Arthur and Sharon Cvetanoski, Eric Cappello, George Malecky and Gabrielle Andrew, Nambiar Pty Limited, Neil Bauer, Nunzio and Maureen GAMBALE, NOOTJIE Lambert and Ida Agustina TITIOKA v Filaria Pty Limited and...

[2003] ACTCA 19

ARTHUR and SHARON CVETANOSKI, ERIC CAPPELLO, GEORGE MALECKY and GABRIELLE ANDREW, NAMBIAR PTY LIMITED, NEIL BAUER, NUNZIO and MAUREEN GAMBALE, NOOTJIE LAMBERT and IDA AGUSTINA TITIOKA v FILARIA PTY LIMITED and JAYWOOD PTY LIMITED
[2003] ACTCA 19 (24 OCTOBER 2003)

APPEAL – Corporations – prescribed interest – participation interest- deed not approved – prospectus not registered – sale of apartments in former hotel – lease of apartments to manager – manager to be granted special privileges re common areas – purchasers to ultimately acquire beneficial interests in retained units consisting of restaurant, kitchen, bar, office, shop and functions rooms – covenant to offer a share in profits of business upon approval of deed and registration of prospectus – whether “offer” of prescribed interest – whether leases and/or purchase contracts entered into as result of acceptance of such “offer”.

The Corporations Law, s9, s 1018, 2 1065, s 1073, Pt 1.2

Unit Titles Act 1970 (ACT), s 26, s 46

Maunder-Hartigan v Hamilton (1984) 8 ACLR 937

Corporate Affairs Commission v MG Securities Australasia Ltd (1975) 1 ACLR 157

ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No ACTCA 29 - 2002
No SC 209 of 2000

Judges:            Gray, Connolly and Ryan JJ
Court of Appeal of the Australian Capital Territory
Date:               24 October 2003

IN THE SUPREME COURT OF THE		)	No ACTCA 29 - 2002
AUSTRALIAN CAPITAL TERRITORY		)	No SC 209 of 2000
COURT OF APPEAL		)
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:
ARTHUR and SHARON CVETANOSKI First Appellants
ERIC CAPPELLO Second Appellant
GEORGE MALECKY and GABRIELLE ANDREW Third Appellants
NAMBIAR PTY LIMITED (ACN 008 648 511) Fourth Appellant
NEIL BAUER Fifth Appellant
NUNZIO and MAUREEN GAMBALE Sixth Appellants
NOOTJIE LAMBERT and IDA AGUSTINA TITIOKA Seventh Appellants
AND:
FILARIA PTY LIMITED (ACN 056 933 843) First Respondent
JAYWOOD PTY LIMITED (ACN 051 214 165) Second Respondent
ORDER
Judges:	Gray, Connolly and Ryan JJ
Date:	24 October 2003
Place:	Canberra

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

IN THE SUPREME COURT OF THE		)	No ACTCA 29 - 2002
AUSTRALIAN CAPITAL TERRITORY		)	No SC 209 of 2000
COURT OF APPEAL		)
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:
ARTHUR and SHARON CVETANOSKI First Appellants
ERIC CAPPELLO Second Appellant
GEORGE MALECKY and GABRIELLE ANDREW Third Appellants
NAMBIAR PTY LIMITED (ACN 008 648 511) Fourth Appellant
NEIL BAUER Fifth Appellant
NUNZIO and MAUREEN GAMBALE Sixth Appellants
NOOTJIE LAMBERT and IDA AGUSTINA TITIOKA Seventh Appellants
AND:
FILARIA PTY LIMITED (ACN 056 933 843) First Respondent
JAYWOOD PTY LIMITED (ACN 051 214 165) Second Respondent
Judges:	Gray,Connolly and Ryan JJ
Date:	24 October 2003
Place:	Canberra

REASONS FOR JUDGMENT

THE COURT:

1. This is an appeal from a judgment of Crispin J declining to set aside a series of property transactions entered into by each of the plaintiffs with the respondents between late 1993 and 1995.  Each of the plaintiffs had purchased a unit in a Canberra hotel.  The hotel had previously operated under conventional single ownership, but individual rooms were then offered to purchasers pursuant to the Unit Titles Act 1970 (ACT). The plaintiffs claimed to set aside the transactions pursuant to provisions in The Corporations Law designed to protect investors from dubious investment schemes.  His Honour, following authority, rejected the arguments that aspects of the transaction relating to common property and certain retained units entitled the plaintiffs to relief.  He held that those parts of the contract relating to a future profit sharing regime were in breach of The Corporations Law, but he found on the evidence that all of the plaintiffs were unaware of the existence of the relevant clause when they entered into their respective the contracts.  He therefore held that the purchase of each unit could not be said to have been as a “result of the acceptance” of the offer of a profit share, and, accordingly there was no right to set aside the purchases.

