New South Wales Supreme Court CITATION : Salvo & Ors v New Tel (in liquidation) [2004] NSWSC 675 HEARING DATE(S) : 21 & 22 June 2004 JUDGMENT DATE : 13 August 2004 JUDGMENT OF : McDougall J at 1 DECISION : See paras [140] and [141] of judgment CATCHWORDS : TRUSTS - subscription agreement - plaintiffs subscribers under subscription agreement - where subscription agreement created express trust of subscription price - whether change in nominated escrow account terminated express trust - trust and contract - where alleged that subscription price paid by cash and amounts set-off - whether amounts set-off part of subscription price - whether amount set-off held on trust for plaintiff - ESTOPPEL - estoppel by representation - where alleged that defendant represented that defendant held monies on trust for plaintiffs - whether defendant should be estopped from denying trusts - whether representation relied upon Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 Twinsectra Ltd v Yardley [2002] 2 AC 164 Kauter v Hilton (1953) 90 CLR 86 Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liquidation) (2000) 202 CLR 588 CASES CITED : Walker v Corboy (1990) 19 NSWLR 382 Bahr v Nicolay [No 2] (1988) 164 CLR 604 Gosper v Sawyer (1985) 160 CLR 548 Cohen v Cohen (1929) 42 CLR 91 Puma Australia Pty Ltd v Sportsman's Australia Ltd [No 2] [1994] 2 Qd R 159 Saunders v Vautier (1841) 4 Beav 115 Mario Salvo (Plaintiff) PARTIES : Bilpin Projects Pty Ltd (Plaintiff) New Era Telecommunications Pty Ltd as Trustee for Elray Property Group (Plaintiff) New Tel Limited (in liquidation) (Defendant) FILE NUMBER(S) : SC 50200/02 COUNSEL : B A J Coles QC/R J Brender (Plaintiffs) D J Hammerschlag SC/I R Pike (Defendant) SOLICITORS : Baker & McKenzie (Plaintiffs) Blake Dawson Waldron (Defendant) MARIO SALVO & ORS v NEW TEL LIMITED (In Liquidation) 50200/02 INDEX to JUDGMENT Paragraph Introduction 1 The issues for determination 10 The subscription agreement 11 The first letter of set-off 13 The second variation 16 The deed of variation 21 The second letter of set-off 24 The authority to transfer funds 29 The Deed of Release 31 Other matters 32 The parties' submissions as to the sum of $750,000 39 The relevant principles 47 Analysis: the sum of $750,000 52 The search for intention 52 The Subscription Agreement creates an express trust 55 Impact of the first letter of set-off 60 Change to the escrow account 62 The deed of variation 70 Impact of the second letter of set-off 71 The authority to transfer funds 75 The irrevocable authority 84 The estoppel cases 89 Conclusion: the sum of $750,000 90 The parties' submissions as to the sum of $850,000 91 Analysis: the sum of $850,000 97 The estoppel case 106 Analysis: conventional estoppel 108 Analysis: estoppel by representation 110 Conclusion and orders 140 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 13 August 2004 50200/02 MARIO SALVO & ORS v NEW TEL LIMITED (in liquidation) JUDGMENT HIS HONOUR: Introduction 1 By written agreement dated 13 June 2002 ("the Share Purchase Agreement") the thirty ninth and now only defendant ("New Tel") agreed to buy from a number of "sellers" the whole issued share capital of Digiplus Investments Ltd ("Digiplus"). The purchase price, subject to adjustment and to a presently irrelevant put option, was $50 million. 2 By written agreement dated 24 June 2002 ("the Subscription Agreement'), the plaintiffs agreed to subscribe for, and New Tel agreed to issue to the plaintiffs, convertible notes in New Tel. The total amount to be subscribed by the plaintiffs was $2 million. Completion of the Subscription Agreement was conditional upon completion of the Share Purchase Agreement. 3 The Subscription Agreement was varied on 20 September 2002 by "a letter of set-off of payments" ("the first letter of set-off"). It was varied again on about 24 September 2002, in relation to the account into which the subscription monies were to be paid ("the second variation"). 4 The Share Purchase Agreement was varied on 4 October 2002 by a "third deed of variation and amendment" ("the deed of variation"). 5 The Subscription Agreement was further varied on about 11 October 2002 by a "letter of further set-off and confirmation … " ("the second letter of set-off"). 6 In September 2002, the plaintiffs paid $1,150,000 in cash to New Tel. Of that amount, $466,666 was paid on behalf of the second plaintiff ("Bilpin"). $683,334 was paid on account of the first plaintiff ("Mr Salvo"). The payments were made, pursuant to the second variation, into the trust account of Acuiti Legal, who were then the solicitors for New Tel. 7 On 14 October 2002, $750,000, being part of the amount of $1,150,000 paid on account of Mr Salvo and Bilpin, was transferred from the trust account of Acuiti Legal to the trust account of Henry Davis York, who were the solicitors for the sellers. That was done pursuant to an authority to transfer funds signed by or on behalf of the plaintiffs and New Tel, and addressed to Acuiti Legal. At about the same time, the plaintiffs executed a document addressed to Acuiti Legal that described itself as a "Deed of Release in Respect of Trust Funds" (the deed of release). At about the same time, New Tel paid $850,000 into the trust account of Henry Davis York. The plaintiffs say that this represented amounts that had been owed by New Tel to one or other of the plaintiffs, and that had been agreed to be set off against the plaintiffs' obligation to make payments under the Subscription Agreement as varied. Accordingly, the plaintiffs say, the whole of the obligation to pay $2 million under the Subscription Agreement was satisfied, and all the money paid, which by mid October may be seen to have fallen into three categories, should be treated as having been paid by them on the terms of the Subscription Agreement as varied. The three categories of payment are: (1) $400,000, being that part of the payments totalling $1,150,000 made by Bilpin and Mr Salvo to the trust account of Acuiti Legal that had not been transferred to the trust account of Henry Davis York. (2) $750,000, being that part of those payments that had been transferred from the trust account of Acuiti Legal to the trust account of Henry Davis York. (3) $850,000, paid by New Tel into the trust account of Henry Davis York in satisfaction (by way of set-off) of the obligation of the plaintiffs to pay, under the Subscription Agreement, that amount over and above the total of $1,150,000 already paid by them. 8 New Tel did not complete the Share Purchase Agreement. It is now accepted that it was entitled not to do so. The amount of $400,000 formerly held in the trust account of Acuiti Legal has been repaid to the plaintiffs. The sum of $1,600,000 formerly held in the trust account of Henry Davis York is now held in an interest bearing controlled monies account in the joint names of the solicitors for the plaintiffs and New Tel, pending the order of this Court. 9 The plaintiffs say that the sum of $1,600,000 held in the controlled account is held upon trust for them. New Tel denies this. The issues for determination 10 The parties agreed that the issues to be decided by me were: "1. Whether the sum of $750,000 presently held in a joint account in the names of the solicitors for each of New Tel and the plaintiffs' [sic] pending determination of the proceedings, is held on: (a) an express trust in favour of the plaintiffs; or (b) an implied resulting or constructive trust in favour of the plaintiffs. 2. Whether it was agreed that the sum of $850,000 was treated as having been paid by the plaintiffs by way of a set off, pursuant to the Convertible Note Subscription Agreement and two Letters of Set Off. 3. Whether the said $850,000 is held on either an express, implied, resulting or constructive trust, for the plaintiffs as part of the $1.6m presently held in the joint account in the name of the solicitors for the parties pending determination of the proceedings. 4. Whether New Tel should be estopped from denying the trusts asserted above, due either by representations of New Tel or on the basis of conventional estoppel." The subscription agreement 11 Clauses 2, 3 and 4 of the Subscription Agreement are relevant to the issues in this case. I set them out: " 2 Condition Precedent 2.1 Condition Precedent Completion of this Agreement is conditional upon the completion of the purchase by the Company of the Digiplus Group of Companies. 2.2 Best Endeavours The Company must use its best endeavours to satisfy the condition precedent in clause 2.1 and promptly notify the Investors once it becomes apparent that the condition will be satisfied or is incapable of being satisfied. 2.3 Termination This Agreement will terminate and neither party will have any liability to the other (other than accrued prior to termination) if the condition precedent in clause 2.1 is not satisfied by 31 December 2002. 2.4 Pending Completion Pending satisfaction of the condition precedent the parties will hold the Subscription Price in accordance with clause 4. 3 Subscription for Convertible Notes 3.1 Subscription Subject to satisfaction of the conditions precedent set out in clause 2, on the date of this Agreement the Investors will apply for and the Company will issue the Convertible Notes free from any Encumbrance and credited as fully paid to the Investors to the value of the Subscription Price so that following Completion, unless otherwise directed by the Investors, the Convertible Notes will be issued as set out below: Noteholder Number of Convertible Notes Salvo 2,962,962 Bilpin 2,962,963 New Era 2,962,962 3.2 Completion On the Completion Date: (a) The Investors must give to the Company: (1) a copy of this Agreement; (2) an authority to release the Subscription Price for the Convertible Notes by bank transfer from the escrow account set out in clause 4 below or otherwise as agreed with the Company; (b) On receipt of the items referred to in clause 3.2(a), the Company must within five (5) business days: (1) allot and issue the Convertible Notes to the Investors; (2) give to the Investors certificates in respect of the Convertible Notes; and (3) pay to the Investors any interest earned on the Subscription Price whilst in escrow in accordance with clause 4.2(c). 3.3 Registration of Convertible Notes Promptly following Completion, the Company must register the Convertible Notes, free from any Encumbrance, in the name of the Investors. 4 Escrow 4.1 Within 14 days of the date the Company gives notice to the Investors that the condition precedent set out in clause 2.1 will be satisfied, the Investors must pay the Subscription Price to the Company. 