VSC 379
Re Freehouse Pty Ltd; Jordan v Avram (1997) 26 ACSR 662
Re Islamic Association Western Suburbs Sydney Inc [2015] NSWSC 638
Re Wave Capital (2003) 47 ACSR 418; [2003] FCA 969
Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50
Scottish & Colonial Ltd v Australian Power & Gas Co Ltd (2007) 65 ACSR 313; [2007] NSWSC 1266
Sipad Holding ddpo v Popovic (1995) 61 FCR 205; (1995) 18 ACSR 436
Snowside Pty Ltd v Boart Longyear Limited (2017) 121 ACSR 377; [2017] NSWSC 75
Westralia Property Management Ltd v Davison [2006] WASCA 203
Texts Cited: ASIC Regulatory Guide 128, Collective Action by Investors, (June 2015)
Austin and Black's Annotations to the Corporations Act (LexisNexis, looseleaf)
Brown, A History of Canberra (Cambridge University Press, 2014)
Lang, Horsley's Meetings, Procedure, Law and Practice (7th ed., LexisNexis, 2015)
LexisNexis Australia, Practical Guidance Australia - Corporations
Shackleton on the Law and Practice of Meetings (14th ed., Sweet & Maxwell, 2017)
Category: Principal judgment
Parties: Aurora Funds Management Limited ACN 092 626 885 (Plaintiff)
[2]
Primary Securities Limited ACN 089 812 635 (First Defendant)
Australian Securities and Investments Commission (Second Defendant)
Representation: Counsel:
B Katekar and M Bersten (Plaintiff)
AG Martin (First Defendant)
[3]
Solicitors:
Dentons Australia Limited (Plaintiff)
Norton Smith & Co (First Defendant)
[4]
ASIC filed a submitting appearance.
File Number(s): 2019/33073
[5]
Judgment
This case concerns the change of responsible entity of a listed managed investment scheme, Aurora Absolute Return Fund (ABW), said to have taken place at a meeting on 15 January 2019. The incumbent responsible entity is the plaintiff, Aurora Funds Management Limited (Aurora). The incoming responsible entity is the first defendant, Primary Securities Limited (Primary). The second defendant, the Australian Securities and Investments Commission (ASIC), has filed a submitting appearance.
In proceedings commenced on 31 January 2019, Aurora seeks orders that the meeting, and the resolutions passed at it, were invalid, and that the register maintained by ASIC be rectified accordingly. Aurora contends that there were four problems with the meeting:
1. there was insufficient notice given of the meeting;
2. the meeting was held at an unreasonable time and place;
3. the notice of meeting failed to disclose the members who called it; and
4. the notice and supporting explanatory memorandum were misleading.
Primary denies each of these deficiencies and says that, in any event, any irregularities were procedural and no substantial injustice was caused such that any irregularities should be waived under section 1322 of the Corporations Act 2001 (Cth). Aurora says in reply that there were substantive irregularities and substantial injustice.
The gravamen of Aurora's complaint is that the members on whose authority the meeting was called, Tim Staermose and his company Wonfair Investments Pty Ltd (Wonfair), had an agreement with other members to replace the responsible entity which infringed Chapter 6, "Takeovers", of the Corporations Act, and this was not communicated to members. I note immediately that Mr Staermose and his company were not joined to the proceedings. There may be many reasons for this: Mr Staermose is from Hong Kong (although his company is registered in Queensland); the proceedings were commenced urgently given the suspension of ABW's units until their determination; Mr Staermose may have been thought to have been aware of these proceedings as his solicitor for some years, Richard Leibmann of Norton Smith & Co, represents Primary in these proceedings. But as the members who called the meeting, and thus obliged to pay the expenses associated with doing so, Mr Staermose and Wonfair are affected by the orders sought and would be proper parties. Neither Aurora nor Primary took issue with the composition of these proceedings. Accordingly, I have proceeded on the basis that these proceedings are not defeated merely because of non-joinder of any person: rule 6.23, Uniform Civil Procedure Rules 2005 (NSW); section 63, Civil Procedure Act 2005 (NSW); Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50. It is open to determine issues in the absence of parties in these circumstances, and not necessary to consider the effect of orders made in these proceedings on non-parties: Finance Corporation of Australia v Bentley (1991) 5 BPR 97,412 at 11,837 per Mahoney JA (with whom Handley JA agreed).
[6]
ABW and Aurora
Managed investment schemes are regulated under Chapter 5C of the Corporations Act. In a managed investment scheme, people contribute money to acquire an interest in a scheme operated by a "responsible entity". The money is pooled with other investors for use in the scheme. The investors do not have day-to-day control over the operation of the scheme: the "responsible entity" attends to this. Aurora is the responsible entity for ABW as well as several other listed managed investment schemes: Aurora Dividend Income Trust (ASX code: AOD), Aurora Global Income Trust (ASX code: AIB), Aurora Property Buy-Write Income Trust (ASX code: AUP) and HHY Fund (ASX code: HHY).
According to its constitution, ABW invests in financial assets such as securities, debt, cash, other managed investment schemes and derivatives rather than real property or mortgages. In fact, ABW's sole investment is in another managed investment scheme, Aurora Fortitude Absolute Return Fund (AFARF), of which Aurora is also the responsible entity. AFARF is not listed on the Australian Stock Exchange. According to the most recent product disclosure statement for AFARF, it primarily invests in Australian equities with a view to providing returns through capital appreciation and income over the medium to long term.
In recent times, ABW, AFARF and Aurora have encountered some difficulties. First, in April 2017, Aurora decided that AFARF would buy shares in Molopo Energy Limited (Molopo), but the investment has not gone smoothly. Aurora has been embroiled in a series of applications to the Takeovers Panel in respect of the acquisition, Molopo's shares have been suspended, and Aurora has not been able to dispose of the shares. Second, in November 2017, Aurora became aware that its company secretary, Betty Poon, had stolen $1 million from AUP, that is, not ABW but another fund of which Aurora was also the responsible entity. Ms Poon's employment was terminated immediately. The depletion of AUP's funds interrupted a takeover then in train by AUP of another property trust, RNY Property Trust. In March 2018, Aurora reimbursed $1 million to AUP plus compensation for lost earnings and, in November 2018, adopted the recommendations of an independent expert in respect of compliance and risk. Third, in the financial years ended 30 June 2017 and 30 June 2018, ABW and AFARF have reported losses, which would appear to be largely attributable to the problematic investment in Molopo.
[7]
Staermose and Wonfair
The meeting in question was the culmination of a simmering disagreement between Aurora and Mr Staermose, who described his approach to investment in an email to another ABW member as:
… I don't mind getting involved in stuff that has some warts, and may require getting involved in the odd punch-up. Someone has to do it. …
My beat is more international than just the ASX, and I also have some advantages when doing stuff on the ASX, being located offshore.
In June 2017, Mr Staermose began to acquire units in ABW. By this time, Aurora's difficulties with Molopo were apparent as the Takeovers Panel had already published an adverse decision (Molopo Energy Limited 01 & 02 [2017] ATP 10) and made divestiture orders. Molopo's shares had been suspended from trading.
In September 2017, Wonfair acquired units in ABW. By this time, Aurora's difficulties with Molopo had become further entrenched as the Takeovers Panel had published an adverse review decision (Molopo Energy Limited 03R, 04R & 05R [2017] ATP 12) and made further divestiture orders. By this time, ABW and AFARF had also released their financial statements for the year ended 30 June 2017, reporting losses, detailing their difficulties with Molopo and listing Mr Staermose amongst the top 20 unitholders of ABW as at 25 August 2017.
Wonfair's registered office is in Queensland. Wonfair has 100 ordinary shares wholly owned by Mr Staermose. Wonfair also has 1,640,597 redeemable preference shares held by shareholders from Australia, the USA, Chile, Singapore, China, Indonesia, the United Kingdom, the Philippines and Korea.
[8]
Staermose and "associates"
Aurora says that the meeting was called by Mr Staermose and Wonfair under a "relevant agreement" with other unitholders. None of the members is party to the proceedings, and several reside overseas. These members are as follows.
Since 2016, Solano Investment LLC of Florida, USA has held redeemable preference shares in Wonfair. Further:
1. In March 2017, Wonfair was a substantial shareholder in an Australian company, US Residential Ltd, and Mr Staermose was a director of that company. Solano Investment LLC was amongst the top 20 shareholders of that company.
2. In July 2017, Solano Investment LLC became a unitholder in ABW and was in the top 20 unitholders as at 25 August 2017.
3. Wonfair and Solano Investment LLC each held units in HHY and were amongst the 20 largest unitholders in that fund. On 10 January 2018, Solano Investment LLC and Dr and Mrs Johns (who have the same address as Solano Investment LLC) sold all of their units in HHY. The same day, Wonfair sold all of its units in in HHY.
4. In a spreadsheet prepared by Mr Staermose, and provided to Primary on 20 December 2018, he identified this company as "My Client - I have an advisory relationship".
Since 2016, Zachary Fraser of Singapore has held redeemable preference shares in Wonfair. In August 2017, he became a unitholder in ABW. In Mr Staermose's spreadsheet, Mr Fraser is identified as "My Client - I have an advisory relationship".
Chor Leng Tan lives in Perth and Singapore. In March 2017, Mr Tan was amongst the top 20 shareholders of US Residential Ltd, along with Wonfair. Further:
1. In August 2017, Mr Tan became a unitholder in ABW and was in the top 20 unitholders as at 25 August 2017.
2. Mr Tan also held units in HHY and was amongst the 20 largest unitholders in that fund. On 10 January 2018, Mr Tan also sold all his units in HHY on the same day that Wonfair sold its units.
3. Wonfair and Mr Tan were among the top 20 investors in Decimal Software Ltd as at 30 October 2018.
4. In Mr Staermose's spreadsheet, "CLT" is identified as "My Client - I have an advisory relationship".
It appears, therefore, that Mr Staermose made investments for, and invested with, Solano Investment LLC, Mr Tan and Mr Fraser.
Perhaps in a slightly different category, Fred Greiner is from Costa Rica. He owns a company, Corporacion Monte de Piedra SA (CMDP) which acquired units in ABW through JP Morgan Nominees Australia Pty Ltd. JP Morgan acquired units in ABW in May 2014. In Mr Staermose's spreadsheet, CMDP is identified as "My Client - I have an advisory relationship". Shortly before the meeting in question, Mr Greiner gave instructions to JP Morgan that he was "part of the group" trying to replace Aurora and "we accumulated shares in this stock so that we would have enough votes to get this done." It would appear that Mr Greiner became a client of Mr Staermose but, as he did not engage in other shared investments like Solano Investment LLC, Mr Tan and Mr Fraser, he likely did so at a later point in time, perhaps as a result of having come across Mr Staermose in the lead up to the meeting.
[9]
Right to inspect or obtain a copy of a register
Much of the difficulty between Aurora, Mr Staermose and Primary arose from requests for a copy of the register of members of ABW. It is timely to set out the obligations which apply in this regard. A registered scheme must maintain a register of members with each member's name and address together with the date on which the entry of the member's name in the register was made: section 168(1), 169(1). The register must also show the names and details of each person who stopped being a member of the scheme within the last seven years, and the date on which the person stopped being a member: section 168(7).
The right to inspect and obtain a copy of the register is governed by section 173 of the Corporations Act. A registered scheme must allow anyone to inspect a register: if the register is not kept on a computer, then the person inspects the register itself; if the register is kept on a computer, then the person inspects the register by computer: section 173(1). A member of a registered scheme may inspect the register without charge whilst others may inspect the register on payment of any fee required by the scheme: section 173(2). It is a strict liability offence to not permit inspection of the register: section 173(9A).
In respect of obtaining a copy of the register, section 173(3), which also creates an offence of strict liability, provides:
The … scheme must give a person a copy of the register … within 7 days if the person:
(a) makes an application to the … registered scheme in accordance with subsection (3A); and
(b) pays any fee (up to the prescribed amount) required by the … scheme.
… If the register is kept on a computer, the … registered scheme must give the copy to the person in the prescribed form.
Section 173(3A) provides that an application is in accordance with the sub-section if:
(a) the application states each purpose for which the person is accessing the copy; and
(b) none of those purposes is a prescribed purpose; and
(c) the application is in the prescribed form.
Note: Sections 137.1 and 137.2 of the Criminal Code create offences for providing false or misleading information or documents.
Apart from stating the purpose of the request, the only other information that need be contained in the application is the name and address of the applicant: regulation 2C.1.04.
Regulation 2C.1.03 of the Corporations Regulations 2001 (Cth) provides that the purposes prescribed for section 173(3A)(b) of the Act include:
(d) making an offer that satisfies paragraphs 1019D(1)(a) to (d) of the Act;
(e) making an invitation that, were it an offer to purchase a financial product, would be an offer that satisfies paragraphs 1019D(1)(a) to (d) of the Act.
Section 1019D(1)(a) to (d) of the Act concerns unsolicited offers to purchase financial products off-market. Section 173(3A) and regulation 2C.1.03 are, essentially, gateway provisions. A responsible entity must form a view as to whether the person requesting a copy of the register has stated a purpose, and whether that purpose is a prescribed purpose. If the purpose is stated and not prescribed, then the responsible entity is obliged to provide a copy.
[10]
Request for copy of register
In October 2017, Mr Staermose requested a copy of the register of members of ABW from Registry Direct, which maintained the register on behalf of ABW. Mr Staermose said that his purpose for seeking a copy of the register was:
… to understand who became a member and who ceased to be a member, and when. I will not communicate with other members whose names appear in the register for any purpose, unless it is relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them.
