Application of MLC Investments Limited

Case •

[2022] NSWSC 1541

•

10 November 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Application of MLC Investments Limited [2022] NSWSC 1541
Hearing dates: 8 November 2022
Date of orders: 8 November 2022
Decision date: 10 November 2022
Jurisdiction:Equity - Commercial List
Before: Stevenson J
Decision:

Consent given pursuant to s 249E of the Crimes Act 1900 (NSW)

Catchwords:

EQUITY – trust and trustees – managed investment schemes – where plaintiff seeks to retire as the responsible entity and trustee of the schemes – where application made by plaintiff for Supreme Court consent pursuant to s 249E of the Crimes Act 1900 (NSW) and similar provisions in other state jurisdictions to the soliciting and receiving, and the offering and giving, of a benefit as an inducement or reward for the appointment of a person to be a person entrusted with the trust property

Legislation Cited:

Court Suppression and Non-Publication Orders Act 2010 (NSW)

Crimes Act 1900 (NSW)

Crimes Act 1958 (Vic)

Criminal Code Act 1899 (Qld)

Criminal Code Act Compilation Act 1913 (WA)

Interpretation Act 1987 (NSW)

Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW)

Jurisdiction of Courts (Cross-vesting) Act 1987 (Qld)

Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic)

Jurisdiction of Courts (Cross-vesting) Act 1987 (WA)

NSW Trustee and Guardian Act 2009 (NSW)

Supreme Court Act 1970 (NSW)

Cases Cited:

BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund [2022] NSWSC 401

H.E.S.T Australia Ltd (in its capacity as trustee for the HESTA Superannuation Fund) v Attorney-General (Qld); Mercy Super Pty Ltd v Attorney-General (Qld) [2022] QSC 221

He Kaw Teh v The Queen (1985) 157 CLR 523; [1985] HCA 43

Mehajer v R [2014] NSWCCA 167

Morice v Bishop of Durham (1804) 9 Ves Jun 399

Palmer v Ayres; Ferguson v Ayres (2017) 259 CLR 478; [2017] HCA 5

Texts Cited:

A Silink, “Corrupt benefits for trustees – Is the presumption of mens rea rebutted in s 249E of the Crimes Act 1900 (NSW), and if not, what is the mens rea to be implied?” (2022) University of New South Wales Law Research Series 20

M S Donald, “Playing ball with s 249E of the NSW Crimes Act 1900” (2022) 33 Australian Superannuation Law Bulletin 91

New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 26 May 1987

Victorian Legislative Assembly, Parliamentary Debates (Hansard), 25 July 2015

Category:Principal judgment
Parties: MLC Investments Limited (ACN 002 641 661) (Plaintiff)
Representation:

Counsel:
A Smith (Plaintiff)

Solicitors:
MinterEllison (Plaintiff)
File Number(s): 2022/321675

JUDGMENT

  1. On 8 November 2022, I made the following orders:

  1. An order, pursuant to s 249E of the Crimes Act 1900 (NSW), [1] that the Court consents [2] to the plaintiff soliciting and receiving the Implementation Expenses (described at par 82 of the affidavit of Amna Khan dated 27 October 2022) from JANA Investment Advisors Pty Ltd (“JANA”) and JANA offering and giving the Implementation Expenses to the plaintiff;

  2. An order, pursuant to s 249E of the Crimes Act, that the Court consents to the plaintiff soliciting and receiving the Indemnities (described at pars 88-92 of the affidavit of Amna Khan dated 27 October 2022) from Channel Investment Management Limited (“CIML”); and CIML offering and giving the Indemnities to the plaintiff; and

  3. An order pursuant to ss 7 and 8(1)(a) and (e) of the Court Suppression and Non-Publication Orders Act 2010 (NSW), that until further order of the Court, the confidential exhibit to the affidavit of Amna Khan dated 27 October 2022 is not to be disclosed (by publication or otherwise) to any person or entity, except to:

a.   the judge case-managing and/or hearing the proceeding or any appeal therefrom; and

b.   the plaintiff and its legal representatives.

