Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd
[2006] WASC 70
•19 APRIL 2006
ALPHA WEALTH FINANCIAL SERVICES PTY LTD & ORS -v- FRANKLAND RIVER OLIVE COMPANY LTD [2006] WASC 70
| Link to Appeal : | [2008] WASCA 119 |
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 70 | |
| 19/04/2006 | |||
| Case No: | CIV:1757/2005 | 6, 7, 8 & 19 DECEMBER 2005 | |
| Coram: | COMMISSIONER SANDERSON | 13/04/06 | |
| 35 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| A | |||
| PDF Version |
| Parties: | ALPHA WEALTH FINANCIAL SERVICES PTY LTD (ACN 081 560 349) SAXBY BRIDGE PTY LTD (IN ADMINISTRATION) (ACN 057 915 312) SAXBY BRIDGE FINANCIAL PLANNING PTY LTD (ACN 073 889 979) JEFFREY JOSEPH BRAYSICH FRANKLAND RIVER OLIVE COMPANY LTD (ACN 089 521 997) |
Catchwords: | Corporations Act 2001 (Cth) Managed Investment Scheme Effect of amendment to Constitution on liability of members Whether proforma agreement annexed to Constitution is 'special' contract |
Legislation: | Corporations Act 2001 (Cth), ch 5C, s 601FB(1), s 601FS, s 601FT, s 601GA, s 601GB, s 601GC(1), s 601GC(1)(a), 601GC(2) Corporations Law, s 9, s 140(2), s 140(2)(b) Evidence Act 1906 (WA), s 79C(2a) Property Law Act 1969 (WA), s 11, s 125, s 125(1) |
Case References: | Allen v Gold Reefs of West Africa Limited (1900) 1 Ch 656 Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 Bisgood v Henderson's Transvaal Estates Ltd (1908) 1 Ch 743 Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424 Eley v Positive Government Security Life Assurance Co (1876) 1 Ex D 20,88 Frankland River Olive Company Ltd v Charters Securities Pty Ltd (Receiver and Manager Appointed) & Anor [2004] WASC 88 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 Grundt v The Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Heron v The Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315 Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch 881 Investa Properties Ltd (2001) 187 ALR 462 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 National Westminster Finance NZ Ltd v National Bank of NZ Ltd (1996) 1 NZLR 548 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Pepe v City & Suburban Permanent Building Society (1893) 2 Ch 311 Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385 Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223 Welton v Saffery (1897) AC 299 ABB Power Generation Ltd v Chapple (2001) 25 WAR 158 Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99 Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 79 ALJR 1511 Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221 Bropho v Human Rights and Equal Opportunity Commission (2004) 204 ALR 761 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 ConStan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Corporate Management Services (Aust) Pty Ltd v AbiArraj [2000] NSWSC 361 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 Government Employees Superannuation Board v Martin (1997) 19 WAR 224 GraHam Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65 Huntsman Chemical Co Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 Jones v Dunkel (1959) 101 CLR 298 Kane Constructions v Sopov [2005] VSC 237 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290 MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 MLW Technology Pty Ltd v May [2005] VSCA 29 National Bank of New Zealand Ltd Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211 Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Patrick Corporation Ltd v Toll Holdings Ltd & Ors [2005] VSC 392 Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 Saraswati v R (1990) 172 CLR 1 South Tyneside Metropolitan Borough Council v Svenska International plc [1995] 1 All ER 545 State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 The Commissioner of Taxation of the Commonwealth of Australia v Patcorp Investments Ltd (1976) 140 CLR 247 Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066 Westdeutshe Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890 Williamson as Liquidator of Merlino Construction Services Pty Ltd (In Liq) v Hawkwood Holdings Pty Ltd [2002] WASC 25 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- SAXBY BRIDGE PTY LTD (IN ADMINISTRATION) (ACN 057 915 312)
SAXBY BRIDGE FINANCIAL PLANNING PTY LTD (ACN 073 889 979)
JEFFREY JOSEPH BRAYSICH
Plaintiffs
AND
FRANKLAND RIVER OLIVE COMPANY LTD (ACN 089 521 997)
Defendant
(BY ORIGINAL ACTION)
FRANKLAND RIVER OLIVE COMPANY LTD (ACN 089 521 997)
Plaintiff
AND
- ALPHA WEALTH FINANCIAL SERVICES PTY LTD (ACN 081 560 349)
SAXBY BRIDGE PTY LTD (IN ADMINISTRATION) (ACN 057 915 312)
SAXBY BRIDGE FINANCIAL PLANNING PTY LTD (ACN 073 889 979)
JEFFREY JOSEPH BRAYSICH
Defendants
(BY COUNTERCLAIM)
Catchwords:
Corporations Act 2001 (Cth) - Managed Investment Scheme - Effect of amendment to Constitution on liability of members - Whether proforma agreement annexed to Constitution is 'special' contract
Legislation:
Corporations Act 2001 (Cth), ch 5C, s 601FB(1), s 601FS, s 601FT, s 601GA, s 601GB, s 601GC(1), s 601GC(1)(a), 601GC(2)
Corporations Law, s 9, s 140(2), s 140(2)(b)
Evidence Act 1906 (WA), s 79C(2a)
Property Law Act 1969 (WA), s 11, s 125, s 125(1)
Result:
Application dismissed
Category: A
(Page 3)
Representation:
Original Action
Counsel:
Plaintiffs : Mr J C Giles
Defendant : Mr D R Williams QC & Mr S K Dharmananda
Solicitors:
Plaintiffs : Solomon Brothers
Defendant : Corrs Chambers Westgarth
Counterclaim
Counsel:
Plaintiff : Mr D R Williams QC & Mr S K Dharmananda
Defendants : Mr J C Giles
Solicitors:
Plaintiff : Corrs Chambers Westgarth
Defendants : Solomon Brothers
Case(s) referred to in judgment(s):
Allen v Gold Reefs of West Africa Limited (1900) 1 Ch 656
Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399
Bisgood v Henderson's Transvaal Estates Ltd (1908) 1 Ch 743
Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424
Eley v Positive Government Security Life Assurance Co (1876) 1 Ex D 20,88
Frankland River Olive Company Ltd v Charters Securities Pty Ltd (Receiver and Manager Appointed) & Anor [2004] WASC 88
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1
Grundt v The Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Heron v The Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315
(Page 4)
Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch 881
Investa Properties Ltd (2001) 187 ALR 462
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
National Westminster Finance NZ Ltd v National Bank of NZ Ltd (1996) 1 NZLR 548
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Pepe v City & Suburban Permanent Building Society (1893) 2 Ch 311
Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385
Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223
Welton v Saffery (1897) AC 299
Case(s) also cited:
ABB Power Generation Ltd v Chapple (2001) 25 WAR 158
Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191
Australian Broadcasting Commission v Australian Performing Rights Association Ltd (1973) 129 CLR 99
Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 79 ALJR 1511
Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221
Bropho v Human Rights and Equal Opportunity Commission (2004) 204 ALR 761
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
ConStan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Corporate Management Services (Aust) Pty Ltd v AbiArraj [2000] NSWSC 361
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
GraHam Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65
Huntsman Chemical Co Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242
Jones v Dunkel (1959) 101 CLR 298
Kane Constructions v Sopov [2005] VSC 237
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812
(Page 5)
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290
MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39
MLW Technology Pty Ltd v May [2005] VSCA 29
National Bank of New Zealand Ltd Waitaki International Processing (NI) Ltd [1999] 2 NZLR 211
Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 985
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Patrick Corporation Ltd v Toll Holdings Ltd & Ors [2005] VSC 392
Re Macquarie Goodman Funds Management Ltd (2004) 52 ACSR 194
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516
Saraswati v R (1990) 172 CLR 1
South Tyneside Metropolitan Borough Council v Svenska International plc [1995] 1 All ER 545
State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315
The Commissioner of Taxation of the Commonwealth of Australia v Patcorp Investments Ltd (1976) 140 CLR 247
Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066
Westdeutshe Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890
Williamson as Liquidator of Merlino Construction Services Pty Ltd (In Liq) v Hawkwood Holdings Pty Ltd [2002] WASC 25
(Page 6)
1 COMMISSIONER SANDERSON: The Preston Vale Vineyard ("the Vineyard") is located in the south west of Western Australia, not far from the picturesque town of Donnybrook. The Vineyard was established and is presently operated by a managed investment scheme. It is to be hoped that the grapes produced by the Vineyard lead to a wine which has all the characteristics sought after by the connoisseurs - fruit driven flavour, pleasant nose, the right mix of acid and tannins and so on. These characteristics may be some compensation to those who invested; because the investment itself has turned somewhat sour.