1. Between the end of 1993 and mid-1995 each of the appellants entered into an agreement to purchase from Filaria Pty Ltd (“Filaria”) a unit more or less corresponding with a guest room in the existing Canberra International Hotel complex in Northbourne Avenue, Dickson in the Australian Capital Territory (“the Land”).  It was stipulated in some of the earlier contracts that Filaria would lodge for approval under the Unit Titles Act 1970 a Units Plan dividing the buildings on the Land into units and common property.  The contemplated Units Plan numbered 932 was approved on 26 October 1993. 

1. At the time of executing an agreement to purchase, each appellant executed another document described as a lease whereby the appellant leased the relevant unit to Jaywood Pty Ltd (“Jaywood”) for a term of five years at a stipulated yearly rent which, for the first year, was equal to nine percent of the purchase price of the unit and which was to increase by 0.25 percent of the purchase price at the beginning of each of the succeeding four years.  The permitted use of the leased premises was expressed to be as “a Hotel or Motel Unit and/or a Serviced Apartment”.

1. At first instance, an agreed statement of facts recited that there was attached to the statement “a sample of the contract of sale”.  The sample contract so attached contained, amongst others, the following special condition,

37. Special privilege.

The Buyer acknowledges that Jaywood Pty Limited is to be granted a special privilege within the meaning of section 46 of the Unit Titles Act 1970 to use the common property in connection with the management and operation of the Hotel, and to the extent that it is necessary to the exclusion of the Buyer.

1. However, in those contracts of purchase executed after the Units Plan had been approved, the special condition corresponding to special condition 37 just quoted was in these terms,

Special privilege.

The Buyer acknowledges that Jaywood Pty Limited has been granted a special privilege within the meaning of section 46 of the Unit Titles Act 1970 to use the common property in connection with the management and operation of the Hotel, and to the extent that it is necessary to the exclusion of the Buyer.

1. Special Condition 38 of the sample contract introduced the concept of “retained units” or “ROF units” on the Units Plan by providing,

Units 157 – 162 Units Plan

38.1The units referred to in the heading of this clause (“Retained Units”) relate to the restaurant, kitchen, bar, office area, shop and two function rooms and after completion are to be held by the Seller on the following trusts:

(a)For the period of 3 years after the registration of the Units Plan and for such further time as Jaywood Pty Limited is manager of 2/3 of the serviced apartments in the Hotel for the persons for whom the Seller now holds the Land beneficially.

(b)After the period of 3 years from the date of registration of the Units Plan and as soon as Jaywood Pty Limited ceases to manage 2/3 of the services apartments in the Hotel for all the unitsholders in the Units Plan who may direct the Seller either to;

(i)sell the Retained Units to such person as they direct (subject to payment to the Seller of the sum of $60,000);  or

(ii)until sale, to hold all of the Retained Units in accordance with their instructions subject to the provision of an indemnity.

(c)For the first 3 years from the registration of the Units Plan and for such longer period as Jaywood Pty Limited manages more than 2/3 of the serviced apartments in the Hotel, the Seller is to grant to Jaywood Pty Limited a licence to occupy the Retained Units in connection with the management and operation of the Hotel and during that time Jaywood Pty Limited will covenant with the Seller to manage the Hotel in a good and efficient manner.

1. The corresponding special condition in the later contracts referred to at [4] of these reasons was numbered 33 but was otherwise in terms identical to those just quoted from special condition 38.

1. Some of the leases of the subject units, including those granted by each of the appellants, contained, amongst the covenants and conditions set out in annexure A thereto, the following,

PART 17 - RIGHT TO SHARE PROFIT

17.1In this part, “Profit” means the profit derived by the Lessee from the letting of rooms in the Building after deduction of the costs in letting, supply of services to the rooms, Rent, promotion and marketing costs, repair and maintenance and the management fees properly payable to the Lessee.

