Australian Olive Holdings Pty Ltd v Huntley Management Ltd

BACKGROUND 6 The plaintiffs were appointed liquidators of GSMA on 19 November 2009 by resolution of creditors. By reason of s 446A(2)(a) of the Act, GSMA is taken to have passed on the date of appointment a special resolution under s 491 of the Act that it be wound up voluntarily. Accordingly, the provisions of Div 4 of Pt 5.5 of the Act concerning voluntary winding up generally apply to the winding up of GSMA. These provisions include s 511 which provides as follows: 511 Application to Court to have questions determined or powers exercised (1) The liquidator, or any contributory or creditor, may apply to the Court: (a) to determine any question arising in the winding up of a company; or (b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court. (1A) APRA may apply to the Court under subsection (1) in relation to a company that is a friendly society within the meaning of the Life Insurance Act 1995 and which may be wound up voluntarily under subsection 180(2) of that Act. (2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just. 7 GSMA was, for nine years, acting as RE of the Templegate Forestry Trust Mossgrove MIS (the Mossgrove Scheme); the Templegate Forestry Trust Hamilton MIS (the Hamilton Scheme); the Templegate Forestry Trust Jeremy 1 MIS (the Jeremy 1 Scheme) and the Templegate Forestry Trust Jeremy 2 MIS (the Jeremy 2 Scheme). 8 There were requirements under the Constitutions of the respective Schemes for GSMA to establish and maintain in respect of each Scheme a 'Trust (Maintenance) Fund' (TMF). Those funds were established. 9 On 1 April 2010, the members of the Mossgrove Scheme, the Hamilton Scheme and the Jeremy 1 Scheme resolved to remove GSMA as RE of those Schemes. On 22 April 2010, members of the Jeremy 2 Scheme similarly resolved to remove GSMA as RE of that Scheme. 10 PSL became the RE of the Mossgrove Scheme, the Hamilton Scheme and the Jeremy 1 Scheme on 7 April 2010 and the Jeremy 2 Scheme on 23 April 2010. 11 Following its removal, the plaintiffs formed the view that on the same day as the removal of GSMA from the four Schemes (1 April 2010 in the case of the first three Schemes and 22 April 2010 in the case of Jeremy 2 Scheme), GSMA became entitled to the funds existing in the TMF for each of the Schemes. 12 The entitlement as perceived by the liquidators arose by reason of the content of cl 14.3(c) of the Constitution of each of the Schemes. That clause was in the following terms: [On its retirement or removal, the Responsible Entity] is entitled to receive the balance of the Trust (Maintenance) Funds, and the new responsible entity must prior to the retirement or removal of the Responsible Entity taking effect, pay into a new Trust (Maintenance) Fund the sum of money determined by an independent professional forester to be the appropriate amount to be held in the new Trust (Maintenance) Fund as calculated in accordance with clause 38 of this Constitution. 13 PSL by correspondence on 21 May 2010 demanded that the funds referred to in the respective TMF accounts be transferred to bank accounts in the name of PSL as the new RE. 14 Exchanges of correspondence ensued. On 3 June 2010, PSL issued the WAD 148 of 2010 proceeding referred to above and in light of the conflict of views expressed by PSL and GSMA, the liquidators of GSMA (the plaintiffs) issued this proceeding on 8 September 2010 seeking an answer to the question of whether GSMA should pay the subject funds to PSL or retain and apply them in accordance with Ch 5 of the Act. 15 In my view, the approach seeking clarification taken by the liquidators is appropriate: see Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 per Olsson J at 286 and 288 and Pace v Antlers Pty Ltd (In Liq) (1998) 80 FCR 485 per Lindgren J at 497-498. 16 There are additional questions which have been raised by the liquidators but as the need by PSL for access to the funds in the TMF accounts arises with some urgency, the issue to be examined at this stage has been confined to the funds in those accounts. 17 Despite the current urgency, the age of the Schemes and data collected has meant that it has taken some time for all the necessary information to be reviewed. On 16 May 2009, the plaintiffs were appointed administrators of GSMA and two days later its debenture holder, ANZ Fiduciary Services Pty Ltd (ANZ) appointed receivers and managers. From that date, the receivers and managers assumed control of all the books, records and assets of GSMA. The first meeting of creditors was held on 27 May 2009 and at the second meeting of creditors, 19 November 2009, the creditors of GSMA resolved that the company be wound up. 18 On 2 March 2010, ANZ varied the scope in terms of its appointment of receivers and managers of property of GSMA with the effect that from that date the plaintiffs were, for the first time, permitted by the receivers and managers to commence taking control of property to which GSMA was or appeared to be entitled. 19 The liquidators observe that the books and records of GSMA were mixed with those of other companies in the Great Southern group and there was difficulty in identifying, locating and obtaining books, records and other properties of GSMA. The list of boxes of books and records provided to Mr Saker, the first-named plaintiff, by the receivers and managers revealed more than 3700 boxes and records relevant to GSMA. The liquidators requested and retained further staff books, records, account reconciliations but some of those materials were not provided until late April 2010. Mr Saker says that due to the quantum of the debts claimed by GSMA's debenture holder, ANZ, and the available assets of GSMA, it appears most unlikely that any funds would be available for distribution to ordinary unsecured creditors of GSMA. 20 Further and although it is necessary for an RE under these Schemes to establish a TMF and also a Trust (Insurance) Fund and a Trust (Proceeds) Fund in respect of each of the Schemes, the accounts have not been as clearly identified in that way. 21 In this regard, Mr Saker indicates that the TMF accounts, as at September 2010, appear to reveal that there is in respect of the Hamilton Scheme TMF account, $42,939.11; the Jeremy 1 Scheme TMF account, $67,475.27; the Jeremy 2 Scheme TMF account, $62,097.25; and the Mossgrove Scheme term deposit, being the Mossgrove Scheme TMF account, $355,473.51. Other accounts and deposits have been identified but are not immediately relevant.

