Cachia v Westpac Financial Services Ltd

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FEDERAL COURT OF AUSTRALIA

Cachia v Westpac Financial Services Ltd [2000] FCA 161

CORPORATIONS – unit trust – merger of unit trusts contrary to wishes of minority unitholder - whether amendments to trust deed were ultra vires – whether amendments to trust deed were a fraud on the power relied upon - whether letter was a “request for redemption” recognised under the Trust Deed – whether the manager had a duty to advise that the application for redemption was not in proper form - whether the merger of the unit trusts was unnecessary in the circumstances – whether there was an entitlement to immediate payment – whether “particular amendments” become “entrenched provisions” when passed at a special variation meeting – whether amendment to the trust deed can retrospectively alter unitholder’s rights – power to vary limited to amendments which do not alter the substratum of the trust – “fraud on the minority” does not extend to the compulsory expropriation of units in unit trust

TRADE PRACTICES – allegation that Information Memorandum distributed to unitholders was misleading and deceptive for want of full disclosure – whether manager had an interest in the merger – representations as to future matters

Corporations Law ss 1366, 1069(1)(c), 1069(7), 1076A, 1076K, 1076(L)(1)(a), 1076L(1)(b), 1076L(2), 1076M(4), 1076T, 1076T(2), 1076T(3), 1076U, 1076V, 1076X, 1076Y.

Bulfin v Bebarfald’s Ltd (1938) 38 SR (NSW) 423 applied
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 applied
Gambotto v WCP Ltd (1995) 182 CLR 432 distinguished
Gwyn v Neath Canal Navigation Co (1868) L.R. 3 Exch 209 cited
Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 distinguished
Pepe v City & Suburban Permanent Building Society [1893] 2 Ch 311 applied
Gra-ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65 applied
Re Dyer [1935] VR 273 cited
In re Ball’s Settlement Trusts, Ball v Ball [1968] 1 WLR 899 applied
Re Blocksidge [1997] 1 Qd R 234 cited
Kearns v Hill (1990) 21 NSWLR 107 cited
Locke v Westpac Banking Corporation (1991) 25 NSWLR 593 cited
Vatcher v Paull [1915] AC 372 cited
Lancedale Holdings Pty Ltd v Health Group Australasia Pty Ltd [1999] NSWSC 609 cited
Lancedale Holdings Pty Ltd v Health Group Australasia Pty Ltd [1999] NSWCA 460 cited

Charles v Federal Commissioner of Taxation (1953-1954) 90 CLR 598 applied

SALV LAURENCE CACHIA v WESTPAC FINANCIAL SERVICES LTD

NG 3723 OF 1996

HELY J
25 FEBRUARY 2000
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NG 3723 OF 1996

BETWEEN:

SALV LAURENCE CACHIA
APPLICANT

AND:

WESTPAC FINANCIAL SERVICES LIMITED
RESPONDENT

JUDGE:

HELY J

DATE OF ORDER:

25 FEBRUARY 2000

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        The application is dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NG 3723 OF 1996

BETWEEN:

SALV LAURENCE CACHIA
APPLICANT

AND:

WESTPAC FINANCIAL SERVICES LIMITED
RESPONDENT

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Details
Case
[2000] FCA 161
Decision Date

CaseChat Overview and Summary

Cachia v Westpac Financial Services Ltd concerns a dispute between a unitholder, the applicant, and a financial services company, the respondent. The applicant alleged that the respondent engaged in misleading and deceptive conduct by omitting certain disclosures in an Information Memorandum given to unitholders. The case was heard in the Supreme Court of Western Australia. The legal issues the court had to address included whether the respondent's conduct was misleading or deceptive, and if the applicant had established that the outcome of a unitholders’ meeting would have been different had the omitted disclosures been made. Additionally, the court had to consider whether the respondent breached a duty of care by not disclosing certain information and if there were misleading and deceptive conduct in relation to the 1985 Prospectus. The court concluded that the applicant had not established that the respondent engaged in misleading and deceptive conduct or that the outcome of the meeting would have been different had the omitted disclosures been made. The claim based on misleading and deceptive conduct failed, as did the claim of breach of a duty of care. Furthermore, the court found that the allegations concerning the 1985 Prospectus were misconceived, as the representations made were not false or without foundation when they were made. The court also dismissed the claim of failure to buy back the units.

The court's reasoning was based on the applicant's inability to provide evidence that he or other unitholders were misled or deceived by the respondent's conduct, or that the outcome of the meeting would have been different with the omitted disclosures. Additionally, the court found that the representations made in the 1985 Prospectus were not false or without foundation when made. The court further held that the entrenched provisions in the Corporations Law could not operate consistently with certain clauses in the Deed, and that these clauses were entrenched provisions themselves. The applicant's application was dismissed with costs.

