Huntley Management Limited v Australian Olives Limited

Changes in RE 7 On 18 March 2008 the members of Projects 5 and 6 resolved to remove AOL as RE for those Projects and to appoint Huntley as RE in its place. Apparently on the same day, Huntley lodged an ASIC Form 5107 (Notification of Change of Responsible Entity) in respect of each of Projects 5 and 6. On 28 March 2008, ASIC processed the Forms 5107 in the sense noted above of recording Huntley as RE in respect of Projects 5 and 6 in place of AOL. 8 On 29 April 2008 the members of Project 4 resolved to remove AOL as RE for Project 4 and to appoint Huntley as RE in its place. On the following day, 30 April 2008, Huntley lodged ASIC Form 5107 for Project 4 with ASIC. On that same day, ASIC processed the Form 5107 in the sense noted above of recording Huntley as RE for Project 4 in place of AOL . 9 On 6 November 2008 the members of Project 1 resolved to remove AOL as RE for that Project and to appoint Huntley as RE in its place. On the same day Huntley lodged ASIC Form 5107 with ASIC. On 12 November 2008 ASIC processed the Form 5107 by recording Huntley as RE for Project 1 in place of AOL. 10 On 17 November 2008 the members of Project 2 resolved to remove AOL as RE for that Project and to appoint Huntley as RE in its place. On the same day Huntley lodged ASIC Form 5107 with ASIC. On 19 November 2008 ASIC processed the Form 5107 by recording Huntley as RE for Project 2 in place of AOL.

Receipt of Management Fees 11 AOL received management fees for Projects 1, 2 and 6 in respect of annualperiods that included a period during which Huntley was the RE for those Projects. 12 Huntley received management fees for Projects 4 and 5 in respect of annual periods that included a period during which AOL was the RE for those Projects.

Two Agreed Facts 13 The parties haveagreed that: (1) Costs (excluding harvesting costs - see [21] below) of the RE in performing its duties under the Grove Agreements referred to below are incurred unevenly throughout the year, and vary in relation to time of the year and conditions; and (2) Management fees for Project 4 were in fact charged in arrears by AOL.

THE DOCUMENTS 14 Alone of the Projects, Project 1 was established prior to the amendment of the Corporations Law as from 1 July 1998 by the Managed Investments Act 1998 (Cth) (MI Act). Project 1 was established by a Project Deed dated 4 August 1997. After 1 July 1998 Project 1 was required to be registered with ASIC as an MIS. Under the MI Act, AOL was authorised to amend the Project Deed in certain respects and did so by a Supplemental Deed dated 5 June 2000. By reason of the Supplemental Deed references to "Trustee" and "Manager" in the Project Deed are to be read as references to the RE. The Constitution for Project 1 is therefore to be found in the Project Deed as amended by the Supplemental Deed. This consolidated document has a heading of "Trust Deed". I will refer to the "Trust Deed" and the "Constitution" for Project 1 indiscriminately. 15 Projects 2 to 6 were established directly by "Constitutions" to which AOL and all persons holding interests in the Project are parties.

