MTM Funds Management v Cavalane

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3925/00 . MTM FUNDS MANAGEMENT LIMITED V CAVALANE HOLDINGS PTY LIMITED

JUDGMENT (Revised on 22 September 2000 after first publication)

1 HIS HONOUR: This is an application, by summons, by the responsible entity of a managed investment trust for judicial advice. A unitholder that opposes the course of action taken by the responsible entity, Cavalane Holdings Pty Ltd ("Cavalane") has been joined as a defendant, and the Australian Securities and Investments Commission ("ASIC") has appeared as amicus curiae. The application is made on the basis of a statement of facts by the plaintiff, as to which there is no dispute.

Facts 2 The plaintiff is the responsible entity of the MTM Office Trust ("the Trust"), a registered managed investment scheme for the purposes of the Corporations Law, admitted to listing by the Australian Stock Exchange Ltd ("ASX"). Cavalane holds units in the Trust representing approximately 23.26% of the total units in the Trust. 3 The constitution of the Trust contains the following relevant provisions: ' 24.1 Circumstances in which the Manager [the plaintiff] must retire The Manager covenants that it will retire from the management of the Trust by executing a deed of retirement when required to do so in the circumstances referred to in the provisions of the Corporations Law relating to the retirement or removal of the responsible entity, or by notice in writing if: ... (g) the Unit Holders resolve by Ordinary Resolution that the Manager should be removed.'

' 27.1 Convening of Meetings by the Manager The Manager must convene a meeting in any circumstances where they are required to do so by the Corporations Law and may convene a meeting of the Unit Holders at any time.'

' 27.2 Meetings held under Section 252B of the Corporations Law The following provisions apply to a meeting held under section 252B of the Corporations Law (a) a meeting must be called by the Manager if not less than 50 Unit Holders or Unit Holders holding, at the time of requisition, not less than 10% of the Units in Issue (whichever is the less) requisition it: (b) the requisition must be lodged with the Manager; (c) the Manager, within 21 days of lodgement of the requisition must send a notice (in a form determined by the Manger) by post to each Unit Holder at the Unit Holder's last known address convening a meeting; (d) the notice must be sent not less 7 days before the date of the proposed meeting; (e) the meeting must be held not later than 2 Months after the lodgement of the requisition; and (f) the purpose of the meeting must be to lay before the meeting the accounts and balance sheet that were laid before the last preceding annual general meeting of the Manager or the last audited statement of accounts of the Manager and to give to the Manager directions the terms of which are set out in the notice convening the meeting or that the meeting thinks appropriate to be given, whether or not the directions relate to the accounts, balance sheet or statements laid before the meeting.' '27.3 Requisition of Meetings by Unit Holders In addition to clause 27.2, the Manager, on the requisition of not less than 50 Unit Holders in the Trust or of the Unit Holders holding, at the time of the requisition, not less than 10% of the Units in Issue (whichever is the less), must convene as soon as possible, but in any event, within 21 days after lodgement of the requisition, a meeting of the Unit Holders. The requisition must state the objects of the meeting including the terms of any proposed resolution. It must be signed by the requisitioning Unit Holders and lodged at the registered office of the Manager. It may consist of several documents in like form each signed by one or more requisitioning Unit Holders.'

' 41.1 Corporations Law Paramount (a) A provision of this Deed which is inconsistent with a provision of the Corporations Law does not operate to the extent of the inconsistency. This clause 41.1(a) is subject to any declaration made by or exemptions granted by the Commission which are current in respect of or applicable to this Deed. (b) This clause 41.1 prevails over all other provisions of this Deed including any that are expressed to prevail over it.' 4 On 16 August 2000 the plaintiff received the following five documents from Cavalane: (a) a covering letter enclosing the other four documents ('the Letter') and purporting to draw attention to the plaintiff's obligations under them; (b) a document entitled 'Request for a Meeting of Members' ('the Request'), requesting the plaintiff to convene a meeting of members of the Trust to consider resolutions to remove the plaintiff as the responsible entity of the Trust, and to appoint James Fielding Investments Ltd ('JFI') as the new responsible entity; (c) a document entitled 'Statement' ('the Statement') which purported to explain the reasons for the Request; (d) a draft notice of meeting ('the Draft Notice') which the Letter asked the plaintiff to use as the basis for its notice of meeting to the members; and (e) the consent of JFI to its appointment as responsible entity, if chosen by the members. 5 Both the Letter and the Request itself assert that the Request was given by Cavalane to the plaintiff in purported exercise of rights under ss 601FM and 252B of the Corporations Law and also rights under clause 27.3 of the constitution of the Trust. Although the Request refers to 'Resolutions' without any further specification, the Draft Notice specifies that both the resolution for removal of the plaintiff and resolution for the appointment of JFI were to be ordinary resolutions. When all the documents are read together, it is plain that Cavalane's intention was that the resolutions be put to the members of the Trust as ordinary resolutions. The Letter asserted that under s 252B (6) of the Corporations Law and clause 27.3 of the constitution, the plaintiff was required to call the meeting within 21 days of the date of the Request, and to give members the Statement and the proposed resolutions in the Request. 6 On 6 September 2000 the plaintiff convened a meeting of members of the Trust to consider resolutions to remove it and appoint JFI as responsible entity, the meeting to be held on 16 October 2000. However, contrary to Cavalane's intention as disclosed in the Draft Notice, the notice of meeting issued by the plaintiff specified that the resolutions would be put to the meeting as special resolutions, and said that each resolution could only be passed if at least 75% of the votes cast by unitholders entitled to vote at the meeting were in favour. The notice of meeting was accompanied by a form of proxy and an explanatory memorandum which stated that the meeting had been called following a request by Cavalane, enclosing Cavalane's Statement. The explanatory memorandum discussed the current activities of the plaintiff as responsible entity and the current status of the work of the Trust (development of a city office site), and recommended that unitholders should vote against both resolutions. It was signed by the chairman of the plaintiff. 7 By a letter dated 5 September 2000 the plaintiff wrote to the directors of Cavalane and of JFI seeking extensive information about how the management of the Trust by JFI would differ from the existing management, about JFI's ability to manage the Trust, about JFI's internal affairs and about any association between JFI and its associates (on the one hand) and CPH Holdings Pty Ltd and its associates (on the other hand). The plaintiff's letter referred to the Draft Notice and said: 'We note that pursuant to section 601J (2) of the Corporations Laws a purported change of the Trust's responsible entity is ineffective unless it is in accordance with Division 2 of Part 5C.2 of the Corporations Law. By virtue of the combined effect of section 601FM and 251B [sic] of the Corporations Law, the resolutions required to remove MTM as responsible entity and replace it with the Company [JFI] must be special resolutions. Accordingly the meeting convened pursuant to the Requisition has been convened to consider special resolutions.

If you are still of the view that the resolutions are ordinary resolutions, could you please advise us and indicate the legal theory underpinning your conclusion.' 8 The practical significance of the issue appears from a letter to the chairman of the plaintiff from ANZ Banking Group Limited dated 8 September 2000. The letter states that the bank as a 35% unitholder in the Trust has decided that it will vote in favour of the resolutions for the replacement of the plaintiff as responsible entity. The letter records the firm belief of 'bank executive' that a special resolution is not required. I infer that if the resolutions were to be put to the meeting in the manner sought in the Draft Notice they would be carried on the votes of the bank and Cavalane, though the position is less certain in special resolutions are required. 9 Further correspondence ensued between the plaintiff and Cavalane, and their respective solicitors, leading eventually to a long letter by Cavalane's solicitors to the plaintiff which set out in detail the legal analysis which led Cavalane to the view that the resolutions should be ordinary resolutions. That letter asserted that the information that might reasonably be required by members of the Trust had been provided in the Statement, and that there was no apparent basis for the plaintiff to seek further information, and also asserted that the plaintiff lacked bona fides and was in breach of its fiduciary duties. 10 Evidently the requisitioned meeting attracted attention in the financial press, and perhaps for that reason ASIC took an interest. It wrote to the plaintiff on 7 September 2000 stating that it was 'currently of the view that resolutions to remove a responsible entity require an ordinary resolution', and asking the plaintiff to provide written reasons for its view that special resolutions were required, and any legal advice supporting that view. On 8 September 2000 the plaintiff's solicitors responded to ASIC by letter, stating that the plaintiff had responded to Cavalane's request for a meeting by engaging solicitors, who had briefed one of Australia's leading corporate and commercial senior counsel. Counsel advised in conference on 30 August 2000, and by written opinion dated 7 September 2000, that a special resolution was required to remove the plaintiff as responsible entity of the Trust by virtue of the combined operation of ss 252B and 601FM. The letter enclosed counsel's written opinion. 11 On 11 September 2000 Cavalane applied to ASIC for a declaration under s 601QA of the Corporations Law modifying s 601FM to make it clear that members of a listed scheme may take action to remove the responsible entity by calling a meeting at which a removal resolution would be voted upon by ordinary resolution. ASIC wrote to the plaintiff's solicitors, Cavalane's solicitors and the directors of JFI reiterating that it was 'currently minded to grant relief' and inviting submissions. I understand that ASIC is still minded to grant relief but it has undertaken to the Court not to do so for the time being, to enable the Court to deal with the present proceedings. Cavalane has instituted separate proceedings to restrain ASIC from acting, and I have stood those proceedings over pending the determination of the present case. 12 The summons in the present case seeks the opinion, advice and direction of the Court as to 'whether the resolutions sought by Cavalane in its Request for Meeting of Members for the removal of [the plaintiff] as the responsible entity for the Trust and the appointment of JFI as the responsible entity for the Trust should be framed as: (a) special resolutions; (b) ordinary resolutions; or (c) extraordinary resolutions.' 13 The plaintiff seeks, in effect, an order that it would be justified as responsible entity to put the resolutions to the unitholders of the Trust as special resolutions.

Judicial advice 14 The plaintiff seeks this relief under s 63 of Trustee Act 1925 (NSW), which relevantly provides: '63 (1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction. ... (11) Subject to subsection (10) [not relevant here], and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance subsection (8) [not relevant here], shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings in which the person was a party.' 15 A responsible entity of a managed investment scheme holds scheme property on trust for scheme members: s 601FC (2). In Re Mirvac Ltd (1989) 32 ACSR 107 I held, having regard to that provision, that a responsible entity could seek advice in an appropriate case under s 63 of the Trustee Act. That conclusion has not been challenged in the present proceedings, but Cavalane contends that judicial advice is not an appropriate mechanism for the resolution of question raised by the plaintiff. 16 The question whether a responsible entity that receives a requisition for a meeting at which resolutions are proposed should give notice that the resolutions are to be put as special or ordinary resolutions is a question arising in the management or administration of the affairs of the managed investment scheme. Since the scheme property is held in trust for scheme members, the question also arises in the management or administration of the trust property of the scheme. Therefore in my opinion the question raised in the present proceedings falls within s 63 (1). 17 Judicial advice is generally an inappropriate mechanism for determining substantive rights in contested proceedings ( Jacobs' Law of Trusts , 6th ed, 1997 at [2134]), especially where there is basic controversy between trustees ( Harrison v Mills [1976] 1 NSWLR 42). That, however, is only the ordinary position, and the Court has a discretion which would permit it to entertain an application for judicial advice even in controversial circumstances: Re GB Nathan & Co Pty Ltd (1991) 5 ACSR 73, 677; Re Addstone Pty Ltd (1997) 25 ACSR 357, 371. Therefore the mere fact that the proceedings are contentious would not of itself make s 63 an inappropriate procedure. Where, as here, the contention is confined to an issue of law and there are no disputed questions of fact, it is open to the Court to conclude that judicial advice is appropriate. Nor would the fact that the question relates to voting on a resolution that has not occurred prevent the Court from giving the trustee (whose responsibility is to convene and give notice of the meeting) judicial advice in an appropriate case. 18 A more difficult question is whether an application for judicial advice is an appropriate procedure for the determination of a question that affects the rights of third parties. The question in this case involves the voting rights of members of the scheme under provisions of the Corporations Law and the scheme's constitution. Although the Court's order would not directly purport to determine the substantive rights of unitholders, since it would merely advise the trustee that it was or was not justified in embarking on the course of action that it proposes, it would be necessary for the Court to form a view on the unitholders' voting rights in order to advise the trustee. As the Trust is a listed entity I infer that unitholdings are relatively widely spread. I was informed from the bar table that ANZ Banking Group Limited, which appears to hold 35% of the units, has been given notice of the present application and therefore, under s 63 (11) of the Trustee Act, would appear to be bound by any opinion, advice, direction or order that I might give or make. But notice has not been given to any other unitholder. 19 In my view there are occasions when judicial advice is an appropriate procedure even though the advice affects the rights of persons who are not represented at hearing of the application or their enjoyment. For example, the Court may give judicial advice to a trustee who contemplates litigation as a plaintiff or defendant, even though other party to the litigation is not before the Court. Where the trustee is in doubt as to the extent of a dispositive power such as a power of sale, it is open to the Court to give judicial advice even though not all of the potential objects of the power, or even any of them, are represented. In many cases the crucial issue for the Court will be whether the giving of advice might operate unfairly as regards a person not before it. That, in turn, requires an assessment of whether the Court might fail to take into account some relevant submission in the absence of representation of the affected person. But these matters fall within the ambit of the Court's discretion, and the absence of representation of an affected party is not a jurisdictional bar. 20 In the present case the trustee's application for judicial advice raises some specific and narrow issues of construction of the Corporations Law. The trustee and its challenger have both obtained legal advice from senior and highly qualified commercial counsel whose advice is diametrically opposed. The issues have been fully and ably ventilated on behalf of the trustee and its challenger, who are the principal protagonists - indeed, so much so that I am sure my decision would not be affected if I were now to hear submissions from another interested person. The Court has been greatly assisted by ASIC. The issue will affect the conduct of a meeting of a listed entity that has already been convened (no doubt at considerable expense), and in particular, there is a risk that the meeting will make an ineffective decision if the trustee acts contrary to what is ultimately determined to be true legal position. If I deal with the trustee's application, taking a view about the meaning of the Corporations Law on the way, there may well be time for the trustee to act upon my reasons for judgment so that the decision of unitholders is taken in accordance with my judgment on the law. 21 In my view these factors, taken together, outweigh any possible disadvantage to unitholders that might flow from my proceeding to give judicial advice without direct representation of their interests in the proceedings. Given the limitations of s 63 (11) of the Trustee Act, it may well be that unitholders who have not been given notice of this application will not be bound by it. As a practical matter, however, by responding to the trustee's application I may be able to clarify the position before the meeting in a way that serves the interests of unitholders. 22 I regard it as appropriate for a trustee in the plaintiff's circumstances to seek the protection of s 63 (2), given the uncertainties and drafting deficiencies of the Corporations Law that have been exposed during the hearing, and undesirable to force the trustee to resolve the issue by proceedings for declaratory relief in which it would be more directly exposed to liability for costs. I have therefore decided that this is an appropriate case for me to give judicial advice under s 63.

Requirements of Corporations Law for removal of responsible entity 23 Section 601FJ (2) states: 'A purported change of the scheme's responsible entity is ineffective unless it is in accordance with this Division.' 24 Section 601FM (1) states: 'If members of a registered scheme want to remove the responsible entity, they may take action under Division 1 of Part 2G .4 for the calling of a members' meeting to consider and vote on a resolution that the current responsible entity should be removed and a resolution choosing a company to be the new responsible entity. The resolutions must be extraordinary resolutions if the scheme is not listed.' 25 Section 601FM (2) states that 'if the members vote to remove the responsible entity and, at the same meeting, choose a company to be the new responsible entity' then the current responsible entity must lodge a notice with ASIC asking it to alter the record and ASIC must do so. 26 Section 601FM (1) refers to action by members under Division 1 of Part 2G.4 for the calling of a members' meeting. That action may be taken under s 252B, which provides as far as relevant: '(1) The responsible entity of a registered scheme must call and arrange to hold a meeting of the scheme's members to consider and vote on a proposed special or extraordinary resolution on the request of: (a) members with at least 5% of the votes that may be cast on the resolution; or (b) at least 100 members who are entitled to vote on the resolution.' '(3) The request may be accompanied by a statement about the proposed resolution provided by the members making the request.' '(6) The responsible entity must call the meeting within 21 days after the request is given to it. The meeting is to be held not later than 2 months after the request is given to the responsible entity.' '(7) The responsible entity must give to each of the members a copy of the proposed resolution and statement (if any) at the same time, or as soon as practicable afterwards, as it gives notice of the meeting. The responsible entity must distribute the copies in the same way in which it gives notice of the meeting.'

Is Division 2 of Part 5C.2 an exclusive code for changing the responsible entity? 27 The first issue for determination is whether s 601FJ (2) means that Division 2 of Part 5C.2 is an exclusive code for changes of the responsible entity of a scheme, or merely prescribes some requirements without purporting to be comprehensive. If the first interpretation is correct, the enactment of Part 5C.2 Division 2 has had the effect of preventing any constitutional provision for removal of a responsible entity of a registered scheme from having any operative effect. If the second interpretation is correct, the constitutional provisions governing removal of a responsible entity are available collaterally to the statutory provisions, except to the extent that they are negated by the statute. 28 The Explanatory Memorandum to the Managed Investments Bill 1997, which when enacted introduced s 601FJ (2) into the Corporations Law, is unhelpful, for it merely re-states the wording of the provision: see para 8.27. The plaintiff strenuously supported the first interpretation, essentially on two grounds. 29 First, the plaintiff submitted that the words 'in accordance with' in s 601FJ (2) must be taken to mean 'substantially in compliance with'. Reliance was placed on the decision of the English Court of Appeal in Ex parte Stanford re Barber (1886) 17 QBD 259, at 269-271. The question in that case was whether a bill of sale of chattels given by way of security was 'in accordance' with the form prescribed in the schedule to the Bills of Sale Act of 1882, and therefore void. The issue for the Court was whether 'undeviating conformity' was required, or divergence within limits would be permitted (at 269). The Court held that a requirement that a document be 'in accordance with' a prescribed form, in contrast with a requirement that a document be 'in' the prescribed form, permitted some divergence as long as the document was substantially in accordance with the prescribed form and did not depart in any material respect (at 269-270). In the present case the issue of 'substantial compliance' does not arise, but rather the question is whether the words 'ineffective unless ... in accordance with this Division' imply that the Division is an exclusive code. I do not find that case helpful. 30 Counsel for Cavalane referred to some other cases in which the statutory words 'in accordance with' were construed. In Latitude Fisheries Pty Ltd v Minister for Primary Industries and Energy (1993) 41 FCR 536, 542-3 the Minister was required to perform functions and exercise powers 'in accordance with the plan of management, and not otherwise'. The Full Federal Court held that what was forbidden was the taking of steps in conflict with the plan, but provided the steps in were in accord with the plan, steps could be taken outside the plan so as to supplement rather than merely implement it. The statutory context was very different from the present, but the case at least shows that the words 'in accordance with' are intrinsically capable of bearing the second interpretation. 31 In Walker v Wilson (1991) 172 CLR 195 the High Court had to consider the meaning of the words 'if the journey is undertaken in accordance with the terms and conditions of his employment' in some workers' compensation legislation. The Court construed the words 'in accordance with' in their context to mean 'in conformity with' or 'consistently with', and so the legislation applied to a journey that was not strictly required by the contractual terms of employment. The issue for the Court was whether the words 'in accordance with' meant 'required by' and their Honours gave a negative answer. That is not the issue before me, but again the case shows that the words 'in accordance with' do not necessarily impose an exclusive code. 32 In the end, other cases dealing with other statutory provisions are of very limited assistance. It is more important to construe the words of s 601FJ (2) in their own unique legislative context. The plaintiff's second argument purports to do so. The plaintiff submits that the displacement and replacement of a responsible entity are dealt with by ss 601FM (1) and 252B (1). Read together, they provide for a specified remedial procedure in a case where a member of a registered investment scheme wishes to requisition a meeting to displace and replace a responsible entity. The only remedial procedure prescribed for such a case, says the plaintiff, is the passing of a special or extraordinary resolution, as specified by s 252B. The plaintiff contends that Parliament has explicitly conferred a remedial power by a particular provision which prescribes the mode in which it must be exercised (that is, by holding a meeting) and the conditions which must be observed in its exercise (that is, that the resolutions are proposed and passed as special or extraordinary resolutions). In such a case, says the plaintiff, the expression of those conditions excludes the displacement and replacement of the responsible entity by means other than those defined, such as by an ordinary resolution under the constitution of the scheme. 33 The plaintiff relies on some observations by Dixon J. (as he then was) in R v Wallis (1949) 78 CLR 529, 550. His Honour observed that if a statute confers a specific power with respect to a limited subject or specifies a manner of dealing with it, then on ordinary principles of interpretation that provision should be treated as the source of authority over the matter, notwithstanding that a wider power might otherwise have been implied by more general provisions of the statute. He said (at 550): 'This accords with the general principles of interpretation embodied in the maxim expressum facit cessare tacitum and in the proposition that an enactment in affirmative words appointing a course to be followed usually may be understood as importing a negative, namely, that the same matter is not to be done according to some other course.' 34 Those observations do not apply to the present problem, in my opinion. Here the question is whether ss 601FJ (2), 601FM (1) and 252B, in their combined effect, abrogate provisions in the constitution of the scheme, so as to take away rights which unitholders would otherwise have with respect to convening a meeting for removal of the responsible entity. This is not a case where the Court's task is to decide whether specific provisions exclude the application of general provisions of the same statute. 35 The plaintiff submits that its suggested limitation on the power of displacement and replacement (namely, that the power is confined relevantly to a special or extraordinary resolution by virtue of the combined operation of ss 601FM and 252B (1)) is confirmed by ss 252L (1) and (1A). Section 252L gives members with the requisite holding the statutory right to require that a resolution be put to a meeting of members, where the meeting is to be held independently of the requisition. It is clear from s 252L (1A) that in case of a listed scheme, a resolution requisitioned under s 252L to remove the responsible entity and choose a new one is an ordinary resolution and not a special or extraordinary resolution. 36 The plaintiff says it would have been open to Cavalane to require that an ordinary resolution for displacement and replacement be put to the next regular meeting of scheme members, or even to convene a meeting itself under any available constitutional provision, and then require that the displacement and replacement resolution be put to the members at that meeting. Cavalane chose instead to proceed by requisitioned meeting and, says the plaintiff, it must be held to the consequence, namely that the resolution must be a special or extraordinary resolution. I note, in passing, that the member's choice between a requisitioned meeting and the requisition of a resolution for the next meeting, is affected by s 252M (1), which requires the responsible entity to put the requisitioned resolution to the next meeting of the scheme's members that occurs more than two months after the date of the requisition under s 252L. In view of that provision, it is hardly surprising that Cavalane did not proceed under s 252L. 37 In the plaintiff's submission, when one reads ss 601FM and 252B together with s 252L, one discerns a clear legislative intention to impose a higher voting hurdle in the case of a requisitioned meeting that in the case of a resolution proposed to be added to the business of a meeting which is not of that character. The implied legislative policy seems to be to discourage requisitioned meetings when a less costly procedure is available. 38 I disagree with these submissions by the plaintiff. In my opinion the unitholders of the Trust are entitled notwithstanding Division 2 of Part 5C.2 to exercise their contractual rights under the constitution of the Trust to remove the responsible entity by ordinary resolution and to requisition a meeting for that purpose, if those rights exist as a matter of interpretation of the constitution. I shall turn to the interpretation of the constitution later. 39 My conclusion is supported by the following reasons. First, to the extent that the argument for exclusivity (the first interpretation) relies on the wording of s 601FJ (2), my view is that the wording is consistent with the second interpretation and does not entail the first interpretation, having regard to the Latitude Fisheries case and Walker v Wilson , to which I have referred. 40 Secondly, it is significant that s 601FM (1), when speaking of the right of members to take action under Division 1 of Part 2G.4 for the calling of a members' meeting, uses the word 'may', while in the following sentence, which deals with an unlisted scheme, the word 'must' is used. In the absence of some contrary legislative intention, the word 'may' is to be read as conferring a discretion: s 33 (2A) of the Acts Interpretation Act 1901 (Cth), as made applicable to the Corporations Law by s 10 (1) of the Corporations (New South Wales) Act 1990 (NSW). 41 Thirdly, in its pure form the plaintiff's submission entails that the only way the members may vote on a resolution to remove the current responsible entity and choose a replacement is at a meeting which they have requisitioned under s 252B. If, for example, knowing that there is dissatisfaction with its performance, the responsible entity chooses to fall on its sword by itself calling a meeting under s 252A, the plaintiff's argument would logically imply that the members could not validly vote to remove and replace the responsible entity at that meeting. 42 If the plaintiff were to modify its argument to allow the members to vote for removal and replacement at a meeting convened by the responsible entity, it would thereby acknowledge that ss 601FM (1) and 252B are not an exclusive code for members to remove and replace a responsible entity. If it were to do so, it would remove the basis for its contention that Division 2 of Part 5C.2 is an exclusive code for removal and placement decisions. 43 Fourthly, s 601FM (2) applies whenever 'the members vote to remove the responsible entity and, at the same meeting, choose a company to be the new responsible entity'. I see no good reason for limiting those words to a vote at a meeting requisitioned under s 252B. To do so would be contrary to the evident policy of the subsection, which is to ensure that ASIC's records reflect every decision taken by the members to remove and replace the responsible entity. If s 601FM (2), which is the machinery part of s 601FM, is not limited to requisitioned meetings, it would be surprising if s 601FM (1) (in conjunction with s 252B) limited the members' right of removal to a vote at a meeting requisitioned under s 252B. 44 Fifthly, one must approach Division 2 of Part 5C.2 in the context of Ch 5C as a whole. Part 5C.3 deals with the constitution of a registered scheme, requiring the constitution to contain certain provisions. It is clear from Part 5C.3 that the constitutional provisions of a registered scheme are an important component of the overall regularly structure of Ch 5C. Section 601GB insists that the constitution of a registered scheme must be contained in a document that is legally binding as between the members and the responsible entity. 45 The question is whether there is anything in Division 2 of Part 5C.2 that abrogates rights arising out of the enforceability of constitutional provisions at general law and the insistence of the Corporations Law that those provisions be enforceable. I see nothing that would entitle me to conclude that provisions of the constitution which give the members the right to remove and replace the responsible entity are wholly displaced by Division 2 of Part 5C.2. Specific provisions of a constitution may be overridden - for example, a provision in the constitution of an unlisted registered scheme providing for removal of responsible entity by ordinary or special resolution would be ineffective because s 601FM (1) requires the resolution to be an extraordinary resolution - but unless the relevant constitutional provision is in conflict with and therefore not in accordance with a provision of Division 2 of Part 5C.2, it should be allowed to operate. 46 In summary, Division 2 of Part 5C.2 does not necessarily extinguish a constitutional right of removal and replacement of responsible entity. 47 I should add that ASIC urged me not to reach this conclusion, because if s 601 FM (1) is not treated as an exhaustive provision for the removal of a responsible entity, it may be permissible for the constitution of an unlisted scheme to allow for removal otherwise than by extraordinary resolution. ASIC's concern stems from its view that the 'resolutions' referred to in the second sentence of s 601FM (1) are resolutions at a requisitioned meeting of the kind identified in the first sentence. It is unnecessary for me to resolve that question of construction now. I merely remark that, having regard to the ambiguity of the second sentence itself and the extrinsic materials about the legislative intention which I shall set out below, it would be plausible to construe the word 'resolutions' in the second sentence more broadly than in the first sentence.

