MATTER : Section 283HB, s 101B and s 1324 of the Corporations Act 2001 (Cth) and s 12DA and s 12DB of the Australian Securities & Investments Commission Act 2001 (Cth)

BETWEEN : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

BETWEEN : BAYSHORE MEZZANINE PTY LTD (ACN 090 759 272)

Corporate fundraising - Securities - Debentures - Promissory notes issued under information memoranda - Whether promissory note is a debenture - Whether there is an implied undertaking to repay moneys in addition to undertakings under a promissory note - Whether issue of promissory notes is subject to requirements of the Corporations Act 2001 (Cth) Ch 6D

Corporations - Managed investment schemes - Whether promissory notes are an interest in a managed investment scheme - Whether issue of promissory notes is subject to requirements of the Corporations Act 2001 (Cth) Ch 5C

Trade practices - Financial services - False representations or misleading and deceptive conduct - Whether representations in information memorandum are likely to be misleading or deceptive for the purposes of the Australian Securities and Investments Commission Act 2001 (Cth) s 12DA and s 12DB(1)(g)

Australian Securities & Investments Commission Act 2001 (Cth), s 12BB, s 12DA, s 12DB(1)(g)

Australian Securities and Investments Commission Regulations 2001 (Cth), reg 2B(3)(b)(xi)

Bills of Exchange Act 1909 (Cth), s 89

Corporations Act 2001 (Cth), s 9, s 761A

Promissory notes held to be promissory notes for the purposes of s 89 of the Bills of Exchange Act 1909 (Cth) and s 9 of the Corporations Act 2001 (Cth)

Promissory notes held to be an interest in a managed investment scheme

Representations in information memorandum not held to be false representations or misleading or deceptive

Plaintiff : Australian Securities & Investments Commission

Defendant : Australian Securities & Investments Commission

Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885

Australian Securities and Investments Commission v Enterprise Solutions [2000] QCA 452; (2000) 35 ACSR 620

Australian Securities and Investments Commission v Hutchings [2001] NSWSC 522

Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339

Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485

Australian Securities Commission v United Tree Farmers Pty Ltd (1997) 24 ACSR 94

Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex Rel Corporate Affairs Commission [1981] HCA 49; (1981) 148 CLR 121

Balck v Pilcher (1909) 25 TLR 497

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61

Claydon v Bradley [1987] 1 All ER 522

Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (No 2) (1987) 9 NSWLR 497

Crouch v The Credit Foncier of England Ltd (1873) LR 8 QB 374

Glasscock v Balls (1889) 24 QBD 13

Gore v Octahim Wise Ltd [1995] 2 Qd R 242

Heilbut Symons & Co v Buckleton [1912] UKHL 2; [1913] AC 30

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435

John Burrows Ltd v Subservice Surveys Ltd [1968] SCR 607

Stock Motor Ploughs Ltd v Forsyth [1932] HCA 40; (1932) 48 CLR 128

Vidler v Sallaway (1862) 1 SCR(NSW) 246

Walker v Midlink Nominees Pty Ltd [2000] WASC 112; (2000) 22 WAR 318

Weszak Beleggings (EDMS) BPK v Venter [1972] 1 SALR 730

Wheeler Grace & Pierucci Co Ltd v Wright [1989] FCA 127; (1989) ATPR 40-940

Williamson v Rider [1963] 1 QB 89

Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540

Australian Securities and Investments Securities Commission v Chase Capital Management Pty Ltd [2001] WASC 27; (2001) 36 ACSR 778

Australian Securities and Investments Securities Commission v Karl Suleman Enterprises Pty Ltd (In Liq) [2003] NSWSC 400; (2003) 45 ACSR 401

Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502

CIC Insurance v Bankstown Football Club Ltd (1997) 187 CLR 384

Colehan v Cooke (1742) Willes 393

Collector of Customs v Bell Basic Industries Ltd [1988] FCA 371; (1988) 83 ALR 251

Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation (1983) 14 ATR 142

Creative Press Ltd v Harman [1973] IR 313

Federal Commissioner of Taxation v Henderson [1943] HCA 46; (1943) 68 CLR 29

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Global Sportsman Pty Ltd v Mirror Newspapers Ltd [1984] FCA 180; (1984) 2 FCR 82

Hamilton Island Enterprises Pty Ltd v Commission of Taxation (Qld) [1982] 1 NSWLR 113

Handevel Pty Ltd v Comptroller of Stamps (Vic) [1985] HCA 73; (1985) 157 CLR 177

Herbert Adams Pty Ltd v Federal Commissioner of Taxation [1932] HCA 27; (1932) 47 CLR 222

James v ANZ Banking Group Ltd [1986] FCA 41; (1986) 64 ALR 347

Konstas v Southern Cross Pumps & Irrigation Pty Ltd, unreported; FCA (Tamberlin J); 28 June 1996

McWilliam's Wines Pty Ltd v McDonald's System of Australia Ltd [1980] FCA 159; (1980) 49 FLR 455

Minister for Immigration and Ethnic Affairs v Teoh [1995] HCA 20; (1995) 183 CLR 273

Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85

Polites v The Commonwealth [1945] HCA 3; (1945) 70 CLR 60

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

Ramaciotti v Federal Commissioner of Taxation [1920] HCA 70; (1920) 29 CLR 49

Rosenhain v Commonwealth Bank of Australia [1922] HCA 41; (1922) 31 CLR 46

Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561

Sibree v Tripp [1846] EngR 269; (1846) 15 M&W 23

Stock Motor Ploughs Ltd v Forthsyth [1932] HCA 40; (1932) 48 CLR 128

Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177

Waldron v Auer [1977] VicRp 28; [1977] VR 236

Whitton v Falkiner [1915] HCA 38; (1915) 20 CLR 118

1 SIMMONDS J: This is a consolidation of the hearing of Cases Stated in these two matters. Both arise out of the activities, very similar in form, of the Westpoint Group. The Emu Brewery Mezzanine development of the Westpoint Group is a project to redevelop the old Emu Brewery site in Perth, on the corner of Mounts Bay Road and Spring Street. This redevelopment is to produce accommodation for residential, retail and office purposes. The Bayshore Development of the Westpoint Group is of land in Port Melbourne, located on Bay Street, for residential and retail purposes. The means chosen to meet certain financing needs for those developments gave rise to litigation which in turn has led to the Cases Stated.

2 The questions for me on the Cases Stated go to whether certain conditions that determine, or help to determine, the application of certain provisions regulating financing arrangements and contained in the Corporations Act 2001 (Cth) are met on the facts and documents I am confined to. Those questions raise a number of issues of some considerable difficulty, and, in one case, involve some controversy about authorities none of which bind me.

3 I have organised this rather lengthy judgment as follows. First, I provide some background, to permit an understanding of the litigation and the issues raised by the questions on the Cases Stated. I then deal with each of those issues. I provide my answers to the questions at the end of the judgment.

4 This background draws, as the other factual matter in this judgment draws, on the facts and documents set out in the Schedules to the Orders for the Case Stated of Owen J which are dated 24 August 2004, and which substitute for parts of previous Orders of his Honour dated 2 June 2004. I am of course confined to those facts and documents.

5 Both the Emu Brewery and the Bayshore developments apparently had substantial external financing needs. In the case of Emu Brewery Stage One required $143,600,000; in the case of Bayshore, the total external funding was $105,000,000.

6 In both cases similar financing structures were determined upon, under which the external finance would come from two sorts of external source. The first source, apparently the major source of funds for this purpose, would lend funds to the development's corporate trustee and take security in the form of a first ranking fixed and floating charge as well as a first ranking mortgage. The charge would be taken over assets of the trustee while the first ranking mortgage would be taken over the development property.

7 The other source of external finance is the subject of the current proceedings. In the case of both the Emu Brewery and Bayshore Developments that source would be a special purpose proprietary limited company specifically established for the purposes of raising funds from other lenders, the proceeds of which would be on-lent to the development's corporate trustee, for which the company would receive a second ranking fixed and floating charge over assets of the trustee, and a second ranking mortgage over the development property. In addition, the special purpose company would be the beneficiary of a guarantee, by a company in the Westpoint Group. The special purpose company for the purposes of the Emu Brewery project was Emu Brewery Mezzanine Pty Ltd, and the special purpose company for the purposes of the Bayshore development was Bayshore Mezzanine Pty Ltd.

