Australian Securities and Investments Commission v Wellington Capital Limited

parties respective positions 5 It was common ground that the starting point was cl 21.5 of the Fund's Constitution. That clause confers upon Wellington a right to indemnification out of the Fund: Without limiting any other clause, to the extent permitted under the Corporations Act, except in the case of fraud, negligence or breach of this Constitution on the part of [Wellington], [Wellington] shall be entitled to be indemnified out of the … Fund in respect of all Liabilities incurred by [Wellington] relating to the execution of any powers, duties, authorities or discretions vested in it by virtue of the provisions of this Constitution, and in respect of all actions, proceedings, costs, claims and demands in relation to any matter or thing done or omitted to be done concerning the Scheme, provided that the right of [Wellington] to be indemnified in respect of any liability incurred by [Wellington] or arising in or about: 21.1.1 the investment and administration of the Scheme; 21.1.2 in the conduct and management of any business forming part of the Scheme; 21.1.3 in the acquisition of any Authorised Investment under any contract entered into by [Wellington]; 21.1.4 or by reason of the execution of any power, duty, authority or discretion vested in [Wellington], shall be limited always to the Scheme Property of the Scheme… . … (Emphasis added). 6 As the Full Court Decision made clear, the conduct of Wellington in issue in these proceedings, inter alia, was in breach of the Constitution. For that reason alone, Wellington is not entitled to indemnification out of the Fund under cl 21.5. 7 Wellington's initial submissions in opposition to it seeking the consent of the unit holders on the question of costs were telling. 8 First, the submissions omitted the italicised section of the extract from cl 21.5 at [5] above. That is surprising. It was the part of cl 21.5 which contained the limitations on Wellington's entitlement to indemnification and, critically in this case, a limitation where there was a breach of the Constitution. That was the case here: see [85] of the Full Court Decision. 9 In fact, Wellington accepted in its initial costs submissions that the Full Court had found a contravention of the Constitution. However, Wellington's submissions appeared to seek to dismiss the contravention on the grounds that there was a "single contravention" found by the Full Court and that that "single contravention", being a contravention of s 601FB(1) of the Corporations Act 2001 (Cth), flowed from the proper construction of cl 13.1 of the Constitution. If that submission was intended to provide a basis for indemnification under cl 21.5, it does not. There was and remained a contravention of the Constitution. The frequency and nature of the contravention cannot justify a departure from the express words of the Constitution. 10 Secondly, the suggestion by Wellington that ASIC had to "demonstrate that the defence of the proceedings was so unreasonable or wrongful as to amount to disentitling conduct" may be put to one side. It is contrary to the express terms of the Constitution of the Fund of which Wellington is the trustee. Similarly, Wellington's reference to and reliance upon advice it obtained as to the proper construction of cl 13.1 of the Constitution may be put to one side. The question is not whether Wellington's conduct was reasonable. The relevant question is whether it acted in breach of the Constitution so as to disentitle it to indemnification? The answer is yes. 11 Finally, Wellington's submission that even if the in specie distribution to unit holders was in breach of the Constitution (as the Full Court held), then the middle section of cl 21.5 (being the passage highlighted in bold) somehow entitles Wellington to indemnification from the Fund is rejected. As a matter of construction, that section of cl 21.5 cannot be read in isolation. It is a right which as a matter of construction is subject to the chapeau (being the passage in italics) which precedes it. The chapeau cannot be ignored. 12 For these reasons, unless Wellington obtains the consent of the unit holders, it is not entitled to be indemnified out of the assets of the Fund in respect of any orders as to costs in these proceedings and in respect of Wellington's own costs of and in respect of these proceedings. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Gordon & Robertson.