Supreme Court New South Wales Medium Neutral Citation: Stewart v Spicer Thoroughbreds Pty Ltd [2022] NSWSC 558 Hearing dates: 26 and 27 April 2022 Decision date: 09 May 2022 Jurisdiction: Equity - Commercial List Before: Black J Decision: Proceedings dismissed. Parties to bring in agreed orders to give effect to this judgment and as to costs within 7 days. Catchwords: CORPORATIONS — Managed investment scheme — whether thoroughbred racing horse investment schemes are managed investment schemes as defined in s 9 of the Corporations Act 2001 (Cth) — whether the schemes were required to be registered under s 601ED — whether the relevant contracts were voidable under s 601MB — whether a declaration should be made concerning an alleged contravention of s 911A of the Corporations Act 2001 (Cth) Legislation Cited: Corporations Act 2001 (Cth), s 9, s 79, s 601ED, s 601MB, s 911A, s 1012E Cases Cited: - Adler v Australian Securities and Investments Commission; Williams v Australian Securities and Investments Commission (2003) 46 ACSR 504; 21 ACLC 1810; [2003] NSWCA 131 - Attorney-General (NSW); Ex rel Corporate Affairs v Australian Softwood Forests Pty Ltd [1979] 2 NSWLR 73 - Australian Securities and Investments Commission v Great Northern Developments Pty Ltd [2010] NSWSC 1087 - Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2003) 177 FLR 147; 45 ACSR 401; [2003] NSWSC 400 - Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339 - Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781 - Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373; 24 ACLC 1308; [2006] NSWSC 1052 - Australian Securities and Investments Commission v My Wealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 10 - Australian Securities & Investments Commission v PE Capital Funds Management Ltd (admins apptd) [2022] FCA 76 - Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561; [2002] NSWSC 310 - Australian Securities and Investments Commission v Primelife Corp Ltd (2005) 54 ACSR 536; [2005] FCA 1229 - Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 at 49; 28 ACLC 1732; [2002] NSWSC 834 - Brightwater Care Group (Inc) v Rossiter (2009) 40 WAR 84; [2009] WASC 229 - Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; 260 ALR 643; 74 ACSR 447; [2009] FCAFC 147 - Burton v Aurcus (2006) 32 WAR 366; [2006] WASCA 71 - Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612; 22 ACLC 931; [2004] NSWCA 214 - McRobert Superannuation Pty Ltd v Cranston [2021] WASCA 126 - Waters v Mercedes Holdings Pty Ltd (2012) 203 FCR 218; (2012) 90 ACSR 45; [2012] FCAFC 80 - Mier v FN Management Pty Ltd [2006] 1 Qd R 339; (2005) 56 ACSR 93; [2005] QCA 408 - Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18 ; (1974) 131 CLR 286 - Pharmacy Guild of Australia v Ramsay Health Care Ltd [2019] NSWSC 1045 - Premium Income Fund Action Group Incorporated v Wellington Capital Ltd (2011) 84 ACSR 600; [2011] FCA 698 - Re Earth Civil Australia Pty Ltd [2021] NSWSC 966 - Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; 20 ACLC 576; [2002] NSWSC 171 - Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40 - Re Willmott Forests Limited (in liq) and Willmott Finance Pty Ltd (in liq) (2011) 85 ACSR 71 - Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358; 240 ALR 567; [2007] FCA 922 - Waters v Mercedes Holdings Pty Ltd (2012) 203 FCR 218; (2012) 90 ACSR 45; [2012] FCAFC 80 - Webster (Trustee) v Murray Goulburn Co-op Co Ltd (No 2) [2017] FCA 1260 Texts Cited: - J Woolf, The Declaratory Judgment (Sweet & Maxwell, 4th ed, 2011) - PW Young, C Croft and ML Smith, On Equity (Lawbook Co, 2009) Category: Principal judgment Parties: John Stewart (Plaintiff) Spicer Thoroughbreds Pty Ltd (First Defendant) Brad John Spicer (Second Defendant) Representation: Counsel: D Klineberg (Plaintiff) M Izzo SC/D Levi (Defendants) Solicitors: Hall and Wilcox (Plaintiff) A G Hartnell (Defendants) File Number(s): 2021/24091 Judgment Nature of the proceedings 1. By Amended Summons filed on 15 April 2022, the Plaintiff, Mr John Stewart seeks relief against the First Defendant, Spicer Thoroughbreds Pty Ltd ("Spicer Thoroughbreds") and the Second Defendant, Mr Brad Spicer. The relief sought includes declarations that Spicer Thoroughbreds contravened s 601ED(5) of the Corporations Act 2001 (Cth) ("Act") by operating three thoroughbred racing horse investment schemes, which Mr Stewart contends were required to be registered under s 601ED(1) of the Act but were not registered. He seeks declarations that the three contracts by which he acquired an interest in each of the horses are void. He also seeks a further declaration as to a contravention of s 911A of the Act, although it is not apparent that declaration has any consequences in respect of the relief he seeks. He also seeks an order that the Defendants pay him a specified amount, or alternatively pay him a lesser amount and damages. Affidavit evidence and background facts 1. I will first refer to the affidavit evidence, before setting out the background facts. Mr Stewart reads his affidavits dated 7 May 2021 and 23 July 2021. Mr Stewart there refers to the circumstances in which he was introduced to a person who he understood was a representative of Spicer Thoroughbreds, to a discussion of his possible purchase of an interest in a horse that could run a distance and to his subsequent acquisition of a 10% interest in a horse originally named "Lucky For Some" and later renamed "Lucky For All" (by which name I will refer to it). An entity associated with Mr Stewart, Kesinda Pty Ltd ("Kesinda"), paid for the interest acquired by Mr Stewart in Lucky For All, apparently with funding provided by Mr Stewart, but no point was taken as to that matter. Mr Stewart gives evidence of a conversation with Mr Spicer in April 2018 in which he contends that Mr Spicer claimed he was "responsible for organisation of the syndication" and would be the "manager" of Lucky For All. He also refers to his having made a further statement as to his interest in acquiring a horse that can run over distances although it seems that his acquisition of an interest in Lucky For All had already occurred. Mr Stewart also refers to his subsequent acquisition of an interest in another horse, La Baol, and again Kesinda paid the purchase price, funded by Mr Stewart, and Mr Stewart was subsequently registered as a part owner of La Baol. Mr Stewart also refers to his acquisition of an interest in a third horse, Panama Papers, although again the invoice was issued to Kesinda which paid the relevant purchase price, having been funded by Mr Stewart, and Mr Stewart was subsequently registered as a part owner of Panama Papers. 2. Mr Stewart's evidence is he was not provided with a product disclosure statement in relation to his investment in the three horses; that is common ground, although a product disclosure statement would only have been required had that investment constituted, relevantly, a managed investment scheme or another financial product within the scope of the product disclosure requirements. He refers to subsequent emails in respect of the management of Lucky For All, La Baol and Panama Papers, to his winnings and expenses and to his purported rescission of the contracts to acquire interests in the horses and subsequent correspondence from his solicitors. 3. By his affidavit dated 18 June 2021, Mr Spicer, who is the sole director of Spicer Thoroughbreds, refers to his history in breeding and racing thoroughbred horses and to the nature of the business of Spicer Thoroughbreds which he says occasionally promoted and advertised syndicates for sale to the public between 2015 and 2018, involving a small proportion of the horses with which Spicer Thoroughbreds had been involved over the last 16 years. His evidence is that Spicer Thoroughbreds ceased offering public syndicates from 2018 and has only worked with "sophisticated racing people" since that date. His evidence is that the majority of horses are "put together privately", being owned jointly by individuals who are familiar with the industry, with only a small minority registering as syndicates with racing bodies. 4. Mr Spicer also refers to the provision of a "Concierge Service" by Spicer Thoroughbreds to buyers involved with a horse purchased from it, and outlines the content of the service, including providing updates on the horse to the owner group and facilitating communication between the trainer and owners. His evidence (as to which he was not cross-examined) is that neither he nor Spicer Thoroughbreds made decisions with respect to the horses as part of the Concierge Service. His evidence is that, other than in relation to insurance (when Spicer Thoroughbreds provided that service prior to 2018), no expenses associated with horse ownership are collected by Spicer Thoroughbreds. Mr Spicer denies the conversation attributed to him by Mr Stewart at the meeting between them, which he dates as in March or April 2018, and says that he indicated that Spicer Thoroughbreds was "not a syndicate business" and its role was limited to "help[ing] manage things like facilitating communication between trainer and the owners on major decisions". Mr Spicer also refers to the history of Lucky For All, Panama Papers and La Baol, and to the offer to Mr Stewart to acquire his ownership interest in La Baol. 5. By his second affidavit dated 23 July 2021, Mr Stewart took issue with aspects of Mr Spicer's affidavit, to which I refer below. Neither Mr Stewart nor Mr Spicer were cross-examined and, in these circumstances, Counsel accept that it will not be possible for the Court to determine the dispute between them as to what was said at their meeting in early April 2018. Mr Stewart also relies on the affidavit dated 7 May 2021 of his solicitor, Ms Rebecca Griffiths, which establishes the terms of standard form contracts required under the Australian Rules of Racing and the uncontroversial fact that Spicer Thoroughbreds does not currently hold an Australian financial services licence. 6. I now turn to the background facts, as they emerge from those affidavits, the pleadings and the tendered documents. In December 2017, Mr Stewart met Mr Mick Sharkie, then an employee or former employee of Spicer Thoroughbreds at a function and discussed his interest in purchasing a share in a horse of a particular character (Stewart 7.5.21 [6]). In late January 2018 or early February 2018, Spicer Thoroughbreds purchased "Lucky For All" (as it was later renamed) from New Zealand and offered interests in it for sale (Spicer 18.6.21 [26]) and, by an email dated 11 February 2018, Mr Sharkie provided Mr Stewart with information in relation to Lucky For All (Stewart 7.5.21 [9]; Ex J1, 421-422). On 15 February 2018 Mr Stewart and Spicer Thoroughbreds entered into a Purchase Acceptance Agreement by which Mr Stewart agreed to acquire a 10% interest in Lucky For All for $38,500 (Stewart 7.5.21 [12]; Ex J1, 425). A tax invoice (Ex J1, 426) was issued to "John Stewart Kesinda Pty Ltd" and I have referred to the involvement of Kesinda above. By about 4 April 2018, Mr Stewart acquired a 10% interest in Lucky For All for $38,500 (Stewart 7.5.2021 [13]; Ex J1, 426-427, 440-441). Mr Stewart, Mr Spicer and Mr Sharkie then met in March or early April 2018 and, as I noted above, the terms of that discussion are disputed (Stewart 7.5.21 [16]; Spicer 18.6.21 [24]-[25]). Between 17 May 2018 and 21 May 2018, there were emails and telephone calls between Mr Spicer and Mr Stewart regarding a third party's offers to purchase Lucky For All, and the owners of Lucky For All refused those offers which Mr Stewart would have preferred to accept (Stewart 7.5.21 [32]-[38]; Spicer 18.6.21 [36]-[42]; Ex J1, 455-468, 471-474, 478-479, 483-491). 7. In June or July 2019, Spicer Thoroughbreds offered an interest in Le Baol to Mr Stewart (Spicer 18.6.21 [52], [54]), Stewart 7.5.21 [17]; Ex J1, 711-715). On 11 July 2019, Mr Stewart acquired a 10% interest in Le Baol for $97,500 (ACLS [5]; Stewart 7.5.21 [18]; Ex J1, 717-719, 738). Although a purchase agreement for La Baol is not in evidence, an invoice dated 8 July 2019 (Ex J1, 717) addressed to "John Stewart Kesinda Pty Ltd" referred to the acquisition of a 10% share in La Baol for that amount. 8. On 19 July 2019, there was discussion in a telephone call between Mr Spicer and Mr Stewart regarding an opportunity for Mr Stewart to purchase a share in Panama Papers (Stewart 7.5.21 [22]). On 22 July 2019, Mr Stewart and Spicer Thoroughbreds entered into a Purchase Acceptance Agreement under which Mr Stewart agreed to acquire a 15% interest in Panama Papers for the sum of $68,475 (Stewart 7.5.21 [25]; Ex J1, 752). On 15 August 2019 Mr Stewart acquires a 15% interest in Panama Papers for that amount (Stewart 7.5.21 [24]; Ex J1, 756, 1229, 1231). 9. Panama Papers' trainer later recommended that the horse be gelded and a majority of the owners of Panama Papers accepted that recommendation in about December 2019 (Spicer 7.5.21 [49], [50]). Le Baol's trainer also decided to geld that horse, and Mr Stewart became aware of that decision in September 2020 (Stewart 7.5.21 [45]). In August 2020 Lucky For All was retired after injury (Stewart 7.5.21 [40]-[41]). 10. By letter dated 6 October 2020, Mr Stewart wrote to Spicer Thoroughbreds complaining as to decision-making in respect of the horses and contending that he had received legal advice as to his right to rescind the relevant contracts under s 601MB of the Act, electing to declare void each agreement by which he acquired an interest in the horses and demanding that Spicer fully compensate him for financial loss that he claimed to have suffered in the amount of $201,191. That notice will only be effective if the relevant transactions managed investment schemes were required to be, and were not, registered. By email dated 27 October 2020, Spicer Thoroughbreds requested a copy of the legal advice which Mr Stewart said he had obtained, and offered $98,179 to purchase Mr Stewart's interest in La Baol. Mr Stewart did not accept that offer. On 30 November 2020, Mr Stewart's solicitors sent a letter to Spicer maintaining his earlier allegations and demanding compensation for the loss Mr Stewart had suffered in relation to his investments made through Spicer, now quantified as $211,681. Whether the Schemes are established 1. I should first identify the case which Mr Stewart advances, as set out in his Further Amended Commercial List Statement, as amended in the course of the hearing. Mr Stewart contends that, between 4 April 2018 and 15 August 2019, Mr Stewart entered into three contracts, by which he acquired interests in three thoroughbred racing horses, which he contends amounted to acquiring interests in three thoroughbred racing horse investment schemes ("Schemes") (FACLS [3]), and that the Schemes, presumably in respect of each racehorse: "… comprised the following programme or plan of action: (a) the sale by the First Defendant of interests in the three racehorses to the Plaintiff and his fellow co-owners; (b) each of the three racehorses would be raced competitively, with the aim of producing earnings from prizemoney for the Plaintiff and his fellow co-owners; (c) each racehorse would be trained by, and cared for under the supervision of, a trainer selected by the First Defendant; and (d) the Defendants would, otherwise, manage the day-to-day affairs of each racehorse for the Plaintiff and his fellow co-owners." 1. The first element of the pleaded Schemes, namely the sale by Spicers Thoroughbreds of interests in three horses to three groups of owners, each comprising Mr Stewart, is plainly established. I accept that the relevant Schemes, in the sense of a course of action contemplated at least by the co-owners of the horses, involved the second element that they would be raced with the aim or producing earnings from prize money for those co-owners. 2. I do not accept that the third element of the pleaded Schemes is established. It is apparent that a trainer had been appointed in respect of each of the horses at the time that interests in them were offered for sale (Ex J1, 421, 713, 762). It does not seem to me that this establishes an element of the Schemes, as distinct from the factual situation which existed at the time Mr Stewart and co-owners acquired their interest in the horse, and it is notable that a subsequent change in the trainer for Lucky For All was to a trainer selected by co-owners of that horse, from two trainers who were suggested by Mr Spicer, rather than to a trainer selected by Mr Spicer or Spicer Thoroughbreds (Ex J1, 680, 682, 684). This allegation is also inconsistent with the terms of the prescribed form of Co-Owner Agreement under the Australian Rules of Racing ("Rules") to which I refer below, so far as cl 3.6 of that agreement contemplated that the Managing Owner (as defined) would make any decision to engage a new trainer, and carry out any reasonable actions to effect that decision, on behalf of Co-Owners with Majority Consent as defined. 3. I also do not accept that the fourth element of the pleaded Schemes is established. No agreement between Spicers Thoroughbreds and Mr Stewart, and no understanding of the owners of any of the horses, no requirement under the Rules and no practice has been established that Spicers Thoroughbreds rather than, for example, a trainer, managed the day to day affairs in respect of each relevant horse. Mr Spicer's evidence is that he told Mr Stewart, at their first meeting in March or April 2018, that the owners were in charge of all bills, made all decisions by majority vote, and received any prize money directly and that Spicer Thoroughbreds "just helped manage things like facilitating communication between trainer and the owners on major decisions", did not charge a management fee, and only operated with private clients (Spicer [25]). The evidence of invoicing practices (Ex J1, 445, 898ff, 1011) is consistent with that limitation to its role. The evidence also indicates that there were regular communication between each of Spicer Thoroughbreds and the Australian-based trainers and co-owners (Ex J1, 421, 424, 522, 524, 680, 700, 781, 784, 789, 811-812, 939, 956) which seem to me to fall well short of Spicer Thoroughbred's exercising management functions in respect of the day to day affairs of each horse or the relevant Schemes. Whether the Schemes are managed investment schemes as defined in s 9 of the Act 1. Mr Spicer pleads that each of the Schemes was a "managed investment scheme" within the meaning of s 9 of the Act (ACLS [18]-[19]). The term "managed investment scheme" is defined in s 9 of the Act as a scheme that has specified features, namely that: "(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)." 1. The scope of this definition and its elements has been addressed in many cases. The definition is directed to a scheme that has specified features, namely (1) the act of contribution of money or money's worth by several persons; (2) the accruing for those persons in return of certain rights to benefits produced by the scheme; (3) pooling of the contributions or other use of them in a common enterprise; (4) an objective or expectation of accrual of benefits to persons for the time being holding the rights generated by the contributions; and (5) absence of day to day control of the operation of the scheme by those persons: Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 at 49; 28 ACLC 1732; [2002] NSWSC 834 ("Takaran"). The concept of "scheme" adopted in this definition involves a program or plan of action: Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 at 129; 36 ALR 251; Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339 at [45] ("Knightsbridge Managed Funds"); Premium Income Fund Action Group Incorporated v Wellington Capital Ltd (2011) 84 ACSR 600; [2011] FCA 698 at [20]. Whether a scheme is a managed investment scheme is to be determined by reference to this definition and not by reference to any implied limitation derived from the regulatory scheme under Ch 5C of the Act: Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; 260 ALR 643; 74 ACSR 447; [2009] FCAFC 147 at [33] ("Brookfield Multiplex"). 2. In Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781 at [65], quoted in Australian Securities & Investments Commission v PE Capital Funds Management Ltd (admins apptd) [2022] FCA 76 ("PE Capital"), McKerracher J observed that: "The definition of 'managed investment scheme' in s 9 of the Corporations Act requires the identification of a '[a] scheme'. In Australian Softwood Forests Pty Ltd v A-G (NSW) (Ex rel Corporate Affairs Commission) (1981) 148 CLR 121, Mason J (with whom Gibbs CJ and Stephen J agreed) observed (at 129) by reference to Clowes v Cmr of Taxation (Cth) (1954) 91 CLR 209 (at 225) that 'all that the word "scheme" requires is that there should be "some programme, or plan of action". In Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 170 FLR 388; [2002] NSWSC 834 , Barrett J discussed the nature of a 'scheme' (at [15]): The essence of a "scheme" is a coherent and defined purpose, in the form of a "programme" or "plan of action", coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan…Profit-making will almost invariably be a feature or objective of the kind of scheme with which the s 9 definition of "managed investment scheme" is concerned, given the definition's references in several places to "benefits". Whatever is incidental and necessary to the pursuit of the profit (or "benefits") will therefore be comprehended by the scheme, including, it seems to me, steps sensible to counter risk of loss (or detriment)." 1. The first limb of the definition of "managed investment scheme" applies if people contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme, whether those rights are actual, prospective or contingent and whether they are enforceable or not: Brookfield Multiplex at [50]ff, [223]ff. The second limb of the definition of "managed investment scheme" reflects the concept of "common enterprise" which was used in former definition of "participation interest" (Explanatory Memorandum to the Managed Investments Bill 1997 (Cth) [19.7]). That limb applies if contributions are to be pooled or used in a common enterprise, to produce financial benefits; those benefits consist of rights or interests in property; and those benefits are for people who hold interests in the scheme, whether as contributors or people who have acquired interests from holders in the scheme: Australian Softwood Forests Pty Ltd v Attorney-General (NSW) above, holding that a common enterprise could exist, provided the actions of each party contributed to the common purpose, although there was no sharing of profits and although the promoter and participants did not jointly participate in all aspects of the enterprise; Brookfield Multiplex at [83]ff, [255]ff. Whether there is an intention that contributions are to be pooled or used in a common enterprise to produce financial benefits or rights or interests in property for members is to be determined objectively, and this limb of the definition is not satisfied if there is no evidence that any investor intended that its money be pooled with contributions from other investors to be used in a common enterprise for the financial benefit of all investors: Australian Securities and Investments Commission v Great Northern Developments Pty Ltd [2010] NSWSC 1087 at [83]. 2. Mr Klineberg, who appears for Mr Stewart, submits that the circumstances of Mr Stewart's acquisition of his interest in each horse and the way in which the management of the three horses was affected by the Defendants demonstrates that Mr Stewart acquired, in each case, an interest in a managed investment scheme. I have referred to the pleaded elements of the Schemes above. Mr Klineberg placed substantial reliance on Mr Spicer's description, in his affidavit, of the nature of Spicer Thoroughbred's business, that it "sells ownership stakes in yearlings and manages the horses from the auction yard to the end of their careers" (Spicer [6]). However, the proposition that that is the nature of Spicer Thoroughbreds' business does not support an inference that Spicer Thoroughbreds in fact managed the three particular horses in issue in these proceedings in that manner. 3. Mr Klineberg also submitted that Mr Stewart and each of the other owners who invested in each racehorse contributed "money or money's worth" to acquire rights (interests) to benefits produced by each Scheme. It is plain enough that Mr Stewart and other owners paid money to acquire an interest in the physical asset, being the respective horses, and that is established by documents contained in Ex J1 and summarised in Annexure A to Mr Klineberg's submissions. Mr Klineberg submits that the primary benefit, the rights to which were acquired by the contribution of money by Mr Stewart and each other owner, was prize money from horseracing. Mr Klineberg also submits that another benefit applicable to the schemes involving Panama Papers and La Baol was at least a prospective benefit of income from each horse being put to stud. Mr Klineberg also points to the benefit, or possible benefit, of the sale of the horse for a profit, but that again arises from each co-owner's interest in the physical asset, the horse. Mr Klineberg also submits that for the purposes of the second element of the definition of a managed investment scheme, owners' contributions were pooled, or used in a common enterprise to produce financial benefits, or benefits consisting of rights or interests in property for Mr Stewart and other owners. 4. Mr Izzo, with whom Ms Levi appears for the Defendants, responds that the first two elements of the concept of a "managed investment scheme" were not satisfied. Mr Izzo submits that the consideration paid in respect of the acquisition of interests in the horses was paid to acquire those interests, being an interest as tenant-in-common in a chose in possession, and could not be consideration to acquire rights to benefits produced by the Schemes or used in common with other members of the Schemes (T38). Mr Izzo also contends that it is not the money itself, but the joint interest in the horse acquired from it, that is contributed to the common enterprise constituting the Schemes. 5. It seems to me that Mr Izzo takes too narrow a reading of these elements of the concept of a "managed investment scheme", where his approach would have the result that any scheme which involved the acquisition of interests in assets that were to be used by investors for a common purpose would fall outside the scope of the definition of "managed investment scheme", including situations which are typically treated as falling within that definition, such as the acquisition of interests in land used for a common purpose in agricultural schemes. A second difficulty with Mr Izzo's submission is that the relevant payment can be both consideration to acquire an interest in the horse, and consideration to acquire a right (in the expanded statutory sense) to a benefit of racing prize money and other income from the horse. It is then not to the point that, as Mr Izzo contends, any right to prize money or other income is an incident of co-ownership of the horse, where that right is also a benefit produced by the scheme. A third difficulty is that, on that approach, the statutory provisions could be avoided by the simple expedient of a promoter selling interests in an asset to be used in a common enterprise at an inflated price to a group of investors, and making no charge for other services purportedly provided in connection with that enterprise. It seems to me that the requirement that the contributions are used in a common enterprise is satisfied where that use is by acquiring an interest in an asset which is used in that common enterprise. I accept that, as Mr Izzo points out, that reading may have the consequence that the interests of co-owners in the horses then constitute "scheme property" of the scheme, so far as they are acquired from a contribution of money to the scheme; however, co-owners would then have a corresponding economic interest in that scheme property. 6. Although I have held above that only two of the four elements of the pleaded Schemes are established, I am satisfied that the first limb of the definition is satisfied, where co-owners contributed funds to the purchase of interests in the horse, and plainly did so to acquire prospective or contingent benefits by way of income from racing the horse and from other uses of the horse such as putting it to stud, and then applied their interests in the horses for that common purpose. I also accept that the second limb is satisfied where the relevant funds, and the interests in the horses acquired by them, were used in the common enterprise of the owners acquiring and racing the relevant horses, which was "an enterprise common to participants and, accordingly, a common enterprise": Brookfield Multiplex at [94]-[98]. 7. Mr Klineberg's submissions also sought to give an extended meaning to the term "pooling" in the second element of the concept of a managed investment scheme. Mr Izzo contested the proposition that contributions were "pooled" to produce benefits for members and submitted that the expression "pooled" is given its ordinary meaning and "pooling will occur where moneys are paid into or collected in an account" and that pooling may "apply to describe arrangements where there is a "common fund into or from which all gains and losses of the contributors are paid" or "a fund made up of numerous payments from participants and used for a purpose they contemplate": Knightsbridge Managed Funds at [46]. Mr Izzo again pointed out that the payments made to Spicer Thoroughbreds were paid to purchase an interest in a horse and that there is no evidence that Spicer Thoroughbreds pooled that money. He also points out that Mr Stewart and other co-owners made later payments directly to contractors, in return for provision of the services as set out in the relevant invoices, and that Mr Stewart and the other part-owners did not receive benefits (such as prize money) from those contractors. It is not necessary to determine whether expenses paid in respect of the horses also satisfied those elements of this concept, where the payments made to acquire the interests in the horses were sufficient to satisfy these elements. 8. Next, Mr Klineberg submits that co-owners of the horses 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, for the purposes of the third element of the definition of a managed investment scheme, and he refers to authority that "day to day" connotes "routine, ordinary, everyday" and "control" refers to "control in fact as distinct from the legal right to control": Burton v Aurcus (2006) 32 WAR 366; [2006] WASCA 71 at [73]-[79]; PE Capital at [46]. Mr Klineberg here rightly draws attention to the impact of the Rules and the prescribed form of Co-Owner Agreement as it existed at relevant times (Ex J1 856, Ex P1). For completeness, I recognise that the Rules have been amended during the relevant period, but I have focussed on the versions of the rules to which the parties referred, and there is no suggestion that any amendment affects the matters in issue in these proceedings. I also recognise that the requirements of the Rules of Racing, and as to the content of the Co-Owner Agreement, may not apply to La Baol, because it was raced in the United Kingdom. However, the parties did not address that matter and I will not take it any further. 9. By AR 2 of the Rules (as at 1 January 2018 and 7 January 2019) and AR 3 of the Rules (as at 1 February 2021), any person who takes part in any matter coming within the Rules agrees to be bound by them. By AR 14B(f) of the Rules (as at 1 January 2018 and 7 January 2019) and AR 34(6) of the Rules (as at 1 February 2021), it is a condition precedent to any lodgement to register an Eligible Horse (as defined) that the Manager (as defined) undertakes to be bound by the Rules and the Eligible Horse and its owners are subject to the Rules in respect of specified matters. The Manager is defined as the first-named person in official ownership records, being Mr Spicer in respect of two of the horses and a third party in respect of the third, and may be removed by a majority of owners under AR 57(1) of the Rules (as at 1 January 2018 and 7 January 2019) and AR 63(1) of the Rules (as at 1 February 2022). By AR 57(2) of the Rules (as at 1 January 2018 and 7 January 2019) and AR 63(2) (as at 1 February 2022), the manager, alone of joint owners or syndicate members, is entitled to take specified streps in respect of racing the horse. The prescribed Co-Owner Agreement in turn provides, in cl 3.4 that the Managing Owner (as defined) will manage the Horse Ownership Venture (as defined) for the benefit of all co-owners although cl 3.6 provides that certain decisions may only be made with Majority Consent (as defined), 10. Mr Izzo responds that it cannot be said that the owners of each horse lacked control over their ownership interests in the horse. He submits that Spicer Thoroughbreds provided limited ex gratia services to the ownership group and those services did not involve it exerting any degree of control, and I have referred to Mr Spicer's evidence in that regard above. He submits that, when decisions needed to be made whether to sell Lucky For All, they were made by vote of the relevant co-owners (Stewart 7.5.21 [32]-[38]); when a recommendation was made by the trainer to geld Panama Papers, it was referred to the co-owners (Stewart 7.5.21 [49]; Ex J1, 817-819); and when a need arose to change the trainer for Lucky For All, the choice of new trainer was put to the co-owners for decision (Ex J1, 680-681, 682-683). Mr Izzo recognises that Mr Stewart complains he was not advised of certain decisions, such as the English trainer's decisions to geld Le Baol (Stewart 7.5.21 [40]-[46]); however, he points out that Mr Stewart continued to pay his pro rata share of vet and trainer fees which covered these matters. It may be that, as Mr Izzo contended, co-owners had control over a number of significant decisions made in respect of the management of the horses, at least to the extent that the requirements of the Co-Owners Agreement were complied with in practice, but that is not sufficient to establish that they had day-to-day control of the horses. 