Wilden Pty Ltd v Green - [2009] WASCA 38

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: WILDEN PTY LTD -v- GREEN [2009] WASCA 38

CORAM: McLURE JA
PULLIN JA
NEWNES AJA

HEARD: 19-21 MAY 2008 & 24 NOVEMBER 2008

DELIVERED : 16 FEBRUARY 2009

FILE NO/S: CACV 101 of 2005

BETWEEN: WILDEN PTY LTD (ACN 009 143 033))
First Appellant
MAGENTA NOMINEES PTY LTD (ACN 009 340 158)
Second Appellant
TACE PTY LTD (ACN 009 204 915)
Third Appellant
SYDNEY JAMES CHESSON
Fourth Appellant
BERT LEONARD DENBOER
Fifth Appellant
CALLAO PTY LTD (ACN 008 867 552)
Sixth Appellant
BENRONE PTY LTD (ACN 008 931 084)
Seventh Appellant
AND
GRAEME WILLIAM GREEN
First Respondent
W J GREEN & CO (1984) PTY LTD (ACN 008 851 867)
Second Respondent
SHARYN LEE GREEN
GRAEME WILLIAM GREEN
JULIE ANNE GREEN
WILLIAM JOSEPH GREEN
NORMA GLENYCE GREEN
Third Respondents

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :HASLUCK J
Citation  :GREEN -v- WILDEN PTY LTD [2005] WASC 83
File No  :CIV 3049 of 1991, CIV 3050 of 1991, CIV 2965 of 1990, CIV 2966 of 1990
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :HASLUCK J
Citation  :GREEN -v- WILDEN PTY LTD [2005] WASC 83 (S)
File No  :CIV 3049 of 1991, CIV 3050 of 1991, CIV 2965 of 1990, CIV 2966 of 1990

Catchwords:

Trusts - Determination of repurchase value of units - Appointment of independent valuers - Whether valuers' repurchase determinations valid - If repurchase determinations invalid, whether trustees in breach of trust - Issue of options and units in one of the trusts - Whether directors and trustee owed a duty to disclose to unit holders the source of funds to be used by companies in acquiring further options and units - Whether directors and trustee owed a duty to disclose to unit holders attempts to sell units to parties other than existing unit holders - Whether directors and trustee acted for an improper purpose - Whether issue of options to companies associated with directors a breach of trustee's duty to act impartially between unit holders - Whether issue of additional units in compliance with trust deed - Effluxion of time and intervening circumstances - Whether issue of additional units should be set aside - Whether trustees relieved from liability by trust deed or Trustees Act 1962 (WA) s 75 - Costs - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 66 r 2(a)
Trustees Act 1962 (WA), s 75

Result:

Appeal allowed
Orders made by the trial judge set aside save for orders 4.3, 4.4, 13, 31, 38, 39, 40

Category: A

Representation:

Counsel:

First Appellant               :     Mr M J McCusker QC & Mr T Galic
Second Appellant          :     Mr M J McCusker QC & Mr T Galic
Third Appellant             :     Mr M J McCusker QC & Mr T Galic
Fourth Appellant            :     Mr M J McCusker QC & Mr T Galic
Fifth Appellant               :     Mr M J McCusker QC & Mr T Galic
Sixth Appellant              :     Mr M J McCusker QC & Mr T Galic
Seventh Appellant          :     Mr M J McCusker QC & Mr T Galic
First Respondent           :     Mr M L Bennett
Second Respondent      :     Mr M L Bennett
Third Respondents        :     Mr M L Bennett

Solicitors:

First Appellant               :     Galic & Co
Second Appellant          :     Galic & Co
Third Appellant             :     Galic & Co
Fourth Appellant            :     Galic & Co
Fifth Appellant               :     Galic & Co
Sixth Appellant              :     Galic & Co
Seventh Appellant          :     Galic & Co
First Respondent           :     Lavan Legal
Second Respondent      :     Lavan Legal
Third Respondents        :     Lavan Legal

Case(s) referred to in judgment(s):

A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112
Anderson v Wallace (1835) 3 Cl & Fin 26; (1835) 6 ER 1347
Armitage v Nurse [1998] Ch 241
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Breen v Williams (1996) 186 CLR 71
Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117
Craig v The State of South Australia (1995) 184 CLR 163
Green v Magenta Nominees Pty Ltd (Unreported, WASCA, Library No 950311, 15 June 1995)
Home Building Society Ltd v Pourzand [2005] WASCA 242
Hopcraft v Hickman (1824) 2 S&S 130; 57 ER 295
House v The King (1936) 55 CLR 499
In Re London and General Bank (No 2) (1895) 2 Ch 673
Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314
Maguire v Makaronis (1997) 188 CLR 449
Neale v Richardson (1938) 1 All ER 753
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410
P & V Industries Pty Ltd v Porto (2006) 14 VR 1
Pilmer v Duke Group Ltd (2001) 207 CLR 165
Re Carey; Ex parte Exclude Holdings Pty Ltd (2006) 32 WAR 501
Straits Exploration (Australia) Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187
Thompson v The Council of the Municipality of Randwick (1950) 81 CLR 8
W Naumann v Edward Nathan & Co Ltd (1930) 36 Ll L Rep 268
Water Board v Moustakas (1988) 180 CLR 491
WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489
Youyang Pty Ltd v Minter Ellis Morris Fletcher (2003) 212 CLR 484

McLURE JA: The appellants appeal from the judgment of Hasluck J dated 9 August 2005 which was entered after a 52 day trial relating to the conduct of the first, second and third appellants as trustees of unit trusts and two directors thereof, Mr Sydney Chesson (fourth appellant) and Mr Bert Denboer (fifth appellant). The only matters raised in the appeal relate to the issue of additional units in one of the trusts and the determination of the repurchase value of the respondents' units in all of the trusts.
The first appellant, Wilden Pty Ltd (Wilden) is and was at all material times the trustee of the Balga Bazaar (1985) Unit Trust (the Balga Trust). The Balga Trust is established pursuant to a Deed of Trust stamped on 6 February 1986 made between Wilden as trustee and the original unit holders, being Giancarlo and Angelina Bonini, Callao Pty Ltd (Callao), W J Green & Co (1984) Pty Ltd (Green & Co) and Benrone Pty Ltd (Benrone). Callao, the sixth appellant, is a company associated with Mr Chesson. Green & Co is a company associated with Mr William Green. Benrone, the seventh appellant, is a company associated with Mr Denboer. At all material times, the primary asset of the Balga Trust was the Balga Bazaar Shopping Centre. A supermarket was the anchor tenant of that shopping centre.
The second appellant, Magenta Nominees Pty Ltd (Magenta) is and was at all material times the trustee of the Kelmscott Village (1988) Unit Trust (the Kelmscott Trust). The Kelmscott Trust is established pursuant to a Deed of Trust dated 28 October 1988. The primary asset of the Kelmscott Trust was the Kelmscott Shopping Centre.
The third appellant, Tace Pty Ltd (Tace), is and was at all material times the trustee of the Summerfield (1987) Unit Trust (the Summerfield Trust). The Summerfield Trust is established pursuant to a Deed of Trust stamped on 9 July 1987. The primary asset of the Summerfield Trust was the Summerfield Shopping Centre.
The respondents are Graeme Green (first respondent/first plaintiff), Green & Co (second respondent/second plaintiff) and members of the extended Green family (the Greens) (third respondents/third plaintiffs). One of the third respondents, Mr William Green (W J Green), was at the relevant times a director of Wilden. The trial was conducted on the basis that W J Green represented the interests of the first, second and third respondents.
At the relevant times Graeme Green was a registered holder of units in the Balga Trust and the Summerfield Trust; Green & Co was a registered holder of units in the Balga Trust and the Summerfield Trust; the Greens were registered holders of units in the Kelmscott Trust. The unit holders in the Balga Trust financed their purchase of a proportion of their units by loans from Wilden. The purchase price was $1,000 per unit.

