Australian Securities & Investments Commission v Lewski & Anor; Wooldridge & Anor; Butler & Anor; Jaques & Anor; Clarke & Anor

[2018] HCATrans 91

[2018] HCATrans 091

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M169 of 2017

B e t w e e n -

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Applicant

and

WILLIAM LIONEL LEWSKI

First Respondent

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

Second Respondent

Office of the Registry
  Melbourne  No M170 of 2017

B e t w e e n -

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Applicant

and

MICHAEL RICHARD LEWIS WOOLDRIDGE

First Respondent

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

Second Respondent

Office of the Registry
  Melbourne  No M171 of 2017

B e t w e e n -

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Applicant

and

MARK FREDERICK BUTLER

First Respondent

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

Second Respondent

Office of the Registry
  Melbourne  No M172 of 2017

B e t w e e n -

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Applicant

and

KIM SAMUEL JAQUES

First Respondent

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

Second Respondent

Office of the Registry
  Melbourne  No M173 of 2017

B e t w e e n -

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Applicant

and

PETER CLARKE

First Respondent

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

Second Respondent

Applications for special leave to appeal

KIEFEL CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 MAY 2018, AT 10.52 AM

Copyright in the High Court of Australia

____________________

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR R.D. STRONG and MS C. VAN PROCTOR for the applicants in all matters.  (instructed by Australian Securities and Investments Commission)

MR B.W. WALKER, SC:   Your Honours, in M169 I appear with my learned friends, MR M.S. OSBORNE, QC and MR J.P. TOMLINSON, for the first respondent, Mr Lewski.  (instructed by SBA Law)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR R.G. CRAIG, for the first respondents, Dr Wooldridge, Mr Butler and Mr Jaques, in M170, M171 and M172.  (instructed by SBA Law for M170; Millens for M171; DLA Piper Australia for M172)

KIEFEL CJ:   There are submitting appearances for the second respondent in all matters and for the first respondent in the Clarke matter.  Yes, Mr Gleeson.

MR GLEESON:   Your Honours, the special leave questions arise out of six matters which I will just try and state in summary form.

KIEFEL CJ:   Mr Gleeson, could I just at this point say to you we would be assisted by being taken through this matter in a little detail because, frankly, the written submissions did not make the matter entirely clear to us.

MR GLEESON:   Thank you, your Honours.  Could I ask your Honours first to go to volume 2 at page 745, with the first proposition being under section 601GA(2), a responsibility entity is not entitled to any fees unless they are in the constitution.  The constitution operates as a statutory contract between the RE and the members.  That is over the page, 601GB.  It founds a statutory trust – 601FC(1); FC(2).

The first proposition in this case is, prior to the events of 2006, the constitution did not permit the RE to pay itself the fees in question.  That is common ground.  Your Honours, the second matter is to identify what the fees were that Mr Lewski wanted to be paid to himself.  That is found in volume 1 at page 95. 

Mr Lewski owned the RE and his plan was to amend the constitution to pay himself the three fees which are listed between lines 30 and 45:  a listing fee, a removal fee and a takeover fee.  The second and third of those can be described as poison pills.  As the trial judge found on paragraph 260 of that page, the essence of what he wanted was to amend the constitution to be able to pay substantial fees to himself in those circumstances which on no view could be considered in the best interests of the members.  That is the second matter.

Your Honours, the related matter, if you go back please to page 50 which set out clause 25 of the constitution, as it then stood there was no power in the RE to make the amendment to enable the fees to be paid to itself.  The only means by which the amendment could occur – and your Honours would need to go back to volume 2 at page 746 – is under section 601GC. 

There were two ways it could be done.  One was to put it to members.  The second was for the RE to form the requisite opinion.  Mr Lewski’s scheme and plan was not to put this to the members.  His plan was to use paragraph (b) and have the RE form the opinion:

reasonably considers the change will not adversely affect members’ rights.

The third matter – and on this question there are concurrent findings – is that the RE never formed the necessary opinion under paragraph (b) and the directors never caused the RE to form that necessary opinion.

