Huntley Management Limited v Timbercorp Securities Limited

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Counsel for the First Plaintiff: BL Jones

Solicitor for the First Plaintiff: Piper Alderman

Counsel for the First and Second Defendants: O Bigos

Solicitor for the First and Second Defendants: Arnold Bloch Leibler

BETWEEN: HUNTLEY MANAGEMENT LIMITED ACN 089 240 513

FOOD AND BEVERAGE AUSTRALIA LIMITED ACN 007 996 081

AND: TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)

MARK ANTONY KORDA AND LEANNE KYLIE CHESSER AS LIQUIDATORS OF TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)

1. On or before 15 June 2010, the parties provide to the associate to Rares J agreed proposed orders giving effect to the reasons published today and in default of agreement, their own drafts with the areas of disagreement identified.
2. On or before 15 June 2010, the parties exchange and provide to the associate to Rares J submissions of no more than 5 pages as to: (a) any disagreements on the form of the orders to be made; (b) costs.
3. The matter be stood over to 9:30am, 17 June 2010. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

BETWEEN: HUNTLEY MANAGEMENT LIMITED ACN 089 240 513

FOOD AND BEVERAGE AUSTRALIA LIMITED ACN 007 996 081

AND: TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)

MARK ANTONY KORDA AND LEANNE KYLIE CHESSER AS LIQUIDATORS OF TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)

REASONS FOR JUDGMENT 1 Timbercorp Securities Limited (in liq) was the responsible entity for a number of managed investment schemes registered under the provisions of Ch 5C of the Corporations Act 2001 (Cth). These proceedings concern three of those projects, the 2005 Timbercorp mango project, the 2006 Timbercorp mango project and the 2007 avocado and fruit project. On 25 June 2009 the members of each of those three projects passed extraordinary resolutions pursuant to s 601FM of the Act removing Timbercorp as the responsible entity. They then appointed Huntley Management Limited as the new responsible entity. 2 Food and Beverage Australia Limited has replaced Huntley as the responsible entity for the 2007 project. Since I reserved my decision, Food and Beverage has become a plaintiff. By consent Huntley amended the originating process to join Food and Beverage, as it may be affected by what is decided. That was appropriate: see John Alexander's Tennis Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 at [131]-[133], [161] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ. The parties asked that I publish my conclusions about the position in relation to the 2005 project before making any orders. 3 The parties agreed that there were no relevant differences between the relevant documents for the three projects for the purposes of the present application. They made submissions on the 2005 project documents and accepted that they be used as the basis of resolution of the present controversy as (between Huntley and Timbercorp) for each of the 2005, 2006 and 2007 projects. 4 The central issue is what rights, obligations and liabilities of Timbercorp, as the former responsible entity, have become rights, obligations and liabilities of Huntley, as the new responsible entity for the purposes of ss 601FS and 601FT of the Act. Those sections provide, in effect, a statutory novation in favour of the new responsible entity when the old one has been changed under Div 2 of Ch 5C.