Background

The background facts relating to the additional units are as follows. In June 1988 the Balga supermarket was about to become vacant. The board of Wilden determined that Mr Chesson manage the supermarket until a buyer could be found for it. By 9 June 1990 the Balga supermarket and shopping centre had an operating loss of $365,574. By the end of June 1990 the losses were becoming critical and calls were made on unit holders to provide funds to keep the supermarket afloat. In late July 1990 an offer to purchase the supermarket business was received from Messrs Petersen and Geggie. The offer was conditional on the vendor purchasing office premises owned by the offerors at Irwin Chambers in Perth. On 2 August 1990 Wilden accepted the Petersen/Geggie offer pursuant to which they would purchase the Balga supermarket business and Wilden would purchase two strata title units in Irwin Chambers. The agreement was subject to Wilden obtaining satisfactory finance. Wilden's bank, the ANZ, indicated that Wilden required more capital.
All of the original unit holders were represented on the board of Wilden. The directors were Mr Chesson (Callao), Mr Denboer (Benrone), W J Green (The Green interests) and Mr G Bonini. Mr Bonini's resignation as a director was accepted at a Wilden board meeting on 17 August 1990. On that date the board also resolved to repurchase the units owned by the Boninis for the amount they were indebted to Wilden and issue an equivalent number of units to Deltabrook Pty Ltd (a company associated with Mr Chesson's brother-in‑law Mr Kelly whose company, Milone Pty Ltd, was a unit holder in the Summerfield and Kelmscott Trusts).
At a board meeting on 23 August 1990, Mr Chesson was authorised to negotiate to sell a number of units in the Balga Trust to raise $400,000 capital at the best possible rate. The minutes continue:
These $1000 units to be negotiated at a discount but not less than $500 each, but that any transaction to be ratified by the Directors.
If this Capital can be negotiated then we are to use this money to fulfil the transaction with Geggie and Peterson to complete the sale of the supermarket.
There was a further board meeting on 28 August 1990. At that meeting, Mr Chesson and Mr Denboer stated that their companies would offer to purchase $200,000 worth of units at $500 per unit. The minutes note that W J Green stated he was not interested in purchasing any additional units at the moment. It was resolved (Mr Chesson abstaining) that:
Mr Chesson's offer on behalf of [Callao] to purchase new units, up to $200,000 for up to 400 fully paid $1,000 units at a purchase price of $500 per unit … be and is hereby accepted.
A similar resolution was passed in relation to Mr Denboer's offer on behalf of Benrone. Mr Denboer abstained from voting on that resolution.
Clause 4.8 of the Balga Trust concerns the issue of additional units. It permits the issue of additional units with the prior written approval of at least 75% of unit holders and requires the trustee when determining the issue price to have regard to the then value of the existing units.
By circular resolution dated 28 August 1990 more than 75% of the unit holders resolved 'to accept and hereby ratify' the board resolution at the meeting of 23 August 1990 empowering Mr Chesson to sell a number of units in Wilden.
By letter dated 28 August 1990 from Callao to Tace, Callao lodged a repurchase request for 300 units in the Summerfield Trust. As at the date of the Wilden board meeting on 28 August 1990, Callao (and it is claimed Benrone) intended to fund the purchase of the additional units in the Balga Trust from the repurchase of assets in the Summerfield Trust. That fact was not disclosed at the Wilden board meeting on 28 August 1990. The need for additional capital was related to the settlement of the Petersen/Geggie contract. Settlement of that contract did not occur until after 25 October 1990.
In mid‑October 1990 Callao instructed Tace to pay the proceeds of the repurchase of 300 units in the Summerfield Trust, being $195,400, direct to Wilden. On the same date, Benrone authorised and instructed Tace to pay the proceeds of its repurchase of 175 units in the Summerfield Trust, being $105,025, direct to Wilden. That money was paid by Callao and Benrone in payment of loans owed by them to Wilden and for the purchase by each of them of 200 units in the Balga Trust at $500 per unit.
The first board meeting after 28 August 1990 was held on 25 October 1990. The minutes of that meeting note that Mr Chesson tabled a letter of approval from the bank. I infer this is finance approval from ANZ Bank in relation to the Petersen/Geggie contract for which settlement was imminent. The meeting was advised that Benrone and Callao had $100,000 each available for the purchase of additional units. Mr Green is noted as stating that his family was not interested in purchasing further units at this stage. The meeting resolved that:
Wilden … will accept the application for the 200 units each by Benrone … and Callao … and that the balance of the subscription of units by Benrone … (200 units) and Callao … (200 units) being for $1000 fully paid units for the payment of $500 per unit at any time within the next two (2) years.
The outstanding balance of 200 units (x 2) referred to in the resolution were described by the parties and the trial Judge as 'options'. It was also resolved that Mr Chesson and Mr Denboer be authorised to complete the documents, including bank documents, required for the settlement of the sale of the supermarket and Irwin Chambers.
On 30 October 1990 Wilden received a valuation of the Balga Bazaar Shopping Centre from Baillieu Frank Knight which valued it in its existing state at $2,960,000 and $3,420,000 when extensions were completed. This valuation was required by the ANZ for the purpose of approving finance for the Petersen/Geggie contract.
It was further resolved at the meeting on 25 October 1990 that Wilden immediately call for repayment of its loans to the unit holders to be received by 1 December 1990. The Green interests denied any obligation to repay their loans from Wilden. At a board meeting on 6 December 1990 it was resolved that writs be issued against the Green parties for the outstanding loans. At Wilden's annual general meeting also held on 6 December 1990, the shareholders voted to remove W J Green as a director of Wilden.
The litigation was conducted on the basis that the balance of the 200 units (x 2) the subject of the board resolution on 25 October 1990 were issued to each of Callao and Benrone and paid for in 1992.
The respondents claimed that Wilden had not complied with cl 4.8 of the Trust Deed, had acted in breach of trust and, together with Mr Chesson and Mr Denboer, in breach of their fiduciary duty and for a fraudulent improper purpose in resolving to issue and then issuing the additional units in the Balga Trust in 1990 and 1992 (the additional units).
The background facts to the repurchase determinations are as follows. The Green interests took steps to repurchase their units in all the trusts. The Trust Deeds for the Balga Trust, the Summerfield Trust and the Kelmscott Trust are relevantly in the same terms. Clause 7.2 of the Trust Deeds entitle any unit holder to request the trustee to repurchase all or any of his units at a price calculated in accordance with cl 7. Clause 7.4 provides:
The price payable on the repurchase of a Unit shall be the Agreed Value or if there is no Agreed Value the Current Repurchase Value on the date on which the repurchase request is received by the Trustee. The Current Repurchase Value shall be as determined by an independent qualified valuer nominated by the President of Australian Institute of Valuers (Inc) (WA Division).
On 7 November 1990 the relevant Green interests lodged a repurchase request in relation to all of their units in the Summerfield Trust. On 3 January 1991 the Green interests lodged a repurchase request in relation to all of their units in the Balga Trust. On 24 May 1991 the Green interests lodged a repurchase request in relation to all of their units in the Kelmscott Trust. After lengthy periods of negotiation the parties were unable to agree on the value of the units. In due course, the trustees of each trust requested the President of the Australian Institute of Valuers to nominate an independent qualified valuer under cl 7.4. The President of the Institute nominated persons with expertise in the valuation of real property. In particular, he nominated Mr Ian Sanderson to value the units in the Balga Trust, Mr Robert Richmond to value the units in the Summerfield Trust and Mr David Hunt to value the units in the Kelmscott Trust.
By letter dated 21 October 1992 Mr Sanderson advised that he had determined that the current repurchase value of a unit in the Balga Trust as at 3 January 1991 was $886.82. By letter dated 1 October 1992 Mr Richmond advised that he determined that the current repurchase value of a unit in the Summerfield Trust as at 7 November 1990 was $1,292.95. By letter dated 19 November 1992 Mr Hunt advised that he had determined that the current repurchase value of a unit in the Kelmscott Trust as at 24 May 1991 was $679.48.
In arriving at their determinations on matters other than the value of the primary asset (the shopping centres), each of the valuers relied on information provided by the trusts' auditor, Mr Norman Curtis of N F V Curtis & Associates Pty Ltd. Mr Curtis had only recently been appointed the auditor of each of the trusts. His appointment coincided with his company employing Mr Prontelli who had previously been involved in auditing the trusts' accounts.
The respondents claimed that the valuers' appointments were invalid and that their reliance on the auditors vitiated the valuations which were of no force or effect. They also claimed that the trustees acted in breach of trust in not obtaining valid determinations under cl 7.4. The trustees' position was that the valuations were valid and binding. Up until trial their position was also that the Green interests had sold, and thus had no interest, in their units.
The trustees denied any breach of trust and in the alternative relied on cl 13.4 of the Trust Deeds and s 75 of the Trustees Act 1962 (WA). Clause 13.4 provides that the trustee shall not be responsible for any loss or damage occasioned by the exercise of any power conferred on the trustee or for any breach of duty or trust unless it was proved to have been committed, made or omitted 'in personal conscious fraudulent bad faith by the Trustee'. Section 75 of the Trustees Act 1962 (WA) empowers a court to relieve a trustee from personal liability for any breach of trust where the trustee has acted honestly and reasonably.

Findings, Orders and Grounds of Appeal

The trial judge made a great number of findings. For present purposes, it is sufficient to note the following.
In relation to the additional units issued to Callao and Benrone, the trial judge concluded that in breach of their fiduciary obligations, Wilden, Mr Chesson and Mr Denboer acted in bad faith in failing to disclose to the Green parties the source of the funds to be used by Callao and Benrone in acquiring the additional units in the Balga Trust and in failing to disclose what attempts if any had been made to sell units to parties other than existing unit holders. The trial judge also found that Wilden, Mr Chesson and Mr Denboer acted with the fraudulent purpose of causing financial disadvantage to the Green interests and financial advantage to Callao and Benrone. He concluded that these breaches were not excused by cl 13.4 of the Balga Trust Deed or by s 75 of the Trustees Act.
In relation to the cl 7.4 determinations, the trial judge found that each of the valuers were suitably qualified because the major asset of each trust was a shopping centre and that their appointments were valid. However, he found that each valuer had accepted the auditor's figures uncritically so that their determinations could not be regarded as their opinion with the result that their determinations as to the value of the units should be regarded as being of no force and effect. He further found that because the cl 7.4 valuation procedure was not properly performed by each of the valuers, each trustee (Wilden, Tace and Magenta) was in breach of their duty as a trustee in failing to ensure that the cl 7.4 procedure had been complied with and (at least in relation to one trustee) in seeking to uphold the validity of the valuation relating to the units of their respective trusts. He also concluded that the breaches were not excused by cl 13.4 of the Trust Deeds or s 75 of the Trustees Act.