KIEFEL CJ:   Is that because they thought they were acting under the terms of the constitution itself?

MR GLEESON:   They simply never turned their mind to the question how could it possibly not adversely affect your rights if we were to amend the constitution, a constitution which currently says the RE cannot amend it in its own favour and, in doing so, give the RE what turns out to be $33 million?  If I could just show your Honours where in the Full Court’s judgment, which is between pages 571 to 574, it addressed these very findings of the trial judge.

On 571, particularly at paragraph 235, the Full Court here correctly adopted the trial judge’s decision in turn to follow a decision described as 360 Capital which in turn followed Justice Gordon’s decision in Premium Income, and the essence of that was you cannot form the requisite opinion of non‑adverse effect if what you are doing is amending the constitution, contrary to the current clause 25, and paying yourself extra fees.  In short, if you want to do this, you must go to members for a special resolution. 

So, that is one critical finding where the Full Court agreed with the trial judge.  The second, your Honours, over on page 574 at paragraph 247, was the Full Court:

accepted that the 19 July resolution was invalid, and was ‘no decision at all’‑

Now, in saying that, the Full Court is accepting the trial judge that the directors did not form the requisite opinion on behalf of the RE on the day they purported to, which was 19 July.  So that on that date the power in the RE to do the amendment on its own did not exist, and at no point after that date did the directors form the opinion which was necessary for the RE to have the power. 

So the result there is we have concurrent findings that the essential condition precedent to the RE making the amendment never existed on 19 July or on any date thereafter.  So, all those matters are common ground between the two courts.

The next place where the courts differ is what happens when the lodgement of the deed occurs on 22 August.  The trial judge’s approach, which could be seen perhaps from volume 1 at page 181, is that on 22 August when the directors resolved to lodge the deed, they did not discharge their duty of care and diligence on that date in the light of all of the matters that are set out on page 181 and in the position they were in.

Your Honours see in paragraph 569 what is close to the heart of the approach of the trial judge that, in assessing the duty of diligence on the date of lodgement, it is an objective question what would a reasonable director in your position have known and brought to mind in making the decision?  The thing you would have known and brought to mind on that date are all of matters (a) to (h) on that page, including you have never caused the RE to turn its mind to the requisite question. 

Now, that is the central approach of the trial judge which ASIC seeks to have reinstated.  Your Honours will see the similar approach in respect to the other duties, thus on page 193, paragraphs 616 to 617.  That is why the directors were found to have breached their duty to take into account the best interests of the member. 

The same is true on 199 for improper use of position.  If your Honours look at 199 - this focuses particularly on Mr Lewski – there is a series of eight matters which characterise the position he was in on 22 August which show there was an improper use of position.  The same at page 202 in respect to the duty to ensure the constitution was upheld.

Your Honours, the fifth of the six core matters which situate the case is when one comes to the payment of the fees in 2007 to 2008, you will see on page 236 through to 240 that the trial judge took the same objective approach, looked at the position the directors were in and found that a reasonable person would not have permitted the payments.

The sixth and final matter of context is this, your Honours.  It is accepted that ASIC did not mount a case of conscious impropriety against any director and it may be accepted that the evidence suggested the directors had a subjective honest belief that they had caused the RE to validly amend the constitution. 

The critical matter is that that subjective belief was the product of a breach of duty by the directors and at no point in the entire process between the 19 July date I have taken you to and two years later when they paid away did the directors ever have regard to the basic right of the members to have the scheme administered in accordance with the unamended constitution.

KIEFEL CJ:   At least in relation to the 2006 contraventions there is an issue, is there, about the point at which they had to turn their mind, whether it was the 19th or the 22nd?

MR GLEESON:   Yes.  Your Honour, can I then in the light of that question come to what we say are the two issues of principle that arise out of it?  The first issue is the issue of interim validity and what the Full Court has ruled is that the constitution of a managed investment scheme – and the same would probably follow for the constitution of a corporation – can be purportedly modified without complying  with the essential preliminaries required by law and, as long as it is lodged, the document is treated as valid.

