Australian Securities and Investments Commission v Wellington Capital Limited

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

AND: WELLINGTON CAPITAL LIMITED ACN 114 248 458

CHARLES HODGES AS REPRESENTATIVE OF ALL PERSONS WHO WERE UNIT HOLDERS IN THE PREMIUM INCOME FUND (FUND) AS AT 4 SEPTEMBER 2012 AND BECAME SHAREHOLDERS OF ASSET RESOLUTION LIMITED (ARL) AFTER 4 SEPTEMBER 2012, ALL PERSONS WHO WERE UNIT HOLDERS IN THE FUND AS AT 4 SEPTEMBER 2012 AND SOLD SHARES IN ARL AFTER THAT DATE AND ALL PERSONS WHO BOUGHT SHARES IN ARL AFTER 4 SEPTEMBER 2012

IOOF INVESTMENT MANAGEMENT LTD ACN 006 695 021 AS REPRESENTATIVE OF THE PERSONS WHO WERE UNIT HOLDERS IN THE PREMIUM INCOME FUND AS AT 4 SEPTEMBER 2012 AND HAVE, SINCE THAT DATE, SOLD UNITS IN THE PREMIUM INCOME FUND

JUDGE: JAGOT J DATE: 17 OCTOBER 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 This proceeding, the hearing of which has been expedited, involves questions concerning the following: (1) the power of Wellington Capital Limited (Wellington), the first defendant, as responsible entity of a managed investment fund called the Premium Income Fund (the Fund), following a transaction on or around 4 September 2012 between itself, Asset Resolution Limited (ARL), the second defendant, and Perpetual Nominees Limited (Perpetual), the third defendant, by which approximately 41% of the assets of the Fund were transferred to ARL in consideration for all issued shares in ARL (Shares) being issued to Perpetual, to effect an in specie transfer of the Shares from Perpetual to the unit holders of the Fund (unit holders); (2) to the extent such in specie transfer of the Shares to the Unit Holders has been effected, the validity of such a purported transfer; (3) the identity of the shareholders of ARL recorded on the ARL share register. 2 The plaintiff, the Australian Securities and Investments Commission (ASIC), seeks the following relief: (1) A declaration that an in specie transfer of the Shares to the unit holders was beyond the power of the first defendant pursuant to the Constitution of the Fund, and any purported in specie transfer of the Shares to the unit holders was thereby invalid. (2) Further or in the alternative, a declaration that the first defendant contravened s 601FB(1) of the Corporations Act 2001 (Cth) (the Corporations Act), in that by making an in specie transfer of the Shares to the unit holders the first defendant did not operate the Fund and perform the functions conferred on it by the Fund's constitution and the Act. (3) An order, pursuant to s 1324(1)(a) of the Corporations Act, that the defendants take such steps as are necessary to ensure the share register of ARL correctly reflects that the third defendant is the owner of the Shares. (4) Further or in the alternative, an order, pursuant to s 1324B(a) of the Corporations Act, that within such time as the Court determines the first defendant disclose to the unit holders, by way of a letter to each individual unit holder: (a) the judgment of the Court; (b) the orders of the Court; and (c) the reasons why the first defendant considered that transfer of shares was in the best interests of Unit Holders.