As a result of its breaches of trust, the trial judge ordered that Wilden be removed as trustee of the Balga Trust and an insolvency practitioner be appointed as the new trustee. He also declared that the issue of 400 units to each of Callao and Benrone was void and of no effect from the date of issue and that the purported determination made by Mr Sanderson of the current repurchase value of the Green interests units in the Balga Trust was of no force and effect. The trial judge further ordered that: (1) the new trustee forthwith request the President of the Institute of Valuers to nominate a valuer to value the units as at the relevant date; (2) there be an account as to the income and capital distributions to which Graham Green and Green & Co would have been entitled had the additional units not been issued and capital and income distributions been made to them pari passu with other unit holders; (3) the first and second respondents be awarded equitable damages in the amount found on the taking of the account.
In relation to the Summerfield Trust, it was declared that Mr Richmond's determination be of no force and effect and Tace was ordered to request the President of the Institute of Valuers to nominate a valuer to value the units at the relevant date. It was also ordered that there be an account taken as to the income and capital distributions to which the first and second respondents were entitled pari passu with other unit holders and the first and second respondents were awarded equitable damages in the amount found on the taking of the account. Similar orders were made in relation to the Kelmscott Trust.
Wilden and Magenta had counter‑claimed to recover loans owed by the respondent unit holders. The trial judge found that the moneys were due and owing and upheld the counter‑claims. Finally, the trial judge ordered that the appellants pay to the respondents four‑fifths of the costs of the action. A stay of execution of the trial judge's orders was granted.
The appellants rely on five grounds of appeal the particulars of which bear a closer resemblance to an outline of submissions than a succinct and concise statement of the precise errors alleged to have been made by the trial judge. The grounds, excluding particulars, do no more than identify the ultimate findings that are challenged. They say the trial judge erred in fact and/or in law:
1.in declaring that the determinations made by the three independent valuers were of no force and effect and should be set aside;
2.in holding that the trustees were in breach of trust because, having exercised the power to activate the valuation procedure, they were then bound to ensure that the procedure was completed properly;
3.in holding that the trustees were not relieved from liability for the breaches of trust by either clause 13.4 of the Trust Deed or section 75 of the Trustees Act;
4.in holding that the issue of additional units by Wilden to Callao and Benrone was void and of no effect in law or in equity were in breach of trust by Wilden and a fraud in equity by Wilden, Mr Chesson and Mr Denboer;
5.in failing to order that the respondents should have costs only in relation to the issues on which they were successful.
In August 2008, the court wrote to the parties identifying a number of matters on which it required further submissions. They related to the scope of the appellants' challenge to the trial judge's findings relating to the 'options' and the scope of the respondents' pleaded and litigated case in relation to the options.
The matter was unable to be relisted until 24 November 2008. At that hearing, the appellants applied for leave to amend the grounds of appeal to include a ground 4A in the following terms:
His Honour erred in law and fact in holding at [851] that the issue by Wilden of options to purchase further units to Callao and Benrone was a breach of Wilden's duty to act impartially between unitholders; at [848] that the provision for deferred payment was not consistent with the purpose of the resolution; and in declaring that 'the issue of 200 units to each of Calleo and Benrone in about 1992 was void'.
Particulars
4A.1The trial judge failed to have regard to the statement (see GAB 133) made by W J Green on 25 October 1990, that his family were not interested in purchasing further units at this stage.
4A.2He further failed to have regard to the letter from Wilden to G W Green of 9 January 1991 (GAB 167).
4A.3There was no claim by the Respondents that the issue of units in 1992 was void.
The respondents opposed the application which was made on short notice. The respondents were given liberty to file written submissions within 21 days. No submissions were filed. I deal with this application later in these reasons.

Ground 1 - Validity of repurchase determinations

Additional background

The valuers had been appointed to determine the current repurchase value of the units in the trusts as at the date of the repurchase requests. The phrase 'current repurchase value' is defined in cl 1 of the Trust Deeds as follows:
'Current Repurchase Value' means the amount calculated in accordance with the following formula:-
Current Repurchase Value = (CVF ‑ DC)/U
where:-
CVFrepresents the Current Value of the Trust Fund on the relevant date
DCrepresents the Disposal Costs of the Trust Fund on the relevant date
Urepresents the number of Units in the Trust on the relevant date
The expressions Current Value of the Trust Fund, Disposal Costs and Gross Value of the Trust Fund are also defined as follows:
'Current Value of the Trust Fund' means the Gross Value of the Trust Fund less the total of the following:-
(a)such amounts as are required to repay all accrued outgoings and other accrued expenses payable out of the Trust Fund; and
(b)such amounts as are required to repay borrowings made or meet liabilities incurred in respect of the Trust Fund;
'Disposal Costs' means the amount, or estimated amount (being in the case of an estimated amount the amount estimated by the Trustee) of all costs, disbursements, commissions, brokerage, stamp duty, registration fees and other usual fees or outgoings which would have been incurred or paid in the sale or disposal of the [assets] comprised in the Trust Fund on the date on which the Agreed Value is required to be ascertained, if all of such assets of the Trust Fund had been sold or disposed of on that date;
'Gross Value of the Trust Fund' means the total of:-
(a)all cash on hand or at the bank being part of the Trust Fund; and
(b)the value of any other assets comprised in the Fund, including all accrued rents, interest, dividends and any other accrued income and prepaid expenses of the Trust Fund.
Each valuer received a copy of a letter from the auditor, Mr Curtis, addressed to the unit holders of the relevant trust enclosing a statement of assets and liabilities of that trust as at the relevant repurchase date. The letters were in materially the same terms. The Curtis letter to the unit holders of the Balga Trust states:
I am a Registered Auditor under the Corporations Act 1989.
I have been given a Statement of Assets & Liabilities of the Trust as at the 3rd January 1991 and have extracted the accuracy of the Statement from the computer recording kept for the Trust and Shopping Centre as at the 3rd January 1991 and have agreed with the accuracy of the amounts contained in the Statement.
I have to some degree attempted to establish the validity of the amounts in relation to the assets and have satisfied myself that the Assets and Liabilities contained in the attached Statement are a true reflection of the Assets and Liabilities of the Trust as at 3rd January 1991 and reflect a fair view of the surplus of the Unit Trust as at that date.
The attached statement of assets and liabilities (financial statement) shows total assets of approximately $4,153,129. The Balga Shopping Centre represented $2.9 million of the total. The remaining assets included bank accounts, cash on deposit, prepayments, debtors and loans to unit holders and interest owing thereon. The total liabilities were approximately $2.854 million, the majority of which comprised liabilities to the ANZ bank. The financial statement also includes the estimated selling expenses, bank penalty interest and the total number of units in the Balga Trust. The assets and liabilities of the Summerfield and Kelmscott Trusts were broadly similar in nature to that of the Balga Trust.
The appellants' challenge to the validity of the determinations of the value of the units was an afterthought. An application to amend the statement of claim was made some four years after the commencement of the action. In broad terms, the appellants' proposed pleading claimed that the valuers did not make any independent discretionary judgment of the current value of the trust fund, the disposal costs of the trust fund and the number of the units in the trusts. The application to amend was dismissed at first instance. The appellants appealed successfully to the Full Court: Green v Magenta Nominees Pty Ltd (Unreported, WASCA, Library No 950311, 15 June 1995) (Green v Magenta).