KIEFEL CJ:   Valid until set aside.

MR GLEESON:   What that means simply is in the present case for such period until a member or ASIC can get to court and prove wrongdoing, the RE is entitled and it seems bound to act under the constitution as lodged, as opposed to the true constitution the law requires, even to the extent of paying itself money it is not entitled to get.

KIEFEL CJ:   Mr Gleeson, you may continue, despite the light.

MR GLEESON:   Thank you, your Honour. 

KIEFEL CJ:   Although it seems rather quick.

MR GLEESON:   I think it has come a little quickly, your Honour.

KIEFEL CJ:   Yes, I think it has.  But, in any event, please proceed.

MR GLEESON:   So, your Honours, that is the first point which underpins the judgment - this concept of interim validity.

GAGELER J:   Is the entirety of the reasoning on that point at pages 574 to 575?

MR GLEESON:   The entirety of the reasoning in the first judgment is 574 to 576, and it arises no higher on 576 than a logical error.  Because you are required to lodge before it can become operative, the court flips that into saying once you have lodged, even if invalidly, it is operative until set aside.  That is the entirety of the reasoning in the first judgment.  Can I show your Honours in the second judgment ‑ ‑ ‑

KIEFEL CJ:   But that is because they see that as the purpose of the Act.

MR GLEESON:   They see that as a purpose of – it looks like they accepted the argument of certainty.  Everyone ‑ ‑ ‑

KIEFEL CJ:   The reliance of the public on a register.

MR GLEESON:  Yes, at the total expense of the protection of the investors, which is central to the scheme.  Your Honour Justice Gageler, the Full Court came back to it in the second judgment at pages 691 to 695 and they added four points.  The first, on 692, is they regarded this as a Project Blue Sky Case and somehow said the failure to satisfy an essential preliminary to the existence of power is to be analogised to the circumstances of Project Blue Sky.  That was an error.

Their second reason, your Honours, which is in error is at 189 they said it is irrelevant to look at the provisions elsewhere in the Act which deal with relief for these circumstances.  That is an error because the central provision which could in an appropriate case deal with these circumstances is of course section 1322. 

Section 1322, which your Honours have on page 761 over to 762 and 763, would require, particularly in subsection (6), if you were to overlook this failing, you would need relevantly honesty plus no substantial injustice, and you could never establish no substantial injustice if the RE has paid itself illegitimately $33 million.  There was no section 1322 application, quite rightly, by the directors.  So that is the second key error.

The third error back on 693 is to say, for reasons not developed, the ordinary proposition of trust law will not follow, namely if you do not have power it is not valid.  Your Honours, the fourth and perhaps most significant, at the bottom of 694 if your Honours look at paragraph 196 the Full Court has said that whenever you see the word “constitution” in – they mention FC(1)(k) – you do not mean the true constitution; you mean whatever happens to be lodged.

Now, that is the key finding which is the bridge between this first error and the second error because effectively what the court has done with the directors’ duties is to say, “Provided you honestly believe, even if as a result of your breach of duty, that the constitution is amended, it now becomes your duty thereafter to administer the scheme at all times on the basis of the wrong document”. 

What that has done as a matter of directors’ duties, if your Honours were simply to go to the key provision, which is found on page 744 – 601FD, the duties of the directors – effectively everything has been collapsed into the duty of honesty.  Provided you have an honest belief formed as a result of breach of duty that the constitution is something which it is not, it is your job to behave under that document.

If your Honours could go in Mr Walker’s written submissions to page 769 to paragraph 17 this, we submit, is what ties the two questions together because in that paragraph Mr Walker has correctly said that the essence of their argument is that the constitution, for the purposes of evaluating compliance by both the RE and the directors with the duties described under 601FC and 601FD becomes whatever happens to have been lodged, even if lodged without power.

