Wellington Capital Limited v Australian Securities and Investments Commission [2014] HCA 43 | Case summary

FRENCH CJ, CRENNAN, KIEFEL AND BELL JJ. Introduction This appeal concerns the power of the responsible entity of a managed investment scheme to distribute a part of the scheme property in specie to scheme members. It requires consideration of the provisions of the Corporations Act 2001 (Cth) ("the Corporations Act") governing managed investment schemes and of the scheme constitution. Wellington Capital Ltd ("Wellington") is the responsible entity of a managed investment scheme, now known as the Premium Income Fund ("the Scheme"). The Scheme came into existence under a Deed Poll dated 20 November 1999, which, as amended from time to time, comprised its constitution ("the Scheme Constitution"). Perpetual Nominees Ltd ("Perpetual") is the custodian of the Scheme, appointed by Wellington as its agent to hold "Scheme Property" on its behalf. The members of the Scheme are its unit holders, each of whom has an undivided interest in the "Scheme Fund" and the Scheme Property. Wellington's principal activities have been to invest the Scheme Fund in mortgages, equities, debt instruments and cash. On 4 September 2012, Wellington sold assets of the Scheme to Asset Resolution Ltd ("ARL") in consideration of the issue of 830,532,768 shares in ARL to Perpetual. ARL was a special purpose unlisted public company. The assets thus disposed of had a publicly stated value of $90.75 million and represented about 41% by value of the assets comprising the Scheme Property. On the same day, Wellington instructed Perpetual to transfer the ARL shares held by Perpetual to the unit holders in the Scheme in proportion to the number of units held by each unit holder. That transfer was effected on the following day. The Australian Securities and Investments Commission ("ASIC") commenced proceedings in the Federal Court of Australia in October 2012 challenging the validity of the transfer. Its application was dismissed by Jagot J, who delivered an ex tempore judgment on 17 October 2012. On 28 May 2013, the Full Court of the Federal Court allowed an appeal from that decision and made declarations that the in specie distribution was beyond the power of Wellington under the Scheme Constitution and that, by making the distribution, Wellington had contravened s 601FB(1) of the Corporations Act. Section 601FB(1) required Wellington to operate the Scheme and perform the functions conferred on it by the Scheme Constitution and by the Corporations Act. The appeal to this Court from the decision of the Full Court should be dismissed. The Full Court was correct to hold that the distribution of the ARL shares to Scheme members was beyond power. The Scheme Constitution, properly construed in the light of the relevant provisions of the Corporations Act, confined the return of capital to the winding up process and to cash payments annexed to the periodic distribution of income. Statutory framework Managed investment schemes are regulated under Ch 5C of the Corporations Act. The term "managed investment scheme" is defined in s 9 of the Corporations Act. The relevant part of the definition is in par (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)". The term "member" is also defined in s 9: "member: (a) in relation to a managed investment scheme - means a person who holds an interest in the scheme; or (e) in relation to a company - a person who is a member under section 231." The Full Court relied upon that definition in rejecting an argument by Wellington based on s 124 of the Corporations Act. Section 124(1)(d) provides that a company has the power to distribute any of the company's property among the members, in kind or otherwise. Clause 13.1 of the Scheme Constitution conferred upon Wellington "all the powers in respect of the Scheme that is legally possible for a natural person or corporation to have" and was held by the primary judge to pick up that power. That proposition was rejected by the Full Court on the basis that the statutory definition of "member" distinguishes between membership of a company and membership of a managed investment scheme. That conclusion was correct. It accords with the limits of Wellington's powers under cl 13.1, discussed later in these Reasons, to deal with Scheme Property, having regard to the purpose of those powers in facilitating extramural dealings with the Scheme Property. The term "scheme property" is widely defined in s 9 of the Corporations Act. The definition includes property acquired, directly or indirectly, with, or with the proceeds of, contributions of money or money's worth to the scheme, money that forms part of the scheme property under the provisions of the Corporations Act or the Australian Securities and Investments Commission Act 2001 (Cth) and money borrowed or raised by the responsible entity for the purposes of the scheme. It was not in dispute that the ARL shares formed part of the Scheme Property prior to their transfer to the unit holders. Part 5C.1 of Ch 5C requires that, subject to irrelevant