Is an ordinary resolution sufficient, where members requisition a meeting for removal and replacement of a responsible entity under the Corporations Law? 48 Cavalane submits that the power conferred by s 601FM (1) to remove and replace a responsible entity is (except where the scheme is not listed) a power to do so by ordinary resolution. The argument is that the subject of removal and replacement of the responsible entity is dealt with by s 601FM (1), and the subject of requisitioning a meeting to deal with any proposal is dealt with by s 252B. Cavalane says that the plaintiff has conflated the subject matter of removal with the subject matter of the procedure for convening a meeting, and has thereby allowed the tail to wag the dog, by concluding that s 252B limits the resolution referred to in s 601FM to a special or extraordinary resolution. 49 I agree with this contention. First, it is significant that s 601FM (1) uses the word 'resolution' to describe the subject matter of the members' vote, except in case of an unlisted scheme, where the resolution is an extraordinary resolution. The word 'resolution' is commonly used in the Corporations Law to refer to an ordinary resolution, as opposed to an extraordinary or special resolution: see for example, s 252L (1A) (c); compare s 253J. There is nothing to suggest that the usual usage of the word 'resolution' is displaced in s 601FM (1) for a more generic meaning which would denote a resolution of any kind. 50 If the word 'resolution' in the provision which specifically deals with the members' right to remove and replace responsible entity is an ordinary resolution, in the case of a listed scheme, the reference in that provision to taking action 'under Division 1 of Part 2G.4' must be no more than an identification of the procedure by which the ordinary resolutions for removal and replacement can be carried forward by members to a meeting. 51 To the extent that the juxtaposition of the word 'resolution' in s 601FM (1) and the limitation of s 252B in its own terms to a special or extraordinary resolution produces an ambiguity, it is appropriate and indeed necessary to refer to extrinsic materials: ss 109H and 109J. Section 601FM (1) took its present form by virtue of the enactment of the Corporate Law Economic Reform Program Bill, which took effect relevantly on 13 March 2000. That legislation extended the statutory provisions regulating takeovers to the acquisition of control of a listed registered scheme. It is axiomatic that the value of control is bound up with the ability of the controller to influence the management of the controlled entity and to extract the benefits of management. In the case of a public company, the power to replace the board by ordinary resolution is a fundamental aspect of the market for corporate control and its regulation. Not surprisingly, it was thought necessary to alter the provisions of the Corporations Law dealing with replacement of a responsible entity in conjunction with the extension of the takeover provisions to a listed scheme. 52 The Explanatory Memorandum to the Bill says: '7.54 One issue that arises from the application of the takeover provisions to managed investment schemes is the appropriate statutory rule for the replacement of the scheme manager. The current statutory rule requires a vote by 50 per cent by value of unit holders to remove the manager (current regulation 7.12.15(10)(g)). In contrast, ASX Listing Rule 13.3 requires a listed scheme's trust deed to allow removal of the scheme's manager by an ordinary resolution of unit holders. Unlike the statutory rules, the listing rule approach is consistent with the rule for the removal of company directors. 7.55 Another problem with the current statutory voting rules is that they enable the bidder and its associates to vote on the removal of the manager, while the existing manger and its associates are excluded from voting (current regulations 7.12.15(6)(f) and (9)(b)(i)). This disenfranchises those investors who have already indicated a preference in favour of the existing manager by purchasing units in the scheme. Where the manager and its associates hold a large percentage of the units, the manager could be removed by a vote of just half of the value of the minority unit holders. 7.56 The draft provisions will resolve these issues by making it clear that the manager of a listed managed investment scheme can be replaced by a simple majority of unit holders who vote at a duly convened meeting (whether in person or by proxy), without any restrictions on who can vote (Bill Schedule 3 Part 9 item 329 s 601FM(1)). This is consistent with the voting requirements for the removal of company directors.' 53 The amending legislation systematically changes many provisions to reflect the drafter's view that a resolution to remove the responsible entity should be an ordinary resolution in the case of a listed scheme. Thus, the following sections are amended: ss 252L (1) and (1A), 252M (1), 601FL, 601FM (1), 601FQ (1) (d), 601NE (1) (d). Section 253E is amended to reflect para 7.55 comprehensively, by allowing the responsible entity of a listed scheme to vote on a resolution for its removal. Section 252B is, however, not amended. If the consequence of not amending it is that a special or extraordinary resolution is required, then the clear legislative policy enunciated in the Explanatory Memorandum is thwarted. In my opinion that consideration is enough, if s 601FM (1) is ambiguous (though on balance I do not think it is), to resolve the ambiguity in favour of the view that s 601FM (1) provides that the resolution for removal and replacement is to be an ordinary resolution, and s 252B merely deals with the machinery for requisitioning the meeting. 54 To the extent that is appropriate to have regard to ASX Listing Rule 13.3 (which at all relevant times has required a listed scheme's constitution to allow removal of a manager by ordinary resolution), on the ground that the listing rule forms part of the context in which s 601FM (1) falls to be construed ( CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384, 408), the listing rule supports the construction advocated by Cavalane.