factual background 3 None of the facts are in dispute. Relevantly: (1) The first defendant, Wellington, is the responsible entity of the Fund. The Fund is a managed investment scheme. Since its inception in 1999, its principal activity has been the receipt and investment of unit holders' funds in mortgages, equity, debt instruments and cash. (2) Units in the fund are listed on the national stock exchange (the NSX). (3) Perpetual is the custodian of the fund. (4) On 5 September 2012, Wellington announced to the NSX it had sold $90.75 million in assets to ARL. (5) Page 3 of the announcement records: As a result of this transaction, the Premium Income Fund received 830,532,768 ordinary shares in ARL, a special purpose unlisted public company. These shares in ARL have been transferred to Unitholders based on their Unitholding in the Premium Income Fund as at 4 September 2012. Each Unitholder in the Fund now owns shares in ARL on the basis of one ARL share for each Unit they hold in the Premium Income Fund. They also continue to own Units in the Premium Income Fund. Holding statements will be sent to each Unitholder shortly. 4 The steps which have been taken to effect the transfer of ARL shares to unit holders are as follows: (a) on 4 September 2012, 830,532,768 shares in ARL were issued by ARL to Perpetual (in its capacity as custodian of the Fund); (b) on 4 September 2012, Wellington resolved to instruct Perpetual to transfer the ARL shares held by Perpetual to the unit holders in the Fund as at 4 September 2012, in proportion to the number of units held by each unit holder. (c) on 4 September 2012, Wellington instructed perpetual to effect the transfer of ARL shares to unit holders; (d) on 4 September 2012, Perpetual signed a master transfer form for the purpose of transferring the ARL shares to the unit holders; (e) on 4 September 2012, the signed master transfer form was provided to the registry services provider of ARL, Armstrong Registry Services Limited (Armstrong), to effect the transfer of ARL shares to each unit holder in the Fund. This involved the establishment of a new ARL share register with unique identifying SRNs for each new shareholder of ARL; (f) on 5 September 2012, the transfer of shares was complete and announced as part of the 5 September 2012 announcement to the NSX; (g) on 7 September 2012, the details of the new ARL shareholders were sent to a printing company for the purposes of providing holding statements to unit holders; (h) by 19 September 2012, holding statements had been printed and dispatched to all holders of ARL shares, together with a copy of the 5 September 2012 announcement. 5 Wellington, in its capacity as responsible entity of the Wholesale Premium Income Fund (the Wholesale Fund), is also a unit holder in the Fund. The Wholesale Fund holds 35,519,542 units in the Fund. It was issued these shares on 4 September 2012, as described above. There are 39 unit holders in the Wholesale Fund. 6 On 20 September 2012, Wellington in its capacity as responsible entity of the Wholesale Fund resolved to make an in specie transfer of the ARL shares it had received to each individual holder of units in the Wholesale Fund in proportion to the number of units held by each unit holder. 7 From this description, it will be apparent that the ARL shares distributed by Wellington in specie to unit holders constituted Scheme Property before the distribution. The concept of Scheme Property is explained in the Constitution of the Premium Income Fund Scheme.

statutory framework 8 It is first necessary to identify certain provisions of the Corporations Act. Section 601GA(1) of that Act provides that: (1) The constitution of a registered scheme must make adequate provision for: (a) the consideration that is to be paid to acquire an interest in the scheme; and (b) the powers of the responsible entity in relation to making investments of, or otherwise dealing with, scheme property; and (c) the method by which complaints made by members in relation to the scheme are to be dealt with; and (d) winding up the scheme. 9 Section 601GB is in these terms: The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity. 10 Other relevant provisions of the Act include section 124(1), in particular subsection (d). That section provides that: (1) A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to: (a) … (b) … (c) … (d) distribute any of the company's property among the members, in kind or otherwise; … 11 Section 125(1) provides that "[i]f a company has a constitution, it may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers. The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company's constitution". 12 Section 231 is also relevant. It provides that: A person is a member of a company if they: (a) are a member of the company on its registration; or (b) agree to become a member of the company after its registration and their name is entered on the register of members; or (c) become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares). 13 Section 601FB(1) is the next relevant provision. It provides that: The responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and this Act. 14 In addition, s 601FC(1)(m) provides that "[i]n exercising its powers and carrying out its duties, the responsible entity of a registered scheme must carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme's constitution".