8 The commonality in financing arrangements between the Emu Brewery and Bayshore developments went beyond this, however. Both Emu Brewery Mezzanine and Bayshore Mezzanine sought funds for the on-lending under information memoranda very similar if not identical in content. The principal difference between them, from an investor's point of view, was likely the presence in the Bayshore Mezzanine Information Memorandum, but not the Emu Brewery Mezzanine one, of a section headed "Recent Sales Evidence", devoted to sales in the development.

9 Most importantly for my purposes, both Information Memoranda then conclude with a "Promissory Note Application Form" on the reverse of which is set out a sample "Promissory Note". The final "Promissory Note", issued by Emu Brewery Mezzanine, or Bayshore Mezzanine, as the case may be, that the investor received would, unlike the samples, bear a "Promissory Note" number and an issue date. The "Promissory Note" so provided for is indicated to be non-negotiable and non-transferable and to have a minimum face value of $50,000. In the event, "Promissory Notes" to an aggregate face value of over $5,000,000 were issued by Emu Brewery Mezzanine, and to an aggregate value of $26,737,262 by Bayshore Mezzanine.

10 The orders for case stated for trial of preliminary questions of law and directions for the purposes of O 31 r 1 of the Rules of the Supreme Court 1971 (WA) of Owen J stipulate agreed facts for the purposes of the Case Stated in very similar terms. The only differences for the purposes of this introduction are that the Emu Brewery Mezzanine stated facts made reference, while the Bayshore Mezzanine stated facts do not, to the "Promissory Note" issuer (the two companies) as a single purpose vehicle with a board of directors independent of the development's corporate trustee. However, both sets of stated facts annex the information memoranda, which characterise their respective "Promissory Note" issuers identically in these respects, and the Case Stated was argued before me on that basis.

The litigation and the issues under the Cases Stated

11 The national corporate and financial markets regulator, the Australian Securities and Investments Commission (ASIC), brought proceedings against Emu Brewery Mezzanine seeking declaratory and other relief founded on ASIC's allegations of non-compliance with certain provisions forming the principal parts of four different regulatory schemes in the legislation administered by ASIC. The Bayshore Mezzanine action, by Bayshore Mezzanine against ASIC, was for declaratory relief which, if granted, would mean no contraventions on most of these accounts. The consolidation of the two actions is therefore understandable.

12 The questions addressed to me under the Case Stated in respect of the two matters are, therefore, substantially the same, although longer, for reasons which will appear shortly, in the case of Emu Brewery Mezzanine than for Bayshore Mezzanine. These questions can, however, be reduced to the three basic issues to which they give rise.

13 The first issue is whether the Information Memoranda offered "securities" within the meaning of the Corporations Act 2001, s 761A. The answer on the facts in the Cases Stated determines whether or not the conduct of the issuers of the "Promissory Notes" in issuing them is subject to the requirements of Ch 6D of Corporations Act 2001. Those requirements include most notably the lodgement with ASIC of the relevant required disclosure documents, likely here a prospectus.

14 The second issue is whether the Information Memoranda were offering interests in a "managed investment scheme". The answer on the facts in the Cases Stated is of importance in determining whether or not the issues of the "Promissory Notes" were subject to the requirements of Ch 5C of the Corporations Act 2001. These requirements include most notably the registration with ASIC of certain managed investment schemes.

15 The third issue, which arises only for Emu Brewery Mezzanine, because the questions that raise this issue are put only for it, is whether or not there were false statements in or misleading or deceptive conduct represented by the publication of the Information Memorandum for that development of any of the sorts claimed by ASIC. The answers to these questions determine whether there was, for the purposes of Australian Securities & Investments Commission Act 2001 (Cth), s 12DA and s 12DB(1)(g), read with s 12BB, false representations in, or misleading or deceptive conduct by the issuer in publishing, its Information Memorandum.

16 The two sets of questions for me also included ones directed to the issue whether or not the "Promissory Notes" were a "financial product" as defined in the Corporations Act 2001, Ch 7. However, the parties indicated at the hearing that they proposed to make no submissions on this issue, and their written submissions did not address them. In those circumstances, I will not address these questions.

17 I now turn to the issues, and the questions that give rise to them.

18 Counsel for both parties agreed that the only relevant part of the definition of "security" in s 761A of the Corporations Act 2001 is par (b), "a debenture of a body".

19 Section 9 of the Corporations Act 200 states that "unless the contrary intention appears", the term "debenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body". This is with an exclusion for "(d) an undertaking to pay money under a promissory note that has a face value of at least $50,000". The "Promissory Notes" of both Emu Brewery Mezzanine and Bayshore Mezzanine had such a minimum value.

20 Senior Counsel for ASIC contended for two possible applications of "debenture of a body". The first was that there was in both cases an implied undertaking to repay the money lent by the investors to Emu Brewery Mezzanine or Bayshore Mezzanine, as the case may be, that was in addition to the undertaking to pay in the "Promissory Notes" issued to them. The alternative contention was that, even if there were no such implied undertaking, the "Promissory Notes" here were not within the exclusion in par (d). I treat these two contentions separately. From now on, I use the neutral term Notes to refer to the "Promissory Notes" in this case.

(a) The implied undertaking to repay contention

21 Senior Counsel for ASIC sought to make his contention good through a two step argument. First he placed heavy reliance on what he contended were the promissory features of the two Information Memoranda. Second, more specifically, he referred to language in them which he contended pointed to an acknowledgement of a lending that would give rise to an implied obligation to repay, the risks of which would be mitigated by the financing structure, consisting as it did in issuing the Notes from a special purpose company which would have security in the charge, mortgage and guarantee forms I have described. The combined effect of taking these two steps was that this not a simple transaction involving an exchange of money for a promissory note of at least the minimum denomination.

22 The effect of this two-part approach was stated in the written submissions of Senior Counsel for ASIC (par 47) in the following terms. Here there were:

• an invitation for investors to participate in an investment opportunity by lending money;

• an agreement made that created binding promises as to the manner in which the borrower (Emu Brewery Mezzanine or Bayshore Mezzanine, as the case may be) would act so as to ensure the investor was repaid;

• statements made concerning the "mezzanine funding" (that is, the nature of the funding as initial support for the project) be provided by investors, as well as concerning the "lending risk" associated with the obligation to "repay" the investor's money from the Information Memoranda (for Emu Brewery Mezzanine, at pages 4 and 11, respectively; and for Bayshore Mezzanine, at pages 6 and 7, respectively); and

23 In view of all of these, it was said to be an unlikely common intention that there was no obligation to repay the moneys apart from an obligation to pay under the Notes.

24 It is, of course, necessary to find "a chose in action that includes an undertaking to repay as a debt money deposited with or lent by the body" for a "debenture of a body" to be found. So simply finding promises enforceable as promissory or contractual obligations, and thus as choses in action, is not enough.

25 There was no disagreement between counsel as to the test for finding promissory obligations in the Information Memoranda. As explained in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 61 per Gibb CJ, the test is one depending on "the intention of the parties", which is to be determined "objectively". The fact that, as would seem likely here, a statement is reasonably likely to induce a person to take action in reliance upon it, and does in fact have this effect, does not of itself mean the statement is promissory: JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435 at 442. As these cases make clear, the determination of this objective intention must proceed by reference to the language used, the subject matter of the language, and the context.

26 In this case, Senior Counsel for ASIC contended that the promissory character of the Information Memoranda, at least in relation to the finance structure elements they set forth as mitigating the lending risk, was an inference that should be more readily drawn than was done in cases where statements made were sought to be characterised as additional terms of a contract otherwise emerging, or as a collateral contract. For the classic statement of the reticence of the courts in those settings I note Heilbut Symons & Co v Buckleton [1912] UKHL 2; [1913] AC 30 at 37 - 38, per Viscount Haldane LC, itself a case on a representation in a fundraising context, and one still referred to as important in that context: see for example Ford HAJ et al, Ford's Principles of Corporations Law, Butterworths, Sydney, 1995, [22.400].

27 Senior Counsel for ASIC pressed on me that what is involved in this case is matter going to the nature of what the investors were invited to acquire, which included but was not limited to the Notes. I return to this position in relation to the issue of false representations or misleading or deceptive conduct, the subject of the concluding section of these reasons on the issues raised by the questions in the Cases Stated. I note here that against ASIC's position was put the argument that it was unclear from the Information Memoranda who the promisor was, whether Emu Brewery Mezzanine or Bayshore Mezzanine as the case may be, or a company in the Westpoint group (and if so, which one), or a combination of these. ASIC's reply was that it was reasonably clear the promisor was the special purpose corporate vehicle in each case.

