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Huntley Management Ltd v Timbercorp Securities Ltd

Huntley Management Ltd v Timbercorp Securities Ltd

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FEDERAL COURT OF AUSTRALIA
Huntley Management Limited v Timbercorp Securities Limited
[2010] FCA 576

Citation: Huntley Management Limited v Timbercorp Securities Limited [2010] FCA 576

Parties: HUNTLEY MANAGEMENT LIMITED ACN 089 240 513 and FOOD AND BEVERAGE AUSTRALIA LIMITED ACN 007 996 081 v TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION) and MARK ANTONY KORDA AND LEANNE KYLIE CHESSER AS LIQUIDATORS OF TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)

File number: NSD 198 of 2010

Judge: RARES J

Date of judgment: 8 June 2010

Catchwords:
CORPORATIONS – STATUTORY INTERPRETATION – CONTRACTS - managed investment scheme – change of responsible entity – construction of agreements in relation to managed investment scheme – whether rights, obligations and liabilities in agreements with investors and third parties expressed to be held by former responsible entity “in its personal capacity” are “rights, obligations and liabilities of the former responsible entity in relation to the scheme” within the meaning of s 601FS(1) of the Corporations Act 2001 (Cth) that become rights of new responsible entity – parties’ characterisation of relationship in agreement not determinative – agreements integral to the scheme – commercially inconvenient result if words “in its personal capacity” construed to allow former responsible entity to retain status as beneficial owner of leaseholds and other ongoing rights in relation to scheme

CORPORATIONS – STATUTORY INTERPRETATION – whether ss 601FS and 601FT of the Corporations Act 2001 (Cth) enable new responsible entity to step into shoes of former – purpose to facilitate change of responsible entity without scheme being disrupted – construction of “rights, obligations and liabilities” under Div 3 Pt 5C.2 of the Act – construction of “in relation to the scheme” in ss 601FS(1) and 601FT(1) of the Act – broad construction favoured to give effect to legislative purpose – language of section is that of novation not merely assignment

Words and Phrases: “In relation to the scheme”

Legislation: Corporations Act 2001 (Cth) Ch 5C, ss 601FS, 601FT, 601FM

Cases cited: Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121 applied
Capelli v Shepard (2010) 264 ALR 167 referred to
City Pacific Ltd (In Liq) v Ballandean Investments Pty Ltd [2010] QCA 113 referred to
Clos Farming Estates Pty Ltd (recs and mgrs apptd) v Easton (2002) 11 BPR [97995] referred to
Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 applied
Emu Brewery Mezzanine Ltd v ASIC (2006) 32 WAR 204 referred to
Fountain v Alexander (1982) 150 CLR 615 applied
Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 referred to
Hollis v Vabu Pty Ltd (2001) 207 CLR 21 applied
International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 applied
John Alexander’s Tennis Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 referred to
Mier v FN Management Pty Ltd [2006] 1 Qd R 339 followed
Olsson v Dyson (1969) 120 CLR 365 applied
Radaich v Smith (1959) 101 CLR…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] FCA 576
Decision Date

CaseChat Overview and Summary

In the case of Huntley Management Ltd v Timbercorp Securities Ltd, the dispute centred on the rights, obligations and liabilities that passed from Timbercorp Securities Ltd to Huntley Management Ltd when the latter became the responsible entity of a managed investment scheme known as the 2005 Project. The Federal Court of Australia was tasked with determining the scope of the statutory novation of rights, obligations and liabilities under the Corporations Act 2001 (Cth) as they pertained to the transition of responsibility within the scheme.

The primary legal issue the court had to resolve was whether the statutory novation provisions in sections 601FS and 601FT of the Corporations Act applied comprehensively to all rights, obligations and liabilities of the former responsible entity, Timbercorp, or if certain rights, obligations and liabilities that were expressly stated to be in Timbercorp's personal capacity remained with Timbercorp or passed to Huntley. The court also needed to interpret the meaning of the phrase "in relation to the scheme" and determine if any exceptions applied under sections 601FS(2) and 601FT(2).