Mr Staermose's request was forwarded to Mr Patton of Aurora. Mr Patton agreed that Aurora made the ultimate decision as to whether the registry would provide a copy of the register or not.
As a member of ABW, Mr Staermose was entitled to request a copy of the register if he stated the purpose for which he was accessing the copy, and none of those purposes was a prescribed purpose. The purpose stated in his email was not a prescribed purpose, but was a rather odd purpose, being apparently to investigate the comings and goings of past members. Mr Patton called Mr Staermose and asked what he was trying to achieve, and, noting that the costs and inconvenience of meetings was high, enquired "is there another solution". It would appear that Mr Patton apprehended that Mr Staermose sought a copy of the register in order to call a meeting of members. Indeed, Mr Patton said that, in his experience, it was the only reason that people asked for a copy of the register. Mr Staermose told Mr Patton that he had bought some units in ABW and was trying to understand the movements in the register. He wanted to receive the register to record movements on and off. He was also trying to understand Aurora as responsible entity and wanted to get more comfortable with Aurora as the steward of his money. He said there had been attempts by others to remove Aurora as responsible entity and that there were some inconsistencies he was trying to understand.
Mr Patton recorded in a file note made after the call:
Tim was cagey on the call and not particularly forthcoming with information. I got the feeling he was not being straight with me - on the one hand, he said he had some concerns about unitholder meetings in the past, yet had still decided to buy units in ABW, but wouldn't say why. At the conclusion of the call, I was not clear about Tim's position nor the purpose for the register.
Certainly, the purpose for which Mr Staermose had said he wanted to have a copy of the register made little sense. Mr Patton's further notes made at the conclusion of the call record his concerns about whether there was a relationship between Mr Staermose, Solano Investment LLC and Mr Tan, as well as concerns as to Mr Staermose's investment activities generally.
[11]
Second request for copy of register
On 31 August 2018, Mr Staermose again asked Aurora for a copy of the register of members of ABW,
… in order to write to unitholders in relation to a unitholder meeting. The register will not be used for a purpose specified in Regulation 2C.1.03 of the Corporations Regulation.
Mr Staermose enclosed a cheque for $250, being the maximum prescribed fee allowed under the Regulations and requested that the register be delivered in the form prescribed by the Corporations Act to his solicitors, Norton Smith, within seven days. The request was delivered by courier to the registered offices of Aurora. Aurora did not respond, as I understand it, because it continued to hold the views expressed in its letter of 13 October 2017.
On 17 September 2018, Mr Staermose complained to the chairperson of Aurora, Tony Hartnell, and threatened to report Aurora to ASIC and take legal action. He also made a complaint to the Australian Financial Complaints Authority about Aurora's failure to provide a copy of the register.
On 27 September 2018, the annual reports for ABW and AFARF for the year ended 30 June 2018 were released (ABW and AFARF both sustained losses), together with an announcement to the Australian Stock Exchange further writing down the investment in Molopo since the close of the financial year. According to the annual report for ABW, the 20 largest unitholders as at 26 September 2018 included Mr Staermose and Wonfair (19.98%), Mr Tan (5.23%), Solano Investments LLC (2.07%) and Mr Fraser (0.95%). If these unitholders were "associates", then their combined holding was 28.23% of issued units. Mr Greiner and Mr Rigoni held a further 4.84% and 3.86% of issued units respectively.
[12]
Request to inspect the register
The next day, on 28 September 2018, Mr Staermose followed up his request for a copy of the register with Mr Hartnell and Aurora, adding that he had made a formal complaint to ASIC. Mr Hartnell replied that he was overseas until 24 October 2018 but, on his return, would follow up Mr Staermose's query. In addition, Mr Staermose sent a request to Aurora and Boardroom Pty Ltd, which now maintained the register on behalf of ABW, to inspect the register and advised that he was travelling to Melbourne on 12 October 2018 to do so.
On 3 October 2018, Mr Staermose followed up his request to inspect the register with Boardroom, which sent Mr Staermose a form, which he duly completed. On 9 October 2018, Mr Staermose re-sent his form to Boardroom, enquiring whether Boardroom had heard from Aurora or whether Aurora was still being "recalcitrant on the issue". Boardroom replied that they were still awaiting a direction from Aurora and Mr Staermose responded that he was flying to Melbourne from overseas for one day only, considered the length of time being taken as totally unacceptable and advised he would be making a formal complaint to ASIC about Aurora.
On 11 October 2018, Aurora gave instructions to Boardroom to allow Mr Staermose to inspect the register but not to take a copy, either physical or photographic, "due to certain concerns that we have - which have previously been communicated to Mr Staermose". Mr Patton explained those concerns in evidence:
We outlined the concerns we had in our letter dated 13 October 2017. There were other concerns that we had as well involving him acting in concert with other parties and we were not getting any responses to our valid requests on that matter. He hadn't resolved any of the issues that we had raised with him and we said to him in that letter once you resolve them, we're happy to give you a copy of the register.
Aurora asked Boardroom to arrange to have somebody present whilst Mr Staermose reviewed the register. On 12 October 2018, Mr Staermose inspected the register of ABW in the company of Boardroom.
[13]
Mr Staermose asks Aurora to call a meeting
On 15 October 2018, Mr Staermose wrote to Aurora requisitioning a meeting of members of ABW under section 252B of the Corporations Act to consider the removal of Aurora as responsible entity and the appointment of another company or, alternatively, that ABW be wound up. Mr Patton called Mr Staermose and counselled him against pressing for the appointment of the suggested company as responsible entity. After making some inquiries, Mr Staermose called Mr Patton back and thanked him for his advice and said that he did not want to press the request made in the notice any further.
It was suggested that Mr Patton tried to persuade Mr Staermose not to call the meeting. I accept Mr Patton's denial in this regard. It appears to me that Mr Staermose had simply decided to go about it another way by calling a meeting himself rather than requiring Aurora to call the meeting. In circumstances where his relationship with Aurora could be described as poor, at best, calling the meeting without Aurora's involvement may have presented some advantages.
[14]
Mr Staermose engages Primary
The next day, 16 October 2018, Mr Garton Smith received a call from Andrew Purcell. They spoke briefly about ABW, and Mr Garton Smith asked Mr Purcell to send him something in writing. Mr Purcell emailed ABW's constitution and AFARF product disclosure statements and advised: (emphasis added)
A significant number of unit holders in ABW are dissatisfied with Aurora's performance and lack of communication and therefore want to call a meeting to seek the removal of Aurora as RE. I have been asked by one of these unit holders to help him find a replacement RE.
Mr Purcell advised that ABW had little in the way of cash as its sole income was dividends received from its investment in AFARF. As such, removal of Aurora as responsible entity to ABW "must therefore be followed by seeking the removal of Aurora as RE of AFARF, since it is that entity which controls the investments." The reference in Mr Purcell's email to "a significant number of unit holders" wanting to call the meeting did not cause Mr Garton Smith to consider that this might be a control event under Chapter 6 of the Corporations Act. He was interested in Primary becoming responsible entity as it would thereby earn fees and "assist unitholders".
On 17 October 2018, Mr Garton Smith asked which of the top 20 unitholders in ABW wanted to replace Aurora, and Mr Purcell replied: (emphasis added)
In confidence, the first two names on the top 20 list [Mr Staermose and Wonfair] want to see the RE replaced and it is believe > 40% of the register would be interested in this motion being brought.
Mr Garton Smith and Mr Purcell spoke later that evening to clarify the identity of the first two unitholders. Mr Garton Smith understood that Mr Purcell was representing Mr Staermose but also, in part, himself, and that Mr Purcell was a member of another fund. It would appear that the conversation traversed Mr Staermose's failed requests for a copy of the register as, after the conversation, Mr Garton Smith asked for a copy of those requests. On 20 October 2018, Mr Purcell forwarded Mr Staermose and Wonfair's requests for the register.
Also on 17 October 2018, Mr Staermose sent an email to a unitholder of ABW entitled "Got your email from Victor Siciliano", which I take to mean that Mr Staermose was explaining how he got the unitholder's email address. It was on its face an unsolicited email in which Mr Staermose expressed his dissatisfaction with the recent performance of Aurora and ABW and sought to enlist the unitholder's support to work together to make investments. Mr Staermose explained:
I answer only to myself … And for now, I work completely alone. …
It seems very unlikely that Mr Siciliano, a director of Aurora, gave the unitholder's email address to Mr Staermose. It is reasonable to think that Mr Staermose sent similar unsolicited emails to other unitholders of ABW, including perhaps Mr Greiner and Mr Rigoni, to enlist their support in replacing Aurora. He enjoyed some success in this regard, as was documented in his spreadsheet provided to Primary on 20 December 2018.
[15]
Primary requests copy of register
On 25 October 2018, Primary issued an invoice for $1,000 to Mr Purcell for requesting the register of unitholders of ABW. On 29 October 2018, Primary sent a request to Boardroom for a copy of ABW's register, presumably having been placed in funds by payment of Primary's invoice. Primary advised that the register was required for the purposes of communicating with members in relation to a proposal to replace Aurora. Primary required the entire register as kept by the company, "that is without removing any information such as email addresses", provided as a delimited text file. Unfortunately, Boardroom did not pass the letter onto Aurora at the time. On 6 November 2018, Primary followed up its request of Boardroom, advising that the registry was in breach of the Corporations Act for failing to comply with the request, and Primary had reported the breach to ASIC. Boardroom forwarded the complaint (but not Primary's request) to Aurora, which mused that Primary was based in Western Australia, as was Mr Tan.
Mr Patton finally obtained a copy of Primary's letter of 26 October 2018 from Boardroom on 13 November 2018, but did nothing about it, presumably because Aurora considered the request to emanate ultimately from Mr Staermose. On 14 November 2018, Primary followed up its request for a copy of the register from Boardroom, advising that if it did not receive the register by 15 November 2018, it would instruct its solicitors to seek a court order for delivery of the register as well as compensation and costs. Boardroom replied that it had also forwarded this letter to Aurora for their attention.
On 19 November 2018, Mr Garton Smith received a draft notice of meeting and explanatory memorandum from Mr Purcell, but Mr Garton Smith concluded that it was not suitable as it could be attacked as misleading and deceptive. He also suggested that Mr Staermose retain Primary's solicitors to bring proceedings to compel access to the register.
On 23 November 2018, Mr Garton Smith called ASIC to complain about Primary's unanswered request for the register. ASIC said that Primary was "not alone" in complaining about not being provided with a copy of the register. (Presumably, the other complainant was Mr Staermose and ASIC did not know that Primary was assisting the same complainant). ASIC also updated Primary in respect of Ms Poon, advising that the review which ASIC had required Aurora to undertake had been completed and ASIC was expecting a response to all of ASIC's concerns in one week's time. Mr Garton Smith reported to Mr Purcell that it was likely that Aurora would give Primary a copy of the register within a week, and they should wait.
[16]
Report to board of Primary
At about this time, Mr Garton Smith completed a report to the board of Primary, entitled "Takeover Report", proposing that Primary convene a meeting to replace Aurora as the responsible entity for ABW. Although the report is dated 18 October 2018, it was likely finalised after Mr Purcell's suggestion to use an old register. Mr Garton Smith advised: (emphasis added)
Information in this report comes from documents filed with ASX and ASIC and document supplied by Andrew Purcell who is assisting some of the investors in [ABW]. He believes that 40% or more of investors in [ABW] would vote to change responsible entity. Andrew Purcell has examined the Aurora structure and … believes there is a pathway for takeover of all of the Aurora schemes.
It seems to me that, by that point, Mr Garton Smith apprehended that Mr Purcell was representing more than Mr Staermose and Wonfair.
Mr Garton Smith advised the board that the change of responsible entity was expected to adversarial. He proposed that ABW's constitution be amended to enable Primary to recover the cost of its due diligence and any litigation. Mr Garton Smith identified that the main risk to Primary was whether ABW had sufficient cash to pay for transitional and operating costs, noting that investors may be able to be called upon to contribute to these costs and be reimbursed later in accordance with an amended constitution. The report continued: (emphasis added)
[ABW] appears to be operated by the incumbent RE and there is no manager. Investors have previously expressed displeasure that [ABW] is both the fund manager and the RE. If [AFARF] is taken over, then a manager will need to be found to operate [ABW]. According to Andrew Purcell, one of the investors in Hong Kong who wants to see the responsible entity changed is a fund manager and would like this role.
The investor from Hong Kong must surely have been Mr Staermose. The fact that Mr Staermose was from Hong Kong was apparent from the correspondence forwarded by Mr Purcell to Mr Garton Smith on 20 October 2018, being letters from Mr Staermose with a letterhead noting his address in Hong Kong. Mr Garton Smith said he had "no idea" who the investor from Hong Kong might have been and thought it might have been Mr Tan. I found this evidence a little surprising.
As Primary's requests for a copy of the register had been ignored, Mr Garton Smith proposed to the board that they should proceed on the basis of a September 2016 register, which I note is the date of Mr Rigoni's copy of the register. The report proposed a "Strategy" as follows:
The meeting documents will be sent out just before Christmas.
Primary will follow up with a request for funding from the top 20 investors, asking each to pay their proportion of our fees $27,500. These include [Aurora], so we may refrain from asking them.
