AMP Life Ltd v AMP Capital Funds Management Ltd

[2016] NSWCA 176

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	AMP Life Ltd v AMP Capital Funds Management Ltd & Anor [2016] NSWCA 176
Hearing dates:	22 July 2016
Date of orders:	22 July 2016
Decision date:	26 July 2016
Before:	Bathurst CJ at [1]; Meagher JA at [3]; Barrett AJA at [4]
Decision:	1. Appeal Dismissed. 2. Order that the first respondent be indemnified for its costs of the appeal out of the assets of the AMP Capital China Growth Fund. 3. Order that the second respondent’s costs of the appeal be paid by the appellant.
Catchwords:	CORPORATIONS – registered managed investment scheme – meeting of members – voting rights of responsible entity – Corporations Act 2001 (Cth), s 253E – references therein to “the responsible entity and its associates” – whether an entity within that group is precluded from voting only if it is that entity itself that has a non-member interest in the matter before the meeting PROCEDURE – costs – question of statutory construction meriting analogy with “testator’s fault” probate proceedings at first instance – whether that analogy applies on appeal
Legislation Cited:	Company Law Review Act 1998 (Cth) Corporate Law Economic Reform Program Act 1999 (Cth) Corporations Act 2001 (Cth) Life Insurance Act 1995 (Cth) Trustee Act 1925 (NSW) Uniform Civil Procedure Rules 2005 (NSW),
Cases Cited:	Australia and New Zealand Banking Group Ltd v National Nominees Ltd [1977] HCA 42; 137 CLR 252 Clunies-Ross v The Commonwealth [1984] HCA 65; 155 CLR 193 Currie v Glen [1936] HCA 1; 54 CLR 445 Elliot v Secretary, Department of Education, Employment and Workplace Relations [2008] FCA 1293; 249 ALR 182 Everest Capital Ltd v Trust Company Ltd [2010] NSWSC 231; 77 ACSR 371 Fielder v Burgess [2014] SASC 98 Fowler v Nield (1961) 61 SR (NSW) 152 Gale v Gale [1914] HCA 53; 18 CLR 560 Lippe v Hedderwick [1922] HCA 44; 31 CLR 148 McGellin v Mount King Mining NL (1998) 144 FLR 288 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 R v Young [1999] NSWCCA 166; 46 NSWLR 681 Re AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund) [2016] NSWSC 986 Re Blyth (deceased) [1959] NZLR 1313 Re Great Southern Managers Australia Ltd [2009] VSC 557; 76 ACSR 146 Re McIntyre [1993] 2 Qd R 383 Re Mirvac Ltd [1999] NSWSC 457; 32 ACSR 107 Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; 33 WAR 174 Tobin v Ezekiel [2012] NSWCA 285; 83 NSWLR 757 Trustees Executors and Agency Company Ltd v Ramsay [1920] HCA 2; 27 CLR 279 Wade v NSW Rutile Mining Co Pty Ltd [1969] HCA 28; 121 CLR 177 Wales v Wales (No 2) [2015] VSCA 365
Texts Cited:	Dr Robert Eagleson, “A singular use of THEY” (Corporate Law Simplification Taskforce Paper, September 1995)
Category:	Principal judgment
Parties:	Appellant - AMP Life Limited Respondent 1 - AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund Respondent 2 – LIM Asia Multi-Strategy Fund Inc
Representation:	Counsel: Appellant – Mr J Stoljar SC, Mr JAC Potts Respondent 1 – Mr SM Nixon Respondent 2 – Mr A Leopold SC, Ms E Holmes, Mr DE Birch   Solicitors: Appellant - Clayton Utz Respondent 1 - King & Wood Mallesons Respondent 2 - Watson Mangioni Lawyers
File Number(s):	2016/207073
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division, Corporations List Citation: Re AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund) [2016] NSWSC 986 Date of Decision: 18 July 2016 Before: Brereton J File Number(s): 2016/189733

Judgment

1. BATHURST CJ: The reasons of Barrett AJA reflect the reasons that I joined in the order made by the Court on 22 July 2016 dismissing the appeal.

2. I agree with the additional orders as to costs proposed by Barrett AJA.

3. MEAGHER JA: My reasons for joining in the order of the Court made on 22 July 2016 are stated in the judgment of Barrett AJA. I also agree with the costs orders that his Honour proposes and with his reasons for doing so.

4. BARRETT AJA: On 22 July 2016, the Court heard at short notice an appeal from orders made by Brereton J in the Equity Division on 27 June 2016 for reasons published by his Honour on 18 July 2016: Re AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund) [2016] NSWSC 986. At the conclusion of the hearing, the Court ordered that the appeal be dismissed, reserved the question of costs and indicated that reasons would be given later. The following are my reasons for joining in the order of dismissal and my opinion on the question of costs.

Parties and context

5. The proceedings determined by the primary judge concerned a unit trust registered as a “managed investment scheme” under Part 5C of the Corporations Act 2001 (Cth) and known as the AMP Capital China Growth Fund. The “responsible entity” of the managed investment scheme is AMP Capital Funds Management Ltd (“AMP Capital”). Two proposed resolutions were included in the notice convening a meeting of the members of the managed investment scheme to be held on 28 July 2016. The proposed resolutions were put forward as alternatives - one by AMP Capital as responsible entity and the other by a member of the scheme, LIM Asia Multi-Strategy Fund Inc (“LIM”).

