By originating process filed on 16 June 2022, Centuria Property Funds Limited (Centuria) as responsible entity for a trust known as the 111 St George's Terrace Fund sought declaratory relief and orders under s 1322(4) of the Corporations Act 2001 (Cth) (the Corporations Act). The application was not opposed. In essence, the application sought relief confirming that the term of the trust has been validly extended, in order to avoid the significant prejudice that would flow to unitholders if the trust was wound up. At the hearing on 21 June 2022, I made certain of the orders sought and indicated that I would publish my reasons for doing so subsequently. These are my reasons.
The orders made on 21 June 2022 were as follows:
First Supplemental Deed
1 A declaration that, properly construed, the Supplemental Deed amending the constitution of the Trust dated 11 December 2014 (First Supplemental Deed) extended the term of the Trust until 31 January 2022 and on and from the time that the First Supplemental Deed took effect pursuant to s 601GC(2) of the Corporations Act 2001, the Constitution of the Trust is to be construed as if the words "but in no event shall the aggregate of the Term and any extension exceed 15 years" in clause 2.1(d) of the Constitution were omitted.
Second Supplemental Deed
2 Order nunc pro tunc that the period of time in which the plaintiff could execute and lodge the Second Supplemental Deed with ASIC pursuant to s 601GC(2) of the Corporations Act 2001 is extended from 31 January 2022 to 4 April 2022.
3 A declaration pursuant to s 1322(4) of the Corporations Act 2001 that the plaintiff has continued to validly operate the Trust on the terms of the Constitution as amended by the Second Supplemental Deed.
Interested parties
4 Any person that can demonstrate sufficient interest for the purpose of modifying or discharging these orders has liberty to apply until 27 June 2022 on 1 business day's written notice.
Notification
5 The plaintiff is to exercise its reasonable endeavours to notify the following persons of these orders:
a. Australian Securities and Investments Commission
b. unitholders of the 111 St George's Terrace Property Trust (the Trust) of by:
i. Publishing a notice on its investor portal.
ii. For those unitholders the plaintiff holds email addresses, by sending a copy of that notice by email
iii. For those unitholders the plaintiff does not hold email addresses, by sending a copy of that notice by express post.
Costs
6 No order as to costs.
[3]
Background
The plaintiff, Centuria, acts as the responsible entity (RE) of the 111 St Georges Terrace Fund ARSN 098 126 660 (Trust). The Trust is a single-asset, closed‑ended, unlisted property trust which owns a property located at 111 St Georges Terrace, Perth (Property). Under the trust deed of the Trust dated 10 September 2001 (which is referred to below as the Constitution), the term of the Trust was originally to expire in January 2012, subject to any extensions. Members subsequently voted by special resolutions to extend the term of the Trust, but issues have arisen as to whether this was effective.
Centuria sought two forms of relief. First, it sought declaratory relief to confirm that, properly construed, the Supplemental Deed amending the Constitution dated 11 December 2014 (First Supplemental Deed) extended the term of the Trust until 31 January 2022. Alternatively, Centuria sought an order pursuant to s 1322(4) of the Corporations Act validating the continued operation of the Trust beyond the 15-year period referred to in cl 2.1(d) of the Constitution.
Second, Centuria sought an order pursuant to s 1322(4) of the Corporations Act declaring that the lodgment of the Supplemental Deed amending the Constitution bearing the date 19 January 2022 (Second Supplemental Deed) with the Australian Securities and Investments Commission (ASIC) on 4 April 2022 was not invalid by reason of cl 22 of the Constitution, as well as other ancillary orders under s 1322.
On the application, Centuria relied on affidavits from Stuart John Wilton (co-head of unlisted funds for Centuria) dated 16 June 2022 and 20 June 2022, and an affidavit of Selina Nutley dated 20 June 2022.
Centuria submitted that, if it was not granted the relief sought, there would be the potential for unitholders to suffer considerable prejudice. Centuria sought a determination of these issues on an urgent basis in advance of the end of the 2022 financial year on 30 June 2022, in particular because of (a) the likelihood that unitholders will have arranged their tax affairs on the basis of selling or acquiring units within that financial year, and (b) the imminent expiry of Centuria's banking facility on 30 June 2022 (with any extension contingent upon the outcome of this application). Steps had been taken to notify ASIC and unitholders of the relief sought prior to the hearing.
[4]
Factual Background
The original RE of the Trust was Glenmont Properties Limited which, at some time prior to 2017, was replaced by 360 Capital Investment Management Limited (360 Capital). In or about 2017, Centuria acquired 360 Capital and as a consequence, Centuria was appointed as RE of the Trust on 9 January 2017.