4.2 The Company will hold the Subscription Price pending Completion on the following terms: (a) the Subscription Price will be paid into the "New Tel Digiplus Purchase Account"; (b) the company will hold the Subscription Price on trust for the Investors; (c) all interest which accrues on the Subscription Price whilst being held in the escrow account will be for the account of the Investors and such amount will be remitted to the Investors on Completion; (d) the Company must not release the Subscription Price from escrow until the condition precedent set out in clause 2.1 is satisfied and the Investors have provided a written authority authorising the funds to be released or until the Company receives written authorisation from all of the Investors giving another direction. 4.3 Pending the notification given by the Company to the Investors in clause 4.1 above, the Investors will provide to the Company a bank guarantee or similar confirmation from a major retail bank that the Investors will have the Subscription Price available to complete the subscription for the Convertible Notes as and when the Subscription Price becomes due and payable. 4.4 Upon the provision of the Subscription Price to the Company to be held on the terms noted in clause 4.2, should the acquisition of the Digiplus Group of Companies not complete for whatever reason within thirty (30) days of the Investors transferring the Subscription Price to the Company, the Investors may issue a notice to the Company requesting a refund of the Subscription Price together with all interest earned and the Company shall upon receipt of such notice refund to the Investors the Subscription Price together with all interest earned on the Subscription Price up to the date the Subscription Price is returned to the Investors." 12 In substance, the plaintiffs' case is that the trust set out in cl 4.2(b) applies to all the money paid by them, notwithstanding that it was paid into the trust account of Acuiti Legal and that $750,000 of that money was paid with their consent out of the trust account of Acuiti Legal into the trust account of Henry Davis York; and that it applies also to the $850,000 that was treated as paid by them pursuant to the two letters of set-off. The first letter of set-off 13 Distinctive FX Pty Ltd ("Distinctive", a company associated with Mr Salvo), Bilpin and the third defendant ("New Era") each held convertible notes ("the Delta Convertible Notes") with a face value of $1,333,333 issued by New Tel in connection with its purchase of shares in Delta Phones Pty Ltd. Each of the note holders gave New Tel a conversion notice, requiring notes to the face value of $200,000 to be converted into shares in New Tel. New Tel elected, as apparently it was entitled to do, to redeem those notes rather than to convert them into shares. 14 Against that background, which in essence was recited in the first letter of set-off, the agreement of the parties was stated as follows: "The parties hereby agree that [New Tel's] payment of $600,000 to the Vendors [a reference to Distinctive, Bilpin and New Era] in respect of the Delta Convertible Notes shall be set-off against the payment by the Investors [Mr Salvo, Bilpin and New Era] of $2 million under the Subscription Agreement. Accordingly, the relevant parties hereby agree and undertake to each other that upon payment by the Investors of $1.4 million to [New Tel] by close of business 20 September 2002: (a) The Investors shall have satisfied in full their obligation to pay the $2 million subscription price to [New Tel] under the Subscription Agreement; and (b) [New Tel] shall have satisfied in full its obligation to pay the $200,000 specified conversion amount to each Vendor under the Delta Convertible Notes. Further, the Investors hereby agree that the $1.6 [sic: obviously $1.4] million shall be paid by them as follows: (a) Salvo shall pay $683,334; (b) Bilpin shall pay $466,666; and (c) New Era shall pay $250,000. The Investors and [New Tel] hereby agree that the convertible notes issued to the Investors upon satisfaction of the $2 million subscription price under the Subscription Agreement shall be issued as follows: (a) To Salvo - 4,416,670 convertible notes (representing a total face value of $883,334); (b) To Bilpin - 3,333,330 convertible notes (representing a total face value of $666,666); and (c) To New Era - 2,250,000 convertible notes (representing a total face value of $450,000)". 15 It will be observed that the total number of notes to be issued had increased substantially from those specified in clause 3.1 of the Subscription Agreement. However, the total face value of the notes to be issued remained at $2 million. The second variation 16 On 23 and 24 September 2003, there was an exchange of e-mails between the solicitors for New Tel and the solicitors for the plaintiffs. The effect of those e-mails was that the parties agreed that the balance of $1.4 million that remained to be paid by the plaintiffs under the Subscription Agreement was to be paid into the trust account of Acuiti Legal rather than into the New Tel Digiplus Purchase Account referred to in clause 4.2(a) of the Subscription Agreement. The plaintiffs' solicitors noted that this payment would be made "pursuant to the Subscription Agreement" and New Tel's solicitor did not demur from that statement. 17 The first relevant e-mail was from New Tel's solicitors to the plaintiffs' solicitors. It read, omitting formal parts, as follows: "I refer to our conversation and as requested provide Acuiti Legal's Trust Account details below. Use of this account, rather than New Tel's Digiplus Purchase Account, is subject to receiving instructions from New Tel. I understand that a cheque for $466,666 will be deposited with the balance of $1.4 million to be TT into the relevant account pending completion of the Digiplus acquisition. …" 18 It may well be that the "conversation" referred to in this e-mail marks the beginning of the change in the identity of the escrow account. There was no evidence as to the content of that conversation. 19 In any event, the response to the e-mail read as follows: "Further to our telephone discussion this morning, I note that we have received the Trust Account details for Acuiti Lawyers [sic] and my clients are prepared to deposit the funds into that account pursuant to the Subscription Agreement. However, you have not provided confirmation that New Tel is happy to accept the deposit of funds into the Acuiti Trust Account. Please let me know as soon as possible and I can instruct my clients to deposit the funds via a telegraphic transfer." [emphasis supplied] 20 The third e-mail read as follows: "Craig Piercy of New Tel has instructed that the $1.4M should be paid into our trust account, details already provided. Please attend to this now. … " The deed of variation 21 The deed of variation amended the Share Purchase Agreement by providing for a "first deposit" of $1 million and a "second deposit" of $4 million to be paid to Henry Davis York as the "deposit holder". It also added a new clause 5.10 to the Share Purchase Agreement, which was as follows: "5.10 Second Deposit (a) On or before 11 October 2002, the Buyer must (subject to the Buyer receiving an undertaking from the Deposit Holder, to the Buyer's reasonable satisfaction, that the Deposit Holder will hold the Second Deposit in accordance with the terms of clause 5.10) pay the Second Deposit to the Deposit Holder. (b) The Buyer and the Sellers must jointly instruct the Deposit Holder to: (1) invest the Second Deposit in an interest bearing trust account with a reputable bank in Australia; and (2) withdraw the Second Deposit and accrued interest on Completion or termination of this agreement and pay it to the person entitled to it under this clause 5.10. (c) The Sellers are entitled to the Second Deposit (in equal proportions) together with any interest accrued on the Second Deposit: (1) if Completion occurs, in all circumstances; (2) if Completion does not occur or this agreement terminates, in all circumstances except if the Second Deposit is forfeited by the Seller under clause 5.10(d) of this agreement. (d) The Sellers Forfeit the Second Deposit: (1) if the sellers or the Guarantors or Digiplus or any of them is in material breach of any term of this agreement and Completion does not proceed; or (2) if Completion does not proceed because: (A) the Sellers elect not to waive the condition precedent to Completion set out in clause 2.1(h); or (B) the Sellers or Guarantors fail to take any action required to satisfy the condition precedent set out in clause 2.1(l) and 2.1(m); (3) either: (A) at completion RSL services continue to be carried on the Override Code; and (B) RSL has not provided written consent to the repointing of the Override Code notwithstanding that the RSL services continues to be carried on the override Code; and Completion does not proceed because the condition precedent in clause 2.1(n) is not satisfied. (e) The person(s) who are entitled to the Deposit bear the risk of losing the Deposit." 22 The conditions set out in clause 5.10(a) were satisfied on 10 October 2002. 23 To jump ahead: clause 5.10(d)(2) referred to a condition precedent to completion set out in clause 2.1(h) of the Share Purchase Agreement. That condition precedent was not waived by the sellers and was not satisfied. New Tel asserted (and ultimately the sellers accepted) that as a result, the sellers were not entitled to, and New Tel was entitled to, the second deposit. The second letter of set-off 24 On or about 11 October 2002, the plaintiffs and New Tel entered into the second letter of set-off. It appears that Bilpin, Distinctive and Elray had given a further notice to New Tel, requiring (for each) a further $300,000 of Delta Convertible Notes to be converted into shares of New Tel. New Tel agreed to do that, in the case of Distinctive and Bilpin, and to issue shares at an agreed price. 25 As to New Era, New Tel agreed to convert $50,000 of the amount of $300,000 into shares and "to redeem the balance of $250,000 by setting-off this amount against and in full satisfaction of the amount of $250,000 due from New Era as part of the Subscription Price". The letter made it clear that the "Subscription Price" was that payable under the Subscription Agreement. 