(iv) Who are the related parties of a ss 208(1)(a)(ii) or 208(1)(a)(iii) giver of a financial benefit?
166 Section 208(1) (as modified) requires member approval to be obtained where a financial benefit is given out of scheme property of a registered scheme:
(a) by any of:
(i) the responsible entity of the scheme;
(ii) an entity that the responsible entity controls (see s 50AA on "control"); or
(iii) an agent of, or person engaged by, the responsible entity (s 601FB(3) deems certain persons to be an agent of a responsible entity);
(the "giver limb")
(b) to any of:
(i) "the person", being the giver of the financial benefit (that meaning of "the person" is supported by the grammar, the syntax and the words appearing above s 208(1)(d) (as modified), namely "then, for the person referred to in paragraph (a) to give the benefit" (my underlining)): s 208(1)(c)(i) (as modified);
(ii) a related party of the giver: s 208(1)(c)(i) (as modified);
(iii) another person referred to in s 208(1)(a): s 208(1)(c)(ii) (as modified); or
(iv) a related party of another person referred to in s 208(1)(a): s 208(1)(c)(ii) (as modified).
(the "recipient limb")
167 Accordingly, the recipient limb encompasses benefits that are given to any of:
(a) a related party of the responsible entity;
(b) a related party of an entity that the responsible entity controls; or
(c) a related party of an agent of, or person engaged by, the responsible entity.
168 But an interesting definitional problem arises when one considers and applies the meaning of "related party" provided by s 228 (modified by s 601LA) to these recipient limb possibilities. Section 9 provides that "Unless the contrary intention appears … related party (when used in Chapter 2E) has the meaning given by section 228". But because s 601LA(a) operates by merely replacing references to "public company" in the original text of s 228 with the expression "responsible entity", the consequence is that, on its terms, s 228 (as modified) only specifies which persons are related parties of a responsible entity. In other words and in its terms, s 228 (as modified) does not specify who are related parties of either:
(a) an entity that the responsible entity controls; or
(b) an agent of, or person engaged by, a responsible entity.
169 In the present context, this definitional problem affects the contraventions of s 208(1) (as modified) that are said to have been committed by Bridge Global Securities in giving financial benefits out of the AG Schemes to Avestra. Rowles and Dempsey do not dispute that Avestra was a "related party" of Bridge Global Securities, which in turn was a deemed agent of Fundhost. But Avestra was not a related party of Fundhost, which was the responsible entity of the AG Schemes during 2013.
170 The definitional problem arises from the cross-referencing device employed by which Chapter 2E is modified for application to registered managed investment schemes. There are three realistic constructional choices open to me to solve the present problem:
(a) First, the principles stated in s 228 could be applied mutatis mutandis to ascertain a "related party" of either an entity that the responsible entity controls, or of an agent of or person engaged by a responsible entity.
(b) Second, the words "related party" could be construed in accordance with their ordinary meaning in order to ascertain who is a "related party" of either an entity that the responsible entity controls, or of an agent of or person engaged by a responsible entity.
(c) Third, it could be considered that in the case where a financial benefit is given out of scheme property by a person other than a responsible entity (ie one of the persons identified in ss 208(1)(a)(ii) or 208(1)(a)(iii)), the requirement for member approval is only enlivened where the benefit is provided to the responsible entity (or its related party) or another one of the persons identified in s 208(1)(a). In other words it could be said that in the absence of an applicable definition of "related party", s 208(1) (as modified) does not apply where a ss 208(1)(a)(ii) or 208(1)(a)(iii) giver provides a financial benefit either to its related party or a related party of another person referred to in ss 208(1)(a)(ii) or 208(1)(a)(iii), where that recipient is not itself a related party of the responsible entity.
171 But I agree with ASIC that this third possibility must be rejected. To accept the third possibility would be to defeat the intention of the legislature through the literal application of definitions, a result that could only appeal to those afflicted with a sclerotic form of textualism.
172 If the third alternative were to be applied, the intended breadth of the class of recipients would be undermined by the drafter's failure to properly modify s 228 so that it identifies who are the related parties of benefit-givers other than responsible entities. That result would negate both the policy and purpose of s 208 (as modified), which as the words of ss 208(1)(c)(i) and 208(1)(c)(ii) indicate, is not confined to the giving of financial benefits to persons who are related parties of the responsible entity itself.
173 Accordingly, in my view there is a need for an interpretation that defines who are the "related parties" of a ss 208(1)(a)(ii) or 208(1)(a)(iii) giver. Now the criterion of "related" is as a matter of ordinary meaning too elastic to provide clear parameters to determine with confidence who is, and who is not, a related party of a ss 208(1)(a)(ii) or 208(1)(a)(iii) giver. Accordingly, I do not propose to adopt the second constructional choice. Rather, I propose to adopt the first constructional choice.