the constitution of the scheme 15 The constitution of the Scheme in this case, at least insofar as it is available in the evidence, is contained in the Premium Income Supplementary Deed Poll made on 5 September 2011. The Supplementary Deed Poll, as set out in the background to the deed, constitutes an amendment to the constitution as originally constituted on 20 November 1999, and as amended thereafter. 16 Relevant provisions of the constitution include clause 3 of the background to the constitution, which provides that, as contemplated by s 601GB of the Act, the responsible entity and the unit holders are bound by the terms of the constitution as amended by the supplemental deed. 17 Clause 1.4 is also relevant and provides for the appointment of a custodian to hold scheme property for, and on behalf of, the responsible entity. As noted, Perpetual has been appointed as the custodian. 18 Clause 2 provides for the beneficial interest in the scheme to be divided into units, and also provides that a unit confers on its registered holder an undivided interest in the scheme fund and scheme property as a whole. 19 Clause 3 of the constitution provides for the offering and issue of units. In short, a person who wishes to invest in the scheme must make an application and pay the application moneys. Thereafter the responsible entity may decide, in its sole discretion, either to accept or reject the application. If the application is accepted then units may be issued as contemplated by cl 3. 20 Clause 13.1 is important to the present dispute. It provides that "[t]he Responsible Entity shall have all the powers in respect of the Scheme that is legally possible for an actual person or corporation to have and as though it were the absolute owner of the Scheme Property and acting in its personal capacity". 21 Both the preamble of cl 13.2 and the subclause 13.2.5 are important. That clause relevantly provides: In the administration of the provisions of this Constitution, and the Corporations Act, in relation to the Scheme and the Scheme Property, the Responsible Entity shall have the following powers. These powers shall be in addition to the powers, authorities and discretions vested in it by any other provision of this Constitution or by the Corporations Act and which shall not limit or be limited by, or be construed so as to limit or be limited by the powers, authorities and discretions otherwise by this Constitution or by the Corporations Act vested in the Responsible Entity, that is to say: … 13.2.5 acquire, dispose of, exchange, mortgage, sub-mortgage, lease, sub-lease, let, grant, release or vary any right or easement or otherwise deal with Scheme Property as if the Responsible Entity were the absolute and beneficial owner. … 22 Clause 14.3 is also relevant, and provides that "[t]he Responsible Entity will manage the Scheme and the Scheme Property in accordance with the provisions of this Constitution with full and complete powers of management including all powers reasonably necessary or incidental to the performance by the Responsible Entity of its obligations and the observance by it of all the terms and conditions of this Constitution". 23 Clause 14.7 provides that "[t]he Responsible Entity will perform its functions and exercise its powers under this Constitution in the best interest of all Unit Holders and not in the interest of the Responsible Entity if those interests are not the same as those of Unit Holders generally and, subject to clause 14.7.1, will treat the Unit Holders of the same class equally, and will treat Unit Holders of different classes fairly". 24 Clause 16 is relevant and appears in these terms: Determination of income and reserves 16.1 The Responsible Entity is to determine, according to generally accepted accounting principles and practices which apply to trusts: 16.1.1 the Income of the Scheme, and in particular, whether any receipts or outgoings of the Responsible Entity are on income account or capital account; and 16.1.2 the extent to which the Scheme needs to make reserves or provisions. Distribution of Distribution Entitlement 16.2 16.2.1 Calculating the entitlement After each Distribution Calculation date the Responsible Entity must calculate for the relevant Distribution Recipient each Unit Holder's Distribution Entitlement. 16.2.2 Determining who has the entitlement At the end of each Distribution Period each Unit Holder at the end of the day on the Distribution Calculation Date is presently entitled to its Distribution Entitlement. 16.2.3 Payment of entitlement to a person entitled to it For each Distribution Recipient the Responsible Entity must pay to each Distribution Recipient its Distribution Entitlement on or before that date being 10 days after the Distribution Calculation Date. Calculation of Distribution Entitlement 16.3 16.3.1 Calculation of Distributable Amount The 'Distributable Amount' for a Distribution Period is to be determined in accordance with the following formula: DA = I ÷ C Where: DA is the amount of Distributable Amount I is the Income of the Scheme for the Distribution Period minus any amount of the Income that is set aside during the Distribution Period as reserves or provisions under sub-clause 16.1; and C is any additional amount (including capital, previous reserves or previous provisions) that the Responsible Entity has determined during the Distribution Period is to be distributed. 16.3.2 Calculation of Distributable Entitlement The Distributable Entitlement of each Distribution Recipient is the total of the Unit Entitlement in relation to each Unit held by the Distribution Recipient at the end of the day on the Distribution Calculation Date, as determined in accordance with paragraph 16.3.3. 