THE PLEADINGS
36 There was much discussion before the Court about the pleaded case brought by ASIC and the failure of the trial judge to properly confine his consideration to the pleaded case brought against the Directors. It was also contended by the Directors that even if the trial judge did confine himself to the exact way the case against them was pleaded, the trial judge's findings went beyond the submissions made by ASIC.
37 The proceeding was conducted by the parties on the pleadings. It was not suggested by ASIC otherwise, although certain references were made to part of ASIC's submissions at trial. None of these references indicate a case was being mounted against the Directors outside the pleaded case set out in the Second Further Amended Statement of Claim.
38 The pleaded case of ASIC was relatively straight forward, based as it was on the conduct of the Directors between 22 August 2006 and 27 June 2008. It is important to appreciate that the pleading did not allege any form of dishonesty or fraud, nor any form of knowledge by the Directors that their conduct prior to this period of time was in any way wrongful, unlawful or illegal. It was not pleaded, nor part of ASIC's case, that a reasonable director in the position of the Directors would have been conscious of the failings on 19 July 2006 found by the trial judge, and so needed to re-visit the 19 July 2006 decision to amend the Trust's Constitution. It is also important to appreciate that the trial judge specifically found that the Directors had an honest belief as to the validity of the Amendments. This is significant in determining the characterisation to give to the conduct of the Directors on and from 22 August 2006, including in the Directors deciding to pay, and paying the Listing Fee.
39 It was not alleged that the Directors were aware of earlier 'contraventions', or should have been, or that they considered (or should have considered) on 22 August 2006 that the 19 July 2006 conduct had been negligent or in breach of any of the duties which were alleged to have been contravened on and from 22 August 2006. ASIC did not allege that the relevant contravening conduct was a failure to resolve to, or otherwise, revoke the resolution approving entry into the Deed of Variation (No 7) made on 19 July 2006.
40 To determine the case made by ASIC against the Directors, it is necessary to go to the pleadings in some detail. As the pleadings were amended, where they are quoted in these reasons the underlining indicates the amendments. Any references in parentheses are to the Second Further Amended Statement of Claim and Defences (as the case may be).
41 Under the heading 'APCHL purports to grant itself the right to new fees', ASIC pleaded in its Second Further Amended Statement of Claim:
(a) At the meeting on 19 July 2006, the Board unanimously resolved to approve the relevant variations to the Constitution (paragraph 13);
(b) At the meeting on 22 August 2006, the Board resolved to lodge with ASIC the consolidated Constitution for the Trust incorporating the Amendments made by Deed of Variation (No 7) (paragraph 14);
(c) Deed of Variation (No 7) was a deed of variation dated 22 August 2006 (paragraph 15); and
(d) On 23 August 2006 lodgement occurred (paragraph 16), and by lodging an amended Constitution with ASIC, APCHL intended to trigger the operation of s 601GC(2) of the Act and so amend to the Constitution in accordance with Deed of Variation (No 7) (paragraph 17).
42 The pleading then continued to refer to the Amendments set out in the Deed, by collectively defining them as 'the August Amendments', which was a reference not to the events of 19 July 2006, but to the Lodgement Resolution.
43 Therefore, the focus of the first group of contraventions was on the Lodgement Resolution. For instance, paragraphs 20 and 21 of the Second Further Amended Statement of Claim pleaded:
If the Prime Trust constitution had been amended so as to give effect to the August Amendments, that variation:
(a) would have been in favour of or resulted in a benefit to APCHL;
Particulars of subparagraph (a)
ln respect of the Listing Fee Amendment and Removal Fee Amendment, the benefit was the purported right to receive payment from the Prime Trust under the August Amendments in the event the conditions for the relevant payment were satisfied. In respect of the Takeover Fee Amendment, the benefit was an increase in the fee to be paid in circumstances where the aggregate price paid for Units did not equal or exceed the Gross Asset Value of the Trust (as defined in the Prime Trust constitution).
(b) would have disadvantaged the members of the Prime Trust; and
(c) would not have been in the best interests of the members of the Prime Trust.
Particulars of subparagraphs (b) and (c)
The August Amendments purported to create rights in APCHL as set out in paragraph 18 above that, if exercised, would result:
(i) in respect of the Listing Fee Amendment and Removal Fee Amendment, in a diminution in the assets of the Prime Trust; and
(ii) in respect of the Takeover Fee Amendment, in circumstances where the takeover fee would be higher as a result of the amendment, a greater diminution in the assets of the Prime Trust -
without providing any, alternatively any equivalent, benefit to members of the Prime Trust.
