Australian Olives Ltd v Livadaras

Background

1. The following summary is based on the amended statement of facts, prepared for the s 63 application, which was by agreement treated as a statement of agreed facts.
2. AMP Capital is the responsible entity of a registered managed investment scheme and trust called the AMP Capital China Growth Fund ("the Fund"). The Fund invests in shares in companies listed on the Shanghai and Shenzhen stock exchanges through a wholly owned subsidiary incorporated in Mauritius, which in turn has appointed AMP Capital Investors Limited ("AMPCI") as investment manager.
3. Two resolutions are to be put to unitholders of the Fund at the EGM. The first is a resolution proposed by AMP Capital as responsible entity, that a "capital management opportunity" - involving a one-off redemption of up to 15% of units on issue, and an on-market buy-back of up to 5% of the units on issue - be offered to unitholders. The second is a resolution proposed by the second defendant LIM, a unitholder, that the responsible entity be directed to wind up the Fund.
4. AMP Life is a unitholder in the Fund. It is a registered life insurance company under the (CTH) Life Insurance Act 1995, and has three statutory funds. The units in the Fund, which AMP Life holds, are held as part of those statutory funds. As a unitholder in the Fund, AMP Life is entitled to vote on the Resolutions unless disentitled from doing so by (CTH) Corporations Act 2001, s 253E, which provides as follows: The responsible entity of a registered scheme and its associates are not entitled to vote their interest on a resolution at a meeting of the scheme's members if they have an interest in the resolution or matter other than as a member.
5. For the purposes of s 253E, it is the definition of "associate" in s 12 of the Corporations Act, rather than that in s 11, which is applicable. [1] Section 12 provides that, where a provision in the Corporations Act (such as s 253E) relates to the extent, or restriction, of a power to exercise, or to control the exercise of, the votes attached to voting interests in a managed investment scheme, [2] a body corporate is an associate of the responsible entity if and only if one or more of the paragraphs in s 12(2) applies. Relevantly, para 12(2)(a)(iii) refers to the situation where the body corporate is controlled by an entity that controls the responsible entity. Each of AMP Life and AMP Capital is controlled by AMP Limited. Accordingly, AMP Life is an "associate" of the responsible entity for the purposes of s 253E. [3]
6. In this context, "interest" is not confined to "circumstances in which the interest in question will provide the responsible entity with a financial benefit", and includes "any direct or indirect benefit or advantage, other than as a member, arising out of passing of the resolution". [4]
7. AMP Life does not itself have "an interest in the [Resolutions] other than as a member" ("an extraneous interest"). However, AMP Capital, which is not itself a member of the Fund, does have an interest in the Resolutions other than as a member, because there will be an adverse impact on its fees as responsible entity of the Fund if either of the Resolutions is passed.
8. The question of whether AMP Life was entitled to vote on the Resolutions arose in circumstances where it was an associate of the responsible entity AMP Capital, and AMP Capital had an extraneous interest in the Resolutions. The board of AMP Capital was to meet on 28 June 2016, to approve the notice of meeting and accompanying explanatory memorandum in respect of the EGM. In that context, AMP Capital sought the advice of the Court as to whether it would be justified in including, in an explanatory memorandum, a statement to the effect that: ... [AMP Capital] has received judicial advice confirming that, as [AMP Capital] has an interest in both Resolutions other than as a member, AMP Life will be prevented by section 253E of the Corporations Act from voting on them.
9. The responsible entity also sought judicial advice as to whether it is entitled to be indemnified from the Fund in acting in accordance with the Court's direction.