Grove Agreements 16 The RE's entitlement to management fees arises under a Grove Agreement between the RE and each member of the particular Project (Member). 17 Save for the due date for fees in Projects 4 and 5, the material terms of the Grove Agreements for all Projects are mutuatis mutandis identical. (In Project 5 fees are payable six-monthly in arrears and in Project 4 they are payable on the rendering of an invoice (clause 6.3(c)) - as noted earlier, the parties agree that the fees have in fact been invoiced in arrears.) 18 Clause 4.3 of the Project 1 Grove Agreement lists the ongoing management and harvesting duties that the RE must perform. 19 Clause 6.3 of the Project 1 Grove Agreement entitles the RE (Manager) to management fees. It provides: (a) In consideration of the Manager carrying out its duties under clause 4.3 for the third Year and onwards of this Agreement (except for clause 4.3((l)) [sic] in the relevant Year) the Manager is entitled to be paid a fee calculated in accordance with the following formula:- A = B x C D Where: - A = the new fee to be calculated B = the annual fee payable under this Agreement and current at the time of the adjustment C = the quarterly CPI figure most recently published before the date the adjustment is made D = the quarterly CPI for the corresponding quarter in the Year before the CPI figure for "C" is taken. (b) Any adjustment made to the fee under clause 6.3((a)) [sic] must not lead to the fee in any Year which is the subject of the adjustment being less than the fee for the previous Year. (c) The Manager's fees under clause 6.3((a)) are a debt due and owing by the Member to the Manager at the commencement of each Year. [My emphasis] 20 "Year" is defined to mean a period of 12 calendar months: see cl 1.1 of the Project 1 Grove Agreement and cl 1.1 of, and Schedule 1 to, the Trust Deed. The parties approached the matter on the basis that this reference was to 12 calendar months commencing on the date of the Grove Agreement or the anniversary of that date. 21 Clause 5.3 of the Project 2 Grove Agreement, to which I refer as an example of the Grove Agreements for the other Projects, is, mutatis mutandis, identical to cl 6.3 of the Project 1 Grove Agreement set out above, except that: · "Responsible Entity" is substituted for "Manager"; and · instead of a reference to cl "4.3(l)", the reference is to cl "4.3(k)".

Clauses 4.3(l) and 4.3(k) exclude "harvesting". There are separate provisions in both Grove Agreements for the payment of harvesting fees to the RE. 22 In the Project 2 Grove Agreement, "year" probably has the same meaning as "Year" in the Project 1 Grove Agreement (cll 5.2 and 5.3 speak of "second year of this Agreement" and "third year and onwards of this Agreement" respectively). 23 Clause 6.5 of the Project 1 Grove Agreement and cl 5.5 of the Project 2 Grove Agreement provide that the RE will bear all costs of carrying out its duties under the respective Grove Agreements. 24 Clause 12.3 of the Project 1 Grove Agreement and cl 11.3 of the Project 2 Grove Agreement provide (the following sets out cl 12.3 of the Project 1 Grove Agreement - there are minor differences in cl 11.3 of the Project 2 Grove Agreement which are irrelevant for present purposes): Termination by [RE] (a) If the Member fails to make a payment within the required time under this Agreement then the [RE] may terminate this Agreement, but only after giving the Member seven days notice to make the payment. (b) If this Agreement is terminated then: (i) the Member loses all rights as a Member in the Project (ii) the Member remains liable for payment of all fees in respect of work done by the [RE], and (iii) the procedure for the consequence of termination as set out in the [Trust Deed/Constitution] must be followed. 25 Clause 21.2 of the Project 1 Grove Agreement and cl 19 of the Project 2 Grove Agreement provide that the obligations of the parties under the respective GroveAgreements are subject to the terms of the Trust Deed or Constitution as the case may be.