17.2The Lessee agrees within 12 months of the date of this Sublease to prepare a deed and lodge it for approval and to prepare a prospectus and lodge it for registration as required by the Corporations Law (should the Lessee be required to do so) to enable the Lessee to offer to the Lessor and other persons from whom it has sublet rooms in the Building a share in the Profit.

17.3Subject to approval of a deed and registration of a prospectus (should the Lessee be required to do so) as contemplated in clause 17.2, the Lessee agrees to offer to the Lessor a share in the Profit by which the unit entitlement of the Premises bears to the aggregate unit entitlement of all other units in the Building for the time being managed by the Lessee for the purpose of letting them.

1. It was contended on behalf of the appellants, both at first instance and on appeal, that the interlocking contracts constituted by the purchase of each unit and the “lease back” to Jaywood resulted in a contravention of The Corporations Law of the kind contemplated by s 1073(2) of that Law which provided,

Where: -

(a)an offer of a prescribed interest for subscription has been made; or

(b)an invitation to subscribe for a prescribed interest has been issued;

in contravention of this law, a contract entered into by any person (other than the management company) to subscribe for the prescribed interest as a result of the acceptance by the person of the offer, or the acceptance of the offer made by the person pursuant to the invitation, is voidable at the option of that person by notice in writing given to the management company.

1. The provisions identifying the contravention of The Corporations Law relied on by the appellants were ss 1018 and 1065 in the following terms,

1018 Prospectus in relation to securities

(1)A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless:

(a)a prospectus in relation to the securities has been lodged;

(b)the prospectus complies with the requirements of this Division; and

(c)if the prospectus is a registrable prospectus - the prospectus has been registered by the Commission under section 1020A.

1065 No issue without approved deed

(1)A person shall not issue, offer for subscription or purchase, or issue invitations to subscribe for or buy, any prescribed interest unless, at the time of the issue, offer or invitation, there is in force, in relation to the interest, a deed for the purposes of this Division or a corresponding law that is an approved deed.

(2)Where a deed would, but for this subsection, have ceased to be an approved deed for the purposes of this Division because there is no trustee or representative for the purposes of the deed or the approval of the trustee or representative has been revoked or because of any other circumstance relating to the trustee or representative, the Commission may, despite section 1066, direct that the deed is to continue to be an approved deed for such period and for such purposes as the Commission directs and, upon the giving of such a direction, the deed continues to be an approved deed accordingly.

(3)A person shall not, in any deed, prospectus, statement, advertisement or other document relating to a prescribed interest, make any reference to an approval of a deed, or an approval of a trustee or representative, granted under this Division, a corresponding law or a corresponding previous law.

1. On various dates between November 1999 and October 2000, each of the appellants gave notice to Filaria and Jaywood respectively in reliance on s 1073(2) of The Corporations Law.  The sample notice to Filaria annexed to the agreed statement of facts was headed “Notice to Avoid Agreement for Sale” and recited,

The offer by you of the residue unexpired of the Lease in Register Book Volume 1347 Folio 58 in respect of Unit 48 in Units Plan 932, the property known as the Canberra International Hotel for sale together with the proposed sublease to Jaywood Pty Limited constituted to an offer of a prescribed interest for subscription or invitation to subscribe for a prescribed interest in contravention of the Corporations Law.

I, NEIL LINDSAY BAUER hereby exercise my option to avoid the Agreement for Sale dated 10 June 1994 pursuant to Section 19073(2) of the Corporations Law.

1. The sample notice addressed to Jaywood was headed “Notice to Avoid Lease” and recited,

The offer by you to sublet Unit 48 in Units Plan 932 being the property known as the Canberra International Hotel constituted an offer of a prescribed interest for subscription or invitation to subscribe for a prescribed interest in contravention of the Corporations Law.

I, NEIL LINDSAY BAUER hereby exercise my option to avoid the Lease Registered No. 906783 in respect of Unit 48 in Units Plan 932 pursuant to Section 1073(2) of the Corporations Law.

