The competing contentions - January 2009
48 The actions of January 2009 were intended to repair any defect in what had been done in November 2008. It is accepted that the documents executed on that occasion took effect as deeds. It is argued against INGFM, however, that there was no effective ratification, first, because there was nothing capable of being ratified and, second, because rights of holders lodging redemption requests after the purported modifications of November 2008 had intervened and could not be divested by ratification.
49 It is also submitted against INGFM that it would be unconscionable for INGFM to rely on the deeds of ratification, assuming that they are effective. This will be relevant to defences if the ratification procedures are found to have been effective.
November 2008 - was a deed necessary?
50 The first issue to be addressed in relation to the actions of November 2008 is whether a deed was necessary. As I have said, INGFM accepts that the documents of 24 November 2008 and 27 November 2008 did not have effect as deeds. That does not necessarily mean, however, that they did not take effect as writings of the company: Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] Ch 375. INGFM maintains that, despite their not being deeds, the documents were effective to cause each constitution to be modified pursuant to s 601GC(1)(b) .
51 The core requirement concerning the form of the constitution of a registered managed investment scheme is found in s 601GB:
"The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity."
52 Reference has already been made to s601GC(1) (which says how the constitution may be modified) and s 601GC(2) (concerning the time at which a modification takes effect). Sections 601GC(1) and (2) are set out at paragraph [43] above.
53 Section 601GC(1)(a) is of no direct relevance to this case. But a comparison of it with s 601GC(1)(b) does much to elucidate the meaning and scope of the latter provision.
Contextual assistance from s 601GC(1)(a)
54 Section 601GC(1)(a) proceeds on the basis that, whatever means may have been adopted to cause the provisions making up the constitution to be contained in a document that is legally enforceable between the members and the responsible entity in accordance with s 601GB, a special resolution of members (as defined by s 9) may itself be the means by which those provisions are modified, although the modification is not able to take effect, at the earliest, until a copy of the resolution is lodged with ASIC (the possibility that the modification may take effect at a time after lodgement fixed by the special resolution is discussed in Re Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; (2004) 52 ACSR 194).
55 Section 601GC(1)(a) creates a means of modifying the constitution. It "may be modified . . . by special resolution of the members of the scheme". A special resolution of members is thus made the instrument that, by force of statute, effects the modification, subject only to the embargo on the effectiveness of the modification arising from s 601GC(2). It follows that s 601GC(1)(a) not only confers a power to modify but also identifies the process by which that power is exercisable. The power is confided to the general body of members assembled at a duly convened meeting. They may exercise the power by passing a special resolution.
56 Section 601GC(1)(a) draws on familiar analogies. One, of course, is the power of a company's members to alter its constitution and to do so by special resolution: see s 136 of the Corporations Act. Another is the power usually created by a debenture trust deed for debenture holders to sanction, by resolution, a modification or compromise of their rights. The learned author of Palmer's Company Precedents claims credit for having invented this type of clause in 1879 (see A F Topham, "Palmer's Company Precedents", 13th edition (1927), Vol 3, p 162) and goes on to refer to many cases in which its effectiveness has been upheld. One such case is British America Nickel Corporation Ltd v M J O'Brien Ltd [1927] AC 369, where Viscount Haldane, speaking for the Privy Council, said at 371:
"To give a power to modify the terms on which debentures in a company are secured is not uncommon in practice. . . . The provision is usually made in the form of a power, conferred by the instrument constituting the debenture security, upon the majority of the class of holders. It often enables them to modify, by resolution properly passed, the security itself."
57 His Lordship went on to observe that such a provision bears "some analogy" to the power of a company's members to alter the articles of association by special resolution. In Follit v Eddystone Granite Quarries Ltd [1892] 3 Ch 75, another case concerning a debenture trust deed provision, an analogy was drawn with the power of a majority to bind a minority created by the Joint Stock Companies Arrangement Act 1870 (UK), the progenitor of Part 5.1 of the present Corporations Act.
58 Powers of amendment conferred by debenture trust deeds are generally regarded as contractual, no doubt because debenture holders stand in a contractual relationship with the issuing company: Australia and New Zealand Banking Group Ltd v National Mutual Life Nominees Ltd [1977] HCA 42; (1977) 137 CLR 252. Another kind of case, now obsolete, is that in which persons (essentially partners) holding shares in the capital of a joint stock company and contractually bound by a deed of settlement were afterwards made by statute into a corporation aggregate. A statutory power to alter the deed of settlement was, in such cases, commonly vested by statute in the general body of members: see, for example, Bank of New South Wales Act 1850, s 2.