THE QUESTIONS ASKED 22 Against that background, the specific questions asked by the liquidators are these: 1. A determination of whether the plaintiffs, as liquidators of [GSMA], should: (a) pay to [PSL]; or (b) retain and apply in accordance with Chapter 5 of the Act, the funds held in the Hamilton Term Deposit referred to in paragraphs 25(a), 26 and 27 of the affidavit made by Andrew John Saker on 7 September 2010 (the Saker Affidavit). 2. A determination of whether the plaintiffs, as liquidators of [GSMA], should: (a) pay to PSL; or (b) retain and apply in accordance with Chapter 5 of the Act, the funds held in the Jeremy 1 Term Deposit referred to in paragraphs 25(b), 28 and 29 of the Saker Affidavit. 3. A determination of whether the plaintiffs, as liquidators of [GSMA], should: (a) pay to PSL; or (b) retain and apply in accordance with Chapter 5 of the Act, the funds held in the Jeremy 2 Term Deposit referred to in paragraphs 25(c), 30 and 31 of the Saker Affidavit. 4. A determination of whether the plaintiffs, as liquidators of [GSMA], should: (a) pay to PSL; or (b) retain and apply in accordance with Chapter 5 of the Act, the funds held in the Mossgrove Term Deposit referred to in paragraphs 25(d), 32 and 33 of the Saker Affidavit. (emphasis added)

THE HISTORY BEHIND THE CREATION OF THE PRESENT SCHEMES 23 The four Schemes were initially established as prescribed interest schemes in 1988. Under that regime, there were two parties catering for the interest of investors: a trustee and a manager. Additionally, under the prescribed interest regime, what is now the Constitution (albeit with amendments), was then the Trust Deed establishing each respective Trust. Pursuant to cl 38.1 of the original Trust Deed, it is provided that on the application of lease and management fees under para 8.2(a) of the Deed: … the Trustee shall from such Fees, transfer to the relevant Trust (Maintenance) Fund for each hectare of land leased to which such Lease and Management Fees relate, such sum of money as shall be determined by an independent professional forester being an estimate of the cost to the Manager of carrying out its obligations contained in the [lease and management agreement]. 24 Those monies with all investments and property into which the monies were to be converted were always to be held on trust by the Trustee for the Manager only to be dispersed in accordance with subcll 38.4, 38.7, 25.6 and 25.7. 25 Each of those subclauses deals with payment of certain costs or expenses of a Manager. PSL says the Trust Deed indicates that the money was notionally paid to the Manager as fees but then paid back to the Trustee as Trust money for the maintenance costs of the Scheme for its duration. It contends that on the proper construction, it was the intention of the parties that the TMF be sufficient an amount to pay for the cost of maintenance of the Schemes for the duration of the Schemes and if there was any shortfall prior to completion it was for the Manager to make up the difference. 26 In particular, PSL relies on the fact that there was no provision in the Trust Deed - like cl 14.3(c) - to the effect that the TMF could be taken by the Manager or Trustee in the event that the Manager was replaced. PSL argues that the contrary is the position as cl 13 of the Trust Deed provided that the Manager was not entitled to receive and retain for its own use and benefit any fee from the Trust (Application) Fund or the TMF or the Trust (Insurance) Fund for acting as Manager. 27 PSL also relies upon the content of the original prospectuses for the four Schemes which indicated that monies held in the TMF accounts were never even paid to the Manager but were withheld by the Trustee and paid directly into the TMF to be held on terms of the Trust as set out in the Trust Deed. Reliance is placed on the wording of the two prospectuses which is to this effect: A portion of each investor's Application Monies will be retained by the Trustee in Trust for the maintenance of the forests in accordance with good silvicultural practice until clearfell. The amount to be retained will be determined from time to time by an independent Forestry Consultant. The Trustee is also entitled to deduct certain of its fees and disbursements from this fund. If the whole or part of the timber on the plantation into which you invest is destroyed or damaged, a proportion of the monies then held in the maintenance fund will be returned to investors after payment of any expenses incurred as a result of the destruction or damage. 28 The original Trust Deed was capable of amendment pursuant to cl 26. Amendments could be made by the Trustee joining with the Manager 'if such alteration, modification, addition or cancellation' met certain requirements. In a general sense, the requirements were generally directed to circumstances in which there would be improvements achieved for the investors. 29 Ultimately, on conversion of the prescribed interest scheme to an MIS, cl 14.3(c) was inserted into the Scheme Constitution by GSMA. In doing so, it recorded that it was of the opinion that the amendments did not adversely affect the rights of the plaintiffs or growers. PSL contends that such an opinion could not possibly be honestly and reasonably held.

The Trust (Maintenance) Fund Clause after Conversion to a MIS 30 Clause 38.1 in the amended form provided as follows: Upon the application of Lease and Management Fees pursuant to paragraph 8.2(a) of the Constitution, the Trustee shall have from such Fees, transferred to the relevant Trust (Maintenance) Fund for each hectare of land leased to which such Lease and Management Fees relate, such sum of money as shall have been determined by an independent professional forester being an estimate of the cost to the Manager of carrying out its obligations contained in sub-sub-clause 2.3.1 (excepting paragraphs (e) and (g) thereof) and sub-sub-clause 2.3.2 of the Lease and Management Agreement or their equivalent. Such moneys together with all investments and property into which the said moneys may be converted, and all additions and accretions thereto, and all investments and property into which the said additions and accretions may be converted, shall under this Constitution be held by the Responsible Entity but shall only be disbursed in accordance with sub‑clauses 38.4 and 38.7, and 25.6 and 25.7 hereof. 31 In this form, as PSL observed, most of the predecessor clause is repeated but significantly the declaration of trust 'for the Manager' has been removed. PSL contends that this is recognition that the monies are Scheme property held in trust for the Scheme members rather than being for the Manager or RE. It is submitted that the monies are held by the RE in that capacity on trust for the Scheme members to be disbursed in accordance with subcll 38.4, 38.7 and 25.6 and 25.7 which are in the same form as they were prior to amendment except that the RE replaces the Manager. The plaintiffs contend that there is no trust and the funds are not Scheme property. 32 PSL, with authority of the Scheme members, replaced the previous cl 14.3(c). A new cl 14.4 has been inserted which permits PSL to claim from GSMA the whole or any portion of the TMF. That clause can only be seen as an indication of intent. It cannot be binding in any way on GSMA.

