First to Fourth Plaintiffs v First Defendant

MANAGED INVESTMENT SCHEMES - Application for directions concerning constitutional amendments supplementary to those put to the members at the members' meetings - Whether amendments permitted under s 601GC(1)(b) of the Corporations Act 2001 (Cth) - Whether Responsible Entity "reasonably considers the change will not adversely affect members' rights".

1 The fifth plaintiff ("GSMAL") is the Responsible Entity of a number of forestry managed investment schemes ("the target schemes"), listed in Annexure A to this judgment. The first to fourth plaintiffs ("the receivers") are the receivers and managers of GSMAL. On 27 November 2009, in a separate proceeding ("the earlier proceeding"), I directed that GSMAL and the receivers would be justified, and would otherwise be acting reasonably, in calling a meeting of members of each of the target schemes to consider resolutions to give effect to, and to enable the implementation of, a proposal from the first defendant ("Gunns") for the restructure and future operation of the target schemes under the management of the second defendant ("Gunns Plantations"), as the Responsible Entity. I published my reasons for making that direction on 4 December 2009.[1] Meetings were called for 23 December 2009. The form of the resolutions put to members of each of the target schemes is set out in Annexure B. All resolutions for the 1998 to 2005 schemes, but not the 2006 scheme, were put to a vote and the resolutions were passed. The meeting of the members of the 2006 scheme was adjourned to 4 January 2010 because of the late delivery of proxies. GSMAL and the receivers have now applied to the Court for directions that they would be justified, and otherwise acting reasonably in implementing, and carrying into effect, the resolutions passed on 23 December 2009 and, as well, making the supplementary amendments to the constitution of each scheme as foreshadowed in the schedule to the application before the Court. The power to give such directions and the appropriateness of exercising that power have been affirmed on numerous occasions in this circumstance - where earlier directions where made concerning the convening of meetings and resolutions subsequently passed at those meetings.[2] I am prepared to give the directions that are sought, for the reasons which I now set out.

2 Under the Gunns proposal, Gunns Plantations will assume the role of Responsible Entity of the target schemes and will fund the costs of management and maintenance. In return, Gunns Plantations will require an additional fee to be paid to it over and above the existing fees payable to the Responsible Entity under the scheme constitutions. The additional fee will be made payable by growers (who are the members of the target schemes) out of their net proceeds of sale from the harvesting of their timber. Gunns Plantations will also require some other changes to the way that the schemes are managed, including when the trees may be harvested.

3 These changes require constitutional amendments and amendments to the individual agreements that each member made with the Responsible Entity on becoming a member of the relevant scheme ("the growers' agreements"). Gunns Plantations does not propose to obtain the individual approval of each member for the variation of that member's grower's agreement. Instead, Gunns Plantations will exercise a grant of power as agent and attorney, inserted into the constitutions of the target schemes by the constitutional amendments, to amend the growers' agreements in accordance with the terms of the Gunns' proposal voted on by the members.

4 At the meetings on 23 December 2009, the members of the 1998 to 2005 schemes passed the constitutional amendments by special resolution, including the grant of agency and power of attorney. Those members also passed, by ordinary resolution, the resolution approving the relevant amendments to their growers' agreements that the Gunns' proposal requires and for those amendments to be effected by Gunns Plantations, as the Responsible Entity of the target schemes, using the agency and power of attorney contained in the constitution. Both resolutions were overwhelmingly supported by those who voted.

5 The first issue to consider is whether the amendments would be permitted by s 601GC of the Corporations Act 2001 (Cth) ("CA"). In my view they would be.

6 Section 601GC provides relevantly:

(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 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.

7 I concluded in the earlier proceeding that the section does not fetter the kind of amendment that can be made to the constitution of a registered scheme[3] and I expressed my opinion that the constitutional amendments would be permitted by s 601GC, subject to the statutory prescription that the amendments be passed by special resolution of the members.[4] Importantly, here, the resolutions effecting the amendments have been passed by special resolution of the members of each of the 1998 to 2005 schemes.

8 Three specific matters were raised for my consideration. The first concerned four of the amendments passed by the members, namely the agency/power of attorney; the remuneration of the Responsible Entity; the fees on sale of plantation/forest produce prior to harvest; and the harvesting of a growers' forest produce. Of concern was whether these constitutional amendments affected the rights of members as members of the target schemes, as distinct from their rights as growers under their contractual relations with the Responsible Entity and, if not, whether such amendments were within the scope of their power, as members, to pass by special resolution for the purposes of s 601GC of the CA. The second matter was whether the Responsible Entity would be in breach of the growers' agreements in acting on those amendments, if effective pursuant to s 601GC. The third matter concerned the legal efficacy of an agency and attorney relationship created by exercise of the s 601GC amendment power.