11. It seems to me that the Rules, and particularly AR 57(2) (as at 12 January 2018 and 7 January 2019) and AR 63(2) (as at 1 February 2022), the prescribed Co-Owner Agreement and the practical arrangements by which the horses were placed under the management of trainers, were sufficient to deprive the owners collectively of day-to-day control of the horses. I therefore accept that Mr Stewart and other owners did not have day-to-day control over the operation or management of the three horses, less by reason of the services which Spicer Thoroughbreds provided, than by reason of the Rules which provide for such control be exercised by a managing owner, a single person, who was Mr Spicer in the case of two schemes, and the trainer rather than by owners generally in specified matters. At least in the case of Lucky For All, it was also more difficult for co-owners to exercise such control, because an individual owner, such as Mr Stewart, did not know the identity of other owners, which was known only to Spicer Thoroughbreds, and that plainly limited owners' ability to act collectively to exercise control over the management of the horse. Whether the Schemes were required to be registered 1. Mr Stewart pleads (FACLS [20]-[21]) that the Schemes were required to be and were not registered under s 601ED of the Act. The Defendants deny those allegations and contend that the Schemes were not required to be registered and did not require a product disclosure statement by reason of s 1012E(2) of the Act (CLR [9], [21]-[22]). By his Reply, Mr Stewart in turn denies that the Schemes were not required to be registered and did not require a product disclosure statement by reason of s 1012E(2), denies that offers to co-owners were made pursuant to a "personal offer" within the meaning of s 1012E(5) and affirmatively contends that, to the extent that they were made pursuant to such an offer, each of them resulted in a breach of the "20 purchasers" and the $2 million dollar ceiling under ss 1012E(6)-(7) of the Act. 2. Mr Klineberg submits that, where it is established that the Schemes were managed investment schemes, then the Schemes were required to be registered under s 601ED of the Act, because each scheme was promoted by the Defendants who were in the business of promoting such Schemes. Section 601ED(1) relevantly provides that: "(1) Subject to subsections (2) and (2A), a managed investment scheme must be registered under section 601EB if: (a) it has more than 20 members; or (b) it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or (c) a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20. 1. The concept of "the business of promoting managed investment schemes" was considered in PE Capital at [58]ff, and Cheeseman J there found that an issuer was in the business of promoting managed investment schemes where there was evidence of active promotion of the scheme, undertaken for the purpose of profit-making and repeated over a period of years in relation to multiple schemes. Mr Klineberg in turn refers to documentation relating to interests in horses other than the three horses offered by Spicer Thoroughbreds during the years 2018 to 2019. I did not understand the Defendants to contest the fact that, once it is found (as I have found) that the arrangements relating to the three horses were managed investments schemes, that indicates sufficient system and continuity to establish that Spicer Thoroughbreds was in the business of promoting managed investment schemes. It is therefore not necessary to determine whether the fact that Spicer Thoroughbreds, or both Defendants, promoted and sold interests in horses on other occasions establishes that matter, absent evidence that the other arrangements in respect of the other horses were of a similar character, so as also to constitute managed investment schemes. 2. The Defendants did not seek to establish that the Schemes did not have to be registered because co-owners of the horses were not "retail clients" for the purposes of s 1012B(3) of the Act; compare PE Capital at [67]ff. Mr Izzo instead submits that the Schemes were not required to be registered under s 601ED(2) because a product disclosure statement would not have been required under s 1012E of the Act. Section 601ED(2) relevantly provides that: "A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made." 1. Part 7.9 Div 2 of the Act, which deals with product disclosure statements in turn provides, in s 1012E, for "Small scale offerings of managed investment and other prescribed financial products (20 issues or sales in 12 months)". Subsections 1012E(2) and (5) of the Act provide that: "(2) Personal offers of financial products do not need a Product Disclosure Statement under this Part if: (a) all of the financial products are issued by the same person (the issuer); and (b) none of the offers results in a breach of the 20 purchasers ceiling (see subsections (6) and (7)); and (c) none of the offers results in a breach of the $2 million ceiling (see subsections (6) and (7)) … (5) For the purposes of subsections (2) and (4), a personal offer is one that: (a) may only be accepted by the person to whom it is made; and (b) is made to a person who is likely to be interested in the offer, having regard to: (i) previous contact between the person making the offer and that person; or (ii) some professional or other connection between the person making the offer and that person; or (iii) statements or actions by that person that indicate that they are interested in offers of that kind." 1. Mr Klineberg submits, and Mr Izzo accepts, that the Defendants bear the onus of establishing that the conditions that give rise to an exemption to the registration requirement in s 601ED of the Act exists; compare Waters v Mercedes Holdings Pty Ltd (2012) 203 FCR 218; (2012) 90 ACSR 45; [2012] FCAFC 80; PE Capital at [64]. Mr Klineberg also draws attention to the observation of the Court of Appeal of Western Australia in McRobert Superannuation Pty Ltd v Cranston [2021] WASCA 126 at [271]-[272] (Quinlan CJ, Mitchell and Vaughan JJA) that the concept of a "personal offer" under s 1012E(5) has two essential components, namely that the offer may only be accepted by the person to whom it is made (s 1012E(5)(a)) and that the offer is made to a person who is likely to be interested in the offer (s 1012E(5)(b)) having regard to the matters referred to in sub-para (i)-(iii). It seems to me that, in order to establish an exemption under s 1012E of the Act, the Defendants must also establish each of the three matters specified in s 1012E(2), not only that the offers are "personal offers" of financial products within the scope of that sub-section, but also that none of the offers result in a breach of the 20 purchasers ceiling or the $2 million ceiling under s 1012E(6)-(7). 