The trial judge's reasoning and findings

Relying on the decision of the Full Court in Green v Magenta, the trial judge applied the following principles. A valuer appointed under clause 7.4 was required in the performance of the task assigned to him to arrive at an independent discretionary judgment as to the value of the units and if the valuer did nothing more than accept uncritically the auditor's figures, it would be open for the trial judge to conclude that the purported valuation did not correspond to that required by the contract [1133], [1135].
In his findings relating to Mr Sanderson, the trial judge focussed on what Mr Sanderson did not do. He found that Mr Sanderson did not ask to see the annual accounts for Wilden of 30 June 1990 or 30 June 1991; was not aware that the balance sheet for those years adopted by Wilden did not include as a non‑current asset either a loan to unit holders or interest on loans to unit holders; did not ask for confirmation that the statement of assets and liabilities had been approved by the directors of Wilden; had wrongly assumed that Mr Curtis had prepared the financial statement; took no steps to ascertain whether the current liabilities shown in the financial statement were in fact liabilities of the Balga Trust; did not ask to be provided with a copy of the unit register of the Balga Trust; did not speak to Mr Curtis or undertake any inquiries or seek assistance in relation to any matter the subject of the statement of assets and liabilities [1137], [1138].
The trial judge stated that Mr Sanderson was prepared to adopt uncritically certain of the figures in the financial statement 'notwithstanding that those figures had not been directly and clearly vouched for by Mr Curtis' [1144]. The trial judge continued:
It was apparent from the Curtis report that Curtis had been 'given' the statement of assets and liabilities and had only been able to establish the validity of certain amounts concerning the assets 'to some degree'. Further, the exact nature of Mr Curtis' association with the company in question and the auditing methods and amount of time devoted to the task were not made clear in his letter … the auditor appears to be saying only that the statement given to him is set out in a coherent form and is consistent with the records from which it was compiled. A vigilant valuer would find an opinion expressed in this summary form to be less than satisfactory [1145].
The trial judge concluded that Mr Sanderson accepted uncritically a significant portion of the figures submitted to him by the auditor and could not be said to have formed an independent discretionary judgment of the kind required by the contract with the consequence that 'the end result cannot be truly described as the decision of the valuer because certain of the figures forming part of his calculation were relied upon in circumstances in which he cannot be said to have had a sufficiently clear assurance or firm basis for assuming that all of the figures in the statement were accurate' [1146]. Thus, he concluded that the Sanderson determination was of no force and effect.
Mr Hunt was appointed to value the units in the Kelmscott Trust as at 24 May 1991. He had previously been appointed to determine the value of the units at an earlier time that preceded the appointments of Mr Sanderson and Mr Richmond. At that time Mr Hunt concluded that the valuation of the units would be a two‑stage process, the first being the valuation of the shopping centre by him and the second related to the other matters necessary for the determination. Mr Hunt had inspected the financial information of the trust and requested that its statement of assets and liabilities be audited. The two‑staged process and the provision of audited figures was followed by all valuers.
It is apparent from Mr Hunt's report that he accepted and acted upon the figures provided by the auditor. He states '[b]ased on my own valuation of the Kelmscott Village Shopping Centre and relying on the figures provided in the statement of Assets and Liabilities by the Auditor I am of the opinion that the Repurchase Value of the Trust as at the 24th May 1991 is: ‑ $679.48 per unit'.
The trial judge concluded that there were various indications that Mr Hunt did not 'make a sufficiently critical assessment' of the information provided to him by the auditor. He noted the following: Mr Curtis had not been the auditor of Magenta in the year ended 30 June 1991; no evidence was given by the appellants as to what Mr Curtis was instructed to do and how long he had to perform his tasks; Mr Hunt had no information before him that the financial statement had been adopted and thus approved by the directors of Magenta; Mr Hunt did not request the assistance of the auditor in performing his tasks and did not ask Mr Curtis what specific enquiries he undertook to do his audit report for the purpose of relying on it. Having regard to the contents of the auditor's letter, the trial judge concluded that to fulfil the obligations imposed by cl 7.4 a valuer would be required to press for further information as to the auditor's modus operandi and as to whether the figures reflected the underlying financial realities [1291].
The trial judge was not satisfied that, Mr Hunt had made a 'sufficiently critical assessment of the facts … bearing upon the current value of the Trust fund, the disposal costs and the number of units' for it to be said that the determination represented the formation of an independent discretionary judgment. Accordingly, the determination was of no force or effect.
Mr Richmond valued the units in the Summerfield Trust. After receiving the auditor's letter and statement of assets and liabilities, Mr Richmond spoke to Mr Curtis who advised him that the figures could be relied on. The trial judge found that Mr Richmond did not find out exactly what Mr Curtis was instructed to do or how rigorously he had performed his tasks; there was no evidence before Mr Richmond as to whether the financial statement had been vouched for or adopted by the directors of Tace; he did not seek to ascertain whether the financial statements of the Summerfield Trust made up to 30 June 1991 were consistent with the figures in the financial statement and the Curtis report did not vouch for the realities underlying the figures. Based on those matters, the trial Judge said he was not satisfied that Mr Richmond made a sufficiently critical assessment of the figures and that the value he attributed the units could not be described as the formation of an independent discretionary judgment on his part. Accordingly, the determination was of no force or effect.

Appellants' particulars

The appellants' particulars to their grounds of appeal summarise their contentions. The particulars contend the trial judge erred:
(i)in construing clause 7.4 as requiring the valuer to subject the figures in the financial statements provided by the auditor to a rigorous analysis and to make further inquiries in relation thereto;
(ii)in construing clause 7.4 without regard to the uncontradicted expert evidence that it was accepted practice to rely upon the figures in an auditor's financial statement prepared specifically for the making of the determination;
(iii)in not holding that clause 7.4 did not require the valuer to personally examine the accounting records but rather was entitled to rely on and adopt the figures produced by the auditor;
(iv)in holding that the valuers were required to make their own independent discretionary judgment of the values of the non‑realty assets and liabilities;
(v)in holding that negligence by a valuer in making a determination rendered the determination of no force and effect;
(vi)in finding that the valuers did no more than accept uncritically the values in the auditor's reports.
No attempt was made by the appellants in their written submissions to identify the language of any express or implied term of the Trust Deeds to justify the conclusions they assert in their particulars. In order to address the issues of construction and principle that arise for determination in this appeal, it is necessary to identify the relevant legal principles relating to a challenge to the determination of an expert.

Legal principles

The parties accept that the valuers were appointed as experts not arbitrators. There are significant differences between the role of an expert and that of an arbitrator. An arbitrator acts in a quasi judicial capacity to determine a dispute or issue on the basis of evidence and submissions tendered by the parties to the arbitration. Subject to the express terms of his authority, an expert is entitled to carry out his own investigations and is not obliged to make his determination on the basis of material supplied by, or to hear from, the parties: Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 336.
An expert, but not an arbitrator, is liable in negligence for his determination. An arbitrator's award can be set aside in a wider variety of circumstances than an expert determination or valuation.
An expert determination can be set aside for fraud, dishonesty or partiality: Legal & General. McHugh JA in that case reviewed the case law for the purpose of determining whether, and if so when, a mistake or error of fact or law made in the course of reaching the expert determination vitiates that determination. In considering the case law, regard must be had to whether the claimant was seeking a legal or equitable remedy.
The court in Legal & General was considering a determination made by a qualified valuer as to the current annual open market rental value of leased premises for the purpose of a rent review clause. A valuation of that nature requires estimations and value judgments that justify the characterisation of the valuation as a whole as being a discretionary judgment: WMC Resources Ltd v Leighton ContractorsPty Ltd (1999) 20 WAR 489, 497.
There are limited grounds on which even judicial or administrative discretionary judgments can be challenged (House v The King (1936) 55 CLR 499). However, even those limited grounds do not provide a basis to set aside an expert determination. This is made clear in the judgment of McHugh J:
While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision … nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract (335 ‑ 336).

An analogy might be the very narrow grounds of jurisdictional error on which the determination of courts or anomalous tribunals can be reviewed: Craig v The State of South Australia (1995) 184 CLR 163; Re Carey; Ex parte Exclude Holdings Pty Ltd (2006) 32 WAR 501 [181].
Thus, an expert determination is not invalidated by negligence, error or mistake unless the consequence thereof is that the valuation is not in accordance with the contract. Of course, the fact that the valuers' conduct is negligent does not prevent the valuation from being outside the contractual terms.
Mindful of the severe restrictions on challenging the validity of an expert determination, the appellants' case was that each of the valuers delegated to the auditor part of the task committed to them personally and that such a delegation is not in accordance with cl 7.4 of the Trust Deeds.
The authorities relating to delegation by an arbitrator provide a general guide. An arbitrator has no power to delegate his or her duties unless expressly or impliedly authorised by the terms of reference. A clear example of an invalid delegation is in Neale v Richardson (1938) 1 All ER 753. A plaintiff contracted to build a house for the defendant for which he was to be paid when a certificate was issued by the architect. The architect was to act as arbitrator in the event of disputes. A dispute arose and the architect nominated another person to act as arbitrator. That was an impermissible delegation.
A less obvious example is in Anderson v Wallace (1835) 3 Cl & Fin 26; (1835) 6 ER 1347. Arbitrators had been appointed to determine the value of land and had consulted another person as to that matter. One of the arbitrators said that he had not queried the valuation of the other person because he did not think it was worthwhile differing. The court identified the ultimate question as whether the arbitrator had exercised his own judgment in accepting or rejecting the advice or opinion received. The court held that the parties were not bound by the award.
However, it is open to arbitrators to consider the opinion of others provided the award is based upon the independent views of the arbitrator: Hopcraft v Hickman (1824) 2 S&S 130, 134; 57 ER 295, 297. In that case valuers appointed to value an estate obtained the opinion of two builders as to the value of the mansion and adopted it as their own. The court held there was no basis for objection because 'the arbitrators received the opinion of the two builders merely as evidence, and adopted it as their own upon the credit which they gave to the testimony'.
An arbitrator may delegate his or her duties if so authorised by the reference or with the agreement of the parties: W Naumann v Edward Nathan & Co Ltd (1930) 36 Ll L Rep 268. In that case an arbitration clause forming part of a contract for the sale of goods provided that 'any dispute arising from this contract to be settled by arbitration in London in the usual way as soon as it may arise'.
There was a dispute as to the quality of the goods (cassia oil). The arbitrator sent samples of the oil to an independent analyst and accepted the analyst's report without forming an opinion of his own. There was evidence that the arbitrator's conduct was in accordance with the usual course of procedure in arbitrations of that kind. Lord Justice Greer said:
I have come to the conclusion that the parties have agreed that the arbitration between them should be conducted in a way in which this arbitration was conducted. I think that was agreed by reason of the words used in the arbitration clause; but, even if there were no such words, these parties are parties in the trade, and they must be taken to know what the usual methods of arbitration are; and in the absence of the words 'in the usual way,' I should have thought that the submission was subject to an implied term that the arbitration was not to be conducted by the usual method of a Court of Justice, but was to be conducted in a way which was usual in the particular case with which they were dealing (270).
The trial judge in this case applied the observations of the Full Court in the interlocutory appeal in Green v Magenta. The Full Court identified the relevant question as follows:
The question in a case such as this is whether the end result is truly the decision of the valuer. Some discretionary powers can be delegated, while others cannot. In the absence of an express power to delegate the general rule is that the discretion must be exercised by the person in whom the power has been reposed. This is a question of substance rather than form. It will depend on the facts of the particular case. What can be said is that the valid exercise of a discretion requires the correct authority genuinely to apply his or her mind to, and make a conscious choice on, the subject matter (7 ‑ 8).
When considering the appellants' pleaded case in relation to Mr Hunt, the Full Court said:
The thrust of the applicants' proposed case is that in relation to assets other than the real estate and to the Trust liabilities Mr Hunt did [no] more than adopt uncritically and without any independent assessment or scrutiny the values put on those items by the auditor. This, it seems to us, raises a question of fact. For example, it is possible that Mr Hunt had received a copy of the auditor's report and based a valuation on it. Whether that involves or qualifies as an independent discretionary judgment depends on what he did with it. He might have done nothing more than transpose its figures into his own valuation. On the other hand he might have subjected it to a process of scrutiny and checking before pronouncing himself satisfied as to its accuracy. It is a question of degree and thus raises issues of fact that can only be determined at trial. If the applicants are able to make out a case that Mr Hunt did nothing more than accept uncritically the auditors values, it would be open (and we put it no higher than that) for the trial Judge to conclude that the purported valuation did not correspond to that required by the contract (9).
The following points are to be noted. First, the Full Court's comments in relation to the facts are based on the assumption that the general rule against delegation has not been contractually abrogated or narrowed. Secondly, the observations are directed to a discretionary judgment on value. Thirdly, the Full Court acknowledges that there are exceptions to the general rule against delegation without identifying what they are.