9 On the first issue, I am satisfied that the amendments referred to in the preceding paragraph were within the scope of the members' power to pass by special resolution for the purposes of s 601GC of the CA. All amendments came about as the result of a proposal put by Gunns with respect to the target schemes as a "solution to the circumstances which have arisen from the insolvency of the Great Southern Group"[5] and the inability of GSMAL to continue to manage and administer the target schemes. The growers' agreements form part of the overall structure and matrix of the target schemes. In my view, it is highly artificial to regard them as "separate commercial bargains" between a Responsible Entity and each member, as submitted for the contradictor. As Judd J stated in Re Environinvest Ltd[6] a managed investment scheme is "defined by the constitution, the scheme documents, the relationships thereby created and the scheme objectives, inputs and outcomes".[7] In the present case, the scheme documents include the growers' agreements and those constitutional amendments affecting contractual rights plainly concern the growers in their capacity as members of the target schemes[8] and are integral to the Gunns' proposal. The occasion for the amendments was the restructure of the schemes to enable their continuation and financial viability and each of the amendments is relevant and incidental to the administration and management of the target schemes. Moreover, none of the amendments is extraneous to, or in disconformity with, the changes that Gunns has required if Gunns Plantations is to take over the management and administration of the target schemes and to fund the cost of doing so. In ING Funds Management Ltd v ANZ Nominees Ltd,[9] Barrett J, in obiter, stated:

... [Section] 601GC(1)(a) of the Corporations Act is properly to be regarded as a provision that enables members, by a particular form of collective action by way of voting, actually to alter the constitution of a managed investment scheme, with the effectiveness of the modification deferred in the way specified in s 601GC(2).

The power of modification that s 601GC(1)(a) vests in the members is a plenary power. There is no kind of modification that cannot be made in the exercise of the power and by the means it prescribes, although the power is no doubt subject to the implied limitations that generally attend any power enabling a majority to bind a minority.[10]

The observations of Barrett J are apt. It is trite law that a power must be exercised for the purposes for which it was conferred, and that a power exercised for a collateral purpose will invalidate its exercise.[11] That is not the position here. There is no suggestion here of any misuse of power on the part of the members who voted in favour of the resolution to amend the constitution. In my view all amendments are within the scope of s 601GC and the passing of the resolutions was a proper exercise of power by those members who voted in favour of the resolutions.

10 As to the second issue, the use of the constitutional power of attorney would not be in breach of the growers' agreements as each of the growers' agreements expressly permits modification or amendment, subject to the prescription that any such modification or amendment be in writing and duly executed.[12] The use of the constitutional powers of attorney will satisfy that prescription. Importantly, moreover, Gunns Plantations will not act on, manage or administer the 1998 to 2005 schemes as Responsible Entity in accordance with the constitutional amendments unless it has first used its powers under the constitutional agency and power of attorney to amend the growers' agreements consistently with the terms of resolution 3, which the members of those schemes passed by ordinary resolution on 23 December 2009. Consequently, if the amendments are made to the growers' agreements by the Responsible Entity exercising its constitutional agency and power of attorney, there will be no conflict between the amendments to the constitution and the growers' agreements.

11 On the third issue, I am satisfied that it is within the power of the members to effect by force of s 601CG of the CA an agency and power of attorney that binds all members, whether or not an individual member voted in favour, abstained or voted against the creation of that agency. Once it is accepted, as I have found, that the creation of such a power was authorised by s 601GC and passed by special resolution of the members, the constitution as modified will bind all members, when it takes effect. In that circumstance, the agency relationship, contained in the constitution, takes effect by operation of law as the result of the legal enforceability of the constitution as between the members and the Responsible Entity, irrespective of the individual consent of each member that would otherwise be required to create the agency agreement.[13] In any event, the member's individual consent to the appointment of the Responsible Entity as the growers' agent can be found in their agreement, on becoming a member of the scheme, to be bound by the scheme constitution as amended from time to time. Thus, the member consented to be bound by the decision of the majority even though the particular member may not have voted in favour of the relevant resolution.[14] The terms of s 601GC(1)(a) of the CA expressly contemplate that the will of some members can be overborne by the majority's wishes to which the law will give effect by operation of s 601GC. That process itself enables the interests of the members whose rights will be adversely affected to have their rights protected. That may be thought to work some unfairness to those growers who voted against the amendment. However, that "unfairness" would not, in my view, operate to render legally inefficacious the exercise of power by which the constitution was amended or the action of the Responsible Entity as authorised by the agency and powers of attorney so created. In my view:

(a) the section does not fetter the kind of amendment that can be made to the constitution of the registered scheme;[15]

(b) constitutional amendments were passed by special resolution of the members;[16]

(c) the members who voted for the motion overwhelmingly supported the creation of the agency and power of attorney for the purpose of authorising and empowering the Responsible Entity to amend their growers' agreements;

(d) there is no question of misuse of power by those persons on the face of the material before me but, quite to the contrary, the material before the Court indicates that the passing of the motion is in the best interests of the members of the target schemes;

(e) there is no discrimination amongst the members and the exercise of the authority under the power of attorney created will not differentiate amongst members.

12 Accordingly, I am satisfied that the members, acting within power and passing resolution 2 by special resolution, have altered the constitutions of the target schemes and that such alterations, including the agency and power of attorney, will become effective once copies of the new constitutions are lodged with the Australian Securities and Investments Commission, as required by s 601GC(2) of the CA. The mechanism by which the amendments were made was the special resolution under s 601GC upon which all members had the opportunity to vote and under which all members will be affected in the same way. Specifically, I conclude that amendment of the constitution to include the agency and power of attorney is:

(a) within the scope of, and authorised by, s 601GC(1)(a);

(b) a proper exercise of the power by the members conferred by that section; and

(c) effective at law to create the agency/power of attorney, including on the minority dissenting growers.

13 In the circumstances, the plaintiffs and Gunns Plantations on becoming the Responsible Entity would be justified in acting on the basis that the constitutional amendments are within the powers of alteration contained in s 601GC of the CA.

14 I am also of the view that the Responsible Entity would be justified and otherwise acting reasonably if it acted on the constitutional amendments after amendment of the growers' agreements. I express no view and I have not been asked to express a view as to whether the Responsible Entity would be justified and otherwise acting reasonably if it acted on the constitutional amendments before it had amended the growers' agreements.

15 No-one appeared before the Court to argue that the power of attorney could not be relied on to amend the growers' agreements, if the insertion of that power is a valid amendment to the constitution. For the reasons I have expressed above, I am satisfied that the power as created will be effective and can be used by the Responsible Entity to amend the growers' agreements, in the manner prescribed in each of the growers' agreements. Accordingly, I am of the view that the constitutional agency and power of attorney can be acted upon by the Responsible Entity to effect the relevant amendments to the growers' agreements.

16 Supplementary amendments to the constitution and growers' agreements have been proposed by Gunns Plantations if it becomes the Responsible Entity, partly to address some points raised by the contradictor in the earlier proceeding and also to address some grower queries.

17 The supplementary amendments to the target scheme constitutions are, in summary:

(a) an amendment to the new Additional Fee clause to provide that if Gunns Plantations becomes insolvent whilst acting as Responsible Entity, that its entitlement to the proportion of the Additional fee that is to accrue and arise on its appointment will be the lesser of Gunns Plantations' costs and expenses incurred or 50% of the Additional Fee ("Amendment One"); and

(b) amendments to the new powers of agency and attorney to provide that they:

(i) are irrevocable only "to the extent permitted by law"("Amendment Two");

(ii) can only be used in a manner required to effect Gunns Plantations proposal as described in the General Meeting Booklet ("Amendment Three"); and

(iii) are governed by the laws of Victoria ("Amendment Four").