26 There were lengthy recitals of the background facts in the second letter of set-off. They included the following: "8 By Authority to transfer funds dated 10 October 2002 New Tel and the Investor parties, the Investor parties authorised the transfer of $750,000 of the Subscription Price from the Acuiti Legal Trust Account to the Henry Davis York Trust Account – Account No: 30-0114, BSB No: 032-000 at Westpac Bank [sic] Corporation, 341 George Street, Sydney, New Tel confirmed its permission to the transfer of these funds. The parties acknowledged that $750,000 of the Subscription Price shall be held at the Henry Davis York Trust Account subject to and until completion of New Tel's acquisition of the Digiplus Group of Companies." 27 Clause 4 of the agreement set out in the second letter of set-off is also relevant: "4 On 19 September 2002 each Vendor party issued to New Tel a notice requesting a further $300,000 of the Delta Note [sic] to be converted into shares of New Tel (each a Second Conversion Notice)." 28 The schedule referred to in clause 4 showed precisely how the full subscription amount had been made up, in a column headed "Final Subscription Amounts (comprising cash paid and set-off amounts)". It confirmed that Mr Salvo, Bilpin and New Era were credited as having paid respectively $883,334, $666,666 and $450,000. It showed, in each case, how these amounts were made up. The authority to transfer funds 29 The second deposit under the Share Purchase Agreement (see para [21] above) was payable by 11 October 2002. It appears that it was agreed between the plaintiffs and New Tel that an amount (initially the whole $1,150,000 paid by Bilpin and Mr Salvo into the trust account of Acuiti Legal and later $750,000 of that amount) could be transferred to the trust account of Henry Davis York as part of the second deposit. On about 10 October 2002, the plaintiffs and New Tel signed an authority to transfer funds in a form required by Acuiti Legal. The plaintiffs (described as the Investor Parties) authorised and directed the transfer of $750,000 (characterised as being "of the Subscription Price under the Subscription Agreement") from the Acuiti Legal trust account to the Henry Davis York trust account. New Tel confirmed its written permission to that transfer. The parties acknowledged and agreed "that the $750,000 funds of the Subscription Price shall be held in the Henry Davis York Trust Account subject to and until completion of the Digiplus acquisition." 30 This occurred following further negotiations, as a result of which the $4 million required for the second deposit was paid: as to $750,000 from the trust account of Acuiti Legal; as to $1,275,000 by two transfers from New Tel; and as to the balance, $1,975,000, from the trust account of Phillips Fox, who were acting for other investors. The first and third of those payments were made on 14 October 2002 and the second was made on 23 October 2002. The Deed of Release 31 The deed of release was executed by or on behalf of the plaintiffs, but not by New Tel. It referred to the Subscription Agreement, the first letter of set-off and the payment of $1,150,000 into the Acuiti Legal Trust Account. That payment was characterised as being part "of the $2 million Subscription Price under the Subscription Agreement" and was said to have been paid "pending satisfaction of the conditions precedent set out in the Subscription Agreement and completion of the Subscription Agreement". The deed of release referred to the authority to transfer funds, in respect of "$750,000 of the Subscription Price". The plaintiffs acknowledged that, by signing the deed of release and authorising Acuiti Legal to transfer that amount to Henry Davis York, they released Acuiti Legal from all claims, waived any rights they might have and promised not to institute any proceedings, in relation to that transfer. Other matters 32 It would appear that Mr Salvo was somewhat less enthusiastic than Bilpin (or its apparent alter ego, Mr Touma) about the investment required under the Subscription Agreement as varied. Accordingly, Mr Touma negotiated for Mr Salvo and New Era to receive "guarantees" given by Mr Peter Malone, who was at the time the Chief Executive Officer of New Tel. They included "a personal guarantee of $500,000" offered to Mr Salvo and Mr Ray Sleiman (an officer of New Era) and a further "personal guarantee of $375,000" offered to Mr Salvo. 33 As I have said, completion of the Share Purchase Agreement did not occur. It has been accepted (apparently after some wrangling) that New Tel was entitled not to complete and that, because the sellers had not waived the condition precedent in clause 2.1(h) of the Share Purchase Agreement, New Tel was, as between it and the sellers, entitled to the return of the second deposit. 34 On 31 October 2002, the plaintiffs gave notice to New Tel and to Acuiti Legal purportedly in accordance with clause 4.4 of the Subscription Agreement. That notice read as follows (omitting formal parts): "The Investors hereby give notice that: 1. The acquisition of the Digiplus Group of Companies has not been completed by New Tel Limited within thirty days of the date the Investors provided the Subscription Price to New Tel Limited; 2. In accordance with clause 4.4 of the [sic] pursuant to the Convertible Note Subscription Agreement dated 24 June 2002, the Investors hereby demand a refund of the Subscription Price paid together with all accrued interest earned; and 3. The Investors reserve their rights under the Convertible Note Subscription Agreement." (The reference to "the Investors" was a reference to the plaintiffs.) 35 On 13 November 2002, Mr Malone and Mr Salvo entered into an agreement whereby Mr Malone agreed to lend $250,000 to Distinctive. The loan was interest free and was repayable only in the event that the "Investor Parties" (ie, the plaintiffs) recovered the Subscription Price under the Subscription Agreement. It is not suggested that Mr Malone entered into that transaction, signed the letter or made any admissions contained in the letter on behalf of or so as to bind New Tel. 36 On 15 November 2002, New Tel gave an "irrevocable authority to transfer funds" to Henry Davis York and to Digiplus. That authority was dated 14 November 2002 and was executed by Mr Malone and Mr Craig Piercy, the Secretary of New Tel, purportedly on behalf of New Tel. It read as follows (omitting formal parts): "We note that an amount of $1,600,000.00 was provided to New Tel Limited (the "Company") by New Era Telecommunications Pty Limited as trustee for the Elray Property Group Trust, Bilpin Projects Pty Limited and Mario Salvo (together the "Investor Parties") and which was to be held on trust by the Company pending the completion of the Digiplus Group of Companies is currently held by Henry Davis York Solicitors as part of the second deposit of $4,000,000.00 which was provided by the Company to Digiplus (the "Second Deposit"). … The Company hereby directs Henry Davis York Solicitors (the "Law Firm") to immediately pay the amount of $1,600,000.00 plus any accrued interest, as notified by the company, from the Trust Account of the Law Firm to Acuiti Legal in the form of a cheque. In consideration of the terms hereof the Company agrees that this Authority to Transfer shall be irrevocable." 37 Originally, the partners in Henry Davis York were the first to thirty seventh defendants in these proceedings; Digiplus was the thirty eighth defendant; two companies known as Nordan Ltd ("Nordan") and Kildare Assets Ltd ("Kildare") were the fortieth and forty first defendants; and there were a number of cross-claims. Nordan and Kildare were the sellers under the Share Purchase Agreement. There has been a mediation between the parties, as a result of which some agreement has been reached. It appears that at one time an entity known as the Lim Asia Arbitrage Fund Inc ("Lim") claimed some interest in the second deposit. The agreement reached at mediation provided that the funds representing the second deposit would be held as to a presently irrelevant amount for Digiplus and entities (including Nordan and Kildare) associated with it; as to "$[BLANK]" for the plaintiffs; and as to the balance "subject to any claim on the part of Lim or parties associated with Lim for New Tel". No one purports to have signed the agreement on behalf of Lim. 38 After the mediation, the money held by Henry Davis York was paid into a controlled account. The signatories to that account were: Mr Stephen Gorry, of Henry Davis York; Mr James Hamilton, the plaintiffs' solicitor; Mr Raymon Mainsbridge, New Tel's solicitor; and Mr Eugene Fung, Lim's solicitor. Thereafter, Lim consented to Mr Fung's ceasing to be a signatory. It was agreed between the four interests whose representatives were signatories that the account should be closed and disbursed: as to $350,000 plus interest, to Digiplus or those associated with it; as to $1,600,000, to an account under the control of Messrs Hamilton and Mainsbridge until and to abide the determination of these proceedings; and as to the balance, to New Tel. It is clear that Mr Fung (among others) was notified of this arrangement. The clear inference is that he, on behalf of Lim, consented to it. Thereafter, Lim lodged a proof of debt with the liquidator of New Tel. The amount claimed made no allowance for, and the proof of debt did not otherwise refer to or claim, any interest in the amount of $1,600,000 held in trust to abide the outcome of these proceedings. In those circumstances, I am satisfied that it is appropriate to determine the dispute as to the fund of $1,600,000 without hearing from Henry Davis York, Digiplus, Nordan, Kildare or Lim. The parties' submissions as to the sum of $750,000 39 The plaintiffs' case is that, under the terms of the Subscription Agreement, the amounts paid by them to New Tel were to be held by New Tel on an express trust in favour of the plaintiffs: cl 4.2(b). They submitted that, although the Acuiti Legal account was substituted for the New Tel Digiplus Purchase Account as the repository of the payments, the cl 4.2(b) trust attached to the payments (made by or on behalf of Mr Salvo and Bilpin, totalling $1,150,000) that were actually made. 40 The plaintiffs submitted further that, by the terms of the authority to transfer funds, it was agreed that the amount to be transferred from the Acuiti Legal Trust Account to the Henry Davis York Trust Account, on account of the second deposit, would be held "subject to and until completion of the Digiplus Acquisition". They submitted further that the second letter of set-off had the effect (among other things) of treating the amount of $1,150,000 (which on any view incorporated the $750,000 that was ultimately transferred from the Acuiti Legal Trust Account to the Henry Davis York Trust Account) as part of the "Subscription Price" paid under the "Subscription Agreement". 