At the date of the hearing the Trust had a finance facility with Bankwest, secured by the Property (Facility). The Facility had a limit of $90 million, was drawn to $80,043,531, and was due to expire on 30 June 2022 although Centuria was in the process of refinancing the Facility for a further three-year period (subject to the outcome of these proceedings).
Clause 2.1 of the Constitution in its original form provided relevantly:
"Establishment and Term of Trust
(a) By this Deed, the Responsible Entity establishes the Trust as a fixed term property trust to be registered as a managed investment scheme under Part 5C.1 of the Corporations Act.
(b) The Trust shall commence operation on the day on which the ASIC registers the Trust as a managed investment scheme and, unless it is wound up earlier, shall continue in force for a period of 10 years from the Purchase Date and may be extended under paragraph (d) ("Term").
(c) Subject to paragraph (d), the Responsible Entity shall sell the Property at the expiration of the Term whereupon the Trust shall come to an end.
(d) If 75% of Unit Holders (by reference to the value of each Unit Holder's Units) resolve, at a duly convened meeting of Unit Holders or agree in writing, during the last 6 months of the Term, to extend the Term, the Term shall be extended:
(i) for the period agreed; and
(ii) in all other respects, upon the same terms and conditions as are contained in this Deed,
but in no event shall the aggregate of the Term and any extension exceed 15 years."
Under cl 2.1(b), in its original form, the term of the Trust was originally to expire in January 2012 (being 10 years from the Purchase Date), subject to any extensions pursuant to cl 2.1(d) although by virtue of the proviso to cl 2.1(d) the term would not exceed 15 years. I note that this proviso is not entrenched in the Constitution, in the sense that there is nothing expressly or impliedly in the Constitution to prevent an amendment which would vary or delete the proviso.
Clause 21 deals with the amendment of the Constitution in the following terms:
"This Deed may be modified or repealed and replaced only in accordance with section 601GC of the Corporations Act. The Responsible Entity must provide a consolidated copy of the modified or new constitution to the Compliance Committee within 7 days of the modified or new constitution being lodged at the ASIC."
[5]
Proper construction of the First Supplemental Deed (Order 1)
Centuria seeks a declaration that, properly construed, the First Supplemental Deed extended the term of the Trust until 31 January 2022.
Subsections 601GC(1) and (2) of the Corporations Act provide as follows:
"(1) The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution:
(a) by special resolution of the members of the scheme; or
(b) by the responsible entity if the responsible entity reasonably considers that the change will not adversely affect members' rights.
(2) The responsible entity must lodge with ASIC a copy of the modification or the new constitution. The modification or repeal and replacement, cannot take effect until the copy has been lodged."
These provisions confer a power to amend the constitution of a registered managed investment scheme in two alternative ways. The first alternative under s 601GC(1)(a) is the one relevant to the First Supplemental Deed and makes a special resolution of the members of the scheme the means by which the Constitution may be modified, but the modification will not take effect until a copy of the modification is lodged with ASIC by virtue of s 601GC(2): see ING Funds Management Limited v Professional Association Superannuation Limited [2009] NSWSC 243; 228 FLR 444 (ING) at [54]-[60]. Section 601GC(2) does not prescribe the form in which the "copy of the modification" lodged with ASIC must take and that will depend on the circumstances of the case.
In the present case, cl 21 of the Constitution sets out how the Constitution may be amended. Clause 21, which is set out earlier, provides that the Constitution may be modified "only in accordance with section 601GC of the Corporations Act". It is apparent from the terms of the First Supplemental Deed and the special resolution passed at the unitholders' meeting on 10 December 2014 that the modification was made relying on s 601GC(1)(a), i.e. it was the special resolution itself which modified the Constitution and the nature of the modification was set out in the form of the (unsigned) copy of the First Supplemental Deed tabled at the meeting. When a copy of the First Supplemental Deed was lodged with ASIC on 17 December 2014, that satisfied the requirement of s 601GC(2) as the First Supplemental Deed set out the modification to the Constitution made by the special resolution.
[6]
Order nunc pro tunc extending the time to execute and lodge the Second Supplemental Deed pursuant to s 601GC(2) (Order 2)
Order 2 is made under s 1322(4)(d) to extend the period of time in which Centuria could execute and lodge a copy of the Second Supplemental Deed with ASIC pursuant to s 601GC(2) of the Corporations Act to 4 April 2022.