The Constitutions 26 The relevant terms of the Constitutions of the Projects are identical except for three minor differences in the case of Project 1 outlined below (all references are to the Constitution (Trust Deed) for Project 1 unless otherwise stated). 27 Clause 17.1 of the Constitutions for Projects 2, 4, 5 and 6 provides that the respective Grove Agreements must be read subject to the terms of the Constitution. There is no such provision in the Constitution (Trust Deed) for Project 1, but see cl 21.2 of the Project 1 Grove Agreement referred to at [25] above. 28 Clause 24.1 of the Constitution (Trust Deed) provided, relevantly, that: The Project will be managed by the Manager and accordingly the Manager must: … (b) establish and maintain Groves for the Members pursuant to the Grove Agreements, and (c) perform all its other functions and duties under this Deed. … The equivalent clause (cl 20.5) in the Constitutions for Projects 2, 4, 5 and 6 simply provided, relevantly, that the RE covenanted to act in accordance with all valid and current Grove Agreements (and Grove Licence Agreements). 29 Unlike the other Projects, the Project 1 Trust Deed provided for both a Trustee and a Manager. The Trustee was Australian Rural Group Limited. Clause 29.3 dealt with the circumstance where the Trustee undertook both roles in the following terms: During the period when the Trustee is acting as manager the Trustee is entitled to: (a) receive fees payable to the Manager under the Grove Agreements, and (b) be reimbursed all costs and outgoings reasonably incurred by the Trustee while acting as manager. As noted earlier, under the Supplemental Deed all references to "Trustee" or "Manager" (and "manager")are replaced by a reference to the RE. The collapsing of the two roles into one apparently rendered cl 29.3 otiose. 30 Clause 31.1 of the Project 1 Trust Deed provided that the Manager was entitled to be paid fees of the amount and in the manner set out in the individual Grove Agreements. Clause 31.3 of the Project 1 Trust Deed provided: (a) Despite anything else in this Deed, the Manager is not entitled to any fees, recovery of costs or indemnity from Project Property in circumstances where the Manager has not properly performed its role under the Constitution or the law. (b) The lack of entitlement to these payments pursuant to clause 31.3(a) is only in respect of that part of the payment which relates to the specific lack of proper performance on a given matter. Nothing in this clause 31.3 means the Manager is not entitled to be paid fees and costs for work performed properly. … 31 In the case of Projects 2, 4, 5 and 6, cl 7.1 of the Constitutions provided that the RE was entitled to be paid fees of the amount and in the manner set out in "Item 3". This was a reference to Item 3 in Schedule 3 to the Constitutions for those Projects, which stated: (a) … (b) … (c) For each subsequent year of the Project, a management fee equal to the previous year's fee increased in accordance with movements in the CPI [In the case of Projects 4 and 5, the reference is to "financial year" and in the case of Project 6, there is a similar but more elaborate reference to a financial year]. (d) … The Responsible Entity's legal recourse for its fees and payments is through the Grove Licence Agreement and the Grove Agreement. The fees and payments are noted here as a matter of record. [In the case of Projects 4, 5 and 6, there is no reference to the Grove Licence Agreement, and in the case of Projects 5 and 6, there is a penultimate sentence "The Responsible Entity's fees will be invoiced and payable in the manner provided in the Grove Agreements."] Clause 7.3 of the Projects 2, 4, 5 and 6 Constitutions contained provisions identical, mutatis mutandis, to cl 31.3 of the Project 1 Trust Deed set out at [30] above.