16.2.3 Calculation of Unit Entitlement The Unit Entitlement in relation to a Unit is to be determined in accordance with the following formula: UE = DA ∑U Where: UE is the Unit Entitlement DA is the Distributable Amount ∑U is the total number of Units on issue in the Scheme Means of Payment 16.4 The Distributable Amount shall be paid to a Unit Holder by depositing into an account with a bank or other financial institution nominated by the Unit Holder and approved by the Responsible Entity or by being reinvested in the Scheme or otherwise as directed by the Unit Holder. Payment to Joint Unit Holders 16.5 If two or more Persons are entered in the Register of Unit Holders as joint Unit Holders of any Units then the receipt of one of these Persons for the monies, from time to time payable in respect of the Units, shall be as effective a discharge to the Responsible Entity as if the Person signing the receipt was the sole Unit Holder of such Units. 25 Clause 26, which provides for the winding up of the scheme, is also relevant, particularly clauses 26.3, 26.4, 26.5 and 26.6, which appear in these terms: Realisation 26.3 As soon as practicable after a termination event, the Responsible Entity must realise the Scheme Property and satisfy the Liabilities. Final distribution to Unit Holders 26.4 Only after all Liabilities have been discharged, and all expenses of termination - including anticipated expenses - have been met or accounted for, is the net proceeds of realisation to be distributed to the Unit Holders in proportion to the paid up value of the Units they hold. The net proceeds of realisation may be distributed in instalments. The final distribution to Unit Holders must occur prior to the 80th anniversary of the date of this Constitution. Final Accounts 26.5 The Responsible Entity must arrange for the final accounts to be audited by an independent registered company or auditor or firm of chartered accountants of which at least 1 partner is a registered company auditor. Retention of Scheme Property 26.6 Subject to this clause 26, and the Corporations Act, the Responsible Entity may retain in its hands, or under its control, any Scheme Property as may be required in its reasonable opinion, to meet any Liabilities or any of the investments of the Scheme provided that any Scheme Property so retained to the extent that they are ultimately found not to be required, will remain subject to the Scheme for conversion and distribution pursuant to this Constitution. 26 Clause 27 provides for a limitation on the liability of unit holders and is in these terms: 27.1 Notwithstanding any other provision of this Constitution or provision deemed to be included herein or any rule of Law to the contrary, no Unit Holder shall, by reason thereof, or by reason of the relationship created with the Responsible Entity, be under any obligation personally to indemnify the Responsible Entity or any creditor of the Responsible Entity in the event of there being any deficiency of the Scheme Property or the Scheme Fund as compared with the Liabilities of the Responsible Entity. The only rights, if any, of indemnity of the Responsible Entity or of such creditor shall be limited to recourse to the Scheme Property of the Scheme Fund. 27.2 A Unit Holder shall not be liable for any loss or damage howsoever incurred or suffered by the Responsible Entity in acting as manager of the Scheme or otherwise in connection with the Scheme to the extent to which the same exceeds so much of the consideration (if any) payable for the issue of Units to the Unit Holder as may be unpaid and outstanding. 27.3 The Responsible Entity expressly waives, releases, forfeits and abandons all rights and remedies which it otherwise might have at Law or in equity to recover from a Unit Holder's monies by reason of any right of indemnity or subrogration notwithstanding that any such right may not be able to be satisfied or discharged in whole or in part out of the Scheme Property comprising the Scheme Fund. 27 There are also certain definitions in schedule 1 to the constitution which must be considered. In particular, "authorised investment" is defined as including, "subject to the Licence held by the Responsible Entity": (a) Mortgage Investments being a loan secured by a registered mortgage over Land; (b) deposits at call or for a term with any Bank; (c) bills of exchange (including commercial bills) issues, drawn accepted or endorsed by any Bank or negotiable certificates of deposit issued by any Bank; (d) subject to any exceptions contained in the Corporations Act or any ASIC relief (including any ASIC class orders) any managed investment scheme that is a registered managed investment scheme, including a managed investment scheme of which the Responsible Entity is he responsible entity; or (e) any investment authorised under section 21 of the Queensland Trusts Act 1973 which the Responsible Entity considers a prudent investment for the Scheme. 28 It should be noted that subparagraph (e) of this definition refers to the Trusts Act 1973 (Qld). Section 21 of that Act provides that: A trustee may, unless expressly forbidden by the instrument creating the trust - (a) invest trust funds in any form of investment; and (b) at any time, vary an investment or realise an investment of trust funds and reinvest an amount resulting from the realisation in any form of investment. 29 Other relevant definitions include "cash", which is defined to include a cheque, bank cheque, payment order or electronic transfer of finds; "constitution" which is defined to mean the relevant deed poll, as amended from time to time; "distribution calculation date", "distribution entitlement" and "distribution recipient", each of which appear in cl 16; and "responsible entity", "scheme", "scheme constitution", "scheme fund", "scheme property", "unit" and "unit holder". The definition of "scheme property" in particular means "all the Cash, mortgages and other investments of the Scheme (including the Authorised Investments) for the time being held by the Responsible Entity for the Unit Holders". 30 Clause 2 of schedule 1 to the Constitution sets out general rules of interpretation. Relevantly, it states that "unless it is inconsistent with the subjective context in which it is read for the interpretation of this Constitution, headings shall be disregarded".