It is apparent from the terms of the Second Supplemental Deed and the special resolution passed on 19 January 2022 that the modification to the Constitution recorded in the Second Supplemental Deed was made in reliance on s 601GC(2)(a) and consequently would not take effect until lodgment of a copy of the modification with ASIC by virtue of s 601GC(2): ING at [55]; Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; 52 ACSR 194 at [12]-[15]. In the present case, the requirement of s 601GC(2) would only be satisfied on lodgment of a copy of the Second Supplemental Deed with ASIC as that contains the relevant modification. That lodgment did not occur until 4 April 2022, which was after the term of the Trust would but for the modification have expired.
Section 1322 of the Corporations Act provides relevantly as follows:
"(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b) an order directing the rectification of any register kept by ASIC, or any information recorded by the Registrar, under this Act;
(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.
(6) The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is just and equitable that the order be made; and
(b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and
(c) in every case - that no substantial injustice has been or is likely to be caused to any person."
[7]
Ancillary order validating the operation of the Trust (Order 3)
Section 1322(4) confers a power on the court to make any consequential or ancillary order that it sees fit and consistently with the purpose of the provision, the court also has jurisdiction to make consequential or ancillary orders under s 23 of the Supreme Court Act 1970 (NSW): AHEPA at [32].
In AHEPA, the court made ancillary orders under s 1322(4) to give effect to resolutions passed by the members of an incorporated association to make amendments to its constitution which had not come into effect by reason of failure to lodge those resolutions with NSW Department of Fair Trading as required under provisions of the Associations Incorporation Act 1984 (NSW) and the Associations Incorporation Act 2009 (NSW) analogous to s 601GC(2) of the Corporations Act. The association had acted in accordance with amended provisions of the constitution since the resolutions were passed in 2005, 2007 and 2010. The ancillary orders made by the court were that acts, matters or things purporting to have been done by the plaintiff, or by persons acting on the plaintiff's behalf, were not invalid by reason of the failure to lodge the resolutions in accordance with those Acts: AHEPA at [33].
The declaration sought in this matter that Centuria has validly operated the Trust in accordance with the special resolution passed on 19 January 2022 reflects the outcome of Order 2 which has the effect that the Constitution was validly amended pursuant to s 601GC(1)(a) and s 601GC(2) of the Corporations Act.
For the reasons given above, I am satisfied that no substantial injustice arises from the making of Order 3.
[8]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 05 August 2022
In order to allow a further opportunity for any objections by unitholders to be taken into account, Orders 4 and 5 set out in paragraph 2 above were made. The court has been informed on 29 July 2022 that the procedures outlined in Orders 4 and 5 were followed but no objections were raised.
The "Compliance Committee" is the compliance committee established by the RE in accordance with Part 5C.5 of the Corporations Act. The second sentence of cl 21 should be construed as imposing an obligation on the RE which is not a condition of the modification, repeal or replacement taking effect, because the first sentence indicates that the method by which this occurs is left to s 601GC of the Corporations Act (discussed below).
Clause 22.1 of the Constitution provides that "[u]pon the expiration of the Term, which shall be determined pursuant to clause 2.1, the Responsible Entity shall cause the Trust to be wound up". The remaining provisions of cl 22 set out the procedure by which the winding up is to occur.
In April 2011, unitholders voted to extend the term of the Trust for five years until January 2017 (reflecting the proviso to cl 2.1(d) of the Constitution).
In November 2014, a notice of meeting and explanatory memorandum (2014 NOM) was issued to unitholders convening a meeting of unitholders of the Trust on 10 December 2014 for the purpose of voting on amendments to the Constitution which would have the effect, among other things, of extending the term of the Trust by a further five years until 31 January 2022, subject to any further extensions. The form of the proposed special resolution was as follows:
"That, in accordance with Section 601GC(1)(a) of the Corporations Act 2001 (Cth), the Constitution of the Trust be modified as set out in the Instrument tabled at the meeting and substantially in the form available to Unitholders in accordance with the Explanatory Memorandum accompanying this Notice of Meeting."
On 11 December 2014 the First Supplemental Deed was executed by 360 Capital and a copy of it was lodged with ASIC on or about 17 December 2014. Recital D states that "[o]n 10 December 2014, the members of the Scheme approved a special resolution to modify the Constitution as set out in this Supplemental Deed". I infer both from the terms of the special resolution and recital D that an unsigned copy of the First Supplemental Deed was tabled at the meeting.
Clause 3 of the First Supplemental Deed provides relevantly:
"The Constitution is modified by:
(a) in clause 2.1(b), replacing the words "for a period of 10 years from the Purchase Date" with the words "until 31 January 2022";
…"
However, cl 2.1(d), which provided that the aggregate of the term and any extension was not to exceed 15 years, was not modified or deleted.