28 Accepting ASIC's position on these matters for the sake of argument, it seems to me that the matter of finding an implied undertaking to repay the moneys invested separate from the undertaking to pay in the Notes then reduces to the question whether the they were issued as additional security for such an implied promise. Undoubtedly there is some support in the language of the Information Memoranda for this position, most notably, the mitigation of risk references above. However, whether or not there are other promises in the Information Memoranda (a matter I need to return to below), it seems to me, testing the issue this way, difficult to escape the conclusion that these documents are, so far as they concern any obligation to repay, only about offerings of Notes carrying with them the undertaking to pay that is the return for the investors' contributions to the developments.

29 Senior Counsel for ASIC pressed on me the references in the Information Memorandum for Emu Brewery Mezzanine to the "Mezzanine funds" being "repaid through the refinancing of the project", or "from the proceeds of the sale of the first Mounts Bay Tower" (page 2). There are no equivalents in the Bayshore Mezzanine Information Memorandum, although it was put to me that the references (at page 44) to the marketing of the apartments carried an implication, that the Mezzanine funds would be repaid from the proceeds of sales, which was similar. However, neither it seems to me points to an obligation to repay separate from the Notes, but rather to where the funds to repay them are expected to come from.

30 I observe that promissory notes are "more often than not" issued in commerce as additional obligations to those assumed under an agreement. See Elliott N, et al, Byles on Bills of Exchange and Cheques, 27th ed, Sweet & Maxwell, London, 2002, at 4; and see for example the use of promissory notes to cover the instalment amounts due from time to time under the hire purchase agreement in Stock Motor Ploughs Ltd v Forsyth [1932] HCA 40; (1932) 48 CLR 128.

31 However, in my view it is difficult to identify an equivalent to the hire purchase agreement and its instalment obligations in the Forsyth case. Senior Counsel for ASIC pressed on me the fact that the Notes are in form promises to pay, while here the Information Memoranda focussed on "investors" invited to enter into "lending" transactions giving rise to obligations to "repay" (emphasis added). This mirrored the structure of Corporations Act 2001 s 9 "debenture of a body" exception (d) read with the basic definition (above), and, it was said, made it easier to imply a separate undertaking to repay for which the Notes were additional security.

32 This, however, seems to me to be false to the overall thrust of the Information Memoranda as invitations to investors to respond to the document by making an offer for the Notes. That thrust, reflected most clearly in the only unambiguously contractual language of the documents, is "The Promissory Notes Offer" (the heading of each document's second section). That thrust is also reflected in the only explicit provision for an offer and acceptance in the documents, in their concluding provisions for application for and issue of the Notes. It is only the Notes' undertaking to pay that can engage the "debenture" definition, by reason of its character (here) as an undertaking to repay.

33 I add that the language of repayment in connection with the Notes appears in the Information Memoranda's references to the "investors" receiving interest including an amount "payable with the repayment of capital" on the Notes (Emu Brewery Mezzanine, page 3; Bayshore Mezzanine, page 3). I do not see such language as other than a way of describing the return to the "investors" from the acquisition of the Notes, including a "repayment" of their capital invested in them.

34 Senior Counsel for Emu Brewery and Bayshore drew particular attention to the difficulty in establishing an offer and an acceptance in relation to any suggested implied obligation to repay. I share that difficulty.

35 However, Senior Counsel for ASIC sought to meet the difficulty in terms of the tender by investors under the application form for the Notes of the purchase price for the Notes, and the retention of the funds for the purposes of the development projects. This, however, appears to me to be a strained interpretation of the effect of following the form for applying for the Notes. This is not an analysis that improves for ASIC if, rather than relying on the contracting mechanics of offer and acceptance, one resorts to the more recent ideas of course of dealings or global negotiations between the parties: see Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [71] - [80] per Heydon JA (as he then was).

36 Therefore I have concluded that the only "undertaking to repay" for the purposes of s 9 of the Corporations Act 2001 "debenture" is that involved in the Notes. This view makes it unnecessary for me to go further, at this point, into the issue whether there were other promises in the Information Memoranda. This is a matter which, as I have indicated, I return to in more detail below.

(b) The question of the application of the promissory note exclusion

37 As I have determined there is no other undertaking to repay than the undertaking in the Notes, I must then turn to this sub-issue.

38 As there is no definition of "promissory note" in the Corporations Act 2001, it is necessary to turn to the definition contained in Bills of Exchange Act 1909 (Cth) s 89, as counsel for all parties agreed. It seems to me that this is an appropriate approach notwithstanding its apparent technicality, in view of the apparent intention underlying this exclusion. That intention also appears to underlie the other similar exclusions from Corporations Act 2001 s 9 "debenture" (par (a) through (c)). That intention is, I believe, to exclude banking and other commercial transactions involving dealings in debt of a sort for which the protective provisions in Ch 6D (requiring disclosure documents) and Ch 2L (requiring a trust deed and a trustee) are not required: see Ford et al (supra), [19.070].

39 As Senior Counsel for ASIC pointed out, there is a minimum denomination for promissory notes, a requirement not to be found under the other exclusions, which comprise such as an undertaking to pay money under a "bill of exchange" (exclusion s 9(c)(iii) "debenture"). This requirement is explainable in his submission by a legislative concern, at least when the exception was, he said, first introduced into Australia's corporations laws in 1981 to identify persons who could be presumed to be reasonably sophisticated and financially well-endowed. I agree this is a plausible view. On it, the lack of such a requirement in the other cases reflects the use of instruments as media of exchange, or in ordinary course deposit, money lending or banking business transactions.

40 The Bills of Exchange Act 1909 s 89(1) defines a promissory note as follows:

"A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer."

41 The balance of s 89 is not relevant for current purposes. However, I note s 16, indicating that "a bill is payable at a determinable future time" if it is expressed to be payable on or at "a fixed period after the occurrence of a specified event which is certain to happen, although the time of happening may be uncertain". This is followed by closing words of the section which are:

"An instrument expressed to be payable on a contingency is not a bill, and the happening of the event does not cure the defect."

42 This provision appears to be applicable to promissory notes, by virtue of s 95.

43 There is an issue on the authorities for Australia whether a document, otherwise a promissory note, can have that status if it is expressed in terms that "part payment of the face value of each Promissory Note may be made at the sole discretion of [the obligor] at any time before the expiry date": Emu Brewery Mezzanine Information Memorandum at page 19; Bayshore Information Memorandum at the first page following its page 10. This is the language counsel agreed bound the investors who received the Notes.

44 The issue in the authorities resolves to this. Were the documents in the form of the Notes here a "promissory note" because there was a "fixed future time" in the Notes, being their respective "expiry date" entries, despite their being qualified by the partial prepayment option, and despite whatever effect such a qualification would have on a negotiable form of such a note? There was, however, a further issue in this case. This was, as I understood the written submissions of Senior Counsel for ASIC, whether the fact of a prepayment of part of the face value of a note would mean that there would be created a balance payable at the expiry date. This on those submissions would mean that at the time of the issue of the Notes there was a contingency preventing there being "a sum certain" within the Act. I note that the definition in s 14 of a "sum payable" does not appear to resolve this matter one way or the other.

45 What is the position on the authorities? On the first issue, there is only one modern Australian authority to which counsel were able to direct my attention. It is that of Gore v Octahim Wise Ltd [1995] 2 Qd R 242, a decision of Williams J (as he then was) in which he reviews the other authorities. Gore concerned documents purporting to be promissory notes a provision of which was that the promiser "may repay the Principal Sum in whole or in part at any time". His Honour concluded that the provision I have quoted was fatal to the document being characterised as a promissory note.

46 His Honour relied on the decision of the Court of Appeal in Williamson v Rider [1963] 1 QB 89 (Danckwerts LJ and Willmer LJ, Ormerod LJ dissenting), where the document provided for payment of the relevant sum "on or before" the stipulated date. His Honour also referred to a later decision of the Court of Appeal, Claydon v Bradley [1987] 1 All ER 522 (Dillon, Brown and Neill LJJ), where the Court treated itself as bound by Williamson (supra), although it also noted authorities elsewhere which had declined to follow Williamson, as well as the account in the leading text, Byles on Bills, repeated in the 27th ed (supra), at 21, expressing a preference for the dissenting view of Ormerod LJ.

