Spicer Thoroughbreds Pty Ltd v Stewart

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

1. LEEMING JA: Spicer Thoroughbreds Pty Ltd and its sole director Mr Brad John Spicer appeal from declarations that three thoroughbred horse investment schemes, relating to racehorses known as "Lucky For All", "Le Baol" and "Panama Papers", were managed investment schemes within the meaning of s 9 of the Corporations Act 2001 (Cth), and that Spicer Thoroughbreds contravened s 601ED(5) by operating the schemes without their being registered. The appeal raises two main issues: whether the sale of interests in racehorses to small groups of investors falls within the definition of "managed investment scheme" and if so whether Spicer Thoroughbreds was entitled not to register the scheme because of the "small scale offerings" exemption (based on personal offers to no more than 20 purchasers for less than $2 million) in s 1012E.
2. As will be seen, the outcome of the appeal turns on the facts established at first instance, to which I shall turn immediately. Rather than referring to Spicer Thoroughbreds and Mr Spicer, I shall mostly refer simply to Spicer Thoroughbreds, which is the entity directly affected by the declarations challenged by this appeal, to denote both appellants

The schemes operated by Spicer Thoroughbreds

1. There was uncontroversial evidence that Spicer Thoroughbreds "sells ownership stakes in yearlings and manages the horse from the auction yards to [the] end of their careers". Spicer Thoroughbreds' director, Mr Spicer, said that the company was "a full-service bloodstock management business, overseeing the portfolios of private clients locally and internationally with more than 35 horses currently under supervision both on the track and in the breeding barn" and that his company "also buys yearlings, broodmares and weanlings to either race or re-sell back through the auction[] houses". He said that Spicer Thoroughbreds occasionally promoted and advertised syndicates for sale to the public between 2015 and 2018, amounting to a small proportion of the horses it had been involved with over the last 16 years, but that the company ceased offering public syndicates from 2018 and thereafter only worked with "sophisticated racing people". No objection was taken to any of Mr Spicer's evidence, nor was there any cross-examination.
2. The respondent, Mr John Stewart, has been involved in breeding and racing thoroughbred horses since 1981, and at the time of the litigation owned seven racehorses, two broodmares and a weanling. He bought 10% interests in Lucky For All and Le Baol and a 15% interest in Panama Papers in April 2018 and July and August 2019 respectively.
3. The evidence was uncontested, save for one conversation left unresolved by the primary judge (inevitably so, because neither side cross-examined the other). However, and significantly for this litigation, there were aspects of each side's evidentiary case that were incomplete. The primary judge made careful, qualified findings which made it clear that his Honour found that parts of the testimonial evidence, even though unchallenged, did not suffice to establish parts of each side's case. There was no notice of contention. I shall return to the significance of this below.