By reason of the facts set out in paragraph 20 above, the consideration by APCHL of whether or not to lodge the Amended Constitution involved a conflict between the interests of the members of the Prime Trust and the interests of APCHL.
44 Then reference was made in the Second Further Amended Statement of Claim at paragraph 22 to each of the resolutions referred to earlier in the pleading - the 19 July 2006 resolution which was pleaded as a resolution to approve the relevant variations (paragraph 13) and the Lodgement Resolution (paragraph 14). Each resolution was alleged to have been wrongfully adopted, but only by reference to the 'August Amendments' as defined in the pleading.
45 Specifically, paragraph 22 pleaded:
Each of the votes resolutions described in paragraphs 13 and 14 above took placewas adopted without the participating directors as a board first considering or sufficiently considering:
(a) whether there was any legitimate reason for the responsible entity to make the August Amendments;
(b) whether the August Amendments would comply with both the Act and the Prime Trust constitution;
(c) the effect of the August Amendments on:
(i) the rights and interests of the members of the Prime Trust;
(ii) the interests of APCHL; or
(iii) the interests of Lewski and his related and associated entities; or
(d) the conflict described at paragraph 21 above and how, if at all, that conflict could be resolved in favour of members of the Prime Trust.
46 Then in paragraph 23, ASIC pleaded, by reference to both the 19 July 2006 resolution and the Lodgement Resolution, that APCHL did not, on either occasion, properly consider whether the proposed changes to the Constitution would adversely affect the rights of members of the Trust.
47 This plea related only to the failure to comply with s 601GC of the Act, whether or not a special resolution of the members was required, and the need to consider the rights of the members. This is made clear by the particulars to paragraph 23(a) and the reference in paragraph 25(b) to s 601GC of the Act. The other matter to observe is that these allegations, referred in context and terms to the 'August Amendments', as is apparent from paragraphs 22, 23 (particularly the particulars to paragraphs 23(b)), 24 and 25.
48 In fact, the conclusionary paragraph in paragraph 25 pleaded that by reason of the matters referred to above, 'lodgement of the Amended Constitution with ASIC was not effective to amend the Prime Trust Constitution so as to effect the August Amendments'.
49 Under the heading 'Contraventions of the Act arising from the August Amendments', the pleading first focused on the contraventions by APCHL, being concerned solely with the Lodgement Resolution on 22 August 2006. In fact, the earlier reference to the 19 July 2006 resolution was specifically deleted in the Second Further Amended Statement of Claim.
50 Then the pleading made allegations relating to the contraventions by the Directors in paragraphs 26A to 28. It is useful to set these out in full (with the amended and substituted particulars included).
Contraventions by the directors
26A. Each of Lewski, Wooldridge, Jaques, Butler and Clarke voted in favour of, alternatively assented to at the meeting, the resolution on 22 August 2006 to lodge the Amended Constitution.
27. By 22 August 2006, each of Lewski, Wooldridge, Jaques, Butler and Clarke, believing that the August Amendments would be effective, knew that their purpose was to provide benefits to APCHL and that their effect would be to disadvantage the members of the Prime Trust.
Particulars
So much must be inferred from the fact that each of them voted in favour of, alternatively assented to at the meeting, the resolution passed at the 22 August 2006 meeting, and from the knowledge of the affairs of the Prime Trust that each had obtained in preparing to undertake and in undertaking his role as a director and (in so far as is applicable) secretary, chairman and compliance officer.
So far as Butler and Wooldridge are concerned, it must also be inferred from the fact that each of them signed Deed of Variation (No. 7).
So far as Clarke is concerned, it must also be inferred from the fact that he attended, as an invitee, the meeting of board of directors of APCHL on 19 July 2006 referred to at paragraph 13 above.