Analysis

The appeal (and I infer the trial) was conducted on the basis that (1) the valuers were appointed as experts not arbitrators; (2) the Trust Deeds constituted both the source of the trustees' duties and a contract between the trustee and the unit holders; (3) a cl 7.4 determination was final and binding; and (4) the court could order specific performance of the power to appoint another valuer under cl 7.4 of the Trust Deeds.
Not all determinations of value and not all the steps within a valuation necessarily have any, or any significant, evaluative or judgmental component: WMC Resources (494 ‑ 497). For example, the identification of what is a 'relevant' source fact (such as a comparable sale in a valuation of land) is evaluative but the identification of the facts about a comparable sale (the area, improvements, sale price) is not. On the evidence, there is nothing to suggest that the identification of the number of issued units involved any evaluative component.
In this case there are three categories of relevant matters being first, those that require or would benefit from the expertise of the appointed valuers, secondly, those that require or would benefit from a person with expertise beyond that of the appointed valuers and thirdly, source facts with no, or no significant, evaluative content.
Messrs Sanderson, Hunt and Richmond were expert land valuers appointed because the primary asset of each trust was a shopping centre. They had no relevant expertise in accounting or corporate auditing. It was accepted by the parties (and apparent from the terms of cl 7.4) that a single valuer was to be appointed to undertake the determination under cl 7.4. The question is what, if anything, do the Trust Deeds permit in the event that a single appropriately qualified valuer does not have the expertise to value a part of the trust property. That depends upon the proper construction of cl 7.4 of the Trust Deeds. It was common ground that the Trust Deeds also constitute a contract between the trustee and the unit holders in which event the principles of contractual interpretation apply.
Clause 7.4 has to be construed in the context of the terms of the Trust Deed as a whole. Clause 12 gives the trustee very broad powers to invest in property of any kind, including a business, and to carry on any business. However, the name of the trusts corroborates the overwhelming evidence that each trust was formed for the purpose of purchasing the shopping centre identified in the name. It is unnecessary to determine whether that evidence is admissible for construction purposes (see Home Building Society Ltd v Pourzand [2005] WASCA 242 [25] ‑ [33]; Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154]; A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112 [35]). Whatever be the purpose at the time of entry into the Trust Deeds, it is clear the trust assets could be enlarged or altered over time. On any view, there was a possibility the trusts could own widely differing asset types.
The appellants contend the requirement in cl 7.4 that the value be 'as determined' by an independent valuer does not require the valuer to personally determine all matters of fact and opinion on which the determination of value is based; provided the value is adopted (put forward as the value) by the nominated valuer it is of no relevance whether the adoption results from an independent verification or assessment of the source material, whether of fact or opinion.
Alternatively, the appellants contend that, whether as a matter of construction of the express terms or by implication, cl 7.4 means value as determined by an independent qualified valuer in accordance with established or usual valuation practice. An even narrower formulation would be as determined by an independent qualified valuer in accordance with established or usual valuation practice in relation to matters outside the valuer's expertise. The weight of the evidence is that the land valuers had acted in accordance with established practice in relying on the auditor's opinion.
The appellants' first proposition is partially accurate but is too widely stated. The purpose of appointing an expert rather than an arbitrator or other more traditional method of dispute resolution is to achieve a speedy and cost effective determination. That is achieved by bypassing the adversarial system and with a level of informality absent from other dispute resolution mechanisms: Straits Exploration (Australia) Pty Ltd v Murchison United NL (2005) 31 WAR 187 [14]. That being the case there is simply no warrant for requiring an expert to make primary (non‑evaluative) factual findings in the same manner as an arbitrator or a court. In particular, there is no delegation (or improper delegation) if the valuer relies on primary facts provided or collected by a third person. Whether or not it is reasonable in the circumstances to rely on that information will be relevant to whether the valuer has breached any duty of care but it does not involve an improper delegation of function. However, in areas within the valuers' expertise, the evaluative or judgmental role cannot prima facie be delegated in the sense in which that term is used in the case law. I see nothing in the language of cl 7.4, in particular the expression 'as determined' to alter that position.
What then of evaluative matters outside the valuers' area of expertise? In an adversarial environment where an arbitrator is required to make a determination based on evidence and submissions tendered by the parties, an arbitrator must make an assessment of the merits of expert evidence on matters both within and outside his or her area of expertise and make the necessary findings. However, an expert has the role of an investigator who is left to his or her own devices in relation to the investigation and collection of information on which to base the valuation. Having selected an expert not an arbitrator to determine the current repurchase value of the units in trusts where there is the potential for the trust assets to comprise different types of property and the determination of value is to be made by a single arbitrator, the parties can only have intended that a valuer appointed under cl 7.4 be entitled to rely on (adopt) the expert opinion of a third party in relation to matters of opinion outside the valuer's area of expertise. An implied term to that effect satisfies the requirements in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 ‑ 284.
I am satisfied that on a proper construction of cl 7.4 of the Trust Deeds the land valuers appointed under cl 7.4 were permitted to rely on (adopt) the opinion of an auditor on matters within an auditors area of expertise save in respect of valuation matters within the valuers expertise. The issue of whether it was reasonable in the circumstances of the case to rely on the auditors opinion on such matters is outside the scope of permissible challenge to the validity of the valuation.
Insofar as matters in the financial statements fell within the valuers areas of expertise, they were not the subject of challenge by the respondents. The following general observations relate to matters unrelated to their expertise. The trial judge concluded that the general rule against delegation applied and thus the valuers could not delegate to the auditor the task of determining whether the financial statements reflected the true financial position of the trusts as at the relevant dates. In essence, the trial judge required the valuers to themselves verify the accuracy of the information in the financial statements either directly or by satisfying themselves that the auditor's modus operandi was such as to warrant an inference of accuracy, the auditor's letter having been found to be deficient. He relied on these matters to conclude that the valuers accepted uncritically the figures in the financial statements and thus did not make an independent discretionary judgment. The evidence establishes that the valuers did not themselves verify the accuracy of the information in the financial statements.
Some of the information in the financial statements involves fact finding with no evaluative component to which the general rule against delegation has no application. There can be no objection to relying on the auditors opinion as to the accuracy of those matters. However, I accept that there were matters for assessment that required accounting expertise such as what is an 'accrued' asset or liability. I have concluded that the general rule against delegation has been partially abrogated by cl 7.4 to permit the valuers to rely on the opinion of the auditor on matters outside the valuers expertise. The accuracy of the information in the financial statements of the trusts is within the expertise of an auditor and, to the extent that it incorporated matters for assessment requiring accounting and auditing expertise, was outside the valuers expertise. The trial judge erred in concluding that cl 7.4 of the Trust Deeds requires the valuers to verify the accuracy of the information in the financial statements. The matters relied on by the trial judge for his conclusion of improper delegation go to the question of whether the valuers were negligent in the circumstances to rely on the auditor's opinion. That is not a ground for invalidating the valuations.
In any event, I am not persuaded that the terms of Mr Curtis' letters were equivocal or that there were positive grounds to put the valuers on notice that the auditors' opinion could or should not be relied on. Mr Curtis was a registered auditor. An auditor's duty is to ascertain and state the true financial position of the entity being audited. The auditor does that by examining the books of the entity and taking reasonable care to ascertain that the books show the true position: In Re London and General Bank (No 2) (1895) 2 Ch 673, 682 ‑ 683. Reasonable care does not ordinarily require the auditor to verify the accuracy of all entries in the books of account. The trustees of each trust were obliged to keep a complete and accurate record of all receipts and expenditures and to prepare a written accounting report consisting of a balance sheet and statement of income and expenditure and a list of assets held at the close of the relevant accounting period (cl 15). The trustees had each appointed an auditor and the trust accounts for the accounting periods in which the prescribed dates fell had been audited. The non‑land assets of the trusts and the trusts liabilities were primarily of a financial nature. There is nothing in the auditor's letter to suggest the auditor had failed to take reasonable care to ascertain that the records kept by the trusts showed the true position. To the contrary, it is apparent from the letters that the auditor did not rely solely on the accounts of the trusts.
In summary, to the extent that the auditor engaged in a straightforward fact‑finding exercise with no evaluative component, no question of delegation arises. Insofar as the auditor has used his accounting and auditing expertise to reach a valuation or auditing conclusion outside the expertise of the appointed valuers, the valuer is permitted by cl 7.4 to adopt the information. If the valuers acted unreasonably in adopting the information in the financial statements the subject of the auditor's opinion, the contractual parties have a tortious remedy against the valuers. I am satisfied that the trial judge erred in concluding that the determinations by Mr Sanderson, Mr Richardson and Mr Hunt were invalid and of no force and effect. I would uphold ground 1.

