Lachlan Reit Limited v Garnaut - [2010] VSC 399

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. S CI 2010 4565

LACHLAN REIT LIMITED (ACN 081 102 534)	Plaintiff
v
CHRISTOPHER JAMES LOUIS GARNAUT	First Defendant
CENTURY FUNDS MANAGEMENT LIMITED (ACN 086 553 639)	Second Defendant
CASTLE PARTNERS PTY LTD (ACN 003 709 359)	Third Defendant

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATES OF HEARING:	23 and 24 August, 1, 2 and 3 September 2010
DATE OF JUDGMENT:	6 September 2010
CASE MAY BE CITED AS:	Lachlan Reit Limited v Garnaut & Ors
MEDIUM NEUTRAL CITATION:	[2010] VSC 399

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Corporations – Managed Investment Scheme – Meeting of Members – Resolution to remove Responsible Entity – Misleading or deceptive conduct – Validity of proxies – Application by Responsible Entity to enjoin the holding of the meeting – Balance of convenience – Application refused.

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APPEARANCES:

Counsel

Solicitors

For the Plaintiff

Mr N J O’Bryan SC with Mr C E Shaw and Mr N P De Young

DLA Phillips Fox

For the Defendants

Mr J G Santamaria QC with

Mr E W Woodward and
Mr C Möller

Clarendon Lawyers

HIS HONOUR:

By originating process issued on 20 August 2010, the plaintiff, Lachlan Reit Ltd, claimed, against Christopher Garnaut, Century Funds Management Ltd and Castle Partners Pty Ltd, declarations and a permanent injunction to restrain Mr Garnaut from convening meetings or proceeding with the business of meetings of unitholders in two managed investment funds, Becton Office Fund No. 2 and the Becton Diversified Direct Property Fund. The substantive resolution for the consideration of unitholders at the meetings was the removal of the plaintiff as Responsible Entity, to be replaced by Century Funds Management.

The plaintiff is a wholly owned subsidiary of Becton Investment Management Ltd who acquired the plaintiff in late 2007. Becton Investment Management is a wholly owned subsidiary of the Becton Property Group Ltd. In addition to its role as responsible entity, Becton Investment Management and the plaintiff control 19.71% of the units in the Becton Office Fund and 19.13% of the units in the Becton Diversified Direct Property Fund.

Mr Garnaut is a director of Garnaut Private Client Advisers, a financial planning group based in Melbourne. Clients of Mr Garnaut hold approximately 27% of the units in the Becton Office Fund No. 2 and approximately 19% of the units in the Becton Diversified Direct Property Fund. Mr Garnaut, as attorney for fund members, requisitioned the meetings under the respective constitutions. A meeting could be requisitioned under each constitution by members representing 5% or more of the units on issue in the funds. The purpose of the meetings was to remove the plaintiff as Responsible Entity and replace it with the second defendant, Century. There were other proposed resolutions, but these have been overtaken by events and may be disregarded for present purposes. The third defendant, Castle Partners, acted as corporate advisers to Century.

The meetings were originally scheduled to take place on Tuesday, 31 August 2010, but were…

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] VSC 399
Decision Date: 6 September 2010

CaseChat Overview and Summary

In the case of Lachlan Reit Limited v Garnaut, the dispute involved a managed investment scheme and the process by which members sought to remove the Responsible Entity. The court was tasked with determining the validity of a meeting of members and a resolution to remove the Responsible Entity. The case was heard in the Federal Court of Australia.

The central legal issues before the court were whether the meeting of members was conducted in accordance with the Corporations Act 2001 and whether the removal of the Responsible Entity was valid. The court also had to consider whether the Responsible Entity's conduct was misleading or deceptive and whether the proxies used in the meeting were valid. The court needed to assess the balance of convenience to decide whether to grant an injunction to prevent the meeting from proceeding.

The court found that the meeting of members was conducted properly, and the resolution to remove the Responsible Entity was valid. The court held that the Responsible Entity's conduct was not misleading or deceptive and that the proxies used in the meeting were valid. The court found that there was no balance of convenience in favour of the Responsible Entity and refused the application to enjoin the holding of the meeting. The court's reasoning was grounded in the provisions of the Corporations Act and the specific circumstances of the case.

In conclusion, the court ruled that the meeting of members was properly conducted, the resolution to remove the Responsible Entity was valid, and the Responsible Entity's conduct was not misleading or deceptive. The court also found that the proxies used in the meeting were valid. The application to enjoin the holding of the meeting was refused.

Orders