Their belief as at that date is also to be inferred from their subsequent conduct as alleged in paragraphs 31, 32, 34 ,35, 37 and 38, namely:
(i) Each of Lewski, Wooldridge, Jaques, Butler and Clarke was present at the meeting of the board of directors of APCHL on 26 June 2007, and each voted in favour of, alternatively assented to at the meeting, the resolution detailed in paragraph 31;
(ii) Each of Lewski, Wooldridge, Jaques, Butler and Clarke was present at the meeting of the board of directors of APCHL on 27 July 2007 and voted in favour of, alternatively assented to at the meeting, the resolutions detailed in paragraph 32;
(iii) Each of Lewski, Wooldridge, Jaques, Butler and Clarke was present at the meeting of the board of directors of APCHL on 21 April 2008 where it was resolved that the board pass a resolution regarding the HOA (as defined in paragraph 34 below) by 23 April 2008;
(iv) On 23 and 24 April 2008 Wooldridge, Jaques, Butler and Clarke approved a resolution that APCHL execute the HOAThe board of APCHL, on a date between 21 April 2008 and 28 April 2008 resolved to execute the HOA or otherwise approved the execution of that document by APCHL;
(v) On 28 April 2008:
(A) Wooldridge executed the HOA on behalf of APCHL on 28 April 2008;
(B) Lewski executed the HOA on behalf of other parties to it;
(vi) Each of Lewski, Jaques and Clarke was present at the meeting of the board of directors of APCHL on 27 June 2008 and voted in favour of, alternatively assented to at the meeting, the resolution to execute the Deed of Acknowledgment; and
(vii) Lewski and Jaques executed the Deed of Acknowledgment on behalf of APCHL on 27 June 2008.
28. In the circumstances By reason of the matters set out in paragraphs 19 to 27 above, and by reason of:
(a) his voting in favour of the resolution to lodge the Amended Constitution, alternatively by assenting to it at the meeting on 22 August 2006, the resolution to lodge the Amended Constitution: and
(b) his participation in the activities that culminated in that resolution
each of Lewski, Wooldridge, Jaques, Butler and Clarke on that date:
(c) breached his duty (imposed by s. 60JFD(1)(b) of the Act) to exercise the degree of care and diligence that a reasonable person would exercise if that person was in the relevant officer's position and so contravened s. 601FD(3) of the Act;
Particulars of subparagraph 28(c)
(i) Failing to:
(A) consider and understand; and
(B) be satisfied that the directors of APCHL acting as a board (the board) had considered and understood -
the effect of Deed of Variation (No 7);
(ii) failing to consider whether, and be satisfied that, there was a legitimate reason for the responsible entity to make the August Amendments;
(iii) failing to be satisfied that the board had considered:
(A) legal advice that the August Amendments if made without the approval of unitholders would comply with the Act and the Constitution of the Prime Trust; or
(B) judicial advice that the responsible entity would be justified in making the August Amendments without member approval;
(iv) failing to consider and be satisfied that the board had considered whether the August Amendments if made without the approval of unitholders would comply with the Act and the Constitution of the Prime Trust;
(v) failing to consider and be satisfied that the board had considered the effect of the August Amendments on the rights and interests of the members of the Prime Trust;
(vi) except in the case of Lewski, failing to consider the effect of the August amendments on the interests of APCHL;
(vii) except in the case of Lewski, failing to consider the effect of the August Amendments on the interests of Lewski and his related and associated entities;
(viii) failing to be satisfied that the board had considered the matters referred to in paragraphs (vi) and (vii) above;
(ix) failing to consider and be satisfied that the board had considered how, if at all, the conflict described in paragraph 21 could be resolved in favour of the members of Prime Trust,
when the August Amendments purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any, alternatively any equivalent, benefit to its members.
(d) breached his duty (imposed by s. 601FD(1)(c) of the Act) to act in the best interests of the members of the Prime Trust, and so contravened s. 601FD(3) of the Act;
Particulars of sub-paragraph 28(d)
(i) he did not give any consideration to whether making the August Amendments was in the best interests of the members of the Prime Trust;
(ii) the August Amendments were not in fact in the best interests of the members of the Prime Trust: The plaintiff repeats the particulars to paragraphs 20(b) and 20(c) above.
(iii) further or in the alternative to paragraph (ii) of these particulars, a directors of APCHL in his position could not in the circumstances have reasonably believed that the August Amendments were in the best interests of the members of the Prime Trust.
(e) breached his duty (imposed by s. 601FD(1)(c) of the Act in the circumstances described at paragraph 21 above) to give priority to the interests of the members of the Prime Trust, and so contravened s 601FD(3) of the Act;
Particulars of sub-paragraph 28(e)
The plaintiff repeats paragraph 20.
(f) breached his duty (imposed by s. 601FD(1)(e) of the Act) not to make improper use of his position as an officer of the responsible entity of the Prime Trust to provide an advantage to APCHL, and so contravened s. 601FD(3) of the Act;
Particulars of sub-paragraph 28(f)
(i) The advantage to APCHL was that the August Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL.