PSL'S ARGUMENTS 33 Realistically, PSL has been the protagonist as it has objected to the course the plaintiffs propose taking. Accordingly, I will set out its arguments first. 34 In relation to cl 14.3, PSL contends that: (a) on a change of RE, there is a statutory novation of all rights of the former RE under cl 14.3 by virtue of s 601FS and s 601FT of the Act. Those sections, it is argued, should be construed broadly so as to effect a seamless change of RE. Such a novation would 'render the clause nugatory'; (b) the only rights a former RE can have are the rights to be indemnified for expenses incurred before it ceased to be RE or the right to be paid fees for the performance of its functions before ceasing to be the RE. Neither of those are the sums claimed; (c) if cl 14.3 is not to be interpreted in accordance with subpara (a) above, then the clause inserted by GSMA was in excess of its powers and for an improper purpose (to prevent a takeover) otherwise referred to as being a 'poison pill' and is void; (d) further, cl 14.3 is in a contract which is no longer operating and cannot be enforced by the former RE because the contract is a special type, namely, a scheme constitution. Such a contract is a contract between each Scheme member and the RE, not any former RE. (e) further, the money in the accounts is Scheme property and therefore held in trust for Scheme members by virtue of s 601FC(2); (f) if the clause purports to treat the funds as being a fee out of Scheme property, then it cannot be paid because it is not a fee payable for the proper performance of the RE's duties but a confiscation; (g) if the money is not Scheme property, then the party entitled to the funds is still PSL because of the statutory novation. Alternatively, is still trust money and must be treated as such.

Novation 35 PSL submits that on a change of RE there is a statutory novation of all the rights, obligations and liabilities of the previous RE 'in relation to the Scheme'. The effect of that is achieved by s 601FS and s 601FT of the Act which provides as follows: 601FS Rights, obligations and liabilities of former responsible entity (1) If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity. (2) Despite subsection (1), the following rights and liabilities remain rights and liabilities of the former responsible entity: (a) any right of the former responsible entity to be paid fees for the performance of its functions before it ceased to be the responsible entity; and (b) any right of the former responsible entity to be indemnified for expenses it incurred before it ceased to be the responsible entity; and (c) any right, obligation or liability that the former responsible entity had as a member of the scheme; and (d) any liability for which the former responsible entity could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity. 601FTEffect of change of responsible entity on documents etc. to which former responsible entity is party (1) If the responsible entity of a registered scheme changes, a document: (a) to which the former responsible entity is a party, in which a reference is made to the former responsible entity, or under which the former responsible entity has acquired or incurred a right, obligation or liability, or might have acquired or incurred a right, obligation or liability if it had remained the responsible entity; and (b) that is capable of having effect after the change; has effect as if the new responsible entity (and not the former responsible entity) were a party to it, were referred to in it or had or might have acquired or incurred the right, obligation or liability under it. (2) Subsection (1) does not apply to a right, obligation or liability that remains a right, obligation or liability of the former responsible entity because of subsection 601FS(2). 36 PSL argues that what is preserved under these provisions is simply the rights for the previous RE to fees or indemnities or a right of the previous RE as a member of the Scheme and together with liability for which the previous RE could not have been indemnified. 37 The role played by these provisions has been considered in several recent decisions. In Huntley Management Ltd v Timbercorp Securities Ltd [2010] FCA 576 (at [44] and following) Rares J said: 44 I agree with Barrett J's initial description of those sections as enabling the new responsible entity to step into the shoes of the old. Scheme property can be held in the name of a responsible entity in accordance with the provisions of the scheme. A trustee always has rights, obligations and liabilities, defined by the terms of the trust, in respect of trust property. I am of opinion that Div 3 of Pt 5C.2 provides for an automatic statutory novation in favour of the new responsible entity in respect of all rights, obligations and liabilities of its predecessor. The novation also applies to all contracts and any other documents to which the former responsible entity was a party (ss 601FS(1), 601FT(1)). The evident purpose of Div 3 is to facilitate a change of responsible entity occurring in such a way that the conduct of the scheme is not disrupted. Of course, ss 601FS(2) and 601FT(2) recognise that the former responsible entity retains any rights, obligations and liabilities that had accrued, or applied, to it prior to the change. The change in responsible entity becomes effective when ASIC's records name the new responsible entity in place of the former under s 601FJ. However, any property right requiring registration, such as in Torrens title land, held by the former responsible entity will vest in equity in the new responsible entity immediately on the creation of the new ASIC record by force of Div 3 of Pt 5C.2, but will only vest in law when it is registered (see s 1336(3)). 45 It is vital that the words "rights, obligations and liabilities" in Div 3 of Pt 5C.2 be given a broad construction so as to achieve the evident legislative purpose of facilitating an immediate and seamless change of the responsible entity of a scheme whenever ASIC records the new entity's name in its record of a registered scheme. 46 Timbercorp argued that the words "in relation to the scheme" in s 601FS(1) covered only rights arising from or forming part of the matrix of legal relationships making up the scheme, including those derived from its constitutional documents. It suggested that those words should not be given too broad a reach and that s 601FT(1), because it worked with s 601FS(1), was implicitly confined to documents concerning the scheme. 