Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) - [2013] FCA 1342

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342

Citation: Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342

Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED ACN 095 474 436 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED), MR WILLIAM LIONEL LEWSKI, MR MARK FREDERICK BUTLER, MR KIM JAQUES, DR MICHAEL RICHARD LEWIS WOOLDRIDGE and MR PETER CLARKE

File number: VID 594 of 2012

Judge: MURPHY J

Date of judgment: 12 December 2013

Catchwords: CORPORATIONS – duties of responsible entity of managed investment scheme under s 601FC – duties of officers of responsible entity under s 601FD
STATUTORY DUTY TO ACT IN BEST INTERESTS OF MEMBERS – meaning of “best interests of members” – whether best interests of members is subjective or objective – duty of undivided loyalty to members of scheme – conflict of interests – conflict of interest and duty – duty to give priority to members’ interests –care and caution required where conflicts exist
STATUTORY DUTY TO EXERCISE CARE AND DILIGENCE – standard of care – standard of care for directors of a responsible entity acting as a professional trustee – failure to consider effects of amendment to scheme constitution – failure to consider whether legitimate reasons for amendment – failure to be satisfied as to power to make amendments – reliance on legal advice – reliance on unusual and uncertain legal advice – failure to comply with scheme constitution and Act – failure to properly consider effect of amendments on members’ rights and interests – failure to identify conflict of interests – failure to consider how to appropriately resolve conflicts – duty to prioritise members’ interests – obligation to revisit decisions previously made
STATUTORY DUTY NOT TO MAKE IMPROPER USE OF POSITION TO GAIN ADVANTAGE – meaning of “to gain” and advantage or “to cause” detriment – meaning of improper use
STATUTORY DUTY TO TAKE ALL REASONABLE STEPS TO COMPLY WITH SCHEME CONSTITUTION – scheme constitution contractually binding – scheme constitution not inconsistent with Act – scheme constitution qualifies statutory power to amend
MEMBERS’ RIGHTS – whether right to have scheme administered according to existing constitution is a “members right” under s 601GC – failure to consider members’ right to have scheme administered according to existing constitution – amendment invalid as outside power – whether amendments made outside power become valid once lodged with ASIC
RELATED PARTY TRANSACTION IN MANAGED INVESTMENT SCHEME – breach of s 208 (as modified) of responsible entity – involvement of officers of responsible entity in breach of s 208 – essential elements of the prohibition in s 208 – whether s 208(3) is an exception to the prohibition – officers’ honest belief that constitution contain provision allowing payment
LODGEMENT OF AMENDMENTS TO SCHEME CONSTITUTION – whether lodgement of consolidated scheme constitution is sufficient under s 601GC – whether lodgement of amendments themselves is required
COMPANY PROCEDURE – decision-making by meeting of directors – obligation to clearly express will in meeting of directors – obligation to ensure expression of will is clearly recorded – whether conduct amounts to or conveys assent to a resolution
DEEDS – when does an undated deed come into effect – intention of the parties to the deed – intention by reference to statutory framework

Legislation: Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
Managed Investments Act 1998 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Trade Practices Act 1974 (Cth)

Cases cited: 360 Capital Re Ltd v Watts and Another (2012) 91 ACSR 328
Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 231 CLR 27
Alpha Wealth Financial Services Pty Ltd and Ors v Frankland River Olive Company Ltd [2005] WASC 189
Armstrong v Commonwealth Bank of Australia [1999] NSWSC 588
ASEABrown Boveri Superannuation Fund No 1 Pty Ltd vASEABrown Boveri Pty Ltd [1999] 1 VR 144
Attorney-General of NSW v Brewery Employees Union of NSW (1908) 6 CLR 469
Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd and Others (2000) 169 ALR 344
Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439
Australian Securities and Investments Commission v Adler and Others (2002) 168 FLR 253
Australian Securities and Investments Commission v Fortesque Metals Group Ltd and Another (No 5) (2009) 264 ALR 201
Australian Securities and Investments Commission v Healey and Others (2011) 196 FCR 291
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
Australian Securities and Investments Commission v Macdonald and Others (No 11) (2009) 230 FLR 1
Australian Securities and Investments Commission v Macdonald and Others (No 12) (2009) 259 ALR 116
Australian Securities and Investments Commission v Maxwell and Others (2006) 59 ACSR 373
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229
Australian Securities and Investments Commission, In the Matter of QLS Superannuation Pty Ltd v Parker (2003) 21 ACLC 888
Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504
Australian Securities Commission v Gallagher (1993) 10 ACSR 43
Avel Proprietary Limited v Multicoin Amusements Proprietary Limited and Another (1990) 171 CLR 88
Boardman v Phipps [1967] 2 AC 46
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Bray v Ford [1896] AC 44
Briginshaw v Briginshaw (1938) 60 CLR 336
Charterbridge Corporation Limited v Lloyds Bank Limited and Another [1970] 1 Ch 62
Chew v The Queen (1992) 173 CLR 626
Claremont Petroleum NL v Cummings and Another (1992) 110 ALR 239
Connor v Blacktown District Hospital [1971] 1 NSWLR 713
Cowan v Scargill [1985] Ch 270
Curwen & Ors v Vanbreck Pty Ltd (2009) 26 VR 335
Daniels and Others (Formerly Practicing as Deloitte Haskins & Sells) v Anderson and Others (1995) 37 NSWLR 438
De Bruyne v Equitable Life Assurance Society of the US 920 F.2d 457 (7^th Cir. 1990)
Doonan v Beacham (1953) 87 CLR 346
Edge v Pensions Ombudsman [2000] Ch 602
Galladin Pty Ltd v Aimnorth Pty Ltd (in liq) and Others (1993) 11 ACSR 23
Garcia v National Australia Bank Ltd (1993) 5 BPR 11,966
Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460
Gould v The Mount Oxide Mines Ltd (In Liq) and Others (1916) 22 CLR 490
Gra-Ham v Perpetual Trustees (1989)1 WAR 65
Harries and Others v The Church Commissioners for England and Another [1993] 1 WLR 1241
Hatt v Magro (2007) 34 WAR 256
Hillsdown Holdings Plc v Pensions Ombudsman [1997] 1 All ER 862
In Re Whiteley; Whiteley v Learoyd (1886) 33 Ch D 347
ING Funds Management Ltd v ANZ Nominees Ltd and Others (2009) 228 FLR 444
Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd and Others (2006) 15 VR 87
Keech v Sandford (1726) 25 ER 223
King v GIO Australia Holdings Ltd (2001) 184 ALR 98
King v Talbot (1869) 40 NY 76
Kingtson and Another v Ambrian Investments Co Ltd [1973] 1 All ER 120
Knudsen v Kara Kar Holdings Pty Ltd [2000] NSWSC 715
Luxton v Vines (1952) 85 CLR 352
Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) 282 ALR 167
Marchesi v Barnes and Keogh [1970] VR 43
Martin v The City of Edinburgh District Council [1989] PENS. L. R. 9
McGellin v Mount King Mining (1998) 144 FLR 288
Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310
Morley v Australian Securities and Investments Commission (2010) 274 ALR 205
Morrell v Studd and Millington [1913] 2 Ch 648
Nestle v National Westminster Bank Plc [1994] 1 WLR 1260
Nominal Defendant v Owens (1978) 22 ALR 128
Oakley v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68
Permanent Building Society (in Liq) v Wheeler and Others (1994) 11 WAR 187
Poole and Another v Neely and Others [1976] 1 NZLR 529
Premium Income Fund Action Group Incorporated and Another v Wellington Capital Limited and Others (2011) 84 ACSR 600
Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1
R v Byrnes (1995) 183 CLR 501
Raby v Ridehalgh (1855) 44 ER 41
Re Centro Retail (2011) 255 FLR 28
Re Chapman [1896] 2 Ch 763
Re Macquarie Goodman Funds Management Ltd (as responsible entity for Macquarie Goodman Industrial Trust) (2004) 52 ACSR 194
Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051
Re Whitely (1886) 33 Ch D 347
Robins and Others v Incentive Dynamics Pty Ltd (in liq) and Another (2003) 175 FLR 286
Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906
Speight v Gaunt (1883) 9 App Cas 1
Stone v Grubbam (1614) 1 Roll Rep 3
Target Holdings Ltd v Redferns [1996] 1 AC 421
The Registrar of the Accident Compensation Tribunal v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145
Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125
Vines v Djordjevitch (1951) 91 CLR 512
Waters and Others v Mercedes Holdings Pty Ltd and Others (2012) 203 FCR 218
Weeden v Rambaldi (2013) 92 ACSR 661
Wilkinson and Others v Feldworth Financial Services Pty Ltd and Others (1998) 29 ACSR 642
Xenos v Wickham (1866) LR 2 HL 296
Yorke v Lucas (1985) 158 CLR 661

Date of hearing: 1-3, 6-8, 14-17, 20, 23-24 and 27 May 2013

Place: Melbourne

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 771

Counsel for the Plaintiff: Mr I D Martindale SC, Mr R D Strong, Mr S J Maiden and Mr S Gifford

Solicitor for the Plaintiff: Australian Securities and Investments Commission

Counsel for the First Defendant The First Defendant did not appear

Counsel for the Second Defendant: Mr P J Bick QC and Mr M Osborne

Solicitor for the Second Defendant: SBA Law

Counsel for the Third Defendant: Dr K P Hanscombe SC and Mr T McLean

Solicitor for the Third Defendant: Millens

Counsel for the Fourth Defendant: Mr P Riordan SC and Mr A Strahan

Solicitor for the Fourth Defendant: DLA Piper Australia

Counsel for the Fifth Defendant: Mr P Solomon SC and Mr R Craig

Solicitor for the Fifth Defendant: Norton Gledhill

Counsel for the Sixth Defendant: Mr D J Williams SC and Mr T Greenaway

Solicitor for the Sixth Defendant: Maddocks Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 594 of 2012

BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:
AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED ACN 095 474 436 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED)
First Defendant

MR WILLIAM LIONEL LEWSKI
Second Defendant

MR MARK FREDERICK BUTLER
Third Defendant

MR KIM JAQUES
Fourth Defendant

DR MICHAEL RICHARD LEWIS WOOLDRIDGE
Fifth Defendant

MR PETER CLARKE
Sixth Defendant

JUDGE:

MURPHY J

DATE OF ORDER:

12 DECEMBER 2013

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:
1.Within seven days the parties confer and:
(a)propose dates for the hearing of any application for relief from liability and/or in relation to penalty; and
(b)prepare draft minutes for the timetabling of any hearing for relief from liability and/or in relation to penalty, together with draft minutes of declarations to be made, to be filed by 31 January 2014.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INDEX

DESCRIPTION PARA(S)

1.        Introduction [1]-[12]

1.1      The first group of contraventions [13]-[23]

1.2      Listing [24]-[25]

1.3      The second group of contraventions [26]-[29]

1.4      The third group of contraventions [30]-[31]

1.5      Relief [32]

2.        The standard of proof [33]-[36]

3.        The facts [37]

3.1      The ownership of APCHL [38]

3.2      The ownership and control of other relevant companies [39]

3.3      The Board of APCHL [40]-[42]

3.4      The Prime Trust [43]-[50]

3.5      The members’ understanding that listing of the Trust was contemplated [51]-[53]

3.6      APCHL moves towards listing the Trust on the AS [54]-[61]

3.7      The Options Advice [62]-[64]

3.8 APCHL’s fee entitlements under the Constitution [65]

3.9      The proposal to introduce new fees, including the Listing Fee [66]-[69]

3.10     Mr Lewski seeks legal advice from Madgwicks [70]-[76]

3.11     Mr Lewski’s evidence as to confidence in unitholder approval [77]-[78]

3.12     The Madgwicks file note by Ms Kovacs on 12 July 2006 [79]-[81]

3.13     The prohibition on amendments in favour of APCHL [82]-[85]

3.14     The Madgwicks file note by Mr Goldberg on 12 July 2006 [86]-[90]

3.15     The Madgwicks file note and draft advice of 13 July 2006 [91]-[95]

3.16     The Madgwicks file note and draft advice of 14 July 2006 [96]-[99]

3.17     Provision of the final Madgwicks Advice and draft Deed of Variation No 7 [100]-[104]

3.18     The 19 July 2006 meeting – the resolution to approve the Amendments [105]-[110]

3.18.1 The Listing Fee [111]

3.18.2 The Removal Fee [112]

3.18.3 The Takeover Fee [113]-[114]

3.18.4 Multiple fees were possible [115]-[116]

3.18.5 The additional fees were substantial [117]-[123]

3.18.6 The additional fees were gratuitous [124]

3.19     The signature of Deed of Variation No 7 [125]-[127]

3.20     The 31 July 2006 meeting [128]-[129]

3.21     The 22 August 2006 meeting – the Lodgement Resolution [130]-[137]

3.22     Announcement of intention to list [138]-[139]

3.23     The 26 June 2007 meeting – the resolution to pay the Listing Fee in tranches [140]-[146]

3.24     The 27 July 2007 meeting – the resolution that APCHL take the Listing Fee partially as units in the Trust [147]-[149]

3.25     The 3 August 2007 meeting – the resolution to grant options to the Directors [150]-[151]

3.26     The variation to Mr Butler’s Service Agreement [152]-[154]

3.27     The proposal to restructure and sell Mr Lewski’s interests in APCHL [155]-[158]

3.28     The 7 April 2008 meeting – the advice that Mr Lewski had agreed to a restructure and sale of his interests in APCHL [159]-[164]

3.29     Blake Dawson provides legal advice [165]-[167]

3.30     The 21 April 2008 meeting – the resolution to authorise execution of the Heads of Agreement [168]-[174]

3.31     The 27 June 2008 meeting – the resolution to execute the Deed of Acknowledgment [175]-[178]

3.32     The payment of the balance of the Listing Fee [179]

3.33     Events after payment of the Listing Fee [180]-[184]

4.        The agreed issues in the proceeding [185]

5.        My assessment of the Directors’ evidence [186]-[188]

6.        The 19 July 2006 meeting [189]

6.1      Mr Jaques’ minute-taking practices [190]-[194]

6.2      Dr Wooldridge’s practices in putting resolutions to the Board [195]-[199]

6.3      The Directors’ evidence in relation to the 19 July meeting

6.3.1    Mr Lewski’s evidence [200]-[201]

Mr Lewski’s stated confidence in the members’ approval of the additional fees [202]-[206]

Mr Lewski’s evidence that he received unequivocal advice on 12 July 2006 [207]-[208]

Mr Lewski’s evidence that he received unequivocal clarifying advice on 14 July and that he informed the Board of this [209]-[212]

Mr Lewski’s evidence that he did not move the resolution to pass the Amendments [213]-[217]

The evidence of Mr Lewski and Mr Jaques that they abstained from voting on the Amendments by remaining silent [218]-[228]

His evidence that Mr Clarke was present when the Amendments were passed and possibly voted for them [229]

6.3.2    Mr Butler evidence [230]-[238]

6.3.3    Mr Jaques evidence [239]-[241]

6.3.4    Dr Wooldridge evidence [242]-[243]

6.3.5    Mr Clarke evidence [244]

6.4      Should Mr Lewski and Mr Jaques be treated as having voted in favour of the resolution to pass the Amendments [245]-[256]

6.5      The Madgwicks Advice [257]

6.5.1    The preamble to the advice [258]-[260]

6.5.2 The advice regarding the power to amend under the Act [261]-[262]

6.5.3 The advice regarding the power to amend under the Constitution [263]-[270]

6.6      The Directors’ consideration of the Madgwicks Advice and the Amendments [271]-[273]

6.6.1    The failure of the minutes to record discussion of various important matters [274]-[276]

6.6.2    Consideration of the Listing Fee and the failure to properly consider APCHL’s conflicts [277]-[297]

6.6.3    Consideration of the Removal Fee [298]-[305]

6.6.4    Consideration of the Takeover Fee [306]-[308]

6.6.5    Failure to consider the effects of the Amendments [309]-[310]

6.6.6    Consideration of the fact that the additional fees were gratuitous [311]

6.6.7 Consideration of the power to amend under the Constitution [312]-[318]

6.6.8 Consideration of the power to amend under the Act [319]-[322]

6.6.9    Consideration of whether the fees were gratuitous [323]-[324]

7. Issue A1: Did the Directors resolve on 22 August 2006 that the consolidated Constitution incorporating Deed of Variation No 7 be lodged with ASIC to become effective?