59 Against this background, s 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).
60 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 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.
Contrasting s 601GC(1)(b)
61 Section 601GC(1)(b) differs from s 601GC(1)(a) in at least two important respects. First, of course, the power it creates cannot be exercised - or, more accurately, does not exist - unless the threshold condition is satisfied. That condition goes to the state of mind of the responsible entity. It is thus, by comparison with the plenary power created by s 601GC(1)(a), in the nature of a special power available only in the particular circumstance to which it refers.
62 The second and, for present purposes, particularly significant aspect of s 601GC(1)(b) distinguishing it from s 601GC(1)(a) is that it creates power but makes no attempt to prescribe the method of exercising the power. Section 601GC(1)(a) makes a particular form of action by "the members of the scheme" the mechanism that actually carries the constitutional modification into effect, subject to s 601GC(2). It specifies both the "who" and the "how" of modification. Section 601GC(1)(b), by contrast, identifies the competent actor but does not identify the act of that actor that will effect the modification. It specifies only the "who".
63 Mr Jackman SC submitted on behalf of INGFM that the power given to the responsible entity by s 601GC(1)(b) is therefore exercisable in whatever way the responsible entity chooses - in essence, that whatever the responsible entity does with the intention of modifying the constitution will be effective to achieve that end. He emphasised that the power is a statutory power and referred to observations of Hely J in Cachia v Westpac Financial Services Ltd [2000] FCA 161; (2000) 33 ACSR 572 at [73] to the effect that a statutory power to amend a unit trust deed was not curtailed by limitations upon a like power created by the deed itself.
64 I do not consider the observations of Hely J to be relevant to this case. The statutory power of amendment with which his Honour was concerned specified in some detail the way in which it was to be exercised. That - what I have called the "how" of the modification - is left at large by s 601GC(1)(b) and must, of necessity, be dictated by the form of the constitution. Since the statute confers a power to "modify" the constitution but stops at that point, it must be the "modify" concept itself that supplies the methodology. The power allows - and, indeed, only allows as effective - whatever is necessary and appropriate to effect the modification, having regard to the form that the constitution actually takes in the particular case.
65 The leading requirement as to the form of the constitution is s 601GB (see paragraph [51] above). The constitution must be "contained in a document" that is "legally enforceable between the members and the responsible entity". It must follow from this that the method of effecting a modification chosen by the responsible entity when acting under s 601GC(1)(b) will be one that ensures that, after the modification, the constitution continues to be contained - and contained wholly - in a document of the s. 601GB kind.
66 The constitution in each of the cases before me is a deed executed and delivered by the responsible entity, its sole party. It is therefore a deed poll. That form was no doubt chosen as a means of satisfying the twofold requirement arising from s 601GB. The deed poll is acknowledged to be binding on the responsible entity in such a way that each member of the managed investment scheme for the time being may sue on the deed's covenants. Clause 25.4 of the constitution of the Enhanced Trust is in these terms:
"This constitution binds the Responsible Entity and each present and future Member and any person claiming through any of them in accordance with its terms (as amended from time to time) as if each of them had been a party to this constitution"
67 The corresponding provision in the case of the Cash Fund (part of clause 1) is:
"This Deed is the constitution ("Constitution") of each Trust for the purposes of the Law and is binding upon the Holders and the Responsible Entity."
68 The status of the constitution as a deed poll says much about the way in which it is capable of being modified.
69 In Chelsea and Walham Green Building Society v Armstrong [1951] Ch 853, Vaisey J considered the difference between a deed inter partes and a deed not inter partes (which may or may not be a deed poll):
"[T]he deed inter partes is essentially a private arrangement; whereas a deed not inter partes , and in particular a deed poll, is a matter of public record and is announced not to the whole world in the sense that everybody is concerned in it, but to the world who are concerned, or who are interested, in what is being done."
70 Vaisey J then quoted with approval a statement in the second edition (1928) of "Norton on Deeds" at 29:
"A deed poll could always be sued on by any person with whom the covenant was made, and an indenture not inter partes is for this purpose a deed poll."
71 Classes of non-parties who typically derive rights under deeds poll are beneficiaries under a declaration of trust created by deed (see, for example, Oakes v Commissioner of Stamp Duties [1954] AC 57) and creditors to whom a guarantee is extended by deed poll (an example is found in Re A&K Holdings Pty Ltd [1964] VR 257). An entitlement may be claimed under a deed poll by a person within the relevant class only upon satisfaction of any condition that the deed attaches to the entitlement: Macdonald v Law Union Fire & Life Insurance Co (1874) LR 9 QB 328. A recent case in which an order for specific performance was made in respect of a covenant in a deed poll created in favour of a company's members in the context of a Part 5.1 scheme of arrangement is Toal v Aquarius Platinum Ltd [2004] FCA 550.