exceptions, managed investment schemes must be registered with ASIC. Part 5C.2 concerns the "responsible entity" of a registered scheme, a term defined in s 9 as the company named in ASIC's record of the scheme's registration as the responsible entity or temporary responsible entity of the scheme. Section 601FB(1) sets out in broad terms the functions imposed by the Corporations Act on the responsible entity: "The responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and this Act." The Full Court declared, in the exercise of its general powers to make declarations, that Wellington had "contravened" that provision. The term "contravene" is used in the Corporations Act, although not exhaustively, to designate non-compliance with civil penalty provisions. The court is required to make "a declaration of contravention" if it is satisfied that a person has contravened one of them. Such a declaration, which must specify certain matters, is a necessary condition of the imposition of a pecuniary penalty. Initially, ASIC sought a declaration that Wellington had contravened s 601FC(1)(c). Section 601FC(1) sets out specific duties of a responsible entity. A contravention of s 601FC(1)(c) is a contravention of s 601FC(5), which is a civil penalty provision. That claim for relief was later abandoned. Section 601FB(1) is not a civil penalty provision. The declaration that it was contravened by Wellington had no statutory consequences under the Corporations Act. The Full Court justified that declaration as "an appropriate way of marking the court's disapproval of the contravening conduct" and held that the declaration was in the public interest as the Scheme Constitution was in a common form. Although the declaration made by the Full Court did not involve any finding of a breach of the duties imposed upon Wellington by s 601FC(1), those duties are relevant. They place constraints upon the exercise of the powers conferred upon the responsible entity to deal with scheme property under a scheme constitution. They include a duty to act honestly, a duty of care and diligence, and a duty to act in the best interests of the members. The powers conferred by cl 13 of the Scheme Constitution to deal with Scheme Property, while very broad on a literal reading, are to be construed by reference to those duties and other aspects of the statutory scheme. Those powers are also constrained by Pt 5C.7, which applies Ch 2E of the Corporations Act, dealing with related party transactions, to schemes. The purpose of that Part, as set out in s 207 which applies to schemes pursuant to s 601LB, is to protect the interests of the scheme's members as a whole. Of significance in the reasoning of the Full Court was s 601FC(2), which provides that "[t]he responsible entity holds scheme property on trust for scheme members." It underpinned the starting point in the Full Court's reasoning that provisions of the Scheme Constitution conferring wide powers on the responsible entity to deal with Scheme Property must be approached "through the prism of trust law." However, the extent to which general principles of the law relating to trusts apply to a responsible entity's functions under a scheme constitution depends upon the purpose of the statutory trust, other provisions of the Corporations Act and the terms of the scheme constitution. The trust relationship which is imposed by s 601FC(2) expressly attaches to a responsible entity by reason of its office. No occasion arises for imposition of a trust by operation of the general law. The trust imposed does not arise from gratuitous transfer of assets by a settlor to a trustee, to be held on behalf of beneficiaries, who may become transferees. Save for its imposed statutory character, it bears a resemblance to trusts created as incidents of business transactions, sometimes described as "commercial trusts". Lord Browne‑Wilkinson said of such trusts that: "it is important, if the trust is not to be rendered commercially useless, to distinguish between the basic principles of trust law and those specialist rules developed in relation to traditional trusts which are applicable only to such trusts and the rationale of which has no application to trusts of quite a different kind." The same caution applies in relation to public unit trusts, which may operate under principles of both contract and trust law. To the extent that the relationship between the responsible entity and the members is governed by contract, the content of the powers and duties of the responsible entity will be determined by reference to the contract and its statutory setting. This Court has said of the use of trust concepts in revenue statutes: "the degree to which a revenue statute adopts or qualifies or supplants the general understanding of terms with a particular application in property law will be a matter of statutory construction". What is true for revenue statutes is true for statutes generally and, in particular, for the use of the term "trust" in s 601FC(2). Section 601FC(2) reflects, albeit in truncated form, a recommended draft provision set out in