that that hearing would be a formality. That a further hearing would be required is, in the circumstances of this long-running litigation, a powerful consideration against permitting Fitzwood to depart from the case it ran on the management fee until 9 July last.

148 How the Registrar arrived at the amount of the management fee appears from pp 18 and 19 of his reasons of 2 July 2002 for issuing his certificate. He had to decide first, whether the gross proceeds from the deemed sale on 9 August 2000 should be taken at the appellants' figure of $5,196,277 or the Manager's figure of $6,235,000. The Registrar adopted the Manager's figure and there is now no longer any challenge to that. One of the other income amounts he brought into account in his calculations was the sum of $347,259, as the profits from leasing the property for the period 1 November 1999 to 9 August 2000. As appears from the Registrar's reasons, Briaroaks initially contended for a figure of $348,983 while Fitzwood contended for a figure of $297,597; but the parties agreed during the hearing that he should adopt $347,259 as the amount of the profits from leasing the property in the period 1 November 1999 to 9 August 2000, subject only to Fitzwood's contention that it should be reduced by $7,384 in respect of certain receiver's fees. The Registrar refused to make this reduction and no challenge is now made to that.

149 The Registrar referred in his reasons to the directions given by the learned primary Judge on 7 December 2001. It appears from the brief extract from the transcript of the hearing before the Registrar that the appellants produced to this Court that counsel for Fitzwood, in his closing submissions, reminded the Registrar that his principal submission was that the management fee should be calculated by "tak[ing] the price that was agreed on the aborted settlement in November" 1999 and that "we don't resile from that"; counsel added: "it is just his Honour said do it this way". The Registrar's response was to say he was bound by the Judge's direction to calculate the deemed sale price as at 9 August 2000. In giving his directions for the calculation of the management fee, the learned primary Judge dealt only with the date for calculating the sale proceeds; he did not advert to the cut-off date for calculating the lease income component of that fee. It was therefore open to Fitzwood, if it had chosen to do so, to put argument and evidence before the Registrar that the lease income component should be calculated only up to the date of termination of the management agreement in February 2000. Instead of doing that, Fitzwood presented a case to the Registrar that accepted that the lease income up to the deemed date of sale should be taken into account.

150 That Fitzwood's position until recently was that lease income should be calculated to the date of deemed sale and not to the date of termination of the management agreement is confirmed by its written submissions to the Registrar at the directions hearing on 24 January 2002. In these submissions, Fitzwood identified the issues for that official's determination as including: "What are the net proceeds from leasing of the property for the period 1 November 1999 to 9 August 2000?" Fitzwood there made no mention of any earlier date to be considered in the alternative and made no mention of reserving its right to contend for an earlier date. That it made no such reservation and accepted 9 August 2000 as the relevant date for calculating the proceeds from leasing of the property is further demonstrated by the section of its written submissions of 15 March 2002 to the Registrar: pars 14 to 18 are confined to providing reasons why the figure of $297,597 that Fitzwood was then relying on should be accepted as the amount of the proceeds derived from the leasing of the property. That figure was calculated up to 9 August 2000.

151 From 7 December 2001 until after the Registrar issued his certificate, the appellants conducted their case with respect to the quantification of the management fee on the basis that the relevant date for determining the proceeds derived by the project from both the sale and the leasing of the property was the date of the deemed sale. The appellants may, until they abandoned it during the appeal, have kept open the right to argue that 9 November 1999, rather than 9 August 2000, should be treated as the date of that sale. But until they raised the point in par 37(c) of the second amended notice of appeal, they never suggested that lease income should be calculated by reference to any date other than the date of the deemed sale, i.e. either 9 November 1999 or 9 August 2000.