47 Williams J also referred to the South African decision in the Transvaal Provincial Division in Weszak Beleggings (EDMS) BPK v Venter [1972] 1 SALR 730 following Williamson (supra), as well as Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, 2nd ed, Law Book Co, Sydney, 1994, where the matter is discussed at par 11-11 at 321, and the learned authors appear to accept the view in Williamson. However, Williams J also noted the view in Rajanayagam MJL and Conrick B, The Law and Negotiable Instruments in Australia, 2nd ed, Butterworths, Sydney, 1989 at par 2.25, which inclines the other way, questioning whether "an option to pay the amount at an earlier date" amounted to a "contingency".

48 His Honour also referred to the early decision of the New South Wales Supreme Court in Vidler v Sallaway (1862) 1 SCR(NSW) 246, where the note provided that the relevant amount was to be paid "on or before September 1861". There was, however, a further source of doubt as to the status of the note, as indicated in the Sallaway judgments by the different constructions of the date within September on which the sum was payable . There was no such uncertainty in the other earlier case to which his Honour referred, Balck v Pilcher (1909) 25 TLR 497 (Ridley J), where the matter of the status of a document as a promissory note was for stamp duty purposes. The document stipulated that the relevant sum was payable "on or before the 7th October, 1907" and the Court held the document was not a promissory note.

49 On this state of the authorities, and recognising the differences of opinion expressed on the subject, most notably within Williamson (supra) itself, Senior Counsel for ASIC pressed on me that, although I was not bound by any of these authorities, I should follow the approach in the only superior court decision in this country directly on the point, Gore (supra), on what was national legislation, unless I was convinced that authority was "plainly wrong": see Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485, at 492.

50 However, as noted by Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine, Marlborough Gold Mines concerned the obligation of one intermediate appellant body (the Full Court of the Supreme Court of Western Australia) to accord weight to the opinion for another (the Full Court of the Federal Court). The considerations are different, it was submitted, in reference to competing decisions of first instance superior courts, given the possibility of appeal to an intermediate appellate court, further appeals from which are limited, of course, by the special leave requirements of the High Court.

51 I agree. The appropriate approach for me to follow is, I believe, set out by Owen J in Walker v Midlink Nominees Pty Ltd [2000] WASC 112; (2000) 22 WAR 318 at [23]. I must give "due respect" to the Queensland judgment, particularly as it is one in the area of national legislation. However, in the end I "must apply the law as [I] believe it to be". The possibility for an appeal from my view "provides a mechanism by which the point can be resolved at a higher level", a matter that, "itself, promotes the proper and orderly development of the law".

52 I therefore must engage with the question more closely, and in particular examine carefully the reasoning in the authorities.

53 As Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine submitted, the authorities grapple with three matters. The first, of concern to Danckwerts LJ in Williamson, was the judgment of the Court of Queen's Bench in Crouch v The Credit Foncier of England Ltd (1873) LR 8 QB 374 (Blackburne, Quain and Archibald JJ) where the document involved was a debenture purchased from its thief. The Court held that the purchaser could not take advantage of the holder in due course doctrine as the document could not qualify as a negotiable instrument under the general law. This was a decision at a time before the passage of the Bills of Exchange legislation upon which the Bills of Exchange Act 1909 was based. The debenture was one of a series, and was payable on a fixed date. However, there were two qualifications. The first was that a proportion of the debentures in the series were to be paid off following the drawing of debentures by lot on each of two stipulated dates; in addition, the promisor reserved the right to pay off "the whole" of the debentures at any earlier period.

54 As observed by the dissenting Judge in Williamson (supra), Ormerod LJ, this case was distinguishable from Williamson on the basis of the drawings, which might be seen to qualify as a contingency under the Bills of Exchange Act 1909 s 16 closing words, which I quoted above. The general right of pre-payment did not form any part of the basis for the Court's judgment in Crouch (supra).

55 I note in passing that there is other authority, prior to Crouch, reflected in Bills of Exchange Act 1909, s 16(b), which would support the view that the drawings should not be seen as fatal to an instrument so qualified being a promissory note: see Hudson AH, "Time and Promissory Notes" (1962) 25 MLR 593, at 595, 596. But I do not need to resolve this issue in this case.

56 This would leave the question, the second of the three considerations discussed in the authorities, of whether the possibility of prior payment would destroy the status of the note. Prior payment, as opposed to the fulfilment of a condition making the obligation payable at an earlier date, would not affect the doctrine, referred to in Crouch, that the holder of an overdue bill or note cannot convey better title to a transferee than the holder itself had: Crouch, at 381.

57 There is a strong argument that, if that is the only qualification on the payment obligation, the "fixed time" requirement in s 89(1) is met, and there is no "contingency" within s 16. So much appears to have been conceded by Danckwerts LJ in Williamson (supra) who, however, appears to have treated Crouch, while not binding on its facts, as telling so far as it showed how an "element of uncertainty" introduced by a contractual term "may be fatal": at 98. I do not share that view of the case in this context, as I have explained.

58 Willmer LJ in Williamson, the other member of the majority, appears to have read the language of "on or before" in the clause before him as failing to provide a "fixed time" and introducing a "contingency". The language in the present case is not the same, and in any event I note the reading of it by Dankwerts LJ (at 97) and Ormerod LJ (at 102) as meaning what the language in the present case makes clear, namely, a due date by which the promised amount is payable, subject to an option of pre-payment.

59 There is, however, the further consideration indicated without any development in Pilcher (supra), and addressed in detail in the judgment of Williams J in Gore (supra). It is whether an option of prepayment strikes at the negotiability of a note. The issue seems to arise principally in this way. A holder may not qualify as a holder in due course if that person at the time of the dealing was put upon inquiry as to a possible defect (such as the fact that the note had already been paid) in the transaction. A note without an option for prepayment might always be paid early with the consent of the previous holder. Under those circumstances, the promisor/payer is at risk, if the note does not contain an endorsement of payment, or is not otherwise removed from circulation, that the payee might fraudulently negotiate the discharged note to a third party. That person would be capable of being a holder in due course and demanding payment in accordance with the terms of the note: see Glasscock v Balls (1889) 24 QBD 13, at 15 per Lord Esher MR.

60 In a case like Gore (supra) there might in fact be two problems with negotiability. The first would rest on an argument that the option of prepayment, if shown on the face of the note, might give rise to a duty of inquiry by the person to whom the note was negotiated. In any event, it might be argued that a note bearing such a legend had a qualification on its payment in accordance with the option to prepay: see Bills of Exchange Act 1909, s 94(a). On either basis, the negotiability of a promissory bearing such a legend might be seen as "illusory": Williams J in Gore at 250.

61 Of course, not all promissory notes will in fact be negotiable: see Bills of Exchange Act 1909, s 13. Furthermore, a negotiable note need not bear the option for prepayment on its face. In this case, the note was not a negotiable one, and its qualification on prepayment did not in fact appear on its face.

62 At the hearing before me, however, consideration of the issue was principally by asking whether a purportedly negotiable note bearing such a legend is capable of being a promissory note within the legislation. This approach derives support from the difficulty in saying of the Notes in this case that the holder could ignore the option to prepay. And neither the Bills of Exchange Act 1909, s 89(1) nor the authorities seem to allow for an instrument to be a promissory note that would otherwise not be one simply because at issue it is endorsed "non-negotiable".

63 Considering the matter in that way, it seems to me that it is not clear a duty of inquiry would arise simply from the presence on a negotiable note of a qualification represented by an option of prepayment of the sort here. The holder in due course could treat the fact the note had not been endorsed as paid or otherwise cancelled as indicating that there was no qualification by prior payment. This would be in the absence of any other circumstances which might give rise to a duty to inquire.

64 Of course, the holder in due course of a note bearing the qualification on its face would have to accept the possibility of subsequent prepayment, in whole or in part: see Bills of Exchange Act 1909, s 94(a). This would not, however, strike at the note's negotiability. Rather, it would expose the holder to the risk of being paid out, if market interest rates began to fall, by a refinancing promisor.

