(c) PDS not "up to date"; new claims for declaratory relief concerning voidability of contracts under s 601MB
30 The plaintiff alleges that the PDS was not up to date as required by ss 1012J and 1013C of the Corporations Act. The defendants say that paragraph 25 fails to adequately plead what the PDS should have said in order to be up to date. They also take issue with what is said to be the vague and circular form of paragraph 25(aa).
31 Now the plaintiff has submitted that its case is that the PDS ought to have disclosed the matters which are particularised under each of paragraphs 22(a) and 22(b). But the defendants contend that this is not what paragraph 25 says. Rather, so the defendants contend, it pleads a vague selection of facts unconnected to any particular respect in which the PDS is said to be deficient. Second, it is said that even if paragraph 25 did adopt the matters particularised in paragraphs 22(a) and (b), this would not answer the question required: what exactly did the PDS say that was "out of date" and what information was required to be disclosed in order to bring it up to date?
32 Further, the defendants say that the proposed new paragraph 25A is a generalised conclusion that, by reason of the matters in paragraph 25, the PDS "failed to comply with Division 2 of Part 7.9 of the [Corporations] Act", but like paragraph 25 does not say how. It is said that paragraph 25A appears to be nothing more than a "prop" for the proposed new paragraph 25B, where the plaintiff alleges that, by reason of the allegations in paragraph 25 and 25A, "contracts entered into by the plaintiff and Group Members to subscribe for units issued by MGUT pursuant to the PDS are voidable at the election of the plaintiff and Group Members pursuant to s 601MB of the Act". I would note at this point that in the proposed new paragraph CA of the prayer for relief, the plaintiff seeks a declaration that "a contract entered into by the plaintiff or a Group Member to subscribe for units in MGUT under the PDS is voidable at the option of the plaintiff or Group Member pursuant to section 601MB of the Act".
33 The defendants also contend that the proposed paragraph 25B is deficient in two respects. First, it does not adequately identify the contracts sought to be voided. It is said that the contracts which arose at the time of subscription for units have likely now been discharged by performance and that it is not clear what other contracts remaining on foot might be the subject of avoidance. It is said that the plaintiff should be required to provide particulars of the relevant contract(s) entered into by the plaintiff and group members, which is the subject of the s 601MB plea. Second, it is said that the plea relying on s 601MB does not disclose the existence of a "matter" which would enliven the Court's jurisdiction to make the declaration sought. It is said that there is no matter and no jurisdiction to grant declaratory relief if the relief is directed to answering "abstract or hypothetical questions", or is "claimed in relation to circumstances that have not occurred and might never happen", or "will produce no foreseeable consequences for the parties". It is said that the proposed claim, if successful, produces no identifiable consequence. Accordingly it is said to suffer from the vice of being entirely abstract and hypothetical.
34 In summary and accordingly, the defendants contend that paragraphs 25 to 25B, and paragraph CA of the prayer for relief, should not be allowed in their present form.
35 In my view, some of the defendants' criticisms have some force. Let me elaborate.
36 First, in my view the proposed pleading in paragraph 25(aa) is conceptually incoherent. The "matters alleged in paragraph 22(aa) above" refers back to a plea of an absence of reasonable grounds. But it became clear during the course of argument that what the plaintiff was really seeking to pick up was certain facts set out in the particulars to paragraph 22(aa). If that is the case, the plaintiff will need to properly plead out paragraph 25(aa) to identify the facts it is relying upon.
37 Second, in terms of the defendants' criticism that the plaintiff has failed to adequately plead what the PDS should have said in order to be "up to date", in my view the plaintiff should be more precise and clearer in the pleading that his case is that:
(a) the PDS should have disclosed the matters particularised under each of paragraphs 22(a) and 22(b) (and precisely what); and
(b) the PDS should also have disclosed "Forecast Financial Information" which was based upon the directors' "best estimate assumptions" as of 29 May 2015, not 1 May 2015 or some earlier date.
