Supreme Court New South Wales Medium Neutral Citation: In the matter of Qantas Airways Limited [2024] NSWSC 1507 Hearing dates: 26 November 2024 Date of orders: 26 November 2024 Decision date: 26 November 2024 Jurisdiction: Equity - Corporations List Before: Nixon J Decision: (1) Pursuant to section 1322(4)(a) of the Corporations Act 2001 (Cth), the issue or transfer to the Second Plaintiff of shares (or units of shares) in the First Plaintiff in the period 31 July 1995 to 16 June 2024 are not void by reason of the operation of section 259C of the Corporations Act 2001 (Cth) (in respect to the period between 1 July 1998 and 16 June 2024), or section 185 of the Corporations Act 1989 (Cth) (in respect of the period between 31 July 1995 and 30 June 1998). Catchwords: CORPORATIONS – application for curative orders pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) – where issue or transfer or shares is potentially void due to the operation of s 259C of the Corporations Act – where transactions sought to be validated span a period of almost 30 years and it is not possible to identify all of the relevant transactions or all of the counterparties involved – application granted Legislation Cited: Corporations Act 2001 (Cth), ss 259C, 1322 Cases Cited: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20 Chief Commissioner of Stamp Duties for NSW v Buckle (1998) 192 CLR 226; [1998] HCA 4 In the matter of Macquarie Securities (Australia) Ltd [2014] FCA 455 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61 Re Australia and New Zealand Banking Group Limited [2010] FCA 945 Re Commonwealth Bank of Australia [2005] FCA 1940 In the matter of Rand Mining Ltd [2019] VSC 529 Re Insignia Financial Limited [2022] NSWSC 488 Re Macquarie Group Ltd [2010] FCA 1507 Re MLC Limited [2006] FCA 1357 Re National Australia Bank Ltd [2020] NSWSC 1761 Re Westpac Banking Corporation [2004] FCA 1792 Category: Principal judgment Parties: Qantas Airways Limited (First Plaintiff) Qantas Superannuation Limited (Second Plaintiff) Representation: Counsel: I Ahmed w S Crosbie (Plaintiffs) Solicitors: Herbert Smith Freehills (Plaintiffs) File Number(s): 2024/00405975 Publication restriction: Nil EX TEMPORE JUDGMENT – REVISED 29 NOVEMBER 2024 1. By Originating Process filed 1 November 2024 the First Plaintiff, Qantas Airways Limited (QAL), and the Second Plaintiff, Qantas Superannuation Limited (QSL), seek orders pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) (the Act) to validate certain share transactions by QSL in respect of shares of QAL made prior to 17 June 2024, which may be void by operation of s 259C(1) of the Act. 2. QAL is a public company and has been listed on the Australian Stock Exchange (ASX) since 31 July 1995. 3. QSL is a wholly owned subsidiary of QAL, and is the trustee of the registrable superannuation entity, the Qantas Superannuation Plan (formally the Qantas Airways Limited Staff Superannuation Plan) (the Plan). The Plan was established pursuant to a trust deed dated 1 June 1939, as amended from time to time. 4. The QAL shares that are the subject of this application were acquired by, or transferred to, QSL in the period from 31 July 1995 to 16 June 2024 (the Relevant Period). 5. In support of the application, the Plaintiffs relied on affidavits of: 1. Ms Kimberley Uelisian, who is Head of Legal at QSL; and 2. Mr Bojan Jokovic, who is Head of Group Superannuation at QAL. Factual background The Plan 1. The Plan is a corporate superannuation fund established for the benefit of eligible Australia-based employees of QAL and its controlled entities. The Plan operates on a not-for-profit basis. 2. The members of the Plan are current and former employees of QAL. As at 30 June 2024, there were 26,063 current members of the Plan, and 71,375 former members of the Plan. 3. The assets of the Plan are held for the beneficiaries of the Plan. 4. As part of its role as trustee of the Plan, QSL from time to time acquires or disposes of investments, including securities which are traded on the ASX. 5. Such trades are undertaken by third party investment managers, who operate under broad investment mandates that cover investments in Australian and global equities, including companies listed on the ASX. The trading in QAL shares 1. QSL, through those investment managers, acquired and disposed of QAL shares during the Relevant Period. QSL was not involved in the investment managers' decisions to acquire QAL shares. 2. As at 31 October 2024, QSL owned 692,294 voting shares in QAL, representing 0.04 per cent of the total QAL shares on issue. 3. It is unsurprising, given that the Relevant Period stretches back over almost 30 years, that complete records of the transactions involving the acquisition and disposal of QAL shares by QSL are not available. There was evidence before the Court of the extensive searches that have been undertaken in this regard, and the difficulties which have been encountered. It is not necessary to go into the details of those matters. It is sufficient to note that I am satisfied that adequate enquiries have been undertaken. As a result of those enquiries, QSL has identified at least 482 ASX trades in QAL shares during the Relevant Period. However, there may be other affected transactions that cannot be identified through the information that is available, and it is not possible to identify the details of sales or transfers of QAL shares to third parties for all transactions during the Relevant Period, including the details of counterparties to those transactions. 