the joint report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee in 1993. The provision was proposed in part as a protective set-off against the decision not to recommend that the appointment of a custodian of scheme property, separate from the manager, be mandatory. The protection of the trust relationship was to be maintained even in the case in which the responsible entity decided to appoint a custodian: "Where an operator engages a custodian to hold the legal title to scheme assets, the operator should hold on trust for the investors the equitable interest arising under that arrangement." The report proposed that "because of the nature of the activity undertaken, this trust relationship should exist in all collective investment schemes, even those based on contract." The purpose of s 601FC(2) is indicated by that aspect of its ancestry and by its place in the statutory scheme. It creates a layer of fiduciary protection for scheme members in addition to the express duties and protections otherwise created by the Corporations Act and the minimum statutory requirements of a scheme constitution. Part 5C.3 imposes various requirements in relation to the constitutions of registered schemes. Such constitutions must make adequate provision for the powers of the responsible entity in relation to making investments of, or otherwise dealing with, scheme property and also for winding up the scheme. Moreover, the constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity. Part 5C.9 provides for the winding up of a registered scheme. It authorises provisions to be included in a scheme's constitution for the winding up of the scheme at a specified time, in specified circumstances, or on the happening of a specified event. It provides for winding up by an extraordinary resolution at a members' meeting. It also authorises a responsible entity to take steps to wind up a scheme where it considers that its purpose has been accomplished or cannot be accomplished. There is provision for a court-ordered winding up where it is just and equitable to do so or on the application of an unsatisfied judgment creditor. The scheme must be wound up in accordance with its constitution and any court orders. Another section of the Corporations Act said to interact with the powers conferred on Wellington under the Scheme Constitution was s 231, which sets out sufficient conditions for a person to be a member of a company. One of those conditions is that the person: "agree[s] to become a member of the company after its registration and their name is entered on the register of members". Wellington contended that the unit holders were to be taken as having agreed to the transfer of the ARL shares, and thereby to membership of ARL, by reason of joining the Scheme under a constitution which gave powers to Wellington as responsible entity to effect such a transaction. As appears below, however, the Scheme Constitution, properly construed, did not authorise the transaction and therefore did not give rise to the imputed agreement. Wellington had its office in Brisbane. Reference was made in ASIC's written submissions to the Trusts Act 1973 (Q) ("the Trusts Act") as part of the relevant statutory framework. Section 33(1)(l) of the Trusts Act confers a general power on a trustee to appropriate any part of the trust property towards satisfaction of any share of the trust property (whether settled, contingent or absolute) to which any person is entitled. ASIC submitted, correctly, that the power is only enlivened where the relevant beneficiary is entitled to a particular share of the trust property and notice of the intended appropriation has been given to other beneficiaries. Neither condition was satisfied in this case. In any event, the provisions of the Trusts Act in their application to a responsible entity would have to be considered in the light of the provisions of Ch 5C of the Corporations Act. It is unnecessary in this case to further consider how the Trusts Act interacts with the Corporations Act and, indeed, the Scheme Constitution. Wellington did not rely upon the Trusts Act. The Scheme Constitution The Scheme Constitution which was before the primary judge, the Full Federal Court and this Court, was misleadingly described on its cover sheet as a "Consolidated Constitution". The document attached to the cover sheet was entitled "Premium Income Fund Supplementary Deed Poll Made on 5 September 2011". The Court was told that the Supplementary Deed Poll was the document presently held on the ASIC Register as the Scheme Constitution. It was incomplete. However, the case was argued on the common assumption, at first instance and on appeal, that the document contained all that was necessary for the proper construction of its relevant provisions. The Supplementary Deed set out, in a schedule, amendments to the Scheme Constitution. Covering cl 2(a) of the Deed provided that nothing expressly or impliedly contained in it was effective to "confirm, declare or otherwise acknowledge the trust declared under the original constitution, or to impress any new or