7.1      The Madgwicks Minutes and the Jaques Minutes [325]-[332]

7.2      The application of s 251A to the minutes [333]-[339]

7.3      The Directors’ contentions [340]-[345]

7.3.1    Dr Wooldridge’s usual practice with regard to pre- prepared minutes [346]-[351]

7.3.2    The Directors’ evidence that the Lodgement Resolution was not passed [352]-[353]

Mr Lewski [354]-[357]

Mr Butler [358]-[360]

Mr Jaques [361]-[366]

Dr Wooldridge [367]-[368]

Mr Clarke [369]-[376]

7.3.3    The comparison of the two minutes [377]-[388]

7.4      The surrounding circumstances [389]-[401]

7.5      Conclusion [402]

8.        Issue A2(a): What was the effect of the Lodgement Resolution on Deed of Variation No 7, the Constitution of the Trust, the rights and interests of the members of the Trust, and the interests of APCHL?

8.1      The requirement for lodgement of the Amendments [403]

8.2      The effect of the resolution on the Deed

8.2.1    The Directors’ contentions [404]-[410]

8.2.2    When did the Deed come into effect?            [411]-[417]

8.2.3    APCHL’s intention by reference to the statutory framework and other matters [418]-[424]

8.2.4    APCHL’s intention by reference to other evidence [425]-[427]

8.2.5    Were the Directors required to revisit their earlier decision to amend [428]-[432]

8.3 The effect of the resolution on the Constitution [433]-[437]

8.3.1    The arguments based on the construction of s 601GC [438]-[447]

8.4      The effect of the resolution on the rights and interests of the members, the interests of APCHL and Mr Lewski’s interests [448]-[449]

9.        Issue A2(b):

(i)        Was the Lodgement Resolution in the best interests of the members of the Trust?

(ii)       Did the Lodgement Resolution involve any conflict between the interests of the Trust and the interests of APCHL?

9.1      The Directors’ submissions [450]-[453]

9.2      The legislative framework [454]-[461]

9.2.1    The meaning by reference to ss 601FC(1)(c) and 601FD(1)(c) [462]-[463]

9.2.2    The meaning under general law [464]-[476]

9.2.3    The meaning in other materials [477]-[479]

9.2.4    The meaning in a similar statutory provision [480]-[483]

9.2.5    Conclusion [484]

9.3      Is the enquiry subjective or objective [485]-[488]

9.4      The test for breach of s 601FC(1)(c) [489]-[490]

9.5      Was the Lodgement Resolution in the best interests of the members? [491]

9.6      Did a conflict of interests exist? [492]

10.      Issue A2(d): Did any of Lewski, Wooldridge, Jaques, Butler, Clarke; vote in favour of or otherwise assent to the Lodgement Resolution? [493]-[494]

10.1     The minutes of the meeting [495]-[499]

10.2     Whether Mr Lewski’s and Mr Jaques’ conduct conveyed or amounted to a vote in favour of the resolution [500]-[506]

10.3     Whether Mr Clarke’s conduct conveyed or amounted to a vote in favour of the resolution [507]-[511]

10.4     Whether Mr Wooldridge and Mr Butler voted in favour of the Resolution [512]-[513]

10.5     The approach in ASIC v Hellicar [514]-[518]

11.      Issue A2(e): If a Director did vote in favour of, or otherwise assent to, the Lodgement Resolution, in the circumstances in which that occurred did he contravene s 601FD(3)?

11.1     The legislation [519]

11.2     Relevant principles regarding the duties under s 601FD(1) [520]-[530]

11.3     Breach of the duty to exercise reasonable care and diligence – s 601FD(1)(b) [531]

11.3.1 Relevant principles [532]-[543]

11.3.2 The alleged failure to exercise reasonable care and diligence [544]-[545]

11.3.3 The Directors’ contentions [546]-[555]

11.3.4 Consideration as to reasonable care and diligence

The surrounding circumstances [556]-[566]

The obligation to reflect on their earlier decision to amend [567]-[574]

11.3.5 Mr Clarke’s position [575]-[584]

11.3.6 Dealing with the contraventions by reference to the particulars alleged [585]

(i)       Each Director failed to:

(A)     consider and understand; and

(B)      be satisfied that the directors of APCHL acting as a Board had considered and understood the effect of Deed of Variation No 7
[586]-[589]

(ii)      Each Director failed to consider whether, and be satisfied that, there was a legitimate reason for APCHL to make the Amendments [590]-[592]

(iii)     Each Director failed to be satisfied that the Board had considered:

(A) legal advice that the Amendments if made without the approval of members would comply with the Act and the Constitution of the Trust; or

(B)      judicial advice that APCHL would be justified in making the Amendments without member approval
[593]-[595]

(iv) Each Director failed to consider and be satisfied that the Board had considered whether the Amendments if made without the approval of the members would comply with the Act and the Constitution of the Trust [593]-[595]

(v)         Each Director failed to consider and be satisfied that the Board had considered the effect of the Amendments on the rights and interests of the members of the Trust [596]-[598]

(vi)        Each Director other than Mr Lewski failed to consider the effect of the Amendments on the interests of APCHL [599]-[601]

(vii)       Each Director other than Mr Lewski failed to consider the effect of the Amendments on the interests of Mr Lewski and his related and associated entities [599]-[601]

(viii)      Each Director failed to be satisfied that the Board had considered the matters referred to in paragraph (vi) and (vii) above [599]-[601]

(ix)        Each Director failed to consider and be satisfied that the Board had considered how, if at all, the conflict of interests could be resolved in favour of members [602]-[605]

11.4     Breach of the duty to act in the best interests of members – s 601FC(1)(c)

11.4.1 ASIC’s allegations [606]

11.4.2 Relevant principles [607]-[614]

11.4.3 Consideration [615]-[620]

11.5     Breach of the duty not to make improper use of position to:

(i)       advantage APCHL;

(ii)      advantage those who would benefit from the fees payable pursuant to the Amendments; or

(iii)     cause detriment to Trust members;

- as provided in s 601FD(1)(e)

11.5.1 ASIC’s allegations [621]-[622]

11.5.2 Relevant principles [623]

  “To gain” an advantage or “to cause” a detriment [624]-[625]

  Improper use [626]-[627]

11.5.3 Consideration [628]-[634]

11.6 Breach of the duty to take all reasonable steps to ensure compliance with the Constitution - s 601FD(1)(f)

11.6.1 ASIC’s allegations [635]-[636]

11.6.2 Consideration [637]-[641]

12.      Issue A2(c): Did the Lodgement Resolution constitute a breach by APCHL of s 601FC(5)?

12.1     The legislation [642]-[643]

12.2     ASIC’s allegation [644]-[646]

13.      Issue B3: Did the constitution of the Trust at any time between 22 August 2006 and 30 June 2008 authorise APCHL to pay itself the listing fee? [647]-[648]

13.1     The Constitution [649]-[653]

13.2     The Act [654]-[673]

13.3 Does the Constitution qualify the power to amend in s 601GC(1)(b)? [674]-[683]

14. Issue B4: Did APCHL contravene s 208 (as modified by Part 5C.7) on or about 27 July 2007, 3 August 2007, 13 March 2008, 28 April2008, or 27 June 2008, in relation to the payment of the listing fee or any part thereof?        [684]-[688]

14.1     The legislative framework [689]-[691]

14.2     The breach of s 208(1)(a)-(d) [692]-[694]

14.3     Whether s 208(3) qualifies the prohibition in s 208(1) [695]-[700]

15. Issue C5: If the answer to issue B4 is ‘yes’, were any of Lewski, Wooldridge, Jaques, Butler, or Clarke knowingly concerned in any such contravention by APCHL of s 208 (as modified by Part 5C.7)? [701]

15.1     The statutory framework [702]-[704]

15.2     The main argument [705]-[711]

15.3     The authorities [712]-[716]

15.4     Consideration [717]-[731]

15.5     Conclusion [732]-[734]

16.      Issue D6: What matters were considered and not considered by the Directors of APCHL who were involved in deciding that APCHL should:

(a)       pay itself the Listing Fee;

(b)      execute the Heads of Agreement;

(c)       execute the Deed of Acknowledgement?

Issue D7: Insofar as they were involved in deciding, did any of Lewski, Wooldridge, Jaques, Butler, Clarke, contravene s 601FC(3) on any one or more of 26 June 2007, 27 July 2007, 3 August 2007, 13 March 2007, 28 April 2008, or 27 June 2008?
[735]-[740]

16.1     Breach of the duty to act in the best interests of the members and to give priority to the members’ interests over those of the RE

16.1.1 ASIC’s contentions [741]

16.1.2 The Directors’ contentions [742]-[762]

16.2 The duty to take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the responsible entity complies with the Act [763]-[766]

17.      The no case submission [767]-[768]

18.      Conclusion [769]-[771]

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 594 of 2012

BETWEEN:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff

AND:
AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED ACN 095 474 436 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED)
First Defendant

MR WILLIAM LIONEL LEWSKI
Second Defendant

MR MARK FREDERICK BUTLER
Third Defendant

MR KIM JAQUES
Fourth Defendant

DR MICHAEL RICHARD LEWIS WOOLDRIDGE
Fifth Defendant

MR PETER CLARKE
Sixth Defendant

JUDGE:

MURPHY J

DATE:

12 DECEMBER 2013

PLACE:

MELBOURNE

REASONS FOR JUDGMENT
1. INTRODUCTION

The plaintiff, the Australian Securities and Investments Commission (“ASIC”) brought proceedings against six defendants alleging that they contravened the Corporations Act 2001 (Cth) (“the Act”). It alleged that the defendants breached:
(a)the duties imposed on a responsible entity of a managed investment scheme under Part 5C of the Act, as prescribed in s 601FC;
(b)the duties imposed on the officers of a responsible entity, as prescribed in s 601FD; and
(c)the rule prohibiting related party transactions by a responsible entity without approval of the members as prescribed in s 208 (as modified by Part 5C.7), and the prohibition on directors of a responsible entity being involved in such a contravention as prescribed in s 209.
ASIC seeks declarations of contravention, pecuniary penalties and orders prohibiting five former directors of APCHL from managing corporations. For simplicity, the references to legislative provisions in these reasons are unless otherwise stated a reference to a provision of the Act.
The first defendant, Australian Property Custodian Holdings Limited (Receivers and Managers Appointed) (In Liquidation) (Controllers Appointed) (“APCHL”) was at all relevant times the responsible entity (“RE”) of a managed investment scheme, the Prime Retirement and Aged Care Property Trust (“Prime Trust” or “the Trust”).
The second to sixth defendants are persons who were at all relevant times directors of APCHL, namely:
(a)William Lionel Lewski - the second defendant;
(b)Mark Frederick Butler - the third defendant;
(c)Kim Samuel Jaques - the fourth defendant;
(d)Michael Richard Lewis Wooldridge - the fifth defendant; and
(e)Peter John Clarke - the sixth defendant;
(collectively “the Directors”).
The alleged contraventions all relate to APCHL’s conduct between 22 August 2006 and 27 June 2008 inclusive in its capacity as RE of the Prime Trust, and by the Directors as officers of APCHL in its capacity as RE.
APCHL played no active part in the proceeding and effectively submitted to judgment. It has proceedings on foot in the Supreme Court of Victoria seeking damages against the Directors and seven other defendants relying on some of the same conduct but bringing the case against more defendants and making a wider range of allegations.
Although not a foundational element of the contraventions alleged, the first relevant event is a resolution to amend the Prime Trust Constitution (“the Constitution”) passed at the 19 July 2006 meeting of the board of directors of APCHL (“the Board”). This resolution is relied on by ASIC as part of the factual background to later conduct which is alleged to contravene the Act.
The amendments to the Constitution provided for substantial new and increased fees to become payable to APCHL (in its personal capacity) on the occurrence of certain events, namely:
(a)a new fee to be payable if the Trust was listed on the Australian Stock Exchange (“the Listing Fee”);
(b)a new fee to be payable if APCHL was removed as the RE (“the Removal Fee”); and
(c)an increased fee to be payable if the Trust was subject to a takeover (“the Takeover Fee”);
(collectively “the Amendments”).
However, cl. 25.1(a) of the Constitution prohibited any amendment of the Constitution in favour of or to the benefit of APCHL. It is uncontroversial that the Amendments were in favour of and resulted in a benefit to APCHL, and there was therefore a question as to the Board’s power to pass them.
The Directors (except for Mr Clarke who had not yet joined the Board) had before them a letter of advice of 14 July 2006 from APCHL’s solicitors, Madgwicks (“the Madgwicks Advice”), which included advice as to the Board’s power to pass the Amendments. The advice was unusual in that, instead of advising Madgwicks’ opinion as to the operation of cl. 25.1, the Directors (none of whom were legally qualified) were invited to choose one of two proffered interpretations of the clause. The advice was also equivocal in that it did not advise the Directors that APCHL had power to pass the Amendments, and instead proffered two potentially available interpretations of the clause, on one of which the Board did not have power to pass the Amendments, and on the other of which it did.
The Directors chose that interpretation of cl. 25.1 which the Madgwicks Advice stated allowed the Board the power to pass the Amendments. The Directors resolved to approve them.
After the meeting two of the Directors signed Supplemental Deed of Variation (No 7) (“Deed of Variation No 7” or “the Deed”) which contained the Amendments, but on legal advice left the Deed undated.
Mr Lewski, several family members and an associated company (who I will describe as his associates) owned all the shares in APCHL. He and his associates were ultimately entitled to the benefit of the new and increased fees but for simplicity I will usually refer to the fees as having been payable to Mr Lewski.
1.1 The first group of contraventions
ASIC pleaded three groups of contraventions. The first group of contraventions are based in the allegation that, at its meeting on 22 August 2006, the Board resolved to lodge with ASIC a consolidated Constitution incorporating the Amendments so that they would become effective pursuant to s 601GC(2) (“the Lodgement Resolution”).
ASIC alleged that in passing the Lodgement Resolution:
(a)APCHL contravened s 601FC(5) in that it breached its duty:
(i)of care and diligence under s 601FC(1)(b);
(ii)to act in the best interests of the members of the Trust under s 601FC(1)(c);
(iii)to give priority to the interests of the members of the Trust over its own interests, under s 601FC(1)(c); and/or
(iv)to comply with a duty imposed on it by the Constitution not to vary or attempt to vary it in a manner that was in favour of or resulted in any benefit to APCHL, under s 601FC(1)(m);
(b)Each of the Directors contravened s 601FD(3) by voting in favour of or otherwise assenting to the Lodgement Resolution in that he breached his duty:
(i)of care and diligence under s 601FD(1)(b);
(ii)to act in the best interest of the members of the Trust under s 601FD(1)(c);
(iii)to give priority to the interests of the members of the Trust under s 601FD(1)(c);
(iv)not to make improper use of his position as an officer of the RE of the Trust to provide an advantage to APCHL, under s 601FD(1)(e);
(v)not to make improper use of his position as an officer of the RE of the Trust to provide an indirect advantage to persons who would benefit from the fees paid to APCHL, under s 601FD(1)(e);
(vi)not to make improper use of his position as an officer of the RE of the Trust to cause detriment to the members of the Trust, under s 601FD(1)(e); and
(vii)to take all steps that a reasonable person would take to ensure that APCHL complied with the Constitution and the Act, under s 601FD(1)(f).
ASIC sought declarations of contravention pursuant to s 1317E in relation to these breaches.
It is uncontroversial that on 23 August 2006 APCHL in fact lodged a consolidated Constitution with ASIC with the intent that the Amendments would become effective.
With regard to the alleged breaches of duty in passing the Lodgement Resolution, I see five factors as being of particular importance, namely:
(a)the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee:
(b)consideration of the Amendments created self-evident conflicts:
(i)between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the members’ interests in having APCHL perform its services as RE for the fees in the existing Constitution; and
(ii)between APCHL’s interest in becoming entitled to the additional fees and its statutory duty to act in the best interests of the members and to give priority to their interests;
(c)the nature of the proposed additional fees was that:
(i)APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Trust out of Trust funds. Absent the Amendments the members had the right to the services of APCHL as RE without the additional fees;
(ii)the Listing Fee imposed a fee if the Trust was listed, in circumstances where under the existing Constitution the members were entitled to expect listing to occur without a fee if the Directors considered that listing was in the members’ best interests (as they did);
(iii)the Removal Fee imposed a fee for the exercise of the members’ right to remove APCHL as RE, which the members could require without a fee under the existing Constitution;
(iv)the Takeover Fee substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(v)the Takeover Fee could be payable on multiple occasions; and
(vi)the fees could be payable notwithstanding that another of the fees had previously been paid;
(d)the fees were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net Scheme property after borrowings were taken into account); and
(e)the fees were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the members in return for them.
(collectively “the Five Principal Factors”).
The Five Principal Factors indicated that APCHL and the Directors were required to exercise a high level of care and diligence and to be cautious in dealing with APCHL’s conflicts.
While each Director was separately represented I usually deal with their contentions together. I do so for convenience and because, although there are some differences between the contentions advanced, they are usually small and their contentions largely followed common themes.
The Amendments which are central to the case were passed on 19 July 2006, but ASIC did not plead that the resolution passing the Amendments founded any contravention. It relied instead on the Lodgement Resolution of 22 August 2006. I have little doubt that the reason that ASIC took that course is that any contravention that may have occurred on 19 July 2006 was prima facie out of time when ASIC filed the proceeding on 21 August 2012. Section 1317K provides that a proceeding for a declaration of contravention may be started no later than six years after the contravention. I cannot know why ASIC did not commence its proceeding earlier, but its failure to plead the 19 July 2006 resolution passing the Amendments added an otherwise avoidable complexity to the proceeding.
As ASIC relied on the Lodgement Resolution rather than on the earlier resolution passing the Amendments, in large part the Directors’ defences did not focus on the impact of the Amendments on the members. The first thrust of their contentions was that the Lodgement Resolution was not passed at all, and the following thrusts largely went to the types of considerations that were appropriate when passing such a resolution.
On the assumption that the Lodgement Resolution was passed, the Directors’ defences included that:
(a)ASIC did not establish that any of the Directors voted for it. This contention involved the observation that, although the minutes recorded that the resolution was passed, they did not record each individual Director’s vote. Three of the five Directors contended that they had abstained from voting, and the other two contended that it had not been proved that they voted in favour;
(b)the Lodgement Resolution had no effect on Deed of Variation No 7, the Constitution, the rights and interests of the members, or of APCHL and Mr Lewski, because, amongst other things, APCHL had a pre-existing obligation to lodge the Amendments which arose from the 19 July 2006 decision to amend, the signing of the Deed then, and s 601GC(2). Lodgement was not in discharge of the resolution;
(c)the Lodgement Resolution was simply a procedural or administrative step to lodge amendments already made. The Directors argued that different considerations applied when deciding whether to pass the Lodgement Resolution compared to when the Amendments were passed on 19 July 2006; and
(d)when considering the Lodgement Resolution there was no duty on the Directors to revisit and reconsider their 19 July 2006 decision to amend, and no reason or occasion for them to do so.
Each of the Director’s submissions stands to be rejected. By way of broad summary, I am satisfied:
(a)that the Board passed the Lodgement Resolution at its meeting on 22 August 2006;
(b)that by their conduct each of the Directors voted for or otherwise assented to the resolution;
(c)having deliberately been left undated, Deed of Variation No 7 did not come into effect on and from 19 July 2006;
(d)there was no pre-existing obligation to lodge the Amendments, which were in fact not ready to be lodged until after the Lodgement Resolution was passed on 22 August 2006;
(e)the Lodgement Resolution was important in its own right, that is, regardless of whether the Directors revisited their earlier decision to amend. It operated to authorise and direct completion of the Deed and lodgement of the Amendments. It was the final step to bringing the Amendments into effect and it was not appropriate to treat it as merely procedural or administrative;
(f)the Five Principal Factors, particularly APCHL’s plain conflict of interest, indicated that the Directors should exercise high standard of care and take a cautious approach; and
(g)while the Lodgement Resolution was important without any requirement to revisit the earlier decision to amend, in all the circumstances a reasonable director in each Director’s position would on 22 August have reflected on his inadequate consideration a month earlier of, amongst other things:
(i)APCHL’s conflict of interest and whether he had given priority to the members’ interests;
(ii)the deleterious effect of the Amendments; and
(iii)the question as to whether the Board had power to pass the Amendments.
I have concluded that in passing the Lodgement Resolution APCHL and each of the Directors breached their duties under ss 601FC(1) and 601FD(1).
1.2 Listing
On 3 August 2007 the Prime Trust units were officially quoted on the ASX. It is uncontentious that over the period from 26 June 2007 to 27 June 2008 the Listing Fee of about $33 million was paid out of Scheme property to APCHL and then to entities associated with Mr Lewski.
The second and third groups of contraventions are based on the conduct of APCHL and the Directors on 26 June 2007, 27 July 2007, 3 August 2007, 13 March 2008, 28 April 2008 and 27 June 2008 in making the decisions to pay and in paying the Listing Fee to APCHL (and through it to Mr Lewski).
1.3 The second group of contraventions
In the second group of contraventions ASIC alleged that, in paying the Listing Fee to itself and to one of Mr Lewski’s associated entities, APCHL contravened s 208 (as modified by Part 5C.7 of the Act) which prohibits payments to an RE or to a related party without the approval of the members. Section 208(3) provides that an RE may pay itself fees from scheme property where the Constitution provides for the fees.
Relevantly to these contraventions I have concluded that:
(a)cl. 25.1 of the Constitution operated to prohibit APCHL from making the Amendments and they were made outside power; and
(b)the statutory power of amendment in s 601GC(1)(b) was not engaged as the Board gave no consideration to the members’ right to have the Scheme administered for the fees provided in the existing Constitution. The Board could not have reasonably considered that the Amendments would not adversely affect the members’ rights.
The Amendments were therefore invalid. I do not accept the contention that, even if not validly made, the Amendments became effective upon lodgement with ASIC and that they remain so until declared invalid.
It is uncontentious that in paying the Listing Fee APCHL had given a benefit to itself and to a related party, and that it did not seek the members’ approval to do so. Given my conclusion that the Amendments were invalid and of no effect, the Constitution did not provide for the Listing Fee. ASIC therefore made out its claim that APCHL breached s 208.
ASIC also alleged that each of the Directors contravened s 209 in that he was involved in APCHL’s breach of s 208. This allegation involved construing s 208 as modified in order to determine the essential elements of the contravention therein defined. I concluded that on the proper construction of s 208 it was for the Directors to prove that the Constitution provided for the Listing Fee. Because the Amendments were invalid they could not do so. The Directors’ unchallenged evidence in this regard was that they honestly believed that the Constitution had been validly amended to include the Listing Fee. While I must accept that they held an honest belief, that points to whether they should be relieved from liability and also to questions of penalty.
1.4 The third group of contraventions
In the third group of contraventions ASIC alleged that in making the decisions to pay the Listing Fee:
(a)APCHL contravened s 601FC(5) in that it breached its duty:
(i)to act in the best interests of and give priority to the interests of the members of the Trust over the interests of APCHL, under s 601FC(1)(c); and
(ii)to ensure that all payments out of the scheme property were made in accordance with the Constitution, under s 601FC(1)(k); and
(b)each of the Directors contravened s 601FD(3) in that each of them breached his duty:
(i)to act in the best interests of and give priority to the interests of the members of the Trust over the interests of APCHL, under s 601FD(1)(c); and
(ii)to take all steps that a reasonable person would take to ensure that APCHL complied with the Act, under s 601FD(1)(f).
It is uncontentious that APCHL made the decisions to pay the Listing Fee. The Directors’ argument turned on their honest belief that the Amendments were valid. They denied that there could be any breach of the duties under ss 601FC(1) and 601FD(1) in making the decisions to pay the Listing Fee when the fee was (apparently) provided for in the Constitution. I concluded that ASIC made these contraventions out too.
1.5 Relief
I am yet to hear whether any of the Directors should be relieved from liability for the contraventions I have found, and whether any of them should be ordered to pay a pecuniary penalty or be prohibited from the management of corporations. Those are matters for a further hearing.
2. THE STANDARD OF PROOF
Proceedings for recovery of pecuniary penalties under the Act are civil proceedings, and s 140 of the Evidence Act 1995 (Cth) (“Evidence Act”) requires that I apply the civil standard of proof. In reaching a conclusion of satisfaction that a case has been proved on the balance of probabilities, s 140(2) of the Evidence Act provides:
Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a)       the nature of the cause of action or defence; and
(b)       the nature of the subject-matter of the proceeding; and
(c)       the gravity of the matters alleged.

