FEDERAL COURT OF AUSTRALIA Huntley Management Limited v Australian Olives Limited (No 2) [2009] FCA 686 CORPORATIONS – managed investment scheme – removal of current responsible entity and appointment of new responsible entity – challenge by current responsible entity to its removal and replacement – new responsible entity procures itself to be registered as responsible entity by Australian Securities and Investments Commission – whether new responsible entity had a right to the books relating to the scheme merely by reason of its being registered. Held: No. Corporations Act 2001 (Cth) ss 601FJ, 601FR, 601FS, 601FT Australian Olives Limited v Stout [2007] FCA 1958 discussed H A Stephenson & Son Limited (in liq) v Gillanders, Arbuthnot & Co (1931) 45 CLR 476 referred to ING Funds Management Limited v ANZ Nominees Limited [2009] NSWSC 243 cited IN THE MATTER OF AUSTRALIAN OLIVES LIMITED (ACN 078 885 042); HUNTLEY MANAGEMENT LIMITED (ACN 089 240 513) v AUSTRALIAN OLIVES LIMITED (ACN 078 885 042) NSD 346 of 2009 LINDGREN J 24 JUNE 2009 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 346 of 2009 IN THE MATTER OF AUSTRALIAN OLIVES LIMTED (ACN 078 885 042) BETWEEN: HUNTLEY MANAGEMENT LIMITED (ACN 089 240 513) Plaintiff AND: AUSTRALIAN OLIVES LIMITED (ACN 078 885 042) Defendant JUDGE: LINDGREN J DATE OF ORDER: 24 JUNE 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The following question: Is the plaintiff, by reason only of the facts stated in paragraphs 7 and 8 of orders made on 18 June 2009, the "new responsible entity", within the meaning of that expression in ss 601FR, 601FS and 601FT of the Corporations Act 2001 (Cth), of the managed investment scheme known as Australian Olives Project No 3? be answered "No". 2. The plaintiff pay the defendant's costs of the determination of the separate question. 3. The proceeding be stood over to 1 July 2009 at 9.30 am for the making of directions as to the future course of the proceeding. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 346 of 2009 IN THE MATTER OF AUSTRALIAN OLIVES LIMITED (ACN 078 885 042) BETWEEN: HUNTLEY MANAGEMENT LIMITED (ACN 089 240 513) Plaintiff AND: AUSTRALIAN OLIVES LIMITED (ACN 078 885 042) Defendant JUDGE: LINDGREN J DATE: 24 JUNE 2009 PLACE: SYDNEY REASONS FOR JUDGMENT (No 2) Introduction 1 The background to these reasons for judgment can be found in reasons that I gave on 5 June 2009 for orders made on that date: see Huntley Management Limited v Australian Olives Limited [2009] FCA 664, especially at [22]-[24]. 2 Following discussion with the parties, agreement was reached as to a question to be decided separately from any other question in the proceeding and as to the facts on which that question should be decided. I made an order for the decision of the separate question on 18 June 2009 and heard submissions on it on that day. 3 The order of 18 June 2009 was as follows: THE COURT ORDERS THAT: 1. There be determined as a separate question from all other question in the proceeding, the following question: Is the plaintiff, by reason only of the facts stated in paragraphs 7 and 8 below, the "new responsible entity", within the meaning of that expression in ss 601FR, 601FS and 601FT of the Corporations Act 2001 (Cth) (the Act), of the managed investment scheme known as Australian Olives Project No 3 (Scheme)? THE COURT NOTES THAT FOR THE PURPOSES ONLY OF THE DETERMINATION OF THE SEPARATE QUESTION, THE PARTIES HAVE AGREED TO THE FOLLOWING FACTS: AGREED FACTS 2. From 20 January 2000 until 17 December 2008 the defendant was named in ASIC's record of registration as the responsible entity of the Scheme. 3. From 20 January 2000 until at least 12 December 2008 the defendant was the responsible entity of the Scheme. 4. On 12 December 2008 a meeting of members of the Scheme was held, at which resolutions (Resolutions) were purportedly passed, the effect of which, if validly passed, was to remove the defendant as responsible entity of the Scheme and to choose and appoint the plaintiff as the new responsible entity of the Scheme. 5. The parties are in dispute as to whether the Resolutions were validly passed and effective. 6. Proceedings directed to determining whether the Resolutions were validly passed and effective are pending in the Queensland District Registry of this Court (Queensland Registry Proceeding). There is a serious question to be tried in the Queensland Registry Proceeding whether or not the Resolutions were validly passed and effective. 7. The plaintiff became named in ASIC's record of registration as the responsible entity of the Scheme on 17 December 2008. 8. Since 17 December 2008 the plaintiff has continued to be named in ASIC's record of registration as the responsible entity of the Scheme. Legislation 4 Central to the separate question is Part 5C.2 of the Corporations Act 2001 (Cth) (Act). 5 Chapter 5C of the Act is headed "Managed Investment Schemes". Part 5C.1 deals with the registration of such schemes. It is not every managed investment scheme (MIS) that must be registered: see s 601ED of the Act. Central to a MIS is the responsible entity (RE). 6 Part 5C.2 of the Act deals with the RE. Within Div 1 of that Part, s 601FA provides that the RE of a registered MIS must be a public company that holds an Australian financial services licence authorising it to operate a MIS. 7 Other provisions within Div 1 deal with the responsibilities and powers of an RE. 8 Division 2 is headed "Changing the responsible entity", and Div 3 is headed "Consequences of change of responsible entity". All three sections within Div 3, ss 601FR, 601FS and 601FT, commence "If the responsible entity of a registered scheme changes…". The plaintiff, Huntley Management Limited (Huntley) relies on these provisions for the final relief it seeks against the defendant Australian Olives Limited (AOL) in this proceeding, because Huntley contends that the RE of the registered MIS, Australian Olives Project No 3 (Scheme), has changed from AOL to Huntley for the purposes of those sections. 