additional trusts upon property held on trust as at the date of this supplemental deed." Covering cl 2(b) further provided: "Nothing in this supplemental deed should be interpreted as creating any new or further trust and at all times, the Scheme remains a simple trust." Covering cl 2 was not the subject of any submission by the parties. The trust relationship in issue was that created by s 601FC(2). Under the Scheme Constitution, Wellington, as responsible entity, was empowered to issue units in accordance with the provisions of the Corporations Act and the Scheme Constitution. Members of the Scheme were the registered holders of units in the Scheme. A unit conferred on its holder an undivided interest in the Scheme Fund and Scheme Property as a whole. A unit holder had no interest in any particular part of the Scheme Fund or in any Scheme Property. Clause 13.1 of the Scheme Constitution provided expansively that the responsible entity should have: "all the powers in respect of the Scheme that is legally possible for a natural person or corporation to have and as though it were the absolute owner of the Scheme Property and acting in its personal capacity." Clause 13.2 conferred specific powers on the responsible entity, including the power, by cl 13.2.5, to deal with Scheme Property: "In the administration of the provisions of this Constitution, and the Corporations Act, in relation to the Scheme and the Scheme Property, the Responsible Entity shall have the following powers. These powers shall be in addition to the powers, authorities and discretions vested in it by any other provision of this Constitution or by the Corporations Act and which shall not limit or be limited by, or be construed so as to limit or be limited by the powers, authorities and discretions otherwise by this Constitution or by the Corporations Act vested in the Responsible Entity, that is to say: ... 13.2.5 acquire, dispose of, exchange, mortgage, sub-mortgage, lease, sub-lease, let, grant, release or vary any right or easement or otherwise deal with Scheme Property as if the Responsible Entity were the absolute and beneficial owner". The responsible entity was required, by cl 14.3, to manage the Scheme and Scheme Property in accordance with the provisions of the Scheme Constitution "with full and complete powers of management including all powers reasonably necessary or incidental to the performance by the Responsible Entity of its obligations and the observance by the Responsible Entity of all the terms and conditions of this Constitution." The powers and functions of the responsible entity were to be exercised "in the best interest of all Unit Holders and not in the interests of the Responsible Entity if those interests are not the same as those of Unit Holders generally". Subject to cl 14.7.1, unit holders of the same class were to be treated "equally" and unit holders of different classes were to be treated "fairly". There was no contention advanced in this Court that those duties had been breached. Clause 16 dealt with the ascertainment of the income of the Scheme and its distribution to Scheme members and included a power to distribute a part of the capital. Clause 16.1 provided: "The Responsible Entity is to determine, according to generally accepted accounting principles and practices which apply to trusts: 16.1.1 the Income of the Scheme, and in particular, whether any receipts or outgoings of the Responsible Entity are on income account or capital account; and 16.1.2 the extent to which the Scheme needs to make reserves or provisions." Clause 16.2 described the process for calculating periodic entitlements under the Scheme and distributing them to unit holders. That process required the calculation of each unit holder's Distribution Entitlement, the determination of each unit holder presently entitled, and the payment of the entitlement to a person entitled to it. Clause 16.3 explained how the Distribution Entitlement was to be calculated: "16.3.1 Calculation of Distributable Amount The 'Distributable Amount' for a Distribution Period is to be determined in accordance with the following formula: DA = I+C Where: DA is the amount of Distributable Amount; I is the Income of the Scheme for the Distribution Period minus any amount of the Income that is set aside during the Distribution Period as reserves or provisions under sub-clause 16.1; and C is any additional amount (including capital, previous reserves or previous provisions) that the Responsible Entity has determined during the Distribution Period is to be distributed. 16.3.2 Calculation of Distributable Entitlement The Distributable Entitlement of each Distribution Recipient is the total of the Unit Entitlement in relation to each Unit held by the Distribution Recipient at the end of the day on the Distribution Calculation Date, as determined in accordance with paragraph 16.3.3. 