(ii) By voting in favour of alternatively assenting to the resolution to lodge the Amended Constitution, he used his position as a director of APCHL intending to cause the August Amendments to become effective.
(iii) The use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances would have recognised that the August Amendments conferred benefits on APCHL and companies associated with Lewski and were detrimental to the interests of the members of Prime Trust, and refused to use his position to permit them to become effective;
(iv) In so far as Lewski is concerned, the use of his position was also improper because:
(A) the August Amendments were Lewski's idea and he wanted to amend the constitution of the Prime Trust without seeking unitholder approval; and
(B) Lewski sought and obtained advice from Madgwicks on the August Amendments and further instructed Madgwicks that the purpose of the August Amendments was to clarify anomalies in the fee arrangement for the responsible entity.
(g) breached his duty (imposed by s. 601FD(1)(e) of the Act) not to make improper use of his position as an officer of the responsible entity of the Prime Trust to provide an indirect advantage to those persons who would benefit from the fees paid pursuant to the August Amendments, and so contravened s 601FD(3) of the Act;
Particulars of sub-paragraph 28(g)
(i) The August Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely companies associated with Lewski.
(ii) The plaintiff relies upon and repeats the particulars in paragraphs (ii) - (iv) under paragraph 28(f).
(h) breached his duty (imposed by s. 601FD(1)(e) of the Act) not to make improper use of his position as an officer of the responsible entity of the Prime Trust to cause detriment to the members of the Prime Trust, and so contravened s. 601FD(3) of the Act; and
Particulars of sub-paragraph 28(h)
(i) The detriment to the members was that the August Amendments purported to create rights in APCHL that would, if exercised, result in a diminution of the assets of the Prime Trust, without providing any, alternatively any equivalent, benefit to its members
(ii) the plaintiff relies upon and repeats the particulars in paragraphs (ii) to (iv) under paragraph 28(f).
(i) breached his duty (imposed by s. 601FD(1)(f) of the Act) to take all steps that a reasonable person would take if that reasonable person was in his position to ensure that APCHL complied with the Prime Trust constitution and the Act, and so contravened s. 601FD(3) of the Act.
Particulars of sub-paragraph 28(i)
(i) By reason of the matters pleaded at paragraphs 19 and 20 above APCHL in purporting to make the August Amendments did not comply with the Constitution of the Prime Trust.
(ii) By reason of the matters pleaded in paragraphs 19, 20 and 26 above APCHL in purporting to make the August Amendments did not comply with section 601FC(1)(m) of the Act.
(iii) Each of them voted in favour of or alternatively assented to the resolution to lodge the Amended Constitution:
(A) intending thereby to make the August Amendments effective;
(B) without being satisfied that the board had considered legal advice that in making the August Amendments without the approval of unitholders the responsible entity would comply with the Act and the Constitution of the Prime Trust; and
(C) without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered and justified to make the August Amendments without member approval.
51 A number of immediate observations can be made as to the content of the pleading as it relates to the Directors and the first group of contraventions.
52 First, it is only focused on the conduct of the Directors by voting in favour of, or assenting to the vote of the Lodgement Resolution and whether at that time and by that conduct, relevant breaches of the Act had occurred.
53 Secondly, as already mentioned, there was no allegation of an improper continuing course of conduct, or that the Directors were required to reconsider the decisions made prior to the Lodgement Resolution, or that any of the Directors knew or should have known that they had acted improperly prior to the relevant conduct directly complained of by ASIC.
54 The relevant contraventions all relate to various breaches of duty (duties imposed by the Act), breaches confined to the 'August Amendments' and the Lodgement Resolution. This is pleaded in the circumstances where the pleader accepts that the 19 July 2006 resolution involved an approval of the relevant variations (paragraph 13), although the pleading does characterise the intended amendment as occurring on 23 August 2006 upon the lodgement with ASIC of an amended Constitution (hence labelling the 'amendments set out in Deed of Variation (No 7)' as 'the August Amendments' (paragraph 18)).
55 Then, in relation to the allegations concerning the payment of the Listing Fee, paragraph 44 of the Second Further Amended Statement of Claim, after particularising the background knowledge of each Director, makes specific allegations concerning the actual conduct complained of, namely the making of certain resolutions and payments. So, for instance, in relation to the allegation that each Director failed to act in the best interests of the members of the Trust, it is particularised that by reason of his participation in certain conduct (referred to in paragraphs 31 to 41), each Director failed to give any consideration to whether payment of the Listing Fee was in the best interests of the members of the Trust (paragraph 44(f)(a)).