The court held that the statutory novation provisions applied to all rights, obligations and liabilities of Timbercorp related to the scheme unless expressly excluded under sections 601FS(2) and 601FT(2). It found that the rights, obligations and liabilities of Timbercorp under the constitution, leases and the three investor agreements passed to Huntley, except for those specifically excluded by the statutory exceptions. The court emphasised that the Parliament intended for the novation to be broad, encompassing all aspects of the former responsible entity's involvement with the scheme, unless otherwise specified. The court also noted that the product disclosure statement and the compliance plan did not support the argument that Timbercorp had reserved certain rights, obligations and liabilities for itself in a personal capacity.

As a result, the court granted Huntley the declarations sought, affirming that upon its registration as the new responsible entity, Huntley assumed all rights, obligations and liabilities of Timbercorp under the relevant documents, with the exceptions provided for in sections 601FS(2) and 601FT(2). The court directed the matter to be re-listed to address the final orders, including those necessary to deal with the recent addition of Food and Beverage.

Orders

Orders of the court

Full text does not contain this section.

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

The Parliament employed very broad concepts in Div 3 of Pt 5C.2 in order to protect the interests of members of schemes. That is why the former responsible entity is made subject to a plenary novation of all its rights, obligations and liabilities in relation to the scheme, regardless of any nomination by it of some other capacity. The touchstone of the statutory novation is that provided by the broad expression “in relation to the scheme”. Once a right, obligation or liability of the corporation that was the former responsible entity or a document to which it was party, can be seen to have the character of being “in relation to the scheme”, it is novated to the new responsible entity by force of ss 601FS and 601FT. And, the Parliament allowed a limited carve out from that sweeping novation so as to provide for the limited but exhaustive range of rights, obligations and liabilities of the former responsible entity found in ss 601FS(2) and 601FT(2): see too Syncap 51 ACSR at 232 [46].CONCLUSION I am of opinion that Huntley is entitled to declarations that upon it having been recorded in ASIC’s record of registration under s 601FJ(1) of the Act:·the rights, obligations and liabilities of Timbercorp under the constitution, the leases and the three investor agreements became those of Huntley, other than as provided in ss 601FS(2) and 601FT(2);·those documents to which Timbercorp was party have effect as if:(a) Huntley (and not Timbercorp) were a party; and(b)all rights, obligations and liabilities acquired or incurred, or that might have been acquired or incurred by Timbercorp had it remained the responsible entity and that are capable of having effect after the change, were those of Huntley. I will re-list the matter for the purpose of making final orders including orders including orders to deal with the consequences of the recent addition of Food and Beverage.

Ratio Decidendi

Legal Principle Established

In the product disclosure statement Timbercorp stated:“As responsible entity, [Timbercorp] has ultimate responsibility to Growers for the operation and management of the Project. From time to time, it may engage other entities to perform certain functions on its behalf. One such entity is Mangocorp Management, the Project Manager, who will perform the managerial functions in relation to the Project. However, the engagement of subcontractors by [Timbercorp] will not alter its relationship with you, the Grower, and at all times it will be responsible to you for the actions of all its agents and subcontractors.” (emphasis added) The product disclosure statement continued by describing “how the project works”. It said that the 2005 project was a managed investment scheme that had been established for the purpose of producing calypso mangoes in the Australian and key export markets. It provided a diagrammatic outline of the contractual relationship between the parties. The diagram noted that Timbercorp was the responsible entity holding leases over the land and was responsible for cultivating, harvesting and preparing the mangoes for sale under the management agreement. Significantly, the product disclosure statement did not state that Timbercorp had drafted the critical documents, such as the leases and three investor agreements to provide it with many rights, obligations and liabilities “in its personal capacity”.THE COMPLIANCE PLAN The compliance plan provided that the investor became a party to the constitution and the three investor agreements upon payment and acceptance of the application money by Timbercorp. Each investor was also entitled to receive their proportionate share of the net proceeds of sale of the mangoes after deducting the costs of production and sale together with any fees. The compliance plan provided that: “The Scheme is regulated by, and based on the following documentation” and then described the constitution, the leases, the three investor agreements, a number of other documents and the parties to the scheme. The compliance plan identified Timbercorp as the responsible entity of the scheme. It stated that Timbercorp had the function under the constitution of being engaged by the growers to manage the scheme. In addition, Timbercorp was said to have the functions of the manager engaged by the growers to cultivate, maintain, harvest, deliver, process, market and sell the crop, be the lessee and licensor of the orchard, to provide financial services and advice and to issue a product disclosure statement.WHAT PASSED TO HUNTLEY WHEN IT BECAME THE RESPONSIBLE ENTITY? The critical question argued in these proceedings is what passed from Timbercorp to Huntley when it became the responsible entity of the 2005 project. The difficulty that has arisen is that the various agreements identify Timbercorp as a contracting party apparently wearing two hats – one as the responsible entity for the time being and the other as a party “in its personal capacity”. In particular, the three investor agreements provided that many of the important rights, obligations and liabilities of Timbercorp were to be enjoyed, rendered or performed by it “in its personal capacity”, apparently as distinct from its capacity as responsible entity. The true characterisation of Timbercorp’s role or roles requires consideration of what the managed investment scheme, being the 2005 project, included, and whether any of Timbercorp’s rights, obligations and liabilities expressed as being created “in its personal capacity” in the various contractual documents became Huntley’s rights, obligations and liabilities by force of ss 601FS(1) and 601FT(1).