1. And the similarly worded legislation in s 180 of the Crimes Act 1958 (Vic), s 535 of the Criminal Code Act Compilation Act 1913 (WA), s 442F of Sch 1 to the Criminal Code Act 1899 (Qld), s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), s 4 Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic), s 4 Jurisdiction of Courts (Cross-vesting) Act 1987 (WA) and s 4 Jurisdiction of Courts (Cross-vesting) Act 1987 (Qld). For simplicity, I will refer only to s 249E of the Crimes Act.

2. The word “assents” is used in the cognate legislation, but nothing turns on the difference: see, for example, New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 26 May 1987 at 12407-9 and Victorian Legislative Assembly, Parliamentary Debates (Hansard), 25 July 2015 at 514.

  1. These are my reasons for making those orders.

  2. The application before me was made pursuant to s 249E of the Crimes Act [3] for the Court’s consent to the soliciting and receiving by the plaintiff, MLC Investments Limited (“MLC”), and the offering and giving to MLC, of a benefit in the context of a transaction involving several managed investment schemes.

    3. And the legislation referred to at above n 1.

  3. Section 249E of the Crimes Act provides:

“249E Corrupt benefits for trustees and others

(1)   In this section, a reference to a person entrusted with property is a reference to—

(a)   a trustee of the property,

(b)   an executor or administrator appointed for the purpose of dealing with the property,

(c)   a person who, because of a power of attorney or a power of appointment, has authority over the property, and

(d)   a person managing or administering the property (or appointed or employed to manage or administer the property) under the NSW Trustee and Guardian Act 2009.

(2)   Any person who offers or gives a benefit to a person entrusted with property, and any person entrusted with property who receives or solicits a benefit for anyone, without the consent—

(a)   of each person beneficially entitled to the property, or

(b)   of the Supreme Court,

as an inducement or reward for the appointment of any person to be a person entrusted with the property, are each liable to imprisonment for 7 years.

(3)   In this section, a reference to the appointment of a person includes a reference to—

(a)   joining in the appointment of the person, and

(b)   assisting in the appointment of the person.

(4)   Proceedings for an offence under this section shall not be commenced without the consent of the Attorney General.

(5)   A consent to commence any such proceedings purporting to have been signed by the Attorney General is evidence of that consent without proof of the signature of the Attorney General.” (Emphasis in original.)

  1. MLC is the responsible entity of 19 registered managed investment schemes and is the trustee of 18 unregistered management investment schemes.

  2. MLC wishes to retire as the responsible entity of the registered schemes and as the trustee of the unregistered schemes in favour of CIML. This course has been recommended to MLC by JANA, the investment adviser for each of the schemes.

  3. MLC has come to the conclusion that its retirement as responsible entity and trustee is in the best interests of scheme members because CIML can offer scheme members lower costs, more flexibility in their investment options and improved technology resulting in faster implementation of their instructions.

  4. In implementing the proposal, MLC has, or is expected to incur, certain disbursements to third parties likely to be in the vicinity of between $560,000 and $600,000: the “Implementation Expenses” referred to in the first order made on 8 November 2022.

  5. MLC is entitled to be indemnified out of the scheme property for the Implementation Expenses. However, in order to avoid the burden of these expenses falling on scheme members, it is proposed that JANA reimburse MLC for the Implementation Expenses.

  6. In addition, it is proposed that CIML provide the “Indemnities” referred to in the second order I made on 8 November 2022. These are to be provided under a proposed Implementation Deed and a separate Deed of Retirement and Appointment to be entered into by MLC, CIML and JANA. The Indemnities are in respect of “Claims” as defined in those documents and are limited in scope to the extent that MLC already has a right of indemnity out of the relevant scheme assets.

  7. MLC apprehends that s 249E of the Crimes Act, and the cognate legislation to which I have referred, may stand in the way of that course. That is because, as I have set out, those provisions make it a crime for a person entrusted with property to receive or solicit, or for another person to offer or give that person, a benefit as an inducement or reward for the appointment of a new trustee without the consent of the beneficiaries, or of the Court.

  8. MLC proposes that a resolution be passed by members of each of the registered schemes to make CIML the new responsible entity, and that a unanimous unitholder consent be given by the unitholders in each of the unregistered schemes to make CIML the new trustee. However, the evidence reveals that it may not be possible to obtain the consent of all of the members. Thus, MLC instead seeks the consent of the Court.