152 It is not to the point to say now that, in calculating the management fee, it is illogical to bring into account in favour of the Manager the proceeds from the leasing of the property between the date of termination of the management agreement, 28 February 2000, and 30 June 2000. The exercise undertaken by the Registrar was an artificial one in so far as Fitzwood was prepared to agree that it would pay Briaroaks its management fee, though it was not entitled to any fee from the Trustee under the management agreement; Fitzwood also conducted the case before the Registrar on the basis that that fee should be calculated on the figure selected by the Registrar from the two alternatives put forward by the parties as the amount of the deemed proceeds of a notional sale of the property on 9 August 2000 and on the ultimately agreed figure of $347,259 as the profits from the leasing of the property to 9 August 2000. The Registrar was invited by Fitzwood to adopt as the gross profits from the leasing of the property a figure calculated down to this date even though Fitzwood then well knew that the management agreement had been terminated on 28 February 2000.

153 That the respondents have the benefit of the lease income figure down to 9 August is but one reflection of the artificial exercise that Fitzwood agreed with the respondents that the Registrar should be asked to undertake. No doubt Fitzwood had its reasons for making that special agreement with the respondents.

154 Fitzwood does not challenge the Registrar's calculation by reason of some deficiency that vitiates that agreement. Instead, it now puts the agreement to one side and argues that it is illogical to bring gross lease proceeds earned after the termination of the management agreement into account, as the Registrar has in his calculation, though that is but one component of the management fee to which Briaroaks is entitled only because Fitzwood made that special agreement. It is not completely accurate to describe this as a case in which a party seeks to resile from the position deliberately adopted in the proceedings below. Fitzwood is content to maintain its position with respect to the fee, subject only to resiling from a single element of it on the ground that, if the fact that it agreed to the Registrar undertaking his calculations on an artificial basis is ignored, there would be a want of logic and justice in permitting the Manager to benefit from income received without any effort on its part because it was received after the management agreement was terminated.

155 The appeal against the learned primary Judge's order of 16 July 2002 must be dismissed.

THE ISSUES ON THE CROSS-APPEAL

* The proper construction of the management agreement clause 9.1.8

156 At first instance evidence was led by the appellant and the cross-appellants of the negotiations which led to the introduction of clause 9.1.8, evidence was given by the solicitor who drafted it of what in his opinion it meant and evidence was also led of what a number of the unitholders intended by this provision. Expert evidence was also given by a chartered accountant.

157 Although this evidence was admitted without objection and some of it was in any event admissible on other matters in dispute (for example the question of rectification), his Honour took no account of it here because he was of the view, correctly in our opinion, that it could not be used in construing the clause: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596.

158 The principles relevant to the interpretation of a contract are not in dispute. As the learned primary Judge noted, the object of construing a contract is to discover the mutual intention of the parties in relation to the obligations each assumed. Intention, however, is not to be ascertained by reference to subjective intention but by reference to the language which the parties have employed, having regard to the context in which the words are used. Context is used in the broad sense suggested by the High Court in CIC Insurance Ltd v Bankstown Football Club [1997] HCA 2; (1995-7) 187 CLR 384 at 408.

159 The relevant approach to be adopted has been most recently summarised by Gleeson CJ in Wilson v Anderson [2002] HCA 29 at [8] - [9]:

"The law of contract seeks to give effect to the common intention of the parties to a contract. But the test is objective and impersonal. The common intention is to be ascertained by reference to what a reasonable person would understand by the language used by the parties to express their agreement. If the contract is in the form of a document, then it is the meaning that the document would convey to a reasonable person that matters. The reason for this appears most clearly in the case of commercial contracts. Many such contracts pass through a succession of hands in the course of trade, and the rights and liabilities of parties other than the original contracting parties are governed by them. As Lord Devlin observed, writing extra-judicially, it is only the document that can speak to the third person. In the case of a will, or a deed, or other written instrument, the object of a court is to discover, and give effect to, the intention of the testator, or parties; but it is in the meaning of the instrument, discovered according to established principles of construction, that such intention is found.

That is not to say that the exercise is formal and literalistic. On the contrary, common law and statutory principles of construction frequently demand consideration of background, purpose and object, surrounding circumstances, and other matters which may throw light on the meaning of unclear language."

