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[2007] FCA 1958
Federal Court of Australia
2007-12-10
Greenwood J
Original judgment source is linked above.
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:
The Statutory Environment 32 Projects 4 and 5 are managed investment schemes under the Act (s 9) registered by ASIC (s 601EB). Each scheme involves the contribution of consideration by investors (members) to acquire rights (interests) to benefits produced by the use of those contributions for the scheme purpose in circumstances where the members do not have day‑to‑day control over the operation of the scheme (s 9). Such a scheme must be registered under the Act by ASIC, subject to s 601EB(1), if it has, as here, more than 20 members (s 601ED(1)). Each scheme must have a constitution (Part 5C.3) and a compliance plan (Part 5C.4). Each registered scheme must identify a company (the responsible entity) to operate the scheme and perform the functions conferred on it by the scheme constitution (s 601FB(1)). The responsible entity of a registered scheme 'must be a public company that holds an Australian financial services licence authorising it to operate a managed investment scheme' (s 601FA). PSL is said not to have such a licence. The statutory duties to be discharged by the responsible entity are set out at s 601FC(1) and those of officers, at s 601FD. 33 Division 2 of Part 5C.2 deals with the methods of changing the responsible entity of a scheme. A purported change of the scheme's responsible entity is 'ineffective unless it is in accordance with this Division' (s 601FJ(2)) and 'a company cannot be chosen or appointed as the responsible entity or temporary responsible entity of a registered scheme unless it meets the requirements of section 601FA' (s 601FK). However, ASIC or a member of the registered scheme may apply to the Court for the appointment of a temporary responsible entity of the scheme if the scheme does not have a responsible entity that meets the requirements of s 601FA (s 601FN) and the Court may make that order if it is satisfied that the appointment is 'in the interests of the members' (s 601FP). ASIC may deregister a scheme if the scheme does not have a responsible entity that meets the requirements of s 601FA (s 601PB(1)). In addition, ASIC has power to grant exceptions and modifications to Chapter 5C by force of Part 5C.11. In order to maintain continuity for those persons dealing with the register, a company recorded by ASIC as a responsible entity of a registered scheme remains the responsible entity until the record is altered to name the new entity, notwithstanding anything in Division 2. 34 A responsible entity might retire or be removed by members. Section 601FM(1) is in these terms: If members of a registered scheme want to remove the responsible entity, they may take action under Division 1 of Part 2G.4 for the calling of a members' meeting to consider and vote on a resolution that the current responsible entity should be removed and a resolution choosing a company to be the new responsible entity. The resolutions must be extraordinary resolutions if the scheme is not listed. 35 Neither scheme is listed (that is, neither scheme is included in the official list of a prescribed financial market (s 9)). Because the register must be kept current, s 601FM(2) provides that if the members vote to remove a responsible entity and at the same meeting choose a company to be the new responsible entity (that consents in writing), the pre‑resolution responsible entity must within two business days lodge a notice with ASIC asking it to alter the record of the scheme's registration to name the new responsible entity and ASIC must comply with the notice when lodged (s 601FM(2)(a) and (c)). 36 Section 252D of Part 2G.4 of the Act provides that members of a registered scheme who hold interests carrying at least 5% of the votes that may be cast at a meeting of the scheme's members may call and arrange to hold a meeting of the scheme's members to consider and vote on a proposed special or extraordinary resolution. An extraordinary resolution in relation to a registered scheme means, among other things, a resolution 'that has been passed by at least 50% of the total votes that may be cast by members entitled to vote on the resolution (including members who are not present in person or by proxy)' (s 9). Since the Notice of Meeting for each scheme recites members calling and arranging to hold a meeting representing 44% (Project 4) and 65% (Project 5) of members, the incorrect inclusion of Whelan, Mack and Bysouth does not reduce the notices to a call for a meeting by members holding interests carrying less than 5% of the votes that may be cast at the meeting. The notices are otherwise valid as they are supported by members representing a substantial percentage of interests entitled to vote. It seems to me that the reference in the email from Leonie Ladgrove of 24 October 2007 to Mr Whelan and the email to Mr Bysouth which make reference to the need to list as many members as possible so as to avoid AOL seeking and obtaining an injunction to restrain the meeting is simply a reference to a desire on the part of those organising the call for a meeting to secure the support of a proportion of the members well beyond the 5% threshold. 37 The more difficult question is the licence status of PSL and the extent to which that consideration should be weighed in the exercise of discretion assuming a prima facie case of a contravention of the Act in respect of at least one and arguably three members. The applicant says that in exercising the discretion, the Court should weigh in the balance in favour of granting interim relief, a recognition that the meeting is seeking to pass a resolution (inter‑dependent with the removal of AOL) to appoint a responsible entity to each scheme that is prohibited from so acting by ss 601FK and 601FA and such a resolution is rendered ineffective by s 601FJ(2). The respondent scheme members say the meeting should proceed to determine the matter because: it is called lawfully; members are entitled to consider the resolutions and if thought fit pass or reject the resolutions; no question of a prohibition upon PSL being chosen or appointed to act as responsible entity arises unless and until the meeting passes a resolution purporting to choose or appoint PSL; and, in any event, PSL's Australian financial services licence issued by ASIC authorises it to operate 'a managed investment scheme' and it is not a requirement of s 601FA that PSL be licensed to operate 'the managed investment scheme'. 38 As to the last point, PSL holds an Australian financial services licence (No. 224017) under s 913B of the Act. The affidavit of Anthony Johnston sworn 20 November 2007 exhibits ('AJ1') a copy of the PSL licence obtained upon conducting a search of the ASIC register. The licence records that PSL 'shall continue to be licensed … subject to the conditions and restrictions, and to the conditions contained in this licence and attached schedules'. The licence 'authorises' PSL, among other things, to: (c) operate the following kinds of registered managed investment schemes (including the holding of any incidental property) in its capacity as responsible entity. 39 The 'Authorisation' section of the licence then recites seven registered managed investment schemes. They are a horticulture scheme called 'Cool Climate Apricot Project'; a forestry scheme 'NTT Mahogany Project'; a further forestry scheme 'NTT Mahogany Project 2006‑2008'; a further forestry scheme 'WRF Kangaroo Island Plantations 2002'; a horticulture scheme 'Moora Citrus Project'; a timber scheme 'Australian Hardwood Investment Scheme' and a property scheme 'Compass Hotel Group Trust'. Mr Robert Garton Smith, the Managing Director of PSL, in his affidavit sworn 5 December 2007 says that PSL has applied for and been granted approximately 20 licence variations almost all for agricultural schemes of different varieties and that PSL currently holds or oversees 12 managed investment schemes. 40 The term 'Australian financial services licence' bears the same meaning in Part 5C as it does in Part 7 of the Act which provides for the regulation of such licences. Part 7 provides that ASIC must grant a licence if the requirements of s 913B are satisfied and ASIC may at any time 'impose conditions or additional conditions on the licence and vary conditions' (s 914A(1)). It may do so on its own initiative or on the application of the licensee (s 914A(2)). A licensee must comply with the conditions (s 912A(1)(b)). The scope of the 'Authorisation' conferred by the licence granted to PSL is not limited (so far as operating a registered managed investment scheme is concerned) to operating the identified schemes but extends to operating schemes of the kind identified. Horticulture schemes for the propagation of olive trees and the production of olives may be schemes of the kind described as the apricot or citrus horticulture schemes recited in the licence. There is no evidence on those matters. Those schemes may exhibit an entirely different organisational structure, call for different levels of horticultural expertise and may be differentiated by reason of a range of other factors. The Corporations Regulations 2001 (Reg. 7.1.04A and Reg. 7.1.04B) identify for the purposes of s 761CA of the Act those things that constitute a kind or class of financial service for the purposes of Part 7. Those Regulations although confined to an explanation of the meaning of 'custodial arrangement' in s 1012 IA of the Act and variations to financial products' for the purposes of s 1017F(4), may give some indication of the meaning of a kind of financial product or class of financial product. As to kind, 'each of the following is a kind of financial product (a) for interests in a managed investment scheme, all the interests in that managed investment scheme' (Reg. 7.1.04A(2)) and as to class, 'an interest in a managed investment scheme is in the same class as another interest in a managed investment scheme if they are both interests in the same managed investment scheme' (Reg. 7.1.04B(2)). To the extent that these terms provide any analogue for the purposes of Part 5C of the Act, they indicate a limited meaning to the terms 'kinds' or 'classes'. Mr Smith exhibits to his affidavit a copy of a letter to PSL from ASIC dated 3 December 2007 ('RGS1') in response to PSL's application to vary the licence to expressly authorise it to operate the six registered olive schemes as responsible entity. That letter identifies a range of information ASIC requires for consideration in dealing with the variation application. The ASIC letter seems consistent with a position taken by PSL that a variation to its licence is necessary to enable it to operate the six olive schemes either because the authority conferred by the licence is limited to the nominated schemes or, alternatively, those nominated schemes are not of the kind represented by the olive schemes. 41 Section 601FA is not satisfied by holding a licence to conduct any registered managed investment scheme. The section contemplates a licence authorising, according to its terms and conditions, a company to operate the managed investment scheme in question. That licence, however, might do so because the particular registered managed investment scheme falls within the scope of the existing licence as, for example, a scheme of the kind already licensed. For the purposes of this application only, I proceed on the footing that PSL does not hold a licence to operate Projects 4 or 5. The question however of PSL's licence or the circumstances relevant to whether PSL requires (or might obtain) a variation to its licence to act as a responsible entity of the olive schemes are matters the meeting of members might properly consider. The possibility or prospect that the meeting might pass inter‑dependent resolutions that result in a contended appointment of a responsible entity other than in conformity of Part 5C of the Act is not a proper basis for exercising the discretion in favour of restraining the respondent members from holding a meeting of scheme members. If the meeting resolves in a way which is thought to be inconsistent with the statutory provisions, that resolution will give rise to other considerations. Those considerations may never arise. 42 I am not satisfied that a prima facie contravention of the Act in respect of the use of the names of Mr Whelan, Dr Mack or Mr Bysouth is made out as the applicant has failed to demonstrate a nexus between the conduct and scheme members being misled by reason of it. Nor has a proper basis for restraining the respondent scheme members from convening the scheme meetings been made out. I am not satisfied that the notices are rendered invalid by the use of the names of those three members. I am not satisfied that a proper basis arises for the exercise of the discretion to grant interim relief restraining members from holding the meetings and voting upon the resolutions. If I was otherwise satisfied that a prima facie case had been made out, I would not regard the possibility or prospect that the members might pass a resolution resulting in a contended appointment of a responsible entity other than in conformity with Part 5C of the Act, as a matter influencing the exercise of the discretion to grant interim relief to prevent the meetings from taking place. 43 As a result, the application is dismissed with costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.
Associate: Dated: 10 December 2007 Counsel for the Applicant: Mr Wilson
Solicitor for the Applicant: McMahon Clarke Legal
Australian Olives Limited
Stout
(2006) 227 CLR 57
(1968) 118 CLR 618
(2000) 2002 CLR 45
(1997) 69 SASR 440