The legislative scheme 5 A managed investment scheme is a scheme that, relevantly, has the following features: first, people contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme (whether the rights are actual, prospective, contingent or enforceable); secondly, any of the contributions are pooled or used in a common enterprise to produce financial benefits or benefits consisting of rights or interests in property, for the members who hold interest in the scheme; and, thirdly, the members do not have day-to-day control over the operation of the scheme (see the definition in s 9). The scheme property of a registered scheme is defined as meaning: "scheme property of a registered scheme means: (a) contributions of money or money's worth to the scheme; and (b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and (c) money borrowed or raised by the responsible entity for the purposes of the scheme; and (d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b) or (c); and (e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a), (b), (c) or (d)." 6 In s 9 "property" is defined as meaning any legal or equitable estate or interest, whether present or future, vested or contingent in real or personal property of any description and includes a thing in action. 7 The scheme of Ch 5C is as follows. First, a scheme must be registered by lodging an application with the Australian Securities and Investments Commission (ASIC) (s 601EA(1)). The application must identify, among other things, the name of the proposed responsible entity, a copy of the scheme's constitution and a compliance plan (s 601EA(4)). A responsible entity must be a public company that holds an Australian financial services licence authorising it to operate a management investment scheme (s 601FA). And, a responsible entity of a registered scheme "… is to operate the scheme and perform the functions conferred on it by the scheme's constitution and this Act" pursuant to s 601FB(1)). A responsible entity has power to appoint an agent or otherwise engage persons to do things that are authorised to be done in connection with the scheme, but remains responsible for the performance or lack thereof by the appointee (s 601FB(2)). An agent can hold the scheme property on behalf of a responsible entity (s 601FB(4)). 8 Importantly, s 601FC(1) provides that in exercising its powers and carrying out its duties, the responsible entity of a registered scheme must, among other duties: · act in the best interests of the members, and if there is a conflict between their interests and its own, give priority to the members' interests (s 601FC(1)(c)): · ensure that the scheme's constitution meets the requirements of ss 601GA and 601GB; · ensure that the scheme's compliance plan meets the requirements of s 601HA and comply with that plan (s 601FC(1)(f)-(h)); · ensure that the scheme property is clearly identified as scheme property and held separately from the property of the responsible entity and property of any other scheme (s 601FC(1)(i)). 9 The explanatory memorandum for the Managed Investments Bill 1997, which first proposed the insertion of Ch 5C.2 into what is now the Act, explained the purpose of s 601FC(1)(i) as follows: "The responsible entity will also be under a duty to ensure that scheme property is clearly identified as such and is held separately from both the responsible entity's own assets as well as from property of any other scheme (proposed paragraph 601FC(1)(i)). These duties are designed to ensure that scheme assets are not applied, either unintentionally or fraudulently, to the responsible entity's own purposes rather than those of the scheme. In the event of the failure of the responsible entity, the fact that scheme assets are identifiable as such and kept separate from the responsible entity's own assets will help to ensure that those assets are not applied to meet outstanding debts of the responsible entity, but are returned to the investors in the scheme." (emphasis added) 10 Importantly, s 601FC(2) provides: "The responsible entity holds scheme property on trust for scheme members." 11 Responsible entities can retire (s 601FL) or be removed (s 601FM). For the purposes of Div 2 of Pt 5C.2 of the Act, the company named in ASIC's record of registration as the responsible entity of a registered scheme remains in that position until that record is altered to name another company as the scheme's responsible entity (s 601FJ). 12 Division 3 of Pt 5C.2 is critical when a change in responsible entities occurs. In essence, ss 601FS(1) and 601FT(1) provide a form of statutory novation of the contracts and other engagements to which the previous responsible entity was a party, in favour of the new one. Division 3 provides as follows: "Division 3 - Consequences of change of responsible entity 601FRFormer responsible entity to hand over books and provide reasonable assistance If the responsible entity of a registered scheme changes, the former responsible entity must: (a) as soon as practicable give the new responsible entity any books in the former responsible entity's possession or control that this Act requires to be kept in relation to the scheme; and (b) give other reasonable assistance to the new responsible entity to facilitate the change of responsible entity. 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. 601FTEffect 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)." 13 Under s 601GA the constitution of a registered scheme must make adequate provision for the consideration payable to acquire an interest in the scheme, the powers of the responsible entity in relation to making investments or otherwise dealing with scheme property and any rights which the responsible entity has to fees being payable out of scheme property. The constitution must be a legally enforceable document as between the members and the responsible entity (s 601GB). 14 The scheme must also have a compliance plan. It must set out adequate measures that the responsible entity must apply in operating the scheme so as to ensure compliance with the Act and the scheme's constitution, including arrangements for ensuring that all scheme property is clearly identified as scheme property and held separately from the property of the responsible entity and property of any other scheme (s 601HA(1)(a)).