16.3.3 Calculation of Unit Entitlement The Unit Entitlement in relation to a Unit is to be determined in accordance with the following formula: UE=DA ∑U Where: UE is the Unit Entitlement DA is the Distributable Amount ∑U is the total number of Units on issue in the Scheme …" Clause 16.4 provided for payment of the Distributable Amount to a unit holder by depositing it into an account with a bank or other financial institution nominated by the unit holder and approved by the responsible entity. Alternatively, payment could be made by reinvestment in the Scheme or otherwise as directed by the unit holder. It was not in dispute that, as a consequence of the definition of the variable "C" in cl 16.3.1, the responsible entity was accorded a power to determine an amount of capital additional to the income of the Scheme forming part of the Distributable Amount upon the basis of which the Distributable Entitlement of each unit holder was to be calculated. The Full Court held correctly, however, that cl 16 was not the source of a general power to distribute Scheme Property to unit holders. The formula in cl 16.3.3 for distribution of the Unit Entitlements indicated that the payments made under cl 16 were to be in cash. The power under cl 16 to determine an amount of capital to be distributed was parasitic upon the periodic obligation to distribute income. It was embedded in the determination of an "additional amount". It was not indicative of any implied general power to distribute capital at any time and, a fortiori, was not indicative of a power to make a distribution of Scheme Property in specie. That conclusion is reinforced by the provision for return of capital in the context of a winding up under cl 26. Clause 26.1 provided that the responsible entity must not resolve to wind up the Scheme unless the responsible entity had complied with the provisions of s 601NC(2) of the Corporations Act. Winding up was mandatory upon the happening of any one of a number of Termination Events set out in cl 26.2. As soon as practicable after a Termination Event, the responsible entity was to realise the Scheme Property and satisfy the liabilities of the Scheme pursuant to cl 26.3. Clause 26.4 dealt with final distribution to unit holders: "Only after all Liabilities have been discharged, and all expenses of termination - including anticipated expenses - have been met or accounted for, is the net proceeds of realisation to be distributed to the Unit Holders in proportion to the paid up value of the Units they hold. The net proceeds of realisation may be distributed in instalments. The final distribution to Unit Holders must occur prior to the 80th anniversary of the date of this Constitution." Clause 26.7 provided for unclaimed money to be returned to ASIC: "If, on completion of the winding up of a registered scheme, the Person who has been winding up the Scheme has in their possession or under their control any unclaimed or undistributed money or other property that was part of the Scheme Property, the Person must, as soon as practicable, pay the money or transfer the property to the ASIC to be dealt with under Part 9.7 of the Corporations Act." That provision reflected the requirements of s 601NG of the Corporations Act. Wellington submitted that cl 26.7 assumed that the responsible entity had the power to make an in specie distribution of property other than cash to unit holders. As a textual indicator in support of a general power to distribute property other than cash to unit holders, cl 26.7, confined as it was to the winding up process, did not support the construction of scheme powers generally for which Wellington contended. The procedural history The shape of the proceedings in the Federal Court changed between their commencement and the final orders of the Full Court. At trial, ASIC sought a declaration that Wellington had acted beyond power in distributing the ARL shares and that the purported transfers to the unit holders were "thereby invalid". It also sought a declaration that Wellington had contravened s 601FB(1) on the basis that, by making an in specie distribution of the ARL shares to the unit holders, Wellington did not operate the Scheme and perform the functions conferred on it by the Scheme Constitution and by the Corporations Act. That claim replaced an earlier claim for a declaration of a contravention of a civil penalty provision, s 601FC(5), enlivened by a purported contravention of s 601FC(1)(c). ASIC also sought orders requiring Wellington to take steps to correct the ARL share register and to disclose the judgments and orders of the Court to the unit holders. In its appeal to the Full Court, ASIC sought a declaration that the transfer was beyond power, dispensing with the element of the declaration previously sought that the transfer was "thereby invalid". It pursued the claim for a declaration of contravention of s 601FB(1) and for a mandatory disclosure order under s 1324B(a). The decision of the primary judge The application was expedited at first instance. It was heard on 17 October 2012 and Jagot J delivered a comprehensive ex tempore judgment. Her Honour's reasoning involved the following steps: • The ARL shares distributed in specie to unit holders constituted Scheme Property before the distribution. • The general