2 In large measure the facts in this case were agreed. In fact, the parties produced an Agreed Statement of Background Facts (exhibit A). The facts that I have set out below are a combination of the facts as agreed and those that emerged from the evidence called by the parties.
3 It is convenient at this stage to say something about the evidence given by the witnesses. A number of witnesses were called, most notably Mr Jeffrey Joseph Braysich ("Mr Braysich") for the plaintiffs and Mr Phillip Alexander Raffan ("Mr Raffan") for the defendant. Each of the witnesses tendered a statement (Mr Braysich's statement being exhibit B and Mr Raffan's statement being exhibit D). Each was cross-examined. In the end, it was unnecessary for me to make any findings based upon the credibility of any of the witnesses. As I have indicated above, the facts in the case were largely agreed. Insofar as it is relevant, I was satisfied that all of the witnesses gave their evidence in an honest and straightforward manner and that all were credible.
4 The plaintiffs are investors in the managed investment scheme operated under ch 5C of the Corporations Act 2001 (Cth). The Preston Vale Managed Investment Scheme (ACN 085 622 377) ("Preston Vale MIS"), originally known as the Southern Wine Corporation Managed Investment Scheme ("SWC MIS"), was registered as a managed investment scheme within the meaning of s 9 of the Corporations Law by the then responsible entity, Southern Wine Corporation Ltd (now in liquidation) (ACN 083 901 786) ("SWC"), on 15 December 1998. SWC, as the responsible entity, issued a prospectus dated 24 November 1998 (exhibit 2). In due course it will be necessary to consider the contents of this prospectus in some detail. However, at this stage in the narrative, it is enough to note the prospectus and to follow through the events that occurred subsequent to its issue.
5 Each person investing in the Preston Vale MIS acquired half or more (in multiples of half) of a licensed area. A licensed area is a defined area
(Page 7)
- of 0.165 hectares (one-sixth of a hectare) which is part of the Vineyard and on which grape vines are planted.
6 Each of the plaintiffs is a member of the Preston Vale MIS and the holder of one or more interests (licensed areas). The first-named plaintiff holds 1 licensed area, the second-named plaintiff 16 licensed areas, the third-named plaintiff 3 licensed areas and the fourth-named plaintiff 16 licensed areas. The fourth-named plaintiff was originally issued with 20 licensed areas by SWC and then issued with a further four licensed areas by SWC. SWC purportedly terminated 8 licensed areas on or about 23 November 2002 leaving the fourth-named plaintiff with 16 licensed areas. The fourth-named plaintiff disputes the validity of the purported termination of those 8 licensed areas but that dispute is not raised or litigated in this action.
7 On or about 12 August 2003 following the passing of a special resolution of the members of the scheme at a meeting held on 21 July 2003 ("July 2003 meeting"), SWC was removed as responsible entity of the scheme and the defendant chosen as its replacement. At the same meeting, SWC MIS changed its name to Preston Vale MIS. The defendant remains, as at the date of the commencement of these proceedings, the responsible entity of the Preston Vale MIS.
8 By operation of s 601FS and s 601FT of the Corporations Act, the defendant is, in effect, deemed to have always been the responsible entity of the Preston Vale MIS: see Re Investa Properties Ltd (2001) 187 ALR 462 at 465 - 467 [10] - [18] per Barrett J; Syncap Management (Rural) Australia Ltd v Lyford (2004) 51 ACSR 223 at 230 - 232 [41] - [48] per Nicholson J. Contracts, including the Licence and Management Agreements ("LAMAs") in issue in this action, entered into by SWC as responsible entity have effect as if the defendant were a party to those contracts: s 601FT; see Syncap (supra) as to the scope of the deeming.
9 The structure of the Preston Vale MIS and a related scheme is as follows. Charter Securities Pty Ltd, as trustee of the Fernvale Unit Trust, owns the whole of the land on which the Vineyard operates. For each licensed area an investor acquired in the Preston Vale MIS, the investor (or a related entity) received two units in the Ferndale Unit Trust. Charter Securities Pty Ltd, as trustee of the Fernvale Unit Trust, has leased the Vineyard land for 20 years and 1 month ("the term of the Preston Vale MIS") to the defendant as responsible entity of the scheme. Each investor paid a substantial fee to acquire their licensed areas. The evidence established that fees totalling $27,342 per licensed area were payable over
(Page 8)
- 1 to 3 years. Each licensed area is a defined portion of the Vineyard on which the vines are grown. Each investor who acquired an interest in the Preston Vale MIS in 1999 (as the plaintiffs did) entered into a Licence and Management Agreement ("the 1999 LAMA") with the defendant. Under the 1999 LAMA the defendant covenanted to provide all services required to operate the Vineyard, to sell the produced grapes (after a pooling of the grapes between investors) and to distribute the proceeds. As required by s 601GA, the scheme also had a Constitution. The original Constitution ("the Constitution") is exhibit 1. Between the Constitution and the plaintiffs' investment in 1999, the proforma LAMA attached to the Constitution appears to have been varied. For example, cl 12.5 in the original proforma document is cl 12.6 in the 1999 LAMA. That amendment is of no consequence in these proceedings. The 1999 LAMA is the relevant document. I will hereafter simply refer to the LAMA.
10 It is worth pausing at this point to consider the structure of managed investment schemes generally and this scheme in particular. Pursuant to s 601FB(1), the responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's Constitution. As mentioned above, the Constitution of SWC MIS was entered into on 15 December 1998. It is expressed to be between SWC and "the growers of the SWC MIS". Under cl 1.1 of the Constitution, the term "Grower" means a grower pursuant to a LAMA and a member of the SWC MIS. Of prime importance in this case is cl 1.4 of the Constitution. It is in the following terms:
"The annexed Licence and Management Agreement shall be taken to form part of this Constitution."
11 Pursuant to cl 2 of the Constitution, the Constitution is said to have "the effect of a deed under seal between the Growers and the Responsible Entity". Clause 3 is headed "Consideration to Acquire Grower's Area and Payment of Fees". It reads as follows:
"3.1 The consideration payable by the Grower for the acquisition of the Grower's Area is provided for in the annexed Licence and Management Agreement.
3.2 The Responsible Entity shall be entitled to be paid all such fees as are provided for in the Licence and Management Agreement from SWC MIS Property in relation to the proper performance of its duties with respect to the SWC MIS.
(Page 9)
- 3.3 The Responsible Entity shall be entitled to be indemnified from SWC MIS Property with respect to any liability, cost or expense incurred by the Responsible Entity in the proper performance of its duties with respect to the SWC MIS."
12 A copy of the LAMA was included in the prospectus. An applicant for a licensed area did not actually have to sign a copy of the LAMA. As part of the application, the grower agreed to enter into a LAMA and appointed the project manager as its agent for the purpose of entering into the LAMA. There was no dispute between the parties that all of the plaintiffs, in acquiring licensed areas and becoming growers, had entered into the LAMA.
13 The LAMA provided for an annual licence fee to be paid to the responsible entity. That obligation was created by cl 4 of the LAMA. The licence fees for the "Initial Period" of 13 months and for years 2 and 3 were specified. The Initial Period is the period commencing 1 June 1999 and concluding 30 June 2000. Year 2 concluded on 30 June 2001 and year 3 concluded on 30 June 2002. For the years 4 to 20 of the Preston Vale MIS (which is the balance of the term of the scheme), the obligation to pay licence fees is governed by cl 4.2 and cl 4.3 of the LAMA. These clauses read as follows:
"4.2 For the remainder of the Term (being Years 4 to 20 of the Grower's Project), the Licence Fee payable by the Grower to the Responsible Entity for the Grower's Area will be calculated annually in advance as $198 per Licensed Area or $99 per Half Licensed Area increased at the expiration of each Year of the Grower's Project by an annual increment of the Licence Fee equal to either 5 per cent per annum of the Licence Fee for the previous Year or the increase in the Consumer Price Index All Groups Perth (or if such index ceases to exist a similar replacement index) during the previous Year, whichever is the higher.