65 In any event, I note that there appears to be no objection on negotiability grounds to a promissory note bearing an option of prepayment in Canadian or US law: see Crawford B and Falconbridge JD, Banking and Bills of Exchange, 8th ed, Canada Law Book, Toronto, 1986, vol 2, at 1274.

66 In Canada, the question of the application of the definition of promissory notes to notes bearing prepayment options, under legislation on all fours with the Bills of Exchange Act 1909, is resolved by John Burrows Ltd v Subservice Surveys Ltd [1968] SCR 607, where the Supreme Court of Canada rejected the majority judgments in Williamson (supra), and preferred instead the reasoning of Ormrod LJ dissenting there. In Burrows the maker of the notes could pay "on account of the principal from time to time the whole or any portion thereof upon giving thirty (30) days notice of intention prior to such payment".

67 I note that the Court in Burrows did not refer to any objection to the note based on the fact it might be paid in accordance with its tenor without presentation by the holder. This was a feature of notes with an option for prepayment like the ones in this case which appears to have concerned Williams J in Gore (supra), at 249 - 250, on the basis it introduced a "degree of uncertainty with respect to payment which has, or may have, marked consequences so far as the negotiability of the note is concerned". To the extent this raises the concern I have referred to, of a note duly paid remaining in circulation, or of a holder being paid out after negotiation in a falling interest rate environment, I have indicated why I do not see that as fatal. To the extent this raises the concern that a subsequent holder might not be able to sue a person who endorsed the note before the option to pre-pay was exercised, there is an analogous possibility for valid promissory notes payable on demand, where the note is reissued after payment: see Hudson (supra), at 596.

68 While I have considered the matter in terms of a negotiable note bearing an option of prepayment, Senior Counsel for ASIC put it to me that, even on the basis that the option of prepayment was (as here) not on a (negotiable) "promissory note", there would be a question of a duty to inquire into such a possibility. This, it seems to have been meant, showed the even greater negotiability problem with such a note.

69 Reflection on the matter since the hearing suggests to me that in such a case it might be difficult to argue that the option formed part of the promissory note, and, if so, the note might appropriately be viewed as one regular on its face (not bearing the prepayment option) within Bills of Exchange Act 1909, s 34. So viewed, it would not engage the objection from Williamson (supra).

70 In any event, it does not seem to me that if the option's appearance on the face of a note is not sufficient itself to generate a duty of inquiry, its non-appearance there would make matters any worse for the status of the instrument.

71 I also note that the Supreme Court of Canada in Burrows (supra) did not refer to any objection to the note before them based on the possibility of partial pre-payment being inconsistent with a "sum certain" at the time of making the note, within our Bills of Exchange Act 1909, s 89(1). This was the second issue with the notes here raised by ASIC. It seems to me that the answer to any such objection lies in the certainty as to the total amount to be paid under notes in cases like these, in the way that the option of prepayment does not mean there is no "fixed time" on which the promised amount is payable. Of course, in the case of partial prepayment, as Senior Counsel for ASIC reminded me, there would be commercial sense to the payee retaining the instruments, where there would appear to be none in the case of prepayment in full. However, equally it would be commercially sensible for the partial prepayment to be conditioned on endorsement of the instruments.

Conclusion on "promissory notes" and overall on the "security" issue

72 I am thus of the view that the law on promissory notes is in accordance with the dissenting judgment of Ormerod LJ in Williamson (supra) (putting aside the contingency in Crouch (supra), on which I do not need to pronounce a final view), and the decision of the Supreme Court of Canada in Burrows (supra). I must, with respect, differ from the contrary view of Williams J of the Supreme Court of Queensland in Gore (supra). As in Burrows, it does not matter whether the option of pre-payment included partial pre-payment.

73 That is, the Notes in the case of both Emu Brewery Mezzanine and Bayshore Mezzanine are indeed promissory notes for the purpose of s 89 of the Bills of Exchange Act 1909, and, therefore, the exclusion to the definition of "debenture" in s 9 of the Corporations Act 2001, par (d) is capable of application to them. Accordingly, the Notes are not cases of a "security" within s 761A of that Act.

74 This conclusion enables me to answer, for Emu Brewery Mezzanine, its questions 14 to 16, and, for Bayshore Mezzanine, its questions 14 to 16.

75 The term "security" in s 761A of the Corporations Act 2001 does not include interests in managed investment schemes, with an exception not relevant in these proceedings. However, such schemes are regulated under Ch 5C with its requirements for registration for certain schemes and provisions for registered schemes in relation to their constitutions; requirements in relation to a responsible entity; provisions for a compliance plan and in certain cases a compliance committee; provisions for members' withdrawal rights; provisions concerning related party transactions; and provisions relating to winding up and deregistration. In addition, in certain circumstances, there is a requirement for a "Product Disclosure Statement" in respect of interests in registered managed investment schemes, under Pt 7.9 of the Corporations Act 2001.

76 For these purposes, Corporations Act 2001 s 9 says "interest in a managed investment scheme" means "a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not)".

77 In turn, s 9 indicates that "managed investment scheme" means the following:

(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)"

78 The definition, par (j), excludes "the issue of debentures or convertible notes by a body corporate".

79 Senior Counsel for both parties agreed that there were four elements in this definition that needed to be satisfied. First, there must be a "scheme". Secondly, there must be a contribution within subpar (i). Thirdly, there must be a pooling of these contributions, or their use in a "common enterprise", within (ii). Finally, fourthly, the members must not have the control referred to in (iii). Senior Counsel also agreed that, if the other elements were met, this fourth element was satisfied in this case. Argument accordingly was addressed to the first three.

80 Senior Counsel for those parties further agreed on the general approach that the authorities indicate should be adopted in relation to the application of the definition of "managed investment scheme". Although a number of these authorities were on earlier forms of the concept, particularly the concept of a "prescribed interest" as including an interest "in any profits, assets or realisation of any financial or business undertaking or scheme", the subject of the decision in the leading High Court authority in this area, Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex Rel Corporate Affairs Commission [1981] HCA 49; (1981) 148 CLR 121, that general approach continues to apply to the current legislation. That approach stresses the literal meaning of the words used in the definition, giving to them any broad application indicated by such a meaning: see Australian Softwood Forests, (supra), at 129 - 130, per Mason J.

81 Furthermore, I note that the authorities make a related point, that one should not read down what would otherwise follow from the application of that general approach, by reference to what might be "the supposedly unintended consequences of a literal reading on everyday commercial transactions": Australian Softwood Forests (supra), per Mason J, at 130, quoted in Australian Securities and Investments Commission v Enterprise Solutions [2000] QCA 452; (2000) 35 ACSR 620, at 625 (Full Court, Federal Court). This seems to me to be the response to the point made to me by Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine, that the application of a requirement like that for a product disclosure statement would seem "unusual" in relation to promissory notes outside the Ch 6D provisions for a disclosure document.

82 I turn then to whether there is a managed investment scheme in this case that might attract one or more of the requirements applicable to "managed investment schemes".

83 Senior Counsel for ASIC described "the scheme" here as one with four elements:

• The raising of a substantial sum by Emu Brewery Mezzanine, or Bayshore Mezzanine, as the case may be, to assist the corporate vehicle in funding the development of the relevant project;

• the corporate vehicle would be a special purpose one that would conduct no other activity than raising and on-lending this funding;

• this structure would mean that investors would not have to incur the costs that would be associated with their directly dealing with the developments to secure for each of them the securities by way of fixed and floating charge and mortgage, as well as by way of the guarantee; and

• the investors would receive a return on their investment in the corporate vehicle through this structure at a higher return and lower risk than that generally available with other property investments.

84 Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine replied that there was indeed a programme or plan of action in relation to the development and its financing, being one whose structure, and the involvement of the Westpoint Group in which, would go to strengthen the creditworthiness of the obligations undertaken under the promissory notes. However, it was argued this was not a "scheme" within the meaning of the definition as it was not a program or plan of action in which the holders were participants.

85 In my view, it is hard to deny that a "scheme" is involved here. Australian Softwood Forests (supra), per Mason J at 129, only requires that there was "some program, or plan of action". Whether the "scheme" here involves all of the elements Senior Counsel for ASIC listed or not, there would indeed appear to be such an arrangement here. It does not appear to be a part of the term that the persons said to have an interest of the relevant sort in the "scheme" be participants or similar. The nature and quality of their interest, if any, are the focus rather of the remaining elements, as I will indicate below.