2. Mr Izzo submits that the specific offers made to Mr Stewart in respect of Lucky For All and Panama Papers, and his inclusion in a small group of offerees in respect of Le Baol, make it clear both that the offers could only be accepted by him, as required by s 1012E(5)(a). Mr Izzo seeks to establish that limitation by inference from several aspects of the offers made to Mr Stewart and to other part owners in the three racehorses. He points to Mr Spicer's evidence that the business model of Spicer Thoroughbreds is to offer horses for sale directly to individuals known to Spicer Thoroughbreds including past and present customers and other contacts Mr Spicer has in the industry (Spicer [14]); that emails offering a share in Le Baol were sent to a "small few" (Spicer [52]; Ex J1, 710-711, 713); and emails in relation to Lucky For All (Ex J1, 418) and Panama Papers (Stewart 7.5.21 [22], Ex J1, 747, 766, 767) also appear to be sent to a closed group. He also points to Mr Spicer's evidence that, except for 6 or 7 occasions between 2005 and 2018, Mr Spicer has not advertised shares in horses for sale to members of the public generally (Spicer [9], [21]). 3. Mr Stewart does not accept that the offers were only able to be accepted by him. It seems to me that Mr Spicer's evidence of the nature of Spicer Thoroughbreds' business model, which was not contested by Mr Stewart, does support an inference that the offer to Mr Stewart could only be accepted by him, as a person who had been approached as an informed participant in the racing industry. The fact that the offer may have been made to another such person on a similar basis, had Mr Spicer declined it, is not sufficient to prevent the exception in s 1012E(5) applying. That exception does not require that the offer be made only to a particular person and not to anyone else if that person declines it, but only that it not be transferable so that any person other than the person could not accept it. Mr Klineberg points to evidence that the shares in Lucky For All were offered to several persons, but that also does not exclude the application of the exception in s 1012E(5), where Mr Spicer's evidence of Spicer Thoroughbreds' business model the nature of the offers implies the offers were only available to the persons to whom they were made. The position is quite different from that considered in PE Capital at [78], where it appears that information memoranda were issued, accompanied by application forms which were not restricted to being completed by the persons to whom they were given, and in circumstances that created no implied limitation as to who could accept the offer. I find that the first element of the personal offer exception in s 1012E(5) is satisfied. 4. Mr Izzo also submits that the offers were made to Mr Stewart because he was likely to be interested in them, having regard to the interest he had expressed in acquiring a share in a racehorse and Mr Spicer's previous connection with him, as required by s 1012E(5)(b). Mr Klineberg accepts that the offers made by Spicer Thoroughbreds to Mr Stewart to acquire interests in the three horses were offers in which he was likely to be interested, satisfying the second element of the personal offer exception. 5. Mr Izzo also submits that, so far as the limit on the number of offers of financial products and the value of those offers under ss 1012E(6)-(7) are concerned, the combined purchase price of each horse did not contravene the $2 million ceiling and that the number of part owners did not exceed the 20 purchasers ceiling (Ex J1, 1230-1232; Lucky For All, Ex J1, 109, 408-412, 414-417, 426-438; Panama Papers, Ex J1, 111, 695-699, 709, 753-756, 758-760; Le Baol Ex J1, 110, 718-719, 722-731, 734, 738-746). That submission has the premise that the 20 purchasers and $2 million ceiling limitation in s 1020E(6)-(7) apply only to the number of offers and value of the particular scheme, rather than to all financial products issued by Spicer Thoroughbreds in a 12 month period, other than those that are excluded by s 1012E(9). Mr Izzo referred, in support of that premise, to the Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth), which described (at [14.52]) the exemption for "small scale offerings" of managed investment products. That description is in general terms and provides limited assistance as to the scope of the exemption, beyond the fact that the reference in it to "small scale offerings" would be wholly inconsistent with Mr Izzo's contention that the exemption is available for all offerings by an issuer, unlimited by total number of offers or total value, as long as the issuer ensures that each particular scheme complies with the 20 purchasers and $2 million ceiling. Mr Izzo also submits that "surely" an issuer should be able to undertake "several" small scale offers of different products (T49), but that submission has the difficulties that, first, if the ceilings specified in ss 1012E(6)-(7) apply to each separate scheme, that section would not only to permit an issuer to undertake "several" small scale offers, but also to undertake many small scale offers which together constituted a large scale offering across many schemes, registering none of them. Second, that submission would have the perverse consequence that the anti-avoidance provision in s 1012K would permit ASIC to intervene, if those issues were made by several associated issuers, but there would be no prohibition if those issues were made by the same issuer by several schemes. It seems to me that the section does not operate in that incoherent fashion, and that ss 1020E(6)-(7) apply to all financial products issued by Spicer Thoroughbreds in a 12 month period. 6. Mr Klineberg responds that the exception to the obligation to require a product disclosure statement in s 1012E are not satisfied. Mr Klineberg submits that Spicer Thoroughbreds sold 774 interests in horses to well over 20 people, to a value of approximately $12 million, in the period from 8 January 2018 to 17 December 2019 (Ex J1, 259ff). That does not, in itself, establish that those were sales of financial products issued by Spicer Thoroughbreds, as distinct from interests in horses, so that the proceeds of the sales of those financial products exceeded $2 million in any 12 month period. However, the Defendants' more fundamental difficulty is that they did not lead evidence to establish the facts necessary to bring Spicer Thoroughbreds within those exceptions. Even if the Defendants' business model has the character described in Mr Spicer's evidence, that would not form a sufficient basis to find that the offer of interests in other horses was not an offer of interests in managed investment schemes and therefore in "financial products", so as to establish the availability of this exception. 7. I am not satisfied that the Defendants have established that the requirement for a product disclosure statement under Pt 7.9 Div 2 did not apply, so as to exclude the registration requirement under s 601ED of the Act, where there is no evidence that the offers to owners of the three horses and of other interests in other horses in the relevant period the 20 purchasers or the $2 million ceiling in ss 1012E(6) or (7) of the Act and both would need to be established to allow the benefit of the exception. Whether Spicer Thoroughbreds or Mr Stewart contravened s 601ED(5) of the Act 1. As I noted above, Mr Stewart pleads the elements of the Schemes (FACLS [3]) as being, inter alia, that each racehorse would be trained for and cared for under the supervision of a trainer selected by Spicer Thoroughbreds and that Spicer Thoroughbreds and Mr Spicer would otherwise "manage" the day-to-day affairs of each racehorse for Mr Stewart and his fellow co-owners. He pleads, without further identification of material facts, and the Defendants deny, that the three Schemes were "operated" by Spicer Thoroughbreds (FACLS [7]) and that Mr Spicer promoted each of the Schemes including to Mr Stewart (FACLS [8]). Mr Stewart in turn pleads that each of the Schemes was managed by Spicer Thoroughbreds under the Trainer and Owner Reforms Co-Owners Agreement (FACLS [10]). Mr Stewart in turn pleads (FACLS [23]) that, by reason of the matters set out in FACLS [18]-[22] (namely that the Schemes had the features of a managed investments scheme as defined in s 9 of the Act, they were required to be registered under s 601ED and were not registered), Spicer Thoroughbreds "operated" the Schemes in contravention of s 601ED(5) of the Act. The Defendants plead in response (CLR [10]) that Spicer Thoroughbreds provided ex-gratia services to owners of thoroughbred racehorses who had acquired their interests in the racehorses from it ("Concierge Services") and that Mr Spicer is (or in the case of Lucky For All, was) noted on records maintained by Racing Australia as an owner with a nil ownership interest in each of the three horses. 