360 Capital Re Ltd v Watts - [2012] VSCA 234

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2012 0151
360 CAPITAL RE LIMITED (ACN 090 939 192)	Appellant
v
JAMES WATTS AND KAY WATTS AS TRUSTEES FOR THE WATTS FAMILY SUPERANNUATION FUND & ORS	First Respondents
THE TRUST COMPANY (AUSTRALIA) LIMITED (ABN 21 000 000 993)	Second Respondent

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JUDGES	WARREN CJ, BUCHANAN and NETTLE JJA
WHERE HELD	MELBOURNE
DATE OF HEARING	2 October 2012
DATE OF JUDGMENT	4 October 2012
MEDIUM NEUTRAL CITATION	[2012] VSCA 234
JUDGMENT APPEALED FROM	[2012] VSC 320 (Sifris J)

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CORPORATIONS – Managed investment scheme – Constitution – Changes to constitution – Proposed changes to remove or alter provisions precluding issue of units at less than $1.00 per unit and the issue of options, and to restrict ability of members to convene and conduct meetings – Whether proposed changes adversely affecting members’ rights as opposed to commercial interests – Whether board of responsible entity gave consideration to whether proposed changes would adversely affect members’ rights – Relevance of board acting on basis of legal advice – Premium Income Fund Action Group Inc v Wellington Capital Ltd (2011) 84 ACSR 600, followed; Re Centro Retail Ltd (2011) 255 FLR 28; ING Funds Management Ltd v ANZ Nominees Ltd (2009) 228 FLR 444, doubted – Appeal dismissed – Corporations Act 2001 (Cth), s 601GC.

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Appearances:	Counsel	Solicitors
For the Appellant	Mr A J Myers QC with Mr P Zappia and Mr O Bigos	Clayton Utz
For the First Respondents	Mr G T Bigmore QC with Mr D C Gration	Clarendon Lawyers
For the Second Respondent	Mr P Fox	Minter Ellison

WARREN CJ

BUCHANAN JA
NETTLE JA:

This is an appeal from a judgment given in the Commercial and Equity Division. The judge held that a number of modifications to the 360 Capital Industrial Fund Constitution purportedly made by Supplemental Deed Poll dated 31 May 2012 (‘the May amendments’) and a further Supplemental Deed Poll dated 5 July 2012 (‘the July amendments’) were invalid for want of compliance with s 601GC(1)(b) of the Corporations Act 2001 (Cth) (‘the Corporations Act’).

Section 601GC of the Corporations Act provides that:

Changing the constitution
(1) The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution:
(a) by special resolution of the members of the scheme; or
(b)by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights.

(2)     The responsible entity must lodge with ASIC a copy of the modification or the new constitution. The modification, or repeal and replacement, cannot take effect until the copy has been lodged.
(3)     The responsible entity must lodge with ASIC a consolidated copy of the scheme's constitution if ASIC directs it to do so.
(4)     The responsible entity must send a copy of the scheme's constitution to a member of the scheme within 7 days if the member:
(a)     asks the responsible entity, in writing, for the copy; and
(b)pays any…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading 360 Capital Re Ltd v Watts

Details

AGLC: 360 Capital Re Ltd v Watts [2012] VSCA 234
Case: [2012] VSCA 234
Decision Date: 4 October 2012

CaseChat Overview and Summary

The appeal concerns a challenge to changes proposed to the constitution of a managed investment scheme, 360 Capital Re Ltd, by Watts, a member of the scheme. The appeal was dismissed by the Supreme Court of Victoria, and the decision was subsequently appealed to the Court of Appeal of the Supreme Court of Victoria. The central issue in this case was whether the proposed changes to the scheme's constitution adversely affected the rights of the members rather than simply their commercial interests. This determination was necessary to assess whether the board of the responsible entity had adequately considered whether the proposed changes would negatively impact the members' rights, as required by section 601GC of the Corporations Act 2001 (Cth). The court had to determine whether the board's reliance on legal advice was sufficient to meet this requirement.

The court found that the proposed changes, which included removing or altering provisions precluding the issue of units at less than $1.00 per unit, issuing options, and restricting the ability of members to convene and conduct meetings, did not adversely affect the members' rights. The court emphasised that the board's decision-making process must be based on a proper consideration of the potential impact on members' rights, rather than merely acting on legal advice. The court followed the decision in Premium Income Fund Action Group Inc v Wellington Capital Ltd and distinguished Re Centro Retail Ltd and ING Funds Management Ltd v ANZ Nominees Ltd, concluding that the board had sufficiently considered the impact of the proposed changes on the members' rights. The appeal was dismissed, and the lower court's decision was upheld.

The court's decision underscores the importance of the board of a responsible entity thoroughly evaluating the implications of proposed constitutional changes on members' rights, rather than relying solely on legal advice. The outcome highlights the need for responsible entities to balance their commercial interests with the rights of scheme members when making decisions that may affect the scheme's constitution. The dismissal of the appeal affirms the lower court's ruling that the proposed changes did not adversely affect the members' rights, and the decision of the board to approve the changes was justified.

Orders