Ground 2

Ground 2 only arises for determination if the valuations are of no force and effect. Contrary to my conclusion on ground 1, I will deal with this ground on the assumption that the valuations are of no force and effect.
The trial judge found that the trustees of each trust were in breach of trust (and contract) as a result of the valuations being of no force or effect. The best explanation is to be found in [1319], [1329] and [1330] as follows:
In essence, I have found that cl 7.4 did not impose a duty upon the trustee to activate the valuation procedure … with the result that the trustee was not required to take the steps envisaged by cl 7.5 of the Trust Deed until a price payable had been determined either by agreement between the parties or by a valuer pursuant to the valuation procedure. However, in circumstances where the trustee exercised its power to activate the valuation procedure, as it eventually did, it was duty bound to ensure that the procedure was completed in accordance with the provisions of the Trust Deed.
…
I found that the plaintiffs made out their case [that the valuer accepted the auditor's figures uncritically so that the end result could not truly be regarded as the opinion of the valuer] with the result that the subject valuation should be regarded as being of no force and effect.
…
Because the cl 7.4 valuation procedure was not properly performed, [the trustee] was in breach of duty as a trustee in failing to ensure that the procedure had been complied with.
Thus, the trial judge found in effect that the trustees were in breach of trust for failing to ensure that the expert acted in accordance with the requirements of cl 7.4 of the Trust Deeds.

In relation to Tace and Magenta, the trial judge identified the relevant breach of trust as being that those trustees sought to uphold, alternatively asserted and continued to assert, the validity of the valuers' report ([1293] and [1349]).
There is no express term in the Trust Deeds imposing on the trustees a duty to ensure that the valuers completed their task in accordance with the requirements of the Trust Deeds. It was not claimed there was an implied term to that effect. All of the trustees express duties in cl 7.4 were conditional on there being a valid determination as to the current repurchase value of the units. Moreover, there was no finding (and no evidence) that the trustees knew or ought to have known that the valuers' determinations were not in accordance with the Trust Deeds or that they acted unreasonably in seeking to uphold the validity of the valuations. Indeed, as the trial judge observed in his supplementary decision, the trustees obtained leave from the court to defend the proceedings, obtained and acted on skilled legal advice throughout the history of the matter and concluded that they did not act in an arbitrary or unreasonable manner [216]. In the circumstances there is no proper foundation for a conclusion that the trustees were in breach of trust. I would uphold ground 2.
Ground 3 concerns whether the breaches of trust the subject of grounds 2 and 4 were excused by cl 13.4 of the Trust Deeds or s 75 of the Trustees Act. I will address ground 3 after dealing with ground 4.