1. The expression “prescribed interest” appearing in s 1073(2) and s 1065 of The Corporations Law was defined by s 9 of that Law to include a “participation interest” which, in turn, was defined by the same section to mean,

. . . any right to participate, or an interest: -

(a)in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere;

(b)in any enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent, or interest from the efforts of the promoter of the enterprise or a third party;

(c) an investment contract.

whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, …

1. The phrase “investment contract” in par (c) of that definition was itself defined in s 9 to mean,

. . . any contract, scheme or arrangement that, in substance and irrespective of its form, involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in, or a right in respect of property, whether in this jurisdiction or elsewhere that, under or in accordance with, the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, acquired in or under like circumstances.

1. The learned primary Judge concluded that the grant to Jaywood of “special privileges” over common property on the Units Plan did not involve the common employment by the unit holders of the common property.  His Honour explained that conclusion at [20] of his reasons by saying,

… Special condition 32 of the purchase contracts did not purport to require that the rights of the plaintiffs to the common property be used in the conduct of the business. It merely provided an acknowledgement by the plaintiffs that the second defendant would be granted a special privilege to use the common property in connection with the management and operation of the hotel business and, to the extent necessary, to "the exclusion of the buyer". The effect of this provision was not to require or to facilitate the use of the plaintiffs' interests in the common property in common with the rights of other purchasers but, rather, to make it clear that the rights to the common property otherwise acquired by virtue of their purchase of their respective apartments would be subject to and limited by the special privileges so conferred. Hence, in my opinion, it did not create a participation interest.

1. In relation to the retained or ROF units which had been the subject of Special Condition 38 of the sample contract of purchase, the learned trial Judge acknowledged that the projected arrangements for the conduct of an hotel or serviced apartments business on the Land could be characterised as a “financial or business undertaking or scheme” within the meaning of the definition of “participation interest” quoted at [13] above. Nevertheless, his Honour went on to say,

22. … However, it is difficult to see how a right to acquire at some future time a beneficial interest in a trust for the sale of the retained units earlier used in a business venture could have been regarded as a participation interest in that business.

23. The rights to eventually acquire interests in these units were not used in the conduct of the business and the plaintiffs and other unit holders derived no profit from them. It is true that the beneficial interest they may ultimately acquire will be an interest in common with others but that is also true of their rights in respect of other common areas and, perhaps, many of the financial arrangements commonly entered into by bodies corporate for the benefit of unit holders. In my opinion, it is again necessary to look at the substance of the transaction to ascertain whether what was acquired by each of the plaintiffs was, in essence, the title to a specific apartment together with a share in common property or whether it extended to a participation interest. These questions cannot be resolved by mere advertence to the fact that common rights to some parts of the property were contingent upon the expiration of some period of time or the completion of some arrangement with a third party. I do not accept that a person who purchases an apartment at a time when the body corporate agreed to buy a reversionary interest in adjoining land to provide car parking spaces for the apartment owners upon the expiration of an existing lease would thereby acquire a right to participate in assets of a financial or business undertaking or scheme or an investment contract. Nor can such questions be resolved by mere advertence to the fact that the plaintiffs stood to ultimately acquire rights to direct the sale of common property or its retention pending sale, even if it is conceivable that the property could be used for business purposes whilst so retained. In the example just mentioned, the apartment owners would presumably have the right to direct the body corporate to re-sell the adjacent land or, subject to approval from the relevant regulatory bodies, to conduct some form of business upon it. But those entitlements alone would not in my opinion be sufficient to constitute prescribed interests for the purposes of The Corporations Law. Legal or equitable interests in property cannot be regarded as participation interests merely because it might be possible to use them in an existing or future businesses. Such interests may properly be regarded as participation interests only if they involve the right to participate in or an interest in transactions of the kind described in pars (a), (b) or (c) of the definition quoted earlier.