4. Further, it is not possible to ascertain the details of subsequent trades in the QAL shares following their transfer by QSL to third parties, in circumstances where some of the QAL shares may now have been traded many times over. Impact of section 259C 1. QSL has an been a subsidiary of QAL at all relevant times. Although QAL does not control QSL's decisions as a trustee, QSL is a "controlled entity" of QAL within the meaning of s 259E of the Act, by reason that QAL has the capacity to determine the outcome of decisions about QSL's financial and operating policies. 2. Section 259C of the Act relevantly provides as follows: (1) The issue or transfer of shares (or units of shares) of a company to an entity it controls is void unless: (a) the issue or transfer is to the entity as a personal representative; or (b) the issue or transfer is to the entity as trustee and neither the company nor any entity it controls has a beneficial interest in the trust, other than a beneficial interest that satisfies these conditions: (i) the interest arises from a security given for the purposes of a transaction entered into in the ordinary course of business in connection with providing finance; and (ii) that transaction was not entered into with an associate of the company or an entity it controls; or (c) the issue to the entity is made as a result of an offer to all the members of the company who hold shares of the class being issued and is made on a basis that does not discriminate unfairly, either directly or indirectly, in favour of the entity; or (d) the transfer to the entity is by a wholly-owned subsidiary of a body corporate and the entity is also a wholly-owned subsidiary of that body corporate. (2) ASIC may exempt a company from the operation of this section. The exemption: (a) must be in writing; and (b) may be granted subject to conditions. … 1. The effect of s 259C(1) of the Act is that the issue or transfer of QAL shares to QSL is void unless one of the conditions in subparagraphs (a) to (d) is satisfied. 2. None of subparagraphs (a), (c) or (d) is relevant to the present case. As regards subparagraph (b), the transfer of QAL shares was to QSL as trustee. However, there is an issue as to whether QSL "has a beneficial interest in the trust", for reasons explained further below. 3. Accordingly, the application is brought on the basis that s 259C potentially operates to void the issue or the transfer of the QAL shares that are the subject of this application. Discovery of section 259C issue and subsequent steps 1. QAL and QSL only came to learn about the potential contravention of s 259C after an issue arose in November 2022 regarding the Plan voting on QAL resolutions and an associated proxy voting policy. 2. This led to a review being undertaken and advice being sought regarding QSL's holding of QAL shares and the associated voting rights. The advice, which was received in April 2023, raised for the first time that the issue or transfer of QAL shares to QSL may be void under s 259C unless the Australian Securities and Investments Commission (ASIC) had granted an exemption under s 259C(2). Subsequent investigations confirmed that no such exemption had been granted. 3. On becoming aware of these matters, QSL implemented the following interim measures: 1. on 9 June 2023, QSL stook steps to ensure that it abstained from voting on all resolutions relating to QAL; and 2. on 6 July 2023, QSL took steps to ensure that it ceased trading any QAL shares. 1. On 22 June 2023, QSL also submitted a "Reportable Situation" form to ASIC in relation to these matters. 2. Relief was also sought from ASIC under s 259C(2) of the Act. On 17 June 2024, ASIC granted QSL's exemption request. 3. The ASIC exemption was subject to QAL's provision of a deed to ASIC by which it gave certain undertakings, including: 1. to ensure that QSL's holding of voting shares in QAL does not exceed 5% of the total number of such shares; 2. to ensure that QSL does not exercise the votes attached to QAL shares other than in accordance with the directions of a client, investor or beneficiary; 3. to disclose information regarding the number of voting shares in QAL held by QSL to the ASX on a quarterly basis; 4. to disclose any movement of at least 1% in QSL's holding of voting shares in QAL; and 5. to make available records of acquisitions and disposals of QAL shares by QSL. 1. There was evidence that QAL and QSL had implemented various processes to promote compliance with the ASIC exemption, and that QAL has issued quarterly notices to the ASX in accordance with the disclosure requirements set out above. 2. Accordingly, since 17 June 2024, ASIC relief has been in place to ensure that any acquisitions of QAL shares in the circumstances giving rise to this application are not void by reason of the operation of s 259C. 3. However, that relief operates only from the date it was given. It cannot retrospectively validate otherwise invalid transactions. 4. The present application is brought in respect of the historical transactions during the Relevant Period, up to 16 June 2024 (being the day before the ASIC exemption was granted). Application for relief 1. During the Relevant Period, shares in QAL were transferred to a controlled entity of QAL (QSL). Whether or not this has occurred in contravention of s 259C depends on, relevantly, whether the exception in subs 259C(1)(b) applies. 2. In order for that exception to apply, it must be shown not only that QAL shares were issued or transferred to QSL as trustee (which was the case), but also, relevantly, that QSL does not have "a beneficial interest in the trust" (other than certain defined interests). 