The Scheme Constitution 15 The constitution of the 2005 project was contained in a deed dated 22 April 2005. The constitution recited that Timbercorp was the responsible entity and held an Australian financial services licence. Critically, that licence required that Timbercorp had to ensure in relation to each scheme that: "… an instrument that confers the right, for the purpose of the scheme, to use the land on which any primary production will occur in the operation of the scheme, is lodged for registration under State or Territory land titles law, in the name of … (d) the licensee, either: (i) as trustee for the members; or (ii) beneficially in the course of and in accordance with its duties as responsible entity …" (emphasis added) 16 The constitution recited that the responsible entity proposed to issue a product disclosure statement (PDS) that would invite persons to participate in the 2005 project. Investors who participated were called "participant growers". The constitution recited that each participant grower wished to engage Timbercorp "in its personal capacity" to cultivate, maintain and harvest the mango trees and generally manage the mangolots as well as to procure the processing of the mangoes under the management agreement and to arrange for their sale under the marketing deed. It defined the land on which the 2005 project as being land owned by Mango Land Pty Ltd. The land would be leased by Timbercorp from Mango Land and licenced to the grower. 17 The constitution provided that each investor would become party to three key agreements (the three investor agreements), namely: · a licence agreementfor a portion of land on which the mango trees would be grown. The "licence agreement" was defined as being between Mango Land, Timbercorp "in its personal capacity" and each participant grower. The licensed area was called a mangolot which was defined as an interest in the 2005 project held by the participant grower. It included interests and rights, in relation to what was described as a "separately identifiable stapled area of the land of about 0.25 hectares", on which the grower would conduct mangolot operations. That interest also included water licences attributed to the 2005 project. · a mangolot management agreement for the cultivation of mangoes for sale; · a grower PBR sub-licence and marketing deed for the sub-licensing and exploitation of the calypso breed of mango and the sale of the mangoes grown. Under this deed, Mangocorp Management Pty Limited granted the grower a non-exclusive sub-licence of registered plant breeder rights owned by the State of Queensland to be used to breed calypso mangoes. The deed licensed the grower to maintain, harvest, ripen, pack and market mangoes through a company called Harvest Markets Pty Limited. 18 I will set out more details about these agreements later. The terms of each were schedules to the constitution. 19 The constitution defined the 2005 project as "the project of managing, cultivating and harvesting mango trees and the processing and sale of mangoes known as the [2005 project] and being the entire undertaking, scheme enterprise or arrangement to which [the investors and their corresponding mangolots relate]". The project property was defined as: · the funds, for the time being, in the bank account kept by the responsible entity in accordance with cl 12 (under cl 12.2 that account would be used to hold moneys payable to the investors from sales of the crop or that the responsible entity otherwise became liable to hold); · authorised investments (in essence, cash or its equivalent); · assets; · any other property acquired throughout the term of the 2005 project using the money or property contributed by the investors, including the proceeds of sales. 20 However, the definition of the project property excluded any assets or other property vested directly in the participant growers, such as the crop, interests in the licence of their mangolots, assets or property belonging to the landowner or responsible entity in its own right. 21 The responsible entity had to prepare for each investor, their licence agreement, management agreement and marketing deed (i.e. the three investor agreements). Once the investors' applications became unconditional, the responsible entity would release and apply the application moneys in payment of the fees payable under the three investor agreements. Under cl 9.4, the responsible entity also had to comply with its Australian financial services licence and protect the interests of the participant growers in the 2005 project by lodging head leases of the land on which the mangoes would be grown for registration in the relevant land titles offices of Queensland and the Northern Territory. The responsible entity was granted a number of powers by cl 11 of the constitution. The participant growers agreed that the responsible entity would have irrevocable power as their agent, representative and attorney to, among other things, lease land from the landowner and licence it to each participant grower. 22 Timbercorp had significant roles as the responsible entity under cl 13. Each investor authorised and requested the responsible entity to procure Timbercorp: · to gather in the mangoes and store its interest in the crop in accordance with the management agreement (cl 13.1(b)); · to process the investor's interest in the crop by entering into any processing agreement as attorney and agent for the grower (cl 13.3); and · to procure Mangocrop to sell the investor's interest in the crop in accordance with the marketing deed (cl 13.4). 23 The responsible entity had to keep full and complete records of the sale of the investor's interest in the crop and separately account to it for the sale proceeds (cl 13.5). The responsible entity was also entitled to fees by way of remuneration for carrying out its duties and obligations under the constitution, the three investor agreements, any other project documents, and otherwise managing the project (cl 14.1). 24 Importantly, under cl 18.1 each of the three investor agreements was said to be entered into by Timbercorp "in its personal capacity" and had to be read subject to the terms of the constitution.

The leases 25 The lease for the Oolloo property in the Northern Territory was a typical lease. It named Mango Land as owner and Timbercorp as tenant. It was for a term of 20 years expiring in June 2025 with no right of renewal. The parties to the lease acknowledged that Timbercorp entered into it "in its personal capacity" and that the lease did not form part of the 2005 project's "scheme property", as defined in s 9 of the Act (cl 2). The rent was payable as and when, and to the extent, that the lessee received licence fees from the investors under their licence agreements, no later than 60 days after such receipts. The lessee was required to use the land in accordance with the constitution and the three investor agreements unless the lessor consented to some other use (cl 5). The lessor consented to and authorised the lessee to enter into the licence agreements with the investors (cl 9.2).

The licence agreements 26 The Oolloo orchard 1 licence agreement was a typical licence agreement. It provided that Timbercorp entered into the licence "in its personal capacity" (cl 1.7). Timbercorp granted to the participant grower a licence to use a licensed area, being part of that in the Oolloo lease, for the sole purpose of growing and cultivating mangoes on, and managing, that area for the purpose of production of mangoes for commercial gain (cl 3.1(a)). The licence did not give a grower exclusive possession of any estate in the licensed area (cl 3.1(c)). Timbercorp was obliged to comply with the provisions of the lease, namely to use the orchard land in accordance with the provisions of cl 5 of the lease, consistently with the three investor agreements (cl 5.1(d)). Timbercorp had the right to carry out its obligations on the licensed land under the three investor agreements. The grower was obliged to pay Timbercorp various licence fees that escalated over time (cl 7.1). The grower could terminate the licence agreement by notice in writing to Timbercorp immediately if it went into liquidation, ceased to carry on business or defaulted in its obligations under the licence agreement (cl 10.1). And, the rights and obligations of the parties to the licence agreement were said to be subject to the terms and conditions of the constitution (cl 20).