Legislation 32 Division 2 of Pt 5C.2 of the Act is headed "Changing the responsible entity". Section 601FM(1) within that Division provides that if members of a registered scheme want to remove the RE they may take action under Div 1 of Pt 2G.4 for the calling of a members' meeting to consider and vote on a resolution that the current RE should be removed and a resolution choosing a company to be the new RE. Section 601FM(2) provides that if the members vote to remove an RE and at the same meeting choose as the new RE a company that consents in writing to be appointed, a notice must be lodged with ASIC asking it to alter the record of the scheme's registration to name the chosen company as RE, and that ASIC "must comply with the notice when it is lodged". 33 Section 601FJ of the Act provides: (1) Despite anything in this Division, the company named in ASIC's record of registration as the responsible entity or temporary responsible entity of a registered scheme remains the scheme's responsible entity until the record is altered to name another company as the scheme's responsible entity or temporary responsible entity. (2) A purported change of the scheme's responsible entity is ineffective unless it is in accordance with this Division. 34 Section 601FS and 601FT of the Act provide: 601FS Rights, obligations and liabilities of former responsible entity (1) If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity. (2) Despite subsection (1), the following rights and liabilities remain rights and liabilities of the former responsible entity: (a) any right of the former responsible entity to be paid fees for the performance of its functions before it ceased to be the responsible entity; and (b) any right of the former responsible entity to be indemnified for expenses it incurred before it ceased to be the responsible entity; and (c) any right, obligation or liability that the former responsible entity had as a member of the scheme; and (d) any liability for which the former responsible entity could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity. 601FT Effect of change of responsible entity on documents etc. to which former responsible entity is party (1) If the responsible entity of a registered scheme changes, a document: . (a) to which the former responsible entity is a party, in which a reference is made to the former responsible entity, or under which the former responsible entity has acquired or incurred a right, obligation or liability, or might have acquired or incurred a right, obligation or liability if it had remained the responsible entity; and (b) that is capable of having effect after the change; has effect as if the new responsible entity (and not the former responsible entity) were a party to it, were referred to in it or had or might have acquired or incurred the right, obligation or liability under it. (2) Subsection (1) does not apply to a right, obligation or liability that remains a right, obligation or liability of the former responsible entity because of subsection 601FS(2). [My emphasis] 35 The governing law of each of the Projects is the law of Queensland (and in the case of Project 1, where applicable, the law of the Commonwealth of Australia). Section 232 of the Property Law Act 1974 (Qld) (Property Law Act) provides in subss (1) and (2) as follows: (1) All rents, annuities, dividends, and other periodical payments in the nature of income whether reserved or made payable under an instrument in writing or otherwise shall, like interest on money lent be considered as accruing from day to day, and shall be apportionable in respect of time accordingly. (2) The apportioned part of any such rent, annuity, or other payment shall be payable or recoverable in the case of a continuing rent, annuity, or other such payment, when the entire portion of which such apportioned part, forms part becomes due and payable, and not before, and in the case of a rent annuity or other such payment determined by re-entry, death, or otherwise, when the next entire portion of the same would have been payable if the same had not so determined, and not before.