160 The learned primary Judge correctly approached the question of construction by reference to the language used in the management agreement as amended by the addition of clause 9.1.8. His Honour pointed out, correctly, that the language used was not free from difficulty and, particularly, that the initial concept of "net proceeds derived by the Project from the sale and leasing of the Property" presented a problem because an examination of the clause as a whole made it clear that what was meant by "net proceeds" was not the proceeds which remained after the deduction of all relevant expenses (the ordinary meaning of the phrase), but rather gross proceeds because the provisions of clauses 9.1.2 to 9.1.7 listed the types of deductions which would ordinarily be made from the gross proceeds of a venture in order to arrive at the net position. Likewise, while there was no direct reference to what, if anything, should be done with interest which might be derived from surplus funds which were invested, common sense suggested that it should not be ignored, and that it should be taken into account as part of the net proceeds derived by the project along with the gross proceeds of sale of the property, and the rent received from tenants.

161 But whatever the difficulty may be in construing the meaning of "net proceeds", the language of clause 9.1.8, if not felicitously expressed, is nevertheless quite clear. It requires that there be deducted from the net proceeds, derived by the project from the sale and leasing of the property, an amount being the sum of depreciation and the building allowance. As his Honour correctly points out, it was necessary to refer to "an amount equal to" in the clause since depreciation and building allowances merely represented amounts which would be required to be taken into account as deductions in the calculation of the net income of the Trust estate pursuant to s 95 of the Income Tax Assessment Act 1936. While the clause uses the word "expensed" it is obvious that neither amount is an expense in the real sense of the word, whatever the word "expensed" may mean to accountants.

162 The building allowance was introduced into the income tax legislation in 1983 as an incentive to encourage building construction in Australia. In essence, the construction, extension, alteration or improvement of a building used to produce income gave rise to a deduction of 4% of an amount defined in the legislation as "qualifying expenditure". The percentage was changed later, but the general principle of the deduction continued. The benefit of the allowance was, however, rather affected by the introduction of capital gains tax. The detail is not here relevant, but it suffices to say that the amount of the building allowance operates to reduce the cost base of the building so that when the building is sold and the proceeds distributed to a unitholder in a trust, or where the unitholder disposed of his or her units, the consequence would be, ignoring indexation of the cost base, to treat the difference between the amount received by the unitholder and the cost base of the unit i.e. the price to the unitholder after deducting the unitholder's share of the building allowance which has been allowed, as a deduction.

163 It would be commercially strange if the Manager were to share in the building allowance when usually the sale of the building would operate to negate it by bringing it to account as a capital gain to the owner of the building or, here, to the unitholder. No doubt that is the explanation for the concern of the unitholders to ensure that the management agreement dealt specifically with the matter.

164 In one sense it may be thought strange, also, to refer, as clause 9.1.8 does, to the amount of the building allowance and depreciation as having been "paid" to the unitholders. Certainly in the case of the building allowance, while it operates in essence to give a deduction to unitholders for income tax purposes, it does not have any real trust accounting consequence so far as the Trust is concerned. There may be a difference between the building allowance and depreciation, because depreciation is a matter which accountants would ordinarily provide for in the accounts of a trust estate, although the depreciation rate used may be different from that required to be used for taxation purposes. However, commercial practice, and this seems to underlie the clause, is for the trustees of a unit trust to distribute to unitholders an amount equal to the building allowance as if the amount distributed was a return of capital. There is reference in the judgment to the evidence of a Mr Wight, an accountant, where a calculation is made, using depreciation as an example, which demonstrates that deducting depreciation from what is otherwise an income profit leaves an amount equal to the depreciation to be distributed to unitholders, presumably as a return of capital. The example presupposes that for the purposes of trust law the depreciation is to be deducted before determining the amount of a distribution. That would be true so long as the rate of depreciation for income tax purposes equated with that to be applied for ordinary commercial accounting purposes. It is not strictly true with the building allowance, although the accountant made no distinction between the two capital amounts.