38 Now I accept that it is not possible prior to discovery for the plaintiff to furnish the defendants with the precise disclosures which MGRE might have made in the PDS based on MG's financial performance up to 29 May 2015 and reasonable estimates of future performance at that date. And I accept that there is some force in the plaintiff's consolidated submissions at [62] to the following effect:
If paragraph 92 of the defendants' submission is to be understood as demanding that the plaintiff in effect redraft the PDS for them as it should have appeared on 29 May 2015, that is plainly an unreasonable request and goes far beyond what the rules of pleading require. It will only be after judgment is delivered (or, possibly, appeals decided) that the plaintiff will be in a position to say with certainty what the PDS ought to have said in order to bring it properly up-to-date as at 29 May 2015. As it stands at present, the plaintiff has, it is submitted, adequately pleaded and particularised to the maximum extent that he can on the basis of the limited information and documents to which he has had access to date (including recently the documents referred to in the ACCC SOC) to satisfy the rules of pleading.
39 But in my view the plaintiff should do more in his pleading to properly plead in paragraph 25 what he says as to how the PDS was out of date and in substance what he says ought to have been included to avoid this vice; the latter may be relevant to causation, damages and other questions of relief, although I accept that the plaintiff is not required to plead out how a redrafted PDS may have looked.
40 Let me turn to the point concerning s 601MB, which relevantly provides as follows:
(1) If:
(a) a managed investment scheme is being operated in contravention of subsection 601ED(5) and a person (the offeror) offers an interest in the scheme for subscription, or issues an invitation to subscribe for an interest in the scheme; or
(b) a person (the offeror) fails to comply with Division 2 of Part 7.9 when offering an interest in a registered scheme for subscription or issuing an invitation to subscribe for an interest in a registered scheme;
a contract entered into by a person (other than the offeror) to subscribe for the interest as a result of the person accepting the offer, or of the acceptance of an offer made by the person in response to the invitation, is voidable at the option of that person by notice in writing to the offeror.
(2) If the person gives a notice under subsection (1), the obligations of the parties to the contract are suspended:
(a) during the period of 21 days after the notice is given; and
(b) during the period beginning when an application is made under subsection (4) in relation to the notice and ending when the application, and any appeals arising out of it, have been finally determined or otherwise disposed of.
(3) Subject to subsection (6), the notice takes effect to void the contract:
(a) at the end of 21 days after the notice is given; or
(b) if, within that 21 days, the offeror applies under subsection (4) - at the end of the period when the obligations of the parties are suspended under paragraph (2)(b).
(4) Within 21 days after the notice is given, the offeror may apply to the Court for an order declaring the notice to have had no effect.
(5) The Court may extend the period within which the offeror may apply under subsection (4), even if the notice has taken effect.
(6) On application under subsection (4), the Court may declare the notice to have had no effect if it is satisfied that, in all the circumstances, it is just and equitable to make the declaration.
41 To the defendants' submission that the plaintiff has not adequately identified the contracts sought to be avoided in paragraph 25B, the plaintiff says that the relevant contracts are those entered into by unitholders to subscribe for units under the Offer described in part 9 of the PDS. But I agree with the defendants that on any view there should be a proper identification of the plaintiff's specific contract and more identification, although not at an individual level, of the group members' contracts that are the subject of the claim whether fully performed or not; one is of course referring only to a sub-group of unitholders who subscribed rather than acquired on the secondary market.