174 The general proviso stated in the prefatory words of s 9 of the Act is "Unless the contrary intention appears"; see also s 6(1) which states, "The provisions of this Part have effect for the purposes of this Act, except so far as the contrary intention appears in this Act.". Now a contrary intention may be discerned from the underlying statutory purpose. Moreover, the contrary intention need not be stated expressly. The derivation of a purposively-based contrary intention was endorsed by Mahoney JA in Deputy Commissioner of Taxation (NSW) v Mutton (1988) 12 NSWLR 104 at 108.
175 If the s 228 definition of "related party" was construed literally as operating only to determine who is a related party of a responsible entity, the ambit of s 208(1)(c) would be confined through drafting oversight to a narrower class of recipients than the class that the legislature expressly intended to cover. Accordingly, in my opinion a contrary intention is revealed by the very words of ss 208(1)(c)(i) and 208(1)(c)(ii) themselves. In order to give effect to the manifest legislative intent, the s 228 definition of "related party" should be applied by analogy in relation to ss 208(1)(a)(ii) or 208(1)(a)(iii) givers of financial benefits, mutatis mutandis, as it operates with respect to responsible entities.
176 Now as ASIC rightly submitted, a contrary argument might be mounted on the basis of the statutory purpose of Part 5C.7 stated in s 207 (as modified by s 601LB):
The rules in this Chapter, as they apply to a registered scheme, are designed to protect the interests of the scheme's members as a whole, by requiring member approval for giving financial benefits to the responsible entity or its related parties that come out of scheme property or that could endanger those interests.
177 Now the reference in s 207 to requiring member approval for giving financial benefits to a responsible entity's related parties, but not for the giving of benefits to related parties of ss 208(1)(a)(ii) or 208(1)(a)(iii) givers, might be said to support the third possible construction. But s 208(1)(c)(ii) makes it apparent that the purpose of Chapter 5C.7 is to capture a broader range of recipients than merely responsible entities and related parties of responsible entities. In that respect, s 207 understates the true breadth of the statutory purpose. Accordingly, this perceived contrary argument can be put to one side.
178 Perhaps another way to achieve the substance of the first constructional choice is to "read in" words omitted by drafting oversight. As recently stated in Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531, the reading in or omission of words is readily supported "in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision" (at [38] per French CJ, Crennan and Bell JJ) and may be supported where more substantial errors are apparent. Addressing the three usually necessary criteria outlined by Lord Diplock in Wentworth Securities Ltd v Jones [1980] AC 74 at 105, and re-expressed by Lord Nicholls of Birkenhead in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 at 592, as justifying the reading in of additional words, but adopting the caveats expressed in Taylor at [39] and [40] including recognising that in some cases the satisfaction of such criteria may not be sufficient to justify the addition, the following can be stated:
(a) First, the precise purpose of s 208(1), and in particular ss 208(1)(c)(i) and 208(1)(c)(ii), is clear. The recipient class was intended to include a related party of an entity identified in ss 208(1)(a)(ii) or 208(1)(a)(iii).
(b) Second, I am satisfied that the failure of the modified version of s 228 to deal with identification of related parties of an entity identified in ss 208(1)(a)(ii) or 208(1)(a)(iii) occurred as a drafting oversight.
(c) Third, I am sure of the substance if not the precise words that the legislature would have enacted had it become aware of the omission. The appropriate response would have been an additional provision in Part 5C.7 to the effect that, in construing s 228, references to a "public company" were instead taken to be references to a "person referred to in s 208(1)(a) (as modified by s 601LC)".
179 In summary, the first constructional choice is the correct one. And its effect can also be achieved by reading into s 228 the words that I have indicated.
180 Applying such a construction and accordingly, the giving of a financial benefit out of scheme property by an agent of a responsible entity (here, Bridge Global Securities, the deemed agent of Fundhost, in respect of the AG Schemes) could only have been made lawfully if approved by members of the registered scheme. By reason of AGF Funds Management, the investment manager of those funds, having sub-delegated its role to Bridge Global Securities, Bridge Global Securities was deemed to be an agent appointed by the responsible entity (Fundhost) by s 601FB(3). Avestra, the recipient, was a related party of Bridge Global Securities by reason of the fact that Rowles and Dempsey were the sole directors of Bridge Global Securities, and Bridge Global Securities was wholly owned by companies of which Rowles' and Dempsey's wives were the only directors and shareholders.