165 In summary, therefore, the provisions of clause 9.1.8 have clearly been drafted on the basis that the amounts deductible for tax purposes for depreciation and building allowance will be distributed, probably as a return of capital to unitholders, that is to say, will be "paid" to the unitholders. That explains why there is a reference to "payment to the unitholders". It does not necessarily explain the use of the word "expensed" in connection with the non-cash expenses, unless that too is a reference to the fact that there will have been paid to unitholders an amount equal to the depreciation and building allowances. However, what is clearly meant is that there is to be deducted from the net profit otherwise calculated all amounts that have been paid to unitholders that are equal to the figure deducted for taxation purposes for depreciation and as the building allowance. Whether these amounts are treated by the Trustee as being an income distribution or a capital return, and the latter would be a more appropriate characterisation, the Manager would, but for clause 9.1.8, be entitled to 30% of the distribution actually made.

166 The judgment notes that:

"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."

167 In this passage his Honour appears to be treating the depreciation and building allowance as both being relevant to trust accounting in the trust law sense. That this is so emerges from his Honour's use of the expression "accounting position". Strictly, however, the building allowance is a tax law concept not relevant to trust accounting unless made so expressly by the terms of the trust deed. That does not seem to be the case here. What his Honour says in the passage cited is true only if the rules to be applied in determining the accounting position of the trust are the same as the rules for ascertaining the net income of the trust estate for taxation purposes. However, as already noted, it is clear that the accountant who gave expert evidence took the commercial approach of equating tax law and trust law accounting so as to give rise to a possibility of distributing cash from the Trustee to unitholders equal to the amount of the capital allowances (i.e. the non-cash expenditure). Further, neither the appellants nor the respondents sought to rely upon there being any difference between trust and tax law accounting principles, or, for that matter, to challenge the ability of the Trustee to make distributions of cash equal to both depreciation and the building allowance.

168 However, while these matters should be noted, ultimately it is clear that the intention as expressed in clause 9.1.8 is that amounts equal to depreciation and building allowance are to be deducted from the gross proceeds of sale to determine the Manager's fee, at least if actually distributed to unitholders.

169 It was submitted for the Manager that the construction adopted by his Honour produced such an absurd result that it should not be accepted. With respect to the submission, this is not so. Indeed, as already pointed out, it would be commercially peculiar if the building allowance went, in part, to the Manager, rather than to the unitholders. The absurdity was said to arise because the amount of the Manager's fee when calculated would be small, having regard to the amount of effort the Manager might be required to undertake. Indeed, a consequence of clause 9.1.8 is that the longer the Manager continued to manage the property, the lower the management fee. This comes about because the longer the Manager continued to manage the property, the greater the sum total of the building allowances and depreciation would be, that is to say, the greater the sum which had to be deducted from the gross proceeds of sale. But it also came about here because the appreciation over time of the value of the property as reflected in the sale price ultimately realised, was not as high as might have been expected. The converse would be, however, that the longer the time which elapsed, the greater would be the amount due to the Manager as its share of the rental income.

170 However, the answer to the criticism really is that the parties in any event did not expect that the project would be other than a medium-term one of twelve to fifteen months. Had this been the case, it may well be that the management fee would have been considerably higher because the amount to be deducted from the proceeds of sale would have been considerably less. But the property was held far longer than was expected. And if there is a problem for the Manager, that is the cause of the problem.

171 Ultimately, it is our view that there is only one way in which clause 9.1.8 can be interpreted. And that is in the way it was interpreted by the learned primary Judge. In our view his Honour did not err in his construction of clause 9.1.8.

* Rectification.

172 The principles applicable to rectification are well summarised in the judgment of McLelland A-JA in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 in a passage, subsequently cited with approval by Gillard J in Victoria Garden Developments Pty Ltd v Commissioner of State Revenue (Vic) (1999) 99 ATC 4683 at 4697. His Honour said:

"In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context `effect' means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind..."

173 The learned primary Judge, after setting out, with respect, correctly, that it was necessary for Mr Drapac to provide clear and convincing proof of a common intention before an application for rectification could succeed, continued:

"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 Drapacs'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."