If there are any difficulties in relation to the register we are using, then at some point it is likely that a current register will be produced.
Primary would then proceed to seek the replacement of the responsible entity of [AFARF].
It is proposed to first investigate the poor and illiquid investments of [ABW] and [AFARF] and whether or not there is any evidence of lack of care and diligence on the part of [Aurora] or any officer or other party.
[17]
Primary and Mr Staermose press for the register
On 5 and 12 December 2018, Primary followed up its complaint with ASIC. ASIC advised that it had been in contact with Aurora, and Aurora said they had not been contacted directly or seen the request to Boardroom (that may well have been the case when ASIC contacted Aurora, given the delay in Boardroom passing on Primary's request to Aurora). ASIC suggested that Primary contact Aurora directly.
On 13 December 2018, Primary emailed Boardroom, noting that Primary was now in communication with ASIC about Boardroom's failure to provide a copy of the register. Primary enquired whether Aurora had instructed Boardroom to refuse to release the register and, if not, suggested that Boardroom was in breach of the Corporations Act, liable for a fine and also liable to compensate unitholders "should the circumstances of the trusts change" from when Boardroom should have provided the register, at which time Primary "would have been appointed as responsible entity". Mr Staermose also complained to ASIC noting that he, together with Wonfair, held "just over 20% of the register of ABW (I am currently allowed to use the 'creep provisions' to go to up to 23%)". Mr Staermose detailed his efforts to obtain a copy of the register of ABW, which had been "stonewalled" by Aurora: (emphasis added)
Given these frustrations, I relayed my concerns about Aurora to a fellow unit holder, Chor Leng Tan. Since he holds more than 5% of ABW, he engaged a firm called Primary Securities to request a copy of the register on his behalf. Mr Tan has just informed me that he has learned via Primary Securities that Aurora has told ASIC that it has never received a request for the register of ABW.
I doubt that Mr Tan retained Primary. It appears, rather, that Mr Staermose did so through Mr Purcell. Certainly, Mr Tan had an address in Perth, and Primary's offices were in Fremantle. But it is more likely that Mr Staermose was giving ASIC incorrect information. Mr Staermose proceeded to suggest that Aurora was not fit to hold a financial services licence, making a series of intemperate suggestions.
At 7.20 pm on Friday 14 December 2018, Primary emailed Boardroom and Aurora pressing for production of the register, failing which legal proceedings would ensue. Mr Garton Smith advised Aurora that he would be at Aurora's offices in Melbourne on Monday, 17 December 2018, to collect a copy of the register. I cannot fail to notice that the demand was sent after close of business on Friday, in respect of something which Primary demanded take place the following Monday. It was effectively no notice at all.
[18]
Notice of meeting
On 20 December 2018, Mr Staermose and Wonfair executed authorities to convene a meeting of members. Mr Purcell advised Mr Garton Smith that he had booked a meeting room in Canberra, noting "there are a number of unit holders in Canberra that we hope to be able to encourage to attend the meeting". Mr Garton Smith telephoned Mr Purcell and suggested that Sydney or Melbourne would be a better location than Canberra, but Mr Purcell said that there were some members in Canberra holding significant votes. I note that Mr Rigoni is from the ACT. Mr Garton Smith considered that, as there were many members holding units in New South Wales and Victoria in addition to those in Canberra, he did not see any reason why the meeting could not reasonably take place there.
On 20 December 2018, Primary prepared a notice of meeting and an accompanying explanatory memorandum. Whilst the terms of the notice of meeting and explanatory memorandum will be examined in detail in due course, it is sufficient to note that the notice indicated that the meeting was called by members holding more than 5% of the votes that may be cast at a meeting, and the meeting was to be held on 15 January 2019 in Woden, ACT. At the meeting, it was proposed to amend the constitution, change the responsible entity from Aurora to Primary and, in the alternative, wind up the fund.
The explanatory memorandum made a series of criticisms of Aurora, including in respect of Ms Poon, the investment in Molopo and Aurora's failure to provide the register to one of the members of the fund and to Primary:
In the circumstances, the meeting is being convened using an earlier register.
The explanatory memorandum set out the "Primary proposal" to replace Aurora with "a new, independent, non-conflicted party" whose interest would be to represent members. If appointed, Primary proposed to investigate the past investments of ABW and AFARF, make recommendations, and implement those recommendations after consultation with the members of an investment committee to be established. Primary proposed amendments to the constitution so that it could be recompensed for its work in conducting investigations, reporting to members and carrying out its recommendations.
If Primary becomes responsible entity of any other funds currently controlled by Aurora, then Primary will charge each fund on a time and costs basis.
It is implicit within the explanatory memorandum that Primary saw its appointment to ABW as the first step in being appointed as responsible entity to other funds of which Aurora was also a responsible entity.
[19]
Using an old register
On 20 December 2018, Mr Purcell emailed a copy of the register which Aurora had given Mr Rigoni in September 2016, when there were some 640 members. The register contained the name and address of each member, the number of units held and the percentage voting rights. An additional column had been added to the register, likely by Mr Staermose, with further notes about each member, for example, their current unitholding, whether Mr Staermose had been able to contact the member, or whether they had ceased to be a member.
Aurora submits that two entries in the additional column suggest that Mr Staermose had used the register to make an unsolicited offer to, and purchase ABW units from, a member: there are two members where it is recorded in the column, "OUT - made contact, bought their line" and "OUT - bought by me/Wonfair". Aurora submitted that this would be a prohibited purpose under regulation 2C.1.03(e) of the Corporations Regulations and a breach of the prohibition on the misuse of such registers in section 177.
I agree that a strong inference can be drawn that Mr Staermose used the register to purchase further units. It is also apparent from the additional column that Mr Staermose used the old register to make contact with each of the members to ascertain whether they were still members and to update their contact details. The additional column does not contain any notes as to whether the members would vote in favour of replacing Aurora. That information was to be found in another document.
In addition to the old register, Mr Purcell provided to Primary a spreadsheet with "Tim's analysis on where votes lie based on who he has talked to". The unitholders were colour coded.
1. Some unitholders were colour coded yellow and their votes, by and large, placed in a column entitled "votes still up for grabs". These comprised 41.58% of the vote.
2. Some unitholders were colour coded green and their votes placed in a column "votes I am counting on". These unitholders were Wonfair, Mr Staermose, Solano Investments LLC, Mr Fraser, Mr Tan, Mr Greiner and Mr Rigoni. As already mentioned, all except Mr Rigoni were recorded as being Mr Staermose's clients. Unitholders colour coded green comprised 34.62% of the vote.
3. Some members, essentially Aurora, were highlighted red and the votes of these members were totalled in a column headed "votes I'm not counting on". These comprised 7.06% of the vote.
4. Some members, "new holders", were highlighted orange and their votes were not attributed to either for, against, or "still up for grabs". Presumably, Mr Staermose was unable to form a view as to the voting preferences of the new unitholders. These comprised 2.36% of the vote.
It is noteworthy that, according to the spreadsheet, Mr Staermose did not have enough votes to replace Aurora if everyone voted. Mr Garton Smith said he looked at the spreadsheet briefly and knew it was prepared by Mr Staermose. The contents of the spreadsheet did not raise any concern for him that there had been a "relevant agreement" entered into between the members of ABW for the purposes of seeking to vote in favour of the resolution to replace the responsible entity.
[20]
Primary said it doesn't represent Mr Tan
On 24 December 2018, Primary responded to Aurora's letter of 18 December 2018 "sent to our post box and which was collected today".
The proposal to replace your company as Responsible Entity remains 'currently relevant' notwithstanding the long delay in the register being provided.
A proposal to replace the Responsible Entity constitutes a proper purpose and nothing more from us is required. …
We are copying this correspondence to ASIC with a request that ASIC remove your company's AFSL.
We do not represent or act for Chor Leng Tan.
Primary, deliberately, did not say that a meeting had already been called as Mr Garton Smith wanted Aurora to receive the notice of meeting through the post and not in advance. "They were mailing to us; we were mailing to them. … I found the letter rude, and I was responding rudely".
Primary's response was, I think, misleading in respect of Mr Tan in circumstances where Mr Garton Smith knew that Mr Tan was involved and had contributed to Primary's out of pocket expenses. If he had forgotten that fact, Mr Garton Smith was reminded when, having forwarded the letter to Mr Purcell, he was told by Mr Purcell that the member of the fund who had contributed $1,000 to the cost of obtaining the register was Mr Tan. Notwithstanding this, Mr Garton Smith decided not to correct his letter to Aurora as he did not consider that Primary was representing or acting for Mr Tan, which he explained as followed:
Q. Mr Tan was one of the people that you were acting for or representing by seeking to call the meeting?
A. No. We weren't representing them. They were contributing to our costs. In calling for the register, we were getting the register for ourselves, and we were paying. We were paying all these expenses ourselves, and we asked for a contribution. That doesn't mean that we're representing them or acting as their agent.
… If members want to call a meeting we don't represent them. They're calling the meeting. We're the party that is to be appointed the trustee. So we don't see ourselves as being their agent if we're assisting them.
… We never knew who the members were that were wanting the meeting particularly, and all that was of interest to us was that … there was a reasonable prospect of the resolutions being passed, and we would assist those members to call the meeting, but we were the proposed replacement responsible entity. That was our role.
Mr Garton Smith did not see Primary as acting for members in this process, but rather as assisting them. The distinction is not entirely clear to me.
[21]
Aurora provides the register
On 28 December 2018, Aurora advised Primary that it would provide a copy of the register. Mr Patton said that Aurora made the decision to provide a copy of the register to Primary after talking with ASIC, "solely on the basis that ASIC said that it's not Mr Staermose behind the request, it's another unitholder and we - so we took that at face value." This doesn't quite follow, as ASIC told Aurora this on 17 December 2018 and Aurora wrote to Primary the next day declining to provide the register. Mr Patton also considered that Aurora had 7 days to provide the register (although surely the 7 days should have begun to run from when the request was made on 29 October 2018 rather than when ASIC said Aurora should accede to the request) and, further, that Aurora did not provide the register immediately given the time of year and that, according to Primary's email signature, its offices were closed from midday on 21 December 2018 until 9 am on 7 January 2019. Mr Patton gave several other reasons why Aurora did not accede to Primary's request, but the real reason, I think, was simply that Aurora suspected that Mr Staermose stood behind Primary, which he did.
Further emails and telephone calls ensued between Mr Garton Smith and Boardroom, which Mr Garton Smith forwarded to ASIC together with a report of a telephone call with Boardroom suggesting that "Aurora were lying to you when they said they were not aware of our request for the register". Mr Garton Smith did not tell ASIC in these communications that he had called a meeting of ABW members so that ASIC didn't tell Aurora.
Mr Patton instructed Boardroom, when sending the register, to supply only addresses but not email or phone details. Boardroom proceeded accordingly. Mr Patton variously said that the copy of the register, as provided, was all that Aurora was required to provide; that any emails and phone numbers were removed to eliminate the potential for members to be harassed by phone or email; because Aurora continued to have concerns about who was behind Primary and what the register would be used for; and that it was customary to call a meeting by sending documents by post as only some of the members provided email addresses (usually about 20%) and it was necessary to provide a required period of notice to all members.
Mr Patton disclaimed that Aurora did not want to be removed as the responsible entity for ABW, saying "this fund was a very small fund. It's not material to our operations". Mr Patton also said that, in taking the approach it did, Aurora was fulfilling its obligations to the members of ABW, given his concerns about the parties behind the calling of the meeting. Mr Patton said in his evidence:
Mr Staermose has made it clear that he just wants to get control of the vehicle that he can use for investments, and he propagates whatever argument to suit.
… Mr Staermose is a foreign resident. … Molopo … was controlled by foreigners. They managed to steal a lot of money, and the authorities in Australia have been powerless to do anything about it because of cross border issues, and here we are with our investors who have faced that decline in value with a foreign investor coming in to take control to do a similar thing, and in a manner that we thought to be highly unprofessional, with a number of alarm bells, and as a responsible entity, we acted accordingly.
Whatever the reason, as I have already explained at [26], if Aurora was satisfied that a purpose had been stated and it was not a prescribed purpose, then it should have provided the register in its entirety.
[22]
Announcements to Australian Stock Exchange
On 7 January 2019, Aurora made an announcement to the Australian Stock Exchange that Aurora was considering the validity of the meeting, notice of meeting and explanatory memorandum, having regard to the fact that the notice and explanatory memorandum did not disclose the identity of the members who were said to have called the meeting, nor to have satisfied the notice requirements for holding such a meeting. "Aurora recommends that unitholders take no action at this time."
On 8 January 2019, Aurora made a further announcement to the Australian Stock Exchange advising that the meeting was not valid as "Primary did not have a copy of the register of members of ABW until 28 December 2018" and therefore the notice of meeting and explanatory memorandum could not have been dispatched in sufficient time to provide the 21 days' notice required. Nor did the meeting materials identify the members who had called the meeting or the basis on which it was said that Primary had authority to act for those members. Such information was needed so that members and Aurora could determine whether the members were in fact entitled to call the meeting and whether Primary had the right to do so on behalf of those members. Aurora advised that, unless these defects were remedied, Aurora would not recognise the meeting as a valid meeting or treat any resolutions passed at the meeting as being valid. Aurora advised its members to ignore the meeting materials and not attend.
On 11 January 2019, Aurora wrote to ASIC setting out at some length its concerns in respect of Mr Staermose, including that he appeared to be acting together with undisclosed "associates" and that this was a control event in contravention of the Corporations Act.