  9. I think MLC is correct to submit that, having regard to the broad terminology of s 249E of the Crimes Act, the proposed conduct would likely fall within the ambit the section. That is because JANA and CIML are offering to give the benefit of the Implementation Expenses and the Indemnities to MLC and MLC is proposing to receive, if not solicit, those benefits. A similar conclusion was reached by Ball J in his Honour’s consideration of s 249E in BT Funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation Fund,[4] albeit in relation to a transaction known as a “successor fund transfer”.

    4. [2022] NSWSC 401.

  10. I also think it likely that such a benefit should be characterised as an “inducement or reward” for the appointment of CIML as the new responsible entity and trustee.

  11. In that regard, MLC seeks a declaration pursuant to s 75 of the Supreme Court Act 1970 (NSW), or in the Court’s inherent jurisdiction, that, contrary to the view I have expressed in [14], the Indemnities do not constitute an “inducement or reward” for the purposes of s 249E of the Crimes Act and the cognate legislation to which I have referred. I will turn to this below.

Is a “corrupt” intention necessary?

  1. The actus reus of s 249E of the Crimes Act is that a party “offers or gives a benefit to a person entrusted with property” or that such a person “receives or solicits a benefit for anyone” without the requisite consent.

  2. A question arises as to the mental element necessary to enliven s 249E and the cognate provisions interstate.

  3. The common law presumes that “mens rea is an essential element in every statutory offence unless, having regard to the language of the statute and to its subject matter, it is excluded expressly or by necessary implication”. [5]

    5. He Kaw Teh v The Queen (1985) 157 CLR 523 at 566 (Brennan J) (to similar effect, Gibbs CJ at 528 and Wilson J at 549); [1985] HCA 43.

  4. There is no wording in s 249E to suggest a legislative intention to exclude mens rea. It is therefore clear that s 249E cannot be construed as creating a strict liability statutory offence conditional on offering or giving a benefit without consent.

  5. Further, the section is not directed to parties having a general intent to offer, give, receive or solicit a benefit without consent. Rather, it is directed to circumstances where, as here, the parties have a specific intent to offer, give, receive or solicit a benefit as an inducement or reward for the appointment of the person to be entrusted with property.

  6. As to the requisite mens rea, there are two remaining possibilities, namely that there be:

  1. a specific intent to offer, give, receive or solicit a benefit without consent as an inducement or reward for the appointment of any person to be a person entrusted with property; or

  2. a specific intent to offer, give, receive or solicit a benefit without consent as an inducement or reward for the appointment of any person to be a person entrusted with property, where that purpose is dishonest or corrupt in some way.

  1. There is, obviously, no question here of MLC having any corrupt purpose. Therefore, if the mental element in s 249E is the third, rather than the second of these possibilities, s 249E is simply not engaged, and there is no call for the Court to intervene.

  2. In his Honour’s recent decision in BT Funds Management Limited, Ball J did not, in terms, give this question consideration. However, his Honour’s reasoning clearly proceeds upon the basis that a corrupt purpose is not an element of the offence. Thus, his Honour concluded that s 249E, and its cognate provisions interstate, “are broad enough to catch the payments or benefits” there under consideration [6] and accepted that the inducements there given were in the best interests of members, without any suggestion of corruption or dishonesty. [7]

    6. At [13].

    7. At [21].

  3. Differing opinions have recently been expressed in academic literature about this question. [8]

    8. See A Silink, “Corrupt benefits for trustees – Is the presumption of mens rea rebutted in s 249E of the Crimes Act 1900 (NSW), and if not, what is the mens rea to be implied?” (2022) University of New South Wales Law Research Series 20; cf M S Donald, “Playing ball with s 249E of the NSW Crimes Act 1900” (2022) 33 Australian Superannuation Law Bulletin 91.

  4. Section 249E is within Pt 4A of that Act, which is headed “Corruptly receiving commissions and other corrupt practices”. That heading is taken to be a part of the Act. [9]

    9. Interpretation Act 1987 (NSW), s 35(1).

  5. The heading to s 249E itself is “Corrupt benefits for trustees and others”. That heading is taken not to be a part of the Act[10] but remains available to interpret s 249E to the extent, relevantly, that s 249E might be thought to be “ambiguous or obscure”. [11]

    10. Ibid, s 35(2).

    11. Ibid, s 35(5) and s 34(1)(b)(i).

  6. However, the word “corruptly” is not used in the body of s 249E, and in particular, it is not used within the body of s 249E(2).