174 His Honour's findings, as set out in this passage, were clearly open to him. In argument, senior counsel for the Manager submitted that his Honour has misunderstood the exchange of correspondence which is set out at [20] and [22] of these reasons. With respect the correspondence supports, rather than contradicts, his Honour's conclusion. There is a further problem. Assuming that there was at least some common intention that clause 9.1.8 meant something, just what was it that it was intended to mean? Short of suggesting that the clause be written out of the contract, there was simply no attempt to indicate what the intended meaning of the clause would otherwise be. We think it likely that Mr Drapac did understand, as he said in correspondence to Mr McCormack in August 1998, exactly what clause 9.1.8 meant. We would add that his Honour's finding set out above was, in part, also dependent upon his Honour's view of Mr Drapac's credit and should not be disturbed where his Honour had the advantage, not open to the appeal Court, to observe Mr Drapac in the witness box.

* Whether there was an agreement by Fitzwood to pay the fee on a basis calculated without regard to the non-cash expenses or whether Fitzwood was estopped from denying the Manager's claim for the fee calculated on the basis advanced by the Manager.

175 The claim sought to be advanced by the Manager in contract was based on what was said to have happened on and shortly before 19 October 1999. The facts found by his Honour are set out in our reasons at [30] - [36]. It suffices here to say that Mr Cookes was instructed on 11 October to prepare documents to give effect to a sale of units proposed by Fitzwood and the then unnamed associate. The offer price had been calculated by Mr DeBono. The figure he arrived at took into account the management fee calculated on a cash basis. Thereafter the formal offers to purchase were dispatched. The offer was conditional upon termination of the management agreement as from the date of settlement.

176 On 19 October there was a meeting at which both Mr Goulopoulos and Mr Drapac were present along with Mr Wain, Mr DeBono and Mr Cookes. His Honour found that there was no contract to pay the management fee, on the basis claimed by the Manager, entered into on that day and dismissed a contractual claim advanced on behalf of the Manager. One reason for so finding was that Mr Goulopoulos on behalf of Fitzwood never promised to pay the claimed management fee. Nor for that matter had Fitzwood (or Mapeka which later emerged as the associate) then agreed to purchase the units. It would have been remarkable had there been at that time any agreement on the part of Fitzwood to pay the management fee when Fitzwood and Mapeka had no binding agreement to purchase the outstanding units. In the circumstances it is difficult to see how a claim in contract could succeed, nor for that matter how there could be any estoppel based on those facts.

177 His Honour found that there were insuperable problems for the Manager in making out a case for estoppel apart from the lack of proof of any representation that could be relied upon. His Honour points out in his reasons that neither the Trustee nor the Manager changed its position in reliance of any promise which Mr Goulopoulos made at the meeting, even if the Trustee did write to unitholders to recommend acceptance of the Fitzwood offer. Nor could the warranties made by the Trustee and the Manager in the Sales Agreements be relied upon in support of an estoppel because the agreements in question had been rescinded. Hence, as his Honour said, neither the Trustee nor the Manager would suffer any detriment if Fitzwood were permitted to depart from its promise.

178 The case in estoppel advanced before us appears to have been somewhat different to that dealt with by the learned primary Judge. However, no complaint was made on behalf of Fitzwood on this basis and because it can be simply dealt with we propose to deal with it here.

179 The submission is that after clause 9.1.8 came into operation, accounts of the Trust were prepared showing a management fee which continued to be calculated on the cash basis. It is said to have been the common understanding of the parties as at the date clause 9.1.8 was inserted, and at all times thereafter, that the management fee would be paid in accordance with the method of calculation in those accounts. It is said that the Manager, on the faith of this method of calculation, remained the Manager, and expended time and money in managing the property to its detriment. Reference is made also to the resolutions passed in August 1995 by which the Manager's entitlement to a fee was reduced from a 30% entitlement, based not only upon a $700,000 threshold of "net profits" (below which it reduced to 15%), but a sliding scale between $700,000 and $1 million. It is said that the Manager relied upon these resolutions and the fact that the accounts contemplated the cash basis of calculation to govern the future relationship between the Trustee and itself, and thus suffered a detriment.