Judicial advice inappropriate

1. In my view, and as Mr Walker SC for AMP Life submitted, the case was not an appropriate one for judicial advice for the following reasons.
2. First, the advice sought was in a form that would involve the Court not merely sanctioning the inclusion of a particular statement in an explanatory memorandum, but endorsing ("confirming") the underlying position that AMP Life was not entitled to vote. [5]
3. Secondly, the advice sought was in a form that would involve AMP Capital deploying the judicial advice in aid of the position that it had adopted.
4. Thirdly, the advice sought related to the substantive rights of AMP Life - that is to say, its rights to exercise its votes. [6]
5. Fourthly, the question of eligibility to vote at the EGM is a matter for the decision not of the responsible entity, but of the chair of the meeting. [7] The question would arise only if AMP Life attempted to exercise its votes; and if it arose, the question was to be determined upon the factual situation that obtained at the time of the meeting. [8]
6. AMP Capital submitted that it was nonetheless desirable for the position to be clarified, so that members had information in advance of the meeting as to who was and was not entitled to vote. However, judicial advice to the responsible entity would not achieve that result.
7. I raised with counsel whether it might be appropriate to give advice in a different form, to the effect that AMP Capital would be justified in including in the explanatory memorandum a statement that in its opinion AMP Life was not entitled to vote on the Resolutions at the EGM, but that if disputed this would be a matter for determination by the chair at the meeting. However, I concluded that I would not give judicial advice - even in that modified form - since the responsible entity's opinion as to whether AMP Life was or was not entitled to vote was of no greater significance than that of anyone else, and there would be little utility in merely including a reference that there was an issue about AMP Life's entitlement to vote.
8. In any event, AMP Capital ultimately preferred to have declaratory relief, rather than the judicial advice originally sought. I have not overlooked that the orthodox course is for a party to approach the court after the meeting to challenge the chair's exercise of the power under s 253G in preventing (or not preventing) a member from voting. [9] I have also been mindful of the consideration, referred to above, that entitlement to vote at the meeting is first and foremost a matter for the chair, to be decided on the factual situation then prevailing, and that it might be premature to determine if AMP Life should be prevented from voting on the Resolutions at the EGM, because to do so would usurp the role of the chair of that meeting under s 253G, and the factual situation might change in the meantime.
9. However, I was satisfied that there was both legal and commercial utility in granting declaratory relief on the question, notwithstanding that Corporations Act, s 253G, provides that a challenge to a right to vote at the meeting may only be made at the meeting and must be determined by the chair. That is for the following reasons.
10. First, by granting declaratory relief the Court will quell in advance an impending legal dispute, which turns on the construction of Corporations Act, s 253E, in respect of which (as discussed below) there are apparently conflicting first instance decisions, and which would otherwise have to be resolved by the chair at a meeting with considerably less assistance on the legal issues than this Court has had. In that context, it is desirable that the Court give the chair as much assistance as possible in advance of the meeting.
11. Secondly, by doing so, the Court is not usurping or pre-empting the role of the chair. The Court is not ruling on a challenge to a right to vote at a meeting: any such challenge must still be made at the meeting, and determined by the chair. The chair is not a party and is not bound by the declaration. Nor is the Court asked to restrain AMP Life from exercising its votes. Rather, the Court is asked to resolve what is essentially a legal controversy as to the construction of s 253E, which is but one of the matters the chair would have to consider.
12. Thirdly, declaratory relief can be granted on facts which are for present purposes agreed. Those facts which are essential - namely, that AMP Capital being the responsible entity has an extraneous interest in the Resolutions, and that AMP Capital and AMP Life have a common parent - appear unlikely to change. But if they do change in a relevant way, the chair will be able to take that into account.
13. Fourthly, granting declaratory relief would clarify the position in advance of the meeting and provide commercial convenience and certainty. The Corporations court exists, inter alia, to provide a service to the corporate community, and should be reluctant to decline to provide its assistance where it is sought. Ultimately, two of the parties - namely, the plaintiff AMP Capital and the second defendant LIM - both asked the Court to give declaratory relief, and the first defendant AMP Life did not dispute that there was utility in that course.