4.3 Other than as provided for in Clause 12.04, the Licence Fees as provided for in Clause 4.2 must be paid from the Participating Growers' Gross Project Income prior to the payment to the Responsible Entity of Management Fees in each Year the Gross Project Income is sufficient to pay the Licence Fee. If the Participating Growers' Gross Project Income in any Year is not sufficient to pay the
- Licence Fees for all Growers for that Year, such Licence Fees may be deducted from Participating Growers' Gross Project Income in any subsequent Year or Years and the Responsible Entity may provide funding for any shortfall from the Responsible Entity's own resources, borrow such funds secured against the future Participating Growers' Gross Project Income or require Growers by notice in writing, subject to approval in general meeting pursuant to Clause 12.6, to make such additional contributions to SWC MIS Property as are required to make up any shortfall. The Responsible Entity may recover the reasonable costs of borrowings from SWC MIS Property."
14 Clause 4.3 of the LAMA clearly anticipated further contributions being made by growers. This eventuality is also covered by cl 12 of the LAMA. Clause 12.1, relevantly, reads as follows:
"In consideration of the Responsible Entity agreeing to carry out at its expense the management services as provided for in this Agreement, the Grower agrees to pay to the Responsible Entity the Management Fees and the Responsible Entity shall be entitled to the Management Fees from SWC MIS Property as follows:
…
(e) if the Participating Growers' Gross Project Income in any Year is not sufficient to pay the Management Fees for that Year, such Management Fees may be deducted from Participating Growers' Gross Project Income in any subsequent Year or Years and the Responsible Entity may provide funding for any shortfall from the Responsible Entity's own resources, borrow such funds secured against the future Participating Growers' Gross Project Income or require a Grower by notice in writing, subject to approval in general meeting pursuant to Clause 12.5, to make such additional contributions to SWC MIS Property as are required to make up any shortfall. The Responsible Entity may recover the reasonable costs of borrowings from SWC MIS Property."
(Page 11)
15 It is clear that the reference to cl 12.5 in cl 12.1(e) is a mistake. Clause 12.5 deals with a situation where the grower fails to pay any licence fees or management fees within 30 days of a notice of contribution issued by the responsible entity in certain circumstances. The reference should be to cl 12.6. That clause reads as follows:
"Where a notice in writing is issued to Growers requiring additional contributions to SWC MIS Property pursuant to Clause 4.3 or Clause 12.1(e) of this Agreement, the Responsible Entity must call a meeting of Growers in accordance with the Constitution to consider:
(a) whether to approve the additional contributions as provided for in Clause 4.3 or 12.1(e) by Growers;
(b) to wind up the SWC MIS in accordance with the Constitution; or
(c) implement such other measures as are available to provide future funding to the SWC MIS."
16 In 2001 and thereafter, SWC experienced financial difficulties. It failed to pay rent due on 30 June 2002 for the 1 July 2002 to 30 June 2003 year. On 30 July 2002 Featherby Reilly were appointed as administrators of SWC. On or about 23 December 2002, SWC issued a notice for a meeting of growers to be held in Sydney on 23 January 2003. A copy of that notice is exhibit 21. The notice is in five sections. By way of introduction, there is a separate section called "Action Required of Growers". In part, that reads as follows:
"A Proposal for funding immediate needs of the SWC MIS is set out in this Booklet. If the resolution is passed Growers will be asked to pay $1,254 per Licensed Area held by them. If the Scheme is wound up those Growers who contribute will have their $1,254 per Licensed Area returned in priority to any further distribution to Growers. The Proposal can only be implemented if the Growers pass the proposed Special Resolution set out in the Notice of Meeting in section 2 of this Booklet…"
17 The special resolution found in s 2 of the Booklet is in the following terms:
"That:
(Page 12)
- (a) the Constitution for the SWC MIS be amended as set out in section 3.1(c) of the Booklet in which the Notice of the Meeting appears; and
(b) the Responsible Entity of the SWC MIS is directed to immediately execute a Deed of Variation of the Constitution and lodge it with the Australian Securities and Investments Commission to give effect to those amendments and to do all other things necessary, desirable or incidental to implement the Proposal."
18 Turning then to section 3 of the Booklet and the "Proposal", cl 3.1(c) reads:
"Amendments to Clause 12 of the Licence and Management Agreement
Insert the following as a new clause 12.7:
12.7 The Grower agrees to pay the Responsible Entity $1,254 for each Licensed Area held by them. This money is to be paid to the Responsible Entity in the form of a cheque or money order by 6 February 2003."
19 (There are in addition to cl 12.7, cl 12.8 to cl 12.15. These are not relevant for present purposes.)
20 It is worthy of note that the notice of meeting has been drafted in a sloppy fashion. The special resolution refers to s 3.1(c) of the Booklet as being the way in which the Constitution for the SWC MIS is to be amended. In fact, the section refers to the LAMA without in any way referring to the Constitution. Perhaps it was assumed that growers would understand that in the view of the scheme manager the Constitution and the LAMA were one and the same document. In any event, s 3.1(c) anticipates the insertion of "a new clause 12.7". In fact, there is to be inserted a series of new clauses, being cl 12.7 through to cl 12.15. In addition, the Constitution is to be amended as set out in pars 3.1(d) and 3.1(e). Neither of these two proposed amendments is referred to in the special resolution itself. In any event, nothing turns on these drafting errors and they were not the subject of comment by counsel for either of the parties.
21 The special resolution was passed at the meeting on 23 January 2003. None of the plaintiffs voted at the meeting. As a consequence, invoices
(Page 13)
- were issued to each of the growers. So far as the plaintiffs are concerned, these invoices appear as exhibits 30 through to 34. Featherby Reilly collected the contributions on behalf of SWC. They did not pay the rent with the funds collected. On 28 February 2003 Featherby Reilly were appointed liquidators of SWC: see Frankland River Olive Company Ltd v Charters Securities Pty Ltd (Receiver and Manager Appointed) & Anor [2004] WASC 88 at [8].
22 On or about 20 June 2003, SWC issued a notice of meeting for a meeting of growers to be held in Sydney on 21 July 2003. An extraordinary resolution was required to replace the responsible entity and a special resolution was required to further amend the Constitution. It was proposed that Frankland River Olive Oil Company Ltd ("FROC") would become the responsible entity for SWC MIS. Changes were proposed to the SWC MIS Constitution. Uncontroversially, these changes included changing the name of SWC MIS to Preston Vale MIS.
23 A copy of the notice of meeting is exhibit 36.
24 The amendments to the Constitution and the annexed LAMA included:
1. extending the date by which growers were required to pay $1254 contribution to 31 August 2003;
2. allowing FROC to keep the grape proceeds for the 2003-2004 harvest year;
3. requiring FROC to appoint Southern Olive Management Pty Ltd ("SOM") as agent to manage each grower's area; and
4. requiring the growers to pay FROC a management fee of $2000 per licensed area per annum on 31 March 2004 and each year thereafter plus CPI.
25 The resolutions were passed at the 21 July 2003 meeting. Once again, the plaintiffs were aware that the meetings were to be held and that the resolutions were passed. They did not vote on the resolutions at the meeting: see transcript, pages 190, 192, 200, 203; exhibit B pars 11 to 14.
26 SOM has managed the Vineyard since 21 October 2002. SOM and Featherby Reilly entered into an agreement in 2002 for SOM to manage the Vineyard in return for the 2003 grape proceeds. The agreement with Featherby Reilly expired in April 2003 but SOM continued to manage the Vineyard in return for a weekly fee agreed with Featherby Reilly and paid
(Page 14)
- from growers' funds. FROC entered into a management agreement with SOM to manage the Vineyard and perform viticulture, vineyard management and wine marketing services. This was the Preston Vale Operations Agreement dated 18 November 2003: exhibit 53. SOM was to be remunerated for the 2004 harvest year (1 April 2003 to 31 March 2004) by keeping the 2004 grape harvest proceeds. Growers would not have to pay a management fee for the 2004 harvest year. SOM's management fee for the 2005 harvest year was paid from management fees collected from growers: see statement of Mr Raffan - exhibit D at par 15; transcript, page 337. The 2005 harvest year grape income received to date was used to pay part of SOM's management fee for the 2006 harvest year: exhibit D par 18.
27 On or about 31 January 2003, SWC issued invoices to each of the plaintiffs for the sum of $1140 plus GST of $114 per licensed area for management fees for the year 30 June 2003. The first-named plaintiff was invoiced an amount of $1254, the second-named plaintiff was invoiced an amount of $20,064, the third-named plaintiff was invoiced an amount of $3762 and the fourth-named plaintiff was invoiced an amount of $20,064. The defendant reissued the invoices on 15 August 2003. On or about 6 February 2004, the defendant levied each of the plaintiffs the sum of $2000 plus GST of $200 per licensed area for management fees for the year ended 30 June 2004. The first-named plaintiff was invoiced for an amount of $2200, the second-named plaintiff was invoiced an amount of $35,200, the third-named plaintiff was invoiced the sum of $6600 and the fourth-named plaintiff was invoiced the sum of $35,200. Each of the plaintiffs paid the relevant 2003 fees in or about October 2003. Each of the plaintiffs paid the relevant 2004 fees on or about 23 July 2004.
28 On or about 1 April 2005, each of the plaintiffs received an invoice from the defendant for $2257 including GST for management fees and licence fees for each licensed area. These invoices were said to be due and payable by 30 April 2005. The amount invoiced to the first-named plaintiff was $2257, the amount invoiced to the second-named plaintiff was $36,112, the amount invoiced to the third-named plaintiff was $6771 and the amount invoiced to the fourth-named plaintiff was $36,112. The invoices were not paid by 30 April 2005.
29 On or about 11 May 2005, the defendant sent a notice to each of the plaintiffs stating that if payment of the 2005 invoices was not received by 30 May 2005 then the defendant may terminate the plaintiffs' interest in the Preston Vale MIS in accordance with the LAMA. On 13 June 2005 the defendant, by written notice, informed each of the plaintiffs that if
(Page 15)
- their 2005 invoices were not paid by 27 June 2005, their interests in the Preston Vale MIS would be terminated. As at the date of the hearing, the 2005 invoices remained unpaid. The plaintiffs have made demand on the defendant for the return of the 2003 fees and the 2004 fees. They say that the alleged amendments to the Constitution and to the LAMA were of no force and effect and that the defendants were not entitled to the 2003 fees and the 2004 fees pursuant to the alleged amendments. Consistent with this argument they say that the defendant has no right to make demand for the payment of the 2005 invoices. At present, the defendant is restrained from terminating the plaintiffs' interests in the Preston Vale MIS by undertakings given to this Court in these proceedings on 1 July 2005.
30 So the prime question in this litigation is whether or not the purported amendments to the Constitution and LAMA were effective. It is the plaintiffs' position that they were not. The plaintiffs say that the LAMA represented a contract between the plaintiffs and the defendant. They say it was not open to the defendant to unilaterally vary that contract – effectively, they say, what was done by passing of the special resolution. The defendant says that it was perfectly proper and valid to vary the Constitution and LAMA as was done by the two special resolutions and that the plaintiffs are bound by those amendments.
31 The defendant goes on to say that if it fails on its primary argument and there has not been a valid change to the Constitution and the LAMA, the plaintiffs are nonetheless prevented for other reasons from recovering fees paid to date and refusing to make payments in the future. I will deal with these arguments in due course. However, it is the validity and effectiveness of the changes made to the Constitution and the LAMA which are at the heart of this litigation.
32 The submissions put on each side are deceptively simple. The plaintiffs say that changes to the LAMA cannot be effected by amendments to the 1998 Constitution because the Constitution and the LAMA are two separate and discrete documents. The plaintiffs say that the LAMA is what is referred to in the cases as a "special" contract. It is said an amendment to a Constitution cannot affect the terms and conditions of such a contract. For its part, the defendant relies upon the terms of the Constitution. It refers to cl 1.4 of the Constitution which expressly states that "the annexed Licence and Management Agreement shall be taken to form part of this Constitution". Therefore, it is said, the Constitution and the LAMA can be amended by special resolution: see s 601GC(1) of the Corporations Act.
(Page 16)
33 Each of the parties referred to three cases to support their position. The oldest and least relevant case is the High Court decision in Heron v The Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315. The facts of the case taken from the headnote were as follows:
"By the memorandum of association of a company registered under the Companies Act 1869 (Tas.) the objects for which the company was established were to do everything which might be or be considered conducive to the proper or best sale, handling, packing, treating, grading, marketing and branding of the fruit belonging to members of the company or others and particularly (inter alia) to establish and carry on depots for packing fruitgrowers' products, and to transport and sell fruitgrowers' products; and to buy and sell and export the products of fruitgrowers. By one of the articles of association each shareholder was to be deemed to have entered into a contract with the company that while he remained a shareholder he should in each year send to the company, to be packed, graded and sold in such manner as the directors might from time to time decide upon, his entire crop of merchantable fruit upon certain terms and conditions. By other articles it was provided that each shareholder agreed to abide by and observe all rules from time to time made by the directors relating to packing, grading, selling, distributing and marketing his fruit; that every shareholder who should sell or dispose of any marketable fruit grown by him except in the specified manner, should forfeit and pay to the company as and for liquidated damages a certain sum per case or pound for each case or pound so sold or disposed of; that notwithstanding anything in the articles the directors might where there was a reasonable excuse relieve a shareholder from his liability for not delivering his fruit to the company; … (an action was brought) by the company against a member to recover liquidated damages in respect of a sale by the member, while his shares were still not fully paid up, of fruit grown in his orchard otherwise than in the manner required by the articles …"
34 The appellant before the Court put forward three contentions as to why the contract was not enforceable. The first and third of these are not presently relevant. However, the appellant argued that the articles of association did not operate as a contract between the company and the appellant and therefore imposed no obligation upon the appellant to pay the amount claimed in the action. All members of the Court upheld the
(Page 17)
- appeal. Only Isaacs J dealt with the contract question and he did so only after finding that the appellant should succeed on other grounds. His Honour said (at 339):
"The question is whether such a contract as is relied on in this case is one that can be made by a regulation of this Company. If made in the ordinary way by means of a real contract, then, unless it were struck by the first ground of objection, the appellant would, of course, be bound, because he had actually contracted. But in that case, his contract would be as much as 'individual' and 'outsider' as a like contract of one of the 'others' mentioned in the memorandum."
"Here, as already shown, the Company is merely an agency company, and, though the only shareholders are to be orchardists and fruitgrowers … yet the business of the Company is selling the fruit of individuals, and, when shareholders and 'others' employ the Company to sell their fruit, they stand in the capacity of principals, of clients, of independent contractors, and as such employers, on the same footing. The right to charge for the service is not a charge against him qua member, but qua employer. The right to receive the proceeds is not qua member, but qua employer. The fruitgrower cannot stand on both sides of the line at once, and be individually both agent and principal. The positions are, in a sense, antagonistic. And going one step further back and remembering that buying fruit is no part of the Company's business, it is difficult to see why article 7 is not mere coercion on a person who is a shareholder to compel him as an individual to bring his produce as and when, and in such form as, the directors dictate, to the Company as a compulsory agent."
36 As I have said, the comments made by Isaacs J are properly considered obiter dicta. Moreover, in the final paragraph of his decision (at 342) his Honour expressly says that he refrains from giving a final decision on this aspect of the case and that he was open to consider the
(Page 18)
- point. But it is instructive to note that his Honour saw as important the capacity in which the member was influenced by the regulation. No doubt a company's articles can regulate the interaction between a company and its shareholder. But his Honour clearly doubts that an article of a company can regulate the relationship between a company and a shareholder when they are in a contractual relationship of a separate or independent kind.
37 The position might be illustrated by an example. Suppose a yacht club leased to a certain individual part of its premises from which the individual could conduct the business of a ship's chandler. Assume further that the individual was a member of the club and bound by its Constitution. If an amendment was made to the Constitution which prohibited the club from leasing part of its premises to persons conducting a ship's chandlery business, that surely could not mean that the lease arrangement between the club member and the club was automatically terminated. The original leasing agreement would have been undertaken by the member in his capacity as an "individual" or "outsider"; or as one of the "others". That, I think, is the import of his Honour's decision. It is hardly a surprising conclusion.
38 Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 raises a different situation. Again, the facts can be taken from the headnote.
"A patient claimed damages against a doctor for injuries received as a result of treatment in 1973 and 1974. The doctor was a member of a company limited by guarantee, whose objects included the indemnification of its members against professional negligence claims. The doctor paid an annual subscription to renew the insurance provided by the company in accordance with the terms of its articles of association. The company initially undertook the defence of the action but after the doctor died it terminated its assistance. The company relied upon a provision in its articles of association introduced in 1982 which allowed it to terminate any grant of assistance or indemnity in its sole and absolute discretion. The executor of the doctor's estate cross-claimed against the company seeking an indemnity to the claim."
39 All members of the High Court held that it was not open to the company to refuse cover. Brennan CJ, Deane and Dawson JJ in a joint
(Page 19)
- judgment referred to s 33(1) of the Companies (NSW) Code 1981 which was in the following terms (at 410):
"Subject to this Act the memorandum and articles shall when registered bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles."
"Whilst the articles of association of a company regulate the relations of the members amongst themselves as members and with the company, they do not preclude a member from contracting individually with the company upon terms which may or may not be defined by reference to the articles. Such a contract has been called a special contract to differentiate it from the deemed covenants to which s 33(1) refers, which regulate the position of a member as a member and not as an individual. Even if the terms of a special contract are to be determined by reference to the articles, an alteration to those articles will not necessarily mean an alteration to the terms of the contract. It will depend upon the intention of the parties to the contract, namely, the member and the company. Thus, a special contract may import as a term one or more of the articles upon the basis that they may be altered by the company and an alteration of the articles in those circumstances will alter the terms of the contract. On the other hand, a special contract may be concluded upon the basis of the articles but with the intention that the terms of the contract are not to be varied by an alteration to the articles. That will not confine the statutory power of the company to alter its articles, but the company in acting upon the basis of an alteration may be acting in breach of contract. … Put another way, a company cannot unilaterally vary its contracts by altering its articles unless that is the basis upon which the contract was made." [My emphasis]
41 Their Honours then referred to a number of English authorities including Allen v Gold Reefs of West Africa Limited (1900) 1 Ch 656, Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385 and Pepe v City & Suburban Permanent Building Society (1893) 2 Ch 311. This last case is interesting. A member of a building society, who had given
(Page 20)
- notice of withdrawal and who, under the rules as they then stood, became entitled to a sum of money, was held to be deprived of his right to that sum by an alteration to the rules before he had ceased to be a member. Their Honours made the point that in Pepe's case (supra), there was no special contract between the member and the company and that the validity of the alteration properly fell to be determined by "those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities".
42 Having examined these and other cases, their Honours concluded (at 414):
"There is also, we think, only one answer to the question whether, under an individual contract of insurance such as existed between Dr Bailey and the Union, the terms which were imported into the contract by the relevant articles were alterable merely by means of an alteration to those articles. The relevant articles specified the extent of the indemnity to be afforded to an insured under the contract of insurance. The whole purpose of the contract being the purchase of cover up to a specified limit for acts done and omissions made during a specified period, it is hardly to be thought that the parties to the contract intended that the Union should be able unilaterally to reduce the indemnity in respect of claims arising from such acts or omissions or to refuse it altogether, particularly after the period of the cover had expired. An alteration to the relevant articles would, of course, affect the terms of any contract made after the alteration. But it cannot have been the intention of the parties that insurance cover already purchased upon terms contained in the articles should be diminished by a subsequent alteration to those articles."
43 The other two members of the Court, McHugh and Gummow JJ, in the course of their judgment dealt with what they referred to as the "statutory contract" between a corporation and its members as distinct from "a special contract". Their Honours said (at 439):
"However, the broad trend of authority referred to above, … has been to identify the subject matter of the 'statutory contract', so far as concerns the relations between the corporation and the members, not as commercial rights but as the government of the corporation and the exercise of the constitutional powers of the corporation. Such matters as inspection of the register, the right
(Page 21)
- to receive a share certificate, to vote, to receive informative notice of meetings, to receive payment of duly declared and payable dividends, and the like, even where not specifically supported by statutory provision, have been treated as inherent in the relationship between the corporation and its members.
The term 'special contract' appears to have been coined by Lindley MR and Romer LJ in Allen v Gold Reefs of West AfricaLimited. The expression has proved to be an unfortunate one. What it identifies is no more than a contract which is not a 'statutory contract'. That is to say, the expression identifies a contract which is constituted otherwise than solely by the articles unsupplemented by any external facts. Once the relevant 'statutory contract' cannot be so found … then it is a question whether the evidence supports the finding of the existence of a contract which, in truth, is ordinary rather than 'special' in nature. Such a contract may, as this case illustrates, pick up in a particular fashion provisions of the articles."
44 The final case to be considered, and perhaps the most helpful of the Australian authorities, is the decision of Austin J in Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424. The nature of the plaintiffs' claims was set out by his Honour in the following terms (at 426):
"By their statement of claim the twenty plaintiffs who are members of the defendant company seek declarations as to the meaning or effect of two articles in the defendant's constitution.
Article 103(1) provides:
'(1) An annual levy payable by members of the company to be used to maintain the navigability of the waterways and to maintain clean waterways owned by the company and to fund the ongoing operating expenses of the company shall be such as the company by ordinary resolution in general meeting shall from time to time prescribe.'
The plaintiffs seek a declaration that none of them is bound to pay to the defendant money levied under article 103(1) having regard to s 140(2)(b) of the Corporations Law.
Article 102(8) states:
- '(8) A person becoming a member after the date upon which the company acquired the company's land shall pay a fee of $350 or such other fee as the Board may determine for the rights referred to in Article 102(1).'
- Article 102(1) says that subject to article 102(8), each member shall have certain rights to moor a vessel, to erect and maintain a mooring boom, and to erect and maintain a pontoon, in each case over the waterway adjacent to the member's property. The plaintiffs seek a declaration that on its true construction, article 102(8) does not permit the defendant to impose a charge on the plaintiffs for enjoyment of the article 102(1) rights beyond a once-only payment of $350 or such other single fee as has been determined. They also seek a declaration that they are not liable to pay the defendant any further moneys pursuant to article 102(8) for the rights under article 102(1)."
45 It was common ground between the parties that article 102(8) had been in place at all relevant times and that article 103(1) was adopted by amendments to the defendant's Constitution made at a meeting of members on 7 June 1995. To understand the nature of the claim in this case, reference must be had to s 140(2) of the Corporations Law (the applicable law at the time). Relevantly, it reads as follows:
"(2) Unless a member of a company agrees in writing to be bound, they are not bound by a modification of the constitution made after the date on which they became a member so far as the modification:
(a) …
(b) increases the member's liability to contribute to the share capital of, or otherwise to pay money to, the company; or
(c) …"
"The plaintiffs submit that, having become members of the defendant company before 7 June 1995, they are not bound by the modification to the defendant's constitution made on 7 June 1995 by which article 103(1) was adopted, so far as that
(Page 23)
- modification increases the members' liability 'otherwise to pay money to' the defendant, having regard to s 140(2)(b). The defendant submits that s 140(2)(b) does not apply to the liability of a member to pay a levy fixed under article 103(1)."
47 For the purposes of this present case, Ding (supra) throws up a number of important questions. If s 140(2)(b) does not apply to the fixed levy under article 103(1), then it must be because article 103(1) is a special contract. So is such a levy properly regarded a special contract? If it is, what are the characteristics that render it special (or, adopting the terminology used by McHugh and Gummow JJ in Bailey (supra), "ordinary") given that it was introduced by an amendment to the articles?
48 Austin J undertakes a detailed examination of the legislative history of s 140(2) and its equivalent in England. His Honour also deals thoroughly with the relevant cases. In particular, his Honour dealt with those cases where, by amendment to the articles, the corporation purported to impose additional pecuniary liabilities on members. His Honour concluded, in effect, that depending on the facts of the case, imposing pecuniary obligations by amendment to the rules may be a special contract. For instance, increasing subscriptions to cover increased rent on the lease of a club's premises. Consequently, such an increase in subscriptions would not fall foul of the prohibition in s 140(2)(b). His Honour then concluded in relation to article 103(1) that imposing a pecuniary liability to pay an annual fee was enforceable against members whose membership arose after the article was adopted. However, the amendment could not bind existing members because of the provisions of s 140(2). With respect to article 102(8), his Honour concluded that as a matter of construction, the article contemplated only a single fee payable by a person becoming a member at the time of admission to membership. The article did not, therefore, allow the board to impose a recurring fee upon members after they became members.
49 In determining whether the LAMA is a special contract, it is necessary to bear in mind certain facts. First, cl 1.4 of the Constitution says that the LAMA is part of the Constitution. Second, the LAMA itself sets out in cl 4.1 the financial obligations of a grower to the responsible entity for the first 3 years. Clauses 4.2 and 4.3 then set out the grower's liability for years 4 through to 20. This liability is said to be subject only to cl 12.6 (when the LAMA is properly considered). Third, cl 12.6 anticipates that if growers are to be asked for an additional contribution they will at the same time be offered the chance to consider whether the MIS ought be wound up. Fourth, although the plaintiffs were aware of the
(Page 24)
- two meetings which purported to amend the Constitution and increase their liability, they did not vote in favour of the amendments. Had they done so they may have been thought to have consented to any change and would not now be in a position to resist the payment of further charges. Fifth, under s 601GB of the Corporations Act, the Constitution must be a legally enforceable document.
50 It is convenient to begin with this last point. Section 601GB is in the following terms:
"The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity."
51 The defendant emphasises the importance of this provision. It says that when it is taken together with cl 1.4 and cl 2 of the Constitution it must mean that the LAMA is part of the Constitution and can be amended accordingly. As the amendments have complied with s 601GC(1)(a), the plaintiffs are bound by the change.
52 The plaintiffs reject that submission. They say that such a construction is inconsistent with the terms of the Constitution. It was submitted that cl 1.4 of the Constitution must be read with the definitions in cl 1.1. Clause 1.1 defines "Licence and Management Agreement" as "an agreement entered into between the responsible entity and a grower in the form annexed to and forming part of this Constitution". Thus, it is said cl 1.1 draws a distinction between the proforma document attached to and forming part of the Constitution and the contract - the LAMA - each plaintiff entered into with the defendant. The cl 1.1 definition emphasises that it is the proforma document which is part of the Constitution, not the agreement actually entered into. It was submitted that the LAMA actually entered into by each investor is therefore a distinct and separate contract. Clause 1.4, it is said, does not convert each LAMA actually entered into by an investor into part of the Constitution. Clause 1.4 is part of the interpretation section of the Constitution. It merely makes clear that the annexure to the Constitution, the proforma unexecuted LAMA, is part of the Constitution.
53 In my view, that submission is to be rejected. It is to be remembered that under s 601GB the Constitution constitutes a legally enforceable agreement between the members. The wording of the Constitution does not offer the member the right to refuse to sign the LAMA or to debate its terms. In fact, the Constitution appoints the responsible entity as the
(Page 25)
- member's agent for that purpose. Effect simply must be given to the wording in cl 1.4. To adopt the plaintiffs' reasoning and to view the LAMA as a separate and distinct contract, would, in my view, be at odds with the plain wording of the Constitution.
54 It was further submitted that the defendant's construction of the Constitution was inconsistent with the terms of the LAMA. The LAMA separately uses both the defined terms "Constitution" and "Agreement": see trial bundle 196 - 197. Further, recital A makes the correct point that the Constitution is a separate pre-existing contract. The purpose of the LAMA is described in recitals C and D. Further, cl 12.6, cl 18.4 and cl 19 of the LAMA contemplate the Constitution as being a separate contract. It was submitted that the objective intention was that there should be two separate contracts.
55 It must be conceded that the drafting of the Constitution and the LAMA do not sit entirely happily together. That fact adds weight to the plaintiffs' submissions. But, in my view, the inconsistencies in the wording of the Constitution and the LAMA are not sufficient to displace the clear intention exhibited by cl 1.4.
56 As to the defendant's reliance on s 601GB, the plaintiffs maintain that this section in fact runs counter to the defendant's argument. The plaintiffs acknowledge that the section requires that the scheme Constitution must be a document legally enforceable between the members of the responsible entity. They say applying fundamentals of contract law that this can be done in two ways. If there are obligations imposed on each of the responsible entity and the members under the Constitution, then s 601GB requires that they must enter into a contract, being the Constitution to which each is a party. An enforceable obligation cannot be imposed on a person not a party to a contract. Alternatively, if the Constitution imposes obligations on the responsible entity but not on the members, it can be done by way of a deed poll: members are conferred a benefit they can sue on by s 11 of the Property Law Act 1969 (WA). It is submitted that the Constitution adopts this latter approach. All covenants by the investors are contained in a separate contract each entered into - the LAMAs. Put another way, the plaintiffs say the Constitution which is not executed by or on behalf of each investor, could not be enforceable against each investor if it contained the provision of the LAMAs which impose obligations on the growers. A written contract not executed by or on behalf of a person cannot impose an enforceable obligation on that person.
(Page 26)
57 With respect, that interpretation of the position seems to me to unnecessarily complicate what is a simple provision with a clear and obvious meaning. Section 601GB anticipates a Constitution which will be legally enforceable between the members and the responsible entity. If one or other of those two parties does not carry out their obligations under the Constitution, then it is open to the innocent and aggrieved party to bring suit to enforce their rights. There is nothing in s 601GB or indeed elsewhere in Pt 5, C.3 of the Corporations Act which limits what may be in a Constitution. Indeed, it might be thought that in requiring a Constitution to be in place, the legislature was attempting to ensure that all of the rights and obligations between the parties were legally enforceable. But whatever the intention may have been, there is, in my view, no reason why the LAMA cannot be viewed as part of the Constitution.
58 Finally, it was said that to regard the LAMAs as part of the Constitution effectively rendered the LAMAs meaningless. This, it was said, could not have been the intention of the parties. It is not readily apparent why the draftsmen decided to have both a Constitution and a LAMA in a circumstance where it is said that the LAMA is part of the Constitution. But be that as it may, the way in which the Constitution is drafted - that is to say with the LAMA being a separate document - does not, in my view, alter the fact that it was open to the parties to incorporate the LAMA as part of the Constitution and that is what they have done.
59 In my view, the amendments to the Constitution were valid and effective and bind the plaintiffs. Central to this conclusion is the wording of the Constitution in cl 1.4 which renders the LAMA part of the Constitution. There is no reason why those words should not be given their natural meaning. It follows that if it is open to the growers to amend the Constitution under the provisions of the Corporations Law, then it is open to them to amend the terms of the LAMA. This case stands in contrast to Bailey (supra) where the actual terms of the insurance taken out by Dr Bailey did not form part of the Constitution of the company. That was an arms length transaction in a sense that this one is not.
60 Further, in Bailey (supra) all members of the Court held that it could not have been in the contemplation of the parties when the contract of insurance was entered into that an amendment to the articles of the company would deprive Dr Bailey of insurance cover. The aim of this managed investment scheme was to develop a vineyard. The prospectus makes it plain that the investment was speculative. It was reasonably within the contemplation of the parties that the funding arrangement for
(Page 27)
- the developing and running of the Vineyard might not be sufficient to allow the Vineyard to be developed and maintained. That is evidenced by the fact that cl 12.6 of the LAMA provided a mechanism by which further funds can be raised.
61 Against that, it is said that while the parties may have contemplated the need to raise further funds, the wording of cl 12.6 anticipated that were that to occur, growers would be given the chance to wind up the scheme. That leads back to the Constitution and the provision which includes the LAMA as part of the Constitution. Given the statutory right to amend the Constitution, the growers must have been taken to have understood that amendment of the LAMA was possible so that further funds might be required from them by way of amendment to the LAMA.
62 The result is that the documents anticipate that there was more than one way in which the contribution of members could be increased if more funds were required to pursue the scheme. There is nothing wrong with that. But it does not alter the fact that having decided to proceed by way of amendment of the Constitution, the resulting amendment is binding on the parties.
63 There was one further matter raised by the plaintiffs which bears upon the effectiveness of the change to the Constitution. Under s 601GC(2) a responsible entity is required to lodge with ASIC a copy of the modification to the Constitution. The modification cannot take effect until the copy has been lodged. It is common ground between the parties that the amendment to the Constitution was not lodged until 2 December 2004. It is said then, that any obligation to pay the 2003 fees or the 2004 fees did not arise because there had been no effective amendment to the Constitution.
64 It may well be the case that until 2 December 2004 there was no obligation on the plaintiffs to make payment of the fees. The defendant did not argue otherwise. But what it did say was that as at the date of this hearing, the obligation to pay the fees had arisen (it arose on 2 December 2004) and there was now no basis for a recovery of the fees paid. I accept that submission. A strict application of legal principle might lead to the conclusion that the 2003 fees and 2004 fees were paid under a mistake and they could therefore be recovered. But registration of the amendment on 2 December 2004 had the effect of creating a debt due by the plaintiffs to the defendant for the 2003 fees and 2004 fees. This produces a zero sum game. In my view, the failure to register the amendments until
(Page 28)
- 2 December 2004 does not, in these proceedings, entitle the plaintiffs to recover the amount paid.
65 Having reached that conclusion, it is not, strictly speaking, necessary for me to deal with other defences to the plaintiffs' claim for repayment of the fees. However, as these matters were fully argued, I will deal with each briefly.
66 The defendant argued that the plaintiffs were estopped from effectively denying the effectiveness of the amendments to the Constitution. To advance this argument the plaintiffs referred to the elements necessary to establish estoppel by convention as set out by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at 106. His Honour considered that National Westminster Finance NZ Ltd v National Bank of NZ Ltd (1996) 1 NZLR 548 provided an accurate summary of the elements required to establish such estoppel. They are:
(1) Both the plaintiff and the defendant must have acted on the basis of an assumption of either fact or law;
(2) Both the plaintiff and the defendant must have been aware that the other party to the transaction accepted the assumption;
(3) It must have been intended that the assumption would govern the legal relationship of the parties to the agreement;
(4) The plaintiff must have acted in reliance upon the assumption and the defendant must have knew or ought to have known that the plaintiff would do so;
(5) Detriment would be suffered by the plaintiff if the defendant sought to depart from the assumption; and
(6) It would be unconscionable to allow the assumption to be departed from.
67 The defendant then reduced these principles to three essential matters. First, it was said that there needed to be action by the plaintiffs and the defendant on the basis of an assumption to the knowledge of each party in circumstances where their legal relations were to be affected. Secondly, there needed to be action in reliance where the plaintiffs knew of the reliance. Thirdly, there needed to be shown detriment suffered by the defendant if the plaintiffs resiled from the assumption where it would be unconscionable to allow this to occur.
(Page 29)
68 In support of the first of these propositions - that is the assumed state of facts - the defendant pointed out that the plaintiffs were aware of the January and July meetings before they were convened or shortly thereafter, and were aware of the passing of the resolutions: see statement of Mr Braysich - exhibit B, par 11 - par 14; transcript, pages 190, 192, 200, 203; exhibits 21, 36, 37, 44 and 46. There is correspondence between the plaintiffs and the defendant which shows that the parties were acting on the basis that the Constitution was amended with due process and the defendant was entitled to seek additional fees and contributions. This was the assumed state of facts. Mr Braysich admitted that the additional fees and contributions were paid on the basis of the special resolutions passed at the January and July meetings: see transcript, pages 197 - 198, 200, 203. The plaintiffs submit that there is ample other evidence to confirm this assumed state of facts: see exhibits 73 - 78. Taken together, the plaintiffs say that the evidence demonstrates that the defendant acted on the assumption in a way which affected their legal relationships.
69 It was said by the plaintiffs that the defendant failed to establish a common assumption. It appears to be conceded that the plaintiffs assumed that they were liable to make payment of the fees: see par 51.1 of the plaintiffs' written outline of closing submissions. It is said that the evidence does not establish what assumption the defendant made. It was said that the defendant did not lead evidence which established that its assumption was the same as the plaintiffs' assumption. With respect, that seems to be at odds with the evidence. There is no reason at all to suggest that the defendant did not believe that the amendments to the Constitution had increased the contribution required from the members. Why else would it have made the amendments in the first place and then proceeded to collect the fees? Leaving to one side the oral evidence, the exhibits to which I have referred above clearly establish the defendant's views. In my view, there is no doubt that the parties acted with a common intention.
70 The defendant then says there is evidence of reliance and the detriment that would flow if the assumption is not adhered to. Reference was made to what was said by Dixon J in Grundt v The Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674:
"the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it."
(Page 30)
71 The defendant says that the evidence established that it relied on the assumed state of affairs. It says that it incurred expenditure in relation to the Preston Vale MIS: see exhibits 95, 111, 112, 113. In 2003, the defendant paid rent insurance, meeting expenses and other invoices from funds received in payment of the 2003 invoices: see statement of Mr Raffan - exhibit D at par 8 - par 9. In 2004, the defendant paid rent, the responsible entity's fee and SOM's management fee from funds received in payment of the 2004 invoices: see statement of Mr Raffan - exhibit D, par 5 - par 7.
72 The plaintiffs say that the fact the payment of the 2003 fees and 2004 fees was underwritten by SOM shows that the fees would have been or should have been paid in any event. On that basis it is said it cannot be inferred that it mattered to the defendant whether the plaintiffs or SOM paid those fees. Further, the FROC SOM Operations Agreement was entered into on 18 November 2003. That was before payment of the 2004 fees and appears unrelated to the payment of the 2003 fees. From then the defendant incurred only minor costs (on Mr Raffan's evidence, about $24,000 per annum) in exchange for the payment of $175,000 per annum. The defendant did not operate the Vineyard: it subcontracted out tasks it was required to perform irrespective of receipt from the plaintiffs. It has not acted, so the plaintiffs submit, on reliance on any payments. Further, FROC and SOM (the plaintiffs submit SOM's position is irrelevant) have both made real profits in their dealings with the scheme. The plaintiffs contend that in the absence of contrary evidence, it should be inferred that the defendant acted in anticipation of those profits and not on reliance on any payments the plaintiffs made.
73 The plaintiffs make an additional point. They say that the defendant appears to have cancelled between 450 and 550 licensed areas. That means from a starting point of 1087.5 licensed areas, there are now only about 760 to 770 licensed areas. Mr Raffan's evidence was that SOM's directors had taken up over 100 licensed areas. The defendant has therefore not received any fees from the cancelled growers whose interests were not taken up by SOM directors. Whether or not the plaintiffs paid the 2003 fees and 2004 fees cannot, it was submitted, have been relied upon.
74 In answer to all of those points, the defendant says that it paid rent and other expenses that were the subject of the decision to levy the 2003 fees in reliance on the plaintiffs and the growers paying fees pursuant to the January and July 2003 resolutions. It does not contend that the SOM
(Page 31)
- Operations Agreement was entered into in reliance on the receipt of the 2004 fees.
75 In my view, reliance has been established. It is a mistake to view the decision to amend the Constitution and require the payment of the additional fees in isolation. It is apparent that the decision was taken because it was decided further funds were necessary to develop and maintain the Vineyard. What then would have happened if the resolutions had been rejected? It is reasonable to assume that the defendant would not have paid the rent and other expenses that were the subject of the decision to levy the 2003 fees. In my view, that is beyond dispute. I am satisfied that the defendant acted in reliance on the representation.