42 As to the defendants' contention that s 601MB cannot now apply to any contract already discharged by performance, the plaintiff says that the complete performance of a contract for subscription by the issue and allotment of interests in a managed investment scheme to subscribers does not have the effect that there is no contract now capable of avoidance under s 601MB. It is said that the operation of s 601MB was explained in Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358 at [47], where it was said:
If the conditions mentioned in s 601MB(1) are satisfied the contract to subscribe for the interest in the managed investments scheme is "voidable" at the option of the investor. If the investor wishes to exercise that option he must give a notice to that effect to the offeror. The offeror may within 21 days apply to the court to have the notice declared invalid (s 601MB(4)). Such a declaration will be made if "in all the circumstances it is just as [sic] equitable to make the declaration" (s 601MB(6)). If no application is made then at the end of 21 days, or if an application is made and no declaration is made after the application and any appeals have been determined, "the notice takes effect to void the contract" (s 601MB(3)). I take this to mean that the contract is void ab initio, with the consequence that the investor can recover what he paid for his investment. In other words, the parties to the contract are to be restored as far as may be possible to the position they were in before the contract was made. The alternative and unconventional meaning of "void" is that the contract is only dissolved as regards to future performance. That construction would run counter to the plain object of the section.
43 The plaintiff says that the right given to group members who, like the plaintiff, acquired units pursuant to the offer made in the PDS, is that s 601MB makes the contract voidable at their election even if now discharged by performance. It is said that the proposed pleading is in the terms contemplated by s 601MB(1) which requires notice to be given. It is said that the declaration sought by way of paragraphs 25A and 25B and the prayer for relief is in the precise terms of s 601MB(1). It is said that the determination of this question is not abstract or hypothetical because the plaintiff and affected group members will be entitled to be restored as far as possible to the positions that they were in before the relevant contracts were made. It is said that it may be assumed that this would involve the return of their subscription money and the payment of interest by MGRE to those group members who opt to and do avoid their contracts.
44 Now at this stage I do not need to comment upon the observations in Re York Street Mezzanine (a case to be read in its context of providing a suggested solution(s) (see at [43]) under a liquidator's summons for directions), and whether s 601MB can apply to a contract fully performed and discharged, or whether it only applies to a contract still in whole or in part to be performed. Nor do I need to comment upon the voidable and void distinction and whether void in the present context is to be taken as being void ab initio or only to operate prospectively to discharge future performance. For present purposes I am prepared to assume that any of the competing constructions are reasonably arguable, including the plaintiff's version.
45 Subject to some qualifications that I will come to in a moment, the defendants' submissions concerning whether there is a "matter" and the hypothetical nature of any declaration sought are too broad. Given the breadth of the concept of "matter", including the impressionistic boundaries and content of the relevant controversy between the parties, and given that the relevant question is not whether something is hypothetical per se but whether it is too hypothetical to be appropriate for the making of a declaration, I would not accept the generality of the defendants' criticisms but there are some legitimate points that they have made.
46 But before proceeding further, I would make some observations concerning any perceived bar to making a declaration that is hypothetical.
47 First, the primary question is whether there is a justiciable controversy such as to constitute a "matter" and therefore found jurisdiction to grant a declaration. The controversy must be real. Moreover, it must be appropriate to and susceptible of judicial determination.
48 Second, the power to grant declaratory relief is circumscribed by the boundaries of judicial power. Further, such relief must be productive of foreseeable consequences. Relatedly, declaratory relief will not ordinarily be granted in relation to circumstances that have not occurred and might never occur (see generally Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582 and CGU Insurance Ltd v Blakeley (2016) 327 ALR 564; [2016] HCA 2 at [100] per Nettle J).
49 Third, on the issue of whether a declaration sought is hypothetical, the correct focus is on whether the question is too hypothetical or at too high a level of abstraction or purely hypothetical. Relatedly, purely advisory opinions are to be eschewed. The use of these expressions suggests that no absolute or binary approach should be taken. In other words, one must consider the degree of hypothetication. As Ormiston JA said in CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256 at 262 (albeit not expressly referring to federal jurisdiction):
… merely because relief is sought upon what might in certain respects be described as hypothetical facts does not necessarily lead to the conclusion that the case will not be heard or relief refused. But there must be a true legal controversy …
Further, at 271 he said:
The authorities show that it is not all hypothetical questions which a court will refuse to answer. If it is hypothetical in the sense that a specified set of facts has not yet come to pass but might reasonably be expected to occur if certain conditions are fulfilled, then a court will consider and make appropriate declarations if it be appropriate.