2. These pleadings raise the application of s 601ED(5) of the Act which relevantly provides that: "A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered." 1. The term "operate" in this paragraph applies to "acts which constitute the management or the carrying out of activities which constitute the managed investment scheme", and includes managing or carrying out the activities of the scheme and incidental activities: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561; [2002] NSWSC 310 at [55]; Takaran at [49]–[50]; Australian Securities and Investments Commission v Primelife Corp Ltd (2005) 54 ACSR 536; [2005] FCA 1229 at [16]; Australian Securities and Investments Commission v My Wealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035 at [85]; PE Capital at [83]. It is not necessary for an entity's involvement to encompass all of the conduct necessary to the scheme for that entity to be taken to operate the scheme for the purposes of s 601ED(5): PE Capital at [84]. The prohibition in this section is directed to protecting the public from the risk presumed to attach to involvement in a scheme conducted otherwise than in accordance with statutory norms of behaviour; however, a scheme operated in contravention of s 601ED(5) is not a nullity and contracts entered into in respect of that scheme are not void for illegality by reason of that contravention: Australian Securities and Investments Commission v Karl Suleman Enterprizes Pty Ltd (in liq) (2003) 177 FLR 147; 45 ACSR 401; [2003] NSWSC 400 at [14]; Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612; 22 ACLC 931; [2004] NSWCA 214 at [51]; Mier v FN Management Pty Ltd [2006] 1 Qd R 339; (2005) 56 ACSR 93; [2005] QCA 408 at [10]. 2. The evidence to which I have referred above does not establish that Spicer Thoroughbreds, as distinct from the trainer of the horses or the Managing Owner under the Co-Owner Agreements (Mr Spicer in the case of two horses and a third party in the case of the third), or the trainer, Managing Owners and co-owners collectively, managed either the Schemes (to the extent they have been established) or matters relating to the horses. However, the parties seem to me to have conducted the case on a wider basis than Mr Stewart's pleaded case that Spicer Thoroughbreds "managed" the horses and addressed the question whether Spicer Thoroughbreds "operated" the Schemes by a review of the whole of its conduct, including its dealings with trainers and the co-owners. That approach is consistent with the scope of s 601ED(5) and I proceed on that wider basis. It seems to me that Spicer Thoroughbred's activities in respect of the Schemes, including at least the communications with co-owners and the trainer, amounted to carrying out the activities of the scheme and incidental activities sufficient to constitute "operating" the scheme for the purpose of s 601ED(5). Where I have held that the Schemes fell within the definition of "managed investment schemes" and an exception to the registration requirement has not been established, then it has been established that Spicer Thoroughbreds contravened s 610ED(5) of the Act in this respect. Whether Mr Spicer was involved in a contravention of s 601ED 1. Mr Klineberg also submits that Mr Spicer was involved in a contravention of s 601ED of the Act for the purposes of s 79 of the Act. A person will be knowingly concerned in a contravention within the meaning of paragraph (c) of this section if he or she is an intentional participant in the contravention, and this also requires that he or she have knowledge of the essential elements of the contravention which must exist at the time of the alleged contravention: Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 at 172–3; 20 ACLC 576; [2002] NSWSC 171 at [209], on appeal Adler v ASIC; Williams v ASIC (2003) 46 ACSR 504; 21 ACLC 1810; [2003] NSWCA 131; Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373; 24 ACLC 1308; [2006] NSWSC 1052 at [92]. Knowledge of the essential elements of the contravention may be inferred from the fact that the person is exposed to the obvious, but constructive knowledge is not sufficient: Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler above at [209]; Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40 at [40]. Mr Klineberg also points to the observation of Ward CJ in Eq in that liability under s 79, for knowing involvement, requires "actual knowledge of the essential facts constituting the contravention", and that actual knowledge can be inferred from the fact that a person is exposed to the obvious, but constructive knowledge of the essential facts is not sufficient: Re Earth Civil Australia Pty Ltd [2021] NSWSC 966 at [982]. 2. Mr Stewart does not plead or seek to identify the essential facts which are said to have been known to Mr Spicer, or the basis on which they are said to have been known. Neither counsel address the vexed question whether knowledge of the absence of an exception under s 601ED(2) of the Act would be an essential element of the contravention, or who bears any onus in that regard, and there is no evidence as to what Spicer Thoroughbreds or Mr Spicer knew of that matter. While I accept that, as the sole director of Spicer Thoroughbreds and the person "responsible for the horse side of the business" (Spicer [8]), Mr Spicer at least knew what Spicer Thoroughbreds knew, that begs the question of what Spicer Thoroughbreds knew as to the essential facts constituting the contravention. In any event, it is not necessary to determine this matter, where Mr Stewart's claims depended on the rescission of the relevant contracts under s 601MB of the Act, and I find below that his claim for rescission is not established. He did not identify, press or quantify any separate claim for damages, by statute or otherwise, that may be available against Mr Spicer if, as is the case, a right of rescission is not available to him. Mr Stewart's purported rescission of the contracts under s 601MB of the Act and its consequences 1. As I noted above, Mr Stewart seeks an order for repayment of amounts exceeding those paid under the contracts to acquire the interests in the horses, or alternatively an order for repayment of those amounts, together with damages. Section 601MB of the Act provides: "(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), in contravention of Chapter 6D, offers an interest in a registered scheme for subscription, or issues 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." 1. In submission, Spicer Thoroughbreds sought an order under s 601MB(4) extending the time for it to apply to the Court for an order that Mr Stewart's notice of rescission had no effect and sought that order under s 601MB(6). I recognise that Spicer Thoroughbreds did not, by cross-claim seek that relief. However, it is impossible to see any prejudice that Mr Stewart suffers from that matter, and Mr Klineberg fairly accepted that no such prejudice arose. Mr Izzo in turn submitted that the Court had power to extend the time specified in s 601MB(4) for the making of an application under s 601MB(6), even if a notice has taken effect. Mr Izzo submits that it is appropriate to extend the time where it was not possible for Spicer Thoroughbreds to know whether Mr Stewart's notice of rescission had taken effect unless and until the issues noted above were determined adversely to it. I am satisfied that the time for Spicer Thoroughbreds to bring this application should be extended, where there is force in Mr Izzo's submission that an application previously brought, while the disputed question whether the Schemes were managed investments schemes was unresolved, would have been premature. That question is by no means straightforward and Mr Klineberg accepted, in submissions, that the position in respect of a horse racing syndicate or co-ownership arrangement had not been addressed by previous Australian case law. I am reinforced in that view where there is no prejudice to Mr Stewart in extending that time as I noted above. 