24. In the present case, the only entitlements conferred upon the purchasers were contingent interests in a trust with power to direct the first defendant to sell the units or, pending sale, to hold them in accordance with the unit-holders' instructions subject to the provision of an indemnity. These entitlements must be considered in the context of the overall transactions. In substance, the transactions provided for the purchase of apartments, the lease of those apartments to a managing company and ancillary provisions to ensure that the managing company would be able to reap the benefits of such leases by conducting hotel business involving, inter alia, the hire of the apartments. The special conditions in relation to the retained units were plainly intended to ensure that the hotel business would have necessary facilities such as a restaurant, kitchen and bar. However, since it could not be assumed that the second defendant would always be willing or able to operate the hotel business, it was obviously necessary to include some provision for the sale or retention of such units in the future. Hence, the special condition in question provided that if the stipulated period of three years elapsed and the second defendant at some stage no longer managed at least two thirds of the apartments then the unit holders would have a beneficial interest in the retained units and the right to give directions as to their sale. This provision does not, in my opinion, suggest that any contingent equitable interests acquired by the plaintiffs would be participation interests in the hotel business but, rather, that they would be rights exercisable on the termination of that business that would enable the plaintiffs to negotiate fresh leases with a new hotel manager.

25. The relevant special condition did not authorise or envisage the common use of such beneficial interests in a business and the mere possibility that unit holders might ultimately instruct the first defendant to hold the remaining units so that they might be used in some business undertaking is not sufficient to justify a conclusion that any of the transactions constituted an investment contract. That possibility, even if realised, would not, in my opinion involve a use "under or in accordance with, the terms of investment".

1. The learned primary Judge drew a sharp distinction between the treatment of the “special privileges” under special condition 37 of the sample contract of purchase and of the ROF units under special condition 38 of the same contract on the one hand and, where it is existed, cl 17 of the Lease on the other.  Clause 17, his Honour regarded as an “offer” in its popular sense as distinct from the contractual sense of a promise capable, on acceptance, of constituting a legally binding obligation.  In addition, the primary Judge did not consider the stipulation in cl 17.3 of the Lease that the offer which the clause embodied was “subject to” approval of a deed and registration of a prospectus should that be required, detracted from the character of the proposal as an “offer” to subscribe for a prescribed interest within the meaning of s 1065 of The Corporations Law.  His Honour explained his reasons for taking that view by saying,

29. Nor, in my opinion, did the fact that the contingency involved compliance with The Corporations Law preclude such a conclusion. I accept that there may appear to be some measure of incongruity in a finding that The Corporations Law had been breached by an offer which was contingent upon the necessary action being taken to comply with that law. However, the law was obviously intended to provide protection for investors who might otherwise have been enticed into financial or business undertakings or schemes without the benefit of the information that may have been obtained from the prospectus and the protection provided by the requirement that a deed be approved by the Commission. The purpose of these legislative requirements could be effectively thwarted if they were to be interpreted in a manner that would have permitted promoters of investment schemes to solicit funds from potential investors on the footing that the requirements would be complied with after the investors had made binding commitments and it was too late to extricate themselves from the transactions in the light of any information thereby disclosed.

30. I am satisfied that clause 17 of Annexure "A" of the leases constituted an offer of a prescribed interest to each of the plaintiffs who had entered into a lease containing it.

1. However, that conclusion was seen as raising the ancillary question of whether any of the persons to whom the “offer” in cl 17 had been made had entered into a contract to subscribe for a prescribed interest “as a result of the acceptance by the person of the offer” as required by s 1073(2) of The Corporations Law.  His Honour rejected the contention advanced on behalf of the plaintiffs, including the present appellants, that the purchase and leaseback having been entered into on the same day should be regarded as elements of a single transaction resulting from an acceptance of an offer which included the proposal contained in cl 17.  As to that contention, it was observed at [35] of the reasons below,

35. First, the argument seems to be predicated upon an implicit assumption that acceptance of a contractual offer necessarily involves acceptance of any subsidiary or collateral "offer" contained in the same document, no matter how vague, contingent or speculative. In his submissions, Mr Simpkins skipped adroitly from the concept of an "offer" of a prescribed interest, which may be informal and need not be capable on acceptance of constituting a contract, to the contractual offer constituted by the presentation of the Memorandum of Lease, as though the validity of this assumption was self evident. However, as Mr Walton pointed out, the clause provided only that the first defendant would lodge the deed and prospectus and that if the former were duly approved and the latter duly registered then the first defendant would make an offer of a share of the profits. Accordingly, it seems clear that even if the contents of the clause constituted an "offer" of a prescribed interest for the purposes of The Corporations Law, it was not an offer capable on acceptance of constituting contractual rights and obligations. See, for example, Pym v Campbell (1856) 119 ER 903; and Haslemere Estates Ltd v Baker [1982] 1 WLR 1109. Furthermore, the nature and extent of any such share was not specified and there was no indication as to whether any conditions might be imposed. Hence, it would in any event have been void for uncertainty. In these circumstances, whilst it was contained within the Memorandum of Lease, it would not have formed part of the contractual offer that was accepted by the plaintiffs by executing that document and it is difficult to find any basis for an assumption that by accepting that contractual offer they should be taken to have accepted the "offer" to make a further offer contained in clause 17.