Mr Patton says that if Primary had provided Aurora with the notice and explanatory memorandum at least 21 days before 15 January 2019, he would also have arranged for Aurora to issue a communiqué to ABW's members addressing each of the matters in the explanatory memorandum with which Aurora took issue "in order to fully inform them about the matters for determination at the meeting". Aurora would have disclosed its concerns about breaches of Chapter 6. Mr Patton said that, as he did not receive the mail out until 7 January 2019, he did not think he had sufficient time to prepare such a communiqué and provide it to all of ABW's members in advance of the meeting. Aurora would need to find out from Primary who were the members calling the meeting, and address the implications of that in the communiqué, which would have required legal review and sign-off by the board. Unlike announcements to the Australian Stock Exchange, such a communiqué would have needed to address each of the points made by Primary in the explanatory memorandum and likely comprise some 15 pages. Although the register contained email addresses for some members, it would be necessary to communicate with all of them by the "lowest common denominator", that is, by post. There would not be sufficient time for members to read the communiqué and mail back any proxies, "It just wouldn't have worked". When challenged as to whether this was so given that Aurora had sent a detailed letter to ASIC on 11 January 2019, Mr Patton explained:
It's one thing to say we have concerns to the regulator and we believe it's this party. It's another thing in - for a listed entity to shoot off at the hip and put that out in the public domain where it would open itself up for defamation and all manner of things if we've got it wrong.
… ASIC is a regulator, and ASIC can have a look discreetly; and if there's any merit to it they can prosecute, and if there's no merit to it, they can move on.
Whilst I think there is considerable merit in what Mr Patton says, it seems to me that Aurora just proceeded on the incorrect assumption that the mail out had not been sent until on or after 28 December 2018 and that the meeting was indisputably invalid.
[23]
Proxies
On 29 December 2018, the first proxy arrived. Of the 362 members of ABW, some 62 proxies were ultimately received representing 17% of members by number, of which:
1. Only six appointed a proxy other than the Chair of the meeting, and two of those appointed Mr Garton Smith.
2. Seven voted against the change of responsible entity, two voted to change the responsible entity but not the other resolutions, and 49 voted in favour of all resolutions.
Amongst the proxies was one provided by Mr Greiner, who pressed JP Morgan through UBS Warburg: (emphasis added)
… [My company] is part of the group that is trying to replace the fund's current management. We accumulated shares in this stock so that we would have enough votes to get this done. If the nominee (which is JP Morgan, I think) does not submit the proxy form in time, then this would be very disappointing, both for me and for the other group members who are counting on my vote.
JP Morgan declined to act on Mr Greiner's instruction in light of Aurora's announcement to the Australian Stock Exchange that the meeting was invalid.
One of the unitholders, who resided in the United Kingdom, complained that the notice of the meeting was insufficient. He nonetheless provided a proxy on 14 January 2019, the day before the scheduled meeting. Otherwise, Primary received no complaints from unitholders about a lack of notice.
[24]
Meeting
The meeting took place at 10.00 am on Tuesday, 15 January 2019 at the Aegean Room, Hellenic Club, Woden, ACT. Mr Staermose's solicitor, Richard Liebmann of Norton Smith, was appointed chair. Mr Garton Smith was present together with another employee of Primary. The only unitholders who attended in person were Mr Staermose and Ms Pinchback, who drove from Turramurra, Sydney and arrived half an hour late. Mr Garton Smith did not read Aurora's letter to the meeting as those present when the meeting began were already aware of it and, by the time Ms Pinchback arrived, the meeting had 'moved on'.
According to the register of members, at the time of the meeting Mr Staermose and Wonfair held 20.26% of units. A further 8.87% were held by Mr Tan, Solano Investments LLC and Mr Fraser. Mr Rigoni held 2.355%. The total unitholdings of these members was 31.5%. (Mr Greiner owned 4.998% but JP Morgan did not submit a proxy for him.) A further 6% gave proxies in favour of the resolutions. After tallying the votes of those present and the proxies, the resolutions were passed. Ms Pinchback voted against Aurora being replaced.
According to the minutes, 90.8% of the votes were in favour of the resolutions which were carried. To be clear, this was 90.8% of the votes of members who were present at the meeting in person or by proxy. Overall, these members comprised 42.45% of the total membership of ABW. Aurora submits that 90.8% of the 42.45% of members means that only 38.55% of ABW unitholders voted in favour and three-quarters of that 38.55% (being 31.4%) had contravened Chapter 6. If that 31.4% is excluded then only 7.15% of ABW unitholders voted in favour of the resolutions.
After the meeting, Primary advised Aurora of the outcome. Aurora issued disclosure notices to Mr Tan, Mr Fraser, Primary, Solano Investments LLC and Wonfair. Aurora received a response from Mr Fraser bearing a remarkable similarity to Mr Staermose' literary turn of phrase, together with a response from Mr Staermose to the effect that apart from him, no other party held any relevant interest in his or Wonfair's units in ABW.
On 16 January 2019, Aurora made a further announcement to the Australian Stock Exchange advising that it did not consider the meeting or resolutions to be valid. The Australian Stock Exchange issued a "pause in trading" notice in respect of ABW units.
[25]
Chapter 6
Before turning to the reasons why Aurora says the meeting and resolutions were invalid, and why Primary says any deficiencies should be excused, it is necessary to address Aurora's complaint which infuses all else. Was there a "relevant agreement" between Mr Staermose and his "associates" such that this was a control event?
Chapter 6, "Takeover" of the Corporations Act applies to the acquisition of "relevant interests" in listed registered schemes: section 604(1)(a). A "relevant interest" is defined in sections 608 and 609: section 9. A person has a "relevant interest" in securities if they have power to exercise, or control the exercise of, a right to vote attached to the securities: subsection 608(1)(b). Power or control includes power or control that is indirect, or can be exercised as a result of an agreement or practice, or a combination of these, whether or not they are enforceable: section 608(2)(a), (b)(ii) and (b)(iii). It does not matter whether the power or control is express or implied, formal or informal: section 608(2). A person does not have a relevant interest simply because they hold a proxy: section 609(5). A financial services licensee does not hold a relevant interest if they hold the interest in the ordinary course of their financial services business: section 609(3).
Section 606(1)(c) provides that a person must not acquire a "relevant interest" in issued voting interests in a managed investment scheme if, because of a transaction, that person's or someone else's voting power in the scheme increases from 20% or below to more than 20% or, if it is more than 20% to a greater percentage. However, the person may acquire the relevant interest under one of the exceptions in section 611, in particular, by acceptance of an offer under a takeover bid.
Section 610 provides that a person's voting power in a managed investment scheme is the aggregate of the votes of that person and any "associate". Section 12(2)(b) (incorporating the definitions in sub-sections (3) and (5)) provides:
A person is an associate of the primary person if … the second person is a person with whom the primary person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing [whether a particular company becomes or remains the scheme's responsible entity] or the conduct of the [managed investment scheme].
"Relevant agreement" is defined in section 9 as an agreement, arrangement or understanding whether formal or informal, written or oral, whether having legal or equitable force or whether or not based on legal or equitable rights. The Court has wide powers where there has been breach of Chapter 6, as does the Takeovers Panel: see, in particular, section 1325A.
[26]
Insufficient Notice
Aurora says that Primary failed to give each member, each of Aurora's directors and the auditor 21 days' notice of the meeting.
Section 252F provides that at least 21 days' notice must be given unless the scheme's constitution specifies a longer period of notice. ABW's Constitution does not specify a longer period of notice and so the minimum notice period of 21 days applies. Section 252G of the Corporations Act provides:
252G Notice of meetings of members to members, directors and auditors
Notice to members, directors and auditors individually
(1) Written notice of a meeting of a registered scheme's members must be given to:
(a) each member of the scheme entitled to vote at the meeting; and
(b) each director of the responsible entity; and
(c) the auditor of the scheme; and
(d) the auditor of the scheme compliance plan.
…
How notice is given
(3) Unless the scheme's constitution provides otherwise, the responsible entity may give notice of the meeting to a member:
(a) personally; or
(b) by sending it by post to the address for the member in the register of members or an alternative address (if any) nominated by the member; or
(c) by sending it to the fax number or electronic address (if any) nominated by the member.
When notice by post or fax is given
(4) Unless the scheme's constitution provides otherwise, a notice of meeting sent by post is taken to be given 3 days after it is posted. A notice of meeting sent by fax, or other electronic means, is taken to be given on the business day after it is sent.
The Constitution of ABW provides that communications by post are taken to be received the next business day: clause 13.5. This has the effect of modifying section 252G(4) in this case. This has the result that the first mail out is taken to have been received on 24 December 2018 (22 days before the meeting) and the second mail out on 31 December 2018 (15 days before the meeting). I find that the first mail out included notice to Aurora and its auditor.
As such, some 75% of members received 21 days' notice of the meeting, a further 25% of members received 15 days' notice and 3 members received no notice at all. The first problem with the meeting is established.
[27]
Unreasonable time and place
Section 252P of the Corporations Act provides:
A meeting of a registered scheme's members must be held at a reasonable time and place.
The time and date of the meeting was 10.00 am on Tuesday, 15 January 2019 at the Aegean Room, Hellenic Club, Woden in the Australian Capital Territory. Of ABW's members as at 14 January 2019:
1. 31.4% had an address in Victoria,
2. 23.8% had an address in New South Wales,
3. 22.6% had an address in Queensland, and
4. 4.2% in the Australian Capital Territory.
Aurora contends that the meeting was not convened in accordance with section 252P given the geographic location of its members. Primary says the meeting was held at a reasonable time of day and the location of the meeting was not unreasonable having regard to the location of members throughout New South Wales and Victoria: given the location of members, some 61.6% were within an hour's flight of Canberra if they chose to attend, and the only member who attended apart from Mr Staermose drove from Sydney. Proxies were accepted and no member requested the use of technology at the meeting. Primary submitted that there is no evidence that any member who wished to provide a proxy was unable to do so.
Given that the nation's capital was selected by reason of a similar geographic spread of population as the membership of ABW, I do not think I can conclude that the Australian Capital Territory was an unreasonable place to hold the meeting. As the Royal Commissioner tasked with finding an appropriate site for the nation's capital put it in 1900 (Brown, A History of Canberra (Cambridge University Press, 2014) at 38):
The City which is to be the seat of power, the nerve centre of the Commonwealth, and, in the future, the focus of its intellectual activities and the mirror of the Nation's taste, will depend in no small measure upon its situation. …
Further, Aurora contends that the notice and explanatory memorandum were sent to members shortly before Christmas or New Year in an envelope which gave no indication that the contents had anything to do with Aurora or ABW, or were urgent or important. As a result, Aurora says it is likely that a substantial number of members would have been likely to overlook the package at that time of year, or delay paying any attention to it over the Christmas break. Aurora submitted that this was a substantive irregularity as it effectively denied a person's right to validly vote at a meeting: Cordiant Communications (Aust) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185; [2005] NSWSC 1005 at [107].
[28]
Notice did not disclose members calling the meeting
The notice did not identify the members who had called the meeting, nor did the accompanying explanatory memorandum. Aurora says this was a substantive irregularity such that the meeting was thereby invalid. Aurora submits that the combined operation of section 252D and 252L of the Corporations Act is that the notice of meeting had to be signed by the members who called the meeting. Aurora submits that sections 252B(2)(c) and 252D(2) should be read together to require disclosure of the identity of members calling a member, as otherwise the responsible entity has no way of knowing whether the meeting is validly called, whether they need to take the notice seriously, and whether any resolutions made at the meeting are valid. Further, as Mr Staermose had entered into a "relevant agreement" with other members to vote out Aurora, rendering them "associates" acting in breach of section 606, non-disclosure of the member calling the meeting was an anathema to the purpose of Chapter 6, as explained in section 602, being to ensure an efficient, competitive and informed market, that all unitholders know the identity of those behind any attempt to acquire a substantial interest, and that appropriate procedures are taken prior to the acquisition of control.
Whilst there are no authorities considering the combined operation of these sections, Aurora relied on CellOS Software Ltd v Wong (2017) 118 ACSR 501; [2017] FCA 95, where members of a public company had sought to convene a general meeting under an identically worded provision, section 249F. The notice of meeting contained information in respect of proxies which was inconsistent with the requirements of the Act. Middleton J observed at [26] and [28]:
… section 249(2) requires a convening shareholder to call a meeting in the same way as a general meeting of the company is called, but only "so far as is possible". I do not consider that this permits any alteration to the operation of section 250B [in respect of proxies].
Whilst there is an important statutory right given to the convening shareholders to call and arrange for a general meeting, this can have the potential to disrupt and distract from the management of a company. Strict adherence to the provisions of the Corporations Act is normally required in the calling of a meeting under s 249F, subject to the operation of s 249F(2) …
Aurora submits that it would be a recipe for disaster to interpret the Act otherwise: any disgruntled member (or even a person who is not a member at all) could purport to call a meeting, asserting that they hold 5%, but unless they say who they are, the responsible entity and members cannot verify the validity of the meeting. The process must be transparent.
[29]
Misleading notice and explanatory memorandum
Aurora says that, if it had called the meeting, the directors of Aurora would have needed to ensure that the explanatory memorandum included such material as would fully and fairly inform the members of what was to be considered at the meeting to enable them to make a properly informed judgment on the matters in question. Aurora submits that the same obligation applied to the members calling the meeting.