The management agreements 27 The management agreement provided that Timbercorp entered into it "in its personal capacity" (cl 1.7) and that it was not part of the "scheme property" (cl 1.8). The grower engaged Timbercorp as an independent contractor to manage and administer the 2005 project including, conducting the project's operations on behalf of the grower, managing the orchard, harvesting and then arranging the storage, marketing and sale of the mangoes (cl 4.1, cl 4.2, cll 5-9). Timbercorp and its invitees were granted access to the relevant mangolots and trees to the extent necessary to enable it or them to perform Timbercorp's obligations under the constitution and the three investor agreements (cl 11). 28 The management agreement stated that it did not create or confer any leasehold or proprietary interest or licence in favour of Timbercorp concerning the mangolots (cl 12). The grower had to pay Timbercorp management fees and other charges that increased over time (cl 13). The grower also acknowledged that the responsible entity was entitled to deduct from the proceeds of sale of the mangoes amounts due to it under the three investor agreements (cl 13.4). The parties acknowledged that all management fees and other amounts paid to Timbercorp under the management agreement were paid to it "in its personal capacity" (cl 13.7). Timbercorp, as the responsible entity, had to pay the grower the amount of the proceeds standing to its credit in the project bank account "… in accordance with the constitution and comply with [the management agreement] in those respects in its personal capacity" (cl 16.1). 29 The investor could terminate the management agreement immediately if Timbercorp went into liquidation or on six months notice, where a meeting of investors resolved to terminate its engagement under the management agreement (cl 17.1). Timbercorp was entitled to assign its rights under the management agreement provided that the assignee covenanted by a deed in favour of the investor to observe and perform all of the covenants contained in the three investor agreements required to be observed or performed by Timbercorp (cl 24). 30 Importantly, again, the rights and obligations of the parties under the management agreement were subject to the terms and conditions of the constitution (cl 22.7).

The marketing deeds 31 The marketing deed was made between Mangocorp, Timbercorp and the investor. It provided that Mangocorp and Timbercorp each entered into the deed in their personal capacities (cl 1.7). Mangocorp granted the grower a non-exclusive sub-licence of its rights to grow, market and sell mangoes through Harvest Markets (cl 2.1). Mangocorp was appointed as agent of the grower for the purposes of the marketing and sale of mangoes grown on the land. In turn, Mangocorp appointed Harvest Markets to perform those obligations exclusively (cl 3.1). The grower was responsible to ensure that the mangoes would be of merchantable quality and, in effect, fit for sale, meeting the specifications set by Harvest Markets for their proper marketing (cl 4.2(b) and (c)). 32 Timbercorp covenanted and agreed in cl 5.15, during the currency of the grower's participation in the 2005 project: · to cause Mangocorp to perform all Mangocorp's obligations under the marketing deed, and to perform the grower's obligations under the marketing deed to the extent that these were not required to be performed by Mangocorp; · to perform all its functions and exercise its powers under the marketing deed "in the best interests of all the participant growers and not in the interests of [Timbercorp]". 33 Mangocorp could terminate the marketing deed with immediate effect if the grower failed to make payments due under it or the constitution or committed any material breach of that deed or the constitution that it failed to remedy or if Timbercorp were otherwise entitled to terminate the grower's licence agreement as a result of a breach or default by the grower, or the lease was terminated (cl 8.1). The grower could terminate the marketing deed if Mangocorp went into liquidation or otherwise ceased to carry on business or its services were terminated by a special resolution of the growers (cl 8.2). No express right of termination was given to Timbercorp under the marketing deed. Once again, the rights and obligations of the parties under the marketing deed were made expressly subject to the terms and conditions of the constitution (cl 18).

The product disclosure statement 34 In the product disclosure statement Timbercorp stated: "As responsible entity, [Timbercorp] has ultimate responsibility to Growers for the operation and management of the Project. From time to time, it may engage other entities to perform certain functions on its behalf. One such entity is Mangocorp Management, the Project Manager, who will perform the managerial functions in relation to the Project. However, the engagement of subcontractors by [Timbercorp] will not alter its relationship with you, the Grower, and at all times it will be responsible to you for the actions of all its agents and subcontractors." (emphasis added) 35 The product disclosure statement continued by describing "how the project works". It said that the 2005 project was a managed investment scheme that had been established for the purpose of producing calypso mangoes in the Australian and key export markets. It provided a diagrammatic outline of the contractual relationship between the parties. The diagram noted that Timbercorp was the responsible entity holding leases over the land and was responsible for cultivating, harvesting and preparing the mangoes for sale under the management agreement. 36 Significantly, the product disclosure statement did not state that Timbercorp had drafted the critical documents, such as the leases and three investor agreements to provide it with many rights, obligations and liabilities "in its personal capacity".