41 It follows, the plaintiffs submitted, that New Tel continued to hold its interest in the sum of $750,000 that was transferred on the terms of the Subscription Agreement. 42 Alternatively, the plaintiffs submitted, there was a trust of the kind referred to in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. 43 New Tel submitted that the "release" of the funds from Acuiti Legal to Henry Davis York, in accordance with the plaintiffs' direction, terminated the trust established by cl 4.2(b); and that the terms on which Henry Davis York held that amount were inconsistent with the terms of the cl 4.2(b) trust because "there was a real possibility that the second deposit would be forfeited to Digiplus if the Share Purchase Agreement did not complete" (outline of submissions dated 22 June 2004, para 12(d)). 44 Apparently as a variant of this submission, New Tel submitted that the $750,000 was advanced for the purposes set out in cl 5.10 of the Share Purchase Agreement and, that purpose having been fulfilled, "whatever trust there was, was exhausted" (ibid para 14). 45 New Tel pointed to a number of circumstances that, it said, told strongly against the existence of an express trust. 46 As to the Quistclose argument: New Tel submitted, basing itself on Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 and Twinsectra Ltd v Yardley [2002] 2 AC 164, that Quistclose is properly to be regarded as an example of an express trust with two limbs; and that, in the present case, there was no express trust. The relevant principles 47 It is clear that, to create an express trust, it is necessary to show three things: (1) the intention to create the trust; (2) the property that is subject to the trust; and (3) who are the beneficiaries of the trust. See Kauter v Hilton (1953) 90 CLR 86, 97 (Dixon CJ, Williams and Fullagar JJ) and Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liquidation) (2000) 202 CLR 588, 604 [29] (Gaudron, McHugh, Gummow and Hayne JJ). 48 In seeking to identify the intention to create a trust, it is appropriate to have regard not only to the language used by the parties but also to the nature of the transaction and the circumstances that attend their relationship: Walker v Corboy (1990) 19 NSWLR 382. In considering whether a trust has been created, there is no need for particular caution in drawing the inference that the parties intended to create a trust: Bahr v Nicolay [No 2] (1988) 164 CLR 604. 49 The decision in Associated Alloys also demonstrates that: (1) At 603 [26]-[28]: the "flexible interplay of law and equity" (in the words of Lord Wilberforce in Quistclose at 582) means that contractual rights and obligations may be affected by equitable considerations; or as Mason and Deane JJ put it in Gosper v Sawyer (1985) 160 CLR 548, 568, there is no dichotomy between contract and trust. (2) At 598 [12]: if the trust is said to arise upon the proper construction of a contract made between the parties, then ascertaining the intention of the parties will involve the construction of the contract (and this will also demonstrate the interaction between any trust and the other contractual relations that have been created). (3) At 605 [34]: although an express obligation to keep money separate would point to the existence of a trust if none had been explicit ( Cohen v Cohen (1929) 42 CLR 91; Puma Australia Pty Ltd v Sportsman's Australia Ltd [No 2] [1994] 2 Qd R 159), "where the existence of a trust is explicit, the absence of an express obligation to keep trust monies separate does not deny the trust." 50 There has been much debate as to the nature of the "Quistclose" trust. See Swadling (Ed), The Quistclose Trust: Critical Essays (Hart Publishing, 2004), where both the authorities and the commentaries are closely and critically reviewed. For my part, I accept the analysis of Gummow J in Re Australian Elizabethan Theatre Trust at 498-504. His Honour was not prepared to accept that the Quistclose trust was "a new species of trust". Specifically, his Honour did not accept that the House of Lords intended to create a new species of non charitable "purpose" trust (ie, a non charitable trust in which the trust fund was held upon trust for purposes rather than identified, or identifiable beneficiaries). Gummow J analysed the Quistclose trust as "an express trust with two limbs rather than an express trust in favour of the shareholders and a resulting trust in favour of Quistclose which arose by reason of an incomplete disposition by Quistclose of the whole of its interest in the money … ". 51 Accordingly, I think, the question is whether the parties intended to create a trust; if they did, what were the terms of that trust; and if they did, was the trust varied or discharged. Analysis: the sum of $750,000 The search for intention 52 The issue as to the $750,000 is to be resolved, I think, by consideration of the relevant documents. They include the Subscription Agreement, the two letters of set-off, the agreement whereby the trust account of Acuiti Legal was substituted for the New Tel Digiplus Share Purchase Account and the authority to transfer funds. 53 It does not seem to be in dispute – and I do not see how it could be disputed – that the agreement to substitute the Acuiti Legal Trust Account for the New Tel Digiplus Purchase Account was a variation of the Subscription Agreement. Further, I think, each of the letters of set-off should be treated as variations of the Subscription Agreement. Each of those letters deals with the obligations of the plaintiffs to make payments to New Tel pursuant to the Subscription Agreement. Each of them proposed that the plaintiffs' obligations shall be taken to be satisfied, to the extent specified, by the set-offs that it describes. It follows, I think, that except to the extent that the Subscription Agreement was varied by the two letters of set-off, it remained in effect: at least for as long as there was money of the plaintiffs held in the trust account of Acuiti Legal, and in respect of that money so held. I put the matter this way because New Tel contends that, whatever might have been the rights of the parties at law and in equity prior to that transfer, the transfer effected a radical change. 54 I therefore propose to analyse the relevant rights and liabilities that were created by the Subscription Agreement, and the extent to which (if at all) those relevant rights and liabilities were varied by the first and second letters of set-off and the substitution of the Acuti Legal Trust Account for the New Tel Digiplus Purchase Account. I shall do so, in the first instance, by reference to the money that was actually paid. The Subscription Agreement creates an express trust 55 The structure of the Subscription Agreement is clear. The plaintiffs were obliged to pay the Subscription Price to New Tel in accordance with cl 4.1. This required payment, in effect on account, some 14 days before the expected date of Completion. Pending Completion (ie, of the issue of Convertible Notes to the plaintiffs – see cl 1.1), New Tel was to hold the money so paid on trust for the plaintiffs (cl 4.2(b)). It was to be held in the New Tel Digiplus Purchase Account (cl 4.2(a)). The evidence does not show whether that was (or was intended to be) an account created to hold only the Subscription Price paid by the plaintiffs, or whether it was intended as well to hold other money required for completion of the Share Purchase Agreement. 56 New Tel was bound by cl 4.2(d) not to release the Subscription Price until: (1) completion of the Share Purchase Agreement occurred as required by cl 2.1, and (2) the plaintiffs provided written authority in accordance with cl 3.2(a)(2) for the release of the Subscription Price to or for the benefit of New Tel; or (3) the plaintiffs gave some other written authorisation for the release of the Subscription Price. 57 If completion of the Share Purchase Agreement did not proceed within 30 days from payment of the Subscription Price to New Tel, the plaintiffs could give notice to New Tel requiring it to refund the Subscription Price with interest, and New Tel was obliged to comply with such a notice (cl 4.4). 58 It follows that the Subscription Agreement created an express trust of the Subscription Price (when and to the extent that it was paid) in favour of the plaintiffs. The plaintiffs were bound, by the terms of the Subscription Agreement, to authorise the release of the Subscription Price "from the escrow account" if the condition precedent set out in cl 2.1 were satisfied (and, presumably, if, they being entitled so to do, they had not earlier given a notice under cl 4.4). Once the Subscription Price was released from escrow in favour of New Tel – ie, once it was utilised, on completion of the Subscription Agreement, to satisfy the obligation of the plaintiffs to pay for the convertible notes – the trust in favour of the plaintiffs would come to an end. But if that event did not occur, the trust in favour of the plaintiffs would continue for their benefit. 59 There is at least one obvious difficulty with the trust so characterised. It being for the benefit of the plaintiffs, they would have been entitled at any time, under the rule in Saunders v Vautier (1841) 4 Beav 115, to call for the subject matter of the trust to be transferred to them, notwithstanding any term of the trust to the contrary. Thus, assuming that the terms of the Subscription Agreement as a matter of contract should be construed so as to require the plaintiffs to leave the Subscription Price with New Tel until at least 30 days had passed from the date of payment without completion of the Share Purchase Agreement, that, on the face of things, would not prevent them from calling for the return of the Subscription Price. But to point to an obvious, if theoretical, difficulty in implementation of the commercial arrangements does not deny creation of a trust in accordance with those arrangements; a fortiori where acknowledgment of the commercial difficulty necessarily involves acknowledgment of the existence of a trust. Impact of the first letter of set-off 60 The first letter of set-off varied the Subscription Agreement by providing that $600,000, of the total of $2 million to be paid, should be treated as paid by the set-off that it described. As to the amount that remained payable by the plaintiffs - $1,400,000, in the respective amounts set out – the first letter of set-off effected no change in the rights and obligations created by the Subscription Agreement. Had the plaintiffs paid that amount in accordance with the first letter of set-off, it would have become subject to the cl 4.2(b) trust, and to the other relevant terms and conditions, that I have described. 