36. Secondly, the argument seems to be predicated upon a further assumption that any contract formed by the acceptance of a contractual offer may be regarded as having been entered into as a result of the acceptance of a subsidiary "offer" even if vague, contingent or speculative and even if it had no causal influence on the decision to enter into the contract.

37. It is true, of course, that people may enter into contracts "as a result of the acceptance . . . of the offer" of a prescribed interest even when the acceptance of that offer is not evident from and does not form part of those contracts. In the present case, for example, I would readily have concluded that the leases had been entered into as a result of the acceptance of the "offer" contained in clause 17 if the plaintiffs had been induced to enter into them by the prospects of obtaining the foreshadowed shares in the profits of the business. However, that was not the case. As I have mentioned, each of the plaintiffs gave evidence that they had been unaware of any such offer and that it had not influenced their decision to enter into the lease.

38. In all of the circumstances, I am not satisfied that by entering into the leases any of the plaintiffs accepted the offer of a prescribed interest or that they have otherwise demonstrated that they were entitled to avoid such leases by virtue of the provisions of s 1073(2). As mentioned earlier, that section was clearly intended to protect investors from being enticed into investing money in financial or business undertakings or schemes in respect of which there had been neither an approved deed nor a registered prospectus. I see no reason to construe the provisions of the section as reflecting a legislative intention to permit owners to avoid leases of real estate by opportunistic reliance upon the fact that the memorandums of lease contained provisions holding out vague hope of further benefits even when that hope had not influenced their decision to enter into the transactions.

39. Thirdly, even if I had accepted Mr Simpkins' argument that each such lease was a contract formed as a result of the acceptance of the "offer" contained within clause 17, I would have been unable to accept that such a conclusion could be drawn in relation to the contract of purchase. Those contracts did not contain provisions equivalent to clause 17 of the lease and could not have been formed as a direct "result of the acceptance ... of the offer". Hence, it would have been incumbent upon the plaintiffs to establish that, the contracts had been in a real and practical sense, the result of acceptance of the offer.

40. The plaintiffs clearly relied upon the contention that if the leases were entered into as a result of the "offer" contained in clause 17 and the contracts for the purchase of the apartments were entered into as a result of the availability of such leases, then the contracts of purchase should also be regarded as having been also entered into as a result of the "offer". However, this contention would be valid only if the "offer" had been a real and effective cause of the plaintiffs entering into the lease. It would not be valid if they were taken to have entered into the leases as a result of acceptance of the "offer" only by virtue of some technical argument to the effect that by executing the Memorandum of Lease they must be taken to have accepted the "offer" contained in clause 17 or that it formed part of the overall contractual offer acceptance of which had given rise to the leases.

41. Since all plaintiffs had said that they had not been influenced to purchase the apartments by the "offer" of the prescribed interest, and none claimed to have been induced to enter into the leases by any such "offer", there was, in my opinion, no basis for inferring that it had a causal influence on their decisions to do so.

Did Special Condition 37 involve the offer of a “prescribed interest”?

1. The first annual general meeting of “The Proprietors – Units Plan No 932” was held on 28 October 1993 which was before the settlement date in respect of any of the purchases by the plaintiffs of lots on the Units Plan.  The meeting was attended by three persons, Mr G Steinwedel, who was appointed chairman of the meeting, Mr G Willemsen representing Filaria and Mr R Phillips representing Jaywood.  It was noted that those in attendance represented all units on Units Plan No 932.  The minutes of the meeting record the following resolution,

RESOLVED as a unanimous resolution to grant to Jaywood Pty Limited as the owner of the Management Unit, the right to provide dining facilities at the Hotel, and whilst Jaywood Pty Limited or its successor in title manages the hotel a special privilege, pursuant to Section 46 of the Unit Titles Act.