powers conferred on Wellington by cl 13 picked up the powers conferred on corporations by s 124 of the Corporations Act, which included the power to distribute any of the company's property among members, in kind or otherwise. Those powers were not qualified expressly or by necessary implication by the specific provisions of cl 16. • The powers conferred on Wellington by the Scheme Constitution gave rise to a corresponding duty on the unit holders to accept the exercise of those powers in relation to the transfer of the ARL shares. The unit holders must also be taken to have consented, upon the in specie distribution, to becoming members of ARL for the purposes of s 231 of the Corporations Act. • Wellington did not act in contravention of the Scheme Constitution and therefore did not contravene s 601FB(1). The attribution to Wellington of powers with respect to Scheme Property analogous to those conferred on a company by s 124 of the Corporations Act was critical to the primary judge's conclusion that the distribution of the ARL shares was within power. Her Honour's conclusion in that respect relied upon a reading of cl 13.1 of the Scheme Constitution which, having regard to its facultative purpose in relation to extramural dealings with Scheme Property, was overbroad. The Full Court decision The Full Court's reasoning in allowing the appeal emphasised the trustee capacity in which Wellington held the Scheme Property by reason of s 601FC(2). Their Honours held: • Clause 13.1 must be approached through the prism of trust law and must be construed as a whole. • Clause 13.1 is a saving provision which enabled Wellington, as a trustee, to deal with the Scheme Property as though it were the absolute owner. Clause 13.1 was not concerned with the powers of Wellington in relation to the unit holders. • Absent the consent of the beneficiaries, it is not open to a trustee simply to transfer the trust property to the beneficiaries. No prior consent to the transfer was obtained from the unit holders. • The incorporation, by indirect reference in cl 13.1, of the powers conferred on a corporation by s 124 did not thereby confer a power to distribute Scheme Property to members of the Scheme without their consent. Nor did cl 13.2.5 confer such powers on Wellington. • In any event, s 124, properly construed, referred to distribution of company property to members of a company and not to members of a managed investment scheme. • The distribution of the ARL shares, which constituted 41% of the Scheme Property, amounted to a partial retirement from office and might also have amounted to a partial winding up. The Full Court approached the construction of the powers conferred on Wellington by the Scheme Constitution on the basis that those powers were constrained by Wellington's statutory capacity as trustee of the Scheme Property. However, as shown earlier in these Reasons, a responsible entity's powers in relation to the disposition of scheme property are determined by the terms of the scheme constitution in light of such enhancements or constraints as are provided by statute and, subject to statute, the general law relating to trusts to the extent that it is applicable. Whether the distribution of the ARL shares was beyond power Wellington submitted that the legal title to the shares, prior to their transfer, resided in it and the beneficial title in the unit holders. It relied upon cll 13.1 and 13.2.5 as authorising its transfer of the legal title to the unit holders. That submission depended upon its characterisation of cl 13.1 as amounting to a "grant of power in the broadest terms possible". A similar submission was made in respect of cl 13.2.5. Those submissions detached cll 13.1 and 13.2.5 from their context. Constraints upon the power in cl 13 derived, in part, from the statutory duties imposed upon the responsible entity by s 601FC(1) and the fiduciary obligations derived from the statutory trust imposed by s 601FC(2). Controls on related party transactions imposed by Pt 5C.7 also constrained the responsible entity's power to deal with the scheme property as though it were its owner. There was no suggestion in this appeal that Wellington breached any of the duties imposed upon it by s 601FC. However, the existence of those duties, and other duties imposed upon the responsible entity, suggests a characterisation of cll 13.1 and 13.2.5 as enabling provisions. A reading of cll 13.1 and 13.2.5, in the context of the Scheme Constitution as a whole, leads to the conclusion that they had nothing to do with the circumstances in which assets or capital forming part of the Scheme Property could be returned to unit holders. They were facultative. They equipped Wellington to deal with the Scheme Property, in accordance with its duties, in the interests of the Scheme members. As ASIC submitted, cl 13.1 allowed third parties to have confidence that things done by the responsible entity with respect to the Scheme Property were within power and authorised by the Scheme Constitution. The conferral upon the responsible entity of power to act "as though" it