61 I leave for later consideration the question of the impact of the first letter of set-off on so much of the Subscription Price as was treated as having been paid by set-off. The change to the escrow account 62 The next relevant change is the amendment to what might be called the escrow account. As I have said, that is documented by an exchange of e-mails on 23 and 24 September 2002. It is not apparent who requested the change. What is apparent from the e-mails is that the trust account of Acuiti Legal was intended to replace the New Tel Digiplus Purchase Account for the purposes of the Subscription Agreement. 63 Bilpin's share of the $1.4 million, namely $466,666, was paid on 26 September 2002. It was paid by cheque sent under cover of a "With Compliments" slip which read, omitting formal parts: "Enclosed is the cheque for the Subscription Monies for Bilpin Projects P/L. The remaining funds should be provided electronically shortly." 64 The next day, an internal e-mail within Acuiti Legal referred to the balance to be paid. It read, omitting formal parts: "We are expecting monies ($933,334) to be TT into our Trust Account to be held on trust for New Tel Limited (NEW 388/135) from Pembrokes Lawyers acting for Touma/Salvo/Bilpin. Please advise Russell Lyons and myself if and when it is received." 65 The reference to $933,334 was to the aggregate of the amounts payable by Mr Salvo and New Era under the first letter of set-off. Mr Lyons was the partner in Acuiti Legal having responsibility for the matter from New Tel's perspective. 66 Mr Salvo caused the amount of $683,334 to be telegraphically transferred into the Acuiti Legal Trust Account on 27 September 2002. That, together with Bilpin's payment, made up the total of $1,150,000 that was held by Acuiti Legal on trust. 67 It seems to be clear that the parties intended that Acuiti Legal should hold the sum of $1,150,000 on the terms of the trust described by the Subscription Agreement, modified to reflect the fact that the money had been paid by Bilpin and Mr Salvo and the respective amounts of their payments. It seems to be clear that this intention was given effect. Thus, in terms of cl 4.2(b), Acuiti Legal held the money on trust for Bilpin and Mr Salvo in their respective shares. Absent some alternative instruction from Mr Salvo and Bilpin, Acuiti Legal could only release the money either in accordance with cl 4.2(d) (which included satisfaction of the condition precedent set out in cl 2.1 and the provision of the written authority described in cl 3.2(a)(2)) or in accordance with cl 4.4. 68 The terms on which Acuiti Legal held the money were stated by Mr Lyons in an e-mail of 8 October 2002 to, among others, Mr Piercy of New Tel. It read (omitting formal parts): "As per your request I can confirm that as at today's date Acuiti Legal currently holds $1,150,000 in its trust account. … The funds were remitted by Mario Salvo ($683,334) and Joe Touma/Bilpin Projects ($466,666) as required under the $2 million convertible note subscription agreement … . None of the outstanding $850,000 is expected to be received in cash having been set off against the purchase price of the Delta Phones acquisition. The $1,150,000 will be available for subscription to convertible notes in New Tel Limited once all conditions precedent to the subscription have been satisfied – primarily completion of the Digiplus Acquisition." 69 This confirms two things: (1) First – if confirmation were needed – that the relevant terms of the trust created by the Subscription Agreement applied, mutatis mutandis, to the money held by Acuiti Legal. (2) Second, that there had been at least agreement in principle for the remaining $250,000 of the $1.4 million that was to have been subscribed in cash to be treated as paid by way of further set-off – ie, agreement in principle to what was documented by the second letter of set-off. The deed of variation 70 The next relevant matter is the making of the third deed of variation and amendment. Although that does not in terms deal with the trust created by the Subscription Agreement (nor could it, since the plaintiffs were not parties), it is relevant to consideration of the effect, on the rights of the plaintiffs, of the transfer of $750,000 from the trust account of Acuiti Legal to the trust account of Henry Davis York. It will be necessary to consider it when I deal with that issue. Impact of the second letter of set-off 71 The second letter of set-off appears to have been signed on 11 October 2002. As I have noted, its terms (at least in principle) appear to have been agreed by 8 October 2002 (see Mr Lyons' e-mail referred to in para [67] above). The second letter of set-off contemplated the transfer of $750,000 from the trust account of Acuiti Legal to the trust account of Henry Davis York. That is made clear by the eighth matter of "background" that is set out in the second letter of set-off (see para [26] above). The reference to the transfer appears to be prospective rather than retrospective: ie, a reference to some thing that was expected to occur, rather than to something that had occurred, as at the effective date of the second letter of set-off. 72 The second letter of set-off acknowledged that the payments totalling $1,150,000 had been made on the terms of the Subscription Agreement, and that their deposit into the Acuiti Legal Trust Account did not affect their status (see the seventh matter of background referred to). Further, the parties (ie, the plaintiffs and New Tel) expressly acknowledged that the $1,150,000 "represents the total cash component of the Subscription Price … following set-off of the various redemption amounts referred to above". 73 Clause 4 makes it plain that the parties regarded the payment of the amounts totalling $1,150,000 to have been made and received on the terms of the Subscription Agreement. The clause makes it plain that New Tel's beneficial entitlement to that money is "subject to and completion of [its] purchase of the Digiplus Group of Companies"; and, further, that the issue of Convertible Notes (which of course depended on New Tel's becoming beneficially entitled to the money) is something that will occur "under the Subscription Agreement". 74 That analysis might not be regarded as controversial. However, I think, it is significant that the acknowledgments, and effective statements of intention, in clause 4 were given and made against the background that is recited. That background includes the mutual understanding that $750,000 of the $1,150,000 is to be transferred from the Acuiti Legal Trust Account to the Henry Davis York Trust Account pursuant to the authority to transfer funds. As was made clear, "New Tel confirmed its permission to the transfer of these funds". But notwithstanding that transfer, and the permission granted, the parties agreed that the totality of the amount was to be characterised in the way set out in clause 4 of the "agreement". The authority to transfer funds 75 New Tel's case is that it was the transfer of the funds that brought to an end the trust that, up to the time of transfer, had subsisted in the amount transferred. (At one time, New Tel appeared to claim that the effect of the transfer was to terminate the trust in its entirety – ie, including in the amount of $400,000 that was not transferred. However, this extended claim has not been pursued.) 76 It is not suggested that Henry Davis York held the amount of $750,000 on the terms of clause 4.2(b) of the Subscription Agreement. Clearly, Henry Davis York did not. It held it, as part of the second deposit, on the terms of clause 5.10 of the Share Purchase Agreement. 77 Clause 5.10(a) required "the Buyer" – ie, New Tel – to pay the second deposit if Henry Davis York undertook to hold it in accordance with the terms of cl 5.10. (As I have already mentioned, that undertaking was given on 10 October 2002.) The terms of clause 5.10 provided that the sellers would be entitled to the second deposit and accrued interest in the events set out in paragraph (c), but that the sellers would "forfeit" the second deposit (ie, their interest in it) in the events set out in paragraph (d). 78 Because the second deposit was to be paid by New Tel, the effect of the sellers' forfeiting their interest in it would be that New Tel was, or became, entitled to it. The plaintiffs say that if New Tel became entitled to the second deposit because the sellers forfeited their interest in it in accordance with clause 5.10(d), then New Tel held, or would hold, its interest in the second deposit on trust for the plaintiffs in accordance with clause 4.2(b). 79 In my judgment, the plaintiffs' submission is correct. By the authority to transfer funds, the parties acknowledged and agreed that the amount transferred "shall be held in the Henry Davis York Trust Account subject to and until completion of the Digiplus acquisition." As I have said, that could not be binding on Henry Davis York; nor was it suggested to be. But clearly the parties intended to achieve something by it. What they intended to achieve was an acknowledgment, as between themselves, that the amount transferred from the Acuiti Legal Trust Account to the Henry Davis York Trust Account would remain impressed with a trust on the terms, so far as applicable, of clause 4.2(b). 80 The effect of that acknowledgment can be shortly stated. If the sellers became entitled to the money under clause 5.10(c) of the Share Purchase Agreement, then the plaintiffs' beneficial interest would come to an end. That would be equivalent to release of the subscription price in accordance with clause 3.2(a)(2) of the Subscription Agreement. If, on the other hand, the sellers forfeited their interest in the second deposit, so that the entitlement to it reverted to New Tel, New Tel would hold that entitlement, at least as to $750,000, on trust for the plaintiffs. That is because the event that entitled New Tel to the second deposit meant, of necessity, that the condition precedent set out in clause 2.1 of the Subscription Agreement had not been satisfied. 81 New Tel submits that the plaintiffs, in agreeing to the transfer of the money from the Acuiti Legal Trust Account to the Henry Davis York Trust Account, accepted that the sellers might become beneficially entitled to it. That is undoubtedly correct; but the same may be said of the payment to the escrow account that was contemplated by the Subscription Agreement when it was first made. It could not be said that the plaintiffs lost their clause 4.2(b) interest in the Subscription Price simply because they paid the money into the escrow account knowing that it might be paid over beneficially to the sellers. I do not see why payment in the Henry Davis York Trust Account, entailing the same risk, should have that consequence. 