To summarise the approach that I have taken in this case I respectfully adopt the explanation of Gzell J in Australian Securities and Investments Commission v Macdonald and Others (No 11) (2009) 230 FLR 1 (“ASIC v Macdonald No 11”) at [182]-[186]. His Honour cites the classic exposition of the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 (“Briginshaw”) at 361-362 where, although speaking on the common law position, Dixon J illuminated the type of considerations which s 140 now requires be taken into account.
Gzell J explains:
[182]Section 140 of the Evidence Act 1995 (Cth) prescribes the standard of proof in civil proceedings as the balance of probabilities and provides that the Court may take into account in deciding whether it is so satisfied, the nature of the cause of action or defence, the nature of the subject matter of the proceedings and the gravity of the matters alleged.
[183]This provision reflects Dixon J’s discussion of the quality of persuasion required for this purpose in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362. In that case, the High Court held that, on a petition for divorce on the ground of adultery, the standard of proof was not that of proof beyond reasonable doubt.
[184]Dixon J said that when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. In civil matters, the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal:
The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency.
[185]To similar effect is the statement of the majority of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 170-171.
[186]These are civil penalty proceedings where a pecuniary penalty of up to $200,000 and an order disqualifying the individual defendants from managing corporations for such period as the Court considers appropriate, are sought. The seriousness of the nature of the cause of action and the gravity of the matters alleged must be taken into account in deciding whether facts have been proved on the balance of probabilities: Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 at [146]-[148]. This means that, ordinarily, the more serious the consequences of what is contested in litigation, the more a Court will have regard to the strength and weakness of evidence before it in coming to a conclusion: Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at [30]. That means that if inferences are to be drawn, ASIC has to establish that the circumstances appearing in the evidence give rise to a reasonable and definite inference and not merely to conflicting inferences of equal degrees of probability: CEPU at [38].
In the case before me ASIC seeks declarations of contravention, pecuniary penalties and orders to preclude the Directors from the future management of corporations. There can be no question that the allegations are serious and may have serious consequences for each Director’s livelihood as well as their personal and professional reputations. This circumstance demands the application of the Briginshaw principle as is now routine in civil penalty matters.
3. THE FACTS
In setting out the facts as I see them I occasionally draw inferences which are in part based on my assessment of the Directors’ evidence. For reasons of convenience however I set out my assessment of each Director’s evidence later.
3.1 The ownership of APCHL
APCHL was incorporated on 27 December 2000. At all material times:
(a)Mr Lewski, his father David Lewski, his mother Mala Lewski, and his wife Roslyn Lewski each owned one ordinary share in APCHL. The rest of the shares in APCHL were owned at all material times by Daytree Pty Ltd (“Daytree”);
(b)Mr Lewski was a director of Daytree, and the shares in Daytree were owned by another Lewski family company, Wickgold Investments Pty Ltd (“Wickgold”);
(c)the directors of Wickgold were Mr Lewski, Mala Lewski and David Lewski;
(d)the ownership of all of APCHL’s shares could be directly or indirectly traced back to Mr Lewski or his family.
3.2 The ownership and control of other relevant companies
Carey Bay Pty Ltd (“Carey Bay”), Australian Property Administrators Pty Ltd (“Australian Property Administrators”), and Direct Fitness Pty Ltd (“Direct Fitness”) are also relevant in the proceeding. At all material times:
(a)Mr Lewski was the sole director of Carey Bay and Wickgold was the sole shareholder;
(b)Carey Bay was controlled by Mr Lewski within the meaning of s 50AA because he was its sole director;
(c)Carey Bay was a related party of APCHL (as that term is used in s 228 as modified by Part 5C.7) because it was controlled by Mr Lewski and he was a director of APCHL;
(d)Mr Lewski and his wife Roslyn were the directors of Australian Property Administrators and Wickgold was the sole shareholder; and
(e)Mr Lewski and his wife Roslyn were the directors of Direct Fitness and Wickgold was the sole shareholder.
3.3 The Board of APCHL
Mr Lewski started APCHL and was its driving force. He was the Managing Director at all material times from incorporation until his resignation on 27 June 2008. He and his associates owned APCHL and the evidence shows that the other Directors saw his continued involvement in the company as important to its success. It appears that Mr Lewski also had significant interests in corporations that contracted to the Trust to manage the properties it owned.
The periods during which each of the Directors was a member of the Board are as follows:
(a)Mr Lewski commenced as a director on 27 December 2000 and continued throughout the relevant period. He resigned on 27 June 2008 which was the date that he transferred control of APCHL to one of its corporate advisors, Kidder Williams Limited, and received payment of the (at that time) unpaid balance of the Listing Fee (“the Listing Fee Balance”);
(b)Mr Butler and Mr Jaques commenced as directors on 1 March 2001 and continued through the relevant period. In April 2004 Mr Jaques became a full time employee of an associated entity of Mr Lewski’s, Australian Property Custodians Pty Ltd. In February 2006 Mr Butler commenced to work as a full time contractor for APCHL and continued to do so throughout the period;
(c)Dr Wooldridge commenced as a director on 21 March 2006, becoming Chairman in July 2006 and continued as Chairman throughout the relevant period; and
(d)Mr Clarke commenced as a director on 21 August 2006 and continued throughout the relevant period.
APCHL had other directors between 2001 and mid-2006 but each ceased to be a director prior to the Amendments being made. They are not defendants in the proceeding and I need not deal with them. APCHL had two further directors when the 2007-08 resolutions were passed, Neil Rodaway and Anthony Hancy. They joined the Board after the Amendments were passed and lodged with ASIC. They are not defendants and I do not deal with them either.
3.4 The Prime Trust
APCHL established the Trust by deed dated 27 December 2000 (“the Trust Deed”). The Trust Deed made APCHL the trustee and manager of the Prime Trust, with an obligation to hold the Trust’s assets for the benefit of the unitholders, who I shall describe as “the members’. It was established as a unit trust, dedicated to the specific asset class of retirement villages and aged care facilities.
Madgwicks commenced acting for the Trust in January 2001 and continued throughout the relevant period. Madgwicks also acted for APCHL in its personal capacity (that is when not acting as RE), as well as for other companies associated with Mr Lewski.
In 2001 APCHL applied to ASIC to register the Prime Trust as a managed investment scheme under Part 5C.1 of the Act. The Trust Deed was amended to make it suitable to become the constitution for a registered scheme by Supplemental Deeds of Variation No. 1 and No. 2 dated 12 July and 20 July 2001 respectively.
In July 2001 APCHL lodged a consolidated Trust Deed with ASIC which contained the amendments to that point, to stand as the constitution of the Prime Trust managed investment scheme upon registration (“the Constitution”). On 23 July 2001 the Prime Trust scheme was registered with this constitution (“the Scheme”). APCHL was the RE of the registered scheme and at all material times thereafter it held the position of RE, holding the Scheme property on trust for the members.
Various amendments to the Constitution were made between 2001 and 2006, but it is unnecessary to go to each of them. The Constitution that applied as at the time of the Board meetings on 19 July and 22 August 2006 was the amended Constitution that came into effect on 30 May 2006 when APCHL lodged with ASIC Supplemental Deed of Variation No. 6 of the Constitution and a consolidated Constitution. I shall describe this as “the existing Constitution”.
Between 2001 and August 2007 APCHL raised substantial capital from private investors and purchased retirement and aged care facilities from Primelife Corporation Limited (“Primelife”) and other entities. APCHL’s business model appears to have been to own the land and facilities, and to lease them to other operators including Primelife and companies associated with Mr Lewski.
Units in the Trust were not easily transferable in that period as there was no secondary market. Members seeking to sell units needed to find a private buyer. There was no facility for members to redeem their units with the Trust prior to June 2004, but the Constitution was amended at that time to introduce a redemption facility. The redemption facility was suspended in March 2006 when a large number of members requested redemptions during a time in which APCHL was making significant acquisitions and there was a decline in the take-up of units by investors. The redemption facility was not reinstated during the relevant period. One of the effects of this was that the members were to a significant degree “locked in” to the Scheme. It was difficult for them to sell their units and they could not redeem their investment.
In a letter to the members on 22 March 2006 APCHL explained the suspension of the redemption facility, advising that the gross assets of the Trust had a value in excess of $450 million and that the Trust had plans to acquire further assets worth $250 million. The assets of the Trust continued to increase thereafter as further acquisitions were made.
3.5 The members’ understanding that listing of the Trust was contemplated
The Constitution always contemplated the possibility that the units of the trust might be listed on a stock exchange. From registration in 2001 cl. 1.1(uu) of the Constitution provided that the Trust would vest on the first to occur of:
(a)31 December 2007 - if the Responsible Entity had not passed a resolution on or before 31 July 2007 to seek and apply for a listing of the units of the Trust on an appropriate exchange; or
(b)the last day of the perpetuity period - being 80 years from the date of the Trust Deed; or
(c)subject to being within the perpetuity period, such other date as APCHL may appoint with the consent of a special majority of the members.
Clause 1.1(uu) of the existing Constitution (applying at the time of the Amendments) was to the same effect, although without reference to the perpetuity period. It provided:
“Vesting Day” means the first to occur of the following dates, namely:
(i)if the Responsible Entity has not passed a resolution on or before 31 July 2007 to seek and apply for a listing of the Units of the Trust on an appropriate exchange – 31 December 2007; or
(ii)such date being earlier or later than the date specified in clause 1.1(uu)(i) as the Responsible Entity may with the consent of the Unitholders by special majority appoint.
APCHL informed investors of the possibility of a future public listing of the Prime Trust in the information provided to potential investors, including the first Prospectus dated 27 July 2001 (“the Prospectus”), the Product Disclosure Statements (“PDS”) dated 15 August 2003 and 30 August 2005, and a supplementary PDS dated 22 August 2006 (“the Supplementary PDS”) which advised of the Amendments. Each of these documents warned that an investment in the Trust was likely to be illiquid in the short term because the units would not be listed on any stock market exchange, noting however that the Constitution required the Trust to be terminated by 31 December 2007 if APCHL had not passed a resolution to list the units of the Trust on an appropriate exchange on or before 31 July 2007. This was subject to the right of APCHL to fix another vesting date with the consent of a special majority of members.
3.6 APCHL moves towards listing the Trust on the ASX
From early 2006 APCHL commenced to move towards listing the units in the Trust on the ASX. Mr Lewski deposed:
Whilst the listing of the Prime Trust was always possible, it was not, as referred to above, a priority at the outset of the creation of the Prime Trust. By early 2006 however, it was my objective, and I believe that of the board, to investigate the possibility of listing the Prime Trust. Although the ultimate decision, as to whether to list or not, could not sensibly be made until closer to the listing date and after obtaining detailed advice from investment advisers, it was my view in or about early 2006 that listing may have been a desirable option in order to maximise the benefits and returns to unitholders.
(Emphasis added.)
Mr Butler deposed:
I had been aware since the Trust was established in 2001 that the Trust was due to come to an end by 31 December 2007 (as is stated in the Prospectus dated 27 July 2001 at CB652). I have always thought that it was critical to give investors an exit strategy to allow them to recover their investments by this date. I believed that this could only be achieved by selling the assets of the Trust or by listing APCHL on the Australian Stock Exchange…
Since I first read the Prospectus in 2001 I understood the reference to the termination of the Trust to be a reference to a listing, as distinct from a sale of the Trust assets… Similarly, I understood references to the determination of the Trust in subsequent PDS (such as CB224) as referring to a listing.
(Emphasis added.)
The minutes of the 18 April 2006 Board meeting record:
ASX Listing
PWC, E & Y and Kidder Williams have been consulted.
Leo Iafarta has also been contacted and would seem to be the strongest to assist the Trust through to listing. Mr Iarfarta will be forwarding a report on his costs after ANZAC day.
…
A sub committee will be set up to handle the listing process.
(Emphasis added.)
Importantly, on behalf of APCHL, Madgwicks formally responded to a notice from ASIC in a letter of 4 May 2006 which stated:
It has also been APCHL’s objective to continue to move prudently and systematically towards listing of the Trust before December 2007, which APCHL believes is also a means to maximise the benefits and returns to unitholders.
The letter was signed by Mr Lewski.
In a letter of 10 May 2006 from Kidder Williams to Mr Lewski outlining the proposed terms for that firm’s engagement, Kidder Williams wrote:
We understand that you are seeking to appoint an experienced advisor to assist the Company i[n] preparing the Trust for an ASX listing in the next 12 to 15 months. In addition, some assistance with acquisitions, and capital raisings for specific projects may be required in the interim.
Mr Lewski informed the board of his discussions with Kidder Williams and later executed the engagement letter on behalf of APCHL.
Dr Wooldridge’s evidence is that he was informed by Mr Lewski in discussions prior to his joining the Board in March 2006 that listing the Trust was an option. He said that by July 2006 he understood that Mr Lewski’s role in the Trust was to be increasingly focused on listing. In relation to the 19 July 2006 Board meeting he said that one of the reasons he voted to introduce the Removal Fee and the Takeover Fee was that, in the absence of those fees, APCHL could be held to ransom in advancing towards listing.
Mr Clarke said that at the time he joined the Board in August 2006 it was apparent to him from the meetings he attended and the discussions he had with the other Directors that there was some urgency about having the Trust listed.
The evidence shows that by mid-June 2006 it was likely that the Trust would be listed on the ASX in the next 12-18 months. To use the words of the 4 May letter, APCHL was moving prudently and systematically towards listing the Trust before December 2007. The likelihood that the Trust would be listed on the ASX meant that the imposition of a substantial Listing Fee through the Amendments was of real significance to the members.
3.7 The Options Advice
In late March 2006 Mr Lewski sought legal advice from Richard (Rick) Goldberg, a partner of Madgwicks, as to whether APCHL could issue options in the Trust to itself. Mr Goldberg was not called to give evidence but it appears from other evidence that he was the Madgwicks partner with responsibility for APCHL’s legal work, and this relationship appears to have been longstanding. His Madgwicks reference number appears on the amendments to the Constitution made in July 2001.
Madgwicks’ file notes show that Mr Lewski sought advice as to the issue of a large number of options which would be issued to APCHL and were intended to be provided to the Directors as part of their remuneration.
Madgwicks provided a letter of advice to APCHL dated 11 April 2006 dealing with the legality of the proposed issue of options (“the Options Advice”), which was considered at the 18 April 2006 Board meeting. Madgwicks advised that if options were to be issued some amendments to the Constitution were appropriate as there was no express power to issue them. In summary Madgwicks advised that the necessary amendments did not require the members’ approval as on the existing authorities the amendments did not affect the members’ rights and at most negatively affected the value of their units. The Directors relied on the Options Advice to support their understanding of the Board’s power to pass amendments without obtaining the members’ approval to do so.
3.8 APCHL’s fee entitlements under the Constitution

From registration in 2001 the Constitution set out the fees that APCHL could charge against Scheme property. These remained unchanged until the Amendments that are the subject of the proceedings. Clause 24.5 of the existing Constitution provided for the following fees:
(a)an Annual Management Fee - an annual fee pursuant to cl. 24.5(a), namely:
(i)a fee of 0.25% of the gross asset value of the fund; and
(ii)a fee of 4% of the gross income of the Trust;
(b)an Exit Fee - a fee pursuant to cl. 24.5(c) to be paid based on whichever event was the earlier of:
(i)the determination of the Trust - a fee of 2.5% of the gross asset value of the Trust fund calculated on the determination of the Trust (“the Vesting Fee”); or
(ii)the sale of all the main assets and undertakings of the Trust was completed - a fee of 2.5% of the net sale proceeds on settlement of the sale (“Exit Sale Fee”). “Net sale proceeds” was defined in cl. 24.5(e) to mean all proceeds and receipts from the sale of assets less any costs directly associated with the sale;
(c)a Sale Fee - a fee pursuant to cl. 24.5(d) of 2.5% of the net sale proceeds on completion of the sale of any main asset of the Trust, except where APCHL was entitled to receive an exit fee under cl. 24.5(c) (“Asset Sale Fee”). “Net sale proceeds” had the same definition as in relation to the Exit Sale Fee;
(d)a Takeover Fee – a fee pursuant to cl. 24.5(f) of 2.5% of the gross price paid by an acquirer for the acquisition of the units in the Trust, relevantly, where the acquirer’s voting power increases from:
(i).20% or below to more than 20%; or
(ii)a starting point that is above 20% and below 90%;
(e)a Redemption Fee (from 2004) – a fee pursuant to cl. 24.5(g) of up to 5% of the redemption price of any unit redeemed by the Trust, under cl. 9B of the Constitution.
3.9 The proposal to introduce new fees, including the Listing Fee
On 5 June 2006 Mr Lewski attended a meeting with Mr Clarke, Mr Butler, Mr Jaques and representatives of Kidder Williams. Mr Lewski’s evidence is that he informed the meeting that APCHL was entitled to a fee of 2.5% calculated on the gross asset value of the Trust when it vested or was listed on the ASX. He deposed that Philip Powell of Kidder Williams contacted him in mid-June to inform him that he had read the Constitution and that it did not contain any fee payable on listing. Mr Lewski said he then re-read the Constitution and was surprised to discover that there was no such provision.
On 20 June 2006 the Board met. The minutes show that the Board discussed a letter received from Thompson Eslick, lawyers, seeking a copy of the unit register. The minutes record:
We have received a letter from these lawyers asking for a copy of our Unit Registry. It appears someone will want to contact the Unitholders, we assume for the possibility of making an offer for their units in an attempt to acquire control of the Trust. It could be a number of people, including Babcock and Brown, Macquarie, Aevum, APN. We will find out when they contact us. The upside is that any offer would offset the redemption problem, as those wishing to sell would be able to accept the offer. It could be an opportunistic offer for less than $1.00, or some small premium to gain control of the units.
Kidder Williams would then be asked to do a “fair value” report. We will have revaluations coming through soon and our strong record of continuing monthly income distributions should persuade investors not to sell. Also advisors could put people into the Trust to “stag” a profit. 20% of units are required to call a meeting and 75% are needed to replace the Responsible Entity.
The RE’s track record should also persuade unitholders not to sell.
“Poison Pills:” we will review this position in order to make a takeover difficult. We may also need a “white knight”, maybe DB Zwern or GE to invest in the Trust.
ASX listing will also be an impediment as investors will probably want to hold on to get a possible windfall.
Our financial agreements will also cause a problem for this sort of action, as they all say that removal of the RE is a fundamental breach.
Our management agreements are 25 year agreements to the management group which would have to be bought back.
The evidence of Dr Wooldridge, Mr Butler and Mr Lewski, supported by the minutes, is that the Board was concerned that the request for the unit register was made to enable another company to make “low-ball offers” for the units to the members. They said that in light of these concerns the Board decided to look into the implementation of disincentives that might discourage such offers, which they called “poison pills”. Mr Lewski said that the Board’s view was that he should seek legal advice as to any steps that could legitimately be taken to make a takeover difficult.
Mr Lewski also claimed that he informed the Board on 20 June that there were “anomalies” in the fees payable to APCHL under the existing Constitution and that he would seek legal advice on that issue as well. Mr Butler disagreed, deposing he first heard of the suggested “anomalies” from Mr Jaques in early July 2006. Dr Wooldridge was also unable to recall Mr Lewski saying anything about such fee anomalies in the Board meeting. The minutes make no mention of his informing the Board of any such “anomaly” at the time and I prefer the minutes and the evidence of Dr Wooldridge and Mr Butler to Mr Lewski’s recollection.
3.10 Mr Lewski seeks legal advice from Madgwicks
It is uncontentious that Mr Lewski sought legal advice from Madgwicks on 20 June 2006 in relation to amending the Constitution to provide for additional fees including the Listing Fee.
A file note by Wendy Shang, an employee solicitor at Madgwicks, dated 20 June 2006 shows that she had a telephone conversation that day with Mr Lewski, in which he raised the proposed Amendments. She recorded the substance of Mr Lewski’s instructions in an email to Mr Goldberg that day. The email stated:
Hi Rick,
I just had a brief meeting with Bill and he wanted me to brief you on a new matter before you return on Tuesday.
An offer has been made for the Units in the Prime Fund (you may need to clarify that it’s the Prime Aged Care and Retirement Trust?) and he wants you do something similar to what you did with APN (he said you would know what that meant). Bill said he needed us to go through any poison pill issues within the various structural and document arrangements in respect of the trust.
The primary issue which he would like you to consider is whether he can change the Constitution without needing to go to the Unit Holders. He would like to embellish the provisions to deal with poison pill issues and other issues without going to Unit Holders.
Secondly, he also has other issues outside the Constitution which he wants to discuss with you. In particular, he wants you to think of any defensive strategies for preserving the position [of] the fund, and anything else that’s relevant.
If this is unclear, give me a call on [telephone number or telephone number] (or give Bill a call if you want to discuss further with him).
cheers,
Wendy
(Emphasis added.)
Ms Shang’s file note tends to show that Mr Lewski wanted to amend the Constitution to introduce new fees to create “poison pills” against the takeover and/or removal of APCHL as RE. It is significant that Ms Shang notes that the “primary issue” upon which Mr Lewski sought advice was whether the Constitution could be amended without obtaining the members’ approval.
Mr Goldberg’s time charging records show that there was then a 30 minute conference between Mr Lewski and Mr Goldberg on 28 June 2006. Mr Goldberg made an undated file note of a conference with Mr Lewski which was situated next to or attached to this time charging record in the Madgwicks file. Because of its content and its location in the file, I infer that it is a file note of this conference on 28 June 2006. While hand written, the file note can be read, and it records the following:
gross asset value – 2 billion
…
2½ % of the value of equity for takeover fee
…
Exit fee = 2½% of gross asset value
Mid July - Board meeting
Need to remove anomaly
Change of RE fee
not the takeover fee
Listing fee - not in Constitution
- no fee if successfully list
Consider issues - can it be fixed
need advice mid July 4 Board meeting
If can be done without UH meeting – prepare Sup Deed.
The file note shows that Mr Lewski sought amendments to the Constitution so that it provided for a Listing Fee and a Removal Fee. Consistently with Ms Shang’s earlier file note it also shows that Mr Lewski wanted the amendments made without seeking the approval of the members. This can be seen in the fact that Madgwicks was instructed to prepare a Supplemental Deed of Variation of the Constitution only if the amendments could be made without unitholder approval.
Mr Lewski essentially corroborated Mr Goldberg’s file note. His evidence was that the Board was concerned about a takeover which could result in APCHL being voted out and the negative effect that this would have on the Trust. He said that he told Mr Goldberg that it was anomalous that the Takeover Fee was calculated on a different basis to the Vesting Fee (which was a component of the Exit Fee), when a takeover could result in the removal of APCHL as the RE.
As the Constitution provided a Vesting Fee to be paid on or about 31 December 2007 he described the absence of an equivalent fee payable on the Trust listing as “odd” and “anomalous”.
3.11 Mr Lewski’s evidence as to confidence in unitholder approval
Mr Lewski accepted that at the meeting on 28 June 2006 he instructed Mr Goldberg to prepare a Supplemental Deed of Variation only if it was possible to amend the Constitution without a meeting of unitholders. But he also said that if Mr Goldberg advised him that it was necessary for the members to approve the amendments he was confident that they would have approved APCHL staying on as the RE of the Trust, notwithstanding the additional fees.
Mr Lewski gave several reasons for this view but as I explain at [202]-[206] I reject his evidence as self-serving, without factual foundation and implausible. Notwithstanding his asserted confidence in the members’ approval, the contemporaneous documents show that Mr Lewski was concerned to avoid seeking it. I infer from his evidence, the file notes and the surrounding circumstances that Mr Lewski thought there was a real risk that the members would not approve the additional fees and he was concerned to ensure that the Amendments were made without having to ask them.
3.12 The Madgwicks file note by Ms Kovacs on 12 July 2006
In a file note dated 12 July 2006 Naomi Kovacs, a senior associate at Madgwicks, noted that she was requested by Mr Goldberg to assist him in providing advice to Mr Lewski. She recorded that, pursuant to Mr Lewski’s instructions, Mr Goldberg asked that she undertake the following legal work :
B. The Constitution currently has provision for the responsible entity to receive a fee, fee is based on equity of fund, not gross asset value of fund. Equity value is net value only. Compare gross value includes all borrowings.
Client wants fee payable based on gross not net.. Can this be amended in the constitution? Does this amendment require unitholder approval?
See Wendy’s advice on WRF regarding amendments to constitution and commentary on adversely affecting rights. Section 601GC.
New file. Rick to advise. Regarding amending Constitution.
Do by Thursday.
Look at: current Constitution. Madgwicks document number 239511.
(Emphasis added.)
Again, this evidence supports the inference that it was important to Mr Lewski that the Amendments be made without any requirement for the members’ approval.
The request that the advice be ready by the following day tends to show Mr Lewski’s urgency. Mr Lewski confirmed in his evidence that he wanted the advice in time for the Board meeting then fixed for 18 July. There is no evidence that pursuing the members’ interests indicated any urgent requirement that the fees be introduced or that there was a business case for APCHL as RE to seek their urgent introduction. I infer that the urgency was Mr Lewski’s and that it related to his getting the Listing Fee in place before the listing process further advanced.
3.13 The prohibition on amendments in favour of APCHL
There was however a significant obstacle to the Amendments being achieved without the members’ approval. At all relevant times the Constitution contained cll. 34.1 and 25.1 which prohibited an amendment in favour of or resulting in any benefit to APCHL.
Clause 34.1 provided:
34.1No Variation
This Deed shall not be capable of being revoked added to or varied otherwise than as provided in Part 25.
Part 25 of the Constitution contained only cl 25.1, providing:
Amendment to Trust
(a)Subject to clause 25.1(b), the Responsible Entity for the time being may at any time and from time to time by deed revoke add to or vary all or any of the trusts, powers, conditions or provisions contained in this Deed….provided further that any such revocation, addition or variation:
(i)shall not be in favour of or result in any benefit to the Responsible Entity;
(ii)insofar as they create any new beneficial interest in the Trust Fund or any part shall be for the benefit of all or one or more of the Unitholders;
(5)shall not affect the beneficial entitlement to any amount set aside for any Unitholder prior to any such revocation, addition or variation; and
(6)shall not infringe the rule known as the Rule against Perpetuities.
(b)Any amendment of this Deed must comply with the Corporations Act.
[See section 601GC for power to amend. The amendment cannot take effect until a copy of the amendment is lodged with ASIC.]
(Emphasis added.)
It is uncontentious that the proposed Amendments were in favour of or would result in a benefit to APCHL.
3.14 The Madgwicks file note by Mr Goldberg on 12 July 2006
Mr Goldberg’s time charging records show that there was a 20 minute conference between Mr Lewski and Mr Goldberg on 12 July 2006. Mr Goldberg made an undated file note of a conference with Mr Lewski which was situated next to or attached to this time charging record in the Madgwicks file. I infer that it is a file note of this conference on 12 July 2006.
While the file note is hand written, it can be read. It shows that the prohibition on amendments in favour of APCHL in cl. 25.1 was brought to Mr Lewski’s attention at the time. It records:
…
25.1(a) - is subject to 25.1(b)
25.1(b) - amendments must comply with Act
601GC [of the] Act says [the Constitution] can be amended by RE if RE considers doesn’t affect members rights.
[Symbol meaning “therefore”] can argue 601GC overrides 25.1(a).
34.1 - doesn’t affect it if under 25.1
(Emphasis added.)
I infer that the file note related to:
(a)the prohibition on amendments in cl. 25.1(a) in favour of or to the benefit of APCHL, and the operation of subcl. (b) with subcl. (a); and
(b)section 601GC which provides that a scheme constitution may only be amended:
(i)by a special resolution of the scheme members under s 601GC(1)(a); or
(ii)by the RE, if it “reasonably considers that the change will not adversely affect members’ rights” under s 601GC(1)(b).
The file note tends to show that Mr Goldberg’s view (and his advice to Mr Lewski) was that it could be argued that cl. 25.1(b) of the Constitution overrode cl. 25.1(a), and that s 601GC(1)(b) then operated to allow APCHL to pass the proposed amendments if it considered that the amendments would not adversely affect members’ rights.
That night at 7:30 pm Ms Kovacs had a telephone conversation with Mr Goldberg. Her file note of the conversation recorded that Mr Goldberg told her that his suggested interpretation of cl. 25.1 was “an argument only”. Ms Kovacs records:
7.30 pm
Phone from Rick.
12/07/06
Clause 25(a) says this is subject to 25(b) so could argue 25(b) alone can be followed
i.e. Corps Act
Is an argument only. Could say 25(b) only requires compliance with Act so 25(a) can be ignored.
Discuss with Bill. He’ll decide if wants letter to present this alternative argument.
…
(Emphasis added.) The file note tends to show that Mr Goldberg’s view was that it was only arguable that the prohibition on amendments in favour of or to the benefit of APCHL set out in cl. 25.1(a) was overridden by cl. 25.1(b).
Mr Lewski confirmed that cl. 25.1 was discussed at the 12 July conference with Mr Goldberg, but he gave evidence that Mr Goldberg advised him unequivocally:
…that the way the two sub-clauses of clause 25.1 worked was that the Act overrides clause 25.1(a), so that what is required is what the Act required, that is, that amendments would be permitted if the board considered that the amendments didn’t adversely affect members’ rights.
As I explain at [207]-[208] I do not accept Mr Lewski’s evidence in this regard. I see it as implausible and inconsistent with the contemporaneous file notes, the draft advices prepared by Madgwicks in the following days, and the final advice provided on 14 July 2006.
3.15 The Madgwicks file note and draft advice of 13 July 2006
Mr Goldberg’s time charging records show that on 13 July 2006 there was a 20 minute telephone conference between him and Mr Lewski. Mr Goldberg made an undated file note of a conversation which, for the same reason as previously stated, I infer is a note of this telephone conference. The file note recorded:
- working on advice re - fees
- preamble is most important
recognised an anomaly in fee earner structure
not intended to have that consequence
net value at end to UH is the same
trying to remedy defect
- rights are the issue
…..
- only - listing fee
- removal fee
if directors resolve to proceed - do Number 7. Sup
This file note tends to show that Mr Goldberg was instructed by Mr Lewski that the preamble of the letter of advice to be provided to the Board was important and that it should set out that the Amendments would remedy an “anomaly” in the fees allowed by the Constitution.
Ms Kovacs produced a draft letter of advice to Mr Lewski and APCHL on 13 July 2006 (“the 13 July Draft Advice”). It referred to the new Listing and Removal Fees at 2.5% of the gross asset value of the Trust, but did not refer to it or to the different calculation of the Takeover Fee.
The draft advice included the following paragraphs:
2.        Amending Constitution to increase APCHL’s fees
You have asked us to advise whether APCHL can amend the Trust’s Constitution to provide for the following new fees to be paid to APCHL without obtaining the consent of the Trust’s unitholders:
(a)providing an [exit] fee where APCHL is removed as Responsible Entity of the Trust to be 2.5% of the gross asset value of the Fund; and
(b)providing a listing fee where APCHL is listed on the Australian Stock Exchange to be 2.5% of the gross asset value of the Fund at the time immediately before listing.
…
3.        What is required for APCHL to amend the Trust’s Constitution?
(a)       Constitution’s requirements for amendments
Clause 25.1(a) of the Constitution allows the Responsible Entity to amend the powers, conditions or provisions of the Constitution provided, amongst other requirements that such amendment shall not be in favour of or result in any benefit to the Responsible Entity.
However, clause 25.1(a) is expressed to be subject to clause 25.1(b), which allows the Constitution to be amended provided it complies with the requirements of the Corporations Act.
Clause 25.1(a) could be interpreted as an enabling provision, empowering the Responsible Entity to amend the Constitution without the Unitholders approval in circumstances where it would not be so empowered under the Corporations Act.
[Rick: should this paragraph go further? Should we mention it can also be interpreted as a restricting provision?]
If the APCHL Board interprets this clause 25.1(a) as an empowering provision only, that is overriding (sic) by the ability to amend the Constitution in the Corporations Act, then regard should be had to the amendment powers under the Corporations Act.
[Rick: you may want to work on how delicately we state the above.]
…
(Emphasis added.)