Your Honours, that is what ties questions 1 and 2 together.  Question 3 is in a sense derivative.  The Full Court said it is a distraction to work out when the deed took effect but, on the other hand, it did take effect on 19 July and bound you somehow to lodge an invalid document.  That has the same errors caught up with it as question 2.

KIEFEL CJ:   How does the limitation period work in relation to these two dates?

MR GLEESON:   In this sense, your Honour, ASIC’s case in principle would have been there were three contraventions:   one on 19 July, which they could not sue on; one on 22 August, which they could sue on; and two subsequent ones in 2007 and 2008 at the stage of payment.  One of the issues of principle that arises is, if the directors are correct, the only contravention in principle that could ever exist here is on the first date.  On their case, even if ASIC had sued and won on 19 July, ASIC would have lost on the second and third date.

KIEFEL CJ:   Is ASIC’s answer to that the duty continues to the time of lodgement?

MR GLEESON:  Up to the time of lodgement, if the duty has not been discharged it remains operative.  That is ASIC’s answer.  So, on that date that you take the step of lodgement, if you have not caused your RE to form the opinion, and that is a result of your negligence, et cetera ‑ ‑ ‑

KIEFEL CJ:   You should not be lodging.

MR GLEESON:   You should not be lodging it, and equally when you come to payment if you still have at no point in this process formed the requisite opinion, you should not pay.  Now, that is not a case that is

unpleaded.  That is a case that says look at 22 August, look at 2007 and 2008.  Have you on that date caused your company to form the opinion lawfully that it must form before this can occur, and you have never done that.

KIEFEL CJ:   None of this impacts on the 2007 and 2008 contraventions, though.

MR GLEESON:   No, and then the 2007 and 2008 contravention case is a case which says at that date you are now taking the final step which causes the 33 million wrongly to leave the scheme and on that date, as the trial judge correctly found, a reasonable person could not have thought it was in the best interest of the members to make these payments, being a person in the position of these directors, that is, the people who had set the process in going and who had never formed the requisite opinion at any point in that time.

Your Honours, the final question is the section 208 modified question.  That provision is found at pages 748 to 749.  ASIC’s proposition is that the matters that are in subsection (3) are matters of excuse for which the RE would need to plead and prove and in a directors’ contravention action the onus would rest on the directors, and that is consistent with the central purpose of section 208, which is to underline that these funds should not be paid out of the scheme unless the law has been complied with.

GAGELER J:   Now, your ground – well, I know they are not yours, but the grounds of appeal or proposed grounds of appeal in the application are rather diffuse.  Are they ‑ ‑ ‑

MR GLEESON:   Your Honours, the grounds could be reduced to three points which are, number 1, does the Corporations Act recognise the concept of interim validity?  That is the first ground.  The second ground is, in circumstances where directors have formed an honest belief that they have validly amended the constitution but without complying with their duty, does that confine their duty thereafter?  That is the second ground.  The third ground is under section 208 - is the matter in subsection (3) a matter of excuse or a matter of primary obligation?  They are the three core points.  May it please the Court.

KIEFEL CJ:   Yes, thank you.  Yes, Mr Walker.

MR WALKER:   If it please your Honours.  What was not pleaded and what lacks any factual foundation apt for a grant of special leave was the notion of what has sometimes been called a duty to stop a process which involved lodgement or perhaps, as the Chief Justice raised with my friend, a continuing duty in the sense of reflecting back on an earlier occasion, first in order to consider whether there had been delinquency, and second, to consider what should be done about it.

The reason why they were not pleaded does not matter, but what does matter, it was in the context of the expiry of the limitation period.  So that the events of July, being the occasion which my friend spent some time characterising as to its supposed delinquency, were not available as a foundation for the relief sought, and that is something which cannot be, as it were, bickered with by proposing that at some junctures thereafter within the limitation period, something reflective of and tantamount to that delinquency is being committed.