Projects 1 and 2 36 At first blush it may seem odd that the Members or a representative of them has not been joined as a party. After all, each Grove Agreement is between AOL and a Member. The dispute, however, concerns fees that have in fact been paid by Members under the Grove Agreements to AOL or to Huntley and neither of those parties has suggested that any Member is liable to pay a second time. Nothing that I say in these reasons will affect the Members. 37 In my opinion, neither s 601FS nor s 601FT of the Act permits a re-writing of contracts to which the former RE was a party: see Australian Olive Holdings at [85]. Sections 60FS(1) and 601FT(1) place a new RE in the shoes of the former RE in relation to rights, obligations and liabilities that would have been those of the former RE in respect of the post-changeover period, but for the changeover. 38 Paragraph (a) of s 601FS(2) is not inconsistent with this construction. There may be room for debate concerning the application of para (a) of s 601FS(2) to certain contractual provisions for the payment of fees that can be hypothesised, but at least it is clear that the paragraph does not detract from a former RE's right to retain fees that have been paid to it in satisfaction of a present debt. (One situation that would fall within para (a) would be a promise to pay the former RE at a point of time that, it transpired, post-dated its removal where the payment could be said to be for the performance of functions that occurred prior to its removal.) It must be remembered too that para (a) is in the nature of an exception or carving out: the primary operative provision is found in s 601FS(1). 39 Under para (c) of cl 6.3 of the Project 1 Grove Agreement and of cl 5.3 of the Project 2 Grove Agreement, a debt in favour of AOL came into existence at the commencement of each year. AOL would have been entitled at that time, upon a failure to pay, to sue the Member as for debt and to obtain judgment. AOL would have been entitled, after giving the Member seven days' notice to make the payment and a failure by the Member to comply, to terminate the Grove Agreement under cl 12.3 of the Project 1 Grove Agreement or cl 11.3 of the Project 2 Grove Agreement. 40 As the new RE, Huntley will be entitled to enforce the provision as to payment of fees against Members in relation to future years but this is irrelevant to amounts of fees that were paid to AOL prior to the changeover. 41 Huntley relies on what it describes as a "reductio ad absurdum". It points out that according to AOL's argument, if the fees for the year were paid to an RE on the first day of the year and that RE was removed and replaced as RE on the second day of the year, the new RE would have no fees with which to perform its obligations under the Grove Agreements - obligations that it must incur at its own expense according to cl 6.5 of the Project 1 Grove Agreement and cl 5.5 of the Project 2 Grove Agreement. In the same vein, it could be suggested to be absurd that the former RE should have an entitlement to a full year's fee for only one day's work. With respect, the answer to this submission is that it was for the Members and Huntley to take such considerations into account before the Members resolved to remove AOL and to appoint Huntley, and Huntley agreed to accept the appointment. 42 Huntley relied on cl 29.3 of the Project 1 Trust Deed (see [29] above) but I do not think that that provision shows that apportionment was contemplated. It provides only, in effect, that when the Trustee acted as manager, it was entitled to receive the same fees that would have been receivable by a separate entity filling the role of manager. 43 I do not think that cl 31.3 of the Project 1 Trust Deed (cl 7.3 of the Project 2 Constitution) affects the position. That provision is concerned with the failure of the RE to perform its role "properly", meaning up to standard. It is not suggested for present purposes that AOL did not properly perform its role as RE during the part of the year down to the changeover. It was deprived of the ability to perform its role at all during the remainder of that year by reason of the Members' decision to remove AOL and, indirectly, Huntley's decision to accept appointment as RE in its place. 44 Finally, if Huntley had an entitlement to be paid fees for the post-changeover part of the year, that would be a right against the Members. The Members might wish to make a third party claim against AOL (I say nothing of the prospects of success of such a claim), but that is another matter. 45 I turn now to consider the fees for the changeover year that were paid to Huntley. AOL relies on s 601FS(2)(a) of the Act which provides that despite subs (1) of s 601FS, the following remains a right of the former RE: any right of the former responsible entity to be paid fees for the performance of its functions before it ceased to be the responsible entity The parties debated the interesting question of the proper construction of this paragraph: does it refer to a performance of functions prior to the changeover or to a right to be paid fees that arose prior to the changeover? 46 I am not required to decide this question for present purposes because even assuming in favour of AOL that the latter construction is correct, this would not mean that AOL would be entitled to recover from Huntley fees for the year that the Members paid to Huntley in respect of the various Projects. There is no evidence that the Members did not intend to pay Huntley or that Huntley has intercepted and appropriated to itself payments that they intended to make to AOL. In the absence of the Members or a representative of them as parties, I am not at liberty to bring about a situation in which Huntley is deprived of the money that the Members intended it should have. 47 Any remedy available to AOL is against the Members. It can sue them for debt, contending that it is no defence that they paid the wrong RE. Again, the Members might decide to make a third party claim against Huntley (and again, I say nothing of the prospects of success of such a claim). 48 It is necessary now to refer to s 232 of the Property Law Act, subss (1) and (2) of which were set out at [35] above. There is a threshold question that I raised on the hearing but need not decide. This is whether the present fees payable for services to be rendered by the RE throughout the year fall within the expression "rents, annuities, dividends, and other periodical payments in the nature of income…" within s 232(1) or are "like interest on money lent" within that provision. I raised with the parties the possibility that the payments to which the statutory provision refers are limited to those that are passively "earned" by nothing more than the passing of time so that it is appropriate to conceive of them as accruing evenly from day to day. The argument would be that the management fees in the present case are not earned evenly from day to day because the RE's services for which the fees are paid are uneven, and vary according to time of the year and other circumstances. 49 Be this as it may, in my opinion s 232 of the Property Law Act does not require an apportionment in favour of Huntley for the following reasons. 50 First, authority establishes that the statutory provision has no application where, as in the case of Projects 1 and 2, payment is made in advance: see Ellis v Rowbotham [1900] 1 QB 740 at 743, 744; The Australian Guarantee Corporation Limited v Balding (1930) 43 CLR 140 at 152-154 per Isaacs J; Amad v Grant; Grosglik v Grant (1947) 74 CLR 327 at 338 per Latham CJ (as noted in AOL's submissions, Dixon J (as his Honour then was) at 346 also cited Ellis v Rowbotham with apparent approval of it as supporting the present proposition at 346); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; (2000) 10 BPR 18,235 at [147]. 51 Second, even if the apportionment provision did apply, that would be a matter relevant to the rights and obligations as between Huntley and the Members, not as between Huntley and AOL. 52 In view of the conclusion reached by me above, I need not address in relation to Projects 1 and 2 the question of the point of time (resolution of the Members or recording of the change by ASIC) as at which any apportionment would have to be made in respect of those Projects.

