Australian Securities and Investments Commission v. Hillston Grove Vineyards Ltd

[2007] QSC 334

[2007] QSC 334

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

ATKINSON J

No 6437 of 2005

AUSTRALIAN SECURITIES AND INVESTMENTS	Applicant
and
HILLSTON GROVE VINEYARDS LTD (ACN 082 449 858)	First Respondent
and
MANAGED INVESTMENTS AUSTRALIA LTD (ACN 082 883 930	Second Respondent
and
INVESTMENT LICENSING PTY LTD	Third Respondent
and
RODNEY HAROLD JELLYMAN	Fourth Respondent
and
WAIRAU VALLEY PTY LTD	Fifth Respondent

BRISBANE

..DATE 26/10/2007

ORDER

HER HONOUR:  Lest I forget, I say immediately that the parties, the respondents and the chair of the meetings, may be informed by telephone of the orders as soon as they are made. 

This is an application for interlocutory orders pursuant to Rule 62(2) of the Uniform Civil Procedure Rules and sections 1101B and 1324 of the Corporations Act 2001 (Commonwealth).

The hearing commenced yesterday. The matter is extremely urgent because it concerns meetings which have been convened and which commence in less than an hour's time. I have already made orders under Rule 62(2) for the joining of the fourth and fifth respondents to this application. Therefore, all that concerns me today is whether or not I ought make the other orders sought.

The order which is sought is an order that an interlocutory injunction issue restraining the second, third and fifth respondents from voting their interests on the resolutions proposed for the meetings.  In order to understand that application, it is necessary to give some brief background.  I will endeavour to keep it brief because of the urgency of the application but, nevertheless, the necessity to give reasons for the decision I make.

This matter commenced in this Court in August 2005 when the applicant, the Australian Securities and Investments Commission, (ASIC) filed an originating application seeking the winding up of an unregistered managed investment scheme, the winding up of the first, second and third respondents and the appointment of an official liquidator over the scheme and the respondents. 

The respondents were at that time conducting what appears fairly clearly to have been an unregistered scheme which is prohibited under the Corporations Act.  At the time the scheme commenced and perhaps for a period of about one month thereafter, the scheme was an allowable prescribed interest but thereafter it appears it became at least strongly arguably unlawful to conduct the scheme and in the ordinary course such a scheme should be wound up unless other steps are taken, which were not taken.

Orders were granted in this Court by Mackenzie J on 8 September 2005 preventing, inter alia, the respondents from doing any act in furtherance of the scheme; dealing with any funds standing to the credit of or under the control of the respondents or the scheme; dealing with any property of each of the respondents in the scheme; dealing with any interest in the scheme, namely shares in the first respondent and the right to occupy and farm, including the sale, offer or issue of new interests and the sale, offer, transfer or disposal of existing interests; removing from Australia or encumbering property of each of the respondents in the scheme and disposing, amending and removing from their locations any books evidencing any dealings of the respondents in relation to the scheme.

The matter proceeded and when it was close to trial it appears it was adjourned.  There have been many developments in the case, none of which are necessary for me to refer to here, except to say that on 20th June 2007 in an attempt, it appears, to ascertain the views of the many hundreds of ordinary investors who invested in this scheme which, as I said, it appears fairly clearly it is now unlawful to conduct, at least in this present form. 

The orders of Mackenzie J, and subsequent orders made by Wilson J, were varied and other orders were made.  Mr Walsh from the firm Ernst and Young was appointed to receive funds and the first, second and third respondents were allowed to convene a meeting of investors upon giving them 21 days' notice of any such meeting including notice to the applicant, ASIC who has, of course, a role to protect investors in this situation.

That order specifically had to be made because otherwise it is more than likely the parties would have been in breach of the order made by Mackenzie J in convening such a meeting. 

Of course, the winding up of the scheme requires Court approval and cannot be done by the investors.  Nevertheless, in this difficult situation it is desirable to find out the wishes of the numerous investors whose money is at risk and who are apparently entirely innocent of any wrongdoing.

The meeting has been called.  There is a proposed agenda and a proposed resolution to be voted on, as I said, at 10 a.m. this morning.  That is contained in the material before me.  ASIC, as was envisaged by the order made by Chesterman J, has sent information to the investors to assist them in an objective way to consider what is going to be dealt with this morning. 

Information has also been sent to the investors in a covering letter to that ASIC information which sets out the views of Mr Jellyman and Mr Moroney who are respectively the managing director and director of the first respondent setting out their views as might be expected in a somewhat less than objective way.