1. Section 46 of the Unit Titles Act 1970 provided,

(1)A corporation may, if authorised by a unanimous resolution, grant to a member, or any person who has derived an interest in a unit through a member, any special privilege (not being a sublease) in respect of the enjoyment of part or parts of the common property.

(2)A grant made under subsection (1) may be terminated by notice in writing given by the corporation to the grantee in accordance with a special resolution.

1. The resolution quoted at [19] of these reasons did not specify the special privilege which it purported to grant to Jaywood.  However, immediately after that resolution had been carried there was tabled at the meeting a Hotel Management Agreement to which it was resolved that the corporation seal of the body corporate should be affixed.  That management agreement was apparently not executed until 10 August 1994.  By cl 2.1 under the heading “Special Privileges” it recited,

The Body Corporate grants to the Manager for the period of five years from the date of registration of the Units Plan and for any period thereafter while the Manager is licensee of the ROF Units:

2.1.1 the right to occupy the Common Property in connection with the management and operation of the Business and, to the extent prudent or necessary for the secure conduct of the Business, that right is granted exclusive of other persons;  and

2.1.2 the right to exclude any person from the Common Property for conduct which, in the reasonable opinion of the Manager, might annoy or inconvenience itself, or any licensee or occupier of the Building in any way, for such period or on such terms as the Manager sees fit.

PROVIDED THAT the rights granted under this clause cease if the Manager ceases to occupy the ROF Units under licence.

1. In the circumstances we conclude that the Special Privileges which the Body Corporate resolved to grant to Jaywood were those stipulated in cl 2.1 of the Management Agreement and that from 28 October 1993 Jaywood was entitled to enforce those rights against the Body Corporate.  Nevertheless, it was contended on behalf of the appellants that the effect of special condition 37 was to require each purchaser to refrain during the currency of the Management Agreement, from using the voting rights attaching to the relevant unit to require the Body Corporate to rescind or derogate from the special privileges which had been granted to Jaywood.

1. In considering whether special condition 37 involved the offer of a prescribed interest the learned primary judge dealt with the argument that the provision dealing with the grant of special privileges was sufficiently broad to justify the conclusion that the plaintiffs had been offered rights to participate in an “investment contract” as defined in s 9 of The Corporations Law.

1. His Honour said at [19],

It has been held that payment of the purchase price for land may be an investment of money for the purposes of this description, see Maunder-Hartigan v Hamilton (1984) 8 ACLR 937 at 949, Cooperative Building Society of South Australia v ASC (1993) 11 ACLC 262 at 271; cf Brisbane Unit Development Corporation Pty Ltd v Deming No 456 Pty Ltd (No 2)[1983] 2 Qd R 92 at 102. However, the mere letting of individual units in a pool by an agent does not involve the use or engagement of rights in common with other similar rights and rent received from the lessee is not rent received from common use.  As Mr Simpkins properly conceded the right to common property is a legal abstraction and that right is not ordinarily used “in common with” the rights of other unit holders. The mere contemporaneous exercise of individual rights is insufficient. What is required is some contemplated common action. See, Munna Beach Apartments Pty Ltd v Kennedy [1983] 1 Qd R 151 at 154-6. He argued, however, that because the ‘special privileges’ were subject to withdrawal by a special resolution of the Corporation, their grant involved the common employment of the common property by the unit holders to facilitate the conduct of the hotel business and treat their rights in respect of that common property were therefore used or employed in common with other such rights.

1. His Honour rejected this submission, and we think that he was correct in doing so. He took care to distinguish between the use of the appellants’ rights or interests in the common property on the one hand, and any special privileges that were granted to the hotel manager (Jaywood) on the other. Section 26(2) of the Unit Titles Act 1970 prevents the transfer, assignment, sub letting or mortgaging of the estate held by the body corporate on behalf of unit holders in the common property. Consistently with this statutory prohibition, his Honour observed, correctly in our view, that special condition 37 of the sale agreement did not confer on Jaywood any right or interest in the common property but rather was an acknowledgement by the purchaser that his or her rights in respect of that common property would be subject to the special interest when it was granted. The appellants’ beneficial interest in the common property pursuant to s 26(1) was unaffected by this acknowledgement, and his Honour recognised that the grant of the special privilege did not itself involve the use in common of any proprietary interest or right of the individual property owners.