the present dispute 31 The fundamental issue between the parties is one of construction. ASIC contends that cl 16 is an exhaustive statement of the power of Wellington, as the responsible entity, to make distributions to unit holders. As such, all distributions must be in cash because cl 16 provides a mechanism which relates only to cash payments. Wellington contends that cl 16 applies only to distributions of cash. According to Wellington distributions in specie are otherwise authorised by cl 13.1 and in addition cl 13.2.5. 32 According to ASIC, on its proper construction cl 16 is not a source of power but a qualification on the powers otherwise provided for under the constitution, insofar as distributions to unit holders are concerned. ASIC submitted that: (1) Clause 16.2 identifies two obligations imposed upon Wellington: - (i) the obligation to make calculation as set out in cl 16.2.1 and (ii) the obligation to make payment as set out in cl 16.2.3. Clause 16.2 also vests a right in the unit holders to the distribution entitlement in cl 16.2.2. ASIC notes that cl 16.3 refers to the integers to be taken into account for the calculation of the "Distributable Amount", which includes any additional amount (including capital, previous reserves, and previous provisions) that the responsible entity has determined during the distribution period is to be distributed. (2) Clause 16.4 is a mandatory provision which identifies three methods of distribution of the Distributable Amount: a payment of cash or, as ASIC puts it, two other methods, both of which require the prior consensual involvement of the unit holder - being either a reinvestment in the scheme or distribution as otherwise directed by the unit holder. ASIC submitted that the relevant point is that the only method of distribution contemplated that involves a reduction in the assets of the fund that does not involve the prior consent of a unit holder is a payment of cash. (3) On its face, cl 16 covers the field in respect of distributions to the unit holders, short of the fund being wound up. (4) The approach taken in the constitution to distributions by way of cash follows through to the winding up provisions, which provide for distribution of the net proceeds from the realisation of scheme property. 33 As to cl 13.1, ASIC submitted that the power in that clause is the kind of general power often included in constitutions to protect external persons dealing with the company or responsible entity from a suggestion that the body is acting ultra vires. It is for this reason that the clause is expressed in relatively wide terms. According to ASIC, there are a number of reasons why the clause does not empower Wellington to act in a manner inconsistent with the limitations imposed in cl 16. 34 First, on its face cl 13.1 is concerned only with that which is "legally possible". Insofar as Wellington pointed to s 124(1)(d) of the Corporations Act as empowering the distribution, ASIC submitted that s 124(1)(d) is concerned with distribution of a company's property among members, not a distribution of trust property to unit holders, and accordingly does not apply to the facts. In any event, s 125(1) provides that a constitution may contain an express restriction on, or a prohibition of, the company's exercise of its powers. Clause 16 is in the form of an express restriction or prohibition on power. As ASIC put it, "[t]he concept of "legally possible" does not carry with it action contrary to the constitution". 35 Second, ASIC submitted that "the general principles that govern the construction of a commercial document apply equally to the construction of the constitution, provided due regard is given to the special characteristics of the latter" as a constitution, citing Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144. ASIC identified the relevant principle of construction as the proposition that "[a] conflict involving apparently inconsistent provisions in the one instrument is to be resolved, if at all possible, on the basis that one provision qualifies the other and hence that both have meaning and effect. That rule is an aspect of the general rule that an instrument must be read as a whole". ASIC said that, applying this rule in the present circumstances, the critical issue is whether, if one were to give cl 13.1 a wide ambit and thereby use it to empower the transfer, that could be done ignoring the terms of cl 16. The clauses on their face are apparently inconsistent and the above rule of construction requires cl 16 to be read as qualifying cl 13.1, the former being the mode by which the power is to be observed in respect of distributions to unit holders. 36 As to cl 13.2.5, ASIC pointed to the opening words of cl 13.2 as material. The opening words records that "[i]n the administration of the provisions of this Constitution…the Responsible Entity shall have the following powers". ASIC said that these words are words of limitation and make plain that the ambit of the additional powers is to be ascertained by the provisions of the constitution and of the Corporations Act. In other words, ASIC said that one would not read these words as empowering the responsible entity to "act in a way outside the field of operation that the Constitution and the Corporations Act mark out". 