Aurora points to the note to section 252J, that "there may be other requirements for disclosure to members". The same note appears in the identically worded section 249L of the Corporations Act, which is explained by the explanatory memorandum to the Company Law Review Act 1998, which enacted Parts 2G.2 and 2G.4. The explanatory memorandum states, in respect of section 249L, that "this provision does not affect the disclosures that must be made to members under common law principles": at [10.34]. Accordingly, Aurora submits that the common law requirement of disclosures that must be made to members continues to apply notwithstanding the minimal requirements contained in section 252J. Those requirements, Aurora submits, were comprehensively summarised by Brereton J in Snowside Pty Ltd v Boart Longyear Limited (2017) 121 ACSR 377; [2017] NSWSC 756, at [14]-[17]. Aurora points to ten features of the notice of meeting and explanatory memorandum which it says were inadequate and misleading. Aurora says this was a substantive irregularity such that the meeting was invalid. Even if the irregularity was procedural, the fact that members were likely to have been misled would amount to substantial injustice in any event: Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218; (1996) 14 ACLC 1357.
Primary does not accept that such an obligation applied but says, in any event, the explanatory memorandum was not likely to mislead members. Alternatively, any irregularities were procedural and did not cause substantial injustice.
The identical "note" to section 252J, coupled with the obligation in section 252D(2) that a member must call a meeting in the same way "so far as is possible" as if the meeting was called by the responsible entity, does suggest that a member calling a meeting has a similar obligation to a director to make full and fair disclosure of all matters within their knowledge which would enable the members to make a properly informed judgment on the matters in question. Such a view is consistent with that expressed by Ipp J in Browne v Panga Pty Ltd (1995) 14 WAR 393; (1995) 17 ACSR 75. In that case, an interlocutory injunction was sought restraining Panga Pty Ltd from holding an extraordinary general meeting of shareholders of Yinnex NL. The matter was factually complex. A series of meetings had been held in which different factions appointed or sought to appoint directors of Yinnex, a mining company. Legal proceedings were commenced to clarify the validity of various meetings and resolutions. Before the proceedings came to be heard, a shareholder requisitioned a new meeting of members, proposing resolutions to ratify the appointment of some of the directors and remove others. Yinnex issued a notice of meeting containing the resolutions. Mr Lewington, who had sought but failed to be appointed as a director, sent an accompanying letter with the notice of meeting which was critical of the directors who had been appointed and also provided a relatively one-sided view of the matter in dispute in the litigation. The plaintiff directors were granted interim relief, including on the ground that the letter was false or misleading in breach of section 1309(1) of the then Corporations Law. His Honour held, at WAR 401; ACSR 82:
The paramount rule was stated by McPherson J in Bancorp Investments Ltd v Primac Holdings Ltd (1984) 9 ACLR 263 at 266 to be that:
... any comments that are given in a form of a circular or memorandum from the board of directors should fully and fairly inform and instruct the shareholders upon what is proposed to be done.
In my view, equally, any comments that are given in the form of a circular or memorandum from a requisitioning shareholder should fully and fairly inform the other shareholders upon the resolutions that are to be moved at the requisitioned meeting.
[30]
Section 1322
The meeting was invalid for two reasons: the notice did not identify the members who called the meeting; and, 21 days' notice was not given to 25% of members. Aurora submitted these defects were not procedural but substantive and, in the alternative, sought an order under section 1322(2).
Section 1322 of the Corporations Act provides:
Irregularities
(1) In this section, unless the contrary intention appears: …
(b) a reference to a procedural irregularity includes a reference to:
…
(ii) a defect, irregularity or deficiency of notice or time.
(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
(3) A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void. …
(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; …
and may make such consequential or ancillary orders as the Court thinks fit. …
Primary did not seek any relief under section 1322(4) but relied upon the provisions of section 1322(2) and (3) for their automatic effect. However, so far as section 1322(3) is concerned, I do not think what happened here can be described as an "accidental omission". Primary and Mr Staermose expected that, by using an old register, some members would not receive 21 days' notice.
[31]
Orders
For these reasons, I make the following orders.
1. Declare that the meeting of the members of the Aurora Absolute Return Fund on 15 January 2019 was invalid.
2. Declare that the resolutions made at the meeting on 15 January 2019 were invalid.
3. Declare that the first defendant is not, and has never been, the responsible entity of the Aurora Absolute Return Fund.
4. Order the second defendant to rectify its record of registration to:
1. remove the first defendant as the responsible entity of the Aurora Absolute Return Fund; and
2. reinstate the plaintiff as the responsible entity of the Aurora Absolute Return Fund, effective from the date of its original appointment.
1. Order the first defendant to pay the plaintiff's costs of the proceedings.
[32]
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Decision last updated: 30 May 2019
Evidence was given at the hearing by John Patton of Aurora and Robert Garton Smith of Primary. Both were experienced businessmen who gave evidence in an open and honest manner, although each took the opportunity to make unsolicited criticisms of the other and, in Mr Patton's case, also of Mr Staermose. Each sought to draw fine distinctions as to how it was that their actions fulfilled the requirements of the Corporations Act. Their evidence in this respect was not always satisfactory. Perfection eluded both Aurora and Primary in their conduct in this matter.
Also in a different category, Michael Rigoni became a unitholder of ABW in July 2016. In September 2016, he obtained a copy of the register of members of ABW from Aurora. Mr Rigoni was the largest unitholder in ABW as at 25 August 2017. Mr Rigoni later supplied the copy of the register to Mr Staermose's agent, Andrew Purcell, and it was used to call the meeting. In Mr Staermose's spreadsheet, he said of Mr Rigoni, "In touch on email … will almost certainly vote with me".
A person who agrees to maintain a register on behalf of a registered scheme must make the register available for inspection, and provide the copies required by Chapter 2C, and failure to do so is an offence of strict liability: section 174.
Regulation 2C.1.02 of the Corporations Regulations provides that a copy of the register must be provided as a delimited text file produced by a commercially available spreadsheet or database application, and copied onto a CD-ROM or a USB portable memory device. It is apparent from this regulation that the register must be provided in a usable format to permit convenient communication with a large number of members. It also seems to me that the regulation requires that the register be provided in the form in which it is held by the responsible entity or its registry, that is, without deleting or re-formatting the information, for example, by deleting email addresses where members have provided one. As Yates J noted in MDA National Ltd v Medical Defence Australia Ltd (No 2) (2014) 225 FCR 476; [2014] FCA 1071 at [26]-[27], the obligation is to provide "all information contained in the register, not simply the information that the register, as a minimum, must contain."
Section 177 deals with the use which may be made of the information on the register:
(1) A person must not:
(a) use information about a person obtained from a register kept under this Chapter to contact or send material to the person; or
(b) disclose information of that kind knowing that the information is likely to be used to contact or send material to the person.
(1AA) A person must not:
(a) use information obtained from a register kept under this Chapter for any purpose prescribed by regulations made for the purposes of paragraph 173(3A)(b); or
(b) disclose information of that kind knowing that the information is likely to be used for any such purpose.
An offence based on these sub-sections is an offence of strict liability, and a person who contravenes these sub-sections is also liable to compensate anyone else who suffers loss or damage because of the contravention and to account to the scheme for any profit made as a consequence: section 177(1)(b), (2) and (3).
It will become apparent from what follows that these provisions appear to have been observed in the breach by those who kept the register and members who sought copies of it, although it was not necessary for me to make findings in this regard.
The next day, on 11 October 2017, Mr Staermose asked to inspect the books of ABW, reserving his right to seek a court order if his request was refused. Aurora issued tracing notices to Mr Staermose, Wonfair, Mr Tan, Solano Investment LLC and JP Morgan under section 672A of the Corporations Act requiring them to disclosure the beneficial ownership of their units in ABW.
On 13 October 2017, Mr Staermose and Wonfair refused to respond to the tracing notices on the grounds that they were vexatious. Mr Tan, Solano Investment LLC and JP Morgan did not respond at all. The same day, Aurora declined to provide a copy of the register to Mr Staermose. In a detailed letter, Aurora set out its concerns in respect of the purpose for which Mr Staermose intended to use the register. The terms of Aurora's letter were inflammatory but perhaps correct. In short, Aurora was not satisfied that Mr Staermose had actually stated the purpose for which he wanted a copy of the register, but rather had given a purpose which was evasive, "deliberately imprecise and inexplicit". Aurora said that its investigations had shown that Mr Staermose operated an investment newsletter business in Hong Kong and appeared to operate investment schemes in Puerto Rico, St Lucia, Singapore, Hong Kong and the United Kingdom. This suggested to Aurora that Mr Staermose's businesses may make unsolicited offers to ABW members to acquire their units:
If such conduct was engaged in by you, your investment newsletter business or your investment scheme business, this would be a breach of sections 177(1) and 177(1AA) of the Act, and/or rule 2C.1.03(d) of the Regulation. These are offences punishable under the Act and we intend to obtain legal advice as to whether we are obliged to report this matter to ASIC for further investigation.
Aurora suggested that Mr Staermose, through Wonfair, was operating an unregistered managed investment scheme and a financial advice business in Australia without the necessary licences and in breach of the Corporations Act. Aurora also expressed concern that its investigations had indicated that Mr Staermose appeared to have co-invested in ABW with Wonfair, Solano Investment LLC and Mr Tan with a combined interest of 7.81% but no substantial shareholder notice had been lodged.
On 18 October 2017, Aurora wrote a further letter to Mr Staermose denying that the tracing notices were vexatious and requesting that he substantiate this assertion or otherwise respond to the notice. On 20 October 2017, Mr Staermose replied that, "most damningly", the tracing notices were not issued until after his request to inspect the register.
The sole purpose of its issue was an attempt to intimidate me and dissuade me from following up on my earlier request to obtain a copy of the register of members and to inspect the books.
Mr Staermose said Aurora's letter refusing his request included "all sorts of unsubstantiated, baseless and, quite frankly, offensive claims and assertions about me." He threatened to join Aurora to a joint application to ASIC under section 673 of the Corporations Act, which confers a power on ASIC to exempt a person from complying with a disclosure notice. On 27 October 2017, Mr Staermose did, however, lodge a notice of substantial shareholder recording that he and Wonfair together held 5.53% of the voting power in ABW. Mr Staermose did not include details of units held by Solano Investment LLC, Mr Fraser or Mr Tan. The battlelines between Aurora and Mr Staermose had been drawn.
Mr Staermose continued to buy further units in ABW. On 1 March 2018, Mr Staermose filed a notice of change of interest of substantial shareholder, advising that he and Wonfair now held 15.83% of the voting power in ABW. On 5 March 2018, Aurora again issued tracing notices to Wonfair, Solano Investment LLC and Mr Tan but received no response.
Mr Staermose continued to lodge substantial shareholder notices and, by 10 May 2018, he and Wonfair held 19.99% of units in ABW. The precise percentage of Mr Staermose and Wonfair's voting rights was said to be unclear due to ambiguity surrounding voting rights by reason of an announcement made by Aurora to the Australian Stock Exchange on 1 March 2018. The announcement is not in evidence before me.
On 3 July 2018, Mr Tan also filed a substantial shareholder notice advising that he now held 5.23% of votes.
Mr Garton Smith began a due diligence process in relation to ABW, downloading information from the Australian Stock Exchange and ASIC, analysing publicly available material and preparing a report to the board of Primary.
On 24 November 2018, Mr Garton Smith sent draft meeting documents to Mr Purcell for comment. On 29 November 2018, Mr Purcell replied, inquiring whether Primary had heard from ASIC or Boardroom and asking how long they should wait: (emphasis added)
I'm keen to keep whatever momentum we have as its difficult keeping everyone committed to this path given how little progress we have made to date (and I'm referring to our efforts long before your firm got involved).
Mr Garton Smith did not see this as a significant statement, in terms of a control event, but simply as Mr Purcell wanting to move Primary along. What the email suggests to me is that Mr Staermose was working together with other members who had all agreed to work towards removing Aurora.
Mr Purcell continued that he had shared Primary's documentation "with the unitholders supportive of this action" who had made a number of comments as to how best to successfully hold the meeting with the desired results. (emphasis added)
What do you think about playing a little dirty ourselves and putting the ball in their court to have to sue us? For example, why don't we just send out a meeting notice to the names on the ABW register we have from Tim's last inspection? It's out of date, presumably, but so what? Nearly all the selling since then has been to accounts where we know the addresses of the owners. Aurora would get a nasty shock if we sent out a Notice of EGM thinking that no one has the register. See what they do then. If they mount a legal challenge then this is when we would state in our defence that we had no choice since they wouldn't hand over the register. Using conventional methods and playing strictly by the rules does not cut it when up against crooks. We need to use the same methods they would.
What this indicates to me is that, by now, Mr Rigoni had provided the register he had obtained from Aurora in September 2016 to Mr Staermose. I say this because Mr Staermose did not have a register from his last inspection: he was only allowed to look at it but not take a copy including photographs. Further, the register he inspected was not "out of date", as he had inspected it on 11 October 2018. Mr Garton Smith expressed interest in using an old register. He agreed that it would be an unconventional method but "it wasn't that dreadful an idea" depending how different the old and current registers were: in his experience, registers did not change a lot and it might be possible to trace members to whom units on the old register had been transferred.
Given that Primary had, by now, access to the September 2016 register, it could have actioned this strategy immediately rather than wait another four weeks until "just before Christmas".