  7. This may be contrasted with s 249B of the Act, also within Pt 4A, which provides:

“249B Corrupt commissions or rewards

(1)    If any agent corruptly receives or solicits (or corruptly agrees to receive or solicit) from another person for the agent or for anyone else any benefit—

(a)   as an inducement or reward for or otherwise on account of—

(i)   doing or not doing something, or having done or not having done something, or

(ii)    showing or not showing, or having shown or not having shown, favour or disfavour to any person,

in relation to the affairs or business of the agent's principal, or

(b)    the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent's principal,

the agent is liable to imprisonment for 7 years.

(2)    If any person corruptly gives or offers to give to any agent, or to any other person with the consent or at the request of any agent, any benefit—

(a)    as an inducement or reward for or otherwise on account of the agent's—

(i)    doing or not doing something, or having done or not having done something, or

(ii)    showing or not showing, or having shown or not having shown, favour or disfavour to any person,

in relation to the affairs or business of the agent's principal, or

(b)   the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent's principal,

the firstmentioned person is liable to imprisonment for 7 years.

(3)    For the purposes of subsection (1), where a benefit is received or solicited by anyone with the consent or at the request of an agent, the agent shall be deemed to have received or solicited the benefit.” (Emphasis added.)

  1. That provision was considered by the Court of Criminal Appeal in Mehajer v R. [12]

    12. [2014] NSWCCA 167.

  2. In that case, Bathurst CJ concluded [13] that the mental element for a s 249B offence “is that the corrupt benefit is received … or given … as intending it as an inducement or reward on account of one of the purposes referred to in subs (i) and (ii)”. The Chief Justice noted that a “construction which gives no meaning to the word ‘corruptly’ could in theory catch a payment which was made by a person to another’s agent with the consent of the principal”. [14] The Chief Justice concluded that the word “corruptly” in the chapeau of s 249B had the effect of importing an element of dishonesty into the proscription of the section beyond merely having the requisite intention prescribed by it,[15] and thus that the mental element had two limbs: first, that the appellant gave the benefit intending it as an inducement and, second, that the payment was corrupt according to normally received standards of conduct.

    13. At [64] (with whom Johnson and R A Hulme JJ agreed).

    14. At [60].

    15. See [59]-[64].

  3. However, as I have said, the legislature has chosen not to use the word “corruptly” in s 249E.

  4. Additionally, s 249E(4) provides that proceedings for an offence under s 249E shall not be commenced without the consent of the Attorney General. That caveat is not present in other provisions of Pt 4A of the Crimes Act. This suggests that s 249E was intended to operate broadly and capture conduct which may not necessarily merit prosecution.

  5. Further, as this application demonstrates, s 249E(2) contemplates those beneficially entitled to the relevant property, or the Court, might consent to conduct of the kind proscribed in the section. If it were an essential element of the offence created by s 249E(2) that the person have a corrupt purpose, it is hard to see how such consent would or could ever be given.

  6. For those reasons, my conclusion is that a corrupt purpose is not an element of this statutory offence.

  7. Consequently, the requisite mens rea for the offence is a specific intent to offer, give, receive or solicit a benefit without consent as an inducement or reward for the appointment of any person to be a person entrusted with trust property. The content of s 249E itself, and especially subs (2), defines the conduct that is for this purpose “corrupt” and thus deserving of recognition as a criminal offence under the Crimes Act.

Does the Court have the power to make the orders sought?

  1. In BT Funds Management Limited, Ball J held that the power to make the orders sought is given “directly by s 249E(2)(b) of the Crimes Act”.

  2. It has, however, more recently been held that the cognate provision in Queensland should not be construed as creating a new jurisdiction of the court but rather as invoking the existing supervisory jurisdiction with respect to trust administration. [16] I do not find it necessary to express any opinion about this.

    16. See H.E.S.T Australia Ltd (in its capacity as trustee for the HESTA Superannuation Fund) v Attorney-General (Qld); Mercy Super Pty Ltd v Attorney-General (Qld) [2022] QSC 221 at [51] (Kelly J) citing Morice v Bishop of Durham (1804) 9 Ves Jun 399 at 404-405 and Palmer v Ayres; Ferguson v Ayres (2017) 259 CLR 478; [2017] HCA 5 at [84] (Gageler J).