Competing constructions of s 253E

1. The question is whether, upon its proper construction, s 253E precludes an associate of the responsible entity from voting on a resolution when the responsible entity, but not the associate, has an extraneous interest in the resolution. If s 253E disqualifies a particular associate of the responsible entity only when that associate itself has an extraneous interest in the resolution ("the narrower construction"), then s 253E would not disqualify AMP Life from voting in respect of the Resolutions. But if s 253E applies to any associate of the responsible entity when any of the responsible entity or its associates has an extraneous interest ("the broader construction"), then it would disqualify AMP Life from voting in respect of the Resolutions because of AMP Capital's extraneous interest.
2. In Re Great Southern Managers Australia Limited, [10] Davies J adopted the narrower construction. Having identified two entities, referred to as GSF and GSPH, as associates of the responsible entity, her Honour then considered whether they were disentitled from voting: [11] The proscription in s 253E on an RE and its associates voting is "if they have an interest in the resolution or matter other than as [a] member". I read the words "if they have an interest" as a reference only to the interest of the entity voting and not as including the interest of the RE. … As the material before me does not show or suggest that either [GSF or GSPH] would obtain any direct or indirect benefit or advantage from voting on the proposed resolutions, other than in their capacity as members, I have concluded that the plaintiffs would be justified and would be acting reasonably in accepting and counting any votes by GSF and GSPH on resolutions put forward at the meetings.
3. The judgment does not elaborate as to why the words "if they have an interest" were read as relating only to "the interest of the entity voting and not as including the interest of the RE".
4. In Everest Capital Limited v Trust Company Limited, [12] there were two unitholders in the EBI Income Fund, one of which was ANZ Nominees, which held its units on trust for ANZ Banking Group, which in turn held those units on trust for ECL, which was also the responsible entity of the EBI Income Fund. On the footing that s 253E was incorporated into the relevant arrangements, White J resolved the question - whether ANZ Nominees was entitled to vote on a resolution directing the trustee to retire - on two bases. The first was that, as ECL had the power to direct the voting rights attached to the units held in the name of ANZ Nominees, the prohibition on the trustee voting meant that those units could not be voted by ANZ Nominees which was in substance ECL's agent. [13] Thus his Honour accepted a submission that even if ANZ Nominees was not ECL's associate, ECL was not entitled to vote: [79] ECL as trustee of the fund undoubtedly has an interest in the proposed resolution other than as a member. If s 253E applies it is not entitled to vote through its agent, or sub-agent or nominee, in whose name its interest in the units and the voting rights attached to the units are held.
5. However, his Honour then turned to consider whether ANZ Nominees was also disentitled from voting by reason that it was ECL's associate, and concluded: [93] Here there is an anterior relationship which makes ANZ Nominees the associate of ECL before ANZ Nominees acts under the sub-custodian agreement by voting the units. It is ECL's associate because it proposes to act in accordance with ECL's directions in relation to any matter arising out of its holding of the units, and thereby proposes to act in concert with ECL. … [96] ... If s 253E applies, ANZ Nominees would not be entitled to vote for the additional reason that it is an associate of ECL and is thereby precluded from voting.
6. AMP Life submitted that White J did not endorse the broader construction. However, I read his Honour's decision as being founded on dual grounds, the second of which was that, having found that ECL as trustee of the fund undoubtedly had an interest in the proposed resolution other than as a member, ANZ Nominees was not entitled to vote because it was an associate of ECL. There was no reference to any requirement that ANZ Nominees have an extraneous interest; the mere fact of association with a responsible entity that had such an interest sufficed to disqualify it from voting. That plainly reflects the "broader construction" of s 253E.
7. White J does not appear to have been referred to, and did not consider, the judgment of Davies J in Great Southern.
8. Faced with conflicting decisions of courts of co-ordinate authority on a national statute as the Corporations Act is, neither of which elaborates the relevant reasoning, it is preferable to resolve the question as one of principle.
9. Section 253E was introduced into the Corporations Law - now the Act - by the (CTH) Company Law Review Act 1998. Nothing in the Explanatory Memorandum that accompanied the Company Law Review Bill, or in the exposure draft that preceded it, or in the second reading speech, sheds any light on the construction of s 253E. [14] Accordingly, extraneous material does not advance whether the broader or narrower construction is to be preferred.
10. My conclusion that what the plaintiff called "the broader construction" of s 253E is to be preferred, is founded on a number of considerations.
11. The first is the first impression gained on reading the first sentence of s 253E. In disentitling "the responsible entity and its associates", it speaks of them as a block, not as severable individual entities. The consistent use of the plural personal pronoun "they", and the plural possessive pronoun "their", referring back to the collective term "the responsible entity and its associates", favours the view that "they" is a reference to the responsible entity and its associates collectively - that is to say, all and any of them. The reference to "their interest" suggests that the interest of any one of them is treated (by association) as the interest of all of them. While I acknowledge that modern drafting practices mean that the plural may be used to avoid gender-specific references, the use of "they" (rather than "it") nonetheless favours a collective - over a severable - construction.