Contributions to the scheme "to acquire benefits": (i).

86 There is a definition of "benefit" in s 9 of the Corporations Act 2001 which says it means "any benefit, whether by way of payment of cash or otherwise". This is clearly sufficient to cover any benefit of the kinds upon which ASIC seeks to place reliance here. Argument before me went rather to the investors' move "to acquire rights" to such benefits for which they were said to have contributed their investments.

87 Senior Counsel for ASIC submitted that there was here a contribution as consideration "to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not)" by reference to the following three elements:

• Access to a return generated by the project to which Emu Brewery Mezzanine, or Bayshore Mezzanine, as the case may be, on-lent, being a better return with a lower risk than that generally available with other property investments;

• the additional security for repayment arising from the corporate vehicle receiving its return from the project, a return secured by fixed and floating charges, the mortgage and the guarantee, those forms of security being described as part of the project; and

• the occupation of substantially the position of a "mezzanine" financier for a large property development, through the corporate vehicle, a position not otherwise available for an investment of the size the investors were being asked to make.

88 Emphasis was laid on the provisions in the Information Memoranda concerning the special purpose corporate vehicles, the project, and the securities, with the Memoranda's considerable detail on the antecedents and activities of the Westpoint Group. For this purpose there was a particular reference to the Memoranda's passages describing the Westpoint Group as one "not dependent on others to procure suitable property assets to offer investors", which meant that it was "able to offer property investment products with a higher return and lower risk profile than many other property investment groups" (Emu Brewery Mezzanine Information Memorandum at page 9; Bayshore Mezzanine Information Memorandum at page 6).

89 Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine responded by reference to the focus in the Information Memoranda on the offering of Notes, and not, it was submitted, participation in the development projects. It was further submitted that there was no sensible difference between the arrangements for the investments in this case and an issue of promissory notes by a corporation with the creditworthiness of Emu Brewery Mezzanine or Emu Brewery, as the case may be. The project descriptions with their references to the securities the corporate vehicles received for their claims under their on-lendings, and to the activities of the Westpoint Group, were, on this submission, simply indications of the creditworthiness features to which I have referred.

90 It was conceded that lending transactions with fixed returns could fall within the managed investment scheme definition: see Australian Securities and Investments Commission v Hutchings [2001] NSWSC 522, and the authorities referred to at par 13 there. However, those authorities involved, it was submitted, situations where there was more than a mere expectation that the fixed return would be secured by the activities described in the materials in those cases used by the promoters of the projects concerned. Rather, there was the establishment of a linkage of the higher returns to be secured by the recipients of the contributions with the activities described in the literature of the sort denoted by the words in element (i) of the definition in s 9 of the Corporations Act 2001 of "management investment scheme". Here, there was no such linkage.

91 The authorities do clearly indicate that it is not necessary for the acquired "right" to benefits referred to in (i) to be a legal one, as is also quite clear from the statutory language. At the same time, I agree, consistently with the general approach that stresses the language of the components of the definition, that the word "right" requires more than a "mere expectation of benefit or an arrangement in which the investor has merely an economic interest in the benefit": see Ford et al (supra) [22.490].

92 However, it is important to consider what it is those responsible for the relevant scheme are offering for acquisition, by reference to the marketing context. That context might show what is being offered goes beyond the legal rights the scheme otherwise gives rise to: see Ford et al, [22.490], referring to Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (No 2) (1987) 9 NSWLR 497. See also Australian Securities Commission v United Tree Farmers Pty Ltd (1997) 24 ACSR 94. It also seems to me from this material that the "right" need not be in the form of the benefit of a contractual promise or promises in relation to scheme operation. Later in these reasons I consider whether there were such promises here, and conclude there were none, on the elements of the scheme I am concerned with.

93 I stress that the only marketing context before me in this case stated is that provided by the Information Memoranda, read with the facts in the Cases Stated. It is on those materials alone that I am asked to consider the answers to the relevant questions.

94 Judging the matter in this way, what is involved here is a matter that goes beyond simply an offer of promissory notes by a company with particular creditworthy characteristics. The Information Memoranda on any view contain statements about the linkage between the risk of and returns on the Notes and a mezzanine financing structure for a particular project that is to produce the returns, secured as that structure indicates, to the relevant special purpose corporate vehicle by which the Notes will be issued.

95 At the same time those vehicles are intermediaries for the multiple investors invited by the Information Memoranda to make their investment. This emerges most clearly from the level ($35,000,000) of the funding for the "mezzanine" finance sought by the vehicle relative to the minimum investment an investor is asked to make ($50,000); the fact I am to assume for the purposes of the Case Stated that more than 20 investors were involved, in an offering to which none of the exemptions in s 708 of the Corporations Act 2001 to Ch 6D disclosure applied; and the references in the memoranda to the fact that, "to ensure absolute compliance" with the on-lending arrangements, and that "investors interests are always considered", the relevant vehicle will have "an independent board of directors" and be "audited by KPMG" (Emu Brewery Mezzanine Memorandum, page 12; and Bayshore Mezzanine Memorandum, page 7).

96 There is thus involved here more than simply an issue of promissory notes by a corporation with particularly creditworthy characteristics deriving from its special purpose to on-lend to a particular building project with a particular financing structure including the provision of certain securities (including a guarantee) for the lending.

97 The intermediation feature is the reason why it would not be appropriate simply to test the matter, as I was asked by Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine to do, by ignoring the interposition of the special purpose corporate vehicles, and assuming a borrowing by promissory notes of at least the minimum denomination by a suitable company in the Westpoint Group. Apparently this would involve considering that company as the project operator, issuing promissory notes secured as the on-lendings here were, and indicating the uses to which the funds so raised would be put. Whether or not that transaction would involve the acquisition of rights to benefits produced by a scheme would depend on an analysis of the sort I am undertaking here. But the scheme would be different, and this would have implications for whether or not the investors were to acquire rights to benefits produced by it.

98 It is true, as I do not see ASIC to have denied, that this scheme should not be taken to involve an "extraordinarily high level of interest" of the sort in Hutchings (supra), at [3], per Windeyer J (emphasis added). Nor was there any question here of investors being invited to trust the general investment skills of the scheme operators to produce the particular returns referred to in the scheme literature (at [13]). Both sorts of feature, in my view, tend to show that investors are contributing their money "to acquire rights to benefits produced by the scheme", because of the way those sorts of features point to an involvement in an investment scheme's risks and rewards. What is involved here, it was agreed, were rather less substantial returns, from the implementation of particular schemes representing singular investment opportunities.

99 However, the investors were asked by the relevant Information Memorandum, as I read them, to contribute their money so as to permit the special purpose corporate vehicle to make possible the "mezzanine" finance arrangements for the particular project described for them, and in return would gain the sorts of benefits the vehicle's participation in these arrangements would make possible for the investors. This in my view is sufficient to show the sort of linkage between contributor and scheme which is denoted by them moving "to acquire rights to benefits produced by the scheme".

The pooling or use in a common enterprise of the contributions (ii)

100 In argument before me, the focus of attention of both Senior Counsel was on the pooling element. Senior Counsel for ASIC here referred me to the intention implied in the two Information Memoranda to combine the investors' contributions to produce the funds for on-lending by the special corporate vehicle concerned for the projects the Memoranda described. Senior Counsel for the vehicles, Emu Brewery Mezzanine and Bayshore Mezzanine, agreed that there was such a combination. But he stressed the need, stipulated for in (ii), for pooling to "produce financial benefits or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme". Here, Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine submitted, the pooling was only for the purpose of the on-lending, not to produce the benefits.

101 It is clear that the combination of funds on its own is insufficient, and regard must be had to the purpose for which the combination is sought: Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339, at [46]. In this case, the purpose would need to relate to the production of "financial" benefits, as there would not seem to be involved in the on-lending, even after account is taken of the securities for the on-loans, any "rights or interests in property" for the investors. Those rights or interests appear to me, adopting the literal approach to construction, to be proprietary ones: Ford et al (supra) [22.490]. Only the special purpose corporate vehicles enjoy any such rights or interests in respect of the securities.

102 The introduction of the qualifier "financial" for the "benefits" of the investors by par (ii) returns me to the benefits I have previously discussed in relation to element (i) of the definition of "managed investment scheme", and in particular the higher return and lower risk than is generally available with other property investments on which Senior Counsel for ASIC relied. On the authorities to which I earlier made reference in this connection, particularly Hutchings (supra), it appears to me that the benefits here are indeed "financial", if not of the magnitude sought in the investments in that case.

