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...

The appeal concerned a dispute arising from the sale of individual hotel units in Canberra, where purchasers also entered into lease-back agreements with a management company. The appellants, who had purchased these units between late 1993 and 1995, sought to set aside these transactions under provisions of the Corporations Law designed to protect investors. They argued that the contracts, when viewed as a whole, constituted an offer of a "prescribed interest" without compliance with the law's prospectus and deed registration requirements. The primary judge had found that while a profit-sharing clause in the leases breached the Corporations Law, the purchasers were unaware of this clause and therefore their purchases were not made "as a result of the acceptance" of that offer, precluding them from voiding the contracts.

The Court of Appeal was required to determine whether the transactions, specifically the rights granted to the management company regarding common property and the purchasers' contingent beneficial interests in retained units (comprising hotel facilities), constituted a "prescribed interest" under the Corporations Law. This involved interpreting the definitions of "prescribed interest" and "participation interest," which include rights to participate in profits or assets of a business or scheme where investors expect profits from the efforts of a promoter or third party, or an "investment contract." The court also had to consider whether the purchasers' rights to direct the sale or retention of the retained units, or the management company's special privileges over common property, met these definitions.

The Court of Appeal upheld the primary judge's reasoning. It concluded that the special privileges granted to the management company for the use of common property did not involve the common employment of that property by the unit holders, but rather limited their own rights. Similarly, the purchasers' contingent beneficial interests in the retained units were not considered a participation interest in the hotel business itself. The court reasoned that these interests were rights exercisable upon the termination of the business, rather than an investment in the ongoing business venture. The mere possibility that unit holders might direct the retention of units for future business use was insufficient to constitute an investment contract, as it did not involve the common use of those interests in accordance with the terms of an investment.

The appeal was dismissed with costs.