Ground 4

The particulars to ground 4 are extensive but do not clearly identify the specific errors complained of. In summary the particulars assert the trial judge erred:
(1)in finding that Wilden, Mr Chesson and Mr Denboer acted in bad faith in failing to disclose to the Green parties the source of funds to be used for acquiring the additional units and in failing to disclose what attempts if any, had been made to sell the units to parties other than existing unit holders;
(2)in finding that Wilden, Mr Chesson and Mr Denboer acted unconscionably by not making a full and sufficient disclosure of the matters referred to in (1) in order to advance their own self interest;
(3)in failing to find that the issue of new units was validly made in accordance with cl 4.8 of the Trust Deed;
(4)in finding that Wilden did not have sufficient regard to the then value (or the par value) of the units when fixing a price of $500 per unit;
(5)in holding that Mr Chesson and Mr Denboer were in a situation of conflict of interest and committed a fraud in equity;
(6)in failing to find that the Green parties had created the urgent need for Wilden to raise funds by issuing statutory demands and threatening winding up proceedings against Wilden and that the Green parties could have avoided the necessity for the issue of further units by repaying their loans;
(7)even if there were any breaches of duty in relation to the issue of the additional units, the trial judge should have refused equitable relief having regard to the effluxion of time and the intervening circumstances since the issue.
The trial judge did not make findings relating to the factual background against which the additional units were issued. Both parties accepted that this court could proceed on the basis that the information under the heading 'Narrative' in the trial judge's reasons constituted findings on which this court could rely. There is also some difficulty in identifying the ultimate findings made against Wilden, Mr Chesson and Mr Denboer. The findings appear at differing levels of generality between [807] ‑ [855].
The trial judge rejected the respondents' case that from mid‑1990 Mr Chesson and Mr Denboer exaggerated the financial difficulties confronting the Balga Trust [807]. The trial judge accepted that Mr Chesson, Mr Denboer and Mr Kelly believed that funds had to be raised in order to keep Wilden and the Balga Trust afloat [812]. He also appears to accept that Wilden and the Balga Trust were in fact in financial difficulties from the middle of 1990 ([825], [831]).
The appellants' grounds of appeal reflect their view that the relevant findings made by the trial judge are as follows:
… I am of the view that in breach of their fiduciary obligations Wilden, Chesson and Denboer acted in bad faith in failing to disclose to the Green parties all the matters relevant to their proposed acquisition of further shares and options including the source of the funds to be used by the Chesson group in acquiring further shares and options and, as alleged in par 55, what attempts, if any, had been made to sell the units to parties other than existing unit holders. Further, they failed to disclose circumstances such as the provision of funds to Chesson and Denboer via the Tace/Summerfield refinancing arrangements which might have had a bearing on whether $500 per unit was the best possible rate that could be obtained for the additional units in Balga/Wilden.
… It is enough for me to find, as I do, that, in a situation in which a conflict of interest arose, those subject to fiduciary duties acted unconscionably by not making a full and sufficient disclosure in order to advance their own self interest. This amounted to a fraud in equity by Wilden and … Chesson and Denboer. Moreover, I am of the view that in the absence of a full and proper disclosure the Green parties did not give an informed consent to the proposal and are not bound by the same.
For these reasons … I find … that Wilden conducted the Balga/Wilden Unit Trust with the fraudulent purpose of causing financial disadvantage to the Green parties and advancing the interests of itself, Chesson, Denboer, Callao, Benrone and Deltabrook. Wilden, by those constituting its directing mind and will (Chesson and Denboer) preferred the interests of certain unit holders and directors of Wilden over the interests of the Trust and the unit holders in the Trust … as a whole [815] ‑ [817].
However, these general findings are based on other more specific findings in [821] ‑ [838]. The trial judge said:
To my mind, there was also an insufficient disclosure to the Green parties that Deltabrook/Kelly had been set up essentially by Mr Chesson. Moreover, contrary to what appears to have been suggested to the Green parties, Kelly was not in a position to make an immediate injection of funds into Wilden which would be of assistance in resolving what I am prepared to accept were the current financial difficulties of the trustee company as at August 1990 [825].
There are overtones of conspiracy. The trial judge found [831] that in mid‑1990 Mr Chesson, Mr Denboer and Mr Kelly 'combined' to achieve the outcome by the end of that year whereby 200 additional units were issued to Callao and Benrone at a discounted price of $500. Mr Kelly was included in the combination on the basis that 'Kelly/Deltabrook had acquired the units previously held by the Boninis upon the basis that their outstanding loan was discharged'.
The finding at [836] goes to purpose. The trial judge said:
I have come to the conclusion that the real objective was to have the additional units and the Bonini units vested in the Chesson group as a means of advantaging Chesson/Callao, Denboer/Benrone and Deltabrook. Provision was made for deferred payment in respect of the Chesson/Callao and Denboer/Benrone units. This was in fulfilment of the objective I have just described and contrary to the declared purpose of raising further capital for the immediate use of Balga/Wilden.
That finding as to purpose goes beyond the pleadings. The trial judge also relied on the following finding at [834]:
I find also … that during the period of controversy [Mr Green] was informed by Mr Chesson on a number of occasions that the Balga/Wilden centre was worth somewhere between $1.3 million and $1.9 million but was not aware until 30 October 1990 that Balga/Wilden had received a valuation from Baillieu Frank Knight placing a value of close to $3 million on the premises.
The Baillieu Frank Knight valuation was provided on 30 October 1990. As the trial judge noted in his narrative, Mr Green could not recall the date he was told by Mr Chesson that the Balga Bazaar was worth between $1.3 million ‑ $1.9 million. The finding suggests that Mr Chesson knowingly misled Mr Green as to the value of the shopping centre at the relevant times (August 1990 and 25 October 1990). There is no evidential foundation for such an implication in the absence of a finding as to when Mr Chesson so advised Mr Green and when Mr Chesson became aware of the valuation. Moreover, this was not a pleaded or litigated basis for challenging the issue of the additional units.
The trial judge also found that Wilden failed to observe the requirements of cl 4.8 of the Trust Deeds. On my reading of the reasons ([827], [828], [841] ‑ [844]), there appears to be two grounds of non‑compliance. First, there was no prior written approval of unit holders to the issue of the additional units. Secondly, the trustee did not have 'sufficient regard' to the then value of the existing units and did not make a 'sufficient determination' as to the circumstances said to justify the unit price of $500.
In [839] ‑ [855], the trial judge made findings on the issues pleaded in the statement of claim. It is necessary to refer to them in detail because some of the general findings go beyond the pleading. In addition to par 76.7 upheld in [817] set out above, the trial judge upheld the claims in pars 52.7, 53.1, 53.2, 53.3, 54, 55.3, 55.5, 55.6, 56, 57, 57A, 58 ‑ 61 and 65 of the statement of claim. Those claims are to the following effect.
1.The resolutions on 28 August 1990 accepting the offer of Callao and Benrone to purchase additional units (the 28 August Resolutions) were invalid because Wilden had not, prior to the purported issue, obtained written approval of at least 75% of the unit holders as required by cl 4.8 (par 52.7).
2.The 28 August Resolutions constituted a determination by Wilden of the price for the issue of additional units pursuant to cl 4.8 and such determination was invalid because:
(i)Wilden had no regard in fixing a price per unit of $500 to the then par value of $1,000 per unit (par 53.1);
(ii)there were no particular circumstances to justify the issue of the additional units at a price per unit of $500 (par 52.2);
(iii)the purpose of the resolution on 23 August 1990 was to raise capital immediately and the resolution on 25 October 1990 purporting to ratify the resolutions on 28 August provided, contrary to the resolution on 23 August 1990, that Callao and Benrone had no immediate obligation to make payment for additional units and could make such payment at any time within the next two years (par 53.5).
3.On 25 October 1990 the directors of Wilden purported to ratify the issue of additional units to Callao and Benrone by passing a resolution that Wilden would accept the application for 200 units by each of them (par 54).
4.The 28 August Resolutions were invalid because:
(i)Mr Chesson and Mr Denboer failed to disclose what attempts had been made to sell units to parties other than existing unit holders and any circumstances to justify $500 per unit as being the best possible rate as required by the resolution on 23 August 1990 (par 55.3);
(ii)the purpose of the resolution on 23 August was to raise capital immediately and the resolution on 25 October purporting to ratify the resolutions on 28 August provided, contrary to the terms of the resolution on 23 August, that Callao and Benrone had no immediate obligation to make payment for the additional units and could make such payment at any time within the next two years (par 55.5);
(iii)the issue of additional units at a price of $500 per unit had the effect of giving to Mr Chesson and Mr Denboer a substantial financial benefit (par 55.6).
5.The issue of the units was not ratified by the directors as provided for by the authorisation given at the meeting on 23 August 1990 (par 56).
6.By reason of the above, the allocation of 400 additional units was invalid and of no force and effect (par 57).
7.Callao and Benrone took with knowledge of the impropriety and must divest themselves (par 57A).
8.Wilden owed a duty to act impartially between the unit holders (par 58).
9.In breach of that duty Wilden purported to issue to Callao and Benrone options to purchase further units in the Balga Trust (par 59).
10.Wilden refused to make an identical issue of options to the Green interests (par 60).
11.In issuing the options and in refusing to issue options to Green, Wilden purported to exercise its powers to confer an advantage on Chesson, Denboer, Callao and Benrone to the detriment of the Green interests (par 61).
12.Mr Chesson failed to act honestly as a director by causing Wilden to breach its duties in allocating the additional units (par 65).
The actual finding in relation to item 4(iii) was that the directors resolutions on 28 August 1990 were invalid because Mr Chesson and Mr Denboer voted in favour of the resolutions when the issue of additional units at a price of $500 per unit 'had the effect of giving to [Mr] Chesson and [Mr] Denboer a substantial financial benefit at a time when there was a conflict between [Mr] Chesson and [Mr] Denboer's self interest in the resolution and their duty as directors of Wilden' [847]. The trial judge erred in stating that Mr Chesson and Mr Denboer voted on the 28 August 1990 resolutions in which they had an interest. They did not.

Duty to disclose source of funds

I propose to commence with the trial judge's finding that each of Wilden, Mr Chesson and Mr Denboer owed a duty to disclose to the Green parties the source of the funds to be used by Callao and Benrone in acquiring further units and options.
Two preliminary points are pertinent. First, there was no claim to that effect in the statement of claim. Secondly, the trial judge makes no finding as to when the breach occurred. As there must be some causal connection between the breach and the issue of the additional units, the relevant dates must be prior to the resolutions on 28 August 1990 and 25 October 1990. I will return to this subject later.
The trial judge stated that Wilden owed a duty of disclosure to its shareholders and to the beneficiaries of the Balga Trust ([470], [811]). The trial judge also concluded that Mr Chesson and Mr Denboer in their capacities as directors of Wilden owed the same duty of disclosure to the Wilden shareholders and the Balga Trust unit holders. After a review of the authorities, the trial judge concluded that 'in certain special circumstances directors of a trustee company can be held to owe fiduciary duties to beneficiaries of or unit holders in the subject trust' [537]. The special circumstances identified in relation to Mr Chesson were the 'long‑standing dependence of the Green parties upon information and advice provided by Mr Chesson as to the affairs of the [Balga] Trust' [814]. The trial judge did not identify any special circumstances that resulted in Mr Denboer owing such a duty.
The facts on which the trial judge relied to conclude that Mr Chesson owed a fiduciary duty to the unit holders are not challenged in the grounds of appeal although there is a throwaway assertion in the written submissions that the Green parties did not look to Mr Chesson for information and advice. The substance of the ground of appeal is to the effect that even if there was a relevant fiduciary relationship, neither Wilden nor the directors owed a duty to disclose where Calleo and Benrone were obtaining the funds to acquire the additional units.
The trial judge provides limited reasons for his conclusion that Wilden, Mr Chesson and Mr Denboer owed a positive duty to disclose the source of funds. Early in his reasons he refers to a trustees' positive duty on request to disclose to beneficiaries the trust accounts [470]. However, that provides no authority for an obligation on Wilden to disclose the source of funds. Prima facie there is no such obligation. Ordinarily, a fiduciary does not have a prescriptive positive obligation of disclosure particularly of a personal interest: Breen v Williams (1996) 186 CLR 71; P & V Industries Pty Ltd v Porto (2006) 14 VR 1 [11]. Mr Chesson was a director of Calleo and Mr Denboer was a director of Benrone. Mr Chesson and Mr Denboer's knowledge as to the source of funds on which their companies proposed to rely to fund the purchase of the additional units is information obtained by them in their capacities as directors of Calleo and Benrone not Wilden. The knowledge of Mr Chesson and Mr Denboer in their capacity as directors of Calleo and Benrone cannot prima facie be attributed to Wilden.
A possible explanation for the trial judge's conclusion that there was a positive obligation to disclose the information is an unexplained assertion in [815] that the source of the funding may have had a bearing on whether $500 per unit was the best possible price. According to the respondents it has something to do with the funds coming from a source (repurchase of units in the Summerfield Trust) that was subject to capital gains tax to purchase units in the Balga Trust that were capital gains tax free. Why that is relevant to the issue price of additional units in a trust under significant financial difficulties is not explained. Moreover, there was no finding that W J Green was unaware of the capital gains tax status of the Balga Trust units when declining to take units at that price. Even if Wilden, Mr Chesson and Mr Denboer owed an obligation to make disclosure, the obligation must be confined to material information, being information relevant to the resolution. There is no proper basis on which to conclude that Mr Chesson and Mr Denboer owed a duty to disclose to the board of Wilden or to the unit holders of the Balga Trust the source of the funds to purchase the additional units.
Disclosure may have been relevant in a different context ‑ if it had been pleaded. The scenario would be as follows. Mr Chesson and Mr Denboer had a conflict of interest in relation to the 28 August resolutions accepting the offers by Callao and Benrone respectively for the additional units. No doubt that is why Mr Chesson and Mr Denboer disclosed their interests in the offerors and refrained from voting. Adequate disclosure may be a defence to the conflict and profits rules that apply to a fiduciary: Maguire v Makaronis (1997) 188 CLR 449, 466 ‑ 467.
In that context, the issue would be whether adequate disclosure required that Mr Chesson and Mr Denboer disclose the source of funds to W J Green or the unit holders. The answer would still be in the negative. The issue was irrelevant to whether the Green interests consented to the transactions.
The trial judge erred in concluding that Wilden, Mr Chesson and Mr Denboer breached a duty to disclose the source of the funds. If such a duty of disclosure was owed, it was necessary for the trial judge to find when Mr Chesson and Mr Denboer knew or ought to have known that Tace would be in a position to satisfy the repurchase requests of Calleo and Benrone before settlement of the Petersen/Geggie contract. There is evidence that Calleo lodged its repurchase request on 28 August 1990. It is unclear when Benrone did so. It appears that Mr Chesson and Mr Denboer knew the funds would be forthcoming from Tace sometime after 28 August 1990 and before 25 October 1990. Thus, any alleged breach could only relate to the October 1990 meeting. As there was no relevant breach of duty, it is unnecessary to attempt to determine the consequences of a breach of that stage.

