Australian Olives Limited v Stout

REASONS FOR JUDGMENT 1 The applicant, Australian Olives Limited ('AOL'), is the responsible entity of a number of managed investment schemes registered by the Australian Securities and Investments Commission ('ASIC') for the purposes of Chapter 5C of the Corporations Act 2001 (Cth) ('the Act'). The two schemes of immediate relevance are schemes described as Australian Olives Project No. 4 ('Project 4') and Australian Olives Project No. 5 ('Project 5'). These two schemes are two of six managed investment olive schemes. Issues in relation to Australian Olives Project No. 6 ('Project 6') are the subject of separate proceedings between AOL and particular members of that scheme. 2 Projects 4 and 5 were established to manage the cultivation of olive trees and in consequence olive production, at Yallamundi, a property located in the Darling Downs region of South Western Queensland between 2001 and 2004. Project 4 involves an area under cultivation of 223 hectares; a tree density per hectare of 357 trees; an investment term of 22 years; and the production of 16 olive varieties. The project has a Product Ruling from the Australian Taxation Office ('ATO'), PR2001/66. Project 5 involves an area under cultivation of 181.8 hectares; a tree density per hectare of 353 trees; an investment term of 20 years; the production of nine different olive varieties and ATO Product Ruling PR2003/26. 3 On 2 November 2007, a number of members of Project 4 caused a Notice of Meeting of Members to be issued to all members calling a meeting of Project members for 11.00am on Monday, 26 November 2007 at the offices of Piper Alderman, Lawyers, in Sydney and on 1 November 2007 a number of members of Project 5 caused a Notice of Meeting of Members to be issued calling a meeting of members for 10.00am on 26 November 2007 at the same place so as to consider two proposed extraordinary resolutions in each project. As to Project 4, the resolutions are these: Resolution 1 Extraordinary Resolution - Change of Responsible Entity: Removal of Australian Olives Ltd (ACN 078 885 042) Subject to Extraordinary Resolution 2 being passed and subject to the variation to the Australian financial services licence No. 224107 of Primary Securities Limited ABN 96 089 812 635 being made to permit it to operate the Project, the current responsible entity of the Project, Australian Olives Limited ACN 078 885 042 be removed as responsible entity of the Project. Resolution 2 Extraordinary Resolution - Change of Responsible Entity: Appointment of Primary Securities Limited (ABN 96 089 812 635) Subject to Extraordinary Resolution 1 being passed and subject to the variation to the Australian financial services licence No. 224107 of Primary Securities Limited ABN 96 089 812 635 being made to permit it to operate the Project, that Primary Securities Limited be appointed as the new responsible entity of the Project. 4 Like resolutions are proposed for Project 5. 5 On 19 November 2007, the applicant filed the present application by which it seeks a declaration that the Notice of Meeting in respect of both Projects 4 and 5 is invalid on grounds that each notice recites a list of members calling the meeting some or all of whom did not wish to call a meeting and each notice is misleading of members of each scheme as it incorrectly states that the members listed on the notice all support the resolutions proposed in each Notice when some of those members do not. The applicant seeks a final injunction restraining the respondent members of each Project from convening each meeting and an interim injunction restraining them from convening the meeting pending the final determination of the issues. The respondents to the application are most of those members recited in each Notice of Meeting. 6 On 21 November 2007, directions were made by the Court that the application for interim relief be adjourned to Thursday, 6 December 2007; each meeting of members of Projects 4 and 5 to be held on Monday, 26 November 2007 be adjourned until 12.00pm Sydney time on Monday, 10 December 2007 at the offices of Piper Alderman, Level 23, Governor Macquarie Tower, 1 Farrer Place, Sydney; an amended application in the related proceedings concerning Project 6 be filed by Monday, 26 November 2007 and related orders. 7 The central contentions of the applicant in support of an interim injunction restraining the respondents from proceeding with the meeting are these which might usefully be illustrated primarily by reference to Project 4. 8 The Notice of Meeting for Project 4 recites that 'The attached list of members of … Project 4 … who hold interests in the Project, 496 groves out of a total of 1,117 groves, representing 44% of the votes that may be potentially eligible to vote at a meeting of the Project's members … give notice … that they have pursuant to section 252D of the Corporations Act 2001 called and arranged a meeting of members of the Project at the time, date and place listed below to consider and vote on the resolutions specified in this notice'. The notice attaches a list of 56 members of Project 4 and identifies the interest held by each member. Immediately under that introductory paragraph, the notice invites the addressee to consider an accompanying statement of important information, in these terms: Please refer to the Explanatory Memorandum that accompanies this Notice of Meeting for important information on the resolutions proposed. 