82 New Tel drew attention to Mr Touma's use, both in his affidavit and statement and in cross-examination, of the word "release" to describe what happened when Acuiti Legal transferred the money from its trust account to the Henry David York Trust Account pursuant to the authority to transfer funds. I do not think that Mr Touma's choice of language can be regarded as determinative. The language that is determinative is that used by the parties in the instrument of authorisation. In my judgment, that language demonstrates clearly the conclusion that the parties did not regard the transfer as bringing to an end the rights that the plaintiffs would have in the event that New Tel did not complete the acquisition of the Digiplus Group of Companies. 83 It is correct to say that the plaintiffs released Acuiti Legal from any obligation that it owed in respect of the money transferred. But that does not mean that, at the same time, the plaintiffs released New Tel. For the reasons that I have given, I regard the authority to transfer funds as establishing the opposite conclusion as between the plaintiffs and New Tel. The irrevocable authority 84 The plaintiffs submit that the irrevocable authority to transfer funds dated 14 November 2002 and addressed by New Tel (signed by Messrs Malone and Piercy) to Henry Davis York is an admission upon which they are entitled to rely. New Tel submits that, if there were then no subsisting trust, the admission is not capable of creating one. Because I have found that there was, as at 14 or 15 November 2002, a subsisting trust in favour of the plaintiffs binding New Tel, as to the sum of $750,000, it is unnecessary to consider New Tel's submission in this context (it will require consideration in relation to the amount of $850,000). 85 New Tel submitted further that Mr Malone could not be regarded as disinterested because he had agreed to lend $250,000 to Mr Salvo's company, Distinctive, that loan to be interest-free and not to be repayable unless the plaintiffs recovered in full the outstanding balance, $1,600,000, of the Subscription Price. 86 There was a debate between the parties as to whether any Jones v Dunkel inference should be drawn (against the other) by reason of the failure to call Mr Malone. Ordinarily, one would regard him as a witness that New Tel would be expected to call. However, the evidence established widespread press reports of litigation to be brought by New Tel's liquidators against Mr Malone. This may not prove that such litigation has been commenced. However, given reports (including in Mr Malone's home state of Western Australia) that litigation was in contemplation, there is good reason to think that he is unlikely to have co-operated with New Tel, so that he should not be regarded as being in its camp. A fortiori, I am satisfied, notwithstanding the terms of the loan, that he should not be regarded as being in the plaintiffs' camp. 87 I am prepared to accept, for present purposes, that Mr Malone has a significant interest in seeing the plaintiffs succeed. However, I am not prepared to accept that this would have persuaded him, in dereliction of his duty to New Tel, to sign on its behalf an irrevocable authority that he knew to be wrong. In any event, there is no evidence at all to suggest that Mr Piercy has any interest in the plaintiffs' succeeding; yet he too signed the irrevocable authority. It should be noted that Mr Piercy was closely involved in the relevant events, so that he might be thought to be someone who had actual knowledge of the relevant circumstances. 88 I therefore think that it is open to me to have regard to the terms of the irrevocable authority as confirming that the parties intended that, as between the plaintiffs and New Tel, the sum of $750,000 should be treated as subject (so far as possible) to the clause 4.2(b) trust notwithstanding that it was paid to Henry Davis York to be held as part of the second deposit. The estoppel cases 89 The conclusion to which I have come makes it unnecessary to consider the plaintiffs' case based on either conventional estoppel or estoppel by representation. I do consider the estoppel case in connection with the alleged trust in respect of the sum of $850,000: see paras [106] to [139] below. If it were necessary to consider the estoppel case (in either of its manifestations) in connection with the sum of $750,000 I would conclude, substantially for the reasons given in those paragraphs, that it fails. Conclusion: the sum of $750,000 90 In my judgment, the plaintiffs have made out their case that the sum of $750,000 is held on trust for them beneficially. The question of their individual interests in that sum was not argued before me. Whether those interests would correspond to the proportions in which they contributed to the fund of $1,150,000, of which the $750,000 formed part, or should be assessed on some other basis, is something on which I express no opinion. The parties' submissions as to the sum of $850,000 91 The plaintiffs submitted that the effect of the two letters of set-off was that, between them, $850,000 of the Subscription Price would be treated as having been paid under the Subscription Agreement. Thereafter, they submitted, the mutual intention of the parties, appearing from what they did in the period 11 to 14 October 2002, was that the sum of $850,000 should be treated as: (1) having been paid by the plaintiffs – ie, paid but not in cash; (2) having been utilised to pay part of the second deposit; and (3) Therefore, subject to the same arrangements and trusts as the cash payment of $750,000. 92 In substance, the plaintiffs' submission was that the parties intended that the sum of $600,000 should be treated as paid, as part of the Subscription Price and otherwise governed by the terms of the Subscription Agreement, from the date of the first letter of set-off; and that the same position applied, as to the further sum of $250,000, from the date of the second letter of set-off. They submitted that the second letter of set-off, and in particular its schedule, demonstrated that the parties agreed that the Subscription Price comprised both the cash paid and the amounts set off. 93 Alternatively, the plaintiffs submitted that New Tel is estopped from denying the trust in respect of the $850,000, as it was in respect of the $750,000. 94 New Tel submitted that the correct analysis is that, by the two letters of set-off, New Tel agreed to treat $850,000 of the Subscription Price as paid, but that no monies were impressed with any trust in consequence. It submitted that the relevant terms of the Subscription Agreement did not apply to either the $600,000 or $250,000 that were set off, simply because the letters of set-off contained no requirement for them to be paid into the escrow account (whatever that might be from time to time). 95 New Tel submitted further that there was never a fund of $850,000 that could be said to be a trust fund. It maintained no separate account or no separate fund within an existing account. It submitted that, on their proper analysis, the letters of set-off led to the position that an obligation to pay cash, to be held in trust, was replaced by an agreement that the cash need not be paid, in consideration of the discharge of New Tel's obligation to pay a corresponding amount. Thus, New Tel submitted, instead of creating a trust and a fund, the plaintiffs took a contractual obligation that the $850,000 would be repaid as a debt if New Tel were otherwise obliged to refund money under the Subscription Agreement. 96 New Tel submitted that the amount of $850,000 "never formed part of the payment of the Second Deposit" (outline of submissions dated 22 June 2004, para 23). Analysis: the sum of $850,000 97 There was not, under either of the letters of set-off, any obligation on New Tel to set aside, in a separate fund, the amounts treated as paid by way of set-off. The first letter of set-off recorded that the transactions described in it would satisfy in full the obligation of the plaintiffs to pay the Subscription Price under the Subscription Agreement, and New Tel's obligation to pay the conversion amounts in respect of the Delta Convertible Notes. The way that the Subscription Price was to be paid, or to be taken to be paid, was partly by set-off and partly by cash payment. It is clear that the cash payment was to be made, mutatis mutandis, on the terms of the Subscription Agreement (so that, among other things, the cl 4.2(b) trust would attach to the money actually paid). There is no indication of any intention that New Tel was to set aside, and pay into the escrow account, the amount treated as paid by set-off. 98 The same may be said of the second letter of set-off. Both letters, I think, make a clear distinction between the process of set-off – which in effect they treated as extinguishing pro tanto the obligations of the plaintiffs to pay the Subscription Price – and the obligation to pay so much of the Subscription Price as, after the set-offs, remained outstanding. 99 It is correct to say that the schedule to the second letter of set-off describes the "Final Subscription Price" as "comprising cash paid and set-off amounts". However, that is done for the purpose of identifying the amount paid, or taken to have been paid, by each of the plaintiffs. I do not think that it means that the amount taken to have been paid, through the operation of the letters of set-off, is to be treated as impressed with the trusts that, as I have found, were impressed on the cash amounts paid. 100 Up until 23 October 2002, when New Tel paid $1,250,000 into the trust account of Henry Davis York, there is no suggestion that New Tel set aside, or appropriated, the amounts of $600,000 and $250,000 or their total. Nor is there any suggestion that the amount of $1,250,000 included, except in a notional or arithmetical sense, those amounts. New Tel was obliged to pay the second deposit in accordance with clause 5.10 of the Share Purchase Agreement. It did so, although apparently later than the required date (11 October 2002), by making, or causing to be made, payment from a variety of sources: its own resources; the Acuiti Legal Trust Account; and the Phillips Fox Trust Account. 101 At all material times following the execution of the first letter of set-off, the obligation of the plaintiffs to pay $600,000 of the Subscription Price had been discharged. At all material times following the execution of the second letter of set-off, the obligation of the plaintiffs to pay $250,000 of the Subscription Price had been discharged. When (or if) New Tel was required to meet its obligations under the Share Purchase Agreement as varied, it was entitled to look to the plaintiffs for the balance of the Subscription Price payable by them, but was obliged to find from its own resources the amount of $850,000 that, apart from the letters of set-off, the plaintiffs would have been liable to contribute. This it did. 102 In my judgment, the effect of the letters of set-off – discharging, as they did, the obligations of the plaintiffs to pay $850,000 of the Subscription Price – was to restrict the operation of the cl 4.2(b) trust to the amounts that, after the letters of set-off, they remained liable to pay and did pay. Further, the effect of the letters of set-off is that, when New Tel paid $1,250,000 of its own money towards the second deposit, it did so on its own account and not on behalf of, or as agent for, the plaintiffs. Nor did it make that payment as trustee for the plaintiffs: if only because there was no trust fund, or other trust property, upon which any trust could operate. 103 As I have foreshadowed in para [83] above, it is necessary to consider whether the apparent admission of a trust in respect of the sum of $850,000 as well as the sum of $750,000 is effective. I have found, in substance, that there was no express trust in respect of the sum of $850,000. It is implicit in that conclusion that the evidence does not support an inference of intention, on the part of the parties, to create such a trust. 104 If there were evidence from which I could infer such an intention, then I think that it would be proper to take the apparent admission into account in deciding whether to draw that inference. However, where the evidence does not otherwise satisfy me, I do not think that the apparent admission can supply the deficiency. That would require treating it, in effect, as a declaration of trust. Clearly, it is not. At most, it records the view of Messrs Malone and Piercy that there was such a trust. Even if that view can be imputed to New Tel (as, for the reasons already given, I think it can), I do not think that it can be conclusive. It might be otherwise if (for example) the plaintiffs had acted in some way in reliance on the admission. But no estoppel case is pleaded in relation to the alleged admission. 105 I therefore conclude, even taking into account the admission said to arise from the terms of the irrevocable authority, that there is no express trust in respect of the sum of $850,000. That conclusion makes it necessary to consider the estoppel case. The estoppel case 106 As can be seen from the agreed issues, the plaintiffs rely on conventional estoppel and alternatively estoppel by representation. As to the former: the plaintiffs say that there was a common assumption, which formed the conventional basis of the dealings that they had with New Tel, that the sums of $850,000 and $750,000 would be held on trust for the plaintiffs but so that New Tel could use them for the completion of its purchase of the Digiplus Group of Companies. 107 As to the estoppel by representation, the plaintiffs say that Mr Malone of New Tel represented to Mr Touma on behalf of the plaintiffs that New Tel held the sum of $850,000 on trust for the plaintiffs. That representation is said to have been made expressly and orally on about 11 October 2002. The plaintiffs say that they relied to their detriment on this representation by allowing the sum of $850,000 to be utilised as part of the second deposit, and by authorising the payment of $750,000 to be utilised as part of the second deposit. Analysis: conventional estoppel 108 It is the plaintiffs' case that "[t]he parties in all the circumstances proceeded on the basis that the trust [as to $850,000] was operating, despite the changes to the arrangements after the date of the [Subscription Agreement]" (outline of contentions dated 18 June 2004, para 28). 109 For the reasons that I have given above, I do not think that conventional estoppel is made out on the documents. That is to say, I think that if the documents do not make out the plaintiffs' case for an express trust in respect of the sum of $850,000, they cannot make out its conventional estoppel case in respect of the same subject matter. Analysis: estoppel by representation 110 In para 18 of his statement dated 24 December 2003 (exhibit PX 3), Mr Salvo gives evidence of an understanding and belief "that if that [sic] Digiplus deal failed and the subscription funds were paid back to New Tel, then they [the $750,000 and the $850,000] would be returned to the plaintiffs, since they were being held on a trust for the plaintiff [sic], as those monies had been provided under the [Subscription Agreement's] terms for the sole purpose of the completion of the Digiplus acquisition, subject to the terms of the Purchase Agreement … ". 111 In para 19, Mr Salvo says that he would not have consented to the transfer (of $750,000 from the Acuiti Legal Trust Account to the Henry Davis York Trust Account) but for that understanding. 112 Mr Salvo was not required for cross-examination. 113 It is apparent from Mr Salvo's statement that his understanding was based partly on his own reading of the Subscription Agreement "and the subsequent documents annexed" (ie, as I understand it, principally the letters of set-off) and partly on conversations that he had had with a Mr Woody Wunsch, the secretary of another company controlled by Mr Salvo, and Mr Touma. Mr Salvo says, in para 9, that Mr Touma "was the person primarily negotiating on behalf of the plaintiffs with New Tel with respect to the [Subscription Agreement] and the Subscription Monies payable under the [Subscription Agreement], subject to him obtaining instructions from myself (through Woody Wunsch)" and from New Era. Mr Salvo does not, however, give evidence of any conversation with Mr Touma in which Mr Touma purported to pass on any representation or statement by Mr Malone or Mr Piercy (or by anyone else from the New Tel camp) that would support either the understanding and belief that I have referred to above, or an understanding or belief consistent with the conventional estoppel upon which the plaintiffs rely. 114 Mr Salvo does give evidence of a number of conversations with Mr Wunsch in which Mr Wunsch apparently referred to the various stages of the transaction, and said that "New Tel has agreed to pay $850,000 of the set-off sum on your behalf". However, there is no evidence, either from Mr Wunsch or otherwise, of the source of Mr Wunsch's understanding that there was such an agreement. Nor is there any other basis in the evidence for finding that New Tel so agreed. 115 Further, Mr Salvo says that Mr Wunsch told him in substance that if New Tel did not complete the Digiplus purchase "due to its fault", then the sellers could forfeit the subscription monies. In other words, as Mr Salvo makes plain, Mr Wunsch said that the subscription monies could be taken by the sellers if New Tel breached, and did not complete, the Share Purchase Agreement. It is for that reason, Mr Salvo says, that he decided to seek a guarantee from Mr Malone. 116 There is no basis, in Mr Salvo's statement, for me to conclude that he acted to his detriment either on the basis of the conventional estoppel that the plaintiffs allege or on the basis of any representation made by New Tel. Specifically (directing attention to the plaintiffs' pleading of the estoppel by representation case), there is no basis in Mr Salvo's statement for concluding that he knew of, let alone relied on, the representation said to have been made by Mr Malone to Mr Touma on about 11 October 2002, that New Tel held the total of $850,000 on trust for the plaintiffs, in deciding to allow the sum of $750,000 to be paid from the Acuiti Legal Trust Account to the Henry Davis York Trust Account as part of the second deposit. 117 So far as Mr Salvo is concerned, the estoppel case – in either of its formulations – must fail. 118 The position is even clearer in respect of New Era. Neither Mr Sleiman (the director apparently most connected with the New Tel transaction) nor any other officer has given evidence. There is no basis upon which it could be said that New Era had any particular understanding (in relation to the conventional estoppel case), or that it knew of or relied on the representations said to have been made by Mr Malone. 119 That leaves Bilpin. Mr Touma swore an affidavit dated 4 March 2003, and made a statement dated 5 December 2003 (Exhibit PX 2). He was cross-examined. 120 Mr Touma says in paragraph 13 of his affidavit that, in early October 2002, he had a telephone discussion with Mr Malone in which Mr Malone said that New Tel was under pressure "for a second payment of $4 million". Mr Malone said: "We need your $850,000 which we hold in trust for you and your $750,000 from the Acuiti account released to us." 121 Thereafter, Mr Touma says, the $750,000 was "released". I take that to be a reference to the transfer of that sum from the Acuiti Legal Trust Account to the Henry Davis York Trust Account pursuant to the authority to transfer funds. Mr Touma does not say in terms that he authorised (on behalf of Bilpin) the transfer in reliance upon what Mr Malone had said, but simply that the transfer happened "after negotiations via Pembroke, the solicitors for the [plaintiffs], with Acuiti Legal acting for New Tel" (affidavit, paragraph 14). 122 The point of reliance was addressed in Mr Touma's statement. He said in paragraph 7: "I would never have agreed to release any of the plaintiffs' [sic] Subscription Monies, if I believed they would not be returnable by New Tel, as trust monies if they were refunded by the Digiplus vendors." 123 Mr Touma dealt further with the question of reliance in paragraph 13(b) of his statement, where he said that he "believed that the plaintiffs should allow their subscription funds which had been paid or set off under [the Subscription Agreement ] … to be used by New Tel, as part of the Second Deposit, since … from my telephone calls with Peter Malone, I understood and relied on the fact that if the $1.6 million of the plaintiff's [sic] Subscription Monies were returned by the Digiplus parties to New Tel, then the Plaintiffs would be entitled to their return, as the monies would remain trust monies. I would not have agreed to permit the use of the $1.6 million by New Tel had I not been very clear on this point based on Peter Malone's statement." 