The compliance plan 37 The compliance plan provided that the investor became a party to the constitution and the three investor agreements upon payment and acceptance of the application money by Timbercorp. Each investor was also entitled to receive their proportionate share of the net proceeds of sale of the mangoes after deducting the costs of production and sale together with any fees. The compliance plan provided that: "The Scheme is regulated by, and based on the following documentation" and then described the constitution, the leases, the three investor agreements, a number of other documents and the parties to the scheme. 38 The compliance plan identified Timbercorp as the responsible entity of the scheme. It stated that Timbercorp had the function under the constitution of being engaged by the growers to manage the scheme. In addition, Timbercorp was said to have the functions of the manager engaged by the growers to cultivate, maintain, harvest, deliver, process, market and sell the crop, be the lessee and licensor of the orchard, to provide financial services and advice and to issue a product disclosure statement.

What passed to Huntley when it became the responsible entity? 39 The critical question argued in these proceedings is what passed from Timbercorp to Huntley when it became the responsible entity of the 2005 project. The difficulty that has arisen is that the various agreements identify Timbercorp as a contracting party apparently wearing two hats - one as the responsible entity for the time being and the other as a party "in its personal capacity". In particular, the three investor agreements provided that many of the important rights, obligations and liabilities of Timbercorp were to be enjoyed, rendered or performed by it "in its personal capacity", apparently as distinct from its capacity as responsible entity. The true characterisation of Timbercorp's role or roles requires consideration of what the managed investment scheme, being the 2005 project, included, and whether any of Timbercorp's rights, obligations and liabilities expressed as being created "in its personal capacity" in the various contractual documents became Huntley's rights, obligations and liabilities by force of ss 601FS(1) and 601FT(1). 40 Timbercorp argued that this distinct role, of its personal capacity, was clearly disclosed in each of the three investor agreements and constitution. It contended that those contractual documents distinguished the responsibilities it had to discharge in its own right from those it had to perform as responsible entity. 41 Timbercorp conceded that the product disclosure statement did not state that it would enter into any of the agreements in its personal capacity nor did it discuss any consequence that flowed from any bifurcation of its role in the scheme. However, it argued that this document was unlikely to have been intended to have any contractual force, relying on an observation by Buss JA in Emu Brewery Mezzanine Ltd v ASIC (2006) 32 WAR 204 at 228 [90]. 42 I am of opinion that while statements in and representations made by the product disclosure statement may not have had contractual force, that does not make them irrelevant as part of the factual matrix by reference to which the parties contracted.