37 In addition, ASIC said that to read cl 13.2.5 as providing the power to distribute assets in any way Wellington considers fit is "inconsistent with the specific formula for "Distributable Amount" and the closed methods of payment referred to in cl 16". 38 Accordingly, the general principle of construction to which ASIC referred is applicable and has the same effect in the proper construction of cl 13.2.5. 39 ASIC also noted the following: - (i) that the nature of the investments in the fund indicated that the capacity to make an in specie distribution was either absurd or at least unlikely, those assets as set out in the evidence primarily consisting of investments in mortgages, equity, debt instruments and cash, and (ii) that the Constitution does not specify any mechanics by which an in specie distribution should take place, in contrast to the detailed mandatory provisions for a cash distribution as set out in cl 16. 40 For its part, Wellington submitted first that cl 16 does not in terms purport to qualify cl 13. 41 Second, Wellington submitted that cl 16 has its own field of operation on its natural and ordinary meaning. The field of operation of cl 16 is the making of a cash distribution by the responsible entity. Insofar as any matter is within that field of operation cl 16 applies and must be complied with, but outside that field of operation there is scope for other forms of distribution including an in specie distribution as authorised by cll 13.1 and 13.2.5. 42 Third, the commercial context of the constitution is important. Scheme property may not always be readily convertible into cash. If it is in the interests of unit holders for a distribution to be made other than by way of cash then it is commercially sensible, as I understand the submission, for such a capacity to exist. In other words, the fact that on their face cll 13.1 and 13.2.5 would authorise an in specie distribution of scheme property is not commercially inconvenient and is not an unlikely result. 43 Fourth, cl 13.1 requires the responsible entity to be treated as if it were a corporation. This is the purpose of the language of cl 13.1 which vests in the responsible entity all the powers in respect of the scheme that it is legally possible for, relevantly, a corporation to have and as if the responsible entity were the absolute owner of the scheme property and acting in its personal capacity. It is the language of cl 13.1 that leads to s 124 of the Corporations Act being engaged, because cl 13.1 vests in the responsible entity all the powers that it is legally possible for a corporation to have and treats the scheme property as if it were absolutely owned by the responsible entity. It necessarily follows that it must have been within the common contemplation of all those involved in the creation of the constitution of the scheme that the responsible entity would have the power relevantly to distribute any of the scheme property as referred to in s 124(1)(d) of the Corporations Act, because this is one of the powers that a corporation has vis-à-vis its members. 44 Fifth, s 125 is not material because it depends upon the existence of an express restriction on or a prohibition of the company's exercise of any of its powers and on Wellington's case there is no such restriction or prohibition. 45 Sixth, as to s 231, Wellington's primary point is that the provision is not relevant to its exercise of power at all. Section 231 is concerned with the capacity of a person to be a member of a company. It does not in any way go to the power of Wellington under the constitution. The other point that Wellington makes about s 231 is that, based upon its construction of the constitution, the requirement of s 231(b) - that a person agree to become a member of a company after registration and the entry of their name on the register of members - is satisfied by the fact that the unit holders entered into the scheme and thereby are bound by the terms of the constitution as provided for in cl 3. 46 In terms of this latter point, a series of cases was brought to my attention. The first is Re Hunter Resources Limited (1992) 34 FCR 418 (Re Hunter Resources), in which Lockhart J at 425 rejected a proposed reduction in capital of a corporation because s 184 (the then equivalent provision of s 231) also required that for a person to become a member of a company a person must agree to do so. His Honour said that this merely requires the agreement of the person in the sense of assent, rather than bilateral agreement. In that case, however, the arrangement for the reduction of capital did not involve assent of the shareholders, but rather coercion. His Honour said at 426 that the application for the shares in the third party company, which was part and parcel of the proposed reduction in capital, did not have its genesis in an agreement but rather, for all practical purposes, in compulsion, which was not an agreement within the contemplation of s 184. 