18 These amendments will be made by Gunns Plantations under s 601GC(1)(b) of the CA. Section 601GC(1)(b) of the CA relevantly provides that the constitution may be modified "by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights." In ING Funds Management Ltd v ANZ Nominees Ltd,[17] Barrett J considered the requirements of s 601GC(1)(b) and contrasted it with paragraph (a) of that sub-section. Barrett J said:

The task of the responsible entity, when approaching that provision, is first to ascertain the rights of members created by the constitution, as they exist immediately before the modification. The responsible entity must then decide whether those rights - as distinct from the enjoyment of them or their value - will be changed or impinged upon by the modification. If that question is answered in the affirmative, the responsible entity must undertake a process of comparison and assessment in order to decide whether the impact is within the "adversely affect" description.[18]

As the power to modify is concerned with the constitution, the focus is on rights created or secured by the constitution itself. This requires consideration of whether the proposed supplementary amendments "adversely affect" those rights. Barrett J also stated that it is necessary to look at the entity's state of mind in determining whether the entity "considers" that the change will not adversely affect the members' rights.[19]

19 I accept the submission with respect to each of the 1998 to 2005 target schemes that the amendments enhance, rather than adversely affect, the rights of the members. Amendment One has the effect of limiting the remuneration that can be attributable to Gunns Plantations. Amendment Two clarifies that the power is "irrevocable" only "to the extent permitted by law" and thus, is in the members' favour. The effect of Amendment Three is to clarify the authority of the Responsible Entity to make amendments to the growers' agreements and can be seen to be in the members' favour. Amendment Four is to provide that the powers of attorney are to be governed by and construed in accordance with the laws of Victoria. The object of this provision is to provide clarity as to the governing law to ensure that the powers granted to the Responsible Entity by the members through the resolutions considered at the meeting on 23 December 2009 are effective in law. Again, in the members' favour. I am therefore satisfied that the amendments do not adversely affect members' rights.

20 I am satisfied on the evidence of Wayne Leonard Chapman, the company secretary of Gunns Plantations, that the members of the board of that company have turned their mind to whether the proposed supplementary amendments would adversely affect members' rights.

21 The question then arises as to whether there is evidentiary foundation for "the reasonableness" of the views expressed by the board as deposed to by Mr Chapman. As Barrett J stated in ING Funds Management Ltd v ANZ Nominees Ltd[20] about the meaning of the words "reasonably considers":

This form of words has the same meaning as "considers on reasonable grounds" or "believes on reasonable grounds". The requirement is two-fold: first, that the relevant belief or opinion be actually held by the responsible entity; and, second, that facts exist that are sufficient to induce the belief of opinion in a reasonable person.[21]

The evidentiary foundation is contained in Mr Chapman's evidence. His affidavit discloses that the directors, in forming their views, were fully informed about the nature of the proposed supplementary amendments, the explanation for the need for those amendments and the requirements of s 601GC(1)(b).

22 Accordingly I am satisfied that Gunns Plantations would reasonably so conclude and that a resolution made in accordance with s 601GC(1)(b) would be valid.

(ii) Supplementary amendments to the growers' agreements

23 The proposed amendments are consistent with and would bring those agreements into line with the supplementary constitutional amendments. They appear to me to be justified in the circumstances.

24 Nothing has been brought to my attention that the meetings of the members were not properly convened nor that the resolutions were not passed and I am satisfied on the basis of the evidence before me that this was the case. In the circumstances I consider it appropriate to make orders as sought.

1. Great Southern Plantations 1998 (ARSN 092 780 204)

2. Great Southern Plantations 1999 (ARSN 092 452 849)

3. Great Southern Plantations 2000 (ARSN 085 669 361)

4. Great Southern Plantations 2001 (ARSN 089 958 029)

5. Great Southern Plantations 2002 (ARSN 095 343 963)

6. Great Southern Plantations 2003 (ARSN 099 131 825)

7. Great Southern Plantations 2004 (ARSN 107 811 709)

8. Great Southern Plantations 2005 (ARSN 112 744 877)

9. Great Southern Plantations 2006 (ARSN 112 744 902)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That, subject to Resolutions 2, 3 and 4 being passed, the Growers approve the proposal by Gunns Plantations Limited described in Part C of the General Meeting Booklet and Part C of the Supplementary Scheme Booklet accompanying the Notice of Meeting dated 27 November 2009.

Resolution 2 - Amendments to the Constitution to implement the Gunns Proposal

To consider and, if thought fit, pass the following resolution as a special resolution:

That, subject to Resolutions 1, 3 and 4 being passed, the constitution of Great Southern Plantations [] Scheme [] be amended by Gunns Plantations Limited immediately followings its appointment as the responsible entity under section 601FJ of the Corporations Act in the manner set out in Part C of the Supplementary Scheme Booklet accompanying this notice of meeting dated 27 November 2009 in accordance with section 601GC(1)(a) of the Corporations Act.