One asks in particular why would there need to be a later meeting at which the subject matter of the amending deed came up at all on the agenda?  There was, as we know, and the lodgement resolution has been seized upon accordingly.  But if there is anything of substance in this manner of obviating the clear intention of the legislated limitation period, then one would no doubt have a duty which would be as important outside meetings as inside a meeting, as important at a meeting without an agenda item as at a meeting with an agenda item. 

GAGELER J:   Sorry, Mr Walker, do you mean to say that once the limitation period has expired, compliance with section 601GC(1)(b) must be assumed?

MR WALKER:   No.  It is that it becomes too late to sue in the manner they sued for a failure that they alleged, and which was held to be the result of honest mistake at the date outside the limitation period and that was - undoubtedly there was an occasion when what I will call a purported amendment was made.  It does not become effective until lodgement, but the distinction conceptually between the making and the lodging is clear and simple.  The statute really makes it.

It is for those reasons that, unless the limitation period is to be treated as irrelevant, and it cannot be – it was the critical thing that frames the highly peculiar, one hopes never to be repeated, aspects of this litigation.  Unless one ignores it, then you are left with the need to have had something in the nature of a continuing duty or this odd duty to stop, neither of which is the subject of a pleading. 

They pleaded that on the occasion of the lodgement resolution there was enlivened - perhaps they might say still surviving, as not yet performed – the obligation which on their case had been breached, but not so as to grant any claim for relief; too long ago for them to have sued on it.

Now, they did not do that and, in our submission, that then makes a critical part of the case the characterisation of the lodgement resolution, what was happening on that occasion, because one can imagine, particularly given that there was a change of personnel on the board, one can imagine not this case, but it might have been a case, another case that business was recommitted to a new board, that is, it was not irrevocable and the new board wanted to consider something for itself.  Then there can have been no doubt that would have been a very pedestrian example of a previous delinquency being recommitted when the decision was remade by, say, a new board.

But the findings of fact, which we do not think are the subject of any supposed challenge and certainly are not conveyed in any special leave application – the findings of fact are against that, so that August was simply the quasi‑clerical dealing with the bureaucracy by way of lodgement as a matter of timing. 

That stands in the way, we submit, of there being any special leave‑worthy point concerning the nature of the earlier resolution, flawed as it ex hypothesi is, carrying over so as to render available a claim for relief not statute barred.  That, in our submission, is simply something which this case cannot be a proper vehicle for.

KIEFEL CJ:   That does not affect the later alleged contraventions.

MR WALKER:   Well, with the later alleged contraventions, the effect will be consideration as to whether the payments are made in accordance with the constitution and my friend has, with respect, correctly drawn to attention the, I hope, clear way we have put that.

That brings us then to what has been, maybe inaptly, but nonetheless dubbed the Project Blue Sky point, in other words, interpreting these provisions concerning the prerequisite state of mind for an amendment, what happens when it does not exist?  Now, we can put to one side at the moment questions of honesty and consequences that may follow in relation to it, such as statutory excuse, not because they are irrelevant, but because they are quite separate and follow after the main substance is determined.  We have findings here of the requisite honesty. 

So, my friend reframes that linguistically, but they do not wish to mount in the court that which is contrary to the way in which it was mounted below, namely, that this was dishonest; no honest person could have so thought.

That being precluded, in our submission, it does raise the question as to whether what is available in the register to be searched by investors or would‑be investors ought to be treated as either a trap, which it would be on the reading urged against us; or it would be, so long as it remained, the publicly endorsed statement of the terms upon which these investments would be dealt.

In our submission, the Full Court does not display any doubt about the proper resolution of that question, which is a matter of working out the consequences of a statutory breach.  That is why it may be called a Project Blue Sky in a very general sense.  In our submission, there is no reason to doubt the real substance - great weight given by their Honours to what is inadequately conveyed as a matter of convenience.  This is more than just convenience.

GAGELER J:   Mr Walker, it is a big question and you are really saying that they got the right answer, are you?