12. The second - and most important - is the prophylactic purpose of s 253E to remove the potential for a conflict of interest, by precluding the responsible entity from exercising its voting power if it has an extraneous interest, so that votes will be informed only by the interests of members qua members. In Southern Wine Corporation Pty Ltd (in liq) v Perera, [15] the Western Australia Court of Appeal said: [16] [21] It seems plain enough that, when read in its context and having regard for its legislative history, s 253E was designed to ensure that the responsible entity, in voting on a resolution, would not put its own interest, arising independently of its membership of the scheme, ahead of that of other members, to their potential detriment. It is, of course, true that the section is not limited in its operation to cases of an actual conflict of interest. The section provides that the responsible entity cannot vote its interest on a resolution where it has any interest in the resolution or matter other than as a member. However, there could have been no other purpose behind [s 253E] than that of removing the potential for a conflict of interest.
13. The reason for extending the prohibition to associates is that it is recognised that associates may act together to procure a result that benefits any one or more of them, notwithstanding that it might not directly benefit the individual associate. The disqualification of a responsible entity would achieve nothing, if its associates were all at liberty to vote in the manner in which the responsible entity would desire. It is the fact of their association, not their interest, which is critical. If any one of a number of associated entities has an extraneous interest, there is potential for the others to vote by reference to the association rather than by reference to their own independent interests. That theory lies at the core of the notion of "association" in this context, which is directed to identifying persons "who should be grouped together in determining which persons have interests which are aligned and which shares should be treated as forming a single block". [17] Thus, a responsible entity and its associates are regarded as potentially constituting a single voting block, the votes of which are not to be taken into account if the responsible entity or any associate has an extraneous interest in the resolution. As it seems to me, the purpose of s 253E is to preclude the risk that, if a responsible entity or any of its associates has an extraneous interest in a resolution, any of them might vote by reference to that interest regardless of which of them has it. It advances that purpose to construe s 253E as operating, in circumstances where the responsible entity itself has an extraneous interest other than as a member, to disentitle it and all of its associates from voting on the resolution; it would detract from that purpose to adopt the narrower construction. The provision would not achieve its purpose if it only disqualified an associate where that associate had an interest.
14. The third consideration is contextual, in that the second sentence of s 253E contains an exception which appears to treat the responsible entity and its associates as a block: However, if the scheme is listed, the responsible entity and its associates are entitled to vote their interest on resolutions to remove the responsible entity and choose a new responsible entity.
15. The responsible entity necessarily has an extraneous interest in such a resolution. The exception, in providing that the responsible entity and its associates may nonetheless vote in those circumstances, appears to assume that all would otherwise be disentitled from voting under s 253E irrespective of their own individual interests. The reference to "their interest" again tends to confirm that the interest of any one of them is treated (by association) as the interest of all of them.
16. AMP Life submitted that a "real sensible possibility of conflict" was required to trigger s 253E. Reference was made to the observations of Steytler P that the word "interest" was used in a relatively similar context in s 191(1) - applying to a director with a "material personal interest" [18] - and that an interest that does not give rise to a "real sensible possibility of conflict" would not be a material personal interest under s 191(1). [19] AMP Life further submitted that there was no "real sensible possibility of conflict" in its voting at the EGM as its only possible putative interest "other than as a member" in the Resolutions would be the flow-on effect of fee consequences for AMP Capital and AMPCI through their common parent company AMP Limited; and that, as AMP Life holds 0.48% of the issued share capital in AMP Limited, and the fees earned by AMP Capital and AMPCI in relation to the Fund constituted only 0.076% of AMP Limited's total revenue in 2015, the potential flow-on effect of the Resolutions on AMP Capital and AMPCl's fees would be so minuscule and remote to AMP Life that it would not be relevant to AMP Life's exercise of its duties in voting at the EGM.
17. However, the words "material personal interest" in s 191(1) do not appear in s 253E. Steytler P's observations in connection with s 191(1) are not transposable to s 253E. It is uncontroversial that AMP Life itself has no interest in the Resolutions. If, properly construed, s 253E disqualifies associates of a responsible entity that has an extraneous interest, then, it is beside the point that AMP Life itself has no such interest. The concept of association does not differentiate between the quality and the nature of the association once a relevant association is established; it matters not whether the associate has an interest in the resolution. The potential mischief addressed in this context is that the common parent AMP Limited could theoretically decide that it is in the interests of the group to retain the revenue from the responsible entity, and exercise its control of AMP Life to cause it to vote in favour of that outcome regardless of what might be AMP Life's interest as a member.
18. Therefore, in my judgment, s 253E is to be construed as providing that the responsible entity and all its associates are not entitled to vote on a resolution, if the responsible entity or any of its associates has an extraneous interest in the resolution.