9 This submission requires that attention be given to Div 2 within Part 5C.2. Section 601FJ, the first section within Div 2, is central to the separate question. Section 601FJ provides: (1) Despite anything in this Division, the company named in ASIC's record of registration as the responsible entity or temporary responsible entity of a registered scheme remains the scheme's responsible entity until the record is altered to name another company as the scheme's responsible entity or temporary responsible entity. (2) A purported change of the scheme's responsible entity is ineffective unless it is in accordance with this Division. 10 Huntley contends that since it became named in the record of registration of the Australian Securities and Investments Commission (ASIC) as the RE of the Scheme on 17 December 2008 and has continued to be so named since that time, s 601FJ(1) produces the result that there has been a change of the RE of the Scheme from AOL to itself (Huntley) for the purposes of ss 601FR, 601FS and 601FT of the Act. 11 Sections 601FL–601FQ within Div 2 provide for the circumstances in which a change in RE may take place and for the procedural requirements associated with such a change. Section 601FL provides for the procedure to be followed if an RE wants to retire. Section 601FM provides for the procedure to be followed if the members of a registered scheme want to remove the RE. Section 601FN provides that ASIC or a member of a registered scheme may apply to the Court for the appointment of a temporary RE if the scheme does not have an RE that meets the requirements of s 601FA. Section 601FP provides that on an application under s 601FL or s 601FN, the Court may, by order, appoint a company as the temporary RE of a registered scheme if the Court is satisfied that the appointment is in the interest of the members. Finally, s 601FQ provides for a temporary RE of a registered scheme to convene a meeting of the scheme members with a view to their choosing a company to be the new RE. Consideration 12 Subsection 601FJ(2) is directed to ss 601FK–601FQ. For example, if there was a purported change of RE but the new RE chosen was not a public company that held an Australian financial services licence authorising it to operate a MIS as required by s 601FA, the purported change would be ineffective. Likewise, if, as AOL alleges, the purported removal of AOL and the choice of Huntley to be the new RE in its place were not carried out in accordance with s 601FM, the removal and replacement would be ineffective. 13 In my opinion s 601FJ(1) does not, on its proper construction, defeat the requirements of ss 601FK–601FQ as operated upon by s 601FJ(2). Rather, subs (1) of s 601FJ assumes the existence of an otherwise effective change of RE in accordance with ss 601FK–601FQ, and provides that "despite" this, the current RE remains the scheme's RE until ASIC's record is altered to name another company as RE or temporary RE. 14 It is not possible to apply the word "remains" in s 601FJ(1) to Huntley in the circumstances of the agreed facts. It is not possible to say on those facts that despite a change of RE of one of the kinds for which Div 2 provides, Huntley, being registered as the RE, "remains" the Scheme's RE until ASIC's record is altered to name another company as its RE. 15 The following further considerations support the construction that I have just outlined. 16 First, the Explanatory Memorandum to the Managed Investments Bill 1997 which provides the background to the Act that enacted Chapter 5C (Chapter 5C was inserted into the Corporations Law by the Managed Investment Schemes Act 1998 (No 62, 1998)) stated in para 8.27: Any purported change of a scheme's responsible entity will be ineffective until the ASC's record of scheme registration is changed (proposed subsection 601FJ(1)) and the change is in accordance with proposed Division 2 of Part 5C.2 (proposed subsection 601FJ(2)). The replacement responsible entity must meet the requirements of proposed section 601FA (proposed section 601FK). 17 This passage shows that what was contemplated was that in order to be effective, a change of RE must be in accordance with Div 2 of Part 5C.2 and be registered. 18 Second, the construction suggested is consistent with the scheme of the registers kept by ASIC. Generally speaking, an ASIC writing that is based on the ASIC national database is only prima facie evidence: see, for example, ss 1274(7) and 1274B(2) of the Act. An exception is found in s 1274(7A) which is the familiar provision to the effect that a certificate issued by ASIC stating that a company has been registered under the Act is conclusive evidence that all requirements of the Act for its registration were complied with and that the company was duly registered as a company under the Act on the date specified in the certificate. The policy underlying that longstanding provision in the companies legislation was explained Evatt J in H A Stephenson & Son Limited (in liq) v Gillanders, Arbuthnot & Co (1931) 45 CLR 476 at 497–500. Unlike the issuing of a certificate of registration of a company, the making or changing of entries in a register on information supplied to ASIC does not create a new entity and associated rights and obligations, but is supposed to reflect rights and obligations that have already arisen. 