MR WALKER:   I am saying they got the right answer.  I know that if I say there is a big question, step 2, it being a special question, is perhaps a big closer.  All questions concerning the making and amending and the binding force and the legal consequences of the constitution of a commercial venture, be it scheme or a corporation, all of those are in one sense big, but another word would be that they are everyday; they are a matter which is simply an elementary part of the regulation of business ventures.

Nothing novel is raised in this case by asking when there is a requirement for constitutions in writing, when there is a requirement for their amendment and when there is effect given by lodgement of a document and a register that may be searched, does all of that add up to the world proceeding on the basis that up until there is reversal – and no one says there cannot be reversal – up until there is reversal, the constitution is as those processes appear to have produced it.

GAGELER J:   How would there be reversal in circumstances where the limitation period has passed?

MR WALKER:   Well, there are obvious out‑of‑court ways in which that can be done, but that depends upon the scheme democracy.  The Full Court specifically says that it leaves undetermined any general law questions available, say, to investors arising by reason of breach of individual duty.  So that is my answer to your Honour’s question.

GAGELER J:   But we are proceeding by hypothesis – well, we are hypothesising the problem as being non‑compliant with section 601GC(1)(b).

MR WALKER:   Yes.

GAGELER J:   We are proceeding on the basis also that the limitation period for a direct attack has passed.

MR WALKER:   Well, that is a finding, and that is common ground, yes.

GAGELER J:   So we have this constitution which has been lodged.  You were saying it is valid until set aside.  How would it be set aside on the basis of non‑compliance with section 601GC(1)(b)?

MR WALKER:   Your Honour, the answer does not spring to mind in terms of a section number, but the matter can be made good in terms of the losses by the beneficiaries of the trust, which is the legal framework, so long of course as they sue in time, which for a personal trust claim is going to be different.

KIEFEL CJ:   You mean that just choses in action arise out of it, but it remains there forever?

MR WALKER:   Until rectified in some manner.  Now, your Honours, we both insist for our opposite reasons on the fact that this is a trust and the powers of a trustee are limited.  So, the question of the recovery of payments for unauthorised – by unauthorised exercise of power is a matter that the Full Court left open.  It was not before them. 

As your Honours have seen in the papers there has been - in the name of the RE there has been litigation which has concluded.  So this case does not affect and cannot be turned to any use for what might be called recovery purposes through that avenue of recovery.  It leads, in our submission, simply to the proposition, for the purposes of that which ASIC decided late to sue on, will the answer of payment in accordance with the constitution be available? 

Our answer to that is it is as important for it to be available for somebody that, “This is what I honestly thought the constitution provided”, as it is for a would‑be investor to say, “This is a constitution that has all the hallmarks of good governance that I am prepared to risk my money with”.  They are exactly the same matters of that which appears on the public register created for the purpose of informing the world, both insiders and outsiders, as to the rules upon which this money will be dealt with.  So that is my answer to Justice Gageler, yes, time will have that effect.  It does not mean, as it were, there is no remedy. 

Now, my learned friend adopts the phrase in his remarks this morning about what happened being at the total expense of members’ rights.  For the reasons I have tried to make clear, that is simply not true.  This is a case about the answer by persons against whom an allegation is made where the finding is they acted honestly believing that there had been an amendment to the constitution, and then the core question, was this a payment in accordance with the constitution? 

I accept there is a choice and the court below made a choice which, in our submission, was guided by well‑understood principles which themselves will not be in question in any appeal following special leave, just the application of those really well‑understood principles to the particular question.

We submit that the appeal to the possibility of members losing money or having truncated rights is entirely irrelevant to the question as to what a constitution is because the amendment to a constitution, with respect, is something that might, for example, favour some members over others. 

If that were thereby invalid, that is a question which raises the spectacle of years later somebody saying, “Well, that is simply not the constitution and we have been enjoying distributions, less or more, as the case may be, than the true constitution”, which of course is in a state of being that can only be uncovered after there has been a litigated inquiry into the original validity of the decision to amend.

So it will not just be people who are recipients of payments who are entitled to rely upon the form of the constitution.  It is members inter se who may or may not have been members at the time of the amendment.  All of them will have proceeded on the basis of that which is disclosed in the register. 