103 It is true, as Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine contended, that there is no legal right of the investors to the returns Emu Brewery Mezzanine and Bayshore Mezzanine would derive from the development and out of which those two companies would be expected to pay out their obligations under their promissory notes. However, Hutchings would appear to indicate there is no requirement for such an entitlement to such underlying returns.

104 It is also true that there were no express references in the Information Memoranda to a pooling of funds which made it possible to produce special returns by the employment of the scheme operator: compare Hutchings at 393. However, I read the Information Memoranda as being to a similar effect, as they asked the investors to contribute their money so as to permit the special purpose corporate vehicles to make possible the "mezzanine" finance arrangements for the projects. This would, as I have already said, gain for those investors the sorts of benefits the vehicles' participation in those arrangements would make possible.

105 It follows, in my view, that this third element of the definition is met. It is therefore not necessary for me to consider whether a "common enterprise" might be present in this case, on which I was not addressed in any event.

Conclusion on managed investment scheme issue

106 I have thus concluded that issues of interests in a managed investment scheme were involved here for each of Emu Brewery Mezzanine and Bayshore Mezzanine. As the Case Stated requires me to take it that there were more than 20 investors in each case, there would have been an obligation to register the scheme in each case, for the purposes of Ch 5C of the Corporations Act 2001: s 601ED(1)(a). This is unless all of the issues of interests in the Scheme that have been made would not have required a Product Disclosure Statement under Div 2 of Pt 7.9 of the Act if the scheme had been registered when the issues were made: see s 601ED(2). No submissions or argument were addressed to me on this point, nor on any of the circumstances that the determine the application of a number of the other requirements in Ch 5C.

107 This conclusion enables me to answer, for Emu Brewery Mezzanine, questions 17 and 18, and, for Bayshore Mezzanine, questions 17 and 18, but as to the second question in each pair, to do with the application of Ch 5C, only in a qualified way.

Misleading or deceptive conduct or false representations

108 The parties conceded that the relevant statutory prohibitions for this purpose are those in Australian Securities and Investments Commission Act 2001, s 12DA, in relation to "financial services".

109 By virtue of s 12BAB "financial service" includes issuing a "financial product" and by virtue of s 12BAA(7)(k) "financial product" includes a "credit facility" (within the meaning of the regulations). Those regulations, as Senior Counsel for Emu Brewery Mezzanine and Bayshore Mezzanine indicated, would appear on their face sufficient to include issuing the Notes in this case: (see Australian Securities and Investments Commission Regulations 2001 (Cth), reg 2B(3)(b)(xi)).

110 This would also make relevant the prohibitions on misleading or deceptive conduct, in s 12DA(1) of the ASIC Act, and those concerning false representations that services are a particular standard, quality, value or grade, and making a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy, in s 12DB(1)(a) and (g). These two sets of provisions, of course, are based upon corresponding Trade Practices Act 1974 (Cth) provisions, and draw in, accordingly, a large body of case law as to the meaning of conduct that is false or misleading or deceptive generally or in the particular respects I have indicated.

111 Questions on the Case Stated raised the issue here for Emu Brewery Mezzanine. Thus the focus here is only on the Emu Brewery Mezzanine Information Memorandum, the only materials in relation to which misleading or deceptive conduct or false representations was before me. There were two sorts of misleading or deceptive conduct or false representations referred to by Senior Counsel for ASIC. I deal with them in turn.

112 It was submitted Emu Brewery Mezzanine had represented to investors in the Information Memorandum that it was undertaking a promissory obligation or establishing as a condition of issuing the Notes:

• that it was a single purpose vehicle to receive the moneys and lend them to the Emu Brewery Development as trustee for the Emu Brewery Trust;

• to arrange for the fixed and floating charges over the mortgage securities; and

• to ensure that the company had an independent board of directors.

113 There was a considerable focus in the submissions made to me on the language of the Emu Brewery Mezzanine Information Memorandum which it was said was of a contractual nature, going beyond a set of mere representations.

114 However, it was put to me by Senior Counsel for Emu Brewery Mezzanine that either the language relied upon was of a contractual character, or it was not. If it was, the representations referred to were accurate. If the language was not contractual in character - and the Information Memoranda and their language were all that I was entitled to look to for this purpose - then there were no representations of the sort alleged. As a matter of a person performing a strict legal analysis, this seems to me to be correct.

115 Senior Counsel for ASIC put to me by way of reply that what mattered was not whether as a matter of strict legal analysis the language was promissory in the contractual sense, but rather whether that would be the impression left on the audience for the Information Memoranda. That audience would include many not in a position to carry out any strict legal analysis. What counts is the impression the representations would leave on reasonable members of the class of persons at whom the representations were aimed: Miller's Annotated Trade Practices Act, 25th ed, Thomson Lawbook, Pyrmont, 2004, [1.52.46]. Assuming that such members would not have that capacity, ASIC's submission was thus that, if the impression left on such an audience was of a set of contractual promises, but in strict legal analysis all that was to be found was a set of mere representations, then there were false representations or misleading or deceptive conduct.

116 However, it is not clear to me how I can extract from the Case Stated for Emu Brewery Mezzanine facts establishing such an audience. Further, even for such an audience, it is not clear to me why on the language of the Information Memorandum such an audience would necessarily draw a distinction between contractual obligations and representational ones. Put another way, it was not a matter of the representor, in the case of the representations having no contractual significance, being necessarily under no obligations with respect to its statements. It might be enough there were some obligations in respect of the statements, and there would be at least the obligations as to matters of the sort referred to in the ASIC Act, s 12BB(1), the counterpart to Trade Practices Act 1974, s 51A. I am therefore not convinced, on the material I am confined to, that the argument for ASIC from the nature of the audience for the Emu Brewery Mezzanine Information Memorandum is made good.

117 Of course there might indeed be a false representation or misleading or deceptive conduct in the form of a representation the representor has given a guarantee or other contractual assurance in other language the representor has used. There is just such a claim here, and dealing with it (as I will explain) requires me to determine whether or not the four particular representations were promissory in the contractual sense.

118 Senior Counsel for Emu Brewery Mezzanine reminded me that I am to take it the facts in the Case Stated for the company include that the relevant arrangements referred to in the four representations, such as the provision of a guarantee and the establishment of an independent board of directors for the corporate vehicle, had all been made: see Case Stated, Schedule 1, items 10 - 13. This, it was said, meant it was not necessary for me to address the questions relevant to those representations.

119 I am not convinced, however, that the representations, assuming they point to contractual obligations, are incapable of being dishonoured if subsequently any of the arrangements should cease. For example, the board of directors of the corporate vehicle might cease to be independent. I am not asked to answer the question whether the scope of any promissory obligation undertaken was as a continuing requirement. But the possibility that one or more of them has such a scope indicates to me I should not decline to answer the questions put to me on the ground they are moot. I also note the authority cited to me by Senior Counsel for ASIC, Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885, at [34], which strengthens the view I have formed, that I should be slow to find the questions moot, especially where the litigation giving rise to the questions includes (as here) a claim for declaratory relief.

(b) The mitigation of risk language as false or misleading or deceptive

120 The other suggested basis for the claim of a contravention of the provisions on false representations or misleading or deceptive conduct lies in the representation in the Emu Brewery Mezzanine Information Memorandum that "the lending risk will be mitigated by Emu Brewery Mezzanine (the special purpose company issuing the notes) having the second ranking mortgage over the property, a second ranking charge over the trust and the guarantee by the Westpoint Group" (page 10). I understood the submissions made here to be that the mitigation of risk language was referring to all four matters referred to under the previous heading, not just those in the quoted text. This appears from the relevant questions (23 and 24) of the Case Stated for Emu Brewery Mezzanine.

121 Senior Counsel for ASIC submitted to me that the statement was false or misleading or deceptive to the extent that Emu Brewery was not under a contractual obligation in respect of the four matters. This would give a separate significance to the quoted language, by way of it indicating how investors should understand the other language of the Information Memorandum. Thus, if that other language was, as Senior Counsel for Emu Brewery Mezzanine strongly submitted to me, merely representational then the quoted language was false or misleading or deceptive.