6. AMP Life Limited (“AMP Life”) holds an “interest” in the registered managed investment scheme in the form of units of the unit trust carrying rights to vote at meetings of members of the scheme [1] . The primary judge was called upon to decide whether AMP Life would be entitled to exercise its voting rights on the resolutions to be submitted to the 28 July 2016 meeting. The question before his Honour (and before this Court) concerned the construction of s 253E of the Corporations Act:

“The responsible entity of a registered scheme and its associates are not entitled to vote their interest on a resolution at a meeting of the scheme's members if they have an interest in the resolution or matter other than as a member. However, if the scheme is listed, the responsible entity and its associates are entitled to vote their interest on resolutions to remove the responsible entity and choose a new responsible entity.”

1. It was common ground that the rights stemming from the holding of units of the unit trust, including voting rights, constitute the “interest” of a member of the scheme according to the definition of “interest” in s 9.

7. The question arose in circumstances where each of AMP Life and AMP Capital is acknowledged to be “controlled” by AMP Limited, with the result that, by operation of s 12(2)(a)(iii) of the Corporations Act, AMP Life is an “associate” of AMP Capital for the purposes of s 253E (a provision which, having regard to s 12(3) and s 12(5), is of the kind referred to in s 12(1)(b)(i) so that resort is had to the modified form of s 12(2) dictated by s 12(3) and s 12(5) in interpreting the “associate reference” within it). It is the circumstance that both AMP Life and AMP Capital are “controlled” by AMP Limited that causes the former to be an “associate” of the other.

8. In addition, it was acknowledged that AMP Capital had, in terms of s 253E, an “interest in” each proposed resolution “other than as a member” because the effect of either resolution, if passed, would be to affect the remuneration receivable by it as responsible entity. An “interest” of that kind was referred to by the primary judge as an “extraneous interest” and in certain submissions as a “non-member” interest. [2]

   2. The interest contemplated by the words “an interest in the resolution or matter” in s 253E is one that proceeds from a relationship of some real substance to the resolution or matter and has the capacity to influence voting upon the decision to be made in relation to it. This formulation, adapted from observations of Murray J in McGellin v Mount King Mining NL (1998) 144 FLR 288, was accepted by the Court of Appeal of Western Australia in Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; 33 WAR 174.

9. The parties to the proceedings in the court below were AMP Capital, AMP Life and LIM. AMP Capital, as plaintiff, sought judicial advice [3] (which the primary judge declined to give) and declaratory relief (which was granted). AMP Life, as first defendant, argued that s 253E would not preclude exercise of its voting rights on the resolutions and, in doing so, contended for what the primary judge called the “narrower construction” of the section. LIM, as second defendant, submitted that, on what was termed the “broader construction”, s 253E would disentitle AMP Life from exercising its voting rights. The primary ultimately judge favoured the “broader construction”.

   3. The availability of s 63 of the Trustee Act 1925 (NSW) as a source of jurisdiction to give judicial advice to the responsible entity of a registered managed investment scheme was established in Re Mirvac Ltd [1999] NSWSC 457; 32 ACSR 107 (Austin J).

10. His Honour summarised the question and the competing contentions as follows (at [25]):

“The question is whether, upon its proper construction, s 253E precludes an associate of the responsible entity from voting on a resolution when the responsible entity, but not the associate, has an extraneous interest in the resolution. If s 253E disqualifies a particular associate of the responsible entity only when that associate itself has an extraneous interest in the resolution (“the narrower construction”), then s 253E would not disqualify AMP Life from voting in respect of the Resolutions. But if s 253E applies to any associate of the responsible entity when any of the responsible entity or its associates has an extraneous interest (“the broader construction”), then it would disqualify AMP Life from voting in respect of the Resolutions because of AMP Capital’s extraneous interest.”

The decision of the primary judge

11. In concluding that the “broader construction” of s 253E was to be preferred, the primary judge noted and addressed what he considered to be conflicting first instance decisions in Re Great Southern Managers Australia Ltd [2009] VSC 557; 76 ACSR 146 (Davies J) and Everest Capital Ltd v Trust Company Ltd [2010] NSWSC 231; 77 ACSR 371 (White J). There is no need to discuss those cases. It is sufficient to say that the primary judge was correct to regard the views expressed on s 253E as inconsistent, that White J was apparently not referred to the earlier decision of Davies J and that neither judge had occasion to engage in extensive analysis or explanation. The primary judge therefore appropriately embarked upon a systematic analysis of his own. He identified three considerations as the foundation for his conclusion in favour of the “broader construction”.

12. The first was, as his Honour put it, “[t]he first impression gained on reading the first sentence of s 253E”, namely, that, in disentitling "the responsible entity and its associates", the section “speaks of them as a block, not as severable individual entities”. The consistent use of the plural personal pronoun “they” and the plural possessive pronoun “their”, referring back to the collective term “the responsible entity and its associates”, was seen as favouring the view that “they” is a reference to the responsible entity and its associates collectively – that is to say, all and any of them.

13. The second consideration identified by the primary judge - which he said was the most important – was “the prophylactic purpose of s 253E to remove the potential for a conflict of interest, by precluding the responsible entity from exercising its voting power if it has an extraneous interest, so that votes will be informed only by the interests of members qua members”. Having referred, in that connection, to Southern Wine Corporation Pty Ltd v Perera [2006] WASCA 275; 33 WAR 174 and the purpose of the section of removing the potential for a conflict of interest, his Honour continued (at [37]):

“The reason for extending the prohibition to associates is that it is recognised that associates may act together to procure a result that benefits any one or more of them, notwithstanding that it might not directly benefit the individual associate. The disqualification of a responsible entity would achieve nothing, if its associates were all at liberty to vote in the manner in which the responsible entity would desire. It is the fact of their association, not their interest, which is critical. If any one of a number of associated entities has an extraneous interest, there is potential for the others to vote by reference to the association rather than by reference to their own independent interests. That theory lies at the core of the notion of ‘association’ in this context, which is directed to identifying persons ‘who should be grouped together in determining which persons have interests which are aligned and which shares should be treated as forming a single block’. Thus, a responsible entity and its associates are regarded as potentially constituting a single voting block, the votes of which are not to be taken into account if the responsible entity or any associate has an extraneous interest in the resolution. As it seems to me, the purpose of s 253E is to preclude the risk that, if a responsible entity or any of its associates has an extraneous interest in a resolution, any of them might vote by reference to that interest regardless of which of them has it. It advances that purpose to construe s 253E as operating, in circumstances where the responsible entity itself has an extraneous interest other than as a member, to disentitle it and all of its associates from voting on the resolution; it would detract from that purpose to adopt the narrower construction. The provision would not achieve its purpose if it only disqualified an associate where that associate had an interest.”

14. The third consideration was contextual, in that, on his Honour’s reading, the exception created by second sentence of s 253E also treats the responsible entity and its associates as a block. The responsible entity necessarily has an extraneous interest in a resolution of the kind to which the second sentence refers. By providing that the responsible entity “and its associates” may nonetheless vote on such a resolution, the second sentence was seen as assuming that all would otherwise be disentitled by the first sentence of s 253E irrespective of their own individual interests.

15. In the result, the primary judge made a declaration as follows:

“upon the true construction of Corporations Act, s 253E, and in the circumstances recorded in the amended statement of facts herein, AMP Life Limited is not entitled to vote its interests on the proposed resolutions at the extraordinary general meeting of unit holders of the AMP Capital China Growth Fund to be held on 28 July 2016.”

The appeal

16. AMP Life appealed. Two grounds of appeal are identified. The first is that the primary judge erred in finding that, according to its proper construction, s 253E disentitles voting by a member where that member is an associate of the responsible entity and it is the responsible entity (but not the member) that has an interest in the resolution other than as a member. The second is that his Honour erred in finding that AMP Life will be precluded by s 253E from voting on the particular resolutions even though it has no interest in the resolutions otherwise than as a member. The two grounds of appeal – one general and the other specific to the circumstances – are based on a single proposition: that, in construing s 253E, the judge should have preferred the “narrower construction” to the “broader construction”.

17. AMP Capital and LIM are the respondents to the appeal. AMP Capital did not adopt any position on the merits and made submissions only to ensure that all relevant matters were before the Court (as well as submissions on costs). This was an appropriate attitude, given its role as a trustee: Australia and New Zealand Banking Group Ltd v National Mutual Life NomineesLtd [1977] HCA 42; 137 CLR 252 at 264–5, 270.

18. LIM sought to uphold the decision and reasoning of the primary judge and took an active role in the appeal accordingly.

The task of statutory construction

19. There is no need to embark upon any extended analysis of the task of statutory construction. But it is instructive to record some well-established principles.

20. The starting point should be the following passage in the judgment of McHugh, Gummow, Kirby and Hayne JJ in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [69] (footnotes omitted):

“The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined ‘by reference to the language of the instrument viewed as a whole’. In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.”

21. Attention must therefore be given immediately to the context in which s 253E is found. Context will generally indicate the intention of the legislature – a matter of relevance to which reference was made by Spigelman CJ in R v Young [1999] NSWCCA 166; 46 NSWLR 681 (at [15]), as follows:

“If a court can construe the words actually used by the Parliament to carry into effect the Parliamentary intention, it will do so notwithstanding that the specific construction is not the literal construction and even if it is a strained construction. The process of construction will, for example, sometimes cause the court to read down general words, or to give the words used an ambulatory operation. So long as the Court confines itself to the range of possible meanings or of operation of the text - using consequences to determine which meaning should be selected - then the process remains one of construction.”

22. Stated in general terms, the duty of the court is to give meaning to the statutory language according to its interpretation of the words used and its appreciation of the will of Parliament as indicated by the use of those words in the context in which they are used.

The statutory context

23. Section 253E appears in Division 6 Part 2G.4 of the Corporations Act which contains provisions about voting at meetings of members of registered managed investment schemes. One of the essential characteristics of such a scheme is that it has a “responsible entity” which is an appropriately licensed public company. A responsible entity is subject to statutory duties set out in s 601FC(1). These include a duty to act honestly (s 601FC(1)(a)), a duty to exercise a particularly described degree of care and diligence (s 601FC(1)(b)) and a duty to act in the best interests of the scheme’s members and, in case of conflict between its own interests and members’ interests, to give priority to the latter (s 601FC(1)(c)). In addition, s 601FC(2) states that a responsible entity holds scheme property on trust for scheme members. A responsible entity holding scheme property is, by that provision, subjected to the general law duties of a trustee (with scheme members as beneficiaries) except, no doubt, to the extent, if any, to which such fiduciary duties may be modified by the statute itself.

24. There is thus a clear statutory preoccupation with the role of a responsible entity as a guardian and protector of the interests and welfare of members and, as necessary, with subordination of any conflicting interest of the responsible entity itself. It was with these aspects of a responsible entity’s role at the forefront of thinking that s 253E was formulated.

23. The section obviously applies where a responsible entity holds units as a member of the scheme and, in addition, has some non-member interest in a resolution or other matter that comes before a meeting of members. The responsibilities stemming from its statutory and general law duties would, of their nature, require it to subordinate that non-member interest in the context of the meeting. The statute goes a step further. It enacts a compulsory form of such subordination (or reinforces the subordination obligation) by removing the entitlement to exercise voting rights that might otherwise enable or tempt disregard of the responsibility.

24. The extension of the voting disentitlement to “associates” of the responsible entity is explicable by reference to a preoccupation with the kinds of control, influence, conscious parallelism, commonality of objective and cooperation that underlie the relevant definition of “associate”. It will be necessary to return to this.

The statutory language – “they” and “their”

27. With the context in which s 253E is placed thus identified, it is necessary to turn to the words and to AMP Life’s contention that, having regard to those words alone, the primary judge should have held that it is the “narrower construction” rather than the “broader construction” that is the correct construction.

28. AMP Life maintains that it is incorrect to treat the words “the responsible entity and its associates” in s 253E as referring to a “block” and as favouring what the primary judge called “a collective – over a severable – construction”; nor should the words “they” and “their” in the first sentence be seen as referring to “the responsible entity and its associates collectively”.

29. AMP Life refers to several sections of the Act which, it says, employ “they” to refer to a single person or entity (the sections mentioned are s 231, s 252Y(4), s 253A(2), s 253C(2), s 253E (note), s 253H, s 601FC(1)(b) and s 601JJ(1)). Furthermore, the references to “their” interest can only have in contemplation the interest of a single person since otherwise the provision would be addressing the highly improbable situation where the responsible entity and the totality of its associates were together, and without exception, the joint holders of particular units making up “their interest” (singular). Likewise, the “block” construction would bring about disenfranchisement only in the most unlikely case where the responsible entity and the totality of its associates together had a single extraneous or non-member interest. If the legislature had intended “they” and “their” to refer to “all or any of” them, it would have used those very words – as it did in s 253B. Furthermore, the “block” approach does not sit happily with the words “other than as a member” at the end of the first sentence of s 253E. On that “block” approach, “as a member” there would properly be “as members”. Finally on this aspect, AMP Life says that the plural forms “they” and “their” are explicable simply on the basis of a desire to adopt gender neutral terminology and to avoid the clumsy “he, she or it” and “his, her or its”.

30. The first and last of these points may be considered together. The first sentence of s 253E was introduced into the then Corporations Law by the Company Law Review Act 1998 (Cth). The second sentence was added by the Corporate Law Economic Reform Program Act 1999 (Cth). Earlier in that decade, a particular style of drafting had been adopted for Commonwealth company law statues. The style had been championed by the Corporate Law Simplification Taskforce and was explained in a paper entitled “A singular use of THEY” written by the late Dr Robert Eagleson and published by the Taskforce in September 1995. [4] The paper began:

    4. The paper is available at

“In the First and draft Second Corporate Law Simplification Bills, ‘they’ has been used to refer to an indefinite noun, rather than the traditional legal ‘he’ or the cumbersome ‘he or she’. Proposed new subsection 242(5) in Schedule 6 of the First Bill, for instance, reads:

‘A person is entitled to have an alternative address included in notices under subsections (1), (2) and (8 ) if:

(a) their name, but not their residential address, is on an electoral roll … ‘

This paper sets out the reasons for this decision.”

31. As this description of it makes clear, the decision was that the plural pronoun should be used when referring to a singular indefinite noun. As a result, for example, s 253C(2) (one of the provisions instanced in submissions) says that, on a poll, “each member of the scheme has 1 vote for each dollar of the value of the total interests they have in the scheme” [emphasis added]. The singular “each member” – whether masculine, feminine or neuter – is comprehended by the following “they”. Likewise, to take another example referred to in submissions, s 252Y(4), dealing with proxies, says that “the person” (who may be a man, a woman or a non-human entity) “can cast any votes they hold as a member” [emphasis added].

32. In the first sentence of s 253E, “they” or “their” do not refer back to an indefinite singular noun such as “member” or “person”. “They” or “their” does not play the role that would otherwise be played by “he, she or it” or “his, her or its”. The word “their”, in each place in which it appears in s 253E, refers back to the responsible entity “and” its associates and thus to a plurality of persons. It deals with both species of “their interest”, that is, (a) the “interest” (in terms of the s 9 definition of “interest”) stemming from or referable to the holding of units and the status of member, and (b) the “interest in the resolution or matter other than as a member”. In neither place would substitution of “his, her or its” for “their” produce a meaningful result. It cannot be said that the drafting technique to which Dr Eagleson’s paper refers was employed in s 253E.

33. There is then the argument that the two references to “their” interest (singular) in the first sentence necessarily have in contemplation the sole interest of a single person since otherwise the provision deals only with the improbable cases to which reference has already been made, that is, where the responsible entity and its associates together hold all the units making up their “interest” in the s 9 sense or have a single and shared extraneous or non-member “interest”.

34. That is not what the words say. In the first of the references to the “interest” of the responsible entity “and” its associates in the first sentence (that is, in the case of a so-called “trust-based” scheme such as the present, the s 9 “interest” constituted by the holding of units of the unit trust), the section directs identification of the units which are the source of voting rights vested in any one or more of the members of the group described. Thus, if the responsible entity (A) holds 100 units, an associate (B) holds 200 units, another associate (C) holds 300 units and two remaining associates (D and E) do not hold units, the “interest” of the responsible entity “and” its associates (five entities in all) consists of 600 units, even though each, viewed as an individual, holds fewer than that number (or no units at all) and none of the holdings is a joint holding. And the disentitlement expressed to operate upon the responsible entity “and” its associates (being the five persons, A, B, C, D and E in the example given) affects the totality of the persons in such a way that those of them who actually have the right to vote some of the total holding (that is, A as to 100 units, B as to 200 and C as to 300) are denied the entitlement to exercise that right.

35. In the same way, the question of the existence of an “interest in the resolution or matter other than as a member” (a so-called extraneous or non-member interest) on the part of the responsible entity “and” its associates can quite sensibly be approached by looking at the individual circumstances of each member of that group of entities to discover whether any of them has an interest additional to those which every member has by virtue of being a member. The “interest”, in this sense, of a “member” (singular) is an interest in the relevant subject matter traceable solely to the status of member and shared in common by members by virtue of membership alone. If one, two or more persons within the group consisting of the responsible entity and its associates do have an interest that differs from that common interest, the question whether “they” (that is, the responsible entity and its associates) have an “interest in the resolution or matter other than as a member” is answered in the affirmative. The argument that the “block” approach does not sit happily with the use of the singular “as a member” (rather than the plural “as members”) at the end of the first sentence of s 253E breaks down when it is recognised that the singular form is used merely to identify the common interest shared by all members.

36. In summary, the submissions of AMP Life based exclusively on textual features are unpersuasive. The construction that commended itself to the primary judge is clearly open on the words and, as a matter of grammar and syntax, is demonstrably superior to that for which AMP Life contends.

The “prophylactic purpose”

37. The “prophylactic purpose” of s 253E, as seen by the primary judge, is stated at [13] above. The passage in the judgment of Steytler P (McLure and Pullin JJA agreeing) in Southern Wine Corporation Pty Ltd v Perera (above) at [21] to which his Honour referred in that connection is as follows:

“It seems plain enough that, when read in its context and having regard for its legislative history, s 253E was designed to ensure that the responsible entity, in voting on a resolution, would not put its own interest, arising independently of its membership of the scheme, ahead of that of other members, to their potential detriment. It is, of course, true that the section is not limited in its operation to cases of an actual conflict of interest. The section provides that the responsible entity cannot vote its interest on a resolution where it has any interest in the resolution or matter other than as a member. However, there could have been no other purpose behind that provision than that of removing the potential for a conflict of interest.”

38. In the passage set out at [13] above, the primary judge explained extension of the voting disentitlement to a responsible entity’s “associates” by reference to a need to preserve a policy that might be circumvented if associates were able to vote in the manner in which the responsible entity would desire. He referred to the “potential” for members other than the responsible entity itself which are associates of that responsible entity to vote “by reference to the association” rather than “by reference to their own independent interests”. He also referred to the “risk” that one member of the group consisting of the responsible entity and its associates might vote by reference to the interest of another member of that group. Dealing with the particular circumstances of this case, the primary judge said (at [41]):

“The potential mischief addressed in this context is that the common parent AMP Limited could theoretically decide that it is in the interests of the group to retain the revenue from the responsible entity, and exercise its control of AMP Life to cause it to vote in favour of that outcome regardless of what might be AMP Life’s interest as a member.”

39. AMP Life submitted on appeal that the apprehension of concerted action of associates to procure a result benefitting one or more of them but not necessarily directly benefitting the other or others does not dictate the conclusion his Honour reached. It is sufficient, according to the submission, that the member of the group having the extraneous or non-member interest be precluded from exercising its own voting rights. In taking a purposive approach to construction of s 253E, it is therefore necessary to look at the applicable “associate” concept and to the role it plays. [5]

    5. Use of an “associate” concept to aggregate or tie together distinct persons according to shared objective or some capacity to control, influence or derive benefit is widespread in our statutes. See, for example, Elliot v Secretary, Department of Education, Employment and Workplace Relations [2008] FCA 1293; 249 ALR 182 concerning social security legislation. In the commercial field, the “associate” concept has long found a place in legislation regulating aggregation of company shareholdings, restricting foreign ownership of shares and assets, controlling levels of ownership of media enterprises and prohibiting forms of anti-competitive conduct. It is also extensively used in taxation legislation.

40. As stated above, it is the modified form of s 12(2) of the Corporations Act dictated by s 12(3) and s 12(5) that identifies “associates” of a responsible entity for the purposes of s 253E. This is because the subject dealt with by s 253E is, as referred to in s 12(1)(b)(i), restriction of the power to exercise votes attached to the interest of a person (called, in s 10(1), the “primary person”) in a registered managed investment scheme. The relevant provisions within s 12 are accordingly as follows [6] :

    6. Section 16(1) enacts certain exclusions, none of which is relevant to this case.

“(1) Subject to subsection 16(1), but despite anything else in this Part, this section applies for the purposes of interpreting a reference to an associate (the associate reference), in relation to a designated body, if:

(a)   the reference occurs in a provision of Chapter 6, 6A, 6B or 6C; or

(b)   the reference occurs in a provision outside those Chapters that relates to any of the following matters:

(i)   . . . ;

    (ii)   the primary person’s voting power in the designated body;

(iii)   . . . ;

(iv)   . . . ;

(v)   . . . ;

(vi)   . . . .

(2) For the purposes of the application of the associate reference in relation to the designated body, a person (the second person) is an associate of the primary person if, and only if, one or more of the following paragraphs applies:

(a)   the primary person is a body corporate and the second person is:

(i)   a body corporate the primary person controls; or

(ii)   a body corporate that controls the primary person; or 

    (iii)   a body corporate that is controlled by an entity that controls the primary person;

(b)   the second person is a person with whom the primary person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing the composition of the designated body’s board or the conduct of the designated body’s affairs;

(c)   the second person is a person with whom the primary person is acting, or proposing to act, in concert in relation to the designated body’s affairs.

(3) For the purposes of the application of this section in relation to a designated body that is a managed investment scheme:

(a)   a reference to controlling or influencing the composition of the designated body’s board is taken to be a reference to controlling or influencing:

    (i)   if the scheme is a registered scheme—whether a particular company becomes or remains the scheme’s responsible entity; or

(ii)   . . . ; and

(b)   a reference to voting shares in the designated body is taken to be a reference to voting interests in the managed investment scheme.

(4)   . . .

(5) In this section:

designated body means:

(a)   . . . ; or

(b)   a managed investment scheme.”

41. For the purpose of identifying “associates” of a scheme’s responsible entity, the adapted form of the s 12(2) definition made applicable by s 12(1)(b)(ii) concentrates on:

(a)   “control” exercised by the scheme’s responsible entity upon another entity;

(b)   “control” exercised by another entity upon the scheme’s responsible entity;

(c)   “control” exercised upon an entity that exercises “control” upon the scheme’s responsible entity;

(d)   the existence or proposed existence of an agreement, arrangement or understanding with another entity having the purpose of “controlling” or “influencing” whether a particular company becomes or remains the responsible entity of the scheme; and

(e)   whether another entity is acting (or proposes to act) “in concert with” the scheme’s responsible entity in relation to the affairs of the scheme.

42. Each such aspect of “associate” status is concerned with a situation that has the potential to bring some direct or indirect influence to bear on the responsible entity’s decision-making. Viewed broadly, the focus is upon control in fact, control or influence sourced in some kind of consensual compact and the pursuit of some form of common or shared purpose. An “associate” of the responsible entity is, in general concept, someone who can exert influence over that entity or whose independence of thought or action might be actually or potentially compromised by either the responsible entity or some other entity that exerts influence over the responsible entity. The concept is, in a real sense, concerned with the sphere of influence within which the responsible entity exists and operates.

43. Examples will illustrate the point. Assume that the responsible entity is a wholly owned subsidiary of another company which accordingly has power to cause the responsible entity to act as it wishes and has an obvious interest in the financial welfare of the responsible entity. That other company will be an associate of the responsible entity by operation of s 12(2)(a)(ii). Assume also an enforceable agreement between the responsible entity and another company that the responsible entity will in certain defined events seek to be relieved of its office so that the other company may take its place. That other company will be an associate of the responsible entity through s 12(2)(b). In both these hypothetical cases, there is clear potential interest other than interests as a member to cause the voting rights exercisable by either the responsible entity or the other company to be exercised in a manner that would not have been adopted had the particular relationship not existed, being a manner that involves compromise of the voter’s objectivity and independence. In the first case, exercise of voting rights by the responsible entity will necessarily be subject to the possibility of influence by the wishes of the company of which it is a wholly owned subsidiary even if the formal powers at the disposal of the holding company are not brought to bear; and if it is the exercise of votes by the holding company that is in issue, conduct may be influenced by considerations concerning the financial welfare of the responsible entity which is a source of dividends and balance sheet strength for the holding company. In the second case, exercise of voting rights by the responsible entity or by the other party to the agreement may be influenced by a desire to bring about (or avoid) one of the events relevant to availability of the other party’s right under the agreement.

44. By paying attention to the interest that not only the responsible entity but also its associates have in the resolution or matter before a meeting “other than as a member”, s 253E manifests an intention to deal with every interest of that kind at work within the group as a whole and to regulate accordingly the conduct of the group as a whole. The group is identified by means of the various circumstances of influence inherent in the applicable s 12 specifications. It is the totality of the relevant influences that delineates the group and thereby serves the prophylactic purpose to which the primary judge referred. Since, as discussed at [23]-[26] above, the creation of the s 253E disentitlement in relation to the responsible entity underwrites the statutory and fiduciary duties of the responsible entity, extension of the disentitlement to associates of the responsible entity ensures that that effect is not compromised by allowing allied interests nevertheless to influence voting.