Against this, Dr Wooldridge’s evidence is that he ascertained the agreement of all Directors present at the meeting to the resolutions. I prefer Dr Wooldridge’s account of the 26 June 2006 meeting to that of Mr Lewski. I infer that Dr Wooldridge followed his usual practice of asking the Directors “those in favour” and “those against” so as to satisfy himself where each Director stood. I accept his account that Mr Lewski and Mr Jaques were in agreement that the resolutions to pay the Listing Fee be passed. Whether or not they in fact remained silent, I infer that their conduct amounted to or conveyed assent to the resolutions.
The minutes for the 27 July 2007 meeting were also pre-prepared by Madgwicks. Mr Lewski said that he was present in the Boardroom for this meeting. All the Directors were present, some by telephone although it is not clear who. Mr Lewski again said that he abstained from voting on these resolutions by remaining silent, but again he did not advise the other Directors that he was doing so. Against this, Dr Wooldridge’s evidence is that he ascertained the agreement of all the Directors present to the resolutions. I prefer Dr Wooldridge’s account of this meeting to that of Mr Lewski. Whether or not Mr Lewski and Mr Jaques in fact remained silent, I infer that their conduct amounted to or conveyed assent to the resolutions to pay the Listing Fee.
Each of the Directors other than Mr Lewski approved the execution of the Heads of Agreement. Mr Lewski did not approve the execution of the Heads of Agreement by email like the other Directors. However, he was aware that the Heads of Agreement was a crucial part of the mechanism by which the Listing Fee would be paid to APCHL and through it to his associated entities. He executed the Heads of Agreement on behalf of his personal interests and in doing so he subordinated the interests of the members to those of APCHL and himself. Notwithstanding his attempt to distance himself from the formality of APCHL’s execution of that agreement, without his actions the agreement would have been incomplete.
ASIC alleged that by his participation in the decisions to pay the Listing Fee on 26 June and 27 July 2007, 23 and 24 April 2008 and 27 June 2008 each of the Directors breached:
(a)his duty to act in the best interests of the members of the Trust and to give priority to the members’ interests over APCHL’s interests, as required by s 601FD(1)(c); and
(b)his duty to take all steps that a reasonable person would take if that person was in his position to ensure that APCHL complied with the Act, as required by s 601FD(1)(f).
16.1Breach of the duty to act in the best interests of the members and to give priority to the members interests over those of the RE
16.1.1 ASIC’s contentions
ASIC particularised the breach of the duty to act in the best interests of the members in the following terms:
(a)each of the Directors did not give any consideration to whether making payment of the Listing Fee was in the members’ best interests;
(b)payment of the Listing Fee was not, in fact, in the best interests of the members because the Listing Fee was never a part of the Constitution, the payment was to be made out of Scheme property and the members were never given the opportunity to vote on it; and
(c)further or in the alternative to (b), a director of APCHL in his position could not in the circumstances have reasonably believed that payment of the Listing Fee was in the members’ best interests.
16.1.2 The Directors’ contentions
Each of the Directors said, in essence, that:
(a)at all relevant times he believed that the Amendments were validly made and that they had taken effect on lodgement;
(b)following lodgement of the Amendments he had no reason to doubt that they were valid, and all indications were that the Amendments were effective; and
(c)he believed that APCHL was legally obliged to pay the fee.
As I have said, the Directors’ unchallenged evidence was that they honestly believed that the Amendments were valid and that the Listing Fee was required to be paid. They pointed to the following matters in support of their belief:
(a)the Madgwicks Advice informed them that the Board had power to pass the Amendments, and the Board had done so on 19 July 2006;
(b)the 18 August email said that Deed of Variation No 7 would take effect on lodgement with ASIC;
(c)the pre-prepared Madgwicks Minute for the 22 August 2006 meeting said that the Deed would take effect on lodgement;
(d)lodgement of the consolidated Constitution containing the Amendments occurred on 23 August 2006;
(e)at a meeting between APCHL, its lawyers and ASIC in March 2007, albeit relating to other matters, ASIC advised that it had no further issues in relation to the RE or the Trust;
(f)the minutes pre-prepared by Madgwicks for the Board meetings on 26 June and 27 July 2007 recorded APCHL’s entitlement to be paid the Listing Fee in the event that the Trust was listed;
(g)the Listing PDS approved by the Board on 26 June 2007 disclosed to potential investors APCHL’s entitlement to the Listing Fee, and was not the subject of adverse comment by ASIC;
(h)Madgwicks’ letter of 11 April 2008 to Mr Lewski (provided to the Board) stated that upon the restructure of APCHL he would be entitled to the unpaid balance of the Listing Fee;
(i)the Blake Dawson Advice of 18 April 2008 referred to the existence of an obligation to pay the Listing Fee; and
(j)neither the independent compliance committee nor the compliance scheme auditor made any suggestion that the validity of the Listing Fee should be doubted.
The gist of the Directors’ case was that in these circumstances there was no requirement for them to give consideration to whether making payment of the Listing Fee was in the members’ best interests. As each Director operated on the basis that the Board had a legal obligation to pay the Listing Fee, the decision to pay it did not give rise to any requirement to consider whether its payment was in the members’ best interests.
Further, although no Director said that he gave the members’ best interests any consideration at the time, the Directors contended that it must have been in the members’ best interests for the Board to decide to pay the Listing Fee when the Constitution (apparently) provided for payment. Some Directors went further and argued that, in the circumstance that the Constitution provided for payment of the fee and there was an (apparent) legal obligation to pay it, any failure to do so would have been a contravention of s 601FD(1)(f)(i).
The Directors argued that a finding that they had breached their duties in making the decisions in 2007 and 2008 to pay the Listing Fee by giving effect to, what they honestly believed to be, a legal obligation would go further than a counsel of perfection and would, in substance, impose a requirement that directors constantly second guess previous decisions. It was argued that such an approach would make the position of directors generally untenable.
16.1.3 Consideration
I have previously detailed, at [455] and following, the content of the duty to act in the best interests of the members and I will not do so again. The duty has two limbs and the two questions to be determined are:
(a)whether in participating in the decisions to pay the Listing Fee, did each Director act with undivided loyalty solely in the interests of the members?; and
(b)was there a conflict between the interests of APCHL in being paid the Listing Fee and the interests of the members in avoiding that fee, and if so, in participating in the decisions, did the Directors prefer the members’ interests to APCHL’s interests?
In my view, in making the decisions to pay the Listing Fee each of the Directors failed to act with undivided loyalty solely in the interests of the members, and given APCHL’s conflicts of interest, each of them failed to give priority to the members’ interests.
I say this first, because (as I said at [472] and following) the duty to act in the best interests of the members includes a requirement that the trustee strictly adhere to the terms of the trust. In making the decisions to pay the Listing Fee the Directors were acting outside the Constitution because the Amendments were invalid and there was no provision for payment of that fee.
Because the Constitution did not provide for the Listing Fee, each time a decision was made to pay the fee to APCHL the interests of APCHL in receiving it were in conflict with the interests of the members in having the terms of the Trust adhered to and not suffering the fee. That conflict was required to be resolved by preferring the members’ interests and it was not.
Because the Amendments were invalid, the decisions to pay the Listing Fee were plainly against the members’ interests because payment of the fee would result in a substantial dilution of the value of the members’ units, and a substantially diminished value in the Scheme property.
Second, as I said at [485]-[488], the test for determining whether or not each of the Directors acted in the members’ best interests is objective. While I must accept that the Directors honestly believed that the Amendments were valid, their duty to act in the members’ best interests is not satisfied by proof that they held an honest belief in that regard: Hillsdown Holdings Plc v Pensions Ombudsman.
At one level the Directors’ contentions that their belief in the validity of the Amendments meant that they were acting in the members’ interests is based in the suggestion that the passage of time since the Amendments were approved and lodged somehow operated to wash away their earlier failures to comply with their statutory duties. I do not accept this. Each Director’s belief that the Constitution provided for the Listing Fee was the product of his failure when passing the Amendments and/or when passing the Lodgement Resolution to, amongst other things:
(a)act in the best interests of the members including by prioritising the members’ interests over APCHL’s interests;
(b)properly consider whether the Board had power to make the Amendments;
(c)properly consider the members’ right to have the Scheme administered for the fees set out in the existing Constitution; and
(d)exercise reasonable care and diligence.
It is difficult to see how it can be in the members’ best interests for the Directors to decide to pay the Listing Fee because the Constitution apparently provided for it when:
(a)the Amendments were invalid as a matter of law; and
(b)the fee only appeared in the Constitution because the Directors failed to comply with their statutory duties.
Third, although I must accept the Directors’ unchallenged evidence of their honest belief as to the validity of the Amendments when they decided to pay the Listing Fee, I do not accept that any of the Directors were acting with competence and care solely in pursuit of the members’ interests. The surrounding circumstances at that time were:
(a)the Five Principal Factors indicated that a cautious approach was required;
(b)Mr Lewski had instigated the introduction of the Listing Fee, and he had proposed and voted in favour of the Amendments;
(c)the fee was substantial (and at the time of the 26 June and 27 July 2007 resolutions was between about one third and two thirds of the $50 to $100 million expected to be raised on listing);
(d)the Directors (other than Mr Clarke) in passing the Amendments at the 19 July 2006 meeting, and the Directors (including Mr Clarke) in passing the Lodgement Resolution at the 22 August 2006 meeting:
(i)gave no consideration to APCHL’s obvious conflict of interest nor prioritised the members interests;
(ii)gave no consideration to the deleterious effects of the Amendments;
(iii)acted outside the express prohibition in cl. 25.1 of the Constitution in relation to amendments in favour of or to the benefit of APCHL; and
(iv)acted outside the statutory power of amendment as they gave no consideration to whether the Amendments would adversely affect the members’ right to have the Scheme administered for the fees in the existing Constitution.
I note too that the participation of two (and perhaps three) of the Directors in the decisions to pay the Listing Fee was prima facie in breach of s 195(1). Mr Lewski conceded his material personal interest but he participated in each of the meetings including by approving the resolutions on 26 June and 27 July 2007 and on 27 June 2008. He should not have done so and the other Directors should not have allowed this to occur. From August 2007 Mr Butler stood to receive a bonus of $750,000 if APCHL received the Listing Fee. From that date he had a material personal interest in the payment of the fee and he should not have participated in the approval of the Heads of Agreement on 24 April 2008. Given Mr Jaques’ concession that he had a conflict where Mr Lewski had a personal interest, it may be that he should not have participated either. The Board’s approach in this regard is another sign that the Directors did not act prudently or carefully. It cannot be prudent for the directors of an RE to make decisions to pay substantial monies to the trustee in its personal capacity when several of the directors participating in the decisions had a material personal interest in the outcome.
Despite these circumstances the evidence shows that none of the Directors:
(a)reflected on his earlier failure at the 19 July and/or 22 August 2006 meetings to properly consider:
(i)APCHL’s conflict of interest and his failure to give priority to the members’ interests;
(ii)the deleterious effects of the Amendments;
(iii)the Board’s power to make the Amendments; or
(b)reflected on whether there was any doubt as to the validity of the Amendments.
A reasonable director in each Director’s position would have been alive to, at least, APCHL’s conflict of interest and conflict of interest and duty. Notwithstanding that these conflicts were plain, the evidence shows that the Directors gave them no proper attention on 19 July or 22 August 2006, or when making the decisions to pay the Listing Fee. A reasonable director in each Director’s position would have considered and sought to resolve these conflicts in favour of the members before making the decisions to pay $33 million from Trust funds to APCHL, and through it to one of the Directors.
Dr Wooldridge conceded that APCHL’s conflict of interest did not “cross his radar” when he was making the decisions to pay the Listing Fee. Mr Butler made a similar concession. No Director gave evidence that when deciding to pay the fee he considered whether there was any conflicts of interest. I infer that none of them did so. I do not see this approach as consistent with acting in the members’ best interests. Had the Directors given APCHL’s conflicts even a rudimentary consideration on these occasions their earlier failures to properly deal with the issue should have become apparent to them.
Nor do I accept that this approach lacks any sense of reality or imposes a counsel of perfection as they contended. The main matter which each of the Directors missed when deciding to pay the Listing Fee was APCHL’s conflict of interest. Of course, as the Directors contended, at those points they believed that the Constitution provided for the fee. But they knew how the Amendments were made and each of them knew (or should have known) that he had given no proper consideration to APCHL’s conflicts. The expectation that each of the Directors would notice the self-evident conflicts, and then resolve them by giving priority to the members’ interests does not demand perfection.
The Directors’ argument that there was no cause for them to doubt the validity of the Amendments because APCHL’s professional advisors and ASIC did not alert them also lacked substance. I say this, first, because a reasonable director in each of their positions would have questioned whether the Listing Fee should be paid. For a reasonable director in the position of each Director other than Mr Clarke, the equivocal Madgwicks Advice would have caused alarm bells and that should not have been forgotten. Second, other than Madgwicks, none of APCHL’s other professional advisors were ever asked to consider the validity of the Amendments. The Blake Dawson Advice was provided in relation to the Heads of Agreement and that firm was not asked to advise on the validity of the Amendments, nor given a copy of the Madgwicks Advice. The Blake Dawson Advice proceeded on the assumption that the Amendments were valid. Third, the absence of a complaint by ASIC cannot support the Directors’ argument. There is no evidence that ASIC was alive at the relevant time to any concern about the validity of the Listing Fee. In any event, a director’s failure to act in accordance with his or her statutory duties is not to be excused on the basis that he or she was not alerted to the breach by ASIC. The duty is the Directors.
ASIC made out the contravention.
16.2 The duty to take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the responsible entity complies with the Act
ASIC alleged that in making the decisions to pay the Listing Fee each of the Directors breached his duty under s 601FD(1)(f)(i) to take all steps that a reasonable person would take if they were in the Director’s position to ensure that APCHL complied with the Act.
The Directors make essentially the same arguments as they made in relation to the breach of duty to act in the best interests of the members. I do not accept their contentions for the same reasons as I have already expressed.
I have concluded that APCHL breached:
(a)the prohibition on related party transactions in s 208; and
(b)its duty to act in the best interests of the members and to prioritise the members’ interests over its own, pursuant to s 601FC(1)(c).
I am also satisfied that APCHL paid the Listing Fee to itself notwithstanding that, as a matter of law, it was not provided for in the Constitution.
For the reasons I have previously traversed, I consider that a reasonable director in each Director’s position would have taken steps to ensure that these contraventions did not occur. Again, I do not accept that this is a counsel of perfection. Amongst other things, a reasonable director in each Director’s position would not have made the decisions to pay the Listing Fee without obtaining:
(a)clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the Constitution and the Act, and that payment of the fee would not contravene s 208 (as amended by s 601LC); or
(b)the approval of the members for payment of the fee to be made.
None of the Directors took any steps towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the members’ approval. I am satisfied that ASIC made out this allegation.
17. THE NO CASE SUBMISSION
The Directors made a no case submission at the close of ASIC’s evidence. I rejected that submission. I did so taking the broad approach set out in Oakley v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 at [3] per Kaye J. See also ASIC v Healey at [535]-[536].
The Court has a discretion not to put the party making a no case submission to its election; see ASIC v Healey at [538] and the cases there cited. Before me ASIC did not seek that the Directors be put to their election. I was satisfied that it was in the interests of justice that the Directors be permitted to make a no case submission without being put to their election.
18. CONCLUSION