On Monday 17 December 2018, Mr Patton actioned Primary's email. He spoke to ASIC, which advised that it had received a complaint about Aurora not providing the register. Mr Patton told ASIC that Aurora was not prepared to release the register as it believed the person behind the request was Mr Staermose and, for reasons already provided to ASIC, Aurora thought that he was seeking the register for an improper purpose. ASIC advised, "It's not Mr Staermose, it's another unitholder, so you should consider providing it to Primary". Presumably, ASIC took Mr Staermose at his word when he advised that it was Mr Tan who had retained Primary. Unfortunately, Mr Staermose appears to have misled ASIC in this regard.
On 18 December 2018, Aurora responded to Primary's request for a copy of the register as follows:
Aurora is not aware of any proposal of the kind mentioned in your letter to Boardroom [to replace Aurora as responsible entity] which is now current. Accordingly, Aurora does not believe that you have provided a purpose of the kind required by paragraph 173(3A)(a), since it cannot be a purpose to communicate in respect of a non-existent proposal.
Would you please provide a more detailed specification of your purpose, being, in particular, a purpose which is currently relevant and in effect, so that Aurora can determine whether your application complies with the Corporations Acts requirements.
As I understand it, Aurora was thereby suggesting that, as Mr Staermose had taken Mr Patton's advice not to proceed with his request on 15 October 2018 that Aurora call a meeting to replace the responsible entity, there was no current request. Aurora also asked whether Primary was acting on the instructions of Mr Tan, noting that Aurora had sent tracing notices to him on three occasions due to concerns that he was acting in breach of the Corporations Act, "in particular, acting in concert with other parties", but had received no response. Mr Patton also informed ASIC of Aurora's response to Primary's request, advising that he understood that the person behind the request was Mr Tan, "an (undisclosed) associate of Mr Staermose".
On 19 December 2018, Mr Garton Smith emailed Mr Purcell in respect of arrangements for the meeting, suggesting that it be held on 15 January 2019:
As to costs, I propose to write to each unitholder and ask that they contribute to their portion of the $27,500, but I am proceeding on the basis that Tim and Leng Tan will provide their portion, after deducting the $1,000 already paid.
This was consistent with Mr Garton Smith's report to Primary's board: that Primary seek funding from investors. The email records Mr Garton Smith's awareness that Mr Tan and Mr Staermose had paid Primary's invoice and, it would appear, were together engaged in bringing about the meeting and the removal of Aurora as responsible entity. Mr Purcell called Mr Garton Smith and said that "the members who he represented" would find such a sum difficult, but might be prepared to contribute to out of pocket expenses. It could be inferred from what Mr Purcell said that he represented members beyond Mr Staermose, Wonfair and Mr Tan. Mr Garton Smith says he "decided to assist these members" and proceed without any arrangement to pay Primary's costs of the meeting other than out of pocket expenses.
Mr Garton Smith says he decided to hold the meeting on 15 January 2019 as he was travelling overseas on extended leave from 21 January 2019 until 27 February 2019 and wanted to be present at the meeting so that he could deal with the complexities of the occasion and any ensuing litigation. Another view of the facts is that the date was selected to ensure that the 21 day notice period covered Christmas and New Year holidays during which many of the unitholders and Aurora's directors and staff might not be paying close attention to their post or, indeed, be in the office at all. Mr Garton Smith agreed that a secondary consideration in selecting the date was "to prevent Aurora from taking measures" of attending the meeting with "millions of units … issued … the day before or something like that" and, according to Mr Purcell, "Aurora gets less time to plan some stratagem". Mr Garton Smith was asked whether he selected the date to increase the chances that the members of ABW who were not associated with Mr Staermose would not attend the meeting in person or by proxy to vote against the resolutions, and Mr Garton Smith said, "That was never discussed or considered by me". I found this answer somewhat evasive.
Aurora made a number of criticisms of the explanatory memorandum, including that it contained a number of errors and failed to present a balanced and even-handed view of the resolutions. Primary readily accepted that it was a partisan document which attempted to persuade members to support the resolutions, rather than a document providing full and frank disclosure. Mr Garton Smith said the purpose of the explanatory memorandum was not to fully inform members but to present the position of the members calling the meeting and to explain the role and position of Primary.
Mr Garton Smith instructed his staff to prepare a mail out to the members of ABW based upon the September 2016 register. Primary printed some 650 packages comprising a coversheet, notice of meeting, explanatory memorandum and proxy form. Mr Purcell provided further address details for some of the unitholders, including Aurora and one of its directors, Mr Siciliano, noting:
Also need to send copies to the directors of the RE, and the auditor and the auditor of the compliance plan (per Corps Act requirements).
An address was provided for Aurora's directors and the auditor. Primary's staff added these additional addressees to the mail out.
On 21 December 2018, Primary's staff began to prepare the mail out. They stopped work at noon for the office Christmas lunch. One of Primary's staff took a batch of 512 envelopes to the post office. These were posted by ordinary mail. After the Christmas lunch, the mail out was completed and a second batch of seven domestic and three international articles were taken to the post office and sent. Ultimately, four of the envelopes were 'returned to sender'.
Mr Garton Smith agreed that he was being unhelpful: "Why should I help Aurora?" He assumed Mr Patton wanted to know about Mr Tan because he was going to "attack" him.
Our policy is not to name any members. We don't name members in any event. So that's why they are not named in the explanatory memorandum. Otherwise, they're open to attack.
Mr Garton Smith explained that he considered it inappropriate that members personally, rather than Primary, be "attacked" by suit. He did not think it was necessary for the members of ABW to know the identity of the member calling the meeting, "What difference does it make to them?", nor did Aurora ask:
Aurora could have asked us and we would have given them the information the same day but they never asked us.
The register provided by Aurora on 28 December 2018 contained 361 members holding 8,123,335 units. Primary undertook a comparison of the two registers, with the assistance of Mr Purcell. On 29 December 2018, a second mail out was sent to 92 unitholders being, in most cases, unitholders in the September 2016 register but whose address had since changed. This comprised about 25% of members by number and voting rights. A further three unitholders (0.06%) were not mailed at all.
On 31 December 2018, Mr Patton sent an email to Mr Garton Smith asking for a copy of any correspondence sent to ABW's members. Primary did not respond. Rather, Mr Garton Smith took this as a "clear sign" that Mr Patton had received the mail out. On 4 January 2019, Mr Patton repeated his request for a copy of any material sent to unitholders. Mr Garton Smith replied:
The company and you personally have been sent the meeting documents. I put you on notice that Aurora … is now in a caretaker position in relation to [ABW]. Primary Securities requires you to take no steps in relation to the ABW prior to the change of Responsible Entity that involve a change of circumstances for ABW or could be prejudicial to scheme members or the incoming Responsible Entity … should you take any steps … we will take the position that they have not been made for a proper purpose and are therefore void.
Mr Garton Smith did not attach the notice and explanatory memorandum to his email as "we wanted to slow him down". This rather suggests that Mr Garton Smith did not think that Mr Patton had received the mail out after all.
In fact, Mr Patton did not receive a copy of the notice of meeting and explanatory memorandum until 7 January 2019. The chairman of Aurora, Tony Hartnell, did not open the envelope, as he thought it was junk mail. The mail out sent to Aurora's auditors apparently went to the wrong partner in the accounting firm and did not come to the attention of the auditors until 17 January 2019. This does not appear, however, to have been the fault of Primary.
On Monday, 14 January 2019, Aurora wrote to Primary to the effect that they considered the meeting to be invalid, that Primary would be liable to compensate Aurora for any loss or damage suffered as a result, and suggested that Primary should commence proceedings seeking orders as to the validity of the meeting before lodging any resolutions with ASIC. Aurora made a further announcement to the Australian Stock Exchange advising its members should not attend the meeting: Aurora did not recognise the validity of the meeting or any resolution passed at it.
Also on 14 January 2019, Mr Garton Smith travelled to Melbourne and inspected the register of ABW at the offices of Boardroom on the written authority of Mr Staermose. Boardroom declined to provide Mr Garton Smith with a copy of the register absent a further application accompanied by a fee. Mr Garton Smith compared the register to that received on 28 December 2018. Mr Garton Smith also delivered copies of the proxies received to Aurora's offices in Melbourne. Mr Garton Smith also replied to Aurora and ASIC saying that the meeting had been convened by unitholders in difficult circumstances due to Aurora's "illegal withholding of the register" but was lawful nonetheless unless any unitholder was substantially prejudiced. Mr Garton Smith said that he would read Aurora's letter to the meeting the next day. Mr Patton replied to Mr Garton Smith and ASIC saying that Aurora did not recognise the validity of the meeting and would not be in attendance.
On 18 January 2019, Primary lodged a notification of change of responsible entity with ASIC and also notified the Australian Stock Exchange and ABW's banker. Primary requested that Aurora transfer all money in the scheme accounts to Primary together with all documentation from the last six years and to instruct Boardroom and the scheme solicitors that Primary was now the responsible entity. Aurora invited Primary to commence legal proceedings to clarify the position in respect of the validity of the change of responsible entity but Primary declined to do so. On 21 January 2019, the Australian Stock Exchange suspended ABW units from "pending clarification of the validity or otherwise of the appointment of Primary".
On 25 January 2019, Mr Purcell was appointed as a secretary of Primary.
On 29 January 2019, Primary wrote to Boardroom requesting a copy of the register of members of AFARF for the purpose of communicating with members in relation to a proposal to replace the responsible entity. Primary also made an announcement to the Australian Stock Exchange advising of a change in responsible entity for ABW, and Aurora made an announcement advising that it was preparing an application for the court to determine the validity of the meeting and the business transacted at it.
These proceedings were commenced on 31 January 2019. On 9 February 2019, in answer to a notice to produce, Primary produced the authorities dated 20 December 2018 to call the meeting and Mr Patton thereby became aware beyond doubt that it was Mr Staermose and Wonfair who had called the meeting.
These provisions were considered in Flinders Diamonds Ltd v Tiger International Resources Inc (2004) 88 SASR 281; [2004] SASC 119 to extend to members calling a meeting to change the responsible entity, where the members entered into an understanding or agreement as to voting at the meeting, with the consequence that their conduct was rendered unlawful. Prior, Debelle and Bleby JJ observed at [71]:
71 Although voting arrangements for the purpose of achieving a specific goal, such as the reconstruction of the board of directors, are not the kind of arrangements which on their face offend the spirit of Ch 6 of the Corporations Act, they are, however, caught by the width with which the terms in s 606 and s 608 and the definitions of material terms in those provisions are expressed. …
72 It is not unlawful for shareholders to discuss the merits of the board or individual members of the board or a change in the composition of the board. Nor is it unlawful for shareholders to seek to persuade other shareholders to the view that the composition of the board should change or to solicit support for a particular resolution.
73 The provisions of Chapter 6 of the Corporations Act are not intended to render directors of a company immune from the legitimate scrutiny of and control by shareholders. Directors are not immune from replacement by the vote of shareholders. Instead, the intent is that, if shareholders wish to change the composition of the Board, they should not reach secret understandings or arrangements as to voting. …
The Full Court in that case restrained the defendants from putting such an agreement into effect.
ASIC has issued publications which indicate that investors agreeing on a plan for voting are likely to be regarded as entering into a relevant agreement and the investors are likely to be considered associates. In addition, it may give a person control over the votes attached to the interests, resulting in the acquisition of a relevant interest by that person: ASIC Regulatory Guide 128, Collective Action by Investors, (June 2015), Table 2.
Aurora submitted that Mr Staermose agreed with other members that they would vote together to remove Aurora and thus each of them acquired a "relevant interest" in each other's units in ABW. Aggregating the voting rights of Mr Staermose, Wonfair, Mr Tan, Mr Greiner, Solano Investment LLC, Mr Fraser and Mr Rigoni produced a 38% voting block. The breach of section 606 occurs upon the acquisition of the relevant interest. This either occurred from the acquisition of units in ABW after the understanding between them had been reached (as Mr Greiner's evidence suggests) or by the entry into the relevant agreement after having acquired those shares: section 610(3). Primary, it was submitted, may also have been a party to the relevant agreement, and thus infringed sections 606 and 671B.
Primary made no submissions on this issue, on the basis that any breaches were civil penalty provisions and, as I understood it, were not otherwise relevant to these proceedings.
Mr Staermose and those who are said to have been his "associates" are not parties to these proceedings. In the circumstances contemplated in the provisions of the Uniform Civil Procedure Rules and Civil Procedure Act to which I referred at the outset, it is open for a court to determine issues in the absence of parties: Finance Corporation of Australia v Bentley. But the relevance of the relationship between Mr Staermose and other members in these proceedings is not whether they were, in fact, "associates" or had a "relevant agreement" or contravened Chapter 6. These are serious matters which would require the Court to be satisfied to the requisite standard having regard to their gravity: section 140, Evidence Act 1995 (NSW); Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34. Rather, the present relevance of the relationship is: whether an adviser and his clients, and perhaps other members, were acting together in a concerted attempt to remove the responsible entity; whether this was a relevant matter for other members to know; and, whether it was misleading not to disclose it.