Consequences of a change in responsible entity 43 In Re Investa Properties Ltd (2001) 187 ALR 462 at 465 [11] Barrett J said that ss 601FS(1) and 601FT(1) were drafted in a particularly economical way but appeared to be intended "… to cause an incoming responsible entity to step into the shoes of its predecessor". However, he observed that nowhere in Div 3 was there a reference to "property". And he suggested that Div 3 did not seem to affect a statutory form of vesting or assignment of property generally. Barrett J contrasted this with the provisions of s 601FC(2) that declared that the responsible entity holds scheme property on trust for scheme members. "Scheme property" and "property" are defined in s 9 as including contributions of money or money's worth to the scheme and any legal or equitable estate or interest, (present, future, vested or contingent) in real or personal property of any description (including a thing (or chose) in action) acquired directly or indirectly with the proceeds of such contributions of money or money's worth: Re Investa 187 ALR at 465 [11]-[12]. Barrett J did not need to decide the question of the precise operation of ss 601FS and 601FT. 44 I agree with Barrett J's initial description of those sections as enabling the new responsible entity to step into the shoes of the old. Scheme property can be held in the name of a responsible entity in accordance with the provisions of the scheme. A trustee always has rights, obligations and liabilities, defined by the terms of the trust, in respect of trust property. I am of opinion that Div 3 of Pt 5C.2 provides for an automatic statutory novation in favour of the new responsible entity in respect of all rights, obligations and liabilities of its predecessor. The novation also applies to all contracts and any other documents to which the former responsible entity was a party (ss 601FS(1), 601FT(1)). The evident purpose of Div 3 is to facilitate a change of responsible entity occurring in such a way that the conduct of the scheme is not disrupted. Of course, ss 601FS(2) and 601FT(2) recognise that the former responsible entity retains any rights, obligations and liabilities that had accrued, or applied, to it prior to the change. The change in responsible entity becomes effective when ASIC's records name the new responsible entity in place of the former under s 601FJ. However, any property right requiring registration, such as in Torrens title land, held by the former responsible entity will vest in equity in the new responsible entity immediately on the creation of the new ASIC record by force of Div 3 of Pt 5C.2, but will only vest in law when it is registered (see s 1336(3)). 45 It is vital that the words "rights, obligations and liabilities" in Div 3 of Pt 5C.2 be given a broad construction so as to achieve the evident legislative purpose of facilitating an immediate and seamless change of the responsible entity of a scheme whenever ASIC records the new entity's name in its record of a registered scheme. 46 Timbercorp argued that the words "in relation to the scheme" in s 601FS(1) covered only rights arising from or forming part of the matrix of legal relationships making up the scheme, including those derived from its constitutional documents. It suggested that those words should not be given too broad a reach and that s 601FT(1), because it worked with s 601FS(1), was implicitly confined to documents concerning the scheme. 47 I reject that argument. The expression "in relation to" is of wide and general import and should not be read down in the absence of some compelling reason to do so: Fountain v Alexander (1982) 150 CLR 615 at 629 per Mason J. In Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223 at 232 [46] RD Nicholson J held that "in relation to" as used in s 610FS(1) was an expression of wide import and signified no more than some relationship or connection. As Lindgren J noted, however, the rights, obligations and liabilities of the former responsible entity to which each of ss 601FS(1) and 601FT(1) apply, are impliedly limited to those capable of having an ongoing operation after the change in responsible entity: Re Huntley Management Ltd; Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2009) 76 ACSR 256 at 268 [85]. 48 Ordinarily, the scheme would give the responsible entity a legal, and possibly a larger, right to hold scheme property, such as land, in its name. But, by force of ss 601FJ, 601FS(1) and 601FT(1) that right necessarily passes to the new responsible entity on a change becoming effective. In most cases one could expect that control and ownership of scheme property finds its ultimate source in the scheme constitution. Ordinarily, that will identify the basis on which scheme property is held by the responsible entity. 49 I am of opinion that ss 601FS(1) and 601FT(1) create a means of ensuring that rights to hold, and rights "in relation to", scheme property pass to and vest in the new responsible entity. This is because ss 601FJ, 601FS(1) and 601FT(1) cause all rights of the former responsible entity "in relation to the scheme" to pass to the new one once changed: cf City Pacific Ltd (In Liq) v Ballandean Investments Pty Ltd [2010] QCA 113 [23], [26] at [9] per Holmes JA with whom McMurdo P and Chesterman JA agreed and Capelli v Shepard (2010) 264 ALR 167 at 196 [143], 197 [148] per Dodds-Streeton and Mandie JJA and Byrne AJA; Treecorp Australia Ltd (In Liq) v Dwyer (2009) 175 FCR 373 at 383-384 [46], [48] per Gordon J. Likewise, those sections novate obligations and liabilities of the former responsible entity "in relation to scheme property" in the new responsible entity. The language of those provisions suggests that the Parliament had novation, not merely assignment, in mind: Olsson v Dyson (1969) 120 CLR 365 at 388-391 per Windeyer J esp at 388; see too Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 at 197-199 [106]-[114] where I discussed the distinction between novation and assignment in contract. 50 Here, the statutory scheme in Div 3 of Ch 5C.2 is clearly intended to apply to a change of, and effect a transfer between, responsible entities in all situations so as to ensure that the incoming one has the fullest and most effective control of the whole of the scheme and scheme property at the instant that s 601FJ gives effect to the change. This will be achieved by giving a purposive and broad construction to the expression "in relation to the scheme" in applying ss 601FS and 601FT.