Are the constitutional rights of removal and replacement extinguished by the Corporations Law? 55 The plaintiff contended that the constitutional right to requisition a meeting under clause 27.3 to exercise the power of removal by ordinary resolution under clause 24.1 (g) is inconsistent with ss 601FM (1) and 252B, and therefore the constitutional right is not in accordance with Division 2 of Part 5C.2 and is overridden by the statutory provisions. For the same reason, the constitutional right is extinguished by the constitution itself, by the operation of clause 41.1. In the plaintiff's submission the question can be tested in this way: what if the constitution of a listed scheme said that a vote for the removal of the responsible entity required the approval of 90% of the unitholders? Clearly, says the plaintiff, the constitutional provision would fall away by virtue of clause 41.1. 56 On the construction of s 601FM (1) that I favour, the statutory right of removal at a requisitioned meeting, like the right of removal by a requisitioned resolution at a meeting, requires an ordinary resolution. In my opinion a constitutional provision which required a higher voting threshold would be inconsistent with that section for the purposes of clause 41.1, and not in accordance with it for the purposes of s 601FJ (2). As a matter of consistency of interpretation, that may also be true of a constitutional resolution that sets the threshold lower than an ordinary resolution. But neither question arises, since on my view the constitution and the statute are relevantly to the same effect. 57 Cavalane also argued that if, contrary to its primary argument, the power conferred by s 601FM (1) can only be exercised by resolution of the kind referred to in s 252B, an extraordinary resolution would suffice. Since I have accepted Cavalane's primary argument, I do not need to deal with this alternative submission.

Conclusion 58 In my view the plaintiff was wrong to respond to Cavalane's Request by giving notice that the resolutions to remove it and appoint JFI would be moved as special resolutions. This is both because nothing in the Corporations Law excluded Cavalane's constitutional right to seek the removal and replacement of the responsible entity by ordinary resolution, and because the statutory right of removal and replacement in s 601FM (1), even when read together with s 252B, requires only an ordinary resolution. 59 It is appropriate, therefore, to give the plaintiff judicial advice on the lines that it would not be justified in requiring that the resolutions be by special or extraordinary resolution. I shall hear submissions on the appropriate form of orders, and costs. * * * * * * * * *

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