47 I reject that argument. The expression "in relation to" is of wide and general import and should not be read down in the absence of some compelling reason to do so: Fountain v Alexander (1982) 150 CLR 615 at 629 per Mason J. In Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223 at 232 [46] RD Nicholson J held that "in relation to" as used in s 610FS(1) [sic-601FS(1)] was an expression of wide import and signified no more than some relationship or connection. As Lindgren J noted, however, the rights, obligations and liabilities of the former responsible entity to which each of ss 601FS(1) and 601FT(1) apply, are impliedly limited to those capable of having an ongoing operation after the change in responsible entity: Re Huntley Management Ltd; Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2009) 76 ACSR 256 at 268 [85]. 48 Ordinarily, the scheme would give the responsible entity a legal, and possibly a larger, right to hold scheme property, such as land, in its name. But, by force of ss 601FJ, 601FS(1) and 601FT(1) that right necessarily passes to the new responsible entity on a change becoming effective. In most cases one could expect that control and ownership of scheme property finds its ultimate source in the scheme constitution. Ordinarily, that will identify the basis on which scheme property is held by the responsible entity. 49 I am of opinion that ss 601FS(1) and 601FT(1) create a means of ensuring that rights to hold, and rights "in relation to", scheme property pass to and vest in the new responsible entity. This is because ss 601FJ, 601FS(1) and 601FT(1) cause all rights of the former responsible entity "in relation to the scheme" to pass to the new one once changed: cf City Pacific Ltd (In Liq) v Ballandean Investments Pty Ltd [2010] QCA 113 [23], [26] at [9] per Holmes JA with whom McMurdo P and Chesterman JA agreed and Capelli v Shepard (2010) 264 ALR 167 at 196 [143], 197 [148] per Dodds-Streeton and Mandie JJA and Byrne AJA; Treecorp Australia Ltd (In Liq) v Dwyer (2009) 175 FCR 373 at 383-384 [46], [48] per Gordon J. Likewise, those sections novate obligations and liabilities of the former responsible entity "in relation to scheme property" in the new responsible entity. The language of those provisions suggests that the Parliament had novation, not merely assignment, in mind: Olsson v Dyson (1969) 120 CLR 365 at 388-391 per Windeyer J esp at 388; see too Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 at 197-199 [106]-[114] where I discussed the distinction between novation and assignment in contract. 50 Here, the statutory scheme in Div 3 of Ch 5C.2 is clearly intended to apply to a change of, and effect a transfer between, responsible entities in all situations so as to ensure that the incoming one has the fullest and most effective control of the whole of the scheme and scheme property at the instant that s 601FJ gives effect to the change. This will be achieved by giving a purposive and broad construction to the expression "in relation to the scheme" in applying ss 601FS and 601FT. (emphasis added) 38 PSL submits that because s 601FS and s 601FT achieve a statutory novation of the rights of the former RE to the new RE, they are provisions which much be given a broad interpretation to ensure a 'seamless change' from the former to the new. They can only be interpreted as meaning that the right to take the TMF passes to the new RE which must establish a new TMF account with a similar amount or other amount approved by an independent forester. 39 GSMA, on the other hand, contends that PSL misstates the effect of s 601FS(1) of the Act. In Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2009) 76 ACSR 256, Lindgren J said at 268 that the rights and obligations and liabilities of the former RE to which s 601FS(1) refers are impliedly limited to those that are capable of having ongoing operation after the change in RE. In Huntley Management Ltd v Timbercorp Securities Ltd (above), Rares J also (at [44]) observed that s 601FS(2) and s 601FT(2) recognise that the former RE retains rights and obligations and liabilities that they had accrued or applied to it prior to the change. The change in RE becomes effective when ASIC records names the new RE in place of the former under s 601FJ. 40 GSMA also rely upon what was said in Australian Olive Holdings Pty Ltd v Huntley Management Ltd [2010] FCAFC 76; (2010) 185 FCR 97 per Jacobson, Gilmour and Foster JJ (at [83]-[84]): [83] At [85] of his reasons, the primary judge said: 85 The question that then arises is whether ss 601FS and 601FT alter this result. In my opinion they do not. The construction supported by AOHL would involve re-writing the CWSA by omitting its various provisions as to what is to happen upon the removal or retirement of AOL as RE. I do not think that s 601FS(1) of the Act requires or permits this to be done. The "rights, obligations and liabilities of the former responsible entity" to which s 601FS(1) refers are impliedly limited to those that are capable of having an ongoing operation after the change in RE. Paragraph (b) of s 601FT(1) reflects this idea expressly in the words "that is capable of having effect after the change". If the CWSA did not provide for the effect on it of a removal or retirement of AOL, it would make sense to conceive of the new RE as stepping into the shoes of the outgoing one. That would be a situation in which the rights, obligations and liabilities of the former RE had an ongoing operation. [84] We agree with the conclusions which his Honour expressed in that paragraph and with the reasons which he gave for those conclusions. (emphasis added) 41 GSMA rely on the fact that the right which was conferred on GSMA was by cl 14.3(c) of the Constitution accrued prior to the change of RE. Further, the right so conveyed was not one which had or was capable of having any ongoing operation after the change in RE. This is because at the time of the change of RE the outgoing RE, GSMA had received and was entitled to retain as its own money the funds formerly characterised as the TMF in respect of each of the relevant Schemes. At the time of change, that right had been satisfied and had no ongoing operation. Accordingly the right conferred on GSMA by cl 14.3(c) was not a right to which s 601FS(1) of the Act referred.