Having regard to the facts set out at [11]-[18], [35], [37], [40], [46], [48], [54]- [56], [61], [65], [67], [72], [74] and [94], it seems to me that Mr Staermose' clients had entered and exited investments in accordance with Mr Staermose' own participation in those investments and, unsurprisingly, it would appear that his clients followed his directions. Mr Greiner seems to have become a client of Mr Staermose a little later than Solano Investment LLC, Mr Tan or Mr Fraser, and was part of a group trying to replace Aurora, which group accumulated shares for that purpose. Mr Rigoni was not a client of Mr Staermose but more likely approached by him in about October 2018 (see [48]) and agreed to work together to change the responsible entity. Either way, an adviser, his clients and at least one other member were acting together in a concerted attempt to remove the responsible entity. This was the case by December 2018, when the meeting was called. With that in mind, each of Aurora's contentions as to the invalidity of the meeting need to be considered.
There is something to this complaint, particularly in circumstances where it appears that Primary and the members instructing it gave active consideration to this when planning the meeting, I think, to reduce the prospect of ABW members who were not 'with' Mr Staermose attending the meeting. Indeed, 57.55% of members did not participate in the meeting at all, either in person or by proxy. However, the Corporations Act has specific provisions in respect of the notice required, as did the constitution of ABW. To conclude that, notwithstanding strict compliance with the requirements of the Act and constitution, a meeting is invalid because the notice was given over a holiday period would give rise to great uncertainty and I am not prepared to impose a greater period of notice on the member calling the meeting than required by the Act and constitution. It may, however, have continuing significance in considering whether relief should be ordered under section 1322 given that 25% of members did not receive the required notice.
Primary submits that the notice and explanatory memorandum make it plain that the meeting was being convened by two persons as agents for the members who wished the meeting to be held. The Corporations Act, whilst prescriptive of a number of matters concerning the convening of a meeting, does not require a notice of meeting to identify the members who call it. Section 252J is silent as to this. Whilst section 252B requires the signatures of members, that section deals with a meeting convened by the responsible entity at the request of members and, given the threshold requirement of 5% of votes before such a request can be made, it is not surprising that the section requires signatures so that the responsible entity may be satisfied that the threshold has been met. But this meeting was called under section 252D as a meeting of members called by members. Aurora was not requisitioned to call the meeting by 5% of its members with the result that the requirements of section 252B do not apply. Primary submits that there is no basis for this complaint and it should be rejected.
The Notice of Meeting of Members of ABW dated 20 December 2018 stated:
Members of ABW who between them hold more than 5% of the votes that may be cast at a meeting of the Fund's Members HEREBY GIVE NOTICE that they have pursuant to section 252D of the Corporations Act 2001 called and arranged a meeting of Members of the Fund at the time, date and place listed below to consider and vote on the resolution specified in this note.
Please refer to the Explanatory Memorandum that accompanies this Notice of Meeting for important information on the resolutions proposed.
After setting out the proposed resolutions, the notice continued:
Signed as agent for Members who between them hold more than 5% of the votes that may be cast at a general meeting of the Fund and who have provided signed authority for the convening of the meeting.
The notice was signed by Tania Melkus, "Company Secretary". It is not clear what company Ms Melkus was secretary of: she was in fact a secretary of Primary. That Ms Melkus was secretary of Primary could be inferred from the cover sheet, which bore Primary's name, logo and contact details, together with references to Primary within the notice of meeting and the explanatory memorandum authored by Mr Garton Smith, "Managing Director, Primary", but it was not clear. Members who did not read the material in its totality or carefully may have concluded that the notice was issued by the company secretary of Aurora and bore its imprimatur. It was certainly confusing.
Primary had received two authorities, from Mr Staermose and Wonfair, to convene a meeting of members of ABW pursuant to section 252D "as the member's agent". Primary acted within the scope of the authority when it called the meeting. At the time of issuing the notice, Mr Staermose and Wonfair did in fact hold more than 5% of the votes. The question is whether they validly called a meeting in circumstances where the members' identity remained unknown. Put another way, can an agent call a meeting of members of a managed investment scheme under section 252D on behalf of an unidentified principal?
Part 2G.4 of the Corporations Act "Meetings of members of registered schemes" sets out, in Division 1, who may call meetings of members. The responsible entity may call a meeting of members (section 252A). The responsible entity must call a meeting of members on the request of members with 5% of the votes or at least 100 members (section 252B). And members who hold interests carrying at least 5% of votes may call a meeting under section 252D, sub-section (2) of which provides:
The meeting must be called in the same way - so far as is possible - in which meetings of the scheme's members may be called by the responsible entity. …
The responsible entity may call a meeting of members in two ways: on its own volition or at the request of members. When calling a meeting at the request of members, section 252B(2) provides:
Form and content of request The request must:
(a) be in writing; and
(b) state any resolution to be proposed at the meeting; and
(c) be signed by the members proposing to move the resolution.
The request may be accompanied by a statement about the proposed resolution provided by the member making the request (section 252B(3)) and the responsible entity must give members a copy of the proposed resolution and statement (section 252B(7)). If the responsible entity calls a meeting at the request of members, then it is apparent that the identity of the member is known, both to the responsible entity when making a request and, likely, to other members when the responsible promulgates the member's proposed resolution and any statement.
Similarly, section 252L enables members with 5% of the votes or at least 100 members to give the responsible entity notice of a resolution that they propose to move at a meeting of members. Section 252L(2) also requires:
Form and content of notice
The request must:
(a) be in writing; and
(b) set out the wording of the proposed resolution; and
(c) be signed by the members giving the notice.
As for section 252B, the identity of a member who proposes to move a resolution at a meeting of members is known.
Members with at least 5% of votes or at least 100 members may also request a responsible entity to distribute a statement about the proposed resolution to members, and in that event, section 252N(3) provides:
Form of statement
The request must be:
(a) in writing; and
(b) signed by the members making the request …
Again, the identity of a member who requests the distribution of a statement is known, both to the responsible entity when making a request and, likely, to other members when the responsible entity circulates the statement under section 252N(6).
The obvious rationale for the requirement that the member identify themselves when exercising these rights is that the responsible entity can confirm that the member is entitled to avail themselves of that right. It seems to me that the reference in section 252D(2) to a member calling a meeting themselves, "in the same way - so far as is possible - in which meetings of the scheme's members may be called by the responsible entity", captures the mandatory requirement that the member identify themselves so that the members can satisfy themselves that the member calling the meeting is entitled to do so.
This is consistent with general practice when calling a meeting, as reflected in the common law. The authors of Shackleton on the Law and Practice of Meetings (14th ed., Sweet & Maxwell, 2017) at [5-08] state: (citations omitted)
If a meeting is summoned without authority, it will be invalid.
It is customary for a notice to indicate clearly on whose authority it is issued, and for it to be issued over the name of an authorised official. The first requirement is fundamental, but the second is more a matter of form and is perhaps not indispensable, provided the notice is in other respects good.
Similarly, in Lang, Horsley's Meetings, Procedure, Law and Practice (7th ed., LexisNexis, 2015) the author states at [4.3]:
A notice needs to be issued with proper authority, that is, in accordance with any requirement in the rules, or consequent to a resolution of the appropriate body or committee. The notice should show the name and office, that is the appointment of the person who signs and issues the notice. That is normally the secretary.
If the rules provide that notices are to be issued by order of or under the hand of an officer or officers as specified, a departure from this or neglecting to refer to such officers on the notice makes it invalid, and the meeting is therefore not duly convened: R [sic] v Fulton (1876) 2 VLR (Eq) 100 compare Allen v Hagger (1983) 4 IR 100.
In King v Fulton (1876) 2 VLR (Eq) 100, the rules of a masonic lodge provided that the master could call a meeting on his own motion or on a requisition, and the secretary of the lodge was to prepare and sign all notices. A notice of meeting was issued, "but this notice had no reference to the worshipful master or the secretary, was signed by nobody, and did not indicate who gave the order": at 104. Molesworth J held that the meeting was not duly convened. In Allen v Hagger (1983) 4 IR 100, a branch organiser of the Building Workers Industrial Union of Australia was suspended and dismissed at a meeting of the committee of management. According to the rules, members of the committee could requisition a meeting which "may be called by the Branch President and Branch Secretary". The notice of meeting was issued by the secretary but not the president, who did not wish the meeting to be called. Toohey J placed emphasis on the use of the word "may" in the rule and considered at 106:
… it does not follow that … a meeting called by the branch secretary, without the concurrence of the branch president, is inevitably invalid. … Failure to obtain Mr Rogers' concurrence to the holding of the meeting … was a breach of the branch rules. When considering the validity of the action taken by the committee of management and whether this Court should interfere with that decision, the absence of Mr Rogers' concurrence is a relevant but by no means conclusive consideration.
Australian cases largely arise under section 249D, which provides for a general meeting to be called by directors when requested by members and specifically requires that the request be signed by the member making the request: section 249D(2)(c). For example, in Re Islamic Association Western Suburbs Sydney Inc [2015] NSWSC 638, a requisition was signed in handwriting by Mr Bajwa who stated that he had signed the requisition "for and on behalf of" 20 named persons who were identified as members of the Association. The list of members was said to be continued in an "attached list Annexure A", but was not attached. The requisition also referred to Annexure B, which was a petition signed by other members. The requisitionists defended the validity of the requisition on the basis that Mr Bajwa's signature under the 20 names referred to in the requisition, prefaced by the words "for and on behalf of the members", was a sufficient signature for each of them. Black J rejected this submission at [51]:
It can scarcely be contemplated that, if a requisition contained the printed names of 50, 100 or 500 members of a company or association, and required the calling of a meeting within a relatively short time period, a company or association should have to make individual inquiries to determine whether each of those persons had authorised the application of his or her name to the document, in printed form, by an agent. … the Court will ordinarily not have regard to extrinsic evidence to determine the validity of a requisition: Re Carlton Football Club Ltd; Gratton v Carlton Football Club Ltd [2004] VSC 379; (2004) 51 ACSR 29 at [10].
Similarly, in Re Carlton Football Club Limited (2004) 51 ACSR 29; [2004] VSC 379, Mr Gratton was a member of the Carlton Football Club. He delivered a letter appending a petition calling for a general meeting together with 33 sheets of paper held together by a bulldog clip. Twenty-three sheets of paper each bore identical printed text setting out the request for the meeting and the resolutions and a table of handwritten names, addresses, corresponding signatures and membership numbers under the text. The remaining 10 sheets bore no printed text but only a table of handwritten names, addresses, signatures and membership numbers. Mandie J held that this was not a proper requisition as the signatures on the 10 sheets of paper could not be counted such that the request was not signed by a sufficient number of members. It was not possible to treat the 10 sheets as forming part of the request as none of the sheets were securely fixed or fastened to any sheet bearing the printed text. As such, at [9]:
… the directors cannot objectively determine, solely from an inspection of the sheets of paper submitted to the company, whether the signatures on the 10 sheets bearing no printed text relate to, or were intended to relate to, any particular request.
Having regard to the provisions of Part 2G.4, Divisions 1, 2 and 3, as detailed above, it seems to me that the reference in section 252D(2) to a member calling a meeting themselves, "in the same way - so far as is possible - in which meetings of the scheme's members may be called by the responsible entity", captures the mandatory requirement that the member identify themselves to others so that they can satisfy themselves that the member calling the meeting is entitled to do so. The notice issued by Primary as agent for unidentified members had the result that the validity of the notice could not be verified without further enquiry by Aurora or, perhaps more importantly, by other members. Section 252D does not contemplate a meeting being called by unidentified members, that is, differently, from members exercising rights under sections 252B, 252L and 252N. It may have been permissible for Primary to specify in the notice that its called the meeting "as agents for Mr Staermose and Wonfair", but not for anonymous members. Therefore, the notice was not valid and the meeting was not validly convened.
The judgment of Ipp J has been considered in Allied Mining & Processing Ltd v Boldbow Pty Ltd (2002) 26 WAR 355; [2002] WASC 195 per Roberts-Smith J at [41] and in Scottish & Colonial Ltd v Australian Power & Gas Co Ltd (2007) 65 ACSR 313; [2007] NSWSC 1266 per Bryson AJ, in both cases on a different portion of Ipp J's judgment than the portion extracted above. On both occasions, their Honours noted that Ipp J had prepared his judgment with great expedition and in circumstances where Ipp J firmly stated that he was not in a position to deal fully with all of the arguments. His Honour's comment, therefore, should be approached with caution.
Similar to Browne v Panga, in Adams v Adhesives Pty Ltd (1932) 32 SR (NSW) 398, Harvey CJ in Eq considered the obligation on directors to convene a meeting within 21 days of being requisitioned to do so by 20% of the shareholders of the company. His Honour considered that the power in the articles for members to themselves call a meeting had to be exercised in accordance with the same principles that applied to the directors. There was an overriding duty on the directors not to deliberately call a meeting for a date that would result in many of the shareholders not being able to exercise their votes, and the same overriding duty attached to the members when they called a meeting in accordance with the articles: at 402. The meeting was restrained.
But in Humes Ltd v Unity APA Ltd (No 1) [1987] VR 467; (1987) 11 ACLR 641, Beach J clarified that Harvey CJ in Eq was considering the duties of minority shareholders once they had assumed the powers of the directors: at VR 471; ACLR 646. Until such time as the minority shareholder takes on that role, it is entitled to act in furtherance of its own interests provided that its requisition for the meeting is bona fide, that is, to have resolutions passed and not simply to harass the company and its directs: ibid. Likewise, in BWN Industries Pty Ltd v Downey (1993) 11 ACSR 777 at 783; (1993) 11 ACLC 1191 at 1196, Hayne J noted:
… it is clear from Adams v Adhesives Pty Ltd and other cases, that once requisitionists assume power of directors to call a meeting, they are subject to duties but those are duties of the same kind as the directors were subject to in connection with the calling of a meeting, for example to call a meeting at a suitable time and place. In my view those duties do not go to dicate the nature of the business that is to be transacted at the meeting fror that business is fixed by the requisition.