180 There are a number of answers to the submission. The first is the finding by the learned primary Judge that Mr Drapac at all times was aware that the basis for calculation of the fee was such as to require a deduction of the net profit to take into account the non-cash expenditure. We have already noted that this finding was open to the learned primary Judge and should not be disturbed. Another is that it is not at all clear that the unitholders would appreciate that the figure in the accounts was calculated on a basis that ignored clause 9.1.8. The method of calculation of the fee is not stated. Further, the figure would depend upon what amount it was expected the property would be sold at. There is no direct evidence that the unitholders knew or understood the method of calculation, although it might be possible to infer that they did, assuming that they were aware of the terms of the management agreement. In fact Mr Goulopoulos did not receive a copy of the amended management agreement until 10 November 1997, when it was sent to him by Mr McCormack.

181 In our opinion the Manager can not succeed either in showing there was a contract to which Fitzwood, or for that matter any other person, was a party, that the Manager be paid a fee on a basis inconsistent with clause 9 as amended by the addition of clause 9.1.8 or in showing that Fitzwood or any other relevant person was estopped from claiming that the fee should be calculated on a basis contemplated by clause 9 in its unamended form.

* Was a binding agreement formed on 8 November 1999?

182 It was the submission of the Manager that binding agreements had been entered into at least on 8 November 1999 between the unitholders and the relevant party seeking to acquire units (that is to say, Fitzwood and Mapeka) and, more relevantly, between the unitholders, the Trustee and the Manager that the Manager would be paid the fee calculated on a cash basis and without taking into account as a deduction from the net profits the non-cash expenditure. It was submitted that this contract was either still on foot and should thus be enforced or, alternatively, it had been repudiated and that the Manager was entitled, accordingly, to recover damages for breach of it, that is to say to recover the difference between the management fee otherwise payable and the management fee calculated in accordance with that contract.

183 The submission may be broken up into a number of parts. First, it is submitted that there was an oral agreement which included a joint promise of Fitzwood and Mapeka between 18 and 21 October 1999 to pay or cause to be paid the agreed management fee to Briaroaks in the event that the unitholders accepted the joint offer and the Manager agreed to retire. Second, it is said that there were agreements drawn up to give effect to the agreement reached, these being the offer documents. Third, it is said to have been the objective intention of the parties that these written agreements settle together as the one transaction. The fact that settlement was to occur over two days was a result of taxation advice to ensure that the management fee was deductible. Fourth, it is said that the agreements were executed and exchanged by all parties on 8 November 1999 so that a binding agreement came into existence. Fifth, it is said that there was a non-performance of the agreement by Fitzwood refusing to put the Trustee into funds to pay the management fee. In consequence the Manager was entitled, so it was submitted, to accept the repudiation by Fitzwood and terminate the agreement and recover damages. This acceptance of the repudiation was, it was said, effected when Mr Drapac crossed out the execution pages.

184 His Honour rejected the submission. He found that there was no prior oral agreement. At no time did Mr Goulopoulos on behalf of Fitzwood, or anyone else on behalf of Mapeka, say that the Manager's fee would be paid. In fact nothing relevantly was said by Mr Goulopoulos to unitholders or to Mr Drapac at this time on the subject of the management fee. Second, in fact Mr Goulopoulos told Mr Cookes that the management fee would not be paid.

185 The existence of a prior oral agreement would not be fatal to the submission if there was a binding agreement which came into existence on 8 or 9 November 1999 which was not rescinded by the Manager, abandoned by mutual consent, or failed by non fulfilment of a pre-condition.

186 It was an essential element of the case for the Manager that there was an exchange which took place on 8 November 1999 which resulted in the individual contracts between unitholders on the one hand, and Fitzwood or Mapeka on the other, thus becoming binding. But it was also an essential part of the Manager's case that the contract, being one that was conditional upon termination of the management agreement or completion, was in fact completed.

187 The learned primary Judge rejected the submission that a binding contract had come into existence. He did so primarily because, in his Honour's view, it was explicit in the conduct of the parties at relevant times that no binding contract would come into existence until all relevant documents had been executed and exchanged. By relevant documents his Honour meant not merely the Sale Agreements but also the agreement to terminate the contract between the Manager and the Trustee. The termination agreement was not exchanged. Nor was it ever intended by Mr Goulopoulos that it would be.