They indicate relatively clearly in that letter to investors their intention to vote on the proposals at the meetings today.  It was argued, inter alia, by the respondents that this application was premature but it appears to me the intimation in the letter of 19 October 2007 is such to make this application not premature and to be sensible in the circumstances so that there should be no confusion at the meeting as to whether or not the respondents are entitled to vote.

It should be said that while the respondents have some interests in common with the other investors in the scheme, because they too appear to be investors, they have a number of interests that are not in common with the ordinary investors.  They argue that as investors they are entitled to vote. 

ASIC points to a number of reasons why they should be restrained from voting.  The Court, of course, having allowed the meeting has the power to allow whomever it thinks fit to vote at the meeting but the application has been framed as the respondents have essentially been disqualified from voting and I shall deal with it in that way.

Were the matter at large I should say that in my view the respondents ought not vote so as to allow the other investors to freely express their point of view.  The decision, of course, on whether the scheme is wound up is entirely a matter for the Court and not for the investors or the managers but this meeting would, at least, then be able to inform the Court of the opinion of the other investors.

ASIC relies on the deed by which the scheme was first set up whereby in clause 14.29 the manager, defined as the second respondent, covenants that neither it nor its associates (and it is clear that all of the respondents are its associates) will exercise a right to vote attached to participations held by or on behalf of that person in any of the following circumstances, the relevant circumstance being at a meeting held for the purposes of winding up the project pursuant to section 1074 of the Corporations Law.

It is clear that this is a meeting held for the purposes of winding up the project, the proposed resolution to be put at the meeting makes that abundantly clear. The difficulty arises because section 1074 of the Corporations Law has been repealed. The Corporations Law has been replaced by the Corporations Act and there are now provisions dealing with the winding up of registered schemes but of course this scheme is not registered.

The respondents argue that in this legislative hiatus, notwithstanding the fact that they would not be allowed to vote under the old law and were the scheme lawful, they would not be allowed to vote as is apparent from section 253E.  They should, however, be allowed to vote at this meeting called with Court approval, as I said, for the purpose of finding out the attitude of the other investors.  That may not have been the only purpose of the meeting but that is certainly a purpose.

That is, of course, a deeply unattractive submission, that because the scheme is being operated unlawfully that the respondents avoid the operation of the Corporations Law and the Corporations Act and the promise made by them in the deed.

However, since section 1074 of the Corporations Law has been repealed there is the question of whether or not the words "pursuant to section 1074 of the Corporations Law" can be severed from the deed, those words no longer having any effect. The alternative is that the whole of clause 14.29(1)(i) has no meaning at all. Courts are reluctant to hold that a clause in a deed has no meaning whatsoever if its meaning can be saved by the deletion or severance of a portion of a clause which has no meaning: SST Consulting Services v. Rieson (2006) 225 CLR 516 at 530 at paragraph 43; Life Insurance Co of Australia Limited v. Phillips (1925) 36 CLR 60 at 72 and also Fitzgerald v. Masters (1956) 95 CLR 420 at 427 and 438.

In my view, as was said in Fitzgerald v. Masters, the reference to section 1074 of the Corporations Law was merely an appendage. The significant part of that clause was that it dealt with what would happen at a meeting held for the purposes of winding up the project. At the time it was entered into that was governed by section 1074 of the Corporations Law but it no longer is. However, the clause can be saved by severance of the reference to that section.

That this is most likely is supported by the fact that under the current law, section 253E, the respondents would be prevented from voting if they have an interest other than as a member and, as I said, prima facie they do.  While not finally determining these matters it can certainly be said that there is a serious question to be tried as to the right of the respondents to vote and the applicant has an extremely strong case.  In those circumstances it is necessary to turn to the question of the balance of convenience. 

Given the strength of the language used in the letter by those of the respondents who were responsible for the letter to investors and the apparent attitude of investors to the strength of the respondents it would appear to me that the balance of convenience favours a vote being taken only from the other investors and in those circumstances it is appropriate for the Court to grant an interlocutory injunction restraining the second, fourth and fifth respondents from voting their interests on the resolutions proposed for the meetings to be held today, 26 October 2007 and I so order.

I note that there were other arguments raised which I refer to out of deference to the skill with which they were argued but it is not necessary to go into all of them because the matter I have referred to is, in my view, determinative of the application. 

...

HER HONOUR:  Costs are reserved.  As I have said, the orders can be transmitted to the relevant parties by telephone and that ought to be done as soon as possible.  The order I made last evening maintaining the status quo until the morning is dissolved.

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