State Street Australia Ltd in its capacity as Custodian for Retail Employees Superannuation Pty Ltd (Trustee) v Retirement Villages Group Management Pty Ltd

Federal Court of Australia|2016-06-07|Before: Mr P, Beach J

BACKGROUND 5 RVG was established in 2007 by Aveo (previously known as FKP Limited) and Macquarie Investment Holdings No. 2 Pty Ltd with RVGM retained under an advisory services deed (ASD) to provide management and advisory services for reward. RVGM was initially owned as to 50% by Macquarie Corporate International Holdings Pty Ltd and Macquarie Funds Management Holdings Pty Ltd on the one hand and as to 50% by Aveo on the other hand. Since 2012 RVGM has been wholly owned by Aveo; Aveo has continued to directly hold shares in RVGM but has also held the balance of shares in RVGM through Aveo's wholly owned subsidiary, RVGM Holdings Pty Ltd. A relationship deed between Aveo, Macquarie Bank Ltd (Macquarie), RVGM and the stapled entities has governed their respective interests in exploiting commercial opportunities and co-investment including acquisition by the stapled entities of Aveo's retirement village developments (the relationship deed). 6 The RVAL Constitution, one of the constituent documents together with a securityholders deed (SHD) and stapling provisions, provides that RVAL shall have five directors. Two of the directors were to be appointed by the holders of "A Special Shares" in RVAL and three were to be independent directors appointed under cl 11.6. Aveo holds one "A Special Share" and RVGM now holds the other. 7 It is appropriate to set out relevant provisions of the RVAL Constitution: (a) Clause 1.1 provides: 1.1 General Provisions There are three parts to this Constitution: (a) the General Provisions of the Constitution; (b) the Stapling Provisions; and (c) the Securityholders' Deed. (b) Clause 1.3 provides: 1.3 Securityholders' Deed On and from the date the Securityholders Deed is executed up to and excluding the Securityholders' Deed Termination Date: (a) the General Provisions and the Stapling Provisions are to be read subject to the Securityholders' Deed; and (b) subject to clause 24 ("Statutory Provisions") of this Constitution and clause 24 ("Statutory Provisions") and clause 10 ("Income and Distributions") of the Trust Constitution, to the extent of any inconsistency between the Securityholders' Deed and the General Provisions and the Stapling Provisions, the Securityholders' Deed prevails, except where this would result in a breach of the Corporations Act or any other Law; and (c) for such time as the Securityholders Deed remains in effect, an amendment of this Constitution in accordance with the Corporations Act which amends the Securityholders' Deed provisions of this Constitution does not have any effect unless both of the following additional requirements are satisfied: (i) the Securityholders' Deed (as a stand alone document) is amended in accordance with the provisions of that deed; and (ii) the same amendment is made to each other Constituent Document. (c) Clause 3.1 provides: 3.1 Issue of A Special Share (a) A Special Shares may be issued to, held by and transferred only to a person holding 50% of the shares on issue in the Advisor from time to time ("Advisor Shares"). (b) On the CP Date, the Company must issue one A Special Share to MGIH. (c) On the CP Date, the Company must issue one A Special Share to FKP. (d) Clause 3.2(a) provides: 3.2 Rights attaching to A Special Share (a) Each A Special Shareholder is entitled to appoint from time to time one Director for each A Special Share held, either by notice in writing to the Company or by a resolution at a meeting of Members at which only the A Special Shareholder nominating the person may vote on the appointment resolution or resolutions. (e) Clauses 11.1 and 11.2 provide: 11.1 Number of Directors Subject to clause 11.2 the number of Directors is to be five. 11.2 Change of number of Directors The Company in general meeting may (with the unanimous approval of the A Special Shareholders while clause 3 ("A Special Shares") applies) by resolution increase or reduce the number of Directors and may also determine the rotation in which the increased or reduced number is to retire from office. (f) Clauses 11.6 to 11.8 provide: 11.6 Appointment of Independent Directors The Committee may at a meeting of the Committee by a resolution approved on a show of hands by a simple majority of Nominated Representatives present at the meeting nominate up to three persons as Independent Directors. At the time of the nomination of an Independent Director the Committee must provide to the Company information in relation to the qualifications and experience of the Independent Director together with evidence that the Independent Director satisfies the Independence Criteria. The Committee must also provide to the Company any additional information in relation to the Independent Director reasonably requested by the Company. Once the written notification and information referred to in this clause is received the Company must promptly arrange to seek approval for the appointment of the nominated person or persons by an ordinary resolution of Members conducted by way of a poll (excluding Shares held by Macquarie group and FKP) at a meeting of the Company. This clause is subject to the requirements of clauses 11.1 and 11.7(b). For the avoidance of doubt, nothing in this clause limits the ability of Members under the Corporations Act to call a meeting of the Company and/or to appoint or remove a Director. 11.7 Directors elected at general meeting (a) The initial terms of the Independent Directors will be one, two and three years respectively, to be determined by lot. Subsequent terms of the Independent Directors will be three years. (b) Where an Independent Director retires or otherwise vacates office, the vacated office shall be filled in accordance with clause 11.6. (c) If there are no A Special Shares on issue, or the rights attaching to all the A Special Shares have ceased in accordance with clause 3.3 the Company may by resolution fill the office vacated by the retiring Director or Directors in accordance with clause 3.2(b)(ii) by electing a person to that office. 11.8 Casual Vacancy (a) Subject to clause 11.8(c), the Directors may at any time appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, provided the total number of Directors does not exceed the maximum number determined in accordance with clause 11.1 ("Number of Directors"). For such time as A Special Shares are on issue and clause 3.3 has not applied, the Directors may only appoint a person to be a Director under this clause 11.8(a) if that person is approved by the A Special Shareholders. (b) A Director appointed under this clause 11.8(a) holds office until the conclusion of the next annual general meeting of the Company but is eligible for election at that meeting. This provision does not apply to any Managing Director who is exempted from retirement by rotation in accordance with the Listing Rules (if applicable) and clause 13.27 ("One Managing Director exempt from retirement by rotation"). (c) In the case of a casual vacancy in the office of a Director appointed by an A Special Shareholder, clauses 11.8(a) and 11.8(b) do not apply, and the A Special Shareholder who appointed that Director may appoint any person to be a Director to fill that casual vacancy. A Director appointed under this clause 11.9(c) holds office until the conclusion of the next annual general meeting of the Company but is eligible for re-election at that meeting, by resolution of the Company on which only that A Special Shareholder may vote. (g) Clause 11.17 provides: 11.17 Removal of Directors (a) Subject to clause 11.17(c), the Company may at a special general meeting called for that purpose remove a Director provided notice of any such meeting shall be served upon the Director concerned not less than 14 days before the meeting and he shall be entitled to be heard at that meeting. (b) Subject to clause 11.17(c), a Director can only be removed at a special general meeting by a resolution of Ordinary Shareholders. Any vacancy created by that removal may be filled at the meeting by the election of another Director in his or her place or, in the absence of any such election, by the Directors. (c) Where the Director who is removed is removed in accordance with clause 3.2 ("Rights attaching to A Special Share") ("Removed Director") the resolution to remove the Removed Director does not take effect until a replacement has been appointed by the A Special Shareholder who appointed the Removed Director in accordance with clause 3.2. (h) Clause 13.16 provides: 13.16 Remaining Directors may act The continuing Directors may act despite a vacancy in their number. If their number is reduced below the minimum fixed by clause 11.1 ("Number of Directors"), the continuing Directors may, except in an emergency, act only for the purpose of filling vacancies to the extent necessary to bring their number up to that minimum or to convene a general meeting. (i) The prefatory words to cl 26.1 provide: 26.1 Definitions Words defined in the Stapling Provisions and the Securityholder Provisions have the same meanings when used in the body of the Constitution unless otherwise defined in clause 26.1 ("Definitions"). In the body of the constitution these words and phrases have the following meaning unless the contrary intention appears. (j) Clause 26.1 includes the following definitions: Committee has the same meaning as prescribed in the Securityholders Deed. FKP means FKP Limited (ABN 28 010 729 950). Independence Criteria means the independence criteria adopted by the board of Directors, which must be in accordance with the current ASX Principles of Good Corporate Governance and Best Practice Recommendations as amended from time to time. Independent Director means a Director who is not a Director appointed by an A Special Shareholder and who meets the Independence Criteria. 8 The independence criteria adopted by the board of RVAL provides that an independent director can not be a director, officer, employee, substantial securityholder or in any way otherwise associated with "any Macquarie Group entity or FKP Group entity" or RVGM. 9 An extract of the independence criteria is the following: An Independent Director is a Director of the Company (that is, RVGRE, RVAL or RVNZI as the case may be) who is not a member of management (a non-executive director), who qualifies as an external director in accordance with Chapter 5C of the Corporations Act and who meets the following criteria:  Must be appointed in a non-executive capacity and therefore must not be a director, officer or employee of any Macquarie Group entity or FKP Group entity or any entity which is jointly owned by a member of the Macquarie Group and a member of the FKP Group (a "jointly owned entity").  Must not be a substantial securityholder of:  Macquarie Group Limited, FKP Limited or RVG; or  a company holding more than five percent of the voting securities of Macquarie Group Limited, FKP Limited or RVG.  Must not be an officer of, or otherwise associated directly or indirectly with, a substantial shareholder of the Company or a shareholder holding more than five percent of the voting securities of Macquarie Group Limited, FKP Limited or RVG (other than Retirement Villages Group R.E Limited as trustee of the Retirement Villages Trust).  Must not, within the last three years, have been:  employed in an executive capacity by the Company, a Macquarie Group entity, an FKP Group entity or a jointly owned entity; or  a director of any such entity after ceasing to hold any such employment.  Must not be a principal or employee of a professional adviser or consultant whose billings to RVG, Macquarie Group entities, FKP Group entities, jointly owned entities or other funds managed by the Macquarie Group or the FKP Group or by jointly owned entities (together "Associated Entities") over the previous full year, in aggregate, exceed five percent of the adviser's or consultant's total revenues over that period. (A Director who is a principal, director or employee of a professional adviser or consultant must not participate in any consideration of the possible appointment of the professional adviser or consultant and must not participant [sic] in the provision of any service by that firm to Associated Entities). 10 Originally the RVAL Constitution provided for independent directors to be nominated by Aveo and Macquarie but appointed in general meeting. In 2008, following concerns expressed by external investors and in conjunction with additional external investment in RVG, the RVAL Constitution was amended to provide for independent directors to be nominated and approved by external investors, excluding Aveo and Macquarie. The explanatory notes to the 2009 annual general meeting referred to "Macquarie Group and FKP Group" being excluded from voting on the approval of independent directors. 11 The SHD provides for a securityholders committee comprising representatives of certain RVG investors to consider and address certain matters of governance. Membership of the securityholders committee in effect expressly excludes Aveo and RVGM. Under cl 3.7, only certain securityholders are eligible for membership of the securityholders committee. Clause 3.7(h) provides that "no Macquarie Group Member or FKP Group Member shall be an Eligible Securityholder". As the only remaining external investor, REST is now the sole member of the securityholders committee. It is also to be noted that the SHD is one of the constituent documents and overrides the general provisions of the RVAL Constitution to the extent of any inconsistency. 12 The SHD contains, inter alia, the following provisions: (a) Clause 3.1 provided: 3.1 Appointment of independent directors to RVAL The Stapled Entities and each holder of Securities in RVAL agrees that when holders of Securities in RVAL are required to elect an independent director to the board of RVAL such independent director will be elected in accordance with the RVAL constitution. (b) Clause 3.7(a) to (h) provided: 3.7 Securityholders Committees (a) The Stapled Entities shall establish the Committee in accordance with the provisions of this clause 3.7. (b) The Committee's role with respect to the affairs of RVG is limited to the Committee Matters. (c) Except in relation to the Committee Voting Matters as set out in clause 3.7(n)(d), it is not intended that the Committee will vote on Committee Matters or in any way affect the decision making of the boards of the Stapled Entities or RVGRE, the independent directors, the Advisor or any other person in respect of any Committee Matter. (d) Except in relation to the Committee Voting Matters, nothing in this clause in any way limits the powers, rights and roles of the directors of each Stapled Entity and RVGRE or of the Advisor under this deed, the Advisory Services Deed, the Constituent Documents or the Law. (e) For so long as Metlifecare remains a Code Company, the Committee, each Eligible Securityholder and each Nominated Representative have no rights to: (i) participate in the management and operation of RVNZI, RVNZI's Subsidiaries or Metlifecare; (ii) control or influence in any way the exercise of voting rights in relation to Metlifecare; or (iii) participate or influence in any way any decision by RVNZI as to the exercise of its voting rights as a shareholder of Metlifecare, or any decision by RVNZI in connection with such exercise by RVNZI of those voting rights. (f) The Committee is to consist of a maximum of five Securityholders, of which: (i) no more than four Securityholders meet the eligibility criterion in clause 3.7(g)(i); and (ii) no more than one Securityholder meets the eligibility criterion in clause 3.7(g)(ii). (g) Subject to clause 3.7(h), the following Securityholders shall be eligible for membership of the Committee: (i) any Securityholder whose Securityholdings, whether alone or when aggregated with the Securityholdings of its Related Entities, are in aggregate not less than $75 million (calculated on the basis of issue price); and (ii) in the case of any Securityholder who does not satisfy the eligibility criterion in clause 3.7(g)(i) ("Minority Securityholder"), any such Securityholder who has obtained the written consent of a majority of the other Minority Securityholders to the first Minority Securityholder's membership of the Committee (each such consent an "Endorsement Notice"), which majority consent has not been revoked. (h) Notwithstanding clause 3.7(g), no Macquarie Group Member or FKP Group Member shall be an Eligible Securityholder. (c) Clause 30.1 contains the following definitions: FKP Group means FKP, each of its Related Bodies Corporate and any FKP Managed Fund. Macquarie Group means Macquarie Bank Limited, each of its Related Bodies Corporate and any Macquarie Managed Fund. Related Body Corporate has the meaning given in the Corporations Act. Related Entity means, in relation to an entity: (a) a Related Body Corporate of that entity which: (i) in the context of the Stapled Entities, RVGRE and the Advisor, excludes a holding company (as defined in the Corporations Act); and (ii) in the context of determining whether an entity is a subsidiary of another entity, excludes section 48(2) of the Corporations Act; and (b) any trust or partnership Controlled by that entity. 13 On 24 November 2015, Mr Flanagan was appointed as an independent director of RVAL. On 20 January 2016, Mr Dicks was also appointed as an independent director. By 24 November 2015, the day of the poll in respect of Mr Flanagan, Aveo had transferred nearly all its shares in RVAL to RVGM. 14 Since that time, RVGM has increased its shareholding to 72.9%. Recently, RVGM issued notices calling a general meeting of securityholders of RVAL proposing resolutions for the removal of Mr Flanagan and Mr Dicks purportedly with immediate effect. The explanatory memorandum for the first notice dated 24 March 2016 referred to provisions for removal under both s 203D(1) and cl 11.17 of the RVAL Constitution. But the second notice dated 3 May 2016 has sought to have the resolutions put only under the provision for removal of directors in cl 11.17 of the RVAL Constitution. I will treat the second notice as superseding the first notice, with the mechanism under s 203D now not sought to be expressly invoked by RVGM. Whether s 203D can be so readily put to one side is another question.

THE OPERATION OF SECTION 203D 15 Section 203D provides the following: 203D Removal by members - public companies Resolution for removal of director (1) A public company may by resolution remove a director from office despite anything in: (a) the company's constitution (if any); or (b) an agreement between the company and the director; or (c) an agreement between any or all members of the company and the director. If the director was appointed to represent the interests of particular shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement to represent their interests has been appointed. Note: See sections 249C to 249G for the rules on who may call meetings, sections 249H to 249M on how to call meetings and sections 249N to 249Q for rules on members' resolutions. Notice of intention to move resolution for removal of director (2) Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given. Note: Short notice of the meeting cannot be given for this resolution (see subsection 249H(3)). Director to be informed (3) The company must give the director a copy of the notice as soon as practicable after it is received. Director's right to put case to members (4) The director is entitled to put their case to members by: (a) giving the company a written statement for circulation to members (see subsections (5) and (6)); and (b) speaking to the motion at the meeting (whether or not the director is a member of the company). (5) The written statement is to be circulated by the company to members by: (a) sending a copy to everyone to whom notice of the meeting is sent if there is time to do so; or (b) if there is not time to comply with paragraph (a) - having the statement distributed to members attending the meeting and read out at the meeting before the resolution is voted on. (6) The director's statement does not have to be circulated to members if it is more than 1,000 words long or defamatory. Time of retirement (7) If a person is appointed to replace a director removed under this section, the time at which: (a) the replacement director; or (b) any other director; is to retire is to be worked out as if the replacement director had become director on the day on which the replaced director was last appointed a director. Strict liability offences (8) An offence based on subsection (3) or (5) is an offence of strict liability. Note: For strict liability, see section 6.1 of the Criminal Code. 16 REST has relied on the decision of Bryson AJ in Scottish & Colonial Ltd v Australian Power and Gas Co Ltd (2007) 65 ACSR 313 to assert that the provisions of s 203D provide the only mechanism by which the director of a public company can be forcibly removed to the exclusion of any mechanism in a company's constitution. I do not agree and do not propose to follow that decision. In my view, although s 203D(1) is mandatory in the sense that it overrides a company's constitution to the extent of any inconsistency, it does not provide an exhaustive codification of the mechanism for removal. Before turning to Scottish & Colonial and the other authorities, it is appropriate to directly address the text and context of s 203D. 17 First, the language of s 203D(1) uses the phrase "[a] public company may …". The word "may" is empowering. Significantly, the phrase is not "may only …". The text suggests that s 203D(1) provides a mechanism rather than the mechanism. 18 Second, the phrase is "… may by resolution remove a director from office despite anything in … the company's constitution …". The words "despite anything" clearly indicate that s 203D(1) operates to in effect override a mechanism in a company's constitution that might operate inconsistently and might otherwise prevent a director from being removed by an ordinary resolution of shareholders. But s 203D(1) does not purport to be exhaustive or to be an exclusive codification for the mechanism available to remove a director of a public company. The words "despite anything" operate to override a constitution to the extent of any inconsistency only. Nothing more can be read into the words "despite anything …". 19 Third, nothing turns on the point that s 203D is not a replaceable rule. True it is that it cannot be displaced by a company's constitution. As I have said, it operates of its terms to override any otherwise inconsistent provision in a constitution. But that is a different thing from saying that it provides an exhaustive codification. It is there as a default mechanism rather than the mechanism. 20 Fourth, it is true that s 203D does not contain the predecessor subsection (s 227(11) of the Corporations Law) which said "Nothing in the preceding provisions of this section … derogates from any power to remove a director that may exist apart from this section". But nothing can be read from the absence in s 203D of the predecessor subsection. Such a subsection was unnecessary given the plain text of s 203D(1). Further, the explanatory memorandum to the Corporate Law Economic Reform Program Bill 1998 which explained the changes from the prior s 227 of the Corporations Law provides no support for the position that there was any intention to make any change by the deletion of that prior subsection. The explanatory memorandum was replete with the phrase that "The draft provisions will rewrite without substantial change the existing provisions of the Law about Officers (Part 3.2) …". Part 3.2 is now Chapter 2D. There were some significant changes identified in the explanatory memorandum, but not in relation to the point under discussion. Now I accept that such a general statement, which encompassed numerous statutory provisions, carries little weight because of its generality and breadth. Nevertheless what is important to note is that there was no express statement in the explanatory memorandum to support the suggestion that any change was intended by the deletion of the earlier subsection. 21 Fifth, it has been said that s 203D can be distinguished from its predecessor provision in terms of its construction because, inter alia, it confers new rights which the predecessor provision did not contain. That may be so at one level, but I do not consider that to be a relevant distinction in the present context. The provisions of subsections (2) to (6) all refer to "the director" and "the resolution" thereby referring back to the mechanism in subsection (1). Further, subsection (7) refers to "a director removed under this section". It is apparent that all other rights are attached to and triggered by the utilisation of the mechanism under subsection (1) only. But that still does not answer the construction question as to whether subsection (1) is the only method for removal. Can it be said that the legislature intended to confer the right in subsection (4) in all cases? The text does not so indicate. It is only indicated where subsection (1) has been triggered and not otherwise. Moreover, there is no suggestion in the explanatory memorandum to suggest a broader and comprehensive scope. 22 Sixth, the proviso in subsection (1) cannot be separated from the principal operative provision such that the proviso could be said to be mandatory in all cases, but the operative provision not. The proviso refers to "the director" and "the resolution". The use of the definite article in each case is a reference back to the operative provision and the circumstance under which it has been invoked. In other words, if the operative provision has not been invoked to remove a director because another mechanism, say under the constitution, has been used for removal (assuming the construction I have found as to the operative part), then the proviso does not apply. But if the operative provision has been invoked, then the proviso may operate. In other words, the operative part and the proviso are coupled. One could only argue that the proviso could be decoupled if the text of the proviso had said "a director" and "a resolution". But it does not. Accordingly, the proviso cannot separately be said to be mandatory in all cases where the operative provision was not. 23 Let me now turn to the authorities. It is appropriate to commence by first identifying the vice sought to be addressed in the predecessor provision. 24 In Bushell v Faith [1970] AC 1099, the relevant vice was addressed by reference to s 184(1) of the Companies Act 1948 (UK). Section 184(1) provided: 184 Removal of directors (1) A company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles or in any agreement between it and him: Provided that this subsection shall not, in the case of a private company, authorise the removal of a director holding office for life on the eighteenth day of July, nineteen hundred and forty-five, whether or not subject to retirement under an age limit by virtue of the articles or otherwise. 25 Lord Upjohn set out the relevant mischief in the following terms (at 1108): My Lords, when construing an Act of Parliament it is a canon of construction that its provisions must be construed in the light of the mischief which the Act was designed to meet. In this case the mischief was well known; it was a common practice, especially in the case of private companies, to provide in the articles that a director should be irremovable or only removable by an extraordinary resolution; in the former case the articles would have to be altered by special resolution before the director could be removed and of course in either case a three-quarters majority would be required. In many cases this would be impossible, so the Act provided that notwithstanding anything in the articles an ordinary resolution would suffice to remove a director. That was the mischief which the section set out to remedy; to make a director removable by virtue of an ordinary resolution instead of an extraordinary resolution or making it necessary to alter the articles. 26 Other than the outlier Scottish & Colonial, Australian courts have all reached the conclusion that the statutory removal power, which has existed in various iterations culminating in the present s 203D, does not abrogate shareholders' ability to remove a director by ordinary resolution in accordance with the company's constituent documents provided that those constituent documents do not otherwise contravene any other applicable law; an example in terms of the predecessor s 227 of the Corporations Law is Link Agricultural Pty Ltd v Shanahan [1999] 1 VR 466 at [52]. In other words, although s 203D and its predecessors have been held to override a company's constitution to the extent of any inconsistency, such provisions do not operate as an exhaustive codification of the mechanism(s) for removal of a director. 27 Bryson AJ's decision was founded upon his conclusion that the change in wording from "notwithstanding" in the precursor provision to "despite", which first appeared in March 2000 when s 203D of the Corporations Law was enacted by operation of the Corporate Law Economic Reform Program Act 1999 (Cth), was determinative of the issue. His Honour observed: [The words "despite anything"] are plainly very strong. (at [17]) … Section 203D is unlike its predecessors in the emphatic nature of the language used. (at [21]) … The strength of the language used in several places in s 203D leads me to the view that its provisions, including its procedural provisions, were intended to operate whether or not some provision in the constitution indicated some other procedural course which gave directors less or no protection. (at [39]) … The wide divergence of the terms of s 203D from the terms of earlier provisions is significant of an intention to make wide departures of meaning. (at [41]) 28 But first, in Allied Mining & Processing Ltd v Boldbow Pty Ltd (2002) 26 WAR 355, Roberts-Smith J at [47] to [57] did not attribute any significance to any differentiation between the words "despite" and "notwithstanding". The words "notwithstanding" and "despite" are synonyms. In Attorney-General of the Commonwealth v Oates (1999) 198 CLR 162 it was held at [33] per Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ that a transition from "notwithstanding" to "despite" in s 1316 of the Corporations Law did not change its meaning. 