47 In Re Crusader Limited (1996) 1 Qd R 117 Thomas J, in respect of the approval of a proposed scheme of arrangement, noted that the decision in Re Hunter Resources did not mean that actual agreement or assent of a person to become a shareholder is necessary. Thomas J said (at 128): I do not read this into his Honour's judgment. His Honour expressly pointed out that no bilateral element of agreement was required by s 184. The section merely requires the agreement of the person to become a member, and uses the word "agrees" in the sense of "assents". This is consistent with long standing interpretations of the Companies Act which recognise that formal agreement is not necessary. The taking of a transfer of shares is an obvious example where appropriate assent may be inferred. 48 Thomas J noted that, in that case, all noteholders had assented to and were bound by the trust deed. His Honour concluded that (at 129): In short, all noteholders in assenting to the trust deed bound themselves to whatever amended obligations might lawfully be effected under that deed. It seems to me that all noteholders, including the minority, have assented to be bound in this way, and that when they receive shares in due course they will be doing so consistently with the requirements of s 184. … On the facts of the present case I hold that there is sufficient assent or agreement on the part of all noteholders to satisfy the requirements of s 184 in relation to any shares that those note holders will receive. 49 In Re Etrade Australia Ltd (1999) 30 ACSR 516 Santow J noted (at 516-517) that prior to certain amendments to the Corporations Act relating to the reduction of capital it was: …well settled that a scheme of arrangement was needed wherever the reduction of capital involves the shareholder being compelled to acquire shares ([Re Hunter Resources] where the shares, as here, were in another company), and a scheme was thus employed for that purpose, overlapping with the reduction. 50 I was also taken to Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 (Youyang). That case involved a breach of trust. At [35] the High Court noted that "[w]hile the rights of Youyang against Minters crystallised on 24 September 1993", which I take to be the date of the breach of trust, "decisions…indicate that the appropriate remedy, and, in particular, the quantum of pecuniary remedy, falls for determination at a later stage". Their Honours referred to Target Holdings Ltd v Redferns [1996] AC 421, itself citing Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534, as follows: A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. 51 As I understand it, this is an expression of the principle referred to thereafter in [35] that compensation or other remedies for breach of trust are "assessed as at the time of trial, using the full benefit of hindsight", and accordingly are not subject to considerations which would ordinarily apply to tortious and contractual damages, including concepts such as remoteness and contributory negligence. 52 In any event, the first defendant's point in referring to the decision in Youyang was to note that a transaction carried out in breach of trust, as a matter of legal principle, cannot be thereby automatically void. Rather, the breach of trust gives rise to duties and rights, including those referred to in [35] of Youyang, and those may give rise to remedies including that the transaction is voidable and may otherwise expose persons involved in the breach of trust and others to appropriate orders. However, the availability of those remedies does not flow from a proposition that a transaction in breach of trust is automatically void, absent an order of a court voiding the transaction, and the granting of other remedies would necessarily involve discretionary considerations.

discussion 53 The issue of construction in this matter, as in many matters, is not entirely straightforward. It is true that cl 16 of the constitution provides a detailed scheme for the calculation of the distribution entitlement of each unit holder. It also true that, in so doing, cl 16.3.1 includes in the concept of the Distributable Amount "any additional amount (including capital, previous reserves or previous provisions) that the Responsible Entity has determined during the Distribution Period is to be distributed". 54 The problem for ASIC is that there is nothing in the language of cl 16 which, either expressly or by necessary implication, indicates that cl 16 operates to qualify or restrict or otherwise limit the broad powers contained in, amongst other things, cll 13.1 and 13.2.5. There are certainly no express words to this effect. I say there is no necessary implication to this effect because the factors upon which ASIC relies - the detail providing for the payment of a cash distribution and the reference in the formula for distributable amount to capital - do not themselves make any such implied restriction, qualification or limitation necessary. 55 Insofar as ASIC referred to the current nature of the scheme property, as disclosed in an affidavit of Jennifer Hutson, it seems to me that can be neither here nor there. There is vested in Wellington as the responsible entity a power to make any authorised investment. "Authorised investment", as noted, includes a capacity to make any investment which Wellington as responsible entity determines is consistent with its obligations as trustee, being an investment that it considers "a prudent investment for the Scheme". 