  3. A further question is whether this Court has the power to make the orders sought in relation to the cognate provisions to s 249E of the Crimes Act in Victoria, Western Australia and Queensland. I agree with Ball J’s analysis of this question in BT Funds Management Limited [17] and with his Honour’s conclusion that the various cross-vesting statutes in this and those states confer on this Court the requisite power.

    17. At [15] to [17].

  4. In particular, I agree with Ball J’s conclusion that:

“The cross-vesting legislation does not give another State court jurisdiction with respect to ‘criminal matters’. That expression is not defined in the Acts. In my opinion, it must be interpreted as a reference to criminal prosecutions. It does not extend to an application for consent to conduct that would, absent the consent, be criminal. The application for that consent is an application for a decision which determines whether a matter is a criminal one. It is not itself a criminal matter.”[18]

18. At [17].

Consent under s 249E(2)(b)

  1. In BT Funds Management Limited, Ball J said:[19]

“The evident purpose of the Provisions is to prevent a trustee from being persuaded by the prospect of personal gain to exercise its power to appoint a substitute trustee. It would, therefore, normally be appropriate for the Court to give its consent to the proposed conduct if it was satisfied that the appointment of the new trustee was in the best interests of beneficiaries or if it was satisfied that the proposed conduct did not provide an inducement to the transferor to act other than in the best interests of the beneficiaries. In either case, the object of the prohibition contained in the Provisions would not be undermined.”

19. At [18].

  1. Again, I agree.

  2. I do not see these reasons as implying a “gloss” into the provision,[20] but rather, as a consideration of the circumstances relevant to the exercise of the Court’s discretion under s 249E(2).

    20. Cf M S Donald, “Playing ball with s 249E of the NSW Crimes Act 1900” (2022) 33 Australian Superannuation Law Bulletin 91 at 96.

  3. Turning to the first of the two matters that Ball J considered would normally warrant the giving of consent, I received detailed submissions as to MLC’s consideration of its position, the advice it has received from JANA and its conclusion that the proposed conduct is in the best interests of the scheme members. I was satisfied that the appointment of CIML as the new responsible entity and trustee of the registered and unregistered schemes is in the best interests of the beneficiaries. I also received detailed submissions as to the reasonableness of the proposed Implementation Expenses. I was satisfied that the proposed payment of the Implementation Expenses, and the giving of the Indemnities, will not provide an inducement to either of MLC or CIML to act otherwise than in the best interests of the beneficiaries.

  4. As to the Implementation Expenses, and as was submitted on behalf of MLC, the central point is that MLC does not stand to profit from reimbursement of the Implementation Expenses. If those expenses are not borne by JANA, then, because of MLC’s entitlement to be indemnified from the underlying fund for the Implementation Expenses, their burden will be borne by members. I accept that MLC’s financial position would remain neutral, and that the offering, giving, receiving or soliciting contemplated by the proposal does not raise any conflict between MLC’s interests and those of the members of the funds. Indeed, it is in the best interests of those members that the costs be defrayed by JANA instead of by the members themselves.

  5. I was also satisfied that the proposed reimbursement of the Implementation Expenses will be in the best interests of members of the scheme and will also form part of a wider transaction being pursued to promote the members’ financial interests on a broad scale.

  6. As to the Indemnities, MLC submitted that they should not be seen as an “inducement or reward” to MLC as they do not extend beyond the indemnities that are otherwise available to MLC at general law; such that MLC will be in the same position whether or not the Indemnities were provided. I can see why these arguments might lead to the conclusion that the Indemnities should not be seen as an “inducement”. It is, however, less clear to me that the Indemnities should not be seen as a “reward”. For that reason, I declined to grant MLC the declaration it sought. [21]

    21. See [15] above.

  7. However, because the Indemnities do not go beyond those to which MLC would otherwise be entitled, and because they form part of a wider transaction that is in the best interests of scheme members, I was satisfied the granting of the Indemnities will not provide an inducement to MLC to act otherwise than in the best interests of the beneficiaries and that I should provide the Court’s consent.

  8. I was also satisfied of the need to make the orders as to confidentiality sought by MLC.

  9. It is for these reasons that I made the orders referred to at [1] of this judgment.

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Endnotes

Decision last updated: 10 November 2022

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