Was the Amendment Inserting cl 14.3(c) Valid? 42 PSL also relied on an argument which depends on the transitional (now repealed) provisions in s 1460(3) of the Corporations Law. Relevantly, s 1460 provided: CORPORATIONS LAW- SECT 1460 Powers of proposed responsible entity (1) This section sets out the powers of: (a) a body that decides under subsection 1456(1) to lodge a registration application in relation to the undertaking naming itself as the proposed responsible entity; or (b) a body chosen by the holders of the prescribed interests as the proposed responsible entity at a meeting convened under paragraph 1456(2)(b) or 1457(1)(a). (2) The body has power to lodge a registration application in relation to the undertaking on behalf of the holders of the prescribed interests, and has power to do all things necessary for the purpose of the application. (3) The body has power to modify the deed in relation to the prescribed interests: (a) if the purpose of the modification is to make the deed meet the requirements of section 601GA of the new Law for the constitution of a registered scheme; or (b) the modification removes from the deed covenants that were included to satisfy the requirements of Division 5 of Part 7.12 of the old Law. This is so despite any provision in the deed to the contrary. … 43 Section 601GA of the repealed new law, now mirrored in the Act, relevantly provided: CORPORATIONS LAW- SECT 601GA Contents of the constitution … (2) If the responsible entity is to have any rights to be paid fees out of scheme property, or to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of its duties, those rights: (a) must be specified in the scheme's constitution; and (b) must be available only in relation to the proper performance of those duties; and any other agreement or arrangement has no effect to the extent that it purports to confer such a right. … 44 The two requirements of s 601GA must be satisfied. The effect of s 601GA is to require a right to fees to be specified in the Constitution. It does not give the power to insert any new fees or a power of confiscation or some other benefit not already agreed between the parties. Any other amendments could only be made under the terms of the original Trust Deed and then under the strict terms of the Trust Deed by the Trustee joining with the Manager and not by the Manager alone. 45 PSL contends that cl 14.3(c) was prejudicial to the interests of the Scheme members or investors as it constituted a 'poison pill' for any incoming RE by way of having 'to pay to' the retiring RE the entire amount in the TMF so that if the Scheme members wished to replace the incumbent RE, they would have to find a responsible RE with sufficient capital to refund the TMF. Its true effect was to entrench the incumbent RE. Further, it had the effect of confiscating Trust money set aside for the maintenance of the plantations by constituting a fee or windfall to the RE and further, by being in conflict with cl 13 of the previous Trust Deed and the new Constitution. 46 PSL argues that the clause was not for a proper purpose and therefore the power of amendment breached the RE's duty as a fiduciary. It would, in any event, it is argued, be in breach of a duty whether a RE is regarded as a fiduciary or otherwise. An amendment which is manifestly designed to prevent takeovers of the Schemes by requiring any new RE to produce the entire amount existing in the TMF before it could become a RE was not a proper purpose: cf Mills v Mills (1938) 60 CLR 150 per Starke J at 175 in the context of maintaining control over a company. 47 As to the argument by PSL that cl 14.3(c) was ineffective by reason of s 601GA(2) of the Act, this argument depends on the proper characterisation of the sums held in the TMF. Section 601GA(2) regulates payments and indemnities out of 'Scheme property'. For GSMA it is contended that upon being transferred to a TMF pursuant to cl 38.1 of the Trust Deed, the money in the TMF became money held on trust for 'the Manager'. However, it was to be disbursed only in accordance with cll 38.4, 38.7, 25.6 and 25.7. In other words, on GSMA's submission, those funds were the funds of GSMA as Manager subject, of course, to its obligations to disburse them in accordance with those provisions of the Deed. 48 In addition, on being transferred to a TMF under cl 38.1 of the Trust Deed, GSMA contends that the money in the TMF ceased to be Scheme property on the strength of Treecorp Australia Ltd v Dwyer (2009) 175 FCR 373(at [11]-[12]) per Gordon J. 49 Accordingly, on GSMA's submission, because the money in the TMF was not at any relevant time 'Scheme property', s 601GA(2) of the law and of the Act had and can have no application. Further, and importantly, from GSMA's perspective, on 26 May 2000 when GSMA became RE and Manager of each of the relevant Schemes, it could not then hold the TMF money on trust for itself. There would have been a merger of the relevant legal and beneficial interests and those separate equitable interests vested in any beneficiary. 50 It followed that the effect of the amendment made on that date to cl 38.1 of the Trust Deed (which became the relevant Constitution) was to vest the TMF monies in the RE, GSMA absolutely. This was subject only to the condition that GSMA covenanted to disburse that money only in accordance with cll 38.4, 38.7, 25.6 and 25.7 of the relevant Constitution. From that date forward, GSMA had a present entitlement to all income earned by each TMF as a result of cl 38.5 of the Constitutions. Where the balance of the TMF exceeded the sum needed to meet projected maintenance costs and expenses, GSMA was entitled to the excess amount free of any covenants by virtue of cl 38.6(a) of the relevant Constitutions. The corollary to this was that if there were any shortfall, it was also required to meet that shortfall. Each of these factors are significant in identifying the proper character of the funds. 51 GSMA argues that on an after 26 May 2000, when the purpose of each TMF had been served, GSMA was entitled to the balance of the TMF free of any covenants by virtue of cl 38.7 of the Constitutions. Alternatively, if the money in the TMF accounts was Scheme property, the rights created by cl 14.3(c) were not rights to be paid 'fees' or be 'indemnified' within the meaning of s 601GA(2) of the law or the Act. Accordingly, that provision of the law and the Act was not engaged and PSL's contention should not be accepted. 52 The second argument raised by PSL on this point is that cl 14.3(c) of the Constitution was void. This is on the basis that it was inserted by GSMA in excess of its powers and for an improper purpose. 53 GSMA relies on the fact that on the application to register each of the relevant Schemes under the legislative regime brought in by the Managed Investments Schemes Act 1998 (Cth), s 1460(3) of the Corporations Law as it then stood empowered GSMA to propose modifications to the relevant Trust Deeds. In addition, immediately on the registration of the relevant scheme, GSMA was also empowered to modify the relevant Constitutions by s 601GC(1)(b) of the Corporations Law. 54 Pursuant to s 1460(3), it was empowered to modify the relevant Trust Deeds if the purpose of the modification was to make the Deed meet the requirements of s 601GA of the Corporations Law for the constitution of a registered scheme. Recital J of each of the relevant supplemental deeds on 23 May 2000 recorded that GSMA considered that the amendments which were proposed were 'for the purposes of the registration as a managed investment scheme of the [relevant] project'. GSMA argued that there was no evidence that any officer of GSMA had any purpose other than that so stated. Each of the relevant Schemes became registered on 26 May 2000 and it followed that cl 14.3(c) took effect from that date. On that date, GSMA as RE had power to modify the Constitutions of the Schemes so as to insert cl 14.3(c) by exercising the power conferred on it by s 601GC(1)(b) of Corporations Law. That power was unfettered by any reference to purpose, its only requirement being that the RE 'reasonably considers the change will not adversely affect members' rights'. Recital K of each of the Deeds so records that GSMA was of the opinion that the amendments that it caused to take effect on 26 May 2000 did not adversely affect members' rights. GSMA argues that given the terms of cl 14.3(c) of the relevant Constitutions, its opinion was objectively reasonable. 55 GSMA contends that if cl 14.3(c) was to have operated according to its terms, a new TMF would have been created and substituted for the old fund and members would not have been adversely affected in any way. The contention that GSMA did not have the power to insert cl 14.3(c) is said to be wrong and, further, would be no more than an irregularity apt to be cured by the exercise of power conferred on the Court by s 1322 of the Corporations Law (now s 1322 of the Act). 56 PSL also argues that GSMA cannot seek to enforce a contract which is no longer on foot. GSMA rejects this argument contending that the funds in the Trust are their funds. The response is that the funds are either theirs or they are not. If the funds are owned by GSMA, then the fact that there is new RE has no bearing upon the ownership. I accept this argument.