I have found that:
(a)in passing the Lodgement Resolution on 22 August 2006:
(i)APCHL breached its duties under s 601FC(1) as alleged and therefore contravened s 601FC(5); and
(ii)each of the Directors breached his duties under s 601FD(1) as alleged and therefore contravened s 601FD(3);
(b)in giving the benefit of the Listing Fee to APCHL without obtaining the members’ approval to do so:
(i)APCHL contravened s 208 (as modified by Part 5C.7) as alleged; and
(ii)each of the Directors contravened s 209(2) (as modified by Part 5C.7) in that he was involved in APCHL’s contravention of s 208; and
(c)in making the decisions to pay the Listing Fee:
(i)APCHL breached its duties under s 601FC(1) as alleged and therefore contravened s 601FC(5); and
(ii)each of the Directors breached his duties under s 601FD(1) as alleged and therefore contravened s 601FD(3).
Being satisfied that the defendants have contravened the above provisions the Court must make declarations of contravention, except in relation to the breach in s 208: s 1317E. Section 1317E(2) provides that the matters that a declaration must specify are:
(a)the Court that made the declaration;
(b)the civil penalty provision that was contravened;
(c)the person who contravened the provision;
(d)the conduct that constituted the contravention; and
(e)if the contravention is of a corporation/scheme civil penalty provision – the corporation or registered scheme to which the conduct related.
I have ordered the parties to confer and consider appropriate declarations to accord with my findings and in light of the relief sought. I will adjourn the proceeding so as to allow the parties to confer within seven days and:
(a)propose dates for the hearing of any application for relief from liability and/or in relation to penalty; and
(b)prepare draft minutes for the timetabling of any hearing for relief from liability and/or in relation to penalty, together with draft minutes of declarations to be made, to be filed by 31 January 2014.

I certify that the preceding seven hundred and seventy-one (771) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.
Associate:
Dated: 12 December 2013

Citation:	Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342
Parties:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED ACN 095 474 436 (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED), MR WILLIAM LIONEL LEWSKI, MR MARK FREDERICK BUTLER, MR KIM JAQUES, DR MICHAEL RICHARD LEWIS WOOLDRIDGE and MR PETER CLARKE
File number:	VID 594 of 2012
Judge:	MURPHY J
Date of judgment:	12 December 2013
Catchwords:	CORPORATIONS – duties of responsible entity of managed investment scheme under s 601FC – duties of officers of responsible entity under s 601FD STATUTORY DUTY TO ACT IN BEST INTERESTS OF MEMBERS – meaning of “best interests of members” – whether best interests of members is subjective or objective – duty of undivided loyalty to members of scheme – conflict of interests – conflict of interest and duty – duty to give priority to members’ interests –care and caution required where conflicts exist STATUTORY DUTY TO EXERCISE CARE AND DILIGENCE – standard of care – standard of care for directors of a responsible entity acting as a professional trustee – failure to consider effects of amendment to scheme constitution – failure to consider whether legitimate reasons for amendment – failure to be satisfied as to power to make amendments – reliance on legal advice – reliance on unusual and uncertain legal advice – failure to comply with scheme constitution and Act – failure to properly consider effect of amendments on members’ rights and interests – failure to identify conflict of interests – failure to consider how to appropriately resolve conflicts – duty to prioritise members’ interests – obligation to revisit decisions previously made STATUTORY DUTY NOT TO MAKE IMPROPER USE OF POSITION TO GAIN ADVANTAGE – meaning of “to gain” and advantage or “to cause” detriment – meaning of improper use STATUTORY DUTY TO TAKE ALL REASONABLE STEPS TO COMPLY WITH SCHEME CONSTITUTION – scheme constitution contractually binding – scheme constitution not inconsistent with Act – scheme constitution qualifies statutory power to amend MEMBERS’ RIGHTS – whether right to have scheme administered according to existing constitution is a “members right” under s 601GC – failure to consider members’ right to have scheme administered according to existing constitution – amendment invalid as outside power – whether amendments made outside power become valid once lodged with ASIC RELATED PARTY TRANSACTION IN MANAGED INVESTMENT SCHEME – breach of s 208 (as modified) of responsible entity – involvement of officers of responsible entity in breach of s 208 – essential elements of the prohibition in s 208 – whether s 208(3) is an exception to the prohibition – officers’ honest belief that constitution contain provision allowing payment LODGEMENT OF AMENDMENTS TO SCHEME CONSTITUTION – whether lodgement of consolidated scheme constitution is sufficient under s 601GC – whether lodgement of amendments themselves is required COMPANY PROCEDURE – decision-making by meeting of directors – obligation to clearly express will in meeting of directors – obligation to ensure expression of will is clearly recorded – whether conduct amounts to or conveys assent to a resolution DEEDS – when does an undated deed come into effect – intention of the parties to the deed – intention by reference to statutory framework
Legislation:	Australian Securities and Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth) Evidence Act 1995 (Cth) Managed Investments Act 1998 (Cth) Superannuation Industry (Supervision) Act 1993 (Cth) Trade Practices Act 1974 (Cth)
Cases cited:	360 Capital Re Ltd v Watts and Another (2012) 91 ACSR 328 Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 231 CLR 27 Alpha Wealth Financial Services Pty Ltd and Ors v Frankland River Olive Company Ltd [2005] WASC 189 Armstrong v Commonwealth Bank of Australia [1999] NSWSC 588 ASEABrown Boveri Superannuation Fund No 1 Pty Ltd vASEABrown Boveri Pty Ltd [1999] 1 VR 144 Attorney-General of NSW v Brewery Employees Union of NSW (1908) 6 CLR 469 Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd and Others (2000) 169 ALR 344 Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 Australian Securities and Investments Commission v Adler and Others (2002) 168 FLR 253 Australian Securities and Investments Commission v Fortesque Metals Group Ltd and Another (No 5) (2009) 264 ALR 201 Australian Securities and Investments Commission v Healey and Others (2011) 196 FCR 291 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 Australian Securities and Investments Commission v Macdonald and Others (No 11) (2009) 230 FLR 1 Australian Securities and Investments Commission v Macdonald and Others (No 12) (2009) 259 ALR 116 Australian Securities and Investments Commission v Maxwell and Others (2006) 59 ACSR 373 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229 Australian Securities and Investments Commission, In the Matter of QLS Superannuation Pty Ltd v Parker (2003) 21 ACLC 888 Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 Australian Securities Commission v Gallagher (1993) 10 ACSR 43 Avel Proprietary Limited v Multicoin Amusements Proprietary Limited and Another (1990) 171 CLR 88 Boardman v Phipps [1967] 2 AC 46 Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 Bray v Ford [1896] AC 44 Briginshaw v Briginshaw (1938) 60 CLR 336 Charterbridge Corporation Limited v Lloyds Bank Limited and Another [1970] 1 Ch 62 Chew v The Queen (1992) 173 CLR 626 Claremont Petroleum NL v Cummings and Another (1992) 110 ALR 239 Connor v Blacktown District Hospital [1971] 1 NSWLR 713 Cowan v Scargill [1985] Ch 270 Curwen & Ors v Vanbreck Pty Ltd (2009) 26 VR 335 Daniels and Others (Formerly Practicing as Deloitte Haskins & Sells) v Anderson and Others (1995) 37 NSWLR 438 De Bruyne v Equitable Life Assurance Society of the US 920 F.2d 457 (7^th Cir. 1990) Doonan v Beacham (1953) 87 CLR 346 Edge v Pensions Ombudsman [2000] Ch 602 Galladin Pty Ltd v Aimnorth Pty Ltd (in liq) and Others (1993) 11 ACSR 23 Garcia v National Australia Bank Ltd (1993) 5 BPR 11,966 Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460 Gould v The Mount Oxide Mines Ltd (In Liq) and Others (1916) 22 CLR 490 Gra-Ham v Perpetual Trustees (1989)1 WAR 65 Harries and Others v The Church Commissioners for England and Another [1993] 1 WLR 1241 Hatt v Magro (2007) 34 WAR 256 Hillsdown Holdings Plc v Pensions Ombudsman [1997] 1 All ER 862 In Re Whiteley; Whiteley v Learoyd (1886) 33 Ch D 347 ING Funds Management Ltd v ANZ Nominees Ltd and Others (2009) 228 FLR 444 Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Ltd and Others (2006) 15 VR 87 Keech v Sandford (1726) 25 ER 223 King v GIO Australia Holdings Ltd (2001) 184 ALR 98 King v Talbot (1869) 40 NY 76 Kingtson and Another v Ambrian Investments Co Ltd [1973] 1 All ER 120 Knudsen v Kara Kar Holdings Pty Ltd [2000] NSWSC 715 Luxton v Vines (1952) 85 CLR 352 Manglicmot v Commonwealth Bank Officers Superannuation Corporation Pty Ltd (2011) 282 ALR 167 Marchesi v Barnes and Keogh [1970] VR 43 Martin v The City of Edinburgh District Council [1989] PENS. L. R. 9 McGellin v Mount King Mining (1998) 144 FLR 288 Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310 Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 Morrell v Studd and Millington [1913] 2 Ch 648 Nestle v National Westminster Bank Plc [1994] 1 WLR 1260 Nominal Defendant v Owens (1978) 22 ALR 128 Oakley v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 Permanent Building Society (in Liq) v Wheeler and Others (1994) 11 WAR 187 Poole and Another v Neely and Others [1976] 1 NZLR 529 Premium Income Fund Action Group Incorporated and Another v Wellington Capital Limited and Others (2011) 84 ACSR 600 Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1 R v Byrnes (1995) 183 CLR 501 Raby v Ridehalgh (1855) 44 ER 41 Re Centro Retail (2011) 255 FLR 28 Re Chapman [1896] 2 Ch 763 Re Macquarie Goodman Funds Management Ltd (as responsible entity for Macquarie Goodman Industrial Trust) (2004) 52 ACSR 194 Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051 Re Whitely (1886) 33 Ch D 347 Robins and Others v Incentive Dynamics Pty Ltd (in liq) and Another (2003) 175 FLR 286 Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906 Speight v Gaunt (1883) 9 App Cas 1 Stone v Grubbam (1614) 1 Roll Rep 3 Target Holdings Ltd v Redferns [1996] 1 AC 421 The Registrar of the Accident Compensation Tribunal v Commissioner of Taxation of the Commonwealth of Australia (1993) 178 CLR 145 Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 Vines v Djordjevitch (1951) 91 CLR 512 Waters and Others v Mercedes Holdings Pty Ltd and Others (2012) 203 FCR 218 Weeden v Rambaldi (2013) 92 ACSR 661 Wilkinson and Others v Feldworth Financial Services Pty Ltd and Others (1998) 29 ACSR 642 Xenos v Wickham (1866) LR 2 HL 296 Yorke v Lucas (1985) 158 CLR 661
Date of hearing:	1-3, 6-8, 14-17, 20, 23-24 and 27 May 2013
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	771
Counsel for the Plaintiff:	Mr I D Martindale SC, Mr R D Strong, Mr S J Maiden and Mr S Gifford
Solicitor for the Plaintiff:	Australian Securities and Investments Commission
Counsel for the First Defendant	The First Defendant did not appear
Counsel for the Second Defendant:	Mr P J Bick QC and Mr M Osborne
Solicitor for the Second Defendant:	SBA Law
Counsel for the Third Defendant:	Dr K P Hanscombe SC and Mr T McLean
Solicitor for the Third Defendant:	Millens
Counsel for the Fourth Defendant:	Mr P Riordan SC and Mr A Strahan
Solicitor for the Fourth Defendant:	DLA Piper Australia
Counsel for the Fifth Defendant:	Mr P Solomon SC and Mr R Craig
Solicitor for the Fifth Defendant:	Norton Gledhill
Counsel for the Sixth Defendant:	Mr D J Williams SC and Mr T Greenaway
Solicitor for the Sixth Defendant:	Maddocks Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 594 of 2012