29 Second, Windeyer J in Dick v Comvergent Telecommunications Ltd (2000) 34 ACSR 86 proceeded on the basis that shareholders could choose between s 203D or the alternative procedure under the company's constitution. 30 Third, in Bisan Ltd v Cellante [2002] VSC 504, a case not referred to in Scottish & Colonial, it was held that s 203D was an alternative co-existent mechanism. 31 Fourth, Emmett J's analysis in Central Exchange Ltd v Rivkin Financial Services Ltd (2004) 213 ALR 771 at [50] to [53] is not consistent with Bryson AJ's construction, although I accept that the point does not appear to have been argued. 32 Fifth, in Dalkeith Resources Pty Ltd v Regis Resources Ltd [2012] VSC 288 it was held that a provision in the constitution allowing for the removal of a director by ordinary resolution and the s 203D mechanism constituted concurrent alternative methods to remove a director. I would note though that the judge in that case did not refer to Scottish & Colonial. 33 In summary, Scottish & Colonial is not consistent with the prevailing view. As there are conflicting single instance decisions on s 203D, I do not need to decide that Scottish & Colonial is plainly wrong. It is not the preferable or prevailing view and I propose not to follow it. But if I also need to say it, I am not satisfied that any of Allied Mining & Processing, Dick, Bisan or Dalkeith Resources are plainly wrong. 34 Finally on this aspect, REST has contended in the alternative that the rider in s 203D(1) is separately mandatory and applicable to all modes of removal. 35 As I have said, s 203D(1) contains a rider which provides that: If the director was appointed to represent the interests of particular shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement to represent their interests has been appointed. 36 For the reasons I have given at [22], that argument is rejected.

APPLICATION OF THE PROVISO TO SECTION 203D(1) 37 REST has contended that the independent directors were appointed to represent the interests of particular RVAL shareholders, being the external investors, i.e. investors other than Macquarie group and Aveo group entities, within the meaning of s 203D(1). Because of my earlier conclusions that in the present circumstances s 203D does not operate to oust the mechanism in the RVAL Constitution, which is not inconsistent therewith, and further that the rider does not apply, strictly I do not need to address this question. But I will do so for completeness. 38 In my view, if the s 203D(1) rider applies, it is engaged in respect of both Mr Flanagan and Mr Dicks as independent directors of RVAL. Before addressing the constituent documents it is appropriate to make a number of observations concerning the construction of the rider. 39 The text of the rider is expressed in the form of a conditional statement, namely, "[i]f the director was appointed to represent the interests of particular shareholders …". 40 First, what does "to represent …" mean or entail? Strictly, once a director is appointed, he or she must act in the best interests of the company and comply with the applicable statutory and fiduciary duties owed to the company. In other words, the director on appointment is not principally acting as a representative of any shareholder. But as this can be said for each and every director regardless of the appointment mechanism, the statutory phrase "the director was appointed to represent the interests of …" must necessarily contemplate a lesser position of representation, but what precisely? One way to look at the phrase is that it speaks in futuro so that it does not matter that on appointment the particular director cannot act as such a representative. It is enough merely to consider how they were selected and nominated as sufficient to satisfy the representational component of the statutory phrase. Another way to look at the matter is to accept that for some Board decisions a director can in substance act as a representative on some occasions. For example, if a Board is considering making a decision and there are two possible options, both of which ceteris paribus would be in the best interests of the company, a director may in the exercise of his or her discretion be able to take into account the representational capacity underpinning his or her appointment. It is not unremarkable that fiduciary obligations can be tailored or modified by agreement between all relevant parties and in the context of considering directors' duties and responsibilities (see Jacobs J's discussion in Levin v Clark [1962] NSWR 686 at 700 and 701). But, of course, statutory duties are more rigid. But even then, the prescriptive and mandatory content of the statutory duties does not logically entail the exclusion of the consideration of secondary interests if to do so would not conflict with the primary statutory obligations and the director's independent judgment and discretion is not otherwise fettered. 41 There may be different conceptual approaches as to whether a director can represent a shareholder, with the paradigm case of such a representational capacity being what has been termed a nominee director; see Ahern, D "Nominee Directors' Duty to Promote the Success of the Company: Commercial Pragmatism and Legal Orthodoxy" (2011) 127 LQR 118 at 129 to 137. 42 The absolutist position is that a director must act in the best interests of the company such that there is no room whatsoever for accommodating the interests of his or her appointer. I do not consider that such an absolute position represents Australian law. 43 A lesser position is that a director can act in the interests of his or her appointer provided that such interests are also compatible with the best interests of the company and his or her independent judgment and discretion is not otherwise fettered. But where there is an actual or potential conflict between the appointer's interests and the company's interests, the latter necessarily prevails. It seems to me that this is the present position under Australian law. 44 The minimalist position propounds that by express provision in a company's constituent documents, there can be a relaxation such that a director can prefer the interests of his or her appointer over that of the company. But in my view, no such agreement can override the statutory duties. Nevertheless, a director's roles and responsibilities may to some extent be attenuated by express provision in a constitution limiting the director's role, which may impact on the scope and discharge of statutory duties as they apply to such a director. 45 Accordingly, and looking at the matter in this second way as referred to in [40] and as elaborated on at [43], a director can be said "to represent" the interests of particular shareholders. For completeness on this aspect, I note that using a label such as "nominee director" renders opaque the complexion and analysis of the problem. Moreover, s 203D(1) has refrained from using such a label. 46 Second, what does it mean to say "to represent the interests of particular shareholders …" (my emphasis)? The language of the current provision is different from its predecessor provision, namely, "a particular class of shareholders" (s 227(2) of the Corporations Law). In my view, nothing really turns on the difference; there is no relevant explanation in the explanatory memorandum for such a change. Textually, in one sense the current provision is wider than its predecessor. In other words, it ought not to be read down to require the identification of a particular class. The second matter to note is that the statutory stipulation may be satisfied by way of exclusion i.e. "all shareholders other than". In other words the reference to "particular shareholders" may be satisfied from either an inclusionary perspective or an exclusionary perspective. 47 I am satisfied, if I had needed to rule on this point, that Mr Flanagan and Mr Dicks, as independent directors of RVAL, were appointed to represent the interests of shareholders other than inter alia Aveo and RVGM or their related entities to the extent that the latter held A Special Shares or controlled or were associated with the management of RVG. 48 First, the structure of RVG and the RVAL constituent documents provided for different interests of the external investors as particular shareholders. They made separate provision in relation to RVGM and its owner(s), Aveo (and Macquarie), including in relation to the issuance of and rights pertaining to the A Special Shares (Constitution, cll 3.1 and 3.2). The SHD imposed obligations on Aveo (and Macquarie) to commit to certain initial investments and to hold a minimum level for a period of time. The corporate governance framework dealt separately with Aveo (and historically Macquarie) and RVGM on the one hand, and external investors on the other hand. Directors were appointed separately by the owner(s) of RVGM (Constitution, cl 3.2) and by other securityholders (Constitution, cl 11.6). There were and are different commercial interests and imperatives that RVGM and Aveo have compared to other RVAL shareholders, given RVGM's appointment as advisor under the ASD, the rights that this gave Aveo under RVAL's Constitution and Aveo's ownership of RVGM. Further, the securityholders committee of non-Aveo securityholders established under cl 3.7 of the SHD had responsibilities for discussion and even approval of numerous significant matters protecting the interests of non-Aveo securityholders including breaches of the ASD and related party transactions (SHD, cl 3.7(n)). Further, the securityholders committee's functions extended to nominating independent directors (Constitution, cl 11.6). Further, there was provision in the ASD for a resolution, on which Aveo and RVGM were excluded from voting, as a precondition for termination of RVGM as advisor (ASD, cl 13.3(a)(vii)). Further, the SHD also imposed a restriction on Aveo (and Macquarie) and RVGM voting in general meeting where together they held more than 49.9% of stapled securities on issue (SHD, cl 11.4). 49 Second, the 2008 amendments to the RVAL Constitution which resulted in the present structure and current cll 11.6 and 11.7 reinforced that the independent directors represented the external investors' interests as shareholders. The prior cl 11.6 was substituted following external investor concerns of conflict of interest involving RVGM and a lack of due care in representing the investors' interests. Further, the board of RVAL was reconstituted to enable only external investors to nominate and give approval to independent directors. 50 Third, the independence criteria determined by RVAL directors, although not a constitutional document per se, are consistent with the independent directors satisfying the statutory terms of the rider, if it otherwise applied. Those criteria expressly excluded candidates with any affiliation to Aveo or RVGM, although the criteria also dealt with other qualities. 51 Now on this aspect the respondents have contended that the opposite appears from the independence criteria. It is pointed out that a criterion for an independent director is that he or she must qualify as an "external director" (s 601JA) in accordance with Chapter 5C of the Act. The other criteria require, inter alia, that the director: (a) not be associated with Aveo including as a "substantial securityholder" or as a significant adviser or consultant or supplier to or customer of Aveo; (b) not be a member of management (i.e. be a non-executive director); and (c) have "no other interest or relationship that could interfere with the Director's ability to act in the best interests of the Company (and, in the case of RVGRE, in the best interests of the Retirement Villages Trust)" and independently of management of the Macquarie Group and the FKP Group and any jointly owned entity. 52 Further, it is pointed out that the independence criteria require that the director must be able to exercise "independent judgment" and must retire after 12 years to "avoid the potential for loss of objectivity over time". 53 The respondents contend that it is "therefore evident that nothing requires an independent director to act in 'non-Aveo' interests (if that actually means anything) or to act other than in the best interests of the company as a whole". Now that proposition is true so far as it goes. But in my opinion it does not deny the representational characterisation that I have given to the independent directors which conforms to the statutory stipulation. They are clearly representing in the sense that I have previously described securityholders that are not associated with and do not control management. 54 Further, the respondents have contended that independent directors are required to vote in the way that they consider to be in the best interests of RVAL. That is so, but that does not answer the point for the reasons that I have previously given. 55 Further, the respondents have contended that a director who is appointed to represent a particular class of shareholders will thereby represent the interests of particular shareholders. It is said that a class of shareholders will be an identifiable and defined species of shareholders with particular interests. But it is said that in light of the fact that, apart from the two A Special Shares held in RVAL by Aveo and RVGM, all parties to this proceeding including Aveo and RVGM hold the same class of shares in RVAL and classes of RVG securities, REST's interests arising from its shareholding in RVAL are identical to those of Aveo and RVGM. It is said that there are no other provisions in the constituent documents of RVAL that could lead to the conclusion that the independent directors are representing the interests of particular shareholders. Accordingly, so it was contended, it cannot be said that a particular shareholding exists which brings Messrs Flanagan or Dicks within the rider to s 203D(1). For the reasons that I have given, in my view such contentions are made through too narrow a lens and defy the commercial reality enshrining the independence structure. The independent directors represent securityholders that are not associated with and do not control the management of RVG, including RVAL. More narrowly, they do not represent those holding A Special Shares.

APPLICATION OF CLAUSE 11.6 56 Given the terms of the second notice of meeting which relies only on relevant provisions of the RVAL Constitution and given my conclusions concerning s 203D, it is necessary to turn to relevant provisions of the RVAL Constitution. 57 Clause 11.17 is the provision sought to be triggered. And as I have concluded, it provides an alternative mechanism to s 203D. But cl 11.17 must be read subject to cll 11.6, 11.7 and 13.16; the parties have agreed that for present purposes cl 11.8 can be put to one side. It is to be noted that cl 11.7(b) requires the mechanism set out in cl 11.6 to be applied. 58 By operation of cl 11.7(b), if cl 11.17 is triggered, any replacement of the independent directors must take place in accordance with cl 11.6. Accordingly, "like" must be replaced with "like". Not to do so would be contrary to cll 11.6 and 11.7(b). Further, not to do so would also effect a change to the proportion of independent directors to other directors without a "super majority resolution" having been passed; such a state of affairs would be contrary to the SHD. 59 But what is to occur if the securityholders committee thwarts the operation of cl 11.6? In other words, what happens if independent directors are properly removed by ordinary resolution but their replacements have not been nominated by the securityholders committee? In that eventuality, in my view the last sentence of cl 11.6 would allow shareholders to call a meeting to nominate the replacements, provided that the nominees met the independence criteria. Moreover, until their replacement, cl 13.16 would operate during any hiatus.

EXCLUSION OF AVEO AND RVGM FROM VOTING UNDER CLAUSE 11.6 60 It is important at the outset to state that this issue arises under cl 11.6 rather than cl 11.17 of the RVAL Constitution. No party suggested that any exclusion applied directly in relation to the removal mechanism. Rather, the exclusion applies to the appointment process under cl 11.6. Further, any exclusion applies to a poll conducted to appoint those persons nominated by the securityholders committee. In that context the question then remains as to whether RVGM is precluded from voting on such a poll by reason of the exclusion stipulated in cl 11.6; it is accepted that Aveo is so precluded. In my opinion, RVGM is so precluded. The reference in cl 11.6 to FKP should be taken as referring to the FKP group; RVGM, as a wholly owned subsidiary, is a member of that group. 61 Let me say at the outset that I would so find that RVGM was excluded from voting for the following reasons: (a) First, such a conclusion flows from ordinary principles of construction of the RVAL Constitution and the other constituent documents incorporated by reference. (b) Second, and relatedly, I would also so find on the basis that the literal meaning of cl 11.6 would otherwise produce an absurdity and it is self-evident what the objective intention should be taken to have been (see National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [34] to [38] per Leeming JA and Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at [115] to [121] per Leeming JA). The mistake in the reference to FKP, if it be one, can be dealt with through principles of construction. This process is distinct from rectification in equity, which I accept is not available as I later explain. (c) Third, I would also find, if it was necessary to do so, that for RVGM to vote on such a resolution would constitute a breach of an implied term of the RVAL Constitution of the B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 variety to the effect that the FKP group is precluded from voting and should not vote their shares. (d) Fourth, I would also entertain, if it was necessary to do so, an application to restrain RVGM from voting on such a resolution by reason of the potential operation of ss 232 and 233 of the Act. 62 Notwithstanding these four potential bases, for present purposes I do not need to proceed past the first justification set out in [61(a)]. 63 The contentious language of the exclusion in cl 11.6 is the words "Macquarie group and FKP" and the absence of "group" after "FKP". The term "FKP" is defined in the RVAL Constitution as meaning, unless a contrary intention appears (cl 26.1), "FKP Limited" as opposed to "FKP group" or "FKP and related bodies corporate" (cl 26.1). But in my view, properly interpreted, the reference to "FKP" in cl 11.6 extends to Aveo's related bodies corporate which includes RVGM. The context makes that readily apparent. As to context, I refer to what I said in Todd v Alterra at Lloyds Ltd [2016] FCAFC 15 at [73] to [76]. 64 First, there is no objectively ascertained intention identifiable in the RVAL Constitution and the constituent documents, particularly the SHD, to treat the exclusion in connection with FKP (Aveo) differently than that for Macquarie. The term "Macquarie Group" is defined in the SHD to include related bodies corporate and the uncapitalised term "group" in cl 11.6 at the least captures such entities. 65 Second, by reference to the matters discussed at [7] to [12] and [48] to [50] above, an intention that Aveo and its related entities including RVGM be excluded from voting on a poll for approval of nominated independent directors is objectively to be discerned from the structure of the governance of RVG under the constituent documents including their exclusion from the securityholders committee. 66 Third, for the purpose of the definition of "FKP", there is a contrary intention in cl 11.6 read in the context of the constituent documents including the SHD which expands its meaning in cl 11.6 to include related bodies corporate. 67 The respondents have referred to Barak Pty Ltd v WTH Pty Ltd [2003] NSWSC 15 where Barrett J considered the expression "unless the context indicates a contrary intention" and observed (at [16] and [17]) as follows: This gives rise to a need to consider the scope and meaning of the qualification "unless the context indicates a contrary intention" at the start of cl1 of the showroom lease. It is, I think, important to emphasise the word "context" in that qualification. What the qualification does is to focus attention on the particular defined term (here, "premises") in the whole of the context in which it is found and to direct the reader to consider whether that context is such that one cannot accept that the particular word has the meaning given to it by the interpretation clause. The qualification is an acknowledgement that, in some places, the defined term may not bear its assigned meaning and that those places will be identified by means of a contextual indication that some other meaning is intended. Thus, where an Act uses the word "person" in provisions entailing qualifications, conduct and responsibility of a kind of which only an individual is capable, that context excludes the meaning of "person" that otherwise extends to corporations as well as natural persons: see, for example, the observations of Menzies J in Peate v Federal Commissioner of Taxation (1964) 111 CLR 443 at 456. The important point is that the qualification "unless the context indicates a contrary intention" operates solely by reference to the content of the instrument itself. There is, in effect, a direction by those responsible for composing the instrument to those who will afterwards read it that the whole of the subject matter and the scheme by which the instrument deals with that subject matter are to be considered in deciding whether a word to which a defined meaning is assigned is to be read as having some other meaning. Only if, by express words or necessary implication, the instrument itself shows, within its own four corners and without resort to extrinsic evidence, that the other meaning must have been intended is it permissible to abandon the defined meaning. 68 The respondents have said that it is one thing to accept that where a term in a contract (or potentially even a constitution) is sought to be restricted to a subset of its potential categories then principles of contractual interpretation may allow for that. However, it is said that the present case is different. First, it is said that there is no ambiguity on the face of cl 11.6. Second, it is said that REST is seeking to have a defined term's meaning expanded. But several points. In the case before me, the Constitution incorporates other instruments; indeed the SHD overrides the general provisions of the RVAL Constitution. Accordingly I can have recourse to them. Further, the relevant principles are not confined to the circumstance where there is a narrowing from the otherwise defined term. 69 Fourth, I accept that rectification of a company's constitution is not possible; see Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689 at [262] per Barrett JA with whom Bathurst CJ and Beazley P agreed, McKillen v Misland (Cyprus) Investments Ltd [2011] EWHC 3466 (Ch) per David Richards J at [62], and Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 435 per McHugh and Gummow JJ. But the conclusion that I have reached is based on questions of construction rather than rectification. 70 Fifth, in reaching my conclusion, I am entitled to consider context and extrinsic material. I recently considered the principles of constitutional construction in Donaldson v Natural Springs Australia Ltd [2015] FCA 498 and observed (at [148]): There is little doubt (Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 (Lion Nathan) at [28], [29], [46] to [59], [97] to [102], [122] to [124], [232], [233], [238], [244], [251] to [257] and Oil Basins Ltd v Bass Strait Oil Company (2012) 297 ALR 261; [2012] FCA 1122 at [32]) that: …  extrinsic evidence may be adduced as an aid to construction, subject to a qualification that I will address in a moment, but only in the limited manner envisaged in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [35] to [41]. I went on to state (at [150]) that "[s]urrounding circumstances can be taken into account in construing the provisions of a Constitution, but restraint needs to be exercised". In my view the context in the present case supports the conclusion I have reached. The respondents have made detailed submissions on the question of context which they assert supports a literal meaning. But in my view, none of their points carry the day. The literal construction in my view produces an uncommercial if not absurd result. 71 Sixth, it is appropriate to note that there is much imprecision in the relevant instruments. I am bound to conclude that the exclusion set out in cl 11.6 manifests inadequate drafting. This is also partly demonstrated by reference to the lower case "group" when referring to "Macquarie group". For example: (a) The relationship deed has variously referred to "FKP", "FKP Group" and "FKP Group Member". Likewise the ASD. The ASD also refers to "Macquarie", "Macquarie Group" and "Macquarie Group Entity". (b) The SHD has variously referred to "FKP", "FKP Group" and "FKP Group Member". It has also referred to Macquarie Bank Limited, "Macquarie Group" and "Macquarie Group Member". It has also referred to the concepts of "Related Entity" and "Related Body Corporate". (c) Further, in the SHD: (i) Under cl 3.7 only certain securityholders were eligible for membership of the securityholders committee. (ii) Clause 3.7(h) provided that "no Macquarie Group Member or FKP Group Member shall be an Eligible Securityholder". (d) Numerous other contextual documents relating to the key instruments use "FKP", "FKP Group", "FKP Group Member", "FKP Group Entity", "FKP Property Group" and so forth; see for example exhibit NM-36. 72 In summary, in my view RVGM is precluded from voting on any proposed resolution under cl 11.6.

CONCLUSION 73 The parties should bring in short minutes of orders to give effect to these reasons. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

Corporate Law Economic Reform Program Act 1999(Cth)

Corporations Act 2001(Cth)s 203D(1)

BEACH J: 1 The applicants, State Street Australia Ltd in its capacity as custodian for Retail Employees Superannuation Pty Ltd as trustee of the Retail Employees Superannuation Trust and Retail Employees Superannuation Pty Ltd as trustee of the Retail Employees Superannuation Trust (REST), are the only remaining external investors in the Retirement Villages Group (RVG), holding approximately 27% of its stapled securities. RVG consists of three stapled entities being the third respondent, Retirement Villages Australia Ltd (RVAL), Retirement Villages Trust (the responsible entity of which is Retirement Villages Group RE Ltd) and RVNZ Investments Ltd. Retirement Villages Trust is a registered Australian managed investment scheme. The first respondent, Retirement Villages Group Management Pty Ltd (RVGM) and the second respondent, Aveo Group Ltd (Aveo), of which RVGM is now a wholly owned subsidiary, hold approximately 73% of the stapled securities in RVG; RVGM holds 72.9%, with Aveo now holding a very small parcel to make up the balance. RVGM is an advisor and manager of RVG under an advisory services deed. 2 I have dealt with an earlier dispute involving the same parties (see Aveo Group Ltd v State Street Australia Ltd in its capacity as custodian for the Retail Employees Superannuation Pty Ltd as trustee of the Retail Employees Superannuation Trust [2015] FCA 1019). I incorporate in these reasons the background section at [8] to [33] in my earlier reasons and my discussion concerning the applicable principles relating to the construction of a company's constitution at [58] to [62]. My decision in that case is under appeal with judgment reserved, but all parties were nevertheless content for me to adjudicate upon this second round of their disputes relating to the control of RVG. The present case relates to discrete legal issues but not unrelated commercial questions. 3 RVGM has issued two separate notices seeking to convene a general meeting of securityholders in RVAL. The meeting was to be held on 26 May 2016, but has now been adjourned to 17 June 2016. RVGM has proposed resolutions for the removal of two independent directors of RVAL, Mr Peter Flanagan and Mr Joe Dicks. 4 The issues in dispute between the parties include the following: (a) First, whether the provisions of s 203D(1) of the Corporations Act 2001 (Cth) (the Act) provide an exhaustive codification or, contrastingly, an additional optional method to that available under the RVAL Constitution, to remove a director. Further, and more narrowly, even if the mechanism under the RVAL Constitution has not been displaced, whether the rider in s 203D(1) is separately mandatory and operates so as to defer the effect of the resolutions once passed under the mechanism of the RVAL Constitution until replacement directors of RVAL have been appointed; (b) Second, whether cl 11.6 of the RVAL Constitution (together with the constituent documents incorporated therein) always provides the process by which replacement independent directors must be appointed, or whether other provisions of the RVAL Constitution have effect in lieu of cl 11.6 where it is not possible or reasonably practicable for cl 11.6 to be employed; and (c) Third, whether RVGM is excluded from voting on a poll approving nomination of replacement independent directors under cl 11.6. It is accepted that Aveo is so excluded.

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