Orders

Orders of the court

1. The application is dismissed with costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

HELY J
The applicant does not assert that he himself was misled or deceived by anything which the respondent said to unitholders in the Information Memorandum. He attended the meeting, and voted against the proposal. Nor is any evidence called which could establish that other unitholders would have voted differently should the disclosures for which the applicant contends, have been made. Still less is there any evidentiary basis for a finding that had those disclosures been made, the resolution of the meeting of unitholders of the Growth Trust on 5 March 1992, would not have been carried.Conclusion The respondent did not engage in conduct that is misleading or deceptive or that is likely to mislead or deceive in any of the respects alleged in pars 4-6 of FASC. Even if it were established that one or more of the pleaded matters ought to have been disclosed, the applicant has not established that had there been disclosure of the omitted matter, the outcome of the unitholders’ meeting of 5 March 1992 would have been different. The claim based upon misleading and deceptive conduct fails. It is not necessary for me to decide whether, if the respondent had been guilty of misleading and deceptive conduct, that would have resulted in a contravention of all of the statutory provisions alleged in FASC par 22.Negligence Par 23 of FASC alleges breach of a duty of care not to engage in misleading and deceptive conduct in respect of the information provided to unitholders. As the applicant has failed to establish that the respondent engaged in misleading and deceptive conduct in relation to the Information Memorandum, this claim also fails.Misleading and deceptive conduct in relation to the 1985 Prospectus FASC par 10 alleges that by virtue of the amendments made to the Trust Deed of the Growth Trust in March 1992, the respondent “breached the declarations it had made in the Prospectus of the Trust in about January 1985” namely:(i)that the main objective of the Trust was to acquire real estate for the purpose of long term capital appreciation, and(ii)that the respondent was committed on request to converting units to cash, and(iii)that the Trust would pay no dividends, and(iv)that the income of the Trust would be reinvested in the Trust,and “revealed and exposed the said declarations to have been false, misleading and deceiving”. Representations (i), (ii) and (iv) appear in the Prospectus. Representation (iii) does not. The Prospectus contained a statement that the Trust did not intend to make distributions of income to unitholders, but may do so if an income distribution was considered to be in the best interests of unitholders (p 5). The Trust Deed of the Growth Trust contained provisions which empowered the making of distributions of income (cl 16(2)-(3); 20(10)). The representations are, in essence, representations made in 1985 as to future matters. There is no evidence that the representations were false, or without foundation when they were made. The main objective of the Growth Trust was as is specified in representation (i). Circumstances changed between 1985 and March 1992. The mere fact that a representation as to the future does not come to pass does not mean that it was false or without foundation when made. For that reason, this claim is misconceived, and doomed to failure.Failure to buy back the units

Ratio Decidendi

Legal Principle Established

Established by: HELY J

The Deed of 11 March 1992, in par 1, inserted an additional cl 55 at the end of the Deed as follows:“CORPORATIONS LAW55(1)Notwithstanding anything contained in this Deed, the parties to this Deed, including, without limitation, all Registered Holders, covenant to comply with the covenants required by sub-section 1069(1) of the Corporations Law to be contained in this Deed ...Nothing in this Deed shall derogate from or affect the operation of or limit the interpretation of this covenant.” There is an apparent tension between the opening and concluding words of the new subcl 55(1) on the one hand, and the provisions of cl 56(1) and 51(10) on the other. The applicant submits that the effect of cl 55(1) is that the buy back provisions contained in cl 51(1) of the Deed operate in accordance with their terms, and that such operation is not affected by cl 56(1) and 51(10). The Information Memorandum does not support this construction; the Information Memorandum makes it plain that it was intended to restructure the Growth Trust such that unitholders in the Growth Trust would have their units in that Trust compulsorily redeemed and be entitled to receive, in full satisfaction of the amount payable on redemption, units of an equivalent value in the Property Trust. Cl 56(1) and 51(10) were incorporated into the Deed at the direction of unitholders. Cl 55(1) was incorporated into the Deed at the same time by the Trustee and the manager pursuant to cl 43 of the Deed, on the basis that the rights of unitholders would not be adversely affected by its incorporation. In those circumstances, one would not construe cl 55(1) as derogating from the mechanism for compulsory acquisition of units in the Growth Trust in return for units in the Property Trust which cl 56(1) and 51(10) were intended to give effect to. If necessary, cl 55(1) could be rejected as repugnant to the intentions of the unitholders clearly expressed in cl 56(1) and 51(10): Gwyn v Neath Canal Navigation Co (1868) L.R. 3 Exch 209, 215. The entrenched provisions in s 1076K, particularly provisions 2, 3 and 7, cannot operate consistently with cl 51(10) and 56. Clause 51(10) and 56 provide a different regime for redemption/repurchase of units from the entrenched provisions. The proposal for the adoption of cl 51(10) and 56 is a proposal to make “particular amendments” of the entrenched provisions because they are a substitute (cf “amendments” – s 1076A) for entrenched provisions dealing with the same subject matter. A particular amendment is an addition, omission or substitution of the entrenched provisions other than a revocation of all of the entrenched provisions without substituting new provisions for them. If new provisions are substituted for the entrenched provisions there will (by implication) be a “particular amendment” to the entrenched provisions, even though the substituted provision does not specifically refer to the entrenched provision. On that basis, clauses 51(10) and 56 are themselves entrenched provisions (1076L(1)(b)) which have effect despite anything else in the Deed (s 1076L(2)). It should be noted that the requirements of s 1076T were satisfied: see Exhibit R1.