Is the TMF Scheme Property? 57 Underlying some of PSL's arguments is the contention that the funds maintained in the TMF are, in effect, Scheme property as defined in s 9 of the Act. Scheme property of a registered scheme as there defined is: (a) contributions of money or money's worth to the scheme; and (b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and (c) money borrowed or raised by the responsible entity for the purposes of the scheme; and (d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b) or (c); and (e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a), (b), (c) or (d). 58 On this argument, each party relies on the decision of Gordon J in Treecorp Australia. PSL argues that the decision was both correct but distinguishable. The distinction drawn is that in that case the money in the contractor's account was subject to a charge in favour of the RE to secure the performance of the maintenance obligations. While the Court did not find that the fees were Scheme property that did not affect the outcome because the scheme members continued to be protected by the charge. Had the money been Scheme property, then the charge would have been unnecessary (at [44]). 59 GSMA rely also on Treecorp Australia and on Re Environinvest Ltd (2009) 69 ACSR 530. Re Environinvest is also, according to PSL, distinguishable. The trees in an agricultural scheme were held not to be Scheme property. But in that situation the scheme constitution expressly provided that this was so. In that case, the scheme members argued that the trees were owned by them individually under the prescribed interest regime and, hence, on the scheme being converted to a MIS, they brought their property with them into the new arrangement. Judd J observed at 97 that: Whatever the scheme documents and constitutions may say about the meaning of the scheme property and the ownership of the trees - it is the Act which plainly defines scheme property and declares that it is held on trust for scheme members. To remove the trees from regulation under Pt 5C as scheme property would be to emasculate the Act by stripping the schemes of effective regulation, removing the intended scheme outcomes from the regulated supervision of Enviroinvest including its ability to deal with the property in a winding up. 60 In Capelli v Shepard (2010) 264 ALR 167, the Court of Appeal of the Supreme Court of Victoria found that it was not the trees themselves but the bundle of rights in relation to the trees which constituted the Scheme property. At [150]-[151] the Court said: 150 We return now to the terms of the declaration. It will be apparent that we consider that the relevant part of the scheme property is not the trees themselves; it is the rights of the parties to the scheme with respect to those trees. Accordingly, read literally, his Honour was not correct to express the declaration in the terms that the 'trees … are part of scheme property'. Nevertheless, it is abundantly clear that in formulating the declaration, his Honour had in mind, not the trees, but rights over and interests in the trees. This is apparent from the manner in which the question arose in the trial below and from his Honour's judgment. 151 It is trite to assert that ownership is a bundle of rights in respect of a thing. This concept underlies the definition of 'property' in s 9 of the Act. In this case these rights are those conferred upon investors by the scheme documents. We would therefore construe his Honour's declaration as the equivalent of the following: The rights over and interests in all trees which were acquired with the proceeds of contributions to the Primary Yield Eucalypt Project ARSN 093 575 270 ("the PYEP scheme") standing on allotments leased by growers investing in the PYEP scheme are part of scheme property for the purposes of the winding up of the PYEP scheme and may be dealt with and sold by the scheme liquidator as part of the said winding up in accordance with the constitution of the PYEP scheme. 61 PSL contends that for the same reasoning, whatever the status prior to the Scheme converting to an MIS, the TMF was established from contributions and must be 'Scheme property'. If that is so, then the effect of s 601FC(2) of the Act is that 'the responsible entity holds Scheme property on trust for scheme members'. 62 In Re Investa Properties Ltd (2001) 187 ALR 462 Barrett J said (at [14]): 14 The section could have said that if scheme property is held by the responsible entity, that entity holds it on trust for scheme members; or that such scheme property as is held by the responsible entity is held on trust for scheme members. It says neither of these things. It expresses itself to apply indiscriminately to property having such a connection with the scheme of which the entity is responsible entity as to make the property scheme property of that scheme. It declares in unequivocal terms that that property is held by the responsible entity and that it is held on trust for scheme members. This is not merely a case of the appointment of a new trustee. It is a case where attainment of the office of responsible entity is made by statute to bring about consequences in terms of the holding of property. 63 From all of this, it is contended that GSMA held the funds as their trustee for the new RE, PSL. 64 In relation to this argument by PSL, GSMA contends that because, pursuant to cl 38.1 of the relevant Trust Deeds, the TMF money was to be held on trust for the 'Manager' when GSMA became RE and 'Manager' of each of the Schemes it could not, for obvious reasons, hold the TMF money on trust for itself as there would have been a merger of the legal and beneficial interests and those separate equitable interest vested in a beneficiary. There was no trust in existence. The effect of cl 38.1 therefore was to vest the funds absolutely in GSMA. This was subject, of course, to GSMA's covenants to disburse the funds only in accordance with cll 38.4, 38.7, 25.6 and 25.7 of the Constitutions. It followed, therefore, that GSMA did not, from 26 May 2000 onwards, hold the TMF money on trust for anyone.