On 8 July 2016, a product disclosure statement produced by 360 Capital during the course of seeking to raise approximately $10m in capital repeatedly referred to the Trust expiring in January 2022 (unless extended by unitholders by a special resolution).
In approximately November or December 2021, Mr Stuart Wilton, co-head of unlisted funds at Centuria, in conjunction with Centuria's management and compliance team, formed the view that it would be in the best interests of unitholders if the term of the Trust was further extended beyond 31 January 2022. Mr Wilton began preparations to call a meeting to further extend the term of the Trust, and also to offer an exit/matching facility to any unitholders who did not wish to continue their investment in the Trust.
In December 2021 Centuria issued to unitholders a notice of meeting and explanatory memorandum (2022 NOM) for the purpose of convening a meeting of unitholders on 19 January 2022 to consider and vote on an "Extension Proposal". The form of the proposed special resolution was as follows:
"That the Extension Proposal (including the Constitution Amendments) is approved, and the Manager is authorised to do all things which it considers necessary, desirable or reasonably incidental to give effect to the Extension Proposal."
The 2022 NOM set out the "key terms" of the "Extension Proposal" as follows:
"1. The term of the Fund be extended for a further period of five years expiring on 31 January 2027 (Further Term).
2. Provide Investors with an exit/matching facility, which will offer the opportunity to exit the Fund in relation to some or all of their units as well as potentially acquire more units at the most recent Net Asset Backing per unit (NAB), less sales costs, fees and expenses which would be incurred if the Fund's property (Property) was to be sold and the Fund was wound up. The Manager will also have until 30 June 2022 to raise any equity required to fund the exit/matching facility.
Please note, the ability for Investors to purchase additional units will be subject to availability.
3. Authorise the Manager to sell the Property at any time during the Further Term, on such terms that the Manager believes to be in the best interests of Investors.
4. Amend the Fund's constitution (Constitution) to:
a. Allow the Extension Proposal to proceed if more than 75% of votes cast at the Meeting (in person or by proxy) by Investors eligible to vote on the Extension Proposal are in favour of the Extension Proposal.
b. Introduce provisions to give the Manager the power to give full effect to the exit/matching facility (including Investors appointing the Manager as their agent and attorney for the purpose of implementing the exit/matching facility).
(Constitution Amendments)."
At the unitholders' meeting on 19 January 2022, the special resolution was passed, with 97.18% of unitholders who voted on the resolution voting in favour.
Subsequently the Second Supplemental Deed was executed by Centuria as a deed poll. It bears the date 19 January 2022, but appears not to have been executed until around 14 March 2022 and was not lodged with ASIC until 4 April 2022. Clause 2 provides that the Constitution is amended as set out in sch 1 to the deed. Schedule 1 includes the following amendments to cl 2.1(d):
"Amend clause 2.1(d) by deleting the words "If 75 percent of Unit Holders (by reference to the value of each Unit Holder's Units) resolve, at a duly convened meeting of Unit Holders or agree in writing, during the last 10 months of the Term, to extend the term" and insert the following words in their place:
"If more than 75 percent of votes cast at a duly convened meeting of Unit Holders (in person or by proxy), held during the last 10 months of the Term, are in favour of a resolution to extend the Term,".
Delete the words "but in no event shall the aggregate of the Term and any extension exceed 15 years."
It may be noted that the Second Supplemental Deed did not amend cl 2.1(b) and the reason for this appears to be that the resolution passed at the meeting on 19 January 2022 had the effect of extending the term of the Trust under the amended cl 2.1(d) to 31 January 2027 through the operation of s 601GC(1)(a) of the Corporations Act subject to lodgment of a copy of the deed with ASIC in accordance with s 601GC(2).
The failure to lodge the Second Supplemental Deed with ASIC until 4 April 2022 gave rise to a concern on the part of Centuria that the term of the Trust may have expired on 31 January 2022 and led it to bring this application.
It is clear from the terms of the special resolution (which states that the constitution is to be modified "as set out in the instrument tabled at the meeting … in accordance with the Explanatory Memorandum accompanying this Notice of Meeting") and the terms of the 2014 NOM itself that the intention was that the term of the Trust was to be extended to 31 January 2022. While the form of the First Supplemental Deed (both as tabled at the meeting and subsequently executed) did not recognise that this required a consequential amendment to cl 2.1(d), that was an obvious mistake.