JUDGE:	MURPHY J
DATE OF ORDER:	12 DECEMBER 2013
WHERE MADE:	MELBOURNE

DESCRIPTION	PARA(S)
1. Introduction	[1]-[12]
1.1 The first group of contraventions	[13]-[23]
1.2 Listing	[24]-[25]
1.3 The second group of contraventions	[26]-[29]
1.4 The third group of contraventions	[30]-[31]
1.5 Relief	[32]
2. The standard of proof	[33]-[36]
3. The facts	[37]
3.1 The ownership of APCHL	[38]
3.2 The ownership and control of other relevant companies	[39]
3.3 The Board of APCHL	[40]-[42]
3.4 The Prime Trust	[43]-[50]
3.5 The members’ understanding that listing of the Trust was contemplated	[51]-[53]
3.6 APCHL moves towards listing the Trust on the AS	[54]-[61]
3.7 The Options Advice	[62]-[64]
3.8 APCHL’s fee entitlements under the Constitution	[65]
3.9 The proposal to introduce new fees, including the Listing Fee	[66]-[69]
3.10 Mr Lewski seeks legal advice from Madgwicks	[70]-[76]
3.11 Mr Lewski’s evidence as to confidence in unitholder approval	[77]-[78]
3.12 The Madgwicks file note by Ms Kovacs on 12 July 2006	[79]-[81]
3.13 The prohibition on amendments in favour of APCHL	[82]-[85]
3.14 The Madgwicks file note by Mr Goldberg on 12 July 2006	[86]-[90]
3.15 The Madgwicks file note and draft advice of 13 July 2006	[91]-[95]
3.16 The Madgwicks file note and draft advice of 14 July 2006	[96]-[99]
3.17 Provision of the final Madgwicks Advice and draft Deed of Variation No 7	[100]-[104]
3.18 The 19 July 2006 meeting – the resolution to approve the Amendments	[105]-[110]
3.18.1 The Listing Fee	[111]
3.18.2 The Removal Fee	[112]
3.18.3 The Takeover Fee	[113]-[114]
3.18.4 Multiple fees were possible	[115]-[116]
3.18.5 The additional fees were substantial	[117]-[123]
3.18.6 The additional fees were gratuitous	[124]
3.19 The signature of Deed of Variation No 7	[125]-[127]
3.20 The 31 July 2006 meeting	[128]-[129]
3.21 The 22 August 2006 meeting – the Lodgement Resolution	[130]-[137]
3.22 Announcement of intention to list	[138]-[139]
3.23 The 26 June 2007 meeting – the resolution to pay the Listing Fee in tranches	[140]-[146]
3.24 The 27 July 2007 meeting – the resolution that APCHL take the Listing Fee partially as units in the Trust	[147]-[149]
3.25 The 3 August 2007 meeting – the resolution to grant options to the Directors	[150]-[151]
3.26 The variation to Mr Butler’s Service Agreement	[152]-[154]
3.27 The proposal to restructure and sell Mr Lewski’s interests in APCHL	[155]-[158]
3.28 The 7 April 2008 meeting – the advice that Mr Lewski had agreed to a restructure and sale of his interests in APCHL	[159]-[164]
3.29 Blake Dawson provides legal advice	[165]-[167]
3.30 The 21 April 2008 meeting – the resolution to authorise execution of the Heads of Agreement	[168]-[174]
3.31 The 27 June 2008 meeting – the resolution to execute the Deed of Acknowledgment	[175]-[178]
3.32 The payment of the balance of the Listing Fee	[179]
3.33 Events after payment of the Listing Fee	[180]-[184]
4. The agreed issues in the proceeding	[185]
5. My assessment of the Directors’ evidence	[186]-[188]
6. The 19 July 2006 meeting	[189]
6.1 Mr Jaques’ minute-taking practices	[190]-[194]
6.2 Dr Wooldridge’s practices in putting resolutions to the Board	[195]-[199]
6.3 The Directors’ evidence in relation to the 19 July meeting
6.3.1 Mr Lewski’s evidence	[200]-[201]
Mr Lewski’s stated confidence in the members’ approval of the additional fees	[202]-[206]
Mr Lewski’s evidence that he received unequivocal advice on 12 July 2006	[207]-[208]
Mr Lewski’s evidence that he received unequivocal clarifying advice on 14 July and that he informed the Board of this	[209]-[212]
Mr Lewski’s evidence that he did not move the resolution to pass the Amendments	[213]-[217]
The evidence of Mr Lewski and Mr Jaques that they abstained from voting on the Amendments by remaining silent	[218]-[228]
His evidence that Mr Clarke was present when the Amendments were passed and possibly voted for them	[229]
6.3.2 Mr Butler evidence	[230]-[238]
6.3.3 Mr Jaques evidence	[239]-[241]
6.3.4 Dr Wooldridge evidence	[242]-[243]
6.3.5 Mr Clarke evidence	[244]
6.4 Should Mr Lewski and Mr Jaques be treated as having voted in favour of the resolution to pass the Amendments	[245]-[256]
6.5 The Madgwicks Advice	[257]
6.5.1 The preamble to the advice	[258]-[260]
6.5.2 The advice regarding the power to amend under the Act	[261]-[262]
6.5.3 The advice regarding the power to amend under the Constitution	[263]-[270]
6.6 The Directors’ consideration of the Madgwicks Advice and the Amendments	[271]-[273]
6.6.1 The failure of the minutes to record discussion of various important matters	[274]-[276]
6.6.2 Consideration of the Listing Fee and the failure to properly consider APCHL’s conflicts	[277]-[297]
6.6.3 Consideration of the Removal Fee	[298]-[305]
6.6.4 Consideration of the Takeover Fee	[306]-[308]
6.6.5 Failure to consider the effects of the Amendments	[309]-[310]
6.6.6 Consideration of the fact that the additional fees were gratuitous	[311]
6.6.7 Consideration of the power to amend under the Constitution	[312]-[318]
6.6.8 Consideration of the power to amend under the Act	[319]-[322]
6.6.9 Consideration of whether the fees were gratuitous	[323]-[324]
7. Issue A1: Did the Directors resolve on 22 August 2006 that the consolidated Constitution incorporating Deed of Variation No 7 be lodged with ASIC to become effective?
7.1 The Madgwicks Minutes and the Jaques Minutes	[325]-[332]
7.2 The application of s 251A to the minutes	[333]-[339]
7.3 The Directors’ contentions	[340]-[345]
7.3.1 Dr Wooldridge’s usual practice with regard to pre- prepared minutes	[346]-[351]
7.3.2 The Directors’ evidence that the Lodgement Resolution was not passed	[352]-[353]
Mr Lewski	[354]-[357]
Mr Butler	[358]-[360]
Mr Jaques	[361]-[366]
Dr Wooldridge	[367]-[368]
Mr Clarke	[369]-[376]
7.3.3 The comparison of the two minutes	[377]-[388]
7.4 The surrounding circumstances	[389]-[401]
7.5 Conclusion	[402]
8. Issue A2(a): What was the effect of the Lodgement Resolution on Deed of Variation No 7, the Constitution of the Trust, the rights and interests of the members of the Trust, and the interests of APCHL?
8.1 The requirement for lodgement of the Amendments	[403]
8.2 The effect of the resolution on the Deed
8.2.1 The Directors’ contentions	[404]-[410]
8.2.2 When did the Deed come into effect?	[411]-[417]
8.2.3 APCHL’s intention by reference to the statutory framework and other matters	[418]-[424]
8.2.4 APCHL’s intention by reference to other evidence	[425]-[427]
8.2.5 Were the Directors required to revisit their earlier decision to amend	[428]-[432]
8.3 The effect of the resolution on the Constitution	[433]-[437]
8.3.1 The arguments based on the construction of s 601GC	[438]-[447]
8.4 The effect of the resolution on the rights and interests of the members, the interests of APCHL and Mr Lewski’s interests	[448]-[449]
9. Issue A2(b): (i) Was the Lodgement Resolution in the best interests of the members of the Trust? (ii) Did the Lodgement Resolution involve any conflict between the interests of the Trust and the interests of APCHL?
9.1 The Directors’ submissions	[450]-[453]
9.2 The legislative framework	[454]-[461]
9.2.1 The meaning by reference to ss 601FC(1)(c) and 601FD(1)(c)	[462]-[463]
9.2.2 The meaning under general law	[464]-[476]
9.2.3 The meaning in other materials	[477]-[479]
9.2.4 The meaning in a similar statutory provision	[480]-[483]
9.2.5 Conclusion	[484]
9.3 Is the enquiry subjective or objective	[485]-[488]
9.4 The test for breach of s 601FC(1)(c)	[489]-[490]
9.5 Was the Lodgement Resolution in the best interests of the members?	[491]
9.6 Did a conflict of interests exist?	[492]
10. Issue A2(d): Did any of Lewski, Wooldridge, Jaques, Butler, Clarke; vote in favour of or otherwise assent to the Lodgement Resolution?	[493]-[494]
10.1 The minutes of the meeting	[495]-[499]
10.2 Whether Mr Lewski’s and Mr Jaques’ conduct conveyed or amounted to a vote in favour of the resolution	[500]-[506]
10.3 Whether Mr Clarke’s conduct conveyed or amounted to a vote in favour of the resolution	[507]-[511]
10.4 Whether Mr Wooldridge and Mr Butler voted in favour of the Resolution	[512]-[513]
10.5 The approach in ASIC v Hellicar	[514]-[518]
11. Issue A2(e): If a Director did vote in favour of, or otherwise assent to, the Lodgement Resolution, in the circumstances in which that occurred did he contravene s 601FD(3)?
11.1 The legislation	[519]
11.2 Relevant principles regarding the duties under s 601FD(1)	[520]-[530]
11.3 Breach of the duty to exercise reasonable care and diligence – s 601FD(1)(b)	[531]
11.3.1 Relevant principles	[532]-[543]
11.3.2 The alleged failure to exercise reasonable care and diligence	[544]-[545]
11.3.3 The Directors’ contentions	[546]-[555]
11.3.4 Consideration as to reasonable care and diligence
The surrounding circumstances	[556]-[566]
The obligation to reflect on their earlier decision to amend	[567]-[574]
11.3.5 Mr Clarke’s position	[575]-[584]
11.3.6 Dealing with the contraventions by reference to the particulars alleged	[585]
(i) Each Director failed to: (A) consider and understand; and (B) be satisfied that the directors of APCHL acting as a Board had considered and understood the effect of Deed of Variation No 7	[586]-[589]
(ii) Each Director failed to consider whether, and be satisfied that, there was a legitimate reason for APCHL to make the Amendments	[590]-[592]
(iii) Each Director failed to be satisfied that the Board had considered: (A) legal advice that the Amendments if made without the approval of members would comply with the Act and the Constitution of the Trust; or (B) judicial advice that APCHL would be justified in making the Amendments without member approval	[593]-[595]
(iv) Each Director failed to consider and be satisfied that the Board had considered whether the Amendments if made without the approval of the members would comply with the Act and the Constitution of the Trust	[593]-[595]
(v) Each Director failed to consider and be satisfied that the Board had considered the effect of the Amendments on the rights and interests of the members of the Trust	[596]-[598]
(vi) Each Director other than Mr Lewski failed to consider the effect of the Amendments on the interests of APCHL	[599]-[601]
(vii) Each Director other than Mr Lewski failed to consider the effect of the Amendments on the interests of Mr Lewski and his related and associated entities	[599]-[601]
(viii) Each Director failed to be satisfied that the Board had considered the matters referred to in paragraph (vi) and (vii) above	[599]-[601]
(ix) Each Director failed to consider and be satisfied that the Board had considered how, if at all, the conflict of interests could be resolved in favour of members	[602]-[605]
11.4 Breach of the duty to act in the best interests of members – s 601FC(1)(c)
11.4.1 ASIC’s allegations	[606]
11.4.2 Relevant principles	[607]-[614]
11.4.3 Consideration	[615]-[620]
11.5 Breach of the duty not to make improper use of position to: (i) advantage APCHL; (ii) advantage those who would benefit from the fees payable pursuant to the Amendments; or (iii) cause detriment to Trust members; - as provided in s 601FD(1)(e)
11.5.1 ASIC’s allegations	[621]-[622]
11.5.2 Relevant principles	[623]
“To gain” an advantage or “to cause” a detriment	[624]-[625]
Improper use	[626]-[627]
11.5.3 Consideration	[628]-[634]
11.6 Breach of the duty to take all reasonable steps to ensure compliance with the Constitution - s 601FD(1)(f)
11.6.1 ASIC’s allegations	[635]-[636]
11.6.2 Consideration	[637]-[641]
12. Issue A2(c): Did the Lodgement Resolution constitute a breach by APCHL of s 601FC(5)?
12.1 The legislation	[642]-[643]
12.2 ASIC’s allegation	[644]-[646]
13. Issue B3: Did the constitution of the Trust at any time between 22 August 2006 and 30 June 2008 authorise APCHL to pay itself the listing fee?	[647]-[648]
13.1 The Constitution	[649]-[653]
13.2 The Act	[654]-[673]
13.3 Does the Constitution qualify the power to amend in s 601GC(1)(b)?	[674]-[683]
14. Issue B4: Did APCHL contravene s 208 (as modified by Part 5C.7) on or about 27 July 2007, 3 August 2007, 13 March 2008, 28 April2008, or 27 June 2008, in relation to the payment of the listing fee or any part thereof?	[684]-[688]
14.1 The legislative framework	[689]-[691]
14.2 The breach of s 208(1)(a)-(d)	[692]-[694]
14.3 Whether s 208(3) qualifies the prohibition in s 208(1)	[695]-[700]
15. Issue C5: If the answer to issue B4 is ‘yes’, were any of Lewski, Wooldridge, Jaques, Butler, or Clarke knowingly concerned in any such contravention by APCHL of s 208 (as modified by Part 5C.7)?	[701]
15.1 The statutory framework	[702]-[704]
15.2 The main argument	[705]-[711]
15.3 The authorities	[712]-[716]
15.4 Consideration	[717]-[731]
15.5 Conclusion	[732]-[734]
16. Issue D6: What matters were considered and not considered by the Directors of APCHL who were involved in deciding that APCHL should: (a) pay itself the Listing Fee; (b) execute the Heads of Agreement; (c) execute the Deed of Acknowledgement? Issue D7: Insofar as they were involved in deciding, did any of Lewski, Wooldridge, Jaques, Butler, Clarke, contravene s 601FC(3) on any one or more of 26 June 2007, 27 July 2007, 3 August 2007, 13 March 2007, 28 April 2008, or 27 June 2008?	[735]-[740]
16.1 Breach of the duty to act in the best interests of the members and to give priority to the members’ interests over those of the RE
16.1.1 ASIC’s contentions	[741]
16.1.2 The Directors’ contentions	[742]-[762]
16.2 The duty to take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the responsible entity complies with the Act	[763]-[766]
17. The no case submission	[767]-[768]
18. Conclusion	[769]-[771]

JUDGE:	MURPHY J
DATE:	12 DECEMBER 2013
PLACE:	MELBOURNE