Did special condition 38 involve the offer of a “prescribed interest”?

1. His Honour, in [22]-[25] of his reasons, reproduced above at [16] of these reasons explained why he considered that special condition 38 did not involve the offer of a prescribed interest.  Any beneficial interest in the retained units, also referred to as the ROF units, created by special condition 38 did not become enforceable until the venture contemplated by the transaction documents, that is the running of the hotel by Jaywood, had come to an end.  When that might occur was indeterminate and the prospective beneficial interest of the purchasers in the retained units was not in relation to any financial or business undertaking or scheme, but was expressed to arise in the aftermath of the financial or business undertaking or scheme, ie the conduct of the hotel by Jaywood.  In Maunder-Hartigan v Hamilton (1984) 8 ACLR 937 at 954, it was held that a reversionary interest in common property which vested in possession in the purchaser or owner upon the release coming to an end was not part of the realisation of the scheme. Similarly, in the present case as his Honour recognised, the vesting in possession of a beneficial interest in the retained units themselves is not part of the realisation of the scheme. We therefore discern no error in the primary Judge’s conclusion on this aspect.

Did clause 17 involve the offer of a “prescribed interest”?

1. The learned primary Judge for the reasons explained at [29] of his reasons which have been reproduced at [17] above concluded that the profit sharing provision in cl 17 of the lease set out at [8] above amounted to an offer of a prescribed interest. For the respondent it was contended that his Honour’s conclusion was in error, because, it was said, cl 17 did not amount to an offer of a share in the profit share, because, on its face, the clause postponed the offer until Jaywood had prepared and lodged for approval and registration respectively a prospectus and trust deed, and the approval of a deed and prospectus and the perquisite approval and registration had been obtained.

1. We consider that his Honour was correct in holding that cl 17 constituted a participation interest, notwithstanding that the interest was contingent on the stipulated approval and registration.  The definition of “participation interest” in The Corporations Law Pt 1.2 makes it clear that it means a right to participate or interest “whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset”  (emphasis added).

1. Clause 17 was, we consider, intended as a matter of substance to confer on the purchasers a contingent interest or right to participate in a profit sharing arrangement, and it is the essence or substance of what is proposed, rather than the legal form, that is determinative:  Corporate Affairs Commission v MG Securities Australasia Ltd (1975) 1 ACLR 157 at 158-159.

1. However, as explained in [35]-[41] of the reasons given in the judgment under appeal and which are set out at [18] above, the learned primary Judge was of the view, which we share, that even if cl 17 were an offer of a prescribed interest, it could not be established that the lease and the agreement for sale had been entered into “as a result of the acceptance by (the appellants) of the offer”, as required by s 1073(2) of The Corporations Law. Accordingly, the acceptance of the offer embodied in cl 17 did not entail the consequence that the transaction constituted by the purchase and lease back was voidable.

1. His Honour, correctly in our view, held that s 1073(2) requires in effect a causal link between an offer of a prescribed interest and the contract which comes in to effect as a result of acceptance of an offer which may not coincide with the offer of a prescribed interest.  This is consistent with what we discern as the purpose of the section which is to protect offerees from being bound by contracts which they have been induced to enter by offers made in contravention of The Corporations Law.  It was common ground, at the trial and on the appeal, that the evidence was that none of the appellants had relied upon or had even been conscious of the terms of cl 17 when they each decided to enter into their respective purchase agreements and leases of their units.

1. It follows that we would not disturb the conclusion below that no right has arisen in any of the appellants to avoid their respective contracts of purchase.

1. We would dismiss the appeal, with costs.

   I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

   Associate:

   Date: 24 October 2003

Counsel for the Appellants:	Mr J B Simpkins, SC
Solicitor for the Appellants:	Rod J Barnett & Associates
Counsel for the Respondents:	Mr M Walton SC with Mr C Erskine
Solicitor for the Respondents:	Meyer Clapham Lawyers
Dates of hearing:	5 and 6 May 2003
Date of judgment:	24 October 2003