As the chosen method of modifying the Constitution was by a special resolution which identified the modifications being made as those contained in an instrument tabled at the unitholders' meeting (being the First Supplemental Deed), the issue which arises is the proper construction of the Constitution after those modifications were made to it by that instrument. The principles to be applied in determining that issue of construction are the same as for the construction of contracts: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [17], [53]-[55], [59]; [102]-[105].
A court can correct a mistake in a contract by construction, rather than through the equitable remedy of rectification, where there is a clear mistake and it is clear what correction ought to be made to cure the mistake: Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; 9 BPR 17,521 at [34]-[37]. As Dixon CJ and Fullagar J said in Fitzgerald v Masters at 426:
"Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency."
The existence of a clear mistake and relevant absurdity here is indicated by:
1. The plain words of cl 2.1(b) in its amended form, which provides "unless it is wound up earlier, shall continue in force until 31 January 2022 ..." (emphasis added). That cannot stand with the continued application of the proviso to cl 2.1(d).
2. The consequences which would follow from the term of the Trust coming to an end in advance of the deadline of 31 January 2022 as amended in cl 2.1(b), namely the triggering of obligations on the RE to sell the Property at the expiration of the term (cl 2.1(c)) and the winding up of Trust under cl 22, are the reverse of what the unitholders intended, as expressed in the special resolution, which was to avoid those consequences from occurring.
3. As noted at [33] above, the surrounding circumstances known to the unitholders, and the purpose of the First Supplemental Deed as reflected in the 2014 NOM indicate that, objectively ascertained, the intention of unitholders was to extend the term of the Trust to 31 January 2022.
Here the mistake is clear and the correction to be made to cure it is clear - cl 2.1(d) should be read as if the proviso commencing "but in no event" was omitted. Accordingly, I was satisfied that the declaration made in Order 1 was necessary and appropriate.
This provision reflects a broad legislative policy that the Corporations Act should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non‑compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law: Re Wave Capital [2003] FCA 969; 47 ACSR 418 at [29].
Under s 1322(4)(d) the court can extend the period of time for doing any act in relation to a corporation. I note the following about the scope of the power:
1. The broad express terms of the provision should not be read as subject to limitations not expressed in the provision and it should be given liberal interpretation reflecting its remedial purpose: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 275-6; [1995] HCA 43; In the matter of Order of AHEPA NSW Incorporated [2018] NSWSC 458 (AHEPA) at [22].
2. Section 1322(4)(d) does not require the court to take account of any particular criteria when exercising the power to extend time, but clearly the power should be exercised having regard to the general objects and purposes of the provisions of the Corporations Act in issue, as well as the requirement referred to in s 1322(6) that the court is satisfied that no substantial injustice has been or is likely to be caused to any person: Blaze Asset Pty Ltd v Target Energy Limited (2009) 177 FCR 488; [2009] FCA 698 at [30]. To the extent that the presence of inadvertence or honest error is a relevant consideration to the exercise of the power (see Blaze at [35]), "inadvertence" should be given a wide meaning: Sheehan v Londish [2010] NSWCA 270; 244 FLR 64 at [162].
3. The power can be exercised where the relevant provision does not in terms impose an obligation to take a step within a particular timeframe, but instead makes compliance with that timeframe a condition for the validity of some other matter and an order of this kind would cause no substantial injustice in the circumstances: Re Wave Capital Ltd [2003] FCA 969 at [30]; AHEPA at [31]; Murray River Organics Limited, In the matter of Murray River Organics Limited [2019] FCA 931; 138 ACSR 365 at [32].
4. The court has power under s 1322(4) to make orders nunc pro tunc so that the order takes effect as if it were made at an earlier point in time with the consequence of validating a past act and frequently makes such orders: Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; 43 ACSR 257 at [52]; Emanuele v Australian Securities Commission (1997) 188 CLR 114 at 131-132; [1997] HCA 20; In the matter of H&P Newcastle Pty Limited (in liquidation) [2013] NSWSC 778 at [18].
Applying the principles, stated in the previous paragraph, the court has power under s 1322(4)(d) to make the order sought. To the extent that the presence of inadvertence or honest error is a relevant consideration to the exercise of the power, I am satisfied on the evidence before the court that the failure to execute and lodge the Second Supplemental Deed prior to 31 January 2022 was caused by inadvertence or honest error and that no substantial injustice has been or is likely to be caused to any person if the order sought is made. To the contrary, the relief would give effect to the intention of unitholders as expressed in the special resolution passed on 19 January 2022 and if the order is not made, there will be a material adverse impact on the unitholders being the requirement to wind up the Trust.