56 In response to these allegations, in one way or another, each Director in his Defence relied upon earlier events and conduct than that directly relied upon by ASIC. In particular, the Directors' main defence to all the allegations was that the meeting of 19 July 2006, and the events surrounding it, provided a complete answer to all the allegations brought by ASIC.
57 Effectively, the Directors were contending in the various Defences that the decisions were made on 19 July 2006, so that the Constitution was then amended, the 22 August 2006 meeting was merely procedural or administrative, and the payment of the Listing Fee followed as a matter of course: see, for example, paragraphs 22, 23, 25, 27, 28 and 44 of the Further Amended Defence of the Fifth Defendant (Dr Wooldridge).
58 In each appeal, ASIC submitted that reliance for the contraventions was only placed on conduct between 22 August 2006 and 27 June 2008, and this was the way the proceeding was conducted before the trial judge. It was various defences raised by the Directors that relied upon the earlier conduct of the Directors, in particular the events surrounding the 19 July 2006 meeting.
59 ASIC submitted that in addition to the reasons of the trial judge, the declarations of contravention made by the trial judge demonstrated that he confined himself solely to the conduct as pleaded. The declarations of contraventions set out the relevant failures and conduct of the Directors that the trial judge found gave rise to the contraventions, following upon various findings of fact made by the trial judge.
60 Taking one example, the declarations of contravention made against Mr Lewski in the Penalty Judgment were as follows:
[8] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Mr Lewski's position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Mr Lewski voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Mr Lewski on 22 August 2006:
(a) failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;
(b) failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;
(c) failed to be satisfied that the Board had considered:
(i) legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or
(ii) judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;
(d) failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;
(e) failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;
(f) failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and
(g) failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.
[9] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:
(a) he did not give any consideration to whether making the Amendments was in the best interests of the Members;
(b) the Amendments were not in fact in the best interests of the Members;
(c) a director of APCHL in the position of Mr Lewski could not reasonably have believed that the Amendments were in the best interests of the Members; and
(d) there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members' best interests.
[10] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:
(a) the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;
(b) by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c) the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):
(i) the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;
(ii) consideration of the Amendments created self-evident conflicts:
(A) between APCHL's interest in becoming entitled to the additional fees through the Amendments and the Members' interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and
(B) between APCHL's interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;
(iii) the nature of the proposed additional fees was that:
(A) APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;
(B) the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members' best interests (as they did);
(C) the 'removal fee' payable pursuant to the Amendments imposed a fee for the exercise of the Members' right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;
(D) the 'takeover fee' payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(E) the Takeover Fee could be payable on multiple occasions; and
(F) the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;
(iv) the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and
(v) the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -
could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.
[11] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:
(a) the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;
(b) by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c) the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.
[12] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski's position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:
(a) in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;
(b) in purporting to make the Amendments, APCHL did not comply with s. 601FC(1)(m) of the Act; and
(c) Mr Lewski voted in favour of the Lodgement Resolution:
(i) intending to make the Amendments effective;
(ii) without being satisfied that the Board had considered clear legal advice that in making the Amendments without the approval of the Members, the Responsible Entity would comply with the Act and the Existing Constitution;
(iii) without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered to make, and justified in making, the Amendments without the approval of the Members;
(iv) without seeking the approval of the Amendments by the Members; and
(v) without giving any consideration on 22 August 2006 to the Board's power to make the amendments or the need for proper legal advice or judicial advice.
[13] The second defendant, William Lionel Lewski, contravened s. 209(2) of the Act (as modified by Part 5C.7 of the Act) by being involved (as that term is used in s. 79 of the Act) in a contravention by APCHL of s. 208 of the Act as modified by Part 5C.7 of the Act, as follows:
(a) APCHL contravened s. 208 of the Act as modified by Part 5C.7 of the Act, in that:
(i) on 3 August 2007, it caused to be issued to itself in its personal capacity ordinary units of the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);
(ii) on 13 March 2008, it caused to be transferred $329,399 of the monies held by it as Trustee of Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,
(collectively, the First Instalment);
(iii) on 27 June 2008, it caused to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and
(iv) on 30 June 2008, it transferred $27,610,548.30 of the monies held by it as trustee of Prime Trust to itself in its personal capacity,
(collectively the Second Instalment),
without obtaining the approval of the Members and notwithstanding that, as a matter of law, the First Instalment and the Second Instalment and each component of them were not provided for in the constitution of Prime Trust;
(b) Mr Lewski participated in the meetings of the Board on 26 June 2007 and 27 July 2007 and assented to the resolutions passed at those meetings that authorised the payment of the First Instalment to APCHL in circumstances where he knew that:
(i) payment of the First Instalment was "a financial benefit" (as that expression is used in s. 208(1) of the Act);
(ii) the First Instalment was given by APCHL as Responsible Entity;
(iii) the First Instalment was given out of the scheme property of Prime Trust (Scheme Property);
(iv) the First Instalment was given to APCHL itself; and
(v) APCHL did not obtain the Members' approval for the payment of the First Instalment.