42. AMP Life submitted that, while s 253E doubtless has a prophylactic purpose, this construction cannot be accepted because, in the particular circumstances of the case, it produces two forms of prejudice or adverse effect that should be presumed not to have been intended by the legislature. Discussion of those submissions follows.

Expropriation

46. Counsel for AMP Life referred to what was described by Barwick CJ, in Wade v NSW Rutile Mining Co Pty Ltd [1969] HCA 28; 121 CLR 177 at 181, as “the fundamental principle that if Parliament intends to derogate from the common law right of the citizen it should make its law in that respect plain”. Having added that, in construing a statute, that principle “is pertinent to the question whether any such implication should be sought to be made”, Barwick CJ continued:

“The courts are not entitled, and ought not, to eke out a derogation of such private rights by implications not rendered necessary by the words used by Parliament but merely considered to be consistent with the policy which the courts conclude or suppose the Parliament to have intended to implement.”

47. Reference was also made to Clunies-Ross v The Commonwealth [1984] HCA 65; 155 CLR 193 (a case concerning a statutory power to “acquire land for a public purpose”) in which it was held that the Executive exceeded its power by acquiring land otherwise than with a view to devoting it to some identified public purpose. Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ said (at 199-200):

“If the power to acquire for a public purpose which the Act confers is construed as extending to purposes quite unconnected with any need for or future use of the land, the ministerial power thereby created would be surprisingly wide in that, subject only to monetary compensation, it would encompass the subjection of the citizen to the compulsory deprivation of his

land, including his home, by executive fiat to achieve or advance any ulterior purpose which was a purpose in respect of which the Parliament has power to make laws…. It is, in our view, unlikely that the Parliament would have intended to confer such a power other than by the use of clear words to that effect and subject to stringent and specially framed controls or safeguards against its abuse.”

48. It may readily be accepted that confiscatory or expropriating legislation will be strictly construed and that a construction that interferes with or removes existing rights is permissible only if clearly directed. The problem for AMP Life is that s 253E does not interfere with or restrict existing rights in the way complained of in the High Court cases, that is, by specific decision or act concerning a person’s rights derived from the general law or from statute. Rather, a particular provision concerning a particular type of investment fund regulated by statute defines an attribute that will come to be possessed by every interest in every such fund and to which every investor will accordingly be subjected if, at any time, a certain state of affairs emerges. Section 253E applies in relation to a particular registered managed investment scheme immediately the scheme comes into existence but does not disentitle exercise of any scheme member’s voting rights unless and until a circumstance of the kind it describes arises. No confiscatory decision or act expropriates voting rights. Disentitlement to exercise such rights results from a combination of circumstances. The possibility that disentitlement will arise because such circumstances come into existence inheres in every scheme interest.

49. The material before the Court does not show whether AMP Life acquired its units in the particular scheme before or after AMP Capital came to be controlled by AMP Limited. It may be that both AMP Life and AMP Capital were controlled by AMP Limited before the scheme came into existence and before AMP Life became the holder of any interest in it. If that is so, AMP Life elected to take units which, as it were, already carried within them whatever disadvantage, in terms of voting, was produced according to the proper construction of s 253E; and if the precise effect of the section was then considered unclear, the perceived lack of clarity was one of the features of the disadvantage voluntarily assumed.

50. If, on the other hand, control of either or both of AMP Life and AMP Capital by AMP Limited came into existence after AMP Life had acquired units, there was a different working out of the statutory scheme according to the reality that pre-existing units always carried within them the possibility that the s 253E voting disadvantage would emerge if any of a number of circumstances beyond the control of AMP Life came into existence in the future.

51. The analogy that AMP Life seeks to draw with the expropriation cases is not a valid analogy. The particular principles of construction that those cases emphasise do not operate here to qualify or call in question the construction of s 253E that emerges from the words of the enactment viewed in the light of their prophylactic purpose.

Responsibilities as a life insurer

52. Counsel for AMP Life drew attention to the fact that AMP Life, as an insurer registered under the Life Insurance Act 1995 (Cth), has important obligations both under that Act and at general law to act in the interests of its policyholders. The units held by AMP Life are assets of statutory funds constituted in accordance with the Life Insurance Act. Particular reference was therefore made in submissions to two sections of that Act. The first is s 32(1):

“In the investment, administration and management of the assets of a statutory fund, a life company:

(a)  must comply with this Part; and

(b)  must give priority to the interests of owners and prospective owners of policies referable to the fund.”

53. To substantially like effect is s 48 which applies, in terms, to the directors of a life insurer. That section provides as follows in sub-ss (1) and (2):

“(1)  A director of a life company has a duty to the owners of policies referable to a statutory fund of the company.

(2)  The director's duty is a duty to take reasonable care, and use due diligence, to see that, in the investment, administration and management of the assets of the fund, the life company

(a) complies with this Part; and

(b)  gives priority to the interests of owners and prospective owners of policies referable to the fund.”

54. As counsel for AMP Life pointed out, these duties are preserved and safeguarded by s 1348 of the Corporations Act which states that nothing in that Act “is taken to affect any of the provisions of the Life Insurance Act 1995”.