2. I am also satisfied, for the purposes of s 601MB(6) of the Act, that it would not be just and equitable for Mr Stewart to rescind the contracts to acquire an interest in the three horses and his notice of rescission should be set aside. I reach that conclusion because there is here no evidence that Spicer Thoroughbreds, for example, improperly handled monies of owners of the horses, where it only received the proceeds of sale of the interests in the horses; or that decisions in respect of the horses were not in fact made by the trainer and by the majority of owners as appropriate, although Mr Stewart's views in respect of the proposed sale of Lucky For All did not prevail; and the gelding of two of the horses and the injury and retirement of the third are risks that obviously attach to the ownership of an interests in a racehorse, and had no connection with the fact that the form in which his ownership interest was held constituted, on my findings, an unregistered managed investment scheme. Mr Klineberg submitted that Mr Steward was deprived of the benefit of a product disclosure statement, but he leads no evidence that he would have behaved differently had that document disclosed the relevant risks. It seems to me that those risks would have been apparent to Mr Stewart as an experienced participant in the racing industry, and he suffered no disadvantage on that basis. 3. For completeness, and although it is not necessary to address the scope of this section further given this finding, I note that Mr Izzo submits that a notice under s 601MB(1) does not have the effect of avoiding a contract unless one of the two conditions in s 601MB(1) is satisfied: Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358; 240 ALR 567; [2007] FCA 922 ("York Street Mezzanine") at [45]-[46]; Re Willmott Forests Limited (in liq) and Willmott Finance Pty Ltd (in liq) (2011) 85 ACSR 71 at [4]. He submits that that requires it to be shown that Spicer Thoroughbreds was operating a managed investment scheme in contravention of s 601ED(5). I have held that matter is established above. Where a contract is avoided under this section, the parties should be restored to their position prior to the contract so far as possible: York Street Mezzanine at [47]. Mr Izzo accepts, by reference to York Street Mezzanine at [47], that the effect of an order under s 601MB(1) is that the contract is void ab initio. It is therefore not necessary to address the doubt as to that matter raised, but not decided, by Beach J in Webster (Trustee) v Murray Goulburn Co-op Co Ltd (No 2) [2017] FCA 1260 at [44], where his Honour left open the question whether this section can apply to a contract that is fully performed and discharged or whether it only applies to a contract still to be performed in whole or in part and as to whether the reference to "void" in that context refers to void ab initio or only as prospective operation to discharge future performance. 4. Mr Izzo also points out that s 601MB of the Act does not, in itself, give rise to any cause of action to recover monies paid by Mr Stewart on the basis of a contract that is now voided, and any claim is presumably one in restitution. Mr Izzo points out that Mr Stewart paid the amount of $202,675 to purchase his interest in the horses, which is less than the amounts he now claims. Mr Izzo also submits that a restitutionary claim is not available, where restitutio in integrum is impossible. Mr Izzo submits that, first, Spicer Thoroughbreds will not receive back what it sold to Mr Stewart, because the age and condition of the horses is different to that which existed in 2018 and 2019. It is not necessary to determine this question where I have set aside the notice of rescission. Had it been necessary to do so, I would have been inclined to find that the interest in the horses that would be revested in Spicer Thoroughbreds is the same interest as existed in 2018 and 2019, notwithstanding that the horses are now older, and, as I noted above, Panama Papers and La Baol were gelded in 2019 and Lucky For All was retired in August 2020, where these are, sadly, the ordinary incidents of aging for a racehorse. 5. Mr Izzo also submits that Mr Stewart's claim makes no allowance for the opportunity he has had, since he acquired the horses in 2018 and 2019, to earn a return on the horses by racing them. Mr Stewart does allow credit for the winnings of the horses, as distinct from the prospect (which did not come home) that they could have been more successful, against his claim to recover expenses in addition to the purchase price of the horse. Had it been necessary to decide this matter, I am inclined to think that would have been no answer to a proper claim for rescission by an investor who suffered loss that it had an opportunity to profit, had events been different, although it did not in fact do so. It is again not necessary to determine this question where Mr Stewart has not sustained his notice of rescission of the contracts under s 601MB of the Act. 6. Mr Izzo also points to authority that the application of restitutionary claims and defences requires consideration whether it would be "inequitable" or "unjust" for a recipient to be required to repay money it has received: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at [23], [75]-[77], [106], [140]. He submits that would be "neither equitable nor just for Spicer Thoroughbreds to be required to take all the risk on a horse which Mr Stewart had the opportunity to race for as long as he pleased." That question also does not need to be determined where Mr Stewart has not sustained his notice of rescission of the contracts under s 601MB of the Act. Mr Stewart's claim for a declaration concerning a contravention of s 911A of the Act 1. Further or in the alternative, Mr Stewart pleads a contravention of s 911A of the Act, which requires a person who carries on a financial services business in the jurisdiction to hold an Australian financial services licence covering the provision of the financial services, and seeks a declaration that Spicer Thoroughbreds contravened s 911A of the Act and that Mr Spicer was involved in that contravention. Mr Klineberg did not contend that a contravention of that section would establish any basis for relief by Mr Stewart if, as is the case, he has not established a basis for relief arising from a contravention of the managed investment provisions. Mr Izzo submits that that declaration should not be made because it affords Mr Stewart no substantive relief and would amount to a declaration that the Defendants have breached the criminal law and he also submits that the basis of the declaration sought is not established. 2. The Court should not generally make a declaration, even if it has jurisdiction to do so, unless it is satisfied both that the declaration sought is appropriate and that it has sufficient practical utility or where it would merely be prefatory to other relief: Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286; Attorney-General (NSW); Ex rel Corporate Affairs v Australian Softwood Forests Pty Ltd [1979] 2 NSWLR 73 at 76 per Hutley JA (with whom Reynolds and Samuels JJA agreed); PW Young, C Croft and ML Smith, On Equity (Lawbook Co, 2009) at 1084. Although a civil court can make a declaration in relation to criminal conduct, the making of such a declaration is a matter of discretion and the case law suggests that is only in "exceptional cases" where such a declaration will be made, particularly in respect of past conduct: J Woolf, The Declaratory Judgment (Sweet & Maxwell, 4th ed, 2011), at [4–184]): Brightwater Care Group (Inc) v Rossiter (2009) 40 WAR 84; [2009] WASC 229 at [50]; Pharmacy Guild of Australia v Ramsay Health Care Ltd [2019] NSWSC 1045 at [155]ff. I should not make such a declaration here, where it will not advance the resolution of the dispute between the parties or provide a basis for any relief for Mr Stewart. Orders 1. For these reasons, the proceedings should be dismissed. I direct then parties to bring in agreed orders, including as to costs, within 7 days or, if there is no agreement between them, their respective submissions not exceeding six pages in one and a half spacing as to the form of orders and costs. ********** Amendments 12 May 2022 - Misprint corrected in Catchwords. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 May 2022