Duty to disclose attempts to sell units

What may be observed about ground 4 is that it is a complaint only about the 'additional units'. This is clear by the ground itself, including the use of the phrase 'additional units' and the paragraphs of the judgment which are said to reflect error, and in particular ground 4.7, which specifically refers to the 'issue of the 400 additional units'.
The ground does not in any respect allege any error in relation to what his Honour held at [851] and [852] of his reasons where his Honour dealt with the 'options'. The written submissions originally filed in support of ground 4 also did not in any respect allege error in relation to his Honour's conclusions in [851] and [852].
However, during oral submissions, the validity of the issue of the 'options' became the subject of extensive discussion and debate. Subsequently, additional written submissions referred to the 'options'.
Eventually ground 4A was formulated by the appellant to challenge the judgment setting aside the 'options'. Like McLure JA, I would grant leave to add this ground. However, I will first deal with ground 4.
The points raised by grounds 4.3 and 4.4 can be quickly dealt with. It is true that the unit holders' approval to issue further units was not given before the 28 August 1990 directors' resolution, but cl 4.8 required approval before the 'issue' of the units, not before a contract to have issue units. The 'issue' of the first tranche of 400 units did not happen until December 1990. The approval of more than 75% of unit holders was obtained before these units were 'issued'. His Honour erred in concluding that cl 4.8 was not complied with and grounds 4.3 and 4.4 must be upheld.
I now turn to grounds 4.1 and 4.2. The Green parties say that they rely upon the proposition that a person occupying a fiduciary position wishing to enter into a transaction which would otherwise amount to a breach of duty, must, if he is to avoid liability, make full disclosure to the person to whom the duty is owed of all relevant facts known to the fiduciary and that that person must consent to the fiduciary's proposal. They referred to the authorities cited in Meagher, Gummow and Leeming, Equity, Doctrines & Remedies, 4th ed, 5‑115. However, the general proposition has to be applied to the facts of the case at hand. The fact that Wilden was a trustee and owed fiduciary duties gives rise to questions as to whom they owed the duties, what duties were owed, in what respect they failed to discharge them and what the consequences of such breaches might be. See Pilmer's case at [77].
Wilden owed fiduciary duties to the beneficiaries of the Balga trust. It acted via its human agents, the directors. If Wilden had issued units to persons contrary to the terms of the trust deeds then a breach of the trust would have occurred. However, Wilden did not breach the trust deed when its board resolved to issue additional units to unit holders. This is because cl 4.8 of the trust deed expressly authorised Wilden, as trustee, to issue additional units to unit holders with the prior written approval of at least 75% of the unit holders. Thus there was no breach of trust or breach of any fiduciary duty and, in my opinion, no need for the trial judge to consider questions of disclosure.
Questions of disclosure only arise in circumstances where a fiduciary wishes to avoid a breach of the conflict rule or the no profit rule in relation to a transaction. Thus in relation to the conflict rule, a fiduciary is under an obligation, without informed consent of the beneficiary (which requires full disclosure), not to put himself in a position where his personal interest and duty conflict or may conflict. In relation to the no profit rule, a fiduciary is under an obligation, without the informed consent of the beneficiary (which requires disclosure) not to obtain any benefit or profit from his position as a fiduciary. See Breen v Williams at (83), (113) and (137 ‑ 138). If the respondents' submissions amount to a submission that there was some other positive duty to disclose the facts referred to then the submission must be rejected. See Breen v Williams; Pilmer's case and P & V Industries v Porto.
There was no breach of the conflict rule or the no profit rule. However, I will consider the points of alleged non‑disclosure on the assumption that there was some potential breach of the conflict rule or the no profit rule by Wilden (which I fail to detect).
In my opinion, the source of funds to be used by Benrone and Callao in acquiring the further units was not a fact which was relevant to the fiduciary duties of Wilden and which was required to be disclosed. In any event, by 25 October 1990, when the directors voted to accept the Benrone and Callao applications for the issue of units, the source of the funds was known to the Green parties. The funds had been obtained by the application for repurchase of units in the Tace trust. His Honour's statement at [815] that Wilden, Chesson and Denboer failed to disclose to the Green parties the provision of funds via the Tace/Summerfield refinancing arrangement and that this arrangement might have had a bearing on whether the $500 per unit was the best possible rate, cannot in my opinion be sustained. The financing arrangement could not have had any bearing on the price of the units.
The second point identified by his Honour that there was a failure to disclose what attempts, if any, had been made to sell the units to parties other than the existing unit holders, also cannot be sustained. There was disclosure that Kelly (or his company Deltabrook Pty Ltd) had been approached. There was no proof that there had been any other attempts which were not disclosed. It is important to bear in mind that the complaint was not that Chesson had not used his best endeavours to find someone to purchase the units at a better price or that there was a sale to Benrone and Callao at an under value. As a result, I would uphold grounds 4.1and 4.2.
I now turn to ground 4.5. There was much debate at the hearing of the appeal about what his Honour meant at [831] where he said that:
Chesson and Denboer combined with Kelly achieved an outcome by the end of that year, whereby 200 additional units had been issued to each of Chesson/Callao and Denboer/Benrone at a 'discounted price' of $500.
This reference to the issue of the units at a 'discounted' price of $500 again appears at [835]. His Honour said at [844] that Wilden did not have sufficient regard in fixing the price per unit of $500 to the 'then value' of the existing units. His Honour concluded at [847] that the resolution was invalid because Chesson and Denboer voted in favour of the resolution at a time when the issue of the additional units at a price of $500 per unit had the effect of giving to Chesson and Denboer a 'substantial financial benefit'.
All these conclusions seem to be referable to the Green parties' pleaded case at [53.1] of the statement of claim that 'Wilden had no regard, in fixing a price per unit of $500, to the then par value of $1,000 per unit'. However, the units did not have a 'par' value of $1,000. There was no allegation that the units were issued at an undervalue. Paragraph 844 reveals that his Honour simply accepted the respondents' pleaded contention that the units had a 'par' value of $1,000 and that a sale at $500 was an under value.
With respect, there was nothing to sustain his Honour's conclusion at [847] that the units, having issued at a price of $500, thereby gave Chesson and Denboer 'a substantial financial benefit'. Nor can it be said that regard was not had to the value of the units because the value of the units was specifically discussed on 28 August 1990, as the cross‑examination of Mr Chesson revealed. The discussion about the value of the units was the subject of notation by Mr Chesson on the statement of assets and liabilities which was before the meeting. Ground 4.5 should also be upheld.
It is not necessary to consider grounds 4.6 and 4.7.

Ground 4A

I have already mentioned that I agree that leave to add ground 4A should be granted. However, I agree with McLure JA's reasons for dismissing that ground.

Ground 3

I agree with McLure JA's reasons in relation to this ground.

Ground 5

It is not necessary to consider ground 5 because it was a ground which was premised on the assumption that all other grounds failed. However, I agree with McLure JA's reasons.
I would therefore uphold grounds 1 (in part), 2, 3, 4 (in part) and 5. Leave to add ground 4A should be granted but the ground dismissed. The parties should confer about the appropriate form of judgment.
NEWNES AJA: I agree with McLure JA.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: WILDEN PTY LTD -v- GREEN [2009] WASCA 38 (S)

CORAM: McLURE JA
PULLIN JA
NEWNES JA

HEARD: 19-21 MAY 2008, 24 NOVEMBER 2008 & 15 JUNE 2009

DELIVERED : 16 FEBRUARY 2009

SUPPLEMENTARY
DECISION :6 JULY 2009