The acquisition of interests in each racehorse

1. The documentation tendered was sparse. In the case of the first horse acquired, Lucky For All, it was as follows.
2. There was unchallenged evidence that Spicer Thoroughbreds had acquired Lucky For All for slightly more than $150,000. The entirety of the horse was sold to purchasers, including Mr Stewart's 10% share, calculated as a percentage of approximately the same total value (in the order of $375,000). It was suggested that Spicer Thoroughbreds made a substantial profit on the acquisition of the horse and on-sale to co-owners including Mr Stewart. It was not disputed that Spicer Thoroughbreds at least made a substantial gross profit, although as I understood the evidence, that paid no regard to the holding and transport costs, the risks that the horse might not be sold, and the true costs of identifying and acquiring such a horse. I mention this in light of a submission made by Mr Stewart as to the role of Spicer Thoroughbreds.
3. A one page "Purchase Acceptance Agreement" dated 15 February 2018 between Mr Stewart and Spicer Thoroughbreds confirmed that Mr Stewart "has agreed to purchase 10.00% share at a cost of $38,500 in Lucky For [All] NZ 3yo gelding purchased by Spicer Thoroughbreds to be trained by Darren Weir". The agreement, executed by both sides, included the following note: NB: Shares of 2.50% or less are not guaranteed individual naming in race book due to maximum number of 20 as set by Racing Australia and may be asked to join a racing syndicate to be managed by Brad Spicer.
4. Mr Stewart executed a Horse Registration Form in respect of his 10% interest in the racehorse. The form was also dated 15 February 2018, and identified the horse and Mr Stewart's interest in it as "10%". Small print at the bottom of the form stated that "By signing this application I agree and declare that …" and there followed 11 bullet points. One (in fact it was spread over two points, but the sense is clear) was an agreement that Racing Information Services Pty Ltd owned "all right, title and interest (including but not limited to copyright, goodwill and reputation) in the name, image, jockey silks, and any other indicia associated with this horse, whether existing before or after I sign this form".
5. A second bullet point on the document signed by Mr Stewart was: As a condition of the registration of this horse, I will comply with and be bound by the Australian Rules of Racing and the Local Rules, Regulations, By-Laws and Conditions of the Principal Racing Authority in whose State or Territory I reside or in which the horse shall race.
6. A third was that "I have read and understood the sections on pages 1 & 2 entitled 'Fitness & Propriety of Applicants', 'Privacy and Personal Information', 'GST Declaration', 'Appointment of Manager' and 'Assignment and Licence'". The section on the front page of the form headed "Appointment of Manager" stated that "The manager of a horse is the first named person recorded on the horse registration application" and that: The manager acts for and represents the other co-owners of the horse, as described in the Australian Rules of Racing … and the RA Co-owner Agreement and that The [Co-owner Agreement] sets out the manager's rights and obligations for acting on behalf of the co-owners. While the manager may make most day-to-day decisions in their discretion, significant decisions regarding the horse require the approval of co-owners with a certain percentage of ownership or a set process be followed.
7. Mr Stewart contended (and I did not understand it to be controversial) that in that fashion the co-owners became bound by the Co-owner Agreement, which was in standard form. It gave substantial powers to the Managing Owner, although major decisions (including certain veterinary treatments, gelding, engaging a new trainer, relocating or retiring the horse) required the consent of a majority of the interests owned by co-owners, and decisions to stand the horse as a stallion or use it as a broodmare required the consent of 75% of the interests owned by co-owners.
8. On around 4 April, Mr Stewart paid $38,500 (inclusive of GST) to Spicer Thoroughbreds to acquire what was described in the tax invoice as: 10.00% share in NZ 3yo gelding "Lucky For [All]" to be trained by DK Weir in Victoria. Your cost includes, vetting, transport, airfreight, training, Racing Australia registration and any additional costs of 01st April 2018 & mortality insurance until 30th November 2018
9. Ultimately Racing Australia issued a "Certificate of Registration" which stated that the horse was co-owned by 11 owners, in interests ranging between 2.5% and 20%. The first listed owner was Mr Brad Spicer, whose share was described as 0%. I did not understand it to be disputed that in that way Mr Spicer was the "Managing Owner" of the horse.
10. The other racehorses were acquired with similar documentation. Panama Papers was wholly disposed of to co-owners including Mr Stewart, but Mr Spicer remained as a 0% "Managing Owner" of the horse. Spicer Thoroughbreds acquired a 42.5% interest in Le Baol, of which it sold 10% to Mr Stewart. Le Baol was purchased and raced in the United Kingdom before being transported to Australia, and was at all times owned as to 57.5% by one of Mr Spicer's friends, who is the Managing Owner of that horse.
11. Little attention was paid until the oral hearing in this Court to the way in which fractional interests in each horse were acquired. In the case of Le Baol, the transfer of a 42.5% interest to Spicer Holdings took place in the United Kingdom and was presumably governed by foreign law. There are self-evident complexities in identifying the proper law of the transfer by Spicer Holdings to Mr Stewart of a 10% interest in a horse then located in the United Kingdom. The difficulties extend to the purchase of interests in horses located in Australia. There is nothing in the evidence to suggest that anyone executed a deed. Nor is there any suggestion of any actual delivery to an individual co-owner. Whether the co-owners were merely co-owners or were in partnership (as the role played in the Co-owners Agreement by the "Horse Ownership Venture" might suggest) was unexplored; cf French v Styring (1857) 2 CB (NS) 357; 140 ER 455 and Dennis v Dennis (1971) 124 CLR 317 at 326; [1971] HCA 50. It seems that all parties proceeded on the basis that ownership in law was effected in accordance with what was set out in the Horse Registration Form and the Rules of Racing. Whether that is so, and if it is, whether that was achieved by some form of agency by which delivery was effected, or by an estoppel by convention, or more directly, are not questions which need be resolved in this appeal. How precisely a person becomes a legal co-owner of a horse with neither a deed nor (actual) delivery may matter in some other case, and I shall refrain from expressing any further views on the point. I note that the Commercial List Statement and Response merely alleged and admitted that on various dates Mr Stewart entered into contracts to acquire fractional interests in the racehorses. All this may seem unduly technical, but I am conscious that grounds 3 and 4 of the appeal require attention to whether any "financial products" were issued by Spicer Thoroughbreds, and the starting point for that analysis would seem to be precisely what legal or equitable interest in each racehorse was received by Mr Stewart.
12. There seems to have been no dispute by the end of the hearing that no later than when Mr Stewart's name was registered as a 10% co-owner he had legal title to 10% of the racehorse, consistently with rule 3.1 of the Rules of Racing, which provided that from the date of registration "each Co-owner will hold the Owner's interest set out in the Horse Registration Form", and similarly with the other horses. I shall proceed on that basis.
13. Rule 3.2 provided that each co-owner would share in the prizemoney and other revenue in proportion to their respective Owner's interest in the Horse, and rule 3.3 provided that each Co-owner must contribute towards the costs of maintaining, training and racing the Horse, and to other expenses relating to the Horse, on a pro rata basis in proportion to that Co-owner's interest in the Horse. As a matter of fact, the prizemoney earned by each horse, and the expenses incurred by each horse was shared between the co-owners in accordance with their shares, and the expenses of ownership were likewise borne in accordance with their shares. Whether or not that was the result of property (as co-owners of the horse) or contract (through the contractual force of rules 3.2 and 3.3.) does not matter for present purposes.
14. Rule 3.4 provided that the Managing Owner "will manage the Horse Ownership Venture for the benefit of all Co-owners. That will be on the basis of there being no cost to the Co-owners for the Managing Owner's services unless otherwise agreed by them by Unanimous Consent". Some attention was given to this at trial and on appeal, to which it will be necessary to return.
15. After some 2½ years of owning an interest in Lucky For All, Mr Stewart became disaffected. One of the horses was injured at a race, was retired to pasture for some 9 months, raced once more and then was retired. The other two were gelded, in the case of Le Baol, without notice being given to Mr Stewart. None won any substantial amount of prizemoney.
16. By October 2020, Mr Stewart was demanding the return of his money. Solicitors exchanged correspondence in December 2020 and proceedings were commenced in January 2021. He sought to rescind in accordance with s 601MB of the Corporations Act on the basis that his contract was voidable by reason of the contravention of s 601ED(5). Mr Stewart also sued Mr Spicer on the basis that he was knowingly involved in the contravention. Separately, Mr Stewart sought declarations that Spicer Thoroughbreds operated the schemes in contravention of s 911A of the Corporations Act because it was providing "financial services" without holding an Australian Financial Services Licence.

The schemes alleged and found

1. The schemes alleged by Mr Stewart were as follows, in respect of each racehorse: the following programme or plan of action: (a) the sale by the First Defendant of interests in the three racehorses to the Plaintiff and his fellow co-owners; (b) each of the three racehorses would be raced competitively, with the aim of producing earnings from prizemoney for the Plaintiff and his fellow co-owners; (c) each racehorse would be trained by, and cared for under the supervision of, a trainer selected by the First Defendant; and (d) the Defendants would, otherwise, manage the day-to-day affairs of each racehorse for the Plaintiff and his fellow co-owners.
2. The primary judge found that the first and second elements were established, but the third and fourth were not: Stewart v Spicer Thoroughbreds Pty Ltd [2022] NSWSC 558 at [13]-[15].
3. Concerning the trainer, the original trainer, Mr Weir, was replaced in February 2019 by one of two trainers suggested by Mr Spicer. The choice of trainer was determined by a vote by the co-owners, with Mr Spicer organising the voting. The primary judge observed at [14] that while a trainer had been appointed at the time Mr Stewart acquired an interest in each racehorse, his Honour was not satisfied that this established an element of the schemes, as distinct from the factual situation which existed at the time Mr Stewart and co-owners acquired their interest in the horse. His Honour referred to the choice of a majority of co-owners to replace Mr Weir as trainer of Lucky For All, and to cl 3.6 of the Co-owner Agreement which provided that the Managing Owner would make any decision to engage a new trainer, and carry out any reasonable actions to effect that decision, on behalf of Co-owners with Majority Consent as defined.
4. Concerning the day to day management of each racehorse, his Honour said that: No agreement between Spicers Thoroughbreds and Mr Stewart, and no understanding of the owners of any of the horses, no requirement under the Rules and no practice has been established that Spicers Thoroughbreds rather than, for example, a trainer, managed the day to day affairs in respect of each relevant horse.
5. His Honour referred to Mr Spicer's evidence that the owners were in charge of all bills, made all decisions by majority vote, and received any prize money directly, and that Spicer Thoroughbreds "just helped manage things like facilitating communication between trainer and the owners on major decisions", and did not charge a management fee. The invoices in evidence supported the limited role performed by Spicer Thoroughbreds. The email communications updating co-owners as to their horses were also regarded by his Honour as "fall[ing] well short of Spicer Thoroughbreds' exercising management functions in respect of the day to day affairs of each horse or the relevant Schemes".

The significance of the limited factual findings and absence of a notice of contention

1. There was no notice of contention. Accordingly, the issue on appeal was whether three schemes confined to the sale of interests in racehorses to purchasers with the intention that they would be raced competitively, with the aim of producing earnings from prizemoney, was a managed investment scheme for the purposes of the definition in s 9, which was relevantly in the following terms: (a) a scheme that has the following features: (i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); (iii) the members do not have day to day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions).
2. In Australian Softwood Forests Pty Ltd v A-G (NSW) (Ex rel Corporate Affairs Commission) (1981) 148 CLR 121 at 129; [1981] HCA 49, Mason J (with whom Gibbs CJ and Stephen J agreed) said that "all that the word 'scheme' requires is that there should be 'some programme, or plan of action'". There are many ways in which it may be alleged that commercial activities involving contributions by a number of people to a common enterprise amount to a scheme in that broad sense. As much is clear from the fact that the definition excludes some 14 classes of legal relations, including a franchise, certain types of partnerships, the issue of debentures or convertible notes by a body corporate, and many retirement village schemes. The definition also builds into it an exclusion for "a scheme of a kind declared by the regulations not to be a managed investment scheme".
3. Mr Stewart will not fail merely because he could not establish all four elements of the scheme articulated in his Commercial List Statement. However, the issue for the Court, whether at first instance or on appeal, is nonetheless quite narrow. It is whether those parts of the "programme or plan of action" alleged by Mr Stewart which have been made out on the evidence amount to a managed investment scheme. This has significant consequences for both sides.
4. On the one hand, decisions made by Mr Stewart to limit the evidence adduced, and not to cross-examine, confine the ways in which any scheme may be identified. On the other hand, if Mr Stewart fails to show that the scheme insofar as it was established at trial was a managed investment scheme, it does not mean that, to the extent that Spicer Thoroughbreds in fact has engaged and continues to engage in additional conduct, it is not operating a managed investment scheme. That is to say no more than that the protection afforded by declaratory relief, or the dismissal of declaratory relief, can go no higher than the evidence upon which such relief is based.
5. For present purposes, what matters is the limitations in the evidence upon which Mr Stewart relied. For example, Mr Stewart sought to rely upon what Spicer Thoroughbreds described as a "Concierge Service". Mr Spicer's evidence, summarised by the primary judge at [5], was that this service included providing updates on the horse to the owners and facilitating communication between the trainer and owners. Mr Spicer said that neither he nor Spicer Thoroughbreds made decisions with respect to the horses as part of the Concierge Service, and that no expenses associated with horse ownership were collected by Spicer Thoroughbreds, save in relation to insurance for a limited period of time. The primary judge accepted as much.
6. In oral address, Mr Stewart addressed the profits generated by Spicer Thoroughbreds' acquisition of the horses and sale to the co-owners, and Mr Spicer's evidence about the concierge service as follows: WARD: … Mr Spicer will provide what he colloquially describes in his affidavit as a concierge service but which is, in fact, what he's required to do once he puts himself, Mr Brad Spicer puts himself, in the position of a managing owner; that is, he manages the horse. Your Honours might think that these substantial profits are, in fact, recognition of the fact that Mr Spicer and Spicer Thoroughbreds are going to provide continued services through the life of this scheme, such that it can be seen as being a coherent whole rather than a simple contribution of purchase price. MITCHELMORE JA: Weren't some of those aspects not accepted by his Honour in terms of what you've just put to us? I think 12A to D at red 42 was how it was pleaded. His Honour accepted the first two but not the third or the fourth. WARD: Certainly he didn't accept the third and fourth …
7. Counsel for the appellants insisted that the primary judge had rejected an argument that it was any part of an element of the schemes that Mr Spicer was doing anything, and emphasised that the schemes found by his Honour comprised only the first and second limbs of the pleaded schemes
8. True it is that in the absence of any oral evidence, this Court is in substantially the same position as the primary judge in reviewing the evidence and making findings of fact. However, it would be quite wrong for this Court to reach a different view on the findings of fact, and particularly in respect of the ways in which and the extent to which the alleged schemes were established. The appeal has been conducted on a particular footing, without any notice of contention, and no notice has been given that this Court might make any further or different factual findings.
9. In essence, the questions arising on this appeal are pure questions of law, turning on the application of the provisions dealing with managed investment schemes upon the unchallenged findings of fact made by the primary judge.

Overview of the reasons of the primary judge

1. As mentioned above, the primary judge made limited findings in favour of Mr Stewart, on the basis of which his Honour found that Spicer Thoroughbreds contravened s 601ED(5): at [45]. He declined to find that Mr Spicer was knowingly concerned in the contravention, because of a failure to identify the facts said to have been known, a failure to attend to whether knowledge of the absence of an exception under s 601ED(2) was an essential element and, if so, who bore the onus, and also because it was unnecessary to do so. It was unnecessary because the primary judge dismissed Mr Stewart's claim for rescission, acceding to Spicer Thoroughbreds' application for an order, pursuant to s 601MB(6), that the notice of rescission was of no effect. The primary judge also dismissed the separate claim alleging a contravention of s 911A, on the basis that it did not advance the resolution of the dispute between the parties or provide a basis for any substantive relief to Mr Stewart: at [56].
2. Having made findings to that effect in the principal judgment, the primary judge granted limited declaratory relief in a separate judgment which also dealt with costs: Stewart v Spicer Thoroughbreds Pty Ltd [2022] NSWSC 637. The primary judge summarised the background thus: By my judgment delivered on 9 May 2022 ([2022] NSWSC 558), I found that Mr Stewart had established several aspects of his claim, that went to the characterisation of arrangements between him and Spicer Thoroughbreds Pty Ltd as managed investment schemes. I found, however, that the Court should extend the time for Spicer Thoroughbreds to bring an application under s 601MB(6) of the Act to set aside a notice of rescission of the relevant contracts given by Mr Stewart. I also held, in paragraph 50 of the judgment, that: "I am also satisfied, for the purposes of s 601MB(6) of the Act, that it would not be just and equitable for Mr Stewart to rescind the contracts to acquire an interest in the three horses and his notice of rescission should be set aside. I reach that conclusion because there is here no evidence that Spicer Thoroughbreds, for example, improperly handled monies of owners of the horses, where it only received the proceeds of sale of the interests in the horses; or that decisions in respect of the horses were not in fact made by the trainer and by the majority of owners as appropriate, although Mr Stewart's views in respect of the proposed sale of Lucky For All [one of the horses] did not prevail; and the gelding of two of the horses and the injury and retirement of the third are risks that obviously attach to the ownership of an interests in a racehorse, and had no connection with the fact that the form in which his ownership interest was held constituted, on my findings, an unregistered managed investment scheme. Mr Klineberg [who appeared for Mr Stewart] submitted that Mr Steward was deprived of the benefit of a product disclosure statement, but he leads no evidence that he would have behaved differently had that document disclosed the relevant risks. It seems to me that those risks would have been apparent to Mr Stewart as an experienced participant in the racing industry, and he suffered no disadvantage on that basis." I indicated that, for those reasons, the proceedings should be dismissed. I directed the parties to bring in agreed orders, including as to costs, within seven days, or, if there was no agreement between them, their respective submissions as to the form of orders and costs. The parties have now reached agreement as to three declarations and an order that should be made, and I will make those declarations where they accurately record the effect of my judgment. Had there been a contest as to that matter, I would likely not have made the first two declarations to which the parties have agreed, where they go to matters that were sufficiently addressed by my judgment and do not give rise to any substantive relief.
3. The form of the declarations which had been agreed and which issued was as follows: 1. Declare that each of the three thoroughbred racing horse investment schemes relating to "Lucky For All", "Le Baol" and "Panama Papers" ("Schemes") were managed investment schemes within the meaning of section 9 of the Corporations Act 2001 (Cth) ("Act"). 2 Declare that the First Defendant contravened section 601ED(5) of the Act by operating the Schemes, which were required to be registered pursuant to section 601ED(1) of the Act, but which were not so registered.
4. The primary judge also made an order extending the time for an application for an order declaring Mr Stewart's notice of rescission of no effect, and declared that it was of no effect. His Honour made no order as to costs, with the intent that each side bear his and their own costs.

The appeal requires leave

1. Spicer Thoroughbreds and Mr Spicer purported to appeal as of right, within time. The appeal seeks to set aside all of the orders made at first instance, and in lieu thereof an order that Mr Stewart's summons be dismissed with costs. The appeal is plainly incompetent at least in part.
2. The appeal purports to be brought by both Spicer Thoroughbreds and its sole director Mr Spicer. However, no order at all was made contrary to Mr Spicer. His position will be improved by success on the appeal only insofar as he will obtain an entitlement to costs. On any view, the appeal to the extent it is propounded by him requires leave: Supreme Court Act 1970 (NSW) s 101(2)(c).
3. Declarations adverse to Spicer Thoroughbreds did issue, although it is clear from the passage reproduced above that the declarations probably only issued because Spicer Thoroughbreds consented to them after the initial findings of contravention. Despite the form of the notice of appeal, it is clear that Spicer Thoroughbreds does not wish, in the event that its challenge to the contravention of s 601ED(5) fails, to set aside the orders favourable to it concerning its application that Mr Stewart's notice of rescission is of no effect. An affidavit was read to suggest that there would be consequences to the business conducted by Spicer Thoroughbreds, to which was opposed evidence that it would be relatively straightforward to comply with an ASIC exemption. It is unnecessary to address the substance of that evidence, and whether it enables Spicer Thoroughbreds to fall within the exception in s 101(2)(r)(ii) of appeals that involve "(directly or indirectly) any claim, demand or question to or respecting any property or civil right amounting to or of the value of $100,000 or more". That is because Spicer Thoroughbreds and Mr Spicer filed an application seeking leave to appeal in the event that their appeal was incompetent, as it undoubtedly was in the case of Mr Spicer, and there was a concurrent hearing of both proceedings, with full argument on the merits of the appeal.
4. Mr Stewart maintained that leave was necessary, and should be refused, but indicated at the outset of the argument that his opposition was only on the basis that the argument would not succeed. Accordingly, it is appropriate to pass over the submissions and evidence which bear upon whether leave was required insofar as Spicer Thoroughbreds' appeal was concerned. To the extent that there is a requirement for leave, this is a plain case for granting it, if only because of the importance to Spicer Thoroughbreds and Mr Spicer of the need to comply with the Corporations Act.

Applicable legislative regime

1. The definition of a managed investment scheme is reproduced above. Section 601ED(1)(b) provides that a managed investment scheme must be registered under s 601EB if it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes. Section 601ED(5) makes it an offence to operate a managed investment scheme that this section requires to be registered under s 601EB unless the scheme is so registered. Section 601ED(2) exempts from the requirement of registration any managed investment scheme which, under Division 2 of Part 7.9, does not require a Product Disclosure Statement. This is relevant to grounds 3 and 4 of the appeal.
2. Section 601MB(1) provides that if a managed investment scheme is being operated in contravention of s 601ED(5), a contract to subscribe for an interest in the scheme is voidable by notice in writing, subject to a power conferred by s 601MB(4) for the offeror to apply to the Court for an order declaring the notice to have had no effect. The 21 day period for making such application may be extended pursuant to s 601MB(5), as it was in the present case, and the Court may make the declaration sought if it is satisfied in all the circumstances that it is just and equitable to make the declaration: s 601MB(6).
3. Section 1012E provides for the circumstances in which small scale offerings of managed investment schemes do not need a product disclosure statement. In light of the submissions made on the construction of this exception, it is better to delay reproducing its terms until dealing with grounds 3 and 4 of the appeal.
4. The appeal raises two issues. First, by grounds 1 and 2, Spicer Thoroughbreds and Mr Spicer contend that the primary judge erred in finding that each of the three elements of a managed investment scheme in s 9 were established. Secondly, by grounds 3 and 4, it is contended that the primary judge erred in finding that the exception in s 1012E was not available. I shall follow the same course as the parties' written and oral submissions, and deal with each pair of grounds collectively.

Grounds 1 and 2

1. Both at first instance and in this Court, Spicer Thoroughbreds contended that none of the three elements in paragraph (a) of the definition of "scheme" in s 9 was made out.

Subparagraph (i) - people contribute money or money's worth to acquire rights to benefits produced by the scheme

1. In relation to the first paragraph, the main point was that there was no contribution of money or money's worth to acquire rights to benefits produced by the scheme. Instead, there was contribution of money to acquire an interest in a racehorse. True it was that the purpose of the acquisition of the interest in a racehorse was to make money, in the form of prizemoney, or revenue from resale or putting the horse to stud. However, the potential for a co-owner to make money was not a result of the operation of the scheme; it was simply an aspect of the co-owner's property rights in the racehorse.
2. This submission was reproduced by the trial judge, who rejected it, at [22]-[24]: Mr Izzo submits that the consideration paid in respect of the acquisition of interests in the horses was paid to acquire those interests, being an interest as tenant-in-common in a chose in possession, and could not be consideration to acquire rights to benefits produced by the Schemes or used in common with other members of the Schemes. … It seems to me that Mr Izzo takes too narrow a reading of these elements of the concept of a "managed investment scheme", where his approach would have the result that any scheme which involved the acquisition of interests in assets that were to be used by investors for a common purpose would fall outside the scope of the definition of "managed investment scheme", including situations which are typically treated as falling within that definition, such as the acquisition of interests in land used for a common purpose in agricultural schemes. A second difficulty with Mr Izzo's submission is that the relevant payment can be both consideration to acquire an interest in the horse, and consideration to acquire a right (in the expanded statutory sense) to a benefit of racing prize money and other income from the horse. It is then not to the point that, as Mr Izzo contends, any right to prize money or other income is an incident of co-ownership of the horse, where that right is also a benefit produced by the scheme. A third difficulty is that, on that approach, the statutory provisions could be avoided by the simple expedient of a promoter selling interests in an asset to be used in a common enterprise at an inflated price to a group of investors, and making no charge for other services purportedly provided in connection with that enterprise. It seems to me that the requirement that the contributions are used in a common enterprise is satisfied where that use is by acquiring an interest in an asset which is used in that common enterprise. I accept that, as Mr Izzo points out, that reading may have the consequence that the interests of co-owners in the horses then constitute "scheme property" of the scheme, so far as they are acquired from a contribution of money to the scheme; however, co-owners would then have a corresponding economic interest in that scheme property. Although I have held above that only two of the four elements of the pleaded Schemes are established, I am satisfied that the first limb of the definition is satisfied, where co-owners contributed funds to the purchase of interests in the horse, and plainly did so to acquire prospective or contingent benefits by way of income from racing the horse and from other uses of the horse such as putting it to stud, and then applied their interests in the horses for that common purpose.
3. I respectfully agree. In particular, I agree with the second obstacle to acceptance of the submission identified by the primary judge. Let it be assumed, favourably to Spicer Thoroughbreds, that the contribution is capable of being characterised as the consideration for acquiring a 10% or 15% interest in a racehorse. Plainly in substance that is true (putting to one side the "pre-paid" aspects of insurance and training described in the contractual documentation, which are de minimis). But it does not follow that the contribution may not also be regarded as being for the potential benefits in the form of prizemoney and other income derived from the horse. The erroneous submission is a common one. The question posed by statute is whether conduct answers a particular description. In response, it is submitted that the conduct answers a different description, and then it is asserted that the conduct therefore does not answer the statutory description. That submission is only valid if the different description excludes the possibility of the conduct satisfying the statutory description.
4. I do not see that acceptance of the submission that Mr Stewart's contributions were for interests in three racehorses negates the possibility that his contributions may also be regarded as for an entitlement to derive income in the form of prizemoney from the co-ownership of the horse. It is to be firmly borne in mind that the definition of a managed investment scheme is broad. As much was accepted, in my view correctly, when the appeal was argued: GRIFFITHS AJA: I mean, as a matter of construction - and, naturally, the text is, as we are all constantly reminded, paramount. But we have - on one view, what could be put against you is: the definition ought to be read expansively. It ought to be read broadly. And then the controlling mechanisms for that breadth of operation falls by reference to the exemptions. IZZO: Well, I accept that, your Honour.

Subparagraph (ii) - any of the contributions are to be pooled or used in a common enterprise to produce financial benefits

1. Turning to the second element of the definition, the primary judge addressed this at [22] and [24]: Mr Izzo also contends that it is not the money itself, but the joint interest in the horse acquired from it, that is contributed to the common enterprise constituting the Schemes. …. I also accept that the second limb is satisfied where the relevant funds, and the interests in the horses acquired by them, were used in the common enterprise of the owners acquiring and racing the relevant horses, which was "an enterprise common to participants and, accordingly, a common enterprise": Brookfield Multiplex at [94]-[98].
2. This submission was developed on appeal a little differently from at trial, taking advantage of the fact that the decision relied upon by the primary judge, Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; [2009] FCAFC 147, had been regarded by a more recent Full Court as plainly wrong, in a decision delivered a few weeks after both decisions of the primary judge: LCM Funding Pty Ltd v Stanwell Corporation Ltd (2022) 292 FCR 169; [2022] FCAFC 103.
3. Spicer Thoroughbreds' point was that this limb of the definition required "any of the contributions" to be pooled or used in a common enterprise to produce benefits for people holding interests in the scheme. There was no suggestion of pooling in the present case, and so in what follows I shall refer merely to the contributions being used in a common enterprise. The reference to "the" contributions was, as a matter of ordinary grammar, to the contribution of money or money's worth in the first limb of the scheme. It followed, so it was said, that the primary judge was wrong to proceed on the basis that both "the relevant funds" and "the interests in the horses acquired by them" were used in the common enterprise. It was necessary for "the" contribution to have been used in the common enterprise. But that did not occur, because no part of the funds paid to Spicer Thoroughbreds as Mr Stewart's contribution were used in the common enterprise. All of the funds were received by the vendor as consideration for the sale of an interest in the racehorses. Significantly, the subsequent payments of the expenses associated with keeping and training the racehorses were paid separately by the co-owners, and not out of the original contributions. It was said that it was wrong for the primary judge to have referred to the "relevant funds" and "the interests in the horses acquired by them", because the definition referred only to the former.
4. Spicer Thoroughbreds also relied on a number of strands in the reasoning of the Full Court in LCM Funding Pty Ltd v Stanwell Corporation Ltd. It was common ground on appeal that, as a more recent, considered decision of a Full Court of the Federal Court on the Corporations Act, this Court should follow LCM Funding, in accordance with Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492; [1993] HCA 15, SZGME v Minister for Immigration and Citizenship (2008) 168 FCR 487; [2008] FCAFC 91 at [42] and Liberty Mutual Insurance Company Australian Branch (t/as Liberty Specialty Markets) v Icon Co (NSW) Pty Ltd; [2021] FCAFC 126; 396 ALR 193 at [45]-[46].
5. One was that LCM Funding had relied upon the difficulties of applying the regulatory regime if the definition were engaged, an approach which had been rejected in Brookfield. In particular, Anderson J who wrote the lead judgment identified difficulties at [163]-[164]: 163 We agree with LCM Funding's submissions that at the heart of a MIS under Chapter 5C of the Act is the ability to identify who is the responsible entity of the scheme that is required to operate the scheme under s 601FB(1) of the Act. The three categories of persons typically involved in running a class action are the lawyers, funders and representative applicants. The funder would not appear to be a responsible entity as the funder, typically, and in this case does not have day to day control over the litigation. That day to day control is reposed in the representative applicant and its ability to give instructions to the lawyers. The lawyers would not appear to be the responsible entity of the scheme and in any event are prohibited by s 2.7.5 of the Legal Profession Act 2004 (Vic) (which has a counterpart in all Australian jurisdictions) from operating a MIS. The representative applicant would not appear to be the responsible entity required to operate the scheme. In circumstances where it is uncertain or not possible to identify who is the responsible entity this suggests that litigation funding schemes do not fall within the meaning of a MIS under s 9(a) of the Act. 164 There are further aspects of the MIS regime which are incapable of application to a typical litigation funding scheme. That is because of the requirement under s 168 and 169 to maintain a register of members which values the interest of each member. These requirements make it impossible for a typical litigation funding scheme to comply with other provisions of the managed investment scheme regime under Chapter 5 of the Act. It is sufficient to provide some examples: s 601FM - Removal of responsibility entity by members; s 601GA(4) - Members' rights to withdraw from the scheme; s 601GC - Members rights to change the constitution of the scheme; s 601KA - Limitation on members' rights to withdraw from the scheme; and s 601KB - Non-liquid schemes - how payments are to be made. The operation of each of these provisions requires the responsible entity to be able to value the member's interest. As this cannot be done at all points in time during the life of the litigation funding scheme, it is impossible for a typical litigation funding scheme to comply with these provisions of a managed investment scheme under Chapter 5C of the Act.
6. Spicer Thoroughbreds relied on similar submissions, which may be summarised as follows. First, the contributions would be "scheme property" which by reason of s 601FC(2) were held on trust, and were required to be held separately from other property by s 601FC(1)(i)(ii). Secondly, just as there was difficulty in identifying the responsible entity at the "heart" of the scheme of litigation funding considered in LCM, so too there was difficulty identifying a responsible entity in relation to the schemes operated by Spicer Thoroughbreds. Spicer Thoroughbreds referred to the finding at [15] that the trainers had day to day management of the race horse, and asked rhetorically "Is the trainer the responsible entity?" Spicer Thoroughbreds acknowledged that the awkwardness of fitting within the statutory regime was not conclusive, but nonetheless was a consideration which played into the difficulty of saying that the definition was satisfied.
7. Another was to compare the operation of funded litigation in representative proceedings with what occurred in the present case. Anderson J noted at [161] that "[t]he benefits received by members are simply what is generated from the realisation of their chose in action with the funding agreement providing a mechanism for the payment of legal services and risk taken on by lawyers in prosecuting the case on behalf of the group members". This was invoked as analogous to the potential benefits achieved by racing the horse.
8. Spicer Thoroughbreds was also critical of the rejection of these submissions at [23]. The agricultural schemes to which the primary judge referred were inapposite, because there was pooling of funds in order to maintain and harvest the agricultural products. In the present case, there was no pooling of funds, and the entirety of the contribution was used to acquire the interest in the horse, with ongoing expenses paid separately and without the involvement of Spicer Thoroughbreds. Spicer Thoroughbreds also criticised the argument that the provisions could be avoided by the simple expedient of a promoter selling interests to be used in a common enterprise at an inflated price, and making no charge for other services. Spicer Thoroughbreds submitted that that was not this scheme, because there was no funding of training costs or any other costs from the contributions received. It was said that "[a]ll those things are totally self-funding", by which was meant, by separate payments made by co-owners outside the scheme as found.
9. Mr Stewart's written submissions supplied in advance of the hearing were concise. They occupied less than five pages. The response to the second limb of the definition occupied one page, and made three points.
10. First, it was said that the "common enterprise" was "acquiring and racing the relevant horses", and criticised reliance on the definite article in the limb, pointing to the width of "any of the contributions" and maintaining that even if the funds paid at the outset were not used in the common enterprise, then the limb was satisfied by the members' contributing their share of the horse.
11. Secondly, it was said that the funds paid by Mr Stewart, and his share of the racehorses, had an antecedent existence and independent of the scheme itself, thereby distinguishing the position from the rights of members of a representative proceeding considered by Lee J in LCM Funding at [13].
12. Thirdly, it was said that the difficulties in identifying a responsible entity and scheme property were not sound reasons for construing the definition, because of the ASIC Corporations (Horse Schemes) Instrument 2016/790 made under s 601QA(1), which exempts certain "horse racing syndicates" from the operation of Chapter 5C. The instrument assumes in terms that "horse racing syndicates" are managed investment schemes: s 4. It was said in writing that the legislative objective was for the regime to apply to horse racing syndicates, and that it was legitimate to rely on ASIC's statement in order to identify that objective.
13. Senior counsel for Mr Stewart, who did not appear below and did not sign the written submissions in this Court, distanced himself from the latter submission. He relied on ASIC's instrument, not as indicating the legislation's purpose (which self-evidently it cannot, having regard to its date) but nonetheless as informing the question of construction because there was a power conferred upon ASIC to grant exemptions. He relied upon Chief Commissioner of State Revenue v Hayson Group of Companies Pty Ltd (2006) 68 NSWLR 254; [2006] NSWCA 233 at [37] where it was said that "It is trite law that, except in cases where the Act itself provides that its operation may be varied by regulation, the scope and operation of the statute cannot be determined by reference to regulations made under it". That does not support the proposition upon which Mr Stewart relied, in part because it is expressed negatively, and in part because s 601QA is not a Henry VIII clause which authorises primary legislation to be varied by delegated legislation. It is merely a power to exempt. The view taken by ASIC of what is or is not appropriate to exempt does not shed light upon the meaning of the provision. When this was raised, senior counsel said he was unable to elaborate or develop the submission.
14. Contrary to Mr Stewart's submissions, the approach in LCM Funding (which was shared by Jacobson J, dissenting, in the earlier Brookfield case), makes it relevant to ask how the regulatory regime applies. There is evident force in Spicer Thoroughbreds' submissions that it is problematic, to say the least, to identify a responsible entity or scheme property. This tells against the definition operating upon what was found.
15. Another matter was raised with both parties during submissions. Suppose a horse breeder sells young thoroughbred horses to purchasers, some of whom buy as co-owners. The purpose of the purchase is to make money by training and racing the horse. Suppose that the horse breeder has nothing whatsoever to do with the horse after it has been sold. It was common ground, and it must surely be the case, that the definition of managed investment scheme is not engaged merely by the happenstance that some of the sales are made to co-owners who have the intention of racing the horse with the potential of earning prizemoney.
16. It is important to be cautious when reasoning from examples, because often an example distracts from the nuance and details upon which a definition such as that of "managed investment scheme" turns. However, it is significant that the aspects of the scheme as found by his Honour (as opposed to the fuller scheme alleged by Mr Stewart) are not greatly dissimilar from the example given above: in essence, the sale of a horse to co-owners who acquire it with the intention of racing it.
17. Ultimately, there is a difficulty in the reasoning of the primary judge, which conflates the purchase price of the interest in the horse with the interest in the horse itself. If the scheme were merely the sale of a horse to co-owners, the definition of managed investment scheme could not be satisfied. Essential to the scheme found by the primary judge was the fact that each co-owner then permitted the newly-acquired interests in the horse to be used in an attempt to generate income through racing. But on the findings of the primary judge, Spicer Holdings did not have any ongoing involvement in the training and racing of each horse. Although it was put that the trainer was Spicer Thoroughbred's delegate, this was not accepted by the primary judge, who referred to the evidence that the owners voted to appoint the trainer.
18. The gravamen of Mr Stewart's oral submissions was to point to indicia of an ongoing involvement on the part of Spicer Thoroughbreds in the training and racing of the racehorses it sold. In part that was based upon the general description of Spicer Thoroughbreds' business given by Mr Spicer in his affidavit reproduced at the outset of these reasons. Reliance was also placed upon the communications with co-owners, Mr Spicer's position as "Managing Owner" albeit with a 0% share of the horse (as the first listed "owner" on the registration maintained by Racing Australia), and the contractual rights and obligations of the Managing Owner. Mr Stewart also relied on the profit realised by Spicer Thoroughbreds, intimating that it reflected in part the services supplied by the company during the working lifetime of the horse: Your Honours, at black book p 76 your Honours saw the breakdown of purchase prices for these horses. Your Honours might be asking, 'Well, what is in it for Spicer Thoroughbreds?" and the answer is, quite extraordinary, "Profits." It appears clear that the method associated with this scheme is that - if your Honours look, for example, at Lucky For All, the purchase price by the first defendant is $151,569.34. Your Honours then see the breakdown of percentages which curiously add up to 97 and half per cent and the share purchase prices when added up are $375,375 making a profit of $223,805 on the sale transaction. Where Mr Spicer then says, "Well, all I'm doing is providing a concierge service," your Honours might legitimately think that, in fact, what Mr Spicer and Spicer Thoroughbreds are doing is providing a total service by way of the promotion and operation of the scheme, by which people are invited to purchase at inflated prices. Market conditions are market conditions but they pay a lot of money.
19. The difficulty with all those submissions is that they go beyond the facts found by the primary judge, whose reasoning was based upon the first and second elements of the scheme alleged by Mr Stewart and nothing further. As was pointed out shortly after those submissions were made, in the absence of a notice of contention, this Court is not at liberty to make other factual findings so as to support the conclusions of the primary judge on some different basis.
20. No reliance was placed upon the small amounts "pre-paid" for training and insurance mentioned in the contractual documents. I think that Mr Stewart was correct to take that course. For one thing, payment was actually made after 1 April 2018, which was the date at which most pre-paid expenses had been paid (the only exception was mortality insurance, which was in the case of Lucky For All paid for another 7 months). For another, these amounts are de minimis and the engagement of the legislative regime seems most unlikely to depend upon them.
21. I accept Mr Stewart's submission that aspects of the reasoning in LCM Funding do not apply to the present facts. I do not however accept the balance of his submissions on this issue. Instead, I would accept Spicer Thoroughbreds' submissions that, on the facts found by the primary judge, the second limb of the definition is not made out. I think the position is clearer now, in light of the Full Court's recent decision in LCM Funding, and indeed I have no doubt that his Honour's reasons would have been different had his Honour had the benefit of the Full Court's decision. It is also clear that no part of the contributions paid by Mr Stewart (namely, the purchase price of $38,500 in the case of Lucky for All) is used in a common enterprise, except insofar as Mr Stewart in his capacity as co-owner would permit each horse to participate in horse-racing. It is also clear that "the" contribution in subparagraph (ii) of the definition must refer to the contributed money or money's worth in subparagraph (i). I respectfully do not agree that the words "any of the contributions" in the second paragraph of the definition, which are not engaged by the amounts actually paid by Mr Stewart, can be satisfied by the fact that Mr Stewart intended at the time to permit the racehorse of which he was a co-owner to compete. If that were so, then the same would be true of any sale of a horse to co-owners who intended to race it.

Third subparagraph - absence of day to day control

1. The third element of the definition may be addressed concisely in light of the above. I do not accept Spicer Thoroughbreds' challenge to the finding of an absence of day to day control. The primary judge relied on rule 57(2) of the Australian Rules of Racing which provided that the manager, alone of the co-owners, was entitled to take specified steps in respect of racing the horse; cl 3.4 of the Co-owners Agreement which provided that the managing owner will manage the horse ownership venture for the benefit of all co-owners; and the practical arrangements by which the horses were placed under the management of trainers.
2. This was said to involve two errors: failing to have regard to whether those provisions deprived co-owners of control in fact, and wrongly considering day to day control of the horses, as opposed to day to day control over the operation of the scheme.
3. I do not accept that Spicer Thoroughbreds has established that the co-owners had day to day control in fact. It is plain (not least from the updates provided by Spicer Thoroughbreds' email updates) that the trainer had day to day control of each horse. As much is common-sense. While on important decisions the co-owners had a right to be consulted, which right was at least on some occasions exercised in fact, that falls far short of establishing that minority co-owners had day to day control for the purposes of this limb of the definition. Nor do I accept Spicer Thoroughbreds' submission that the members had day to day control of the operation of the scheme. I do not see how that is a separate point from day to day control over the horse, in circumstances where the scheme was the acquisition and racing of the horse.
4. The three limbs of the definition of scheme are cumulative. Hence, my conclusions on the second limb are dispositive of the appeal.