Power to Make the Amendment 65 For PSL it is argued that there is a substantial difference between the state of affairs on 23 May 2000 when the Supplemental Deeds were entered into and cl 14.3(c) was inserted and three days later on 26 May 2000 when the schemes were registered and GSMA became the new RE with the power to make unilateral amendments which in its reasonable opinion would not adversely affect members' rights. On 23 May 2000, when it was not RE, it was also not subject to the onerous statutory duty of honesty, pursuant to s 601FC(1)(a) of the Act or the other duties in that section. Nor were its officers subject to the same statutory duty of honesty under s 601FD(1)(a) or the other duties in that section. Likewise, there was no operating compliance plan (s 601HA) which might, for example, deal with the steps required for amending a constitution, no compliance committee to ensure compliance (Pt 5C.5) and no compliance auditors (s 601HG(1)). A prospective RE making unilateral amendments could have unreasonable opinions and did not have a statutory obligation to act honestly or in the best interest of scheme members. Hence any amendments GSMA purported to make when it was only a prospective RE should be ignored and there should be no presumption that the amendments would readily be approved by a court under s 1322. 66 The only way the amendment could lawfully have been made prior to 26 May 2000 was with the approval of the Trustee. PSL argues that a trustee would not have approved this clause. The opinion that the amendment did not adversely affect member's rights was clearly not a reasonable opinion. The amendments were adverse to the rights of the Scheme members because the amendments permitted the confiscation of a fund for their benefit, a fund which the Scheme members had themselves provided. PSL contends the TMF was a right of Scheme members who entered into the investment on the promise that the funds would continue to exist to pay for the ongoing maintenance. 67 PSL point to the fact that a circular to Scheme members from the receivers says that although there are sufficient monies in the TMF to fund forecast Scheme expenses until harvest, there is insufficient funding to complete the life of the Schemes and the Schemes will be terminated unless the Scheme members take action to call a meeting. To avoid loss of the Schemes, the members then met to have PSL appointed as RE. At the same time, the members attempted to preserve the TMFs by removing cl 14.3(c) (evidenced by the amendments made in the current Consolidated Constitution). The potential loss of these monies would now adversely affect the rights of Scheme members as they will have to provide further funding to maintain the plantations to completion. 68 Shortly put, PSL argue forcefully that it is not for any trustee with the unilateral power to amend a trust deed to require that beneficiaries wishing to replace the Trustee can only do so if the full trust fund is given to the existing trustee. Such action by the Trustee would constitute confiscation of the fund and unjust enrichment and contrary to public policy, a barrier to a takeover. 69 GSMA argues that the introduction of cl 14.3(c) was within power, the opinion was legitimately and reasonably held and members' rights in fact were not adversely affected.

CONSIDERATION 70 Huntley Management Limited in the Full Court, by which I am bound, is a significant constraint on the arguments that PSL would advance. In that case, the respondent (AOL) was removed as a RE and replaced with the appellant (Huntley). Huntley claimed an entitlement to management fees paid by members on the basis that on becoming the RE, Huntley acquired AOL's rights under the constitutions and agreements by reason of the operation of s 601FS and s 601FT of the Act. At first instance, it was held that neither s 601FS nor s 601FT of the Act permitted a rewriting of contracts to which the former RE was a party and subs (1) of each of those sections placed a new RE in the shoes of the former RE in relation to rights, obligations and liabilities that would have been those of the former RE in respect of the post-changeover period but for the changeover. However, it did not affect the former RE's right to retain management fees which had been paid to it in satisfaction of the present debt. 71 The Full Court applied Australian Olive Holdings [2010] FCAFC 76; (2010) 185 FCR 97 (at [83]), following Lindgren J at first instance in that case, where it had been observed that the 'rights, obligations and liabilities of the former responsible entity to which s 601FS(1) refers are impliedly limited to those that are capable of having an ongoing operation after the change in RE'. The Court said that para (b) of s 601FT(1) reflects this idea expressly in the words 'that is capable of having effect after the change'. 72 Similarly, it was held in Huntley on appeal that there was no error in the conclusion that s 601FS and s 601FT did not affect AOL's right to retain management fees which had been paid to it in satisfaction of a present debt. In that sense, there were no 'shoes' into which Huntley could step. 73 Although the members will be deprived of the benefit of the funds in the TMF, the reasoning in Huntley, in my view, is correct, binding and applicable to the present situation. 74 The obligations to which s 601FS refers and to which the novation provisions apply are impliedly limited to those that are capable of having an ongoing operation after the change. Here, the right which arose under cl 14.3(c) is a right arising on the resolution to remove the RE. There was no need for that right to survive and it did not survive after the change. The entitlement of GSMA was perfected at the time of the change. At that time, it became entitled absolutely to retain for its own purposes the funds which it held as a RE until that time in the TMF accounts. There was no right existing which had an ongoing operation relevantly after the change of RE: see the Full Court in Australian Olive Holdings (at [74]‑[84]) and in Huntley Management Limited (at [21]-[22]). There was power on 26 May 2000 to make the amendment and there was no evidence that the opinion expressed was not validly or reasonably held.