was the absolute owner of the property facilitated extramural dealings, which might have been by way of sale, purchase of property or investment of Scheme Funds. It did not authorise the responsible entity to undertake intramural dealings involving non-consensual transfers of Scheme Property to unit holders. Internal support for a purposive, and thereby limiting, characterisation of cll 13.1 and 13.2.5 is derived from cll 16 and 26 of the Scheme Constitution. Clause 16 made express provision for the return of capital which the responsible entity had decided should form part of the Distribution Entitlement. It did not contemplate the transfer of assets in specie. It provided for payment in cash. It is no answer to submit that the absence of a power to transfer Scheme Property in specie to unit holders could leave the responsible entity burdened with illiquid assets which, it was said, could not be distributed to unit holders even in a winding up of the Scheme. That is a contingency which, if it arose, might warrant an appropriate amendment to the Scheme Constitution or even a winding up of the Scheme pursuant to s 601NC(1) on the basis that its purpose could not be accomplished. The only other mechanism for return of Scheme Property by way of capital is upon a winding up, which may be effected pursuant to cl 26 or otherwise under the provisions of Pt 5C.9. The Scheme Constitution, on its proper construction, did not authorise the in specie distribution of the ARL shares. The proposition propounded by the Full Court that "absent the consent of all beneficiaries it is not open to a trustee simply to transfer the trust property to the beneficiaries" was too broad in the context of this case. There has been consideration in some cases of the question whether there is a constraint upon reduction of the capital of a managed investment fund analogous to the principle of the maintenance of capital in relation to corporations. The answer to that question has tended to be in the negative. It is not necessary to explore the matter further as the outcome of the present appeal is to be determined by reference to the Scheme Constitution construed in its statutory setting. The parties and the relief The defendants to the proceedings commenced by ASIC were Wellington, ARL and Perpetual. The unit holders were not named as parties. However, when the primary judge delivered her ex tempore judgment on 17 October 2012, she made orders appointing two representatives who had been the subject of applications for their appointment on 12 October. Both had agreed to accept appointment. One, Charles Hodges, was appointed to represent persons who purchased ARL shares after 5 September 2012, and persons who were unit holders as at 5 September 2012 and who became shareholders of ARL after 4 September 2012 or who sold ARL shares on or after 5 September 2012. The other, IOOF Investment Management Ltd, was appointed to represent all persons who were unit holders as at 4 September 2012 and who had, since that date, sold units in the Scheme. The representative defendants did not participate in the substantive proceedings. Wellington submitted that because of the potential for a conflict of interest between the classes of persons represented by Mr Hodges and the absence of any representation for persons who had sold both units and ARL shares, the proceedings were improperly constituted. On that basis, it was submitted that the Full Court ought not to have granted any relief. This argument was advanced in support of the third ground of appeal, namely that the Full Court erred in exercising its discretion to grant relief. ASIC submitted that the question whether or not a person ought to have been joined in the proceedings was a matter of judgment and degree. In the end, no orders were made with operative effects upon the rights of the unit holders. Wellington's submissions did not demonstrate any relevant concern arising out of the representation, non‑participation and non-joinder of various categories of unit holders that would support an order setting aside the declarations. The Full Court declared, in effect, that Wellington did not have authority to transfer the ARL shares to the unit holders. It was left to each unit holder to determine whether it would take any action in relation to the transfer to it of ARL shares, or whether it would accept that transfer. Potentially difficult questions could arise as between particular unit holders or categories of unit holders and Wellington in this context. Those questions cannot be resolved on this appeal, which is concerned with whether the transfers were within power and whether the declarations made by the Full Court should be set aside. The declarations were a correct statement of the legal position. They were appropriate for the reasons given by the Full Court. This Court should not interfere with them. Conclusion For the preceding reasons, the appeal should be dismissed with costs.

Wellington Capital Limited v Australian Securities and Investments Commission

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