It is for those reasons that we urge that there is no reason to doubt the correctness of both their Honours directing themselves as to the way in which to answer the question raised by the defect in the amendment and how they actually answered it by applying those principles.

Your Honours, can I then turn to the question of subsection 208(3)?  That is just a matter of statutory interpretation and, with respect, nothing has been raised in the writing or in my friend’s address showing what might be called a misunderstanding in principle, a misdirection, so to speak, by their Honours of how to construe provisions which in the jargon are exceptions or exclusions or the like or something different. 

It is of course not a matter to be determined by a taxonomy of provisions in a population of statutes but rather what this particular statute means applying well‑understood principles which will again not themselves

be the subject of any argument as to their content were special leave granted.

In our submission, when one sees the odd match that is produced by the reading against us, it is again entirely appropriate that the Full Court reached the conclusion they did in applying those well‑understood principles because, after all, the delinquency involved in payments without approval is a state of affairs said not to attach, not to exist, as a delinquency when they are made in accordance with the constitution.

Bearing in mind the nature of a constitution which can be seen, if only figuratively, as some kind of acceded to contract, one can see that on our reading there is entire good sense as a matter of policy, but on the argument against us they prove absence of members’ approval and then the onus supposedly throws to us to go back, in the dim dark past, it may be, clearly beyond a limitation period in order to make good the validity of that which has been on the register in the meantime.

It is for those reasons, in our submission again, that a perfectly businesslike and sensible approach is shown by the outcome in the Full Court and no reason is shown to disturb it on an appeal to this Court.  May it please your Honours.

KIEFEL CJ:   Yes, Mr Hutley.

MR HUTLEY:   I intend to be relatively short, your Honours.  As my learned friend, Mr Walker, concluded with special leave question 4, it is to question 4 that we say one directs one’s attention because it bears upon the utility of a grant of leave in respect of question 1.  For the reasons advanced by Mr Walker, if 208(3) is construed as part of the substantive provisions such that relevantly ASIC, the onus would fall upon the applicant to establish that we did not believe that the payment was authorised by the constitution in accordance with the constitution, which it would, on this construction they must fail.  Therefore, question 1, that is, what your Honour described at one stage as perhaps a big question, would not arise in that aspect of the case if the construction as to 208(3) was as we indicated.

GAGELER J:   The problem, Mr Hutley, is that it has arisen in the Full Court and it has been decided.

MR HUTLEY:   Quite, I understand that, your Honour, but if your Honours do not consider the 208(3) question one worthy of leave, it is of academic interest only.

GAGELER J:   Not to the rest of the world.

MR HUTLEY:   Well, your Honour, if it then is just to grant leave to determine that question in which the respondents are not practically affected by it, your Honour has the probability of who turns up because unless there is some utility from the point of view of the respondents, although people from time to time like to retain me to have fun, it does not happen all that often. 

Therefore, it is to the focus of the fourth question and whether your Honours consider that as an appropriate ground of special leave that attention has to be…..and for the reasons advanced by my learned friend and the rest are in writing, we say the principles are not in doubt.  They have been stated by this Court on a number of occasions.  This is, as it were, a quotidian application of it and no particular error has been directed to it and the reasoning is clear at paragraphs 320 to 330 at application book 595 and we say it is correct.

Now, at one stage in the special leave application, the utility of ground 1 was advanced even in the face of our arguments because of the presence of APCHL as a party and its interest in maintaining those declarations for the purposes of the suit – the overturned declarations for the suit in the Supreme Court.  That has been wholly resolved.  So there is no utility, and your Honours have received the withdrawal of support of the application from APCHL.

That then turns to grounds 2 and 3 and grounds 2 and 3 are essentially determined as questions of fact and as my learned friend, Mr Walker, has observed, that was brought about by the peculiarity of the failure of the applicants to commence the suit inside a time limitation period in relation to the meeting of 19 July.  They have then formulated the case not as an ongoing duty, because if it was formulated as an ongoing duty, the occasion of any particular meeting, being the meeting of 22 August, would be neither here nor there, and would one have to confront that?  What they did is direct attention to a duty specific to 22 August.