188 It will have been noted that his Honour found that at the settlement meeting of 8 November 1999 the executed parts of the Sale Agreements had been exchanged. It is clear enough that there was a physical exchange of these parts. However, we do not take his Honour as having decided that there was an exchange in the normal legal sense such as to result in there coming into being a binding contract. The better view would, in our opinion, be that in the context of Mr Goulopoulos not having bought with him the cheque for payment of the management fee being the consideration for termination of the management agreement, that the physical exchange was conditional upon there being completion of the agreements by the termination of the management agreement and payment of the management fee. It is clear enough that Mr Drapac for his part did not agree to there being any binding agreement unless it was clear that the Manager was to receive the management fee calculated as Mr Drapac required, on a basis which excluded a deduction for the non-cash items.

189 At this stage it is necessary to say something about the documents that were executed. First, the parties to the Sale Agreements were the Trustee, the Manager, the relevant purchaser and Mr and Mrs Drapac, as well as the prospective vendor unitholders. As already noted, there were "covenants" or warranties in the agreement to be given by the Manager and Mr and Mrs Drapac that there were or would be no liabilities, actual or contingent, at the settlement date or arising thereafter and that accounts of the Trust were prepared so as to give a true and fair view of the state of affairs of the Trust. Accounts attached showed a liability for the Manager's fee as a contingent liability. It may be inferred that the figure was calculated without deduction of amounts under clause 9.1.8. The Manager, inter alia, agreed to indemnify vendors of units for any claims that might be brought against them for undisclosed liabilities. The document refers to a deed of termination of management agreement, as referred to in clause 5.10, as being one of a number of documents that were to be handed over on settlement. However, clause 5.10 had presumably been changed at some time before the document was presented for execution so that it, inconsistently, contained no reference at all to a deed of termination of the management agreement. No deed or agreement terminating the management agreement was, as the facts already narrated show, ever executed at that time. A draft had been prepared but it did not indicate the figure to be paid to the Manager. However, it is submitted that it is implicit that the amount to be included in the document should be the figure shown in the accounts attached to the unit sale agreement as the contingent liability of the Trust to the Manager. This submission would seem to be correct.

190 It is not difficult to conclude that the parties (or at least the vendors, the Manager and Mr and Mrs Drapac) did intend that the management agreement be terminated on settlement and that the Manager would be paid out the amount shown in the accounts as the management fee. Indeed, it was an essential prerequisite of the agreement that this happen.

191 However in our view, while there was a physical exchange of contracts on 8 November 1999, it is clear that there was to be no binding agreement unless there was also a termination of the management agreement and the Manager was paid. It matters not for present purposes whether at the time of the physical exchange the correct analysis is that no binding agreement was entered into because there had not yet been payment of the management fee or whether at the time of the physical exchange there was a binding agreement entered into but the exchange was conditional upon the Manager being paid its fee on completion as consideration for the termination of the management agreement. The legal consequence will be the same.

192 Mr Cookes in his affidavit evidence made it clear that correspondence prior to 8 November stipulated that it was a condition of the contract that, unless the sale was settled on the date specified in the contract, the contract would be at an end. At a meeting of the directors of the Trustees before settlement was to take place the executed documents were checked. Thereafter, Mr Goulopoulos handed over cheques but not the cheque for the management fee, which he said was not payable until the following day when the management agreement was to be terminated. Mr Drapac declined to settle on that basis, so the settlement did not proceed. It was Mr Cookes who suggested that all documents and cheques be held in escrow pending settlement taking place on the next day. On the next day, when it became clear that Mr Goulopoulos would not deliver a cheque to the Trustee for payment of the Manager, Mr Drapac then said that he was withdrawing from the sale both as a director of the Manager and as director of the Trustee. Clearly he was also withdrawing as a party in his own right. Mr Goulopoulos indicated that it was not acceptable that the transaction proceed without the covenants and warranties that were to be given by the Manager.

193 It seems clear from Mr Cookes' evidence and, indeed, from the evidence of Mr Goulopoulos and Mr Spiliotis to which we were referred, that no agreement existed after 9 November 1999 to pay any money to the Manager. Any agreement reached on 8 November 1999 came to an end on 9 November 1999 when the condition that the management agreement would be terminated was not satisfied. Certainly Mr Goulopoulos clearly had not agreed to pay anything and perhaps intended not to pay anything as his Honour found.