Citation:		Huntley Management Limited v Timbercorp Securities Limited [2010] FCA 576
Parties:		HUNTLEY MANAGEMENT LIMITED ACN 089 240 513 and FOOD AND BEVERAGE AUSTRALIA LIMITED ACN 007 996 081 v TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION) and MARK ANTONY KORDA AND LEANNE KYLIE CHESSER AS LIQUIDATORS OF TIMBERCORP SECURITIES LIMITED ACN 092 311 469 (IN LIQUIDATION)
File number:		NSD 198 of 2010
Judge:		RARES J
Date of judgment:		8 June 2010
Catchwords:		CORPORATIONS – STATUTORY INTERPRETATION – CONTRACTS - managed investment scheme – change of responsible entity – construction of agreements in relation to managed investment scheme – whether rights, obligations and liabilities in agreements with investors and third parties expressed to be held by former responsible entity “in its personal capacity” are “rights, obligations and liabilities of the former responsible entity in relation to the scheme” within the meaning of s 601FS(1) of the Corporations Act 2001 (Cth) that become rights of new responsible entity – parties’ characterisation of relationship in agreement not determinative – agreements integral to the scheme – commercially inconvenient result if words “in its personal capacity” construed to allow former responsible entity to retain status as beneficial owner of leaseholds and other ongoing rights in relation to scheme CORPORATIONS – STATUTORY INTERPRETATION – whether ss 601FS and 601FT of the Corporations Act 2001 (Cth) enable new responsible entity to step into shoes of former – purpose to facilitate change of responsible entity without scheme being disrupted – construction of “rights, obligations and liabilities” under Div 3 Pt 5C.2 of the Act – construction of “in relation to the scheme” in ss 601FS(1) and 601FT(1) of the Act – broad construction favoured to give effect to legislative purpose – language of section is that of novation not merely assignment
Words and Phrases:		“In relation to the scheme”
Legislation:		Corporations Act 2001 (Cth) Ch 5C, ss 601FS, 601FT, 601FM
Cases cited:		Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121 applied Capelli v Shepard (2010) 264 ALR 167 referred to City Pacific Ltd (In Liq) v Ballandean Investments Pty Ltd [2010] QCA 113 referred to Clos Farming Estates Pty Ltd (recs and mgrs apptd) v Easton (2002) 11 BPR [97995] referred to Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 applied Emu Brewery Mezzanine Ltd v ASIC (2006) 32 WAR 204 referred to Fountain v Alexander (1982) 150 CLR 615 applied Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 referred to Hollis v Vabu Pty Ltd (2001) 207 CLR 21 applied International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 applied John Alexander’s Tennis Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 referred to Mier v FN Management Pty Ltd [2006] 1 Qd R 339 followed Olsson v Dyson (1969) 120 CLR 365 applied Radaich v Smith (1959) 101 CLR…