Project 6 53 Apparently Project 6 raises the same general issues as Projects 1 and 2 raise. The only difference relates to the time at which the debt comes into existence. In the case of Project 6 the fees are payable for years commencing on 1 July and ending on the following 30 June. Clause 6.3(c) of the Project 6 Grove Agreement provides that the RE will issue the Members with an invoice by 1 October in the year for the annual fee and that payment must be made by 31 October in that year. 54 Clause 6.3(d) provides that the fees are a "debt due and owing by the Member to the Responsible Entity". 55 In the case of Project 6, the debt arises either upon the issue of the invoice to the Member or, the invoice having first been issued, at the end of the day on 31 October. It was not suggested that anything turns on the difference between those two times.

Project 5 56 The parties have reached an agreement in relation to Project 5. Clause 6.3(c) of the Project 5 Grove Agreement provides that the annual fees are payable "half yearly in arrears", and that the RE will issue the Member with an invoice by 1 December or 1 June in each year for one half of the annual fees, with payment due by 31 December or 30 June in the year, respectively. The parties have agreed that s 232 of the Property Law Act has the effect that the management fees are to be considered as accruing from day to day and as being apportionable in respect of time accordingly. According to this agreement, AOL's entitlement is to be calculated in respect of the period before the change of RE, and Huntley's in respect of the period after it. 57 If the date of changeover is 18 March 2008, as Huntley submits, AOL's proportionate entitlement is said (by AOL) to be 42.5%. If, on the other hand, the changeover date is 28 March 2008, as AOL submits, AOL's proportionate entitlement is said (by AOL) to be 47.5%. 58 In my opinion, provided there has been a valid removal and appointment at all (see Huntley Management Ltd v Australian Olives Ltd (No 2) (2009) 178 FCR 51 at [12]-[13]), the former RE remains RE until the ASIC record is altered to name another company as RE: see s 601FJ(1) of the Act. In the present case, AOL remained the RE for Project 5 until 28 March 2008 when ASIC's record in relation to thatProject was altered to name Huntley as RE.

Project 4 59 As in the case of Project 5, the parties have reached an agreement: · that although the Project 4 Grove Agreement conferred a discretion on the RE as to whether to charge in advance or in arrears, in fact AOL charged in arrears; · that s 232 of the Property Law Actapplies; and · that s 601FS(2)(a) of the Act also applies. 60 The parties are not at issue in relation to the timing of the changeover in relation to Project 4, no doubt because the resolutions were passed by the Members on 29 April 2008, and ASIC recorded Huntley as RE for Project 4 on the very next day, 30 April 2008. 61 There was a further issue in relation to Project 4 concerning AOL's claim to be entitled to a "Proceeds Fund" of some $90,970.48 representing the proceeds of the sale of Project 4 olives. Huntley has now agreed, however, that AOL is entitled to this amount (which is held by Huntley) subject to any set off of any amount for which AOL may be indebted to Huntley.

conclusion 62 I indicated on the hearing that I would publish reasons so that the parties would have an opportunity to work out the arithmetical implications of them. I hope that the parties will be able to agree on the form of orders to be made and I will list the proceeding for a date for the making of orders. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 21 December 2009 Counsel for the Plaintiff: Mr B L Jones

Counsel for the Defendant: Mr J C Giles and Mr J S McLeod