194 If, contrary to our view, there were held to have been an exchange of contracts on 8 November leading to a binding and unconditional agreement being entered into, we agree with the learned primary Judge that the Manager (and Mr and Mrs Drapac) would have been entitled to rescind the bargain since they had been induced to enter into the agreements on the basis of a representation that the management fee would be paid: cf Redgrave v Hurd (1881) 20 Ch D 1 to which reference is made at [92] in his Honour's reasons. However, the better view is that the contract formed on exchange (if indeed the physical exchange led to a binding contract) was clearly conditional upon payment of the management fee and termination of the management agreement on 9 November. When that did not happen the contract was, on any view, rescinded. However, the rescission did not lead to the Manager having any right to recover damages as claimed.

THE CROSS-APPEAL BY THE MANAGER AND MR DRAPAC AGAINST THE SOLICITORS

195 Mr Cookes, then a member of Price Brent, now the seventh cross-respondent, supervised the drafting of the management agreement and himself drafted clause 9.1.8. We have set out the circumstances in which this was done at [9] - [24] above. The learned primary Judge held that Price Brent owed a duty of care to the Manager and Mr Drapac with respect to the matters the subject of their complaints against Price Brent. But he dismissed their claims for the following reasons (at [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."

196 The Manager and Mr Drapac submitted, first that the learned primary Judge was in error in making these findings. In rejecting the complaint of the Manager and Mr Drapac about the learned primary Judge's refusal to order rectification of the management agreement, we have explained why these findings, that Mr Drapac knew how clause 9.1 was to operate and that it reflected his actual intention (as well as that of others involved in the project), made by his Honour must stand. For this reason, the appeal against the learned primary Judge's dismissal of the case of the Manager and Mr Drapac against Price Brent must fail. The second submission upon which they here relied must also be rejected. It was to the effect that clause 9.1.8 resulted in clause 9 having such an unreasonable operation that Mr Cookes was duty bound to draw that to Mr Drapac's attention, to seek clarification from him that the clause truly reflected his intention and to go so far as to advise Mr Drapac to seek independent advice as to the operation of the clause. In rejecting the challenge of the Manager and Mr Drapac to the learned primary Judge's interpretation of clause 9 of the management agreement, we have explained why clause 9.1.8, far from producing an unreasonable result, gave clause 9 a commercially sensible operation as between Mr Drapac's company and the unitholders in the circumstances in which the management agreement was concluded. This submission lacks substance too.

197 For these reasons, and the reasons given in [8], the cross-appeal against the dismissal of the case against all the solicitors must itself be dismissed. It is therefore unnecessary to deal with the point raised by the solicitors' amended notice of contention that the learned primary Judge was wrong in holding that the solicitors owed a duty of care to the Manager and Mr Drapac, particularly in connection with the preparation by Price Brent of the management agreement.

I certify that the preceding one hundred and ninety-seven (197) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Lee, Hill and Drummond.

Associate:

Dated: 14 November 2002

Counsel for the First, Second and Third Appellants and the First, Second and Third Cross-Respondents:	Dr C Pannam QC and Mr A Paterson
Solicitor for the First, Second and Third Appellants and the First, Second and Third Cross-Respondents:	GSM Lawyers
Counsel for the First Respondent and the Sixth Cross-Respondent:	Mr J Wilson
Solicitor for the First Respondent and the Sixth Cross-Respondent:	Voitin Walker Davis
Counsel for the Second and Third Respondents and the First and Second Cross-Appellants:	Mr N Magee QC, Mr I Jones and Mr C Sievers
Solicitor for the Second and Third Respondents and the First and Second Cross-Appellants:	Rigby Cooke Lawyers
Counsel for the Seventh, Eighth and Ninth Cross-Respondents:	Mr G McEwen
Solicitor for the Seventh, Eighth and Ninth Cross-Respondents:	Minter Ellison Lawyers
Date of Hearing:	5, 6 & 7 August 2002
Date of Judgment:	14 November 2002