In what capacity did Timbercorp act? 51 The contractual documents are peppered with provisions stating that in critical respects Timbercorp obtained rights or assumed or became subject to obligations or liabilities "in its personal capacity". Timbercorp argued that these provisions were clear on their face and should be construed in their ordinary and natural meaning. This would result, so it contended, in ss 601FS and 601FT having no effect on those contractual provisions. Thus, Timbercorp would continue to have a crucial commercial role in the 2005 project despite its removal as the responsible entity. Timbercorp had argued that the only property it ever would hold as, or have rights to, scheme property was: · the application fee paid by the investor until it applied it on acceptance of the investor as a member of the scheme; · any net proceeds of sale of mangoes payable to the investor. 52 Timbercorp argued that it had the rights, obligations and liabilities under the three investor agreements not in its capacity as responsible entity, but in its personal capacity. It contended that the investors are in the position that they would have to buy, or cause the new responsible entity to buy, the rights to do all that Timbercorp had obtained under the leases and the three investor agreements "in its personal capacity". Thus, Timbercorp argued that Huntley, as the new responsible entity could purchase the leasehold interests from it (DWS 48). 53 The capacity in which a party contracts, or is given rights or assumes or becomes subject to obligations or liabilities under a contract, must be determined objectively in the same manner as the contract itself is construed. That requires the Court to consider what a reasonable person in the position of the parties would have understood as the meaning conveyed by the words in which they expressed their bargain. Normally that process requires consideration not only of the text but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 52-53 [9]-[10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. And as Gleeson CJ said in Ansett 234 CLR at 160 [8]: "In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22]; Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner). An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22]; Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350). This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning (Singh v The Commonwealth (2004) 222 CLR 322 at 331-338 [8]-[23])." 54 Here of course, the genesis of the various dealings between Timbercorp, the investors and the other parties, commences with the product disclosure statement and the constitution. This background is significant for similar reasons to those given by Gleeson CJ above. This also requires the "scheme" to be identified "in relation to" which rights, obligations and liabilities are referred to in ss 601FS(1) and 601FT(1). 55 As Keane JA pointed out in Mier v FN Management Pty Ltd [2006] 1 Qd R 339 at 350 [24] and [27] (McMurdo P and Douglas J agreeing) "scheme" is not defined in the Act. He said that, based on the definition of "managed investment scheme" in s 9, an essential feature of a scheme is that persons contribute money or money's worth to a "program or plan of action" constituted by the scheme and this property will be pooled to produce benefits for those who made contributions. He had drawn on what Mason J had said (Gibbs CJ and Stephen J agreeing) in Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121 at 129 that "… all that the word "scheme" requires is that there should be 'some programme or plan of action' (Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 at 225)". 56 Certainly, the concept of a managed investment scheme under the Act involves a program or plan of action directed at the achievement of a financially beneficial result for those who make contributions to it. And, under the Act, a responsible entity has a prime function of applying those contributions to the acquisition of property and its subsequent use with the purpose of achieving that result. 57 In addition, the parties to a contract can seek to identify the nature of their relationship or the capacity in which a party contracts. However, those characterisations are not determinative themselves, of the true nature of that relationship or capacity. The parties cannot deem their relationship, or the capacity in which a party contracts, to be something that it is not: Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at 45 [58] per Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ who approved what McKay J said in TNT Worldwide Express (No 2) Ltd v Cunningham [1993] 3 NZLR 681 at 699 namely: "The proper classification of a contractual relationship must be determined by the rights and obligations which the contract creates, and not by the label the parties put on it." 58 The substance and effect of the documents, construed in their context, is the critical determinant of the true nature of the parties' relationship and the rights, obligations and liabilities it creates: cf Radaich v Smith (1959) 101 CLR 209 at 214 per McTiernan J, at 217 per Taylor J, at 220 per Menzies J, at 223 Windeyer J, Dixon CJ agreeing with the other Justices.