55. It may be accepted that any provision of the Corporations Act that had the effect of impeding performance of any duty imposed by s 32 or s 48 of the Life Insurance Act would, by force of s 1348, be “read down” so as to remove the impediment. But s 253E is not an impeding provision. If interests in a registered managed investment scheme are assets of a life insurer’s statutory funds, those assets are at all times inherently susceptible to the disentitlement upon voting that s 253E effects in given circumstances. Neither the insurer nor any of its directors defaults in the performance of any duty just because the assets fall victim to the inherent susceptibility – although default might occur in the extremely unlikely (even fanciful) event of positive action knowingly and deliberately taken specifically to cause the disentitlement to arise. There is no suggestion that that is the case here.

Conclusion

56. The primary judge’s decision was correct for the reasons his Honour gave. Having regard to the statutory language and the purpose of s 253E (described by the judge as a “prophylactic purpose”), he was right to construe the section in the way he did. Section 253E proceeds on the basis that the existence of an extraneous or non-member interest on the part of any one or more of the responsible entity and its associates in a resolution or other matter to be considered at a meeting is a factor that should neutralise the voting power of all those persons. The potential for the exercise within that group of influence sourced in the various kinds of connections on which the associate concepts are based warrants the exclusion of the votes of all members of the group.

Costs

57. The primary judge held that the application for judicial advice (or, in the alternative, declaratory relief) was reasonably made by AMP Capital and that AMP Life and LIM were necessary parties so that there were contradictors and potentially competing interests could be heard; also that, given the state of the case law, AMP Life’s opposition was reasonable. The analogy with a “testator’s fault” case [7] was therefore seen as valid and it was ordered not only that AMP Capital be indemnified for its costs out of the fund but also that it pay the costs of both AMP Life and LIM with indemnity also for those costs out of the fund.

    7. There is a long line of authority to the effect that, where probate litigation has been caused by or contributed to by the way in which the testator made their intentions known, it is appropriate that the estate bear the costs of all parties. In Fielder v Burgess [2014] SASC 98 at [61], Kourakis CJ questioned this approach, saying that it is not obvious why a testator’s fault in the making of a will should result in loss to the successful party to litigation over the estate.

58. This Court upheld the substantive decision of the primary judge. On the basis that costs follow the event (Uniform Civil Procedure Rules 2005 (NSW), rule 42.1), there would be an order that, as between the active protagonists on appeal (AMP Life and LIM), the unsuccessful party pay the costs of the successful party. AMP Life submits, however, that, the “testator’s fault” analogy should again be applied so that it is not ordered to pay LIM’s costs and both protagonists have their costs out of the fund (there can be no real dispute that AMP Capital, as trustee, should be indemnified out of the fund for its costs of the appeal).

59. The general rule applicable to trust disputes is that a beneficiary who unsuccessfully appeals a decision concerning the proper construction of the trust instrument is liable to pay costs, unless there are circumstances which warrant a relaxation of the general rule: Gale v Gale [1914] HCA 53; 18 CLR 560 at 574; Trustees Executors and Agency Company Ltd v Ramsay [1920] HCA 2; 27 CLR 279 at 285; Currie v Glen [1936] HCA 1; 54 CLR 445 at 451; Fowler v Nield (1961) 61 SR (NSW) 152 at 161. The following recent summation of the position appears in the judgment of Kyrou JA, McLeish JA and Ginnane AJA in Wales v Wales (No 2) [2015] VSCA 365 at [6]:

“As a matter of principle, a distinction is to be drawn between proceedings at first instance and those on appeal. The usual rule, where a beneficiary appeals unsuccessfully against a decision in favour of a trustee, is that the beneficiary will be ordered to pay the costs of the appeal. An unsuccessful appellant, including a trustee, is not presumed to be entitled to have their costs of an appeal paid out of a trust estate even if those costs were so paid at first instance.”

60. As was pointed out by this Court in Tobin v Ezekiel [2012] NSWCA 285; 83 NSWLR 757 at [128], the appellate proceedings, unlike the proceedings at first instance, involve a challenge to the judgment of the primary judge and cannot be characterized as a response to the circumstances that existed before the first instance proceedings. An appellant is entitled to test the primary judge's decision but not at the expense of the respondent: Lippe v Hedderwick [1922] HCA 44; 31 CLR 148 at 154–155; Re Blyth (deceased) [1959] NZLR 1313 at 1314; Re McIntyre [1993] 2 Qd R 383 at 388.

61. In the present case, the circumstances that warranted the “testator’s fault” analogy at first instance were absent on appeal. The decision of the primary judge was a comprehensive and closely reasoned decision which dealt decisively with the issue of construction on which the protagonists took different views (supported, in some measure, by isolated observations in earlier first instance judgments). This Court upheld his Honour’s decision for the reasons he gave, albeit with some elaboration of those reasons. LIM successfully defended the judge’s reasoning and AMP Life’s attempt to impugn it did not succeed. In those circumstances, and having regard to both rule 42.1 and the general rule regarding appeals in trust cases to which reference has been made, AMP Life should pay LIM’s costs.

62. Accordingly, the orders of the Court, in addition to the order of 22 July 2016 dismissing the appeal, should be:

Order that the first respondent be indemnified for its costs of the appeal out of the assets of the AMP Capital China Growth Fund.

Order that the second respondent’s costs of the appeal be paid by the appellant.

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Endnotes

Decision last updated: 26 July 2016