56 The lack of detailed provisions regarding an in specie distribution is also not in my view an indication of sufficient weight against giving cll 13.1 and 13.2.5 what would be their natural and ordinary meaning. This is particularly so when regard is had to cl 14.7 of the constitution, which binds the responsible entity to "perform its functions and exercise its powers…in the best interests of all Unit Holders" and to "treat the Unit Holders of the same class equally and will treat Unit Holders of different classes fairly". 57 In other words, in making any in specie distribution of capital, the responsible entity is otherwise bound by cl 14.7. When one comes to the terms of cl 13.1 itself, the words "is legally possible" in that clause do not seem to me to assist ASIC's construction. Those words do not impose any limitation by reference to cl 16. The more natural reading of those words, as they appear in clause 13.1, is to vest in the responsible entity, in respect of the scheme, all powers that it is legally possible for a corporation to have if the notional corporation were the absolute owner of the scheme property and acting in its personal capacity. 58 ASIC's reading of some form of limitation back from cl 16 into the words "is legally possible" in cl 13.1 strikes me as strained and artificial. Clause 13.1 vests in the responsible entity all powers that it is legally possible for a corporation (relevantly) to have. If it is assumed, as it must be under the clause, that the responsible entity as a notional corporation is the absolute owner of the scheme property and acting in its personal capacity then this does in my view pick up the powers that are set out in s 124 of the Corporations Act, subject to any express restriction or prohibition otherwise contained in the constitution. 59 Those powers include, as set out in s 124(1)(d), the power to distribute any of the company's property among the members in kind or otherwise. For those purposes, the responsible entity is to be treated as the equivalent of the company. The property is to be treated as the scheme property, and the unit holders are to be treated as members. It is true that on its face cl 13.1 does not deem unit holders to be the equivalent of members of a corporation. This may be accepted, but the constitution must be read as a whole. Unit holders, as cl 3 of the background to the constitution provides, are bound by the terms of the constitution. This is as required by s 601GB of the Corporations Act. 60 It is necessary under cl 3 for persons to apply for units. They are not in any way forced to become a unit holder. On becoming a unit holder, the person thereby becomes bound by the constitution as set out in cl 3. This must include being bound by the rights vested in the responsible entity, including those rights to be found in cll 13.1 and 13.2.5 of the constitution. If, as I am satisfied is the case, the responsible entity can do what is provided for in cl 13.1, then a necessary corollary of that power is that it may act in accordance with, relevantly, s 124(1)(d) of the Corporations Act. As such, there must be a corresponding duty on the part of unit holders to accept that exercise of power, assuming it is not otherwise in breach of the constitution. 61 I do not see the provisions of either cll 26 or 27 of the constitution being contrary to the construction which I prefer. Clause 26 does provide for the realisation of all scheme property on a termination event, so that after liabilities are discharged unit holders receive the net proceeds of the realisation which may be distributed in instalments. However, this is a specific arrangement on the occurring of a termination event and does not suggest that in the course of carrying out its functions as a responsible entity for the scheme on an ongoing basis cll 13 and 16 should be given other than their ordinary meaning. The limitation on liability provision also does not indicate that there is any restriction on what would otherwise be the natural and ordinary meaning of cl 13. 62 For these reasons, I consider that the construction advanced by Wellington is to be preferred. The primary consequence of this construction is that Wellington as the responsible entity has not acted in contravention of the constitution and thereby has not contravened s 601FB(1), or for that matter section 601FC(1)(m), as contended for by ASIC. 63 Another consequence of this construction of the constitution is that the requirement of s 231 of the Corporations Act, namely, the agreement of persons to become members in the sense of assent referred to in the cases, is satisfied. When the unit holders became unit holders on the issuing of the units following their application to do so they were taken to be bound by the scheme and accordingly must be taken to have assented to becoming members of the company ARL on the in specie distribution of shares in ARL to the unit holders, in accordance with the exercise of power by Wellington as the responsible entity authorised by cll 13.1 and 13.2.5 of the constitution. In other words, by dint of cl 3 of the constitution I am satisfied that there has been sufficient assent by the unit holders to satisfy the requirements of s 231. 64 It follows that for these reasons I can see no basis for the grant of any of the relief sought by ASIC in the originating process. Accordingly, the order I make is that the originating process be dismissed. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.