3. In its capacity as trustee of the Plan, QSL held rights of indemnity out of the assets of the Plan during the Relevant Period. The Plaintiffs submitted that there is a real prospect that such rights conferred on QSL "a beneficial interest in the trust" within the meaning of s 259C(1)(b), and therefore prevented reliance on the exception in that provision. 4. In Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; [1979] HCA 61, the High Court held that the trustee had "a beneficial interest in the trust assets" in respect of the trustee's "right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust". Stephen, Mason, Aickin and Wilson JJ said (at 369-370): "If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as 'trust property' inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee become bankrupt." 1. In Chief Commissioner of Stamp Duties for NSW v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [51], the High Court (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ) agreed with the statement of Sheller JA that "the trustee has a beneficial interest in the trust assets to the extent of its right to be indemnified out of those assets against personal liabilities incurred in the performance of the trust and that interest will be preferred to the beneficial interests of the cestuis que trust". 2. More recently, in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20 at [85], Bell, Gageler and Nettle JJ said that: "In several of the authorities, and thus in the proceedings below, the property of a trustee available for the payment of creditors in the event of insolvency is described as being the right of indemnity. That is so in the sense that the trustee's right of indemnity confers a beneficial interest in the trust assets." 1. In Re Australia and New Zealand Banking Group Limited [2010] FCA 945 (ANZ), Edmonds J referred (at [41]) to Octavo Investments and said that a "potential" issue arose whether a trustee's right of indemnity out of trust assets gave rise "to a proprietary interest in the assets of the fund, and thus a beneficial interest for the purposes of s 259C(1)(b)". It was the view of the plaintiff in that case and of ASIC that the term "beneficial interest" as used in s 259C(1)(b) is not intended to encompass a trustee's lien over the trust assets resulting from its right of indemnification. His Honour observed (at [42]) that the meaning of "beneficial interest" in s 259C(1)(b) is ultimately a question of statutory construction; and that this expression "can have different meanings depending on its context" and "is an expression which is apt to mislead at times". His Honour noted (at [43]) that, if the plaintiff's submission were correct, then the exemption which had been granted by ASIC was not necessary, but that the plaintiff nonetheless sought orders under s 1322(4) so as to address any doubt about the issue. Edmonds J proceeded to determine the application on that basis. 2. Similarly, in Re Insignia Financial Limited [2022] NSWSC 488 at [22], Williams J referred to Octavo Investments and Carter Holt Harvey Woodproducts, and continued as follows: "There is an unresolved question whether the expression 'beneficial interest' in s 259C(1)(b), properly construed, extends to an interest created by a trustee's right to be indemnified out of trust assets [referring to ANZ at [40]-[43]]. In that case, the plaintiffs sought relief under s 1322(4)(a) to overcome any contention that acquisitions of a company's shares by controlled entities in their capacity as responsible entities or trustees was not covered by s 259C(1)(b). Insignia and the other plaintiffs in this case adopt the same approach rather than asking the Court to resolve the statutory construction issue. I am content to adopt that approach." 1. I will adopt the same approach in this matter. It is unnecessary, for the purposes of the present application, to determine whether QSL's right of indemnity out of the assets of the Plan meant that it had, for the purposes of s 259C(1)(b), "a beneficial interest in the trust assets". Instead, this application can be dealt with on the basis that the issue or transfer of QAL shares to QSL during the Relevant Period was potentially void by reason of the operation of s 259C of the Act (and of its predecessor provision, s 185 of the Corporations Act 1989 (Cth)). 2. In that context, the Plaintiffs seek an order under s 1322(4)(a) that such transfers were not void. Section 1322(4)(a) provides as follows: (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; 1. This section permits the Court to make an order validating an act done in "contravention" of a provision of the Act. 2. The issue or transfer of shares in a corporation to an entity that it controls, in a manner contrary to s 259C, is a "contravention" of a provision of the Act for the purposes of s 1322: Re Westpac Banking Corporation [2004] FCA 1792 at [24] (Emmett J). 3. The power in s 1322(4) of the Act has been used on numerous occasions to validate the acquisitions of shares (or interests in shares) in circumstances where they would (or might) otherwise be voided by reason of s 259C. I have already referred to the decisions in Westpac, ANZ and Insignia. Other examples include: Re Commonwealth Bank of Australia [2005] FCA 1940 (Emmett J); Re MLC Limited [2006] FCA 1357 (Gyles J); Re Macquarie Group Ltd [2010] FCA 1507 (Emmett J); In the matter of Macquarie Securities (Australia) Ltd [2014] FCA 455 (Yates J); In the matter of Rand Mining Ltd [2019] VSC 529 (Gardiner AsJ); and Re National Australia Bank Ltd [2020] NSWSC 1761 (Black J). 