19 Third, a somewhat analogous provision is found in s 601GC(2) of the Act which requires that any modification to a registered scheme's constitution be lodged with ASIC and cannot take effect until lodged. In ING Funds Management Limited v ANZ Nominees Limited [2009] NSWSC 243 there was a question as to the effectiveness of actions taken by an RE to suspend the rights of members of two registered schemes to require redemption of their units. The RE contended that the actions taken by it were effective to modify the constitutions of the schemes to create the suspension. 20 Section 601GC of the Act provided: (1) The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution; (a) … (b) by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights. (2) The responsible entity must lodge with ASIC a copy of the modification of the new constitution. The modification, or repeal and/or replacement cannot take effect until the copy has been lodged. The RE lodged documents with ASIC. 21 Barrett J held, for reasons that do not presently matter, that a deed was required and that the execution and lodgment of the documents, which, it was common ground, did not constitute deeds, did not cause the constitutions to be modified pursuant to s 601GC(1)(b). 22 Just as lodgment did not overcome the ineffectiveness for their purpose of the non-deeds, so registration does not overcome any ineffectiveness of the purported removal of AOL and appointment of Huntley in the present case. A denial of effectiveness until registration or lodgment is not to be equated with a grant of effectiveness by reason of registration or lodgment. 23 Counsel for Huntley referred to a statement by Greenwood J in Australian Olives Limited v Stout [2007] FCA 1958 at [33] where his Honour observed: In order to maintain continuity for those persons dealing with the register, a company recorded by ASIC as a responsible entity of a registered scheme remains the responsible entity until the record is altered to name the new entity, notwithstanding anything in Division 2. This passage paraphrases subs(1) of s 601FJ and adds an explanation of the purpose of the provision, namely, "to maintain continuity for those persons dealing with the register". 24 I do not see any inconsistency between the passage quoted and my construction of s 601FJ(1). The passage quoted applies comfortably to AOL's position. Even on the assumption that there was a valid removal of AOL and appointment of Huntley, those who had dealt with AOL on the faith of the register would be safe in continuing to do so until the register was altered to name Huntley as the new RE. 25 Counsel for Huntley suggests that my construction would lead to intolerable outcomes for innocent third parties, who would be in a quandary as to which company they should deal with as RE. It is true that at the present time, for example, according to the construction I have suggested, Huntley's status as registered RE might be falsified, so that a person dealing with Huntley in reliance on the register might subsequently discover that AOL was the RE. However, the person would have the benefit of the prima facie evidence constituted by the register, which would have to be displaced by evidence, and would have a claim against Huntley for breach of an implied warranty that it was the RE and therefore trustee for the scheme members (see s 601FC(2) of the Act). In any event, the construction urged by Huntley can also lead to difficulty in that the true RE would be denied that status, even if it placed convincing proof of it before the person, unless and until the dispute between the rivals for the position of RE was resolved and ASIC altered the register. Whatever course is followed, the disconformity between the true facts and those suggested by the registration could be a potential cause of hardship and loss in particular circumstances that can be hypothesised. 26 Huntley also argues that the construction that I have suggested renders the words "Despite anything in this Division" at the beginning of s 601FJ(1) otiose – a result that the Court should seek to avoid. 27 There are two answers to this argument. The first is that because of the word "remains", subs (1) is directed to the position of a company that was RE prior to a change of RE. My construction fully recognises that that company remains RE until the ASIC record is altered. 28 The second answer is that the words "Despite anything in this Division" are directed to steps that would otherwise have been effective to prevent a company from remaining the RE of a scheme. The word "Despite" indicates this. The steps that would otherwise be effective to prevent a company from remaining the RE of a scheme are found in ss 601FK–601FQ and 601FJ(2). Conclusion 29 For the above reasons the separate question will be answered "No" and Huntley will be ordered to pay AOL's costs of the decision of the separate question. The proceeding will be listed for directions in relation to the future course of the proceeding. 30 Nothing that I have said prevents Huntley from seeking interlocutory relief pending the final determination of the proceeding in the Queensland District Registry of this Court referred to in my earlier reasons for judgment in this proceeding (see [1] above). I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 24 June 2009 Counsel for the Plaintiff: Mr B L Jones Solicitor for the Plaintiff: Piper Alderman Counsel for the Defendant: Mr J C Giles and Mr J S McLeod Solicitor for the Defendant: McMahon Clarke Legal Date of Hearing: 18 June 2009 Date of Judgment: 24 June 2009