72 In the case of a deed inter partes - in essence, a deed embodying the contract of its parties - there can be no variation except by another deed. The common law rule was stated by Bosanquet J in West v Blakeway (1841) 2 Man & G 751; 133 ER 940 (at ER 949): a contract under seal cannot be varied by parol contract.
73 Tindal CJ (also at ER 949) referred to the maxim unumquodque ligamen dissolvitur, eodem ligamine quo et ligatur (or, as it appears in R H Kersley, "Broom's Legal Maxims", 10th edition (1939) at 592, nihil tam conveniens est naturali aequitati quam unumquodque dissolvi eo ligamine quo ligatum est: "nothing is so consonant to natural equity as that every contract should be dissolved by the means which rendered it binding"). The Lord Chief Justice then said:
"But in the case of a covenant the whole matter is under the seal of the party; and the contact into which he has entered can be discharged only by an instrument of the same nature as that by which the contract was created."
74 The matter was put thus by S M Phillipps and A Amos in "A Treatise on the Law of Evidence", London, 1838, at 774:
"Where, however, the parties have defined the terms by a writing under seal, (which must be taken to be made with great care and formality,) the policy of the law will not permit it to be altered by matter of a lower nature."
75 A concept different from variation or abrogation of the covenant itself is that which leaves the covenant intact but superimposes some promise not to sue on it or otherwise superseding it. Such a promise will be effective if given for consideration and otherwise supportable as a contract: Nash v Armstrong (1861) 10 CB(NS) 259; 142 ER 451. The effect and force of a covenant in an inter partes deed can in this way be mitigated by a collateral contract of the parties to the deed. At law, the covenant remains but equity sees the collateral contract as a source of a right to enjoin reliance on the covenant by the party having the benefit of it.
76 In the case of a deed poll or other deed not inter partes, the position must be the same, so that neither abrogation nor variation of the covenant (if possible at all) can be achieved except by another covenant created with the same "great care and formality" and in the same way as that sought to be abolished or varied. In Hougham v Sandys (1837) 2 Sim 95; 57 ER 725, an appointment by deed poll of 20 June 1760 was held to be "null and inoperative" because the relevant power of appointment had been exercised again by deed poll of 14 April 1761 which expressly revoked the first. Taken together, the two deeds executed and delivered by the appointor produced a situation where the second superseded the first.
77 If a person has covenanted by deed poll in favour of a class in such a way that the members of the class for the time being are to have the continuing benefit of the covenant, any variation of the covenant, assuming that it may be made at all, must require the creation of a new covenant by like deed. The case might be viewed as one in which a new and different covenant in favour of the class (that is, the original covenant, as varied) replaces the original covenant.
78 For both the Enhanced Trust and the Cash Fund, the original covenant contemplates variation as, of course, does s 601GC. Clause 22.1 of the constitution of the Enhanced Trust says:
"Subject to the Corporations Act, the Responsible Entity may by deed amend this constitution"
79 There is a footnote:
"See Section 601GC for the power to amend the constitution. The amendment cannot take effect until a copy of the modification is lodged with the ASIC."
80 The relevant provision of the constitution of the Cash Fund is clause 45 which, so far as relevant, provides:
"The Responsible Entity may by supplemental deed, make any modification, addition or deletion to this Constitution."
81 In each case, therefore, the original covenant took effect subject to the proviso that, if the original terms were later altered by deed made by the responsible entity, the covenant would become the original covenant as so varied.
November 2008 - a deed was necessary
82 Having regard to the specific provision of each constitution concerning variation, to the common law about variation of deeds and to the implicit requirement of the Corporations Act that any modification of the constitution made by the responsible entity under s 601GC(1)(b) be made in such a way that the constitution, as modified, continue to be contained in a document that is legally enforceable between the members and the responsible entity in accordance with s 601GB, I am of the opinion that it was not open to the plaintiff to modify the constitution except by another deed having the binding effect described in clause 25.5 of the Enhanced Trust constitution and clause 1 of the Cash Fund constitution.
83 It follows that the documents of 24 November 2008 and 27 November 2008 accepted by INGFM as not being deeds were not effective to modify the respective constitutions of the managed investment schemes and that the execution and lodgement of those documents did not cause the constitutions to be modified pursuant to s 601GC(1)(b) and s 601GC(2).