Grounds 3 and 4

1. These grounds challenge the rejection by the primary judge of the "defence" in s 1012E(6) and (7), operating together with s 601ED(2). If the defence is made out then even if Spicer Thoroughbreds was operating a managed investment scheme, registration was not required because the scheme was exempt from any obligation to issue a Product Disclosure Statement.
2. These grounds are a little awkward to consider, since they turn on the proposition that, contrary to my conclusion above, there was one or more managed investment schemes. It is necessary, for the purposes of addressing these grounds, to assume that Mr Stewart (and others) acquired a financial product, namely, the right to derive income (primarily, prizemoney) from racing the racehorses they co-owned.
3. Section 601ED(2) provides: (2) A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made.
4. Section 1012E appears in Division 2 of Part 7.9. It provides that certain small scale offerings of financial products are exempt from the requirement to issue a PDS. Financial products include, relevantly, managed investment products: s 1012E(1)(a).
5. The primary judge found at [37] that the first element of the exception, namely, that the offers made by Spicer Thoroughbreds were "personal offers" within the meaning of s 1012E(2), was satisfied. Despite Mr Stewart having submitted to the contrary at first instance, as previously noted there was no notice of contention. Accordingly, I pass over the arguments and reasoning of the primary judge which bore on that issue.
6. Subsections s 1012E(6) and (7) turn on identifying a "financial product" which is "issued", as follows: Small scale offerings of managed investment and other prescribed financial products (20 issues or sales in 12 months) … (6) An offer to issue, or arrange for the issue of, a financial product: (a) results in a breach of the 20 purchasers ceiling if it results in the number of people to whom the issuer has issued financial products exceeding 20 in any 12 month period; and (b) results in a breach of the $2 million ceiling if it results in the amount raised by the issuer from issuing financial products exceeding $2 million in any 12 month period. (7) An offer by a person to sell a financial product: (a) results in a breach of the 20 purchasers ceiling if it results in the number of people to whom the person sells financial products issued by the issuer of that financial product exceeding 20 in any 12 month period; and (b) results in a breach of the $2 million ceiling if it results in the amount raised by the person from selling financial products issued by the issuer of that financial product exceeding $2 million in any 12 month period. …. (9) In counting issues and sales of the financial products issued by the issuer, and the amount raised from issues and sales, for the purposes of subsection (2), disregard any issues and sales made by a body if: (a) the body was a managed investment scheme (but not a registered scheme) at the time that the offer of interests in the scheme that resulted in the issues or sales was made; and (b) the body became a registered scheme within 12 months after that offer was made; and (c) the offer would not have required a Product Disclosure Statement (otherwise than because of this section) if the managed investment scheme had been a registered scheme at the time that the offer was made. (10) In working out the amount of money raised by the issuer from issuing financial products, include the following: (a) the amount payable for the financial products at the time when they are issued; (b) if the financial product is an option--any amount payable on the exercise of the option; (c) if the financial products carry a right to convert the financial product into other financial products--any amount payable on the exercise of that right. ….
7. It was common ground before the primary judge and on appeal that Spicer Thoroughbreds bore the onus of establishing that it fell within the exception.
8. The primary judge found that Spicer Thoroughbreds had not established the second element of the definition. True it is that the combined purchase price of each horse did not exceed $2 million and there were never more than 20 purchasers. The reasons of the primary judge are encapsulated at [40]-[41]: Mr Klineberg submits that Spicer Thoroughbreds sold 774 interests in horses to well over 20 people, to a value of approximately $12 million, in the period from 8 January 2018 to 17 December 2019 (Ex J1, 259ff). That does not, in itself, establish that those were sales of financial products issued by Spicer Thoroughbreds, as distinct from interests in horses, so that the proceeds of the sales of those financial products exceeded $2 million in any 12 month period. However, the Defendants' more fundamental difficulty is that they did not lead evidence to establish the facts necessary to bring Spicer Thoroughbreds within those exceptions. Even if the Defendants' business model has the character described in Mr Spicer's evidence, that would not form a sufficient basis to find that the offer of interests in other horses was not an offer of interests in managed investment schemes and therefore in "financial products", so as to establish the availability of this exception. I am not satisfied that the Defendants have established that the requirement for a product disclosure statement under Pt 7.9 Div 2 did not apply, so as to exclude the registration requirement under s 601ED of the Act, where there is no evidence that the offers to owners of the three horses and of other interests in other horses in the relevant period [did not exceed] the 20 purchasers or the $2 million ceiling in ss 1012E(6) or (7) of the Act and both would need to be established to allow the benefit of the exception.
9. In this Court, Spicer Thoroughbreds repeated the arguments on construction which had been rehearsed at first instance. It relied on s 1012E(9) and the reference in that subsection to "body", in support of the proposition that the relevant "issuer" for the purposes of the section was not the promoter of the scheme but the members of the scheme itself. It submitted that this was more clearly expressed in the previous incarnation of the legislation, prior to the Financial Services Reform Act 2001 (Cth) and that the explanatory memorandum did not suggest that there had been any change in legislative purpose when the word "body" was removed from the counterpart to s 1012E(6). Reliance was placed on the reasoning in Mier v FN Management Pty Ltd [2006] 1 Qd R 339; [2005] QCA 408, in (concededly indirect) support of the proposition that the "body" which comprised a scheme might not necessarily be the promoter for the purposes of 601ED(1), but might instead be the group of people who participate in the venture. In turn it was submitted that because that is what s 1012E(9) contemplated, that informed the application of the cap in 1012E(6).
10. I do not accept these submissions. Subsection (9) is directed to the special case of an issuer which becomes a managed investment scheme during a twelve month period and is not disentitled from relying on the exception by reason of lawful issues of financial products of sufficient number or value in that earlier period. In any event, the word "body" is insufficient to detract from the ordinary meaning of the exception, which looks not at individual schemes, but at the value and number of purchasers of financial products.
11. I respectfully agree with the reasons of the primary judge on this issue. Spicer Thoroughbreds did not establish that the number and value of interests in the schemes were less than 20 and $2 million in any year. These grounds should be dismissed.

Conclusion and orders

1. For those reasons, the appeal should be allowed, the declarations made at first instance should be set aside, and in lieu thereof, the proceedings brought by Mr Stewart dismissed. There is no reason why Mr Stewart should not pay the costs at first instance.
2. In this Court, there were two discrete issues. Spicer Thoroughbreds and Mr Spicer succeeded on one, Mr Stewart succeeded on the other. In many cases an appellant who achieves ultimate victory but fails on some grounds would not warrant a departure from the ordinary rule that costs follow the event. However, in the present case, there are two countervailing considerations. First, there is force in the fact that the appeal was directed to the entirety of Spicer Thoroughbreds' operations, and was a matter of indifference to Mr Stewart save in relation to costs. By that, I mean merely that irrespective of the outcome of the appeal, Mr Stewart was never going to recover the amounts he claimed when bringing proceedings, and the sole point of the appeal (except in relation to costs) was to set aside the declarations made relating to Spicer Thoroughbreds. It is not uncommon when a public or private institution brings an appeal which has limited consequences for the respondent, but ongoing consequences for the institution, for a special costs order to be made. Secondly, there is the fact that the notice of appeal was incompetent. Combined, those considerations cause me to favour the view that the appropriate order as to costs in this Court is that there be no order as to costs, with the intention that the parties bear their own costs of the notice of appeal and the summons seeking leave to appeal.
3. I propose these orders: In 2022/167408:
4. Dismiss the notice of appeal as incompetent.
5. No order as to the costs of the appeal, with the intent that the parties bear their own costs of the proceedings in the Court of Appeal. In 2022/304343:
6. Grant leave to appeal.
7. Dispense with the requirement to file and serve a notice of appeal.
8. Appeal allowed.
9. Set aside the orders made on 20 May 2022, and in lieu thereof, dismiss the Amended Summons filed on 15 April 2022 with costs.
10. No order as to the costs of the appeal, with the intent that the parties bear their own costs of the proceedings in the Court of Appeal.
11. MITCHELMORE JA: I agree with Leeming JA.
12. GRIFFITHS AJA: I agree with Leeming JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 May 2023