Consideration 59 The constitution recited that Timbercorp, as responsible entity, would issue the product disclosure statement and, through it, invite persons to participate in the 2005 project. The supposed "disclosure" in the product disclosure statement did not reveal that Timbercorp had drafted the various contracts with many references to it having rights, obligations and liabilities "in its personal capacity". Rather, the scheme presented to the potential investors for their consideration was, as Timbercorp had stated in the product disclosure statement: "As responsible entity, [Timbercorp] has ultimate responsibility to Growers for the operation and management of the Project." 60 This was not merely an arcane statement about the initial deposit into a bank account of each investor's application fee and the later deposit into and disbursement from that account of the net proceeds of sale of mangoes. Rather, it reflected the central feature of the scheme and the requirements of s 601FB. The investors contributed their funds to the program or plan of action of growing and selling mangoes for profit using the responsible entity to operate and manage that venture. Indeed, the investors had appointed the responsible entity as their agent, representative and attorney in relation to the 2005 project under cl 3 of the constitution. 61 And, the responsible entity had to protect the interests of the investors in the 2005 project and comply with its Australian financial services licence by lodging for registration in its name beneficially the leases of the land on which the mangoes would be grown under cl 9.4 of the constitution. That had the consequence that the leasehold interest was held as scheme property by whomever was the responsible entity. This follows from the licence condition that the leasehold be held by Timbercorp "beneficially in the course of and in accordance with its duties as responsible entity" coupled with Timbercorp's obligations under cl 9.4, and power to lease under cl 11(l) of the constitution. The leasehold interest was property "in relation to the scheme". The scheme could not operate without it. Timbercorp held all its rights, and had obligations and liabilities under the lease "in relation to the scheme" for the purposes of ss 601FS and 601FT. 62 The commercial rationale of the 2005 project depended on the investors being able to licence their mangolots from the responsible entity whose name the lease was held in accordance with those constitutional (and licence) requirements. The investors' licences to use their mangolots did not give them an interest in that land as sublessee, (cf: Clos Farming Estates Pty Ltd (recs and mgrs apptd) v Easton (2002) 11 BPR [97995]). Nonetheless, the rights enjoyed by Timbercorp as lessee of the land on which the mangoes were grown derived wholly and solely because the leases were essential to the operation of the scheme. 63 The total entitlements of the responsible entity to be paid licence fees by investors corresponded exactly to its liability, as lessee, to pay rent under cl 5 of the leases. The rights of Timbercorp to receive fees and other payments under each of the licences, management agreements and growers licences and its concomitant obligations and liabilities to the investors under them were integral to the scheme. Without those arrangements in place, there was no program or plan to which the investors had agreed to contribute their payments and acquire their personal property, including their rights to choses in action under the constitution and the three investor agreements. 64 If Timbercorp were entitled to remain in its position as lessee or continue to enjoy rights that it held under the three investor agreements "in its personal capacity" after it had been replaced as the responsible entity of the 2005 project, the investors would be tied to it despite it no longer being in its control role in the scheme. Instead Timbercorp would occupy a personal position of critical importance to the scheme's future operations free of its statutory and scheme duties as responsible entity and the investors would have to deal with and pay both it and a new responsible entity. It would create a commercially inconvenient result if the words "in its personal capacity" in cl 1.7 of the licence agreement entitled Timbercorp to retain its status of beneficial owner of the leaseholds and other rights once it had ceased to be the responsible entity: cf Zhu v Treasurer of NSW (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. Such a result was not contemplated in the product disclosure statement and serves no good purpose for the ongoing operation of the scheme. Indeed, Timbercorp would hold the benefit of the lease without being personally liable to pay any rent other than as a mere conduit of licence fees payable to it by the investors. Those licence fees were contributions to the scheme so that the leaseholds could be held in order that mangoes could be grown for sale. The leases were thus scheme property. 65 Four leases related to land leased both for the 2005 project and the 2006 project. Timbercorp argued that s 601FT could not affect its rights "in its personal capacity" in respect of those leases. It contended that one way of overcoming the difficulty so created was by Huntley purchasing the leases from Timbercorp. 66 However, this argument misunderstands the operation of s 601FT(1). The deeming that s 601FT(1) effects, makes the new responsible entity a party to the lease with the rights, obligations and liabilities of the former responsible entity in respect of the registered scheme. So, if Timbercorp had remained as responsible entity of the 2006 project after it had been replaced as responsible entity of the 2005 project by Huntley, both Timbercorp and Huntley would be lessees. Each would be a lessee in respect of the land used for the respective scheme of which it was the responsible entity. This construction is reinforced by Timbercorp's argument that Huntley could purchase Timbercorp's interest as lessee. That recognised that Timbercorp's real property interest in the lease, in its different capacities, was transferable. The construction of s 601FT(1) that I have arrived at is consistent with the interest of Timbercorp, in each lease and for each project, even though expressed as being "in its personal capacity", amounting to that of the responsible entity of a scheme. That interest is capable of being made over by the operation of the provisions of Div 3 of Pt 5C.2 to a new responsible entity after a change. 67 The rights, obligations and liabilities of Timbercorp under the investor agreements were all those of the responsible entity "in relation to the scheme" within the meaning of s 601FS(1) and 601FT(1). The scheme consisted of the whole 2005 project. This construction is consistent with the overarching provisions of cl 18.1 of the constitution. And cl 14.1 of the constitution conferred express rights of the responsible entity to receive fees under it and the three investor agreements. 68 I am of opinion that all the rights, obligations and liabilities of Timbercorp whether expressed to be those in its personal capacity or otherwise under the three investor agreements, leases and the constitution were those "of the former responsible entity in relation to the scheme", within the meaning of s 601FS(1) other than for those rights, obligations and liabilities that it retains by force of ss 601FS(2) and 601FT(2). 69 The Parliament employed very broad concepts in Div 3 of Pt 5C.2 in order to protect the interests of members of schemes. That is why the former responsible entity is made subject to a plenary novation of all its rights, obligations and liabilities in relation to the scheme, regardless of any nomination by it of some other capacity. The touchstone of the statutory novation is that provided by the broad expression "in relation to the scheme". Once a right, obligation or liability of the corporation that was the former responsible entity or a document to which it was party, can be seen to have the character of being "in relation to the scheme", it is novated to the new responsible entity by force of ss 601FS and 601FT. And, the Parliament allowed a limited carve out from that sweeping novation so as to provide for the limited but exhaustive range of rights, obligations and liabilities of the former responsible entity found in ss 601FS(2) and 601FT(2): see too Syncap 51 ACSR at 232 [46].

Conclusion 70 I am of opinion that Huntley is entitled to declarations that upon it having been recorded in ASIC's record of registration under s 601FJ(1) of the Act: · the rights, obligations and liabilities of Timbercorp under the constitution, the leases and the three investor agreements became those of Huntley, other than as provided in ss 601FS(2) and 601FT(2); · those documents to which Timbercorp was party have effect as if: (a) Huntley (and not Timbercorp) were a party; and (b) all rights, obligations and liabilities acquired or incurred, or that might have been acquired or incurred by Timbercorp had it remained the responsible entity and that are capable of having effect after the change, were those of Huntley. 71 I will re-list the matter for the purpose of making final orders including orders including orders to deal with the consequences of the recent addition of Food and Beverage. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.