Resolution 3 - Amendments to the Grower Agreements to implement the Gunns Proposal

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

Subject to Resolutions 1, 2 and 4 being passed, that the Growers approve the amendment of the Growers' Agreements in the manner set out in Part C of the Supplementary Scheme Booklet and acknowledge the right of Great Southern Managers Australia Limited (In Liquidation) (Receivers and Managers Appointed) or Gunns Plantations Limited (as the case may be) acting as the responsible entity of Great Southern Plantations [] Scheme [] (the Scheme) to make those amendments using the rights of the responsible entity under any powers of attorney granted by Growers in relation to the Scheme, including the powers of attorney granted by Growers pursuant to Resolution 2, and the powers of attorney granted by Growers in their application forms submitted at the time of applying for interests in the Scheme (including as a prescribed interest undertaking prior the Scheme's registration under the Corporations Act).

Resolution 4 - Appointment of New Responsible Entity for the Gunns Proposal

To consider and, if thought fit, pass the following resolution as an extraordinary resolution:

(2) all of the resolutions contained in the Notices of Meeting (dated on or about the date of this notice of meeting) for the:

"Great Southern Plantations [] Project" []; and

(the Other Projects) being passed or if all of the resolutions in the Notices of Meeting (dated on or about the date of this notice of meeting) for a majority of the projects (being the Great Southern Plantations [] Scheme [] (the Scheme) and the Other Projects) are passed, such number of Other Projects as Gunns Plantations Limited and Great Southern Managers Australia Limited (In Liquidation) (Receivers and Managers Appointed) (GSMAL) may agree and advise (including by notice on Gunns Plantations Limited's or GSMAL's website) no later than 10 Business Days after the day of the Meeting,

Gunns Plantations Limited be appointed the responsible entity of the Scheme on the retirement of GSMAL in accordance with section 601FL of the Corporations Act and GSMAL is released from all liabilities and further obligations in relation to the Scheme.

[1] Great Southern Managers Australia Ltd (rec's and m'gers app'td) (in liq) 2009 VSC 557 (Unreported, Davies J, 4 December 2009).

[2] Re Macquarie Communications Infrastructure Group [2009] NSWSC 487 (Unreported, Brereton J, 1 May 2009) [16]; Re Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; (2004) 52 ACSR 194, 196 [10] (Barrett J).

[3] Cf Kearns v Hill (1990) 21 NSWLR 107; Permanent Trustee Co Ltd v National Australian Managers Ltd (Unreported, McLelland CJ in Eq, 8 August 1994).

[4] Great Southern Managers Australia Ltd (rec's and m'gers app'td) (in liq) 2009 VSC 557 (Unreported, Davies J, 4 December 2009) [9].

[6] [2009] VSC 33; (2009) 69 ACSR 530.

[8] Cf Kaye v Australian Securities and Investments Commission (ASIC) [2002] WASCA 299; (2002) 43 ACSR 229 referred to by Judd J in Re Environinvest [2009] VSC 33; (2009) 69 ACSR 530, 547 [87].

[9] [2009] NSWSC 243; (2009) 228 FLR 444.

[11] Peters' American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457, 502-3 (Dixon J); Commissioner of Taxation v Futuris Corp Ltd [2008] HCA 32; (2008) 237 CLR 146, 153-4 (Gummow, Hayne, Heydon and Crennan JJ).

[12] Great Southern Plantations 2003 Scheme - Lease and Management Agreement cl 37.1, Great Southern Plantations 2003 Scheme - Lease cl 20.1, Great Southern Plantations 2003 Scheme - Forest Rights and Management Agreement cl 37.1; Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399, 410-1 (Brennan CJ, Deane and Dawson JJ).

[13] Cf Pole v Leask (1863) 8 LT 645, 648 (Lord Cranworth); Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130, 1137 (Lord Pearson); each requiring the express consent of both the principal and the agent in order to establish a relationship of agency.

[14] Prospectus Application Form to each scheme under which each member "agree[d] ... [t]o be bound by the provisions of the [Constitution] ... as amended from time to time", see eg Great Southern Plantations 2003 Project Replacement Prospectus, 70.

[15] Great Southern Managers Australia Ltd (rec's and m'gers app'td) (in liq) 2009 VSC 557 (Unreported, Davies J, 4 December 2009) [9]; ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243; (2009) 228 FLR 444, 455 [60] (Barrett J).

[16] Section 601GC(1)(a) of the CA.

[17] [2009] NSWSC 243; (2009) 228 FLR 444.