76 The defendant says that to permit the plaintiffs to seek to resile from the representations that fees were payable under the special resolutions would cause substantial detriment to the defendant and to the scheme. This was accepted by the plaintiffs (at page 207 of the transcript) and confirmed by Mr Raffan (statement of Mr Raffan - exhibit D at par 9; transcript, pages 296 - 298). It was said that if the fees were not paid by growers, the defendant would be incapable of paying the rent, SOM's management fees and all other expenses associated with running the scheme. Further, considerable expenses had been incurred by SOM in performing the vineyard management services on behalf of FROC: see exhibits 95, 97, 98, 111, 112 and 113. The defendant pointed out that there is express provision in the LAMAs for the responsible entity to delegate or subcontract all of its duties: see exhibits 8 - 11 at cl 9.4. It was intended that SOM would be appointed as FROC's agent to manage the vineyard operations: see exhibit 36. FROC paid SOM management fees to perform vineyard management services on the faith of management fees received from growers including the plaintiffs. The SOM cash flow statement for the 2004 and 2005 harvest years shows that there was a shortfall in management fees received to meet the costs of running the Vineyard: see exhibit 112. Outstanding management fees are owed to SOM because of the shortfall in the management fees received from growers. The Preston Vale MIS cash flow statement for the 2005 harvest year shows a deficit of $248,950: see exhibit 113. In all the circumstances, then, the defendant says it would suffer detriment if the fees had to be repaid.
77 The plaintiffs do not accept that the defendant has suffered any detriment. They say the opposite is the case. Based on the submissions I have outlined above in relation to reliance, the plaintiffs say that the profit
(Page 32)
- earned by the defendant emphasises that there has been no detrimental reliance.
78 I am satisfied that there has been detrimental reliance by the defendant. As acknowledged by all parties, there is a close connection between reliance and detriment. In my view, of particular importance is the fact that FROC paid SOM management fees to perform vineyard management services. I accept that these fees were paid on the faith of management fees received from growers including the plaintiffs. Apart from anything else, that, in my view, is enough to satisfy the requirement that there be a detriment.
79 I should at this point deal with a matter of evidence which arose during the course of the proceedings. The plaintiffs attempted to challenge the veracity of certain financial statements of SOM and the Preston Vale MIS, as well as the underlying MYOB general ledger reports. The nature of this challenge is apparent from the transcript, pages 328 - 329. The SOM and Preston Vale MIS financial statements were admitted into evidence as documents which Mr Raffan prepared containing material derived from financial information available to Mr Raffan: transcript, pages 266 - 268. In my view, the documents fall within s 79C(2a) of the Evidence Act 1906 (WA) as business records or as being derived from business records. There is no reason to doubt that the business records upon which the documents are based are anything other than genuine. There is no evidence to the contrary. The plaintiffs referred to a lack of source documents such as cheque butts to show expenses incurred: transcript, page 249. There was in this case a process of discovery and if the plaintiffs had indicated that source documents were necessary, they could have been called for. But the fact remains that there is no reason to doubt the veracity of the financial statements and, in my view, they were admissible under the Evidence Act.
80 That then leaves the question as to whether or not in all the circumstances it would be unconscionable for the plaintiffs to resile or depart from the assumption. On behalf of the defendant it was said that taking all the matters to which I have referred above into account, it would clearly be unconscionable to allow the plaintiffs to recover the fees paid. On behalf of the plaintiffs it was submitted that the evidence established that the defendant "misled" the plaintiffs into believing the 2003 fees and 2004 fees were payable: see par 51.6 of the plaintiffs' written outline of closing submissions. In my view, to use the word "misled" in these circumstances is inappropriate. As I have indicated above, I am satisfied that the plaintiffs and the defendant acted on a
(Page 33)
- common assumption. Mr Braysich on behalf of the plaintiffs was free to form his own view as to the effectiveness or otherwise of the changes to the Constitution. All the evidence shows that at the time the special resolutions were passed, Mr Braysich believed that they were effective. So did the defendant. There is no evidence that the defendant attempted in any way to persuade anyone to any particular point of view. What it did was set out proposed amendments to the Constitution and outlined the consequences of those amendments. When the amendments were approved, the defendant advised Mr Braysich that the 2003 and 2004 fees were payable. Mr Braysich initially did not doubt that that was the case. In my view, it could not be said that he was misled by the defendant.
81 In all the circumstances, I am satisfied that it would be unconscionable to allow the plaintiffs to now contend not only that they are entitled to a repayment of fees, but that they are not obliged to pay further fees. I accept the plaintiffs' submission that this follows from the defendant establishing the other aspects of the estoppel. The plaintiffs should be held to their position with the effect that they should be liable under the fee regime. The defendant has made out its defence of estoppel.
82 The further defences relied upon by the defendant are change of position and a defence under s 125 of the Property Law Act. Both of these defences, if made out, would result in the defendant not having to repay to the plaintiffs the 2003 fees and the 2004 fees. Neither defence would allow the defendant in the future to demand from the plaintiffs payment of fees in the future in line with the fee structure passed by special resolution. The common law change of position defence requires the Court to consider whether the injustice that would result from compelling the recipient to repay the money outweighs the potential injustice suffered by the plaintiffs if they was denied recovery: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 579 - 580. This defence sits alongside s 125 of the Property Law Act. Section 125(1) is in the following terms:
"Relief, whether under section 124 or in equity or otherwise, in respect of any payment made under mistake, whether of law or fact, shall be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his position in reliance on the validity of the payment that in the opinion of the Court, having regard to all possible implications in respect of the parties (other than the plaintiff or claimant) to the payment and of other persons acquiring rights
(Page 34)
- or interests through them, it is inequitable to grant relief, or to grant relief in full."
83 The difference between the common law defence of change of position and the statutory defence available under s 125(1) is that the former does not require the Court to consider the impact that retaining a mistaken payment would have on third parties: see Lipkin Gorman (supra) at 580. Rather, the Court need only consider whether the injustice that would result from compelling the recipient to repay money outweighs the potential injustice suffered by the plaintiff if denied recovery.
84 In this case, the payment is proved and the receipt is proved. The assumed state of affairs has been established. I have already dealt with the reliance argument and I am satisfied that there was a change of position by the defendant.
85 The evidence of the defendant's expenditure in relation to the MIS is not mere expenditure on ordinary living expenses. This was expenditure for the benefit of the MIS and on necessary works and maintenance. The money was spent in reliance on fee payments and the defendant no longer retains a benefit from the payments. The defendant would not otherwise have incurred these and other expenses if it had not received payment from the plaintiffs and other growers.
86 There is no evidence that the defendant has acted other than in good faith. The parties acted according to the assumed state of affairs in 2003 and 2004. It was suggested by the defendant that the plaintiffs did not alert the defendant as soon as possible after discovering the alleged mistake about entitlement to payments. I am not satisfied that is the case. In my view, there are no grounds for suggesting that delay on the part of the plaintiffs supports either of these defences.
87 It is relevant, however, to take into account the position of parties other than the parties to the proceedings. There is no evidence that any of the other growers has demanded the return of their moneys. Further, if the defendant was required to pay back the 2003 fees and 2004 fees to the plaintiffs, there is a real prospect that the scheme would come to an end. The fact that other members have not joined in these proceedings suggests - although I accept it goes no further than that - other members do not want to bring the scheme to an end. That, I think, supports this defence. I am satisfied that both the change of position defence and the defence under s 125 of the Property Law Act are made out.
(Page 35)
88 Finally, there is a claim of quantum meruit. This matter is raised by way of counterclaim. In my view, this counterclaim fails. If the LAMAs are a separate contract (and that is the only circumstance in which this counterclaim is relevant), then there is a valid and enforceable agreement governing the claimant's right to compensation and there would be "neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration": see Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 per Deane J at 256. The right to restitutionary quantum meruit only arises if there is no contract or if the contract is wholly voided or unenforceable. That, on any view of the matter, would not be the case here. I would dismiss the counterclaim.
89 For these reasons, I am satisfied that the plaintiffs' claim ought be dismissed. I will hear the parties as to the precise form of orders and as to costs.
45
4