9 The introductory part of the Explanatory Memorandum is in these terms. These notes explain the resolutions set out in the Notice of Meeting and should be read in conjunction with the notice. Your vote is important. Please ensure that if you cannot attend you send in a proxy indicating which way you want to vote. Resolution - Change of Responsible Entity The Members of the Project who have called this meeting consider that Member's interests will be better served by the removal of the current responsible entity Australian Olives Limited ACN … and the appointment of Primary Securities Limited ABN … as the replacement responsible entity. [The emphasis in [9] and [10] is that contained in each notice.] 10 Immediately under that paragraph reciting the considered view of those calling the meeting that member's interests are better served by removing AOL, the notice directs the addressee to the duties imposed upon a responsible entity by s 601FD(1) of the Act, in addition to other duties a responsible entity may have at law. The notice says that in particular a responsible entity of a registered scheme must exercise the degree of care and diligence a reasonable person in that position would exercise; act in the best interests of members and if there be a conflict between the interests of members and the entity, give priority to the member's interests; and treat members of the same class equally and those of different classes, fairly. The notice then says that if Primary Securities Limited ('PSL') is appointed as responsible entity it will conduct a review of management arrangements; review fees currently charged by AOL to members; conduct a review of frost damage to trees; and replace the auditors to the Project with others. The fair inference open from the conjunction of those observations with the statement of opinion of the members calling the meeting is that AOL has failed to discharge the identified duties which condition the view of those calling the meeting that the interests of members would be better served by removing AOL and replacing it with PSL. 11 The applicant contends that of the 56 members recited in the Notice of Meeting for Project 4, 24 of them consented to their name being endorsed on the notice, 4 of them did not agree and 21 of them provided no response to a request made of them that they consent to their name being included within the 56 nominated members. Therefore, the notice suggests, it is said, much broader support for the calling of a meeting than is the position and actively misstates consent from some members. Secondly, the consent given by 24 of those members was simply a consent to the convening of the meeting and not an expression of approval or support for the resolutions based on the identified opinion. Since the accompanying Explanatory Memorandum incorrectly recites that all 56 members recorded on the Notice of Meeting consider that member's interests will be better suited by the removal of AOL and the appointment of PSL, the notice is necessarily misleading or deceptive or likely to mislead or deceive members in relation to the Project in contravention of s 1041H of the Act thus enlivening the Court's power to make a remedial order under s 1324(1) of the Act including an interim order in aid of the final relief. Thirdly, the misleading quality or character of the notice is unable to be cured, it is said, because the notice invites recipients to respond by addressing a proxy form in favour of PSL either for or against the motions and members who have sent a proxy to PSL in reliance upon the Explanatory Memorandum have committed themselves to a position with the result that no statement made to the meeting will reach or influence those members who have given a proxy. In addition, consideration must be given to those members who may not attend the meeting but who have received the material and have acted one way or another, in reliance on it. 12 The evidence going to these contentions is this. 13 The procedural steps and general arrangements for convening the meeting of members and formulating and issuing the Notices of Meeting have been undertaken by Stantins, Accountants and Advisers of Hawthorn in Victoria. Mr Spyridon Livadaras is a partner in Stantins and says that he is personally the adviser to a number of the respondent members convening the meetings for each Project. Mr Livadaras says that he received a number of consents from members of Project 4 to call a meeting and he subsequently caused the Notice of Meeting to be sent. Exhibit 'SL2' to the affidavit of Mr Livadaras sworn 30 November 2007 attaches copies of emails and correspondence evidencing the consents for Project 4. Those attachments demonstrate that an electronic or written consent was received by Mr Livadaras from 24 of the 56 members mostly after the date of issue of the notice. There is no electronic or written consent forming part of Exhibit 'SL2' from 21 of those 56 members. The applicant says the request made of each member is illustrated by an email sent by Leonie Ladgrove of Stantins on behalf of Mr Livadaras to a member, Ms Crystal Cree, in these terms: You have previously been in email contact with my business partner Spiros Livadaras. We are in the process of preparing to call meetings for the projects in which our clients have invested. If we can get the numbers we will arrange this for all six projects. As we require at least 5% of paid up members to call a meeting would you please confirm the following: