MIS Funding No 1 Pty Ltd v Buckley
[2013] VSC 607
•15 NOVEMBER 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 03689 of 2011
| MIS FUNDING NO 1 PTY LTD | Plaintiff |
| v | |
| PETER SEAN BUCKLEY | Defendant |
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JUDGE: | ELLIOTT J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 28, 29 OCTOBER 2013 | |
FURTHER WRITTEN SUBMISSIONS: | 6 NOVEMBER 2013 | |
DATE OF JUDGMENT: | 15 NOVEMBER 2013 | |
CASE MAY BE CITED AS: | MIS FUNDING No 1 PTY LTD v BUCKLEY | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 607 | |
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CORPORATIONS – unregistered managed investment scheme – no prospectus – information memorandum offering investment only to limited classes of investors - representations made by investor – funds loaned to invest in scheme – whether defendant a “professional investor” – meaning of “control” - Corporations Act 2001 (Cth), ss 9, 708(11) (as enacted in the Financial Services Reform Act 2001 (Cth)).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P D Crutchfield SC with C T Moller | K & L Gates |
| For the Defendant | G R McCormick | Francisdaniel Lawyers |
HIS HONOUR:
A. Introduction
This case turns upon the construction of the definition of “professional investor” in the Corporations Act 2001 (Cth) (“the Act”), as it stood in 2003.
In 2003, Willmott Forests Ltd (“Willmott”) promoted an unregistered managed investment scheme (“the Scheme”) and invited applications[1] from, amongst others, professional investors. The defendant, Peter Sean Buckley (“Buckley”), represented himself as 1 such investor. Buckley applied to invest in the securities offered; and sought finance to obtain a large part of the required funds from a subsidiary of Willmott, Willmott Finance Pty Ltd (“Willmott Finance”).
[1]Inviting applications for the issue of securities is included within the meaning of “offering securities” for the purposes of Chapter 6D of the Act: s 700(2)(a).
Based on the representations made by Buckley, his application for loan funds to invest in the Scheme was approved. Willmott Finance, as the “in-house financier”,[2] did not have its own employees. Employees of Willmott acted on the representations made by Buckley in approving the loan on behalf of Willmott Finance, and in causing Willmott Finance to advance the funds.
[2]Willmott Finance was described as the “in-house financier of the schemes” conducted by Willmott: see, Re Willmott Forests Ltd (No 2) [2012] VSC 125, [126] (Davies J). This language was adopted by counsel for Buckley.
Buckley contends that he was not a “professional investor” by reason that, at the time he made the application to invest, he did not have control of net funds or assets, alternatively gross funds or assets, of at least $10 million. Buckley submits the consequence of not being a professional investor is that Willmott failed to comply with its disclosure obligations under the Act and that, as a result, he is not required to repay any moneys outstanding.
The plaintiff, MIS Funding No 1 Pty Ltd (“MIS Funding”), was not in existence when these events occurred, having been incorporated in 2006. MIS Funding seeks payment of the outstanding amount. It does so by reason that Willmott Finance assigned the loan to MIS Funding. Buckley accepts the validity of the assignment and his liability to pay MIS Funding in the event the issues concerning the meaning of “professional investor” are decided adversely to his interests.
B. Background
There have been previous cases concerning investment schemes promoted by Willmott. The parties agreed that the facts as set out in Willmott Forests Ltd, in the Matter of Willmott Forests Ltd (receivers and managers appointed) (in liq)[3] are to be treated as agreed facts for the purposes of this proceeding. By reference to those facts, and matters before me, I will set out the relevant background.
[3][2011] FCA 1517, [2], [10], [14], [17]-[34].
Willmott was the responsible entity of 8 registered managed investment schemes, 6 unregistered “Professional Investor Schemes”, 11 unregistered contractual investment schemes and 5 unregistered partnership managed investment schemes. One of those schemes was the Scheme, promoted by way of an information memorandum, dated 18 December 2002, and entitled “Willmott Forests Professional Investor – 2003 Project Information Memorandum” (“the Information Memorandum”). There was no prospectus in relation to the Scheme.
The Information Memorandum provided that “only ‘sophisticated’, ‘professional’, and certain other investors, as contemplated by section 708 of the Corporations Act, can invest in the [Scheme]”. There is neither a suggestion that Buckley did not read the Information Memorandum, nor that he did not understand its contents.
The Information Memorandum set out the details of the proposed investment in a pine forest, to be planted, managed over 25 years and then harvested.[4] The Information Memorandum included, amongst other things, an application form, together with a loan application form, both of which could be completed by the investor in the event that she, he or it intended to invest and seek finance for that purpose.
[4]Any net proceeds from the harvesting were to be distributed to the investors according to the hectares held.
On or about 21 March 2003, Buckley completed an application form in which he applied to invest in 170 hectares (“the Application”). Each hectare was priced at $7,700. The Scheme allowed an investor to pay a deposit of $1,400 per hectare and obtain the remaining $6,300 per hectare by way of finance (subject to approval). Buckley chose to proceed in this manner. Accordingly, by the Application, Buckley proposed to pay $238,000 by cheque and to obtain finance for $1,071,000.
Buckley signed the Application on 21 March 2003 in the presence of an accountant, who was also an authorised representative of Willmott. This accountant, Arthur Rowe, received a commission as part of recommending the Scheme to Buckley.
On 28 March 2003, the Application was accepted by Willmott.
Also on 21 March 2003, Buckley signed a loan application form, which was addressed to Willmott (“the Loan Application”). The Loan Application included the following details:
(1)Buckley was the executive chairman of Ultra Tune Australia Pty Ltd (“Ultra Tune”).
(2)Buckley’s gross annual income was $285,000, and he also received $300,000 per annum by way of dividends and proceeds from loans.
(3)Buckley had uncommitted monthly income of $48,000.
(4)Buckley had “Equity in business” of $13,000,000, with liabilities relating to investment at $700,000 (at a maximum[5]).
(5)Buckley had net assets of $16,100,000.
(6)Buckley had total (or gross) assets of $17,050,000.
[5]I have assumed for this purpose that a liability of $350,000 described as “Other mortgage loans” is business related.
The Loan Application was approved on 28 March 2003 by Stephen Arrowsmith, the chief financial officer of Willmott (“Arrowsmith”). Arrowsmith was called as a witness for MIS Funding. He gave evidence of his reliance upon the contents of the Application and the Loan Application.[6]
[6]Arrowsmith was cross-examined as to the approval process. It was conceded that his evidence as to the absence of any steps taken by Willmott or Willmott Finance to verify the information supplied by Buckley was not relevant to that part of the case put by Buckley on the proper construction of the definition of “professional investor”.
In accordance with the approval of the Application and the Loan Application, Buckley executed a loan agreement on 28 March 2003 for $1,071,000 (“the Loan Agreement”). Further, on 31 March 2003, Buckley forwarded a cheque drawn on the account of Ultra Tune in the sum of $238,000 (“the Deposit”).[7]
[7]No distinction was made between Buckley and Ultra Tune in this regard. Both parties to the proceeding treated any payments made as having been made for or on behalf of Buckley.
The sum of $1,071,000 was advanced by Willmott Finance to Buckley (“the Loan”). The Loan, together with the Deposit, were applied to obtain Buckley’s interest in the Scheme. As a result of Buckley becoming an investor in the Scheme, Willmott issued a tax invoice for the total amount of the investment, namely $1,309,000 (including GST).
One of the perceived advantages of investing in the Scheme was the availability of a tax deduction in relation to any such investment. Buckley’s counsel accepted it was 1 of the reasons that motivated Buckley to invest.
On 18 December 2002, the Australian Tax Office released product ruling PR 2002/145 (“the Product Ruling”) in relation to the Scheme. The Product Ruling expressly stated that it did not apply unless the investor (referred to as a “Grower”) was a “sophisticated investor”, had accepted an offer made by a licensed dealer where the offer met the requirements of s 708(10) of the Act, or was a “professional investor”.
The effect of the Product Ruling was that an investor could obtain a tax deduction, in the financial year of the investment, for the full amount of the investment. Accordingly, for the year ending 30 June 2003, Buckley, on the premise he was a professional investor, was able to obtain a tax deduction of $1,190,000 (being the amount of the investment, less the GST component). This meant that through a cash outlay of $238,000, by way of the Deposit, a significantly larger amount was deducted from Buckley’s taxable income for tax purposes.
In addition to the above matters, on 21 March 2003 Buckley also completed a direct debit request, which was another form attached to the Information Memorandum. This requested and authorised Ultra Tune’s bank account to be debited on a quarterly basis to meet the obligations of Buckley under the Loan. Pursuant to this direct debit request, payments were duly made for approximately 7 years, from Ultra Tune’s account, in order to meet Buckley’s obligations.
As the years progressed, Willmott continued to establish new projects for investors, some of the schemes for which were registered and some of which were not. However, by 2010 Willmott and other related companies (together the “Willmott Group”) found themselves in financial difficulty. On 6 September 2010, KordaMentha were appointed receivers over all the charged property of the Willmott Group. On the same day, Willmott was placed into voluntary administration.
In the following month, MIS Funding sent a letter to Buckley concerning the Loan Agreement. The letter, dated 13 October 2010, set out details of the administration of the Scheme and the events that occurred on 6 September 2010 (as set out in the preceding paragraph). The letter then notified Buckley that, in June 2006, Willmott or Willmott Finance[8] assigned the Loan to MIS Funding. The letter continued:
By this notice to you, the assignment takes effect in both law and equity. All of the obligations you owe under the [Loan Agreement] are therefore owed to [MIS Funding].
The letter noted that Buckley was still required to meet his obligations under the Loan Agreement as it was not affected by the receivership or the administration of Willmott.
[8]In the written agreements pursuant to which loans were transferred from Willmott Finance to MIS Funding, the assignor was defined as “[Willmott] or Willmott Finance depending on which entity owned the loan…”. It was common ground that Willmott Finance was the assignor of the Loan.
Shortly prior to this time, Buckley had defaulted under the Loan Agreement. Some correspondence followed. One such piece of correspondence was a letter dated 4 November 2010 from Buckley’s solicitor to Willmott. That letter included the following:
Our client is most concerned that in light of the recent administration of Willmott it is no longer properly managing his trees and that the lease for the land upon which his trees are located may no longer be secure.
Our client wishes to resolve this matter as quickly and amicable (sic) as possible. However he requires his investment to be secured. [Certain demands were then made.]
Our client believes that he is within his rights to withhold his payments in light of the above. When the above are met to our client’s satisfaction, our client will be more than happy to resume his payments.
(Emphasis added.)
Payments were not resumed and Buckley continued to be in default. Pursuant to the Loan Agreement,[9] a certificate was tendered at trial by MIS Funding stating the amount owing by Buckley as at 28 October 2013 was $1,491,370.27 (“the Certificate”). The Certificate also recorded that interest was compounding on this amount at 11.75% per annum (or approximately $475.94 per day). No challenge was made by Buckley in relation to the contents of the Certificate.
C. Statutory provisions and relevant background
[9]Clause 14 of the Loan Agreement provided that a certificate could be issued by Willmott Finance as to the amount payable under the Loan Agreement, which certificate would be sufficient evidence unless Buckley proved it to be incorrect. See Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, 651.9–652.8, as to the effect of such a certificate.
C.1 The relevant provisions
Under Part 6D.2 of the Act, entitled “Disclosure to investors about securities”,[10] circumstances were identified in which it was mandatory to provide certain disclosure to investors. Pursuant to s 706, the disclosure requirements were imposed, “unless s 708 says otherwise”.
[10]The heading of the Part forms part of the Act: Acts Interpretation Act 1901 (Cth), s 13(2)(d).
Section 708 was entitled “Offers that do not need disclosure”.[11] The section set out a significant number of exceptions to the disclosure requirements. The exceptions included subs (8) and (11), which read respectively as follows:
[11]The heading of the section is not covered by s 13(2)(d). I need not refer to this heading further as it is not necessary in this case for the purposes of construing “professional investor” in s 708(11) (and s 9): see Pearce & Geddes, Statutory Interpretation in Australia (7th ed, 2011), 23 [1.37], 161-163 [4.55], esp at 162.5.
708(8) Sophisticated investors
An offer of a body’s securities does not need disclosure to investors under this Part if:
(a)the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or
(b)the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body’s securities of the same class that are held by the person add up to at least $500,000; or
(c)it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made:
(i)has net assets of at least the amount specified in regulations made for the purposes of this subparagraph; or
(ii)has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of this subparagraph a year.
708(11) Professional investors
An offer of securities does not need disclosure to investors under this Part if it is made to a professional investor (as defined in section 9).
The definition in s 9 included the following:
“professional investor” means a person in relation to whom one or more of the following paragraphs apply:
…
(d) the person is the trustee of:
(i) a superannuation fund; or
(ii) an approved deposit fund; or
(iii) a pooled superannuation trust; or
(iv) a public sector superannuation scheme;
within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million;
(e)the person controls at least $10 million (including any amount held by an associate or under a trust that the person manages);
…
Before considering the submissions made with respect to these provisions, I will provide some legislative history.
C.2 Legislative history up to and including the relevant provisions
The reference in s 9 to “controls at least $10 million” in paragraph (e) of the definition of “professional investor” did not appear in the predecessors to the Act. Language akin to this phrase was first introduced as part of the Corporations Regulations 1990 (Cth). The enabling section[12] stated that an issue or allotment of securities could be excluded by way of declaration under the regulations. Regulation 7.12.05(e) declared as an excluded issue:
[T]he issue or allotment to a person who, for the purposes of investment in securities, controls an amount of not less than $10,000,000, being an amount that includes any amount held:
(i)by an associate of the person; or
(ii)under a trust that the person manages.
[12]The regulation was made pursuant to s 66(2)(n) of the Corporations Law.
Part 6D.2 was introduced into the legislation pursuant to the Corporate Law Economic Reform Program Act 1999 (Cth). This Part replaced Divisions 2, 3, 6 and 7 of Part 7.12 of the previous legislative regime. Section 708(11) was introduced. This sub-section was entitled “Professional investors” and relevantly provided as follows:
An offer of securities does not need disclosure to investors under this Part if it is made to:
…
(e)a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme within the meaning of the Superannuation Industry (Supervision) Act 1993 if the fund, trust or scheme has net assets of at least $10 million; or
…
(h)a person who controls at least $10 million (including any amount held by an associate or under a trust that the person manages) for the purpose of investment in securities.
(Emphasis added.)
I have included paragraph (e) above to contrast the reference to “net assets of at least $10 million” in that provision with “at least $10 million” in paragraph (h).
Observation was made in academic literature at the time that it was unclear as to how s 708(11) applied “where one fund is controlled by several persons (say, as trustees) and another fund is controlled by only one of them” (emphasis added).[13] It was also suggested it was unclear “when the fund will be regarded as held ‘for the purpose of investment in securities’” (emphasis added).[14]
[13]Ford’s Principles of Corporations Law (10th ed, 1999), 963 [22.150].
[14]Ibid.
A further amendment was made in 2001, effective 11 March 2002. The amendment was duly enacted and remained current at all relevant times for the purposes of the issues in this case.[15] Prior to this amendment being passed, a revised explanatory memorandum to the Financial Services Reform Bill 2001 (Cth) was published. This included the following:[16]
[15]See pars 25-27 above.
[16]At 32-33 [6.33].
A professional investor test, based on the current test in subsection 708(11) of the existing Corporations Act has been introduced into the Bill…The definition of “professional investor” will be inserted into section 9 of the Corporations Act (for the purposes of subsection 708 (11) as well) and covers persons who are:
…
·trustees of superannuation funds, approved deposit funds, pooled superannuation trusts and public sector superannuation schemes within the meaning of the SIS Act[17] where the fund, trust or scheme has net assets of at least $10 million;
·control (sic) at least $10 million (including any amount held by an associate or under a trust that the person manages);
…
(Emphasis added.)
[17]A reference to the Superannuation Industry (Supervision) Act 1993 (Cth).
As may be seen from this explanatory memorandum and from the definition set out above,[18] the definition no longer included the words “for the purpose of investment in securities”. The removal of these words abolished the requirement of ascertaining whether the “at least $10 million” was controlled specifically for the purpose of investment in securities.
[18]See par 27 above.
C.3 Legislative changes after 2003
Buckley sought to rely upon amendments made to the Act (including by way of subordinate legislation) after 2003. This was put on the basis that the subsequent changes throw some light on what was intended by the original provisions and what was thought to be the problem with them.
It has been authoritatively stated that it may be permissible to take subsequent amendments to legislation into account when seeking to determine the meaning of a provision in an Act.[19] But caution must be exercised in determining what assistance may be derived from such an exercise. As was stated by the Full Federal Court in Allina Pty Ltd v Commissioner of Taxation:[20]
There was some debate before us as to the circumstances in which courts are entitled to examine a later statute to determine whether it throws any light upon the interpretation of an earlier statute. Plainly this course can be taken when the words of the earlier statute are ambiguous, but if the words of the earlier statute are clear, little assistance may be gained from the later statute. Also, care must be exercised to ensure that the words in the later statute have not been inserted to remove possible doubts: …
(Emphasis added; citations omitted.)
[19]Grain Elevators Board (Vict) v Dunmunkle Corporation (1946) 73 CLR 70, 86.1 (Dixon J); see also 77.3 (Latham CJ).
[20](1991) 28 FCR 203, 212.4 (Lockhart, Burchett and Gummow JJ). See also Doughty v Martino Developments Pty Ltd (2010) 27 VR 499, 511 [33] (Nettle JA, with whom Mandie JA and Emerton AJA agreed); Commissioner of State Revenue (Vic) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651, 669 [52] (Gleeson CJ, Gummow, Kirby and Hayne JJ); Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492, 539.7-540.1 (McHugh J).
Reference was made by Buckley to reg 7.6.02AE of the Corporations Amendment Regulations 2005 (No 5) (Cth). This regulation modified the then definition of “professional investor”, but only for the purposes of certain sections, which did not include s 708(11).[21] The amendment read: “the person has or controls gross assets of at least $10 million (including any assets held by an associate or under a trust that the person manages)” (emphasis added).
[21]This amended the definition for the purposes of ss 926B(1)(c), 951C(1)(c), 922C(1)(c) and 1020G(1)(c).
The explanatory statement recorded that the regulation added “a new criteria of having $10 million in gross assets into paragraph (e) of the definition of professional investor in section 9 of the Act (adding to the existing criteria of controlling $10 million)”(emphasis added, except for original bold emphasis).[22] This explanation suggests only 1 change, namely “having” in addition to “controls”, and, accordingly, that the original wording of “at least $10 million” was a reference to “gross assets”. The explanation does not suggest that “gross assets” itself was new.
[22]Explanatory Statement, Select Legislative Instrument 2005 No 324, issued by the Parliamentary Secretary to the Treasurer, 29.8.
For the purposes of section D.2 below,[23] I note the explanatory statement continued:
The definition of control in section 50AA of the Act will not generally be appropriate for determining control under this paragraph (because section 50AA relates to control of an “entity”). However, no separate definition of control is included for the purposes of paragraph (e) of the definition of professional investor.
Rather, control is to be given its ordinary meaning which, according to the 2003 edition of the Macquarie Dictionary is “to exercise restraint or direction over…”.
In order to remove doubt about the interpretation of paragraph (e) of the definition of professional investor, the assets to which that paragraph refers do not have to be held for the purposes of investment.
(Original emphasis.)
[23]At pars 53-57 below.
I infer that the inclusion of “gross assets”, and “assets” in the parenthesis, in the definition was to remove any suggestion that the definition was confined to a fund or directed to net assets. The explanatory statement suggests that the previous reference to simply “$10 million” was considered to be a reference to assets generally, and was not limited to a fund, held for the purpose of investment or otherwise. As noted above, [24] the requirement to hold “at least $10 million” for a specific purpose was removed, effective 11 March 2002.[25]
[24]At pars 32-33 above.
[25]There was a suggestion by Buckley that “assets” are confined to business or investment assets. I need not address the issue in this case, because exhibit P4 and the Loan Application disclose business assets in excess of $10 million in any event: see par 87 below.
Buckley also referred to the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 (Cth). This Act replaced s 708(11) to carve out paragraph (e) of the definition in s 9 of “professional investor” so as to incorporate the changes made by regulation in 2005 which were already in place for the purposes of other sections of the Act (as set out above). Accordingly, my observations concerning the 2005 amendments equally apply to the changes in 2007.[26]
D. Evidentiary issues at trial
[26]For completeness, I note that the 2007 amendments were enacted by the legislature, as opposed to being the subject of regulatory change (as occurred in 2005). Accordingly, I have refrained from considering whether subsequent amendments to an Act by way of regulation can be taken into account when construing earlier legislation.
D.1 Buckley’s assets as at March 2003
As noted above,[27] Buckley contends that at the relevant time he was not a “professional investor”. Buckley sought to establish this by putting evidence before the court as to his financial position in March 2003. In effect, Buckley was inviting the court to reject the information he personally provided, under his signature, in the Loan Application as to his assets and liabilities.
[27]See par 4 above.
Buckley chose not to lead any evidence himself. No explanation was given as to why he was not called as a witness in his own case. This is a clear instance where the court is entitled to draw an inference that, if Buckley had been called to give evidence, it would not have assisted his case.[28]
[28]See, for example, Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212, [30]; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, 384-385 [63]-[64]; Jones v Dunkel (1959) 101 CLR 298, 308.5, 312.6, 320.8-321.2.
Only 1 witness was called on behalf of Buckley, namely his accountant, David Hindle, of David Hindle & Associates (“Hindle”). Hindle gave evidence that he has been the accountant and tax agent for Buckley and associated corporate entities since 2004. It follows that Hindle was not Buckley’s accountant or tax agent at the relevant times for the purposes of this proceeding.[29]
[29]For completeness, I note that Hindle was retained by Buckley prior to this time. As part of the tender bundle of Buckley, a valuation of Ultra Tune as at 30 June 2000 was included. This valuation was contained in a letter from Hindle dated 19 December 2002. Apart from being tendered by Buckley without objection, no submissions were made on how its contents were relevant to the financial position of Buckley as at March 2003. Accordingly, I will not address its contents any further.
According to Hindle, the previous accountant and tax agent was Geoff Norris & Associates. Hindle stated that he had received files from Geoff Norris & Associates, which he described as “their files”, but he did not say when the files were received. From those files he said he had located financial statements for the year ending 30 June 2003 in relation to 22 entities associated with Buckley (“the 22 Entities”). The 22 Entities[30] are represented diagrammatically in annexure “A” to this judgment.
[30]The 22 Entities as they were known at the time are as follows: (1) AP Fleet Management Pty Ltd; (2) Buddy & Tora Bayswater Pty Ltd; (3) Buddy & Tora Coburg Pty Ltd; (4) Buddy & Tora Fitzroy Pty Ltd; (5) Buddy & Tora Footscray Pty Ltd; (6) Buddy & Tora Northcote Pty Ltd; (7) Buddy & Tora Qld Pty Ltd; (8) Buddy & Tora Sunshine Pty Ltd; (9) Buddy & Tora WA Pty Ltd; (10) Roger & Jessie Airport West Pty Ltd; (11) Roger & Jessie Clayton Pty Ltd; (12) Roger & Jessie East Melbourne Pty Ltd; (13) Roger & Jessie Holdings Pty Ltd; (14) Roger & Jessie Holdings No.2 Pty Ltd; (15) Roger & Jessie Holdings No.3 Pty Ltd; (16) Roger & Jessie Holdings Reservoir Pty Ltd; (17) Sellick Pty Ltd; (18) Ultra Hair Studio Pty Ltd; (19) Ultra Media Buying Pty Ltd; (20) Ultra Tune Australia Pty Ltd; (21) Ultra Tune Racing Pty Ltd; (22) Ultra Tune Roadside Assistance Pty Ltd.
Apart from putting into evidence the financial statements for the year ending 30 June 2003 in relation to each of the 22 Entities, Hindle said nothing further on the topics of ownership, control or financial position. Also, Hindle does not address Clarson Holdings Pty Ltd (“Clarson Holdings”). Clarson Holdings is not one of the 22 Entities, but, as may be seen from annexure “A”, is another company wholly owned by Buckley.
Hindle gave evidence in relation to some of the information provided by Buckley in the Loan Application. That evidence included the purchase price in relation to 2 of the 4 properties listed by Buckley as assets of Buckley as at 21 March 2003. In relation to the 2 properties referred to by Hindle, the amount respectively of the purchase price was significantly less than the amount referred to in the Loan Application. However, there was no expert evidence in relation to the valuation of either of the properties. Accordingly, the court is left with 2 sets of figures, being the purchase price of the 2 properties referred to and the amounts said by Buckley to be their value as at 21 March 2003.[31]
[31]The amounts referred to in the Loan Application are in evidence. The evidence was tendered without objection. There was no application under s 136 of the Evidence Act 2008 (Vic) to limit the use of the evidence the subject of the Loan Application. The Loan Application is admissible as evidence of its contents: without being exhaustive, see, for example, ss 81 and 82 of the Evidence Act; see also s 80. As to the use to which evidence may be put when it is tendered without objection, see Lym International Pty Ltd v Marcolongo [2011] NSWCA 303, [103] (Campbell JA, with whom Sackar J agreed; Basten JA expressly declined to address the issue: [2].) See also Odgers, Uniform Evidence Law in Victoria (2nd ed, 2013), 236-239 [1.3.290].
The next piece of evidence from Hindle referred to a 3rd property disclosed by Buckley in the Loan Application. Hindle deposed to the fact that there was no entry in the accounts of any of the 22 Entities for a property with the details referred to in the Loan Application. If the evidence was led to invite the court to draw an inference that Buckley did not own the property in question, then I reject the invitation. In fact, this evidence of Hindle, combined with the details of the Loan Application, strongly suggest that there were assets held by, for, or on behalf of Buckley other than the assets identified as being held by the 22 Entities.
Hindle also referred to a company by the name of “Horsing Around Victoria Pty Ltd”. Hindle stated that this company purchased a property on 23 October 2002 for the sum of $585,000. Two matters arise out of this. First, Horsing Around Victoria Pty Ltd is not one of the 22 Entities. This indicates that it is highly likely that Buckley had interests in at least 1 other company, the details of which have not been disclosed to the court. Moreover, similar to Clarson Holdings, the extent of the assets held by this company in March 2003 are unknown. Secondly, the property said to have been purchased in October 2002 has an address which is not referred to in the Loan Application. This suggests that Buckley may have had other properties that are not the subject of the details provided in the Loan Application.[32]
[32]I infer that Buckley must have had some interest in Horsing Around Victoria Pty Ltd at the relevant times, otherwise the evidence would have had no relevance to the case. No direct evidence was given by or on behalf of Buckley in relation to this point.
Finally, Hindle stated that he does not know what the phrase “Equity in business” in the Loan Application means. He then gave some evidence about what it might mean, and, if so, what the assets were in relation to that supposed meaning. The supposed meaning was implausible on its face. In any event, I find this evidence of no assistance in circumstances where there is no evidence to suggest Buckley understood the phrase in accordance with Hindle’s speculation.
The most glaring aspect of Hindle’s evidence is that nowhere does he state that the assets that he has referred to for the year ending 30 June 2003 represent the entirety of the assets of Buckley at that time. Indeed, for reasons already expressed, Hindle’s evidence strongly suggests that the assets he referred to are not exhaustive of those held by Buckley at the relevant time.[33]
[33]There is, of course, a timing issue. The financial statements refer to a point in time some 3 or so months after the Loan Application was completed. As no submissions were made with respect to this fact, I have assumed the timing difference is of no moment.
In short, to the extent that Hindle’s evidence was intended to establish that the details of the Loan Application were incorrect and that Buckley had net assets, alternatively gross assets, less than $10 million, it failed to achieve this intended outcome at the threshold. The non-exhaustive evidence given by Hindle does not come close to satisfying the court that the assets of Buckley as stated in the Loan Application as at 21 March 2003 were incorrect. This is particularly so in light of the failure of Buckley to give evidence, or to call evidence from his accountant and tax agent at the relevant time. It is irrefutable that Buckley, at the very least either by himself or by his former accountant, had the power to provide more detailed and complete evidence to the court, but failed to take the opportunity to do so.[34]
[34]Blatch v Archer (1774) 1 Cowp 63, 65 [98 ER 969, 970.2]. For more recent decisions in this regard see Swain v Waverley Municipal Council (2005) 220 CLR 517, 525-526 [17] (Gleeson CJ); Australian Securities & Investments Commission v Hellicar (2012) 247 CLR 345, 412-413 [165]-[167] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ), 441-442 [250] (Heydon J) and the cases there cited. See also fn 26 above.
Accordingly, I find, in accordance with the Loan Application signed off by Buckley,[35] that in March 2003, he beneficially held and controlled gross assets of $17,050,000, net assets of $16,100,000 and assets reflecting equity in his businesses of $12,300,000.
[35]See par 13 above.
D.2 Buckley’s control of assets
By reason of the finding in the preceding paragraph, it is not necessary to consider the evidence concerning Buckley’s control over company assets. Notwithstanding this position, I will proceed to consider the issues in question in order to establish that the judgment is not entirely dependent on findings made in relation to the contents of the Loan Application. But, before considering the evidence in relation to Buckley’s control over certain company assets, it is necessary to determine the meaning of “control” for the purposes of paragraph (e) of the definition of “professional investor”.
Control is not defined in the Act for the purposes of the definition of “professional investor”.[36] The word “control” is defined in the Macquarie Dictionary[37] to include “to exercise restraint or direction over; dominate; command…the act or power of controlling; regulation; domination or command”.
[36]As noted in par 38 above, control is defined for other purposes in the Act, but those provisions do not apply to this definition.
[37]5th edition (2009), 372 col 3.
In the context of considering control a person may have over property owned by a company, Malcolm CJ in Connell v Lavender, said as follows:[38]
The exercise by a person of control of property owned by a company may be established if the person concerned has control of more than 50 per cent of the votes which may be cast at a general meeting of the company, or control of more than half of the members of the board of directors of the company … In Commissioner of Taxation(Cth) v Commonwealth Aluminium Corporation Ltd,[39] Stephen, Mason and Wilson JJ said[40] that shareholders, through their power to control a general meeting of a company and, perhaps through their power to elect directors “controlled” the company …
(Emphasis added.)
[38](1991) 7 WAR 9, 21.5 (Pidgeon and Rowland JJ agreed). This case was referred to with apparent approval in Director of Public Prosecutions v Twenty Fourth Trengganu Pty Ltd (2011) 31 VR 439, 440 [7] (Nettle JA); see also 449 [38]-[39] (Hargrave AJA, with whom Mandie JA agreed, and Nettle JA agreed in part); Loo v Director of Public Prosecutions (2005) 12 VR 665, 671 [9] (Winneke P, with whom Charles JA agreed, and Callaway JJ substantially agreed).
[39](1980) 143 CLR 646.
[40]At 659-660.
Malcolm CJ also quoted their Honours in Commissioner of Taxation (Cth) v Commonwealth Aluminium Corporation Ltd[41] at length, where it was observed that “control” refers to “de facto control rather than the capacity to control”. Part of the quoted passage included the following:[42]
Important decisions, whether involving questions of policy or not, are invariably taken by the directors who are ultimately responsible to the company in general meeting for the conduct of the company’s business operations. The shareholders, through their power to control the company in general meeting and perhaps through their power to elect directors, may be said to “control” the company, but as a general rule they do not exercise de facto control in the company’s business. Of course, there will be cases in which the evidence establishes that some shareholders or outsiders do exercise de facto control of the business and possibly there may be cases in which shareholders exercise control of the business at general meetings.
(Emphasis added.)
[41]At 21.8-22.6.
[42]At 659.4-660.2. See also 652.9-653.3 (Barwick CJ).
These authorities make clear that if a person holds and controls the majority of the shares in a company, and commensurate voting rights, she or he will ordinarily be considered to be in control of the company, and the assets of the company.
It was accepted by Buckley’s counsel, correctly, that to the extent that Buckley owned all the shares in a company, then he was in control of it for the purposes of the definition. Thus, by reference to the evidence reflected in annexure “A”,[43] it can be seen that it is common ground between the parties that Buckley was in control of 7 of the 22 Entities directly, and, through Clarson Holdings, another 6 of the companies.[44]
[43]MIS Funding tendered a table (exhibit P4), which set out the agreed position between the parties as to the relationship between Buckley and the 22 Entities, together with references to the underlying documents that supported the facts in the table.
[44]Namely Buddy & Tora Coburg Pty Ltd, Buddy & Tora Northcote Pty Ltd, Buddy & Tora WA Pty Ltd, Clarson Holdings, Roger & Jessie Airport West Pty Ltd, Sellick Pty Ltd and Ultra Media Buying Pty Ltd. Also, through Buckley’s 100% holding in Clarson Holdings, Buddy & Tora Bayswater Pty Ltd, Buddy & Tora Fitzroy Pty Ltd, Buddy & Tora Footscray Pty Ltd, Buddy & Tora Sunshine Pty Ltd, Roger & Jessie Holdings East Melbourne Pty Ltd and Roger & Jessie Holdings No.2 Pty Ltd.
There is 1 further company in which shares are held directly by Buckley which is not referred to in the previous paragraph (including footnote 44). That is R J Holdings No.3 Pty Ltd. In relation to that company, Buckley is the sole director and also holds 700 out of the 1000 shares.
Clarson Holdings is 1 of the companies in which the shares are held entirely by Buckley. He is also the sole director of that company. In addition to the 6 companies where it holds all the shares, Clarson Holdings holds the majority shareholding in 4 companies, namely Buddy & Tora Qld Pty Ltd, Roger & Jessie Clayton Pty Ltd, Roger & Jessie Holdings Pty Ltd and Roger & Jessie Holdings Reservoir Pty Ltd. In relation to these companies, he holds 51% of the shares in 2 of them and 75% of the shares in the other 2. In 3 of the companies he is a co-director with 1 other director (who is a different person in each case), and in the remaining company, there are 2 directors who, between them, hold 49% of the shares.
In relation to each of the 5 companies referred to in the 2 preceding paragraphs, at a meeting of members Buckley would hold an absolute majority of the shares. In those circumstances, absent any evidence indicating some other form of control in relation to voting rights, the de facto control of the assets of each company appears to rest with Buckley, and I so find.
The last entity that needs to be considered is Ultra Tune. Ultra Tune is owned by 3 shareholders; Buckley as to 75 of 600 shares, Clarson Holdings as to 204 of 600 shares and Sellick Pty Ltd (“Sellick”) as to 321 of 600 shares. As previously noted, Buckley is the sole shareholder and director of each of Clarson Holdings and Sellick. Buckley is also the sole director of Ultra Tune.
It follows that, either directly or indirectly, Buckley is in control of all the issued shares in Ultra Tune. It must also follow that he is also in control of Ultra Tune and its assets.
There are 4 companies in which Ultra Tune has ownership of all of the issued shares. In 2 of those companies, Ultra Hair Studio Pty Ltd and Ultra Tune Roadside Pty Ltd, Buckley is the sole director. In those circumstances, there can be no doubt he was also in control of those companies. In relation to the other 2 companies, Buckley is a co-director with 1 other director, being 2 different persons. Given the ownership of the shares in those 2 companies, for the reasons already stated Buckley is also in control notwithstanding the presence of another director on the board.
Of course, the court is not confined to the evidence reflected in annexure “A”. The Loan Application itself suggests that Buckley was asserting control in relation to all the assets held by the 22 Entities (and others). This is a further basis upon which the court could properly find, as it has, that Buckley controlled the assets in question.
In summary, in relation to each company referred to in annexure “A”, Buckley was in control of the assets held by the company for the purposes of the definition of “professional investor” in s 9 of the Corporations Act.[45]
[45]Submissions were made by Buckley in relation to the meaning of “associate”, and consequences of such a relationship. In light of my findings in relation to control, it is unnecessary to consider those matters.
E. The meaning of “professional investor”: further issues
The agreed table of assets of the 22 Entities[46] shows the gross assets of the 22 Entities as at 30 June 2003 were $16,849,459, and net assets were $3,282,342. If, contrary to the findings made, I were of opinion that the evidence of Hindle exhaustively stated the assets under the control of Buckley, it would be necessary to determine whether the words “at least $10 million” is a reference to gross assets or net assets.
[46]Exhibit P4.
As, strictly speaking, there is no need to consider this issue in light of the findings that both the gross assets and net assets of Buckley were at least $10 million in total, I will confine myself to some brief reasons as to why “at least $10 million” refers to gross assets rather than net assets.
First, the natural and ordinary meaning of controlling an amount does not connote the amount referred to is a netted amount. A person is still capable of controlling $10 million, even though there may be liabilities of, say, $5 million directly referable to the larger sum. In my view, there is no apparent reason why the language should imply, or the subject matter should impute, additional words to limit the simple language of the statute.
Secondly, the language of paragraph (e) in the definition may be contrasted with paragraph (d)[47], which specifically identifies the assets there referred to are “net assets”. If the legislature had intended to refer to net assets in paragraph (e), it would be expected it would have used the same or similar language as paragraph (d). A similar contrast may be made to the reference to “net assets” in s 708(8)(c)(i).
[47]The subject matter of par (d) is confined by subpars (i)-(iv). Although subpars (i) and (ii) are confined to funds, (iii) and (iv) are not so confined.
Thirdly, contrast needs to be made with s 708(8)(a) and (b), which refer to “at least $500,000”. This phrase must be understood by reference to s 708(9). There is no such qualification of the language used in the definition in paragraph (e) as it stood in 2003. Further, s 708(9) does not exclude money lent by persons other than those offering the securities.
It was submitted by Buckley that because the legislation in Part 6D.2 is protective, the language in the exceptions should be read down. However, the legislature has decided to make many exceptions to the disclosure regime in Part 6D.2; including exceptions that plainly would not involve an investor having gross or net assets of at least $10 million.[48] There is nothing in the statute itself, or in the extrinsic materials, to suggest the language used in s 708 should be given anything other than its natural and ordinary meaning. Moreover, there are competing interests that would be defeated if the exceptions were not applied properly and the protective regime overreached into unintended territory. As was stated, by the minister for financial services and regulation, upon the Financial Services Reform Bill 2001 (Cth) being read for the second time[49]:
The new framework will protect individual and small business consumers without imposing higher costs on wholesale transactions between sophisticated professional investors that operate in a competitive global market.
[48]See, for example, paragraph (h)(i) in the definition of “professional investor” in s 9, s 708(1) and s 708(8).
[49]Australia, House of Representatives, Parliamentary Debates (Hansard) 5 April 2001, 26522.6 col 1.
Also in support of the submission that the language should be read down, or read narrowly and strictly, Buckley relied upon authorities from the United States.[50] I was not taken to specific passages in the authorities or to what was said to be the equivalent or similar legislation.
[50]Securities and Exchange Commission v McDonald Investment Co (1972) 343 F Supp 343 (which also refers to earlier authorities in the United States: 346.8 col 2); Hill York Corporation v American International Franchises Inc (1971) 448 F 2d 680. These authorities were referred to in Robson’s Annotated Corporations Act (2002), 1177.
Having read the 2 decisions referred to, it is plain the exceptions in those cases were very different. Further, in 1 of the cases there are very specific statements in the extrinsic materials to the legislation which were relied upon in the reasons[51]. In the other case, the court insisted upon the registration and disclosure regime notwithstanding the investors were “sophisticated” investors;[52] in obvious contrast to the approach taken in the Act.[53] In any event, to rely on such authorities would be fraught with difficulty in light of some legislation in the United States being based on a “merits review” rather than the policy behind the Act, which is based, at least in part, on a disclosure philosophy.[54]
[51]Securities and Exchange Commission v McDonald Investment Co, 346.7 col 1.
[52]Hill York Corporation v American International Franchises Inc, 688.3 col 2, 690.2 col 2, 696.8 col 1. Also contrast the approach to the meaning of “control” for the purposes of the legislation in question: 694.4 col 1.
[53]Though I note “sophisticated investors” was not a defined term in the legislation: compare s 708(8).
[54]See, for example, Ford’s Principles of Corporations Law (15th ed, 2013), 1241 [22.030]. See also at 1241-1242 [22.020].
There were further submissions put as to why the phrase in question was not a reference to gross assets.
Buckley submitted that “$10 million” was a reference to an “amount”, and this indicated a net position was being referred to. In making this submission, reliance was placed upon the definition in s 9 of “amount” which read “includes a nil amount and zero”. This definition was said to indicate that “amount” referred to a numerical value and “not to the nature of things being measured”. This definition was also relied upon to suggest the phrase was a reference to a fund, rather than an amount based on an asset test.
I find neither of these submissions persuasive. The word “amount” is found in parentheses in paragraph (e) in the phrase “including any amount”. Such a non-exhaustive phrase does not confine the meaning of “at least $10 million”. It is clearly used to expand the meaning. Further, “at least $10 million” in paragraph (d) of the definition is a reference to assets, albeit “net assets”.[55] Once the phrase “for the purpose of investment in securities” was removed from paragraph (e),[56] there was no proper basis to give the phrase a meaning which excluded assets which could not be described as assets in a fund.
[55]See par 70 above.
[56]See par 33 above.
As already noted,[57] to the extent that the definition has been amended in subsequent legislation, it is my opinion that when the relevant parts of the amendments are viewed with the language of the other provisions in s 708, and with the extrinsic materials, these amendments are properly viewed as removing possible doubts to the definition, rather than making significant changes to the meaning of the provision.
[57]See pars 34-40 above.
Next, Buckley sought to rely upon the meaning of “professional investor” as that would be understood from a dictionary (as a means of construing the language of the definition). As a matter of general principle, it is permissible to consider a dictionary meaning of a word or term even if that word or term is defined in the legislation.[58]
[58]See, for example, Manly Council v Malouf (2004) 61 NSWLR 394, 396-397 [8]-[9].
By reference to what was said to be the ordinary meaning of “professional investor”, it was submitted by Buckley that in order to satisfy the definition a person needed to be in the business of investing in a significant manner. Although it was conceded to be a question of degree, it was contended this encompassed investing either by way of primary occupation or, if not the person’s primary occupation, at such a level that it can be seen to be so significant as to aptly be referred to as a “profession”. Apart from submitting that in some circumstances it would be “very clear” that a person was a professional investor, no precise meaning was given to the court as to what was the ordinary meaning of professional investor.
Assuming, for the purposes of argument, the ordinary meaning of “professional investor” aligns with the submission as referred to in the previous paragraph, I can see nothing in the language of the definition of “professional investor” in s 9 which suggests that this additional factor ought to be superimposed or otherwise incorporated into its meaning. Indeed, one can readily envisage a person who meets the description of a number of the definitions who would not be considered “professional”. As was stated in the 12th edition of Ford’s Principles