124 For present purposes, I consider the matter on the basis that Mr Touma, as in his affidavit he purports to have done, should be treated as speaking for the plaintiffs. I note however, as I have already said, that there is no evidence that he was expressly authorised by the other plaintiffs to negotiate for them, particularly in relation to the transfer of money from the Acuiti Legal Trust Account to the Henry Davis York Trust Account; and there is no evidence that he passed on to them either the terms or the effect of the representations said to have been made by Mr Malone. 125 I have not overlooked Mr Touma's evidence in cross-examination that he was the principal contact point with New Tel not just for himself and Bilpin but for Mr Salvo and New Era (T 22.35). Nor have I overlooked that Mr Touma agreed with the proposition that he was dealing with the plaintiffs' solicitors in relation to the deposit paid or payable by Mr Salvo (T 24.25). I have no doubt that it was Mr Touma who was, as he says, the principal point of contact between the plaintiffs and New Tel; and between the plaintiffs and their solicitors. However, it does not follow from this that Mr Touma spoke for all the plaintiffs on all matters, let alone that it should be concluded that any representation made to him should be treated as having been made to all the plaintiffs. 126 In cross-examination, Mr Touma agreed that: (1) at the time of the conversation to which he referred in paragraph 13 of his affidavit, $1,150,000 had been paid by him or Bilpin and by Mr Salvo (T 26.10); (2) at that time, all that had been agreed was that the amount of $2 million payable by the plaintiffs under the Subscription Agreement would be reduced by $600,000 (T 26.35); (3) there had been no further arrangements at that time with New Era over and above the $600,000 credit (T 26.45); (4) when he had the discussion with Mr Malone in early October (which, I find, he understood to be referring to the conversation alleged in paragraph 13 of his affidavit), there was a credit for $600,000 "across the three participants", ie, the plaintiffs, and that there was no payment or arrangement with New Era over and above that amount (T 26.45-.55); and (5) he did not wish to move at any stage of the transaction without the assistance and advice of his lawyers (T 25.5): in this context, Mr Touma did not say that he obtained the assistance or advice of his lawyers in relation to the representation alleged to have been made by Mr Malone. 127 If Mr Malone referred (as Mr Touma said he did) to "your $850,000 which we hold in trust for you" that could only have been said after the second letter of set-off had been executed. That did not happen until some time on 11 October 2003. At 4.44 pm on that day, the plaintiffs' solicitor sent by e-mail to representatives of the plaintiffs "the final documents reflecting the release of $750,000" (the time and date come from the e-mail). He asked for the document to be signed and returned to his office by facsimile transmission. Thus, it would appear, the second letter of set-off was not signed until some time after 4.44 pm on 11 October 2002. 128 Mr Touma does not say what it was that enabled him to recall that his conversation with Mr Malone, in which Mr Malone is said to have made the representation relied upon in this context, "probably occurred on the afternoon of Friday 11 October 2002" (statement paragraph 3), and not just "in early October" (affidavit paragraph 13). It was not put to Mr Touma that, in substance, the precise date and time appearing in his statement (although qualified by the word "probably") was either a fabrication or a reconstruction, based on his appreciation that it could not have occurred before 4.44 pm on that day. It was however put to him that he understood "that it's important for your case for someone on the part of New Tel at some stage to have referred to the 850,000 on trust". He did not agree (T 29.10). His disagreement was, apparently, based on the proposition that he believed that "all the paperwork and agreements clearly state it was on trust the whole time, so I don't think it was necessary that he had to say it in that conversation" (T 29.15). The "paperwork" was said to be "a letter from Peter Malone" (T 29.20): presumably, a reference to Mr Malone's letter of 13 November 2002, offering to lend $250,000 to Distinctive: see para [35] above. 129 Two things may be said about this. The first is that, if Mr Touma's evidence is accepted at face value, his understanding or belief (that the $850,000 was held by New Tel on trust for the plaintiffs) was based on "all the paperwork and agreements … the whole time". The second is that, if his understanding or belief was not based on all the paperwork and agreements, then his denial of an understanding that it was important for someone on behalf of New Tel to have referred to the sum of $850,000 being held on trust is not credible. 130 At a later stage in his cross-examination in relation to paragraph 13 of his affidavit, it was put to Mr Touma that "[n]othing was said about the 850,000 on that occasion?", to which he replied: "It probably was. I mean, this is a statement that was done, to the best of my recollection, at the time. We had a number of conversations with Peter; it wasn't only one." (T 32.40) 131 Later again, Mr Touma was asked whether there was discussion in which someone said "we will put the $850,000 into an account to be held on trust" to which he responded " … yes, on a number of occasions we were told that the money was held on trust for the Digiplus acquisition" (T 33.30). The only "occasion" of which he gave evidence was that referred to in paragraph 13 of his affidavit, which was qualified by paragraph 3 of his statement. 132 Mr Touma's belief, as to the sum of $850,000, was explained further as follows: "These statements [ie, his affidavit and his statement] were done, to the best of my recollection, at the time. I mean, you ask me to play on words. All's [sic] I can tell you is the option for New Tel to give us shares instead of cash was there. The fact that they agreed to give us cash lead [sic] me to believe they in fact had it. They wouldn't be offering us 850 if they didn't have it. I believed it was there held on trust for us as well as all the other funds as per the deal." (T 34.20) 133 The whole of Mr Touma's evidence on this conversation is confused and, in my judgment, lacking in credibility. The imprecision of his oral evidence, contrasted with the apparent precision (on the second attempt) of his written evidence is, to my mind, telling. My assessment of him is that, contrary to his denial, he recognised the importance of attributing to someone with apparent authority to speak for New Tel an admission that the sum of $850,000 was held on trust for the plaintiffs. Further, I think, the likelihood is that the sharpening of his recollection of the timing of this admission (from "in early October" to "probably … on the afternoon on Friday 11 October 2002") is a recognition that, on the contemporaneous documentary evidence, it could not have happened any earlier than 4.44 pm on that day. 134 I do not accept Mr Touma's evidence that Mr Malone made the representation that is attributed to him in paragraph 13 of Mr Touma's affidavit. I find that Mr Touma decided to authorise the transfer of money from the Acuiti Legal Trust Account to the Henry Davis York Trust Account not because of any representation made to him by Mr Malone, but because of Mr Touma's understanding of the documentation, and in reliance on the advice of his solicitor. 135 As to the legal advice obtained by Mr Touma: I have referred in para [127] above to the solicitor's e-mail sent at 4.44 pm on 11 October 2002 forwarding "the final documents reflecting the release of $750,000". About an hour earlier – at 3.42 pm that day – the solicitor sent an e-mail to representatives of the plaintiffs (including, as he acknowledged, Mr Touma). That e-mail informed the plaintiffs of "some developments": including the execution of the Deed of Variation. The version that was executed apparently differed from an earlier draft in some respects. The plaintiffs were advised of the requirement for payment of the second deposit, and of what might happen to the second deposit if the Share Purchase Agreement were completed, or if completion did not occur except in circumstances under which the sellers would not be entitled to the second deposit. At no point in that e-mail was any reference made to the sum of $850,000, or to the plaintiffs' rights in that sum. At no point in that e-mail was it suggested that there was a separate trust in respect of the sum of $850,000. 136 Mr Touma said: "It was explained to me by my lawyer that the money was held by New Tel on trust for us and by moving it from Acuiti to Henry Davis York it was still held on trust in New Tel's name but it was still for us. If the deal went across the money would go across. If the deal didn't go ahead the money would come back to New Tel and New Tel's trust and back to us; we'd get the money back as per our agreement." (T 38.45) 137 Later, in relation to the trust, Mr Touma said that "that was left with our lawyers to do. I mean, I'm not a solicitor. I was advised that that's what would happen if the deal didn't go ahead. How it was documented, I left that to the lawyers." (T 39.5) 138 In my judgment, Mr Touma's evidence as to legal advice and his reliance on the plaintiffs' solicitor reinforces the conclusion, that I would have reached in any event, that even if (contrary to my finding) Mr Malone did make the representation alleged, Mr Touma did not rely on it in deciding to authorise the transfer of money from the Acuiti Legal Trust Account to the Henry Davis York trust account. 139 I therefore conclude that the estoppel case must fail so far as Bilpin is concerned. The reasons that I have given for that conclusion support also my conclusions that the estoppel case must fail so far as Mr Salvo and New Era are concerned. Conclusion and orders 140 I conclude that the plaintiffs have made out their case that the sum of $750,000 is held on trust for them, but that they have not made out their case that the sum of $850,000 is held on trust for them. 141 I direct the parties to bring in short minutes of order to give effect to these reasons. I will hear argument on costs if the parties cannot agree as to the appropriate costs order to be made. ****** Last Modified: 08/20/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.