4. Section 1322(6) provides, relevantly, that the Court must not make an order under s 1322(4)(a) unless it is satisfied: (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or, (iii) that it is just and equitable that the order be made; 1. Only one of these three paragraphs need be satisfied in order to authorise the making of an order under s 1322(4)(a): Westpac at [27]; ANZ at [61]; Insignia at [47]. 2. Further, the Court must not make an order unless it is satisfied that no substantial injustice has been or is likely to be caused to any person: s 1322(6)(c). 3. I am satisfied that no prejudice would be occasioned to any person by validating the relevant acquisitions, whereas substantial prejudice would or might be occasioned if the acquisitions were not validated. 4. As a general matter, it can be assumed that the parties to each of the relevant transactions intended and understood that those transactions would be valid and effective. It is difficult to see that any of those persons could be prejudiced by an order which ensured that this object was achieved. 5. On the other hand, if the transactions are not validated, the result will be that QAL shares, which were the subject of at least 482 trades over a period of 30 years, will not have been initially acquired and therefore the subsequent purported disposal of those shares will have been ineffective. Those shares may have been subsequently traded many times over. It does not appear possible to identify all of the counterparties involved, or to determine the extent of the effects on them and on the market. 6. In ANZ at [62] to [63], Edmonds J determined that it was appropriate to grant relief under s 1322(4) where "[e]xtraordinary inconvenience would be occasioned to unidentifiable numbers of members of the public who have been parties to transactions which would be almost impossible to undo if the acquisitions were void". Similarly, in Insignia at [48], Williams J recognised that the impossibility of tracing transactions that had purportedly traded in the market many times over during a considerable period would cause disruption of the market and justified the making of an order under s 1322(4). 7. The persons who would or might be prejudiced if the transactions are not validated include the beneficiaries of the Plan, who are past and former employees of Qantas. Further, the Plan is targeting a transfer into the Australian Retirement Trust in March 2025, and QSL is concerned any uncertainty regarding this issue may cause delay or have a negative impact on the value of the assets that are transferred. 8. The prejudice to third parties (including persons who are unidentified and unidentifiable) if the transactions are not validated, and the apparent lack of prejudice to a person if they are validated, are matters which strongly support the making of a validation order. 9. The policy embodied in s 259C of the Act at least includes the maintenance of a company's capital: see National Australia Bank at [25] (Black J). That doctrine seeks to protect creditors of a company by ensuring that capital remains available to them and is not impermissibly returned to shareholders. In the present case, the validation of the relevant acquisitions will not adversely affect QAL's creditors, and the acquisitions relate to only a relatively small number of QAL shares. As noted above, QSL currently holds only 0.04 per cent of QAL's share capital. The highest level of its holding at any point in the Relevant Period appears to have been 0.42 per cent. Further, each of ASIC and the Australian Prudential Regulation Authority has been notified of this application and has been provided with the material in support of the application. Each has indicated that it does not take any position in relation to the application and does not intend to appear at the hearing. 10. Finally, I have had regard to the following matters. 1. There is no evidence of any dishonesty on the part of QAL and QSL in connection with the relevant transactions. Instead, there appears, on the evidence, to have been an oversight as to the operation and application of s 259C, in circumstances where the acquisitions in question were made by investment managers. 2. When the issue came to light, it was promptly investigated, reported and addressed. In particular, the Plaintiffs have obtained the ASIC exemption and have put in place processes to ensure compliance with the undertakings that have been given to ASIC. Conclusion and Orders 1. Having regard to the matters set out above, I am satisfied that no substantial injustice has been or is likely to be caused to any person, and that it is just and equitable for an order to be made under s 1322(4) of the Act validating the relevant transactions. 2. Accordingly, I make the following order: 1. Pursuant to section 1322(4)(a) of the Corporations Act 2001 (Cth), the issue or transfer to the Second Plaintiff of shares (or units of shares) in the First Plaintiff in the period 31 July 1995 to 16 June 2024 are not void by reason of the operation of section 259C of the Corporations Act 2001 (Cth) (in respect to the period between 1 July 1998 and 16 June 2024), or section 185 of the Corporations Act 1989 (Cth) (in respect of the period between 31 July 1995 and 30 June 1998). ********** 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: 29 November 2024