Structure of the Original Trust Deed 75 Under the Deed by cl 8.2, monies are received and paid to the Manager as Lease and Management Fees in relation to the delivery to the Trustee of a duly completed and executed Lease and Management Agreement. In subcl (e), provision is made for transferring the monies to the relevant TMF. The amount to be transferred is to be determined in accordance with cl 38.1. By cl 38, once the monies are transferred to the fund they are then to be held by the RE and by 38.1 under the Constitution, the funds can only be disbursed in accordance with subcll 38.4, 38.7, 25.6 and 25.7. For the first two clauses, there are certain payments to be made and in cl 38.6, there is provision that within the first quarter each calendar year, the RE shall arrange for a new determination to be made by an independent qualified person in the terms specified with the effect that if there was any deficiency, the RE should pay an amount equivalent to that into the Fund. By cl 38.7, there is provision that any balance in the TMF can be retained or received by the RE. There is a presumption at the end of each calendar year that a calculation has been made by the RE as to the amounts to be required for the maintenance of the plantation. This process applied prior to and after the appointment of GSMA. There is a one off payment that each investor or grower makes for the ongoing maintenance. That payment is to be provided for over the entire period of the Scheme. 76 In Treecorp Australia the respondents were investors in a registered MIS of which Treecorp was the RE. Application monies had been contributed to the scheme and became Scheme property as defined in s 9 of the Act held on trust by Treecorp for scheme members pursuant to s 601FC(2) of the Act. However, on acceptance of each application by payment of the application monies, those funds were transferred to Treecorp in payment for prescribed work under a management agreement pursuant to which its agent was obliged to undertake maintenance of the scheme and to provide security in relation to that obligation. The agent granted the RE a first ranking fixed charge over a portion of the funds that were deposited into a charge account. The scheme's constitution provided that in the event Treecorp defaulted on the obligations, the proceeds of the charge accounts would be set off by the RE towards its claim against its agent to fulfil its maintenance obligations under the management agreement. Treecorp and its agent were both subsequently wound up which constituted a default under the deed of charge. Treecorp contended that the balance of the charge account formed part of the property of Treecorp or its agent and could be applied in satisfaction of their debts. The investors, however, (the respondents), contended that the balance of the account still constituted Scheme property within the s 9 definition. That argument was rejected but it was held that the liquidator could not apply the charged property in satisfaction of Treecorp's debts as the funds remained charged in favour of the RE, its successors and assigns. 77 In that instance, the application fund which had initially been Scheme property, ceased to be Scheme property because the constitution provided that Treecorp would, upon being satisfied of the matters specified in cl 13, release the application monies to itself as the RE in payment of the costs and expenses of Treecorp performing the duties and obligations of Treecorp under the constitution and the relevant management agreement. 78 Gordon J followed Keane JA, as his Honour then was, in Mier v FN Management Pty Ltd [2006] 1 Qd R 339 where his Honour concluded (at 350) that to be considered 'Scheme property' the property in question must have been contributed to the scheme or must have been obtained in connection with such contributions. The absence of such a connection would make it doubtful that property was really part of or subject to the scheme. It followed that s 601FC(2) which provides that the RE holds Scheme property on trust for scheme members does not necessarily apply to all property held by the RE or used in the operation of a scheme. 79 In Treecorp Australia, there was also an initial subscription of monies but in that situation the funds were immediately released to the RE absolutely. PSL argues that that is a key distinguishing feature of that decision to the present case. In this instance, the funds are not released immediately to the RE for the costs incurred and to be incurred but they are held 'in a trust fund'. 80 To the extent to which the funds that came both from the Manager and the investors were to be held on trust for anybody, they were not to be held on trust for the investors or the growers but rather for the Manager. There were also, however, covenants which provided that the funds could only be disbursed in accordance with the various subclauses. By the introduction of the MIS regime under Ch 5C of the Corporations Law and the Act, the Trustee gave the Manager a retirement notice as required under the law and the proposed RE, GSMA, was nominated. Consent to the nomination was lodged together with a registration application under the transitional provision of s 1460 of the Corporations Law. 81 Section 1460 of the Corporations Law gave the power to modify the Deed if the purpose of the modification was to make a deed that met the requirements of s 601GA of the Corporations Law for a constitution. 82 Under subs 6, GSMA's power was subject to qualifications. The modifications would have effect if and only if the undertaking became a registered scheme. The Schemes were registered on 26 May 2000 and therefore the modifications took effect only on the registration date of 26 May 2000. There was a power to amend the Scheme which power could be exercised by the RE, GSMA to modify a constitution where it reasonably considered the change would not adversely affect members' rights. 83 As to the effect on investors or growers of the amendment, there was power under s 1460(3), also on 26 May 2000 in s 601GC(1)(b) permitting an RE to reasonably consider a change which would not adversely affect members' rights (emphasis added). This provision does not require that an amendment improve the position of growers or investors, just that it be made no worse. An amendment which clarifies and gives certainty to an existing state of affairs may fall reasonably within this description. At the outset the TMFs were alienated by the investors or the growers in the sense that they were passed to the Trustee and were held on trust for the Manager, so the investors at that point ceased to be the beneficial owners. Legal title was in the Trustee. The beneficial interest was in the Manager, the party charged with the obligation of doing the work. 84 The May 2000 amendments saw the departure of the Trustee and the Manager and their replacement with an RE to perform all of their functions. The money which had been held by the Trustee for the benefit of the Manager would now be held by the RE for the benefit of itself. There was no trust because there cannot be a merger of the two interests of trustee and beneficiary. The effect of the statutory amendment, in any event, was that the RE held the money for itself. That is reflected by cl 38 of the Constitution where reference to the money being held on trust for the Manager has been replaced by terms which provide that the money is to be held by the RE but only to be disbursed in accordance with the provisions set out in the subclauses. There is no suggestion in the documentation that the funds were held on trust for anybody.

CONCLUSION 85 Insolvency brings unfortunate and sometimes unusual consequences. In this instance, it is the totality of the effect of the insolvency of the original RE, the replacement of the original RE with a new RE, the earlier statutory effects on the changeover to an MIS, the terms of the original Trust Deed and the terms of the current Constitution which dictate, in my view for the reasons I have expressed, that the funds held in each TMF should be treated in accordance with the plaintiffs liquidator's usual statutory obligations rather than be passed over to PSL as the new RE. 86 That is the answer to be given to each of the questions posed by the plaintiffs. 87 Although the plaintiffs have succeeded, I would reserve costs until the parties have considered how the remaining questions should be addressed. 88 In answer to each of the following determinations, the plaintiffs should retain and apply the respective funds in accordance with Ch 5 of the Corporations Act 2001 (Cth): 1. The funds held in the Hamilton Term Deposit referred to in paragraphs 25(a), 26 and 27 of the affidavit made by Andrew John Saker on 7 September 2010 (the Saker Affidavit). 2. The funds held in the Jeremy 1 Term Deposit referred to in paragraphs 25(b), 28 and 29 of the Saker Affidavit. 3. The funds held in the Jeremy 2 Term Deposit referred to in paragraphs 25(c), 30 and 31 of the Saker Affidavit. 4. The funds held in the Mossgrove Term Deposit referred to in paragraphs 25(d), 32 and 33 of the Saker Affidavit. 5. Costs be reserved. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.