The biggest obstacle, however, to Aurora's argument is that it was rejected by the Court of Appeal of the Supreme Court of Western Australia (sitting as a bench of two) in Westralia Property Management Ltd v Davison [2006] WASCA 203. Westralia Property Management Ltd was the responsible entity for Broadwater Bustleton Property Syndicate Managed Investment Scheme. Given a lack of finance, the responsible entity proposed to wind up the scheme. However, a group of members who together held at least 5% of the votes issued a notice of general meeting proposing to replace the responsible entity and terminate the winding up. The notice of meeting was accompanied by a statement in support of the resolutions advancing several arguments as to why the resolutions should be passed. The responsible entity sought an ex parte interlocutory injunction to restrain the meeting, which was initially granted, but on an inter partes basis was set aside by Master Sanderson for reasons which were upheld by the Court of Appeal. On appeal, the responsible entity submitted that the members owed fiduciary duties to their fellow members, in the same way that a responsible entity calling a meeting of a managed investment scheme would owe a duty to make and fair disclosure of all matters which would enable them to make a properly informed judgment. Per Wheeler JA (with whom McLure JA agreed) at [22]:
It is very difficult to view that [section 252D(2)] as intended to impose on members a fiduciary duty which would not arise otherwise, rather than simply being directed to matters of procedure, such as the timing and form of a notice. No reason of principle was advanced as to why members might owe each other such a duty. One can see practical reasons why such a duty should not be imposed, however. For example, and relevantly for present purposes, members generally could hardly be expected to have access to all of the information available to directors or to a responsible entity, and the majority of members would be most unlikely to have that detailed familiarity which comes from day-to-day involvement in the affairs of the entity. I do not think that the duty contended for exists.
Westralia has not been considered since although is embraced without demur in Austin and Black's Annotations to the Corporations Act (LexisNexis, looseleaf) at [2G.252A]; LexisNexis Australia, Practical Guidance Australia - Corporations.
Aurora submitted that the remarks were obiter. I do not agree. Wheeler JA considered that the Master was right for the reasons given by him and then moved to deal with additional submissions made by the responsible entity which were not reflected in the Master's reasons: at [17]. One of those arguments was that the notice and supporting documents were misleading and inadequate and, at the above passage, Wheeler JA dealt with that submission. It appears, with respect, to be central to the Court's reasoning.
Aurora also submits that this case is distinguishable from Westralia as the explanatory memorandum was misleading because of material known to the member calling the meeting and Primary. Second, Primary was not a member but held itself out to be considered as the new responsible entity who was "independent" and with "high integrity". Third, Aurora did not have sufficient time to remedy the misleading explanatory memorandum by issuing a correcting notice in sufficient time for members to receive it, consider it and send in their proxies in time for the meeting. For my part, I consider the facts to be remarkably similar to those in Westralia and I do not think the matters referred to detract from the principle stated.
Primary submitted that, as the decision of an interstate intermediate appellate court concerning uniform national legislation, this Court should follow Westralia unless convinced it is plainly wrong: Australian Securities Commission v Marlboro Goldmines Ltd (1993) 177 CLR 485 at 492; [1993] HCA 15; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22. Further, Primary submitted that Westralia was correct as members normally do not have access to all of the information which a responsible entity has and, secondly, where members of the scheme are disgruntled with the incumbent responsible entity, members who convene a meeting to replace the responsible entity cannot be said to be obliged to provide an even-handed, bipartisan disclosure of all facts which the responsible entity may use to rebut or negative the contents of the accompanying statements. Whilst section 601FC of the Corporations Act imposes fiduciary duties on the responsible entity - which is appropriate having regard to the assets with which a responsible entity is empower to deal on behalf of its members - such a duty is not imposed on members between themselves. The procedure by which members may call a meeting is distinct from any substantive obligation which may be imposed on the member calling it.
I consider that the principles articulated in Westralia are not obiter, nor is the case distinguishable, nor it is plainly wrong. That would seem to be the end of the fourth problem identified by Aurora.
However, in the alternative, Aurora submitted that the misleading and incomplete information in the explanatory memorandum is enough for the Court to order that the resolutions made at the meeting were invalid, citing Korda, in the matter of Stockford Limited (2004) 140 FCR 424; [2004] FCA 1682 at [36], where Finkelstein J held that resolutions made by creditors at a meeting were "not legally effective" because the report sent to them "was misleading in several important respects". Further, Austin J considered in Cleary v Australian Co-operative Foods (No 3) (1999) 32 ACSR 701; [1999] NSWSC 1062 at [23] that: (citations omitted)
If the members were misled or not fully informed at the time when they voted at the meeting or appointed proxies for it, the appropriate remedy may be an order declaring invalid or setting aside the resolution of the members.
Both cases, however, considered communications to members by those with clear obligations to give proper disclosure, being a report to creditors and a communiqué from a co-operative and its directors to members of the co-operative.
Aurora submitted that the Court could also make such an order under sections 18 and 237 of the Australian Consumer Law, in accordance with the principles explained in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 467-468; (1995) 15 ACSR 590 at 602:
Whilst [s 18] does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members asked to consider a motion in general meeting, where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership.
Again, that case concerned a communication from a corporation and its directors to members, unlike here.
Primary noted that no member of ABW gave evidence that they were misled, and Aurora was plainly not misled. Whilst I accept Aurora's submission that it is not necessary to call evidence from members that they were misled (Bulfin v Bebarfalds Ltd (1938) 38 SR (NSW) 423 at 437, 441; Mamouney v Soliman (1992) 9 ACSR 63 at 71-72), that does not seem to me to help Aurora if the member who called the meeting did not have the same obligation to give full and frank disclosure of all relevant matters.
In these circumstances, I do not propose to deal with the ten features of the notice and explanatory memorandum about which Aurora complained. I think it is reasonably clear from the explanatory memorandum that the meeting was being called by a member of ABW who was not happy with Aurora's performance as responsible entity and wanted to change to Primary. If a member of Aurora had read the explanatory memorandum, then they would be left with the clear impression that the member calling the meeting was dissatisfied with Aurora's performance and wanted a new responsible entity to investigate Aurora's management of the fund and, if appropriate, take action. A reader would not have expected the member calling a meeting to put forward the counter-arguments Aurora might rely upon in its defence. The reader would, I think, have understood that Primary, as the author of the explanatory memorandum, would be putting its case as to why Primary should be appointed instead of Aurora and would, likewise, have expected that Primary would be 'putting its best foot forward' rather than giving an impartial assessment of Aurora's performance.
Aurora referred to Sipad Holding ddpo v Popovic (1995) 61 FCR 205; (1995) 18 ACSR 436, where Lehane J suggested that a procedural irregularity may arise where the parties have attempted to do something which the corporations legislation permits but have failed to do it effectively because of a procedural failure or omission, but not where the parties have tried to do something which the corporations legislation does not authorise. Further, in Cordiant Communications (Aust) Pty Ltd v Communications Group Holdings Pty Ltd (2005) 55 ACSR 185; [2005] NSWSC 1005, Palmer J observed that it is often "difficult to draw the line" between a procedural and substantive irregularity, but at [87]:
I think it is fair to say that in some cases irregularity has been regarded as procedural rather than substantial primarily according to the degree of injustice or inconvenience caused rather than according to the nature of the irregularity.
In finding that the determination as to the validity of votes at a meeting was a substantive irregularity, his Honour observed at [103]:
… I think that the following general proposition may be formulated for the purposes of the application of CA s 1322:
• what is a "procedural irregularity" will be ascertained by first determining what is "the thing to be done" which the procedure is to regulate;
• if there is an irregularity which changes the substance of "the thing to be done", the irregularity will be substantive;
• if the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.
Aurora submitted that, by reason of the Chapter 6 matters, the meeting was infected by substantial injustice. Chapter 6 is designed to protect all the holders of units in ABW, not just Mr Staermose's voting bloc: section 602(b). Even if Mr Staermose commanded a majority, that does not give him permission to ignore the requirements of the Corporations Act and thereby oppress the minority by denying them relevant information in order to assess the merits of the proposal at the meeting: Gambotto v WCP Ltd (1995) 182 CLR 432; [1995] HCA 12. Clause 128.5 of ASIC Regulatory Guide 128 states that:
Investors acting collectively to surreptitiously obtain a substantial stake in or illegitimately obtain control over an entity can negatively affect the entity and the position of other investors in the entity.
The replacement of the responsible entity is akin to replacing the entire board of directors: section 12(3), section 604(1)(g). Aurora relied on the judgment of Hodgson J in Mamouney v Soliman (1992) 9 ACSR 63 at 71-72:
… the more significant the resolutions passed at the meeting, and the greater the procedural defects, the more ready the court will be to say that they have caused or may cause substantial injustice; and correspondingly, the less is the need for direct evidence of what would actually have happened if proper notice had been given.
Aurora relied on French J's observation in Re Wave Capital (2003) 47 ACSR 418; [2003] FCA 969 at [29] and In the matter of DUET Management Company 1 Limited (2013) 95 ACSR 34; [2013] NSWSC 817 at [18] per Black J. Applying these principles to this case, Aurora submitted that Primary disregarded the provisions of the Corporations Act and the Constitution of ABW in assisting members who were acting contrary to Chapter 6. The Court should intervene to prevent the resolutions having any effect. When meetings are called by members, since such meetings can be so disruptive to management, Courts have demanded strict adherence to the procedural requirements. Any non-compliance in that context is regarded as sufficient to give rise to substantial injustice for the purposes of section 1322(2): CellOS Software Ltd v Wong (2017) 118 ACSR 501; [2017] FCA 95 at [28]. Even if the Court considers that the irregularities associated with the calling of the purported meeting were procedural, it is submitted that they caused substantial injustice to the members of ABW as a whole, and it would be contrary to public policy to permit the resolutions to stand in light of the Chapter 6 matters.
Primary did not make any submissions as to whether failure to identify the members on the notice of meeting was a substantive or procedural irregularity, or whether there was substantial injustice caused.
I confess that my focus is somewhat different to Chapter 6 concerns. I consider that the failure to identify, in the notice of meeting, the members calling the meeting is a substantive irregularity. The Corporations Act does not give members a right to call a meeting without identifying themselves, and for good reason. This was not a case of attempting to do something which the Corporations Act permits but failing to achieve that result due to a procedural failure or omission. Primary, Mr Staermose and Wonfair attempted to do something which the Corporations Act does not authorise. As a substantive irregularity, section 1322(2) does not apply and Primary has not sought an order under section 1322(4). That is the end of the matter.
If I am wrong about this, I have assumed in Primary's favour that failure to give the required 21 days' notice to 25% of the members of ABW was a procedural irregularity. In respect of the failure to give notice, Primary submitted that it made numerous attempts to compel Aurora and Boardroom to produce a copy of the register and these attempts were unsuccessful. As a result, Primary did everything within its power to give the required notice and, even allowing for public holidays during the notice period, did so. No member of ABW has complained about short notice or injustice and Aurora and its directors, having received notice of the meeting, did not attend the meeting or otherwise make their position known other than through announcements to the Australian Stock Exchange recommending that members should not attend or vote, being an attempt to frustrate or prevent the meeting. Even if Aurora had attended the meeting, its 13% interest in ABW would not have altered the outcome. In those circumstances, Primary submitted that Aurora did not and could not have suffered any prejudice. The result is that, in the absence of any complaint as to prejudice, section 1322(2) will apply and the 15 January meeting will not be invalidated by reason of the fact that some 25% of members did not receive the required notice. Primary further submitted that, if Aurora had it complied with its obligation under section 173(3) of the Act and the register had been produced in a timely manner, none of this would have happened. Aurora should not have exercised self-help or self-regulation by refusing to provide access to the register, but should have notified ASIC of perceived breaches of the Act and let ASIC utilise its investigative powers. Having refused Primary's request for access to the register, Primary submits that Aurora cannot complain that Primary used an old register or that the meeting should be invalidated as a result of a perceived lack of sufficient notice.
Whilst Aurora's submissions on this subject were, with respect, pitched too high, it seems to me that five factors lead me to conclude that substantial injustice has been or is likely to be caused if the resolutions at the meeting on 15 January 2019 are permitted to stand notwithstanding failure to give the required notice to 25% of members.
1. The failure to give the required 21 days' notice to 25% of the members of ABW was the result of a decision by those calling the meeting to use an old register, which they appreciated would likely result in some members not receiving adequate notice and create a risk that the meeting would be held to be invalid.
2. The notice was given, deliberately it seems to me, over the Christmas and New Year period when, offices are usually closed and people are often not at home to open their mail.
3. In the result, less than half of ABW's members participated in the meeting, either in person or by proxy.
4. Of those who did participate in the meeting, some three-quarters comprised a Hong Kong adviser and his clients and other members who were acting together in a concerted attempt to remove the responsible entity. I think this was a relevant matter for other members to know, and they weren't told about it.
5. I think there is no doubt that if Aurora had received notice in the usual way, then it would have informed ABW members at length about its concerns regarding Mr Staermose and his clients. Whether ABW's members would, having been so informed, have voted the same way is not known, but they weren't given the chance to make a choice in light of such information as matters unfolded.