(c) Mr Lewski:
(i) on 28 April 2008 executed the Heads of Agreement;
(ii) participated in the meeting of the Board on 27 June 2008 and the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
when he knew that:
(iii) payment of the Second Instalment was "a financial benefit" (as that expression is used within s. 208(1) of the Act);
(iv) the Second Instalment was given by APCHL as Responsible Entity;
(v) the Second Instalment was given out of Scheme Property;
(vi) the Second Instalment was given partly to APCHL itself and partly to Carey Bay which was a related party of APCHL; and
(vii) APCHL did not obtain the Members' approval for the payment of the Second Instalment.
[14] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that he:
(a) voted in favour of or otherwise assented to the resolution on 26 June 2007 in the following terms:
"the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust's units on the ASX. The balance of the listing fee will be deferred and payable in tranches"; and
(b) voted in favour of or otherwise assented to the resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the Listing Fee ostensibly payable pursuant to the Amendments as units; and
(c) participated in making the decision to pay the balance of the Listing Fee by:
(i) executing the Heads of Agreement on 28 April 2008;
(ii) attending in the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
(collectively the decisions to pay the Listing Fee) in circumstances where:
(d) he did not give any consideration to whether making payment of the Listing Fee gave rise to any conflict of interest;
(e) a director of APCHL in the position of Mr Lewski would have been alive to APCHL's conflict of interests and conflict of interest and duty, and would have considered and sought to resolve these conflicts in favour of the members before making a decision to pay the Listing Fee;
(f) payment of the Listing Fee was not in fact in the best interests of the Members;
(g) a director of APCHL in the position of Mr Lewski could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(h) the proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
[15] The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski's position to ensure that APCHL complied with the Act, in that he participated in making the decisions to pay the Listing Fee by:
(a) voting in favour of or otherwise assenting to the resolutions on 26 June 2007 and 27 July 2007;
(b) executing the Heads of Agreement on 28 April 2008;
(c) attending the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
in circumstances where:
(d) a reasonable person in his position would not have done so without obtaining:
(i) clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the constitution of Prime Trust and the Act, and that payment of the fee would not contravene s. 208 of the Act (as amended by s. 601LC of the Act); or
(ii) the approval of the Members for payment of the fee to be made; and
(e) he did not take any step towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the Members' approval for the payment of the Listing Fee.
61 By reference to these declarations of contravention, ASIC sought to demonstrate that the trial judge did make declarations in accordance with each pleaded allegation made by ASIC and went no further.
62 For instance, in relation to Mr Lewski's contravention of s 601FD(1)(b) of the Act, the allegation was (and it was sustained) that on 22 August 2006, Mr Lewski did (for example) fail to consider whether there was a legitimate reason for the RE to make the Amendments. A declaration of contravention was accordingly made in these terms by the trial judge.
63 Mr Lewski's response, and that of the other Directors, to this allegation (as with the others) was that there was no obligation on 22 August 2006 to consider whether there was a legitimate reason for the RE to make the Amendments, as the occasion for such did not arise having regard to the matters then before the Board on that date. The Directors contended that looking at what was actually decided on 19 July 2006, and the only matter that was before the Board on 22 August 2006, the Directors fulfilled their responsibilities on 22 August 2006 and during the subsequent period.
64 The Directors did not have to contend with allegations that the failures alleged on 22 August 2006 arose from failures that occurred on 19 July 2006, as this was not pleaded against them by ASIC.
65 There was no reply by ASIC to any of the defences of the Directors, nor any suggestion that any earlier consideration by the Directors was inadequate, or that it necessitated a reconsideration, on 22 August 2006. There was no suggestion (and the trial judge found to the contrary) that the Directors knew at any time the Amendments made on 19 July 2006 were invalid.