That immediately led to a focus as to what was transpiring there and the court dealt with that at application book 576, paragraphs 258 and following, and the court over a lengthy period of consideration - all the way up to paragraph 282, where the Full Court engaged in a minute analysis of precisely what the occasion was, what it called for and what the parties honestly believed they were doing, and was appropriate.

This was in the context of course of a deed which had been executed on the 19th which obliged the company to do something – the RE to do something.  That was clause 4 of the deed.  It was to that focus that the case

pleaded was directed and their Honours’ analysis of the facts is wholly unexceptional. 

It is really what is the case, and the case which they correctly…..is no matter what was at that meeting.  For some reason that meeting peculiarly had this obligation.  That is where our learned friends failed and they failed, in our respectful submission, for the reasons indicated, and that is simply the operation of the way they chose to plead the case, and I will not go over what my learned friend, Mr Walker, said.  They elected a particular focus.  Those are our submissions.

KIEFEL CJ:   Thank you, Mr Hutley.  Yes, Mr Gleeson.

MR GLEESON:   Your Honours, there are four points in reply.  Firstly, in terms of interim validity, if your Honours could go back to the statute at page 742 through to 745, Mr Walker has confirmed that it is his case that every time you see the words “scheme constitution”, you do not look at the constitution required by law; you look at whatever happens to have been lodged. 

The consequence of that is, as in this case, the money can be paid away with no remedy.  That is a very large point.  Mr Walker has pointed to no authority in the history of the Corporations Law of Australia or elsewhere which has said the constitution should be read not as the true document, but as some other document.  That is the first matter.

Secondly, if your Honours could go to page 683, and this addresses Mr Hutley’s utility point and the connections between the questions, particularly the three questions I have reformulated orally, what you will see at paragraph 152 of the second judgment, and this is the argument being put by Mr Walker and Mr Hutley, is if you pull together this series of findings in the first judgment, they lead inexorably to the conclusion that both the RE and the directors must get off, and the Full Court has accepted that argument over the page at page 684.

If your Honours look at those paragraphs on 683 from the first judgment, you would note that paragraph 257 was a finding about the – 253 is interim validity in terms, so that is question 1; 257 is the first group of contraventions on the lodgement date; 324 happens to be from the section 208 part of the argument; 341 and following are from the later or payment contraventions. 

So that very page shows that central to the way the case was run in the Full Court and the success achieved was to bring together interim validity, the concept that a director can confine or reduce his or her duty by honest conduct formed in breach of duty and, finally, the section 208 point.

The third point, your Honours, is in terms of the pleading, it is perhaps the least of the points, but I would indicate at paragraphs 503 through to 506, ASIC’s case is set out and the case made very clear that, while the breaches of duty focused on the August date and the payment date, the conduct leading up to that date was part of the position the directors were in from which the breaches were alleged.

Your Honours, the fourth and final point, the statute of limitations does not answer this case because the logic of both the arguments you have heard is there could never have been a contravention on the lodgement date or the payment date because the directors had confined the scope of their duty effectively on the first date.  That has a very practical consequence because if one thinks ahead to penalty, if penalty were ever reached, on ASIC’s case the directors can and should be penalised for their conduct on the payment date and the lodgement date and they would be separate acts of contravention with separate penalties.  They cannot be penalised for their conduct on the earlier date.  May it please the Court.

KIEFEL CJ:   There will be a grant of special leave in these matters on the basis of the three grounds as generally formulated by senior counsel for ASIC in argument.

MR GLEESON:   May it please the Court.

KIEFEL CJ:   Would the parties please ensure that their instructing solicitors obtain a copy of the directions from the Deputy Registrar. 

The Court will adjourn to reconstitute.

AT 11.46 AM THE MATTERS WERE CONCLUDED