Conclusion

1. My conclusions may be summarised as follows:
2. The case was not an appropriate one for judicial advice. However, there was both legal and commercial utility in granting declaratory relief.
3. Properly construed, s 253E provides that the responsible entity and all its associates are not entitled to vote on a resolution, if the responsible entity or any of its associates has an extraneous interest in the resolution.
4. As AMP Life is an associate of the responsible entity AMP Capital, and as AMP Capital has an extraneous interest in the Resolutions, AMP Life is not entitled to vote on the Resolutions.
5. Accordingly, on 27 June 2016, the Court declared that: 1. upon the true construction of Corporations Act, s 253E, and in the circumstances recorded in the amended statement of facts herein, AMP Life Limited is not entitled to vote its interests on the proposed resolutions at the extraordinary general meeting of unit holders of the AMP Capital China Growth Fund to be held on 28 July 2016.
6. The application was reasonably made by the responsible entity, in order to obtain clarification before the EGM, of a contestable issue which was impending. The plaintiff's costs on the indemnity basis should be paid out of the Fund. The defendants were necessary parties, so that potentially competing interests could be heard, and so that there would be contradictors for the purposes of the application for declaratory relief. Given the state of the authorities, AMP Life's opposition was entirely reasonable. The members will ultimately benefit from having this issue resolved before the meeting. As Mr Walker SC put it, the case is analogous to a "testator's fault" case in Probate. The plaintiff should pay the defendants' costs, but be entitled to indemnity in respect thereof out of the Fund.
7. The Court therefore ordered that: 1. the plaintiff's costs on the indemnity basis be paid out of the Fund; 2. the plaintiff pay the defendants' costs, but be entitled to indemnity in respect thereof out of the Fund.

Endnotes

1. See Re Great Southern Managers Australia Ltd (recs and mgrs apptd) (in liq) (2009) 76 ACSR 146 [22] (Davies J); Everest Capital Ltd (ATF EBI Income Fund) v Trust Company Ltd (2010) 77 ACSR 371 [83] (White J); Bruce v LM Investment Management Ltd (admins apptd) (in its capacity as responsible entity of the LM First Mortgage Income Fund) [2013] QSC 192; (2013) 94 ACSR 684 [85] (Dalton J).
2. See s 12(1)(b)(i), read with s 12(3)(b).
3. Even if the definition of "associate" in s 11 were to apply, AMP Life would still be an "associate" of AMP Capital, because they are related bodies corporate: see s 11(b) and s 50(c).
4. Southern Wine Corporation Pty Ltd v Perera (2006) 33 WAR 174 at 179 (Steytler P; McLure and Pullin JJA agreeing).
5. Cf In the matter of lnvesta Listed Funds Management Limited (as responsible entity of Armstrong Jones Office Fund) [2016] NSWSC 344 [8]; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, [45], [110].
6. Cf Re Great Southern Managers Australia Ltd (recs and mgrs apptd) (in liq) (2009) 76 ACSR 146 [3]; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 [45], [110].
7. (CTH) Corporations Act 2001, s 253G.
8. Cf Re Macquarie Private Capital A Limited [2008] NSWSC 323, [11]; C & C Fisher Pty Ltd v Livadaras (2010) 265 ALR 301, [10].
9. Cf Australian Olives Ltd v Livadaras [2008] FCA 1407; C & C Fisher Pty Ltd v Livadaras (2010) 265 ALR 301.
10. (2009) 76 ACSR 146.
11. (2009) 76 ACSR 146 [25].
12. (2010) 77 ACSR 371. The plaintiff was not in fact the responsible entity of a registered managed investment scheme, but the trustee of a unit trust. However, the provisions of Part 2G.4 of the Corporations Act (including s 253E) were incorporated into the trust deed, and applied as if the trust were a registered managed investment scheme, and as if the trustee were the responsible entity of that scheme: (2010) 77 ACSR 371 [9].
13. (2010) 77 ACSR 371 [77].
14. See Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; (2006) 33 WAR 174 at 178; 61 ACSR 40; 206 FLR 354 (Steytler P).
15. [2006] WASCA 275; (2006) 33 WAR 174; 61 ACSR 40; 206 FLR 354.
16. [2006] WASCA 275; (2006) 33 WAR 174; 61 ACSR 40; 206 FLR 354, [21] (Steytler P; McLure and Pullin JJA agreeing).
17. R Levy and N Pathak, Takeovers Law and Strategy, 3rd ed, [3.7]; referred to in Re Mesa Minerals Ltd (2010) 79 ACSR 1 at [42] (ATP: Scott, Chang, Sheridan).
18. Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; (2006) 33 WAR 174; 61 ACSR 40; 206 FLR 354 at [19]
19. Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; (2006) 33 WAR 174; 61 ACSR 40; 206 FLR 354 at [20] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 July 2016