122 To succeed here, ASIC must convince me of two things. One is that the mitigation of risk language, which I will call the referring language, is a representation that promises of contractual significance have been made in what I will call the referred to language. The other is that the referred to language does not have that effect. I will begin with the second, for reasons which will become apparent.

123 I have already referred, in connection with the "security" issue, to the test for determining whether the relevant material was meant to create promissory obligations, from Hospital Products Ltd (supra). Two factors which might point towards promissory obligations in respect of the four representations that were pressed on me by ASIC in connection with that earlier issue are that they go to the nature of what the transaction involved for the investors, as opposed to the incidental matter of operation of the building project, and that "will" appears in relation to some (but by no means all) of those representations.

124 I begin by noting the traditional reticence of the courts to infer contractual assurances in situations leading up to the acquisition of investments like the Notes here: Heilbut Symons (supra). I further note that this case does not draw the distinctions the two factors involve.

125 The Information Memorandum does indeed use the language of "will" in many if not all places, and particularly in the part of greatest relevance to this submission, that immediately following the reference to mitigation of the lending risk, where it is indicated that Emu Brewery Mezzanine "will" hold a second ranking fixed and floating charge and the second ranking mortgage; and "in addition" Westpoint Corporation Pty Ltd and associated entities "will provide a guarantee" to the corporate vehicle (Information Memorandum, page 4).

126 However, this language, coming as it does in an Information Memorandum directed to an issue of Notes in relation to a particular property project, appears to me to be no more for present purposes than more fully descriptive of the project's financing structure in the respects of particular relevance to the investors invited to apply for the Notes.

127 Thus, in the context in which this language is sometimes encountered in the Information Memorandum, one also encounters other language of what "is planned", such as in respect of the repayment of the "mezzanine funds" (page 2), or of "description", such as in respect of the "strength" of the Westpoint group, from which the guarantee is coming (page 11).

128 I also note that there is much use of "will" in the Information Memorandum to describe other parts of the project, such as the area it "will" occupy, and what the buildings "will" include (page 1). Of course, these might be said to go to aspects of the project's operation, not the nature of what the investors are acquiring, although I consider they also illustrate the difficulties in so distinguishing. But what they also illustrate is the difficulty in ascribing promissory or contractual significance to the Memorandum's "will" language consistently with the approach in Heilbut Symons (supra).

129 The same may be said of the references to Emu Brewery Mezzanine as a "special purpose company specifically established for this purpose" (Information Memorandum, page 3) or as a "single purpose company specifically established for this offering" (page 12), with greater force, as there is no "will" language used in those references. This is also the case in relation to the reference to Emu Brewery Mezzanine, that it "has an independent board of directors" (page 12).

130 Thus, I have concluded that the referred to language, going to the four representations discussed under the previous sub-heading, is not promissory and of contractual significance. I should add, on the basis of the discussion in that previous sub-heading, I am not convinced that the language represents (incorrectly) that it has promissory and of contractual significance.

131 This takes me to the matter of whether the referring language represented that the referred to language was promissory and of contractual significance. This would require me to distinguish the referring language, as indicating promissory language of contractual significance was being used, and the referred to language, which I have just indicated should not, on the material before me, be taken to indicate any such thing. I do not find it possible to draw such a distinction.

132 Both the referring and the referred to language might be taken to be descriptive of what the investors are being invited to acquire. The referring language's use of "will" does not distinguish it from most of the referred to language. It might be assumed that the mitigation of investment risk is of importance to investors. But, if so, so too is language explaining why they can expect such mitigation.

133 Senior Counsel for ASIC referred me to authority that a failure to qualify a representation (here, by making it clear that there was no contractual significance to the referred to language) may be misleading or deceptive conduct, and in particular to Wheeler Grace & Pierucci Co Ltd v Wright [1989] FCA 127; (1989) ATPR 40-940 on Trade Practices Act 1974, s 52), on which see Miller's Annotated Trade Practices Act (supra), [1.52.55]. The issue on this authority is whether the qualification is needed "as a requirement of fair trading" (Wheeler, per Lee J, at 50,251).

134 However, I am not convinced, on the material I am confined to, that I should so conclude. I refer to my dealing with the submission for ASIC in relation to the suggested impression the language of the Information Memorandum relied upon was promissory and contractually significant.

Conclusion on false or misleading or deceptive conduct

135 I conclude then that neither the four particular representations nor the mitigation of risk language represented that promises of contractual significance were being made of the sorts I have referred to.

136 This conclusion enables me to answer, for Emu Brewery Mezzanine, questions 21 to 24.

137 My responses to the questions asked in the Cases Stated are then as follows:

"14 Whether the Promissory Notes are promissory notes for the purposes of s 89 of the Bills of Exchange Act 1909 (Cth)": Yes.

"15 Whether the Promissory Notes are promissory notes for the purposes of paragraph (d) of the definition of the term 'debenture' in s 9 of the Corporations Act": Yes.

"16 Whether the conduct of the defendant issuing Promissory Notes is subject to the requirements of Chapter 6D of the Corporations Act": No.

"17 If not, whether the Promissory Notes are an 'interest in a managed investment scheme' as defined in s 9 of the Corporations Act": Yes.

"18 If so, whether the issue of the Promissory Notes is subject to the requirements of chapter 5C of the Corporations Act": Yes, subject to the other terms of the application of those requirements not addressed in the Case Stated.

"19 If not, are the Promissory Notes a 'financial product' as defined in s 9 of the Corporations Act": Not answered.

"20 Is the issue of the Promissory Notes subject to the requirements of Chapter 7 (and in particular Division 3 of Part 7.1) of the Corporations Act": As for question 19.

"21 Whether the defendant by publishing the Information Memorandum to potential investors represented to them that the defendant had an obligation or was required as a condition of issuing Promissory Notes:

(a) to be a single purpose vehicle that would receive money subscribed for the Promissory Notes and only lend those monies to Emu Brewery Developments Pty Ltd as trustee of the Emu Brewery Trust)": No.

"(b) to arrange for Westpoint Corporation Pty Ltd and associated entities to guarantee the repayment of the monies to be met by the defendant to Emu Brewery Developments Pty Ltd": No.

"(c) to obtain a second ranking mortgage over a property to be developed by Emu Brewery Developments Pty Ltd as trustee of the Emu Brewery Trust and second ranking mortgage over the assets of the Emu Brewery Trust": No.

"and

(d) to ensure the defendant had a board of directors that was independent of the Emu Brewery Development Pty Ltd and the Emu Brewery Trust": No.

"22 If so, whether the representation was misleading or deceptive for the purposes of s 12DA and 12 DB(1)(g) having regard to the matters stated in s 12BB of the Australian Securities & Investments Commission Act 2001 (Cth) in that there was no such obligation or requirement": Not applicable.

"23 Whether the defendant by publishing the Information Memorandum to potential investors further represented that the requirement or obligation to perform the Conditions or any of them would provide a means by which the lending risk associated with the repayment of the Promissory Notes by the defendant would be mitigated": No.

"24 If so, whether the further representation was misleading or deceptive for the purposes of s 12DA and 12DB(1)(g) having regard to the matters stated in s 12BB of the Australian Securities & Investments Commission Act 2001 (Cth) in that there was no obligation or requirement to perform the Conditions": Not applicable.

"14 Whether the Promissory Notes are promissory notes for the purposes of s 89 of the Bills of Exchange Act 1909 (Cth)": Yes.

"15 Whether the Promissory Notes are promissory notes for the purposes of paragraph (d) of the definition of the term 'debenture' in s 9 of the Corporations Act": Yes.

"16 Whether the conduct of the defendant issuing Promissory Notes is subject to the requirements of Chapter 6D of the Corporations Act": No.

"17 If not, whether the Promissory Notes are an 'interest in a managed investment scheme' as defined in s 9 of the Corporations Act": Yes.

"18 If so, whether the issue of the Promissory Notes is subject to the requirements of chapter 5C of the Corporations Act": Yes, subject to the other terms of the application of those requirements not addressed in the Case Stated.

"19 If not, are the Promissory Notes a 'financial product' as defined in s 9 of the Corporations Act": Not answered.

"20 Is the issue of the Promissory Notes subject to the requirements of Chapter 7 (and in particular Division 3 of Part 7.1) of the Corporations Act": As for question 19.

138 I will hear from the parties as to the costs order, if any, I should make in this proceeding.