I would also note the observations of Nettle J in CGU Insurance Ltd at [102] that:
… the court does not lack jurisdiction to make a declaration concerning a theoretical issue, in the sense of an issue that does not presently exist but which is likely to arise in future, where the issue is productive of a real and pressing dispute, is of real practical importance or is one in which the claimant has a real commercial interest.
50 Fourth, generally speaking it is preferable to deal with the hypothetical circumstance or such a characterisation in the context of whether as an exercise of discretion a declaration ought to be made, rather than as one of the existence of jurisdiction.
51 Now what has concerned me about the proposed paragraph 25B and the associated relief are three points:
(a) First, as matters presently stand, there is no allegation of any "notice in writing to the offeror" having been given.
(b) Second, an individual seeking to give such a notice and endeavouring to void the subscription contract would be acting in tension, arguably, with that group member's characterisation as a group member and the damages sought in that capacity.
(c) Third, the triggering of any rights under s 601MB and any response would be wholly an individual question.
52 Let me deal with each of these points but making an assumption in favour of the plaintiff that s 601MB can apply to a subscription contract fully performed and discharged. And let me also assume for the moment that the plaintiff rectifies the concern regarding an absence of identification of his contract and, generally, the relevant subset of group members' contracts.
53 First, s 601MB(1) makes it plain that in relation to a subscriber a contract "is voidable at the option of that person by notice in writing to the offeror". More generally, the mechanisms set out in s 601MB have to first be triggered by a notice. The plaintiff's proposed pleas overlook this matter. The operation of s 601MB is hypothetical until a notice is given. And even then, the contract only becomes voidable. Further and relevantly to the present context, the condition in s 601MB(1)(b) must be made good. But even then, the contract may not be avoided if MGRE successfully triggers ss 601MB(4) and (6). In other words there are compounding hypothetical layers before an entitlement to avoid or the actual voiding arises. But in my view the plea in paragraph 25B does not get off the ground as it does not identify any notice having been given.
54 Second, if a person was to give a notice and seek to avoid ab initio, they would be acting in tension with their group member description and also may have to elect between inconsistent rights. Do they persist with a damages claim as the relevant holder of units? Or do they get the subscription money back as ceasing to be a unitholder if the subscription contract is void ab initio? But I agree that at the moment a person giving notice (or prior to even that) is nevertheless now a group member as the holder or acquirer of units at the relevant time(s) or over the relevant period(s). But all of this points out the hypothetical nature of the debate presently as to when and how s 601MB is to be triggered and by whom.
55 Third, on any view, the triggering of rights under s 601MB will be an individual question depending upon:
(a) the individual group member;
(b) the contract;
(c) the notice given;
(d) whether that person elects to avoid and recover the subscription money or does not seek to avoid ab initio but presses the damages claim;
(e) the response of MGRE under s 601MB(4); and
(f) the Court's consideration under s 601MB(6) referable to the individual circumstances of each case.
56 In my view, the plaintiff's advisors have not properly thought through any of these concerns. I will not allow paragraph 25B (and related paragraphs) to go through in the present form.
57 I will allow a proper plea even if the relief sought is presently hypothetical. But of course until any notice is given and the condition under s 601MB(1) satisfied and established, no declaration should go. And even then, in the exercise of discretion it may be inappropriate to grant a broad ranging declaration given that the elements of ss 601MB(4) and (6) will need to be considered in the individual case. On the question of "matter" and federal jurisdiction, the defendants' contentions are not without merit, but at this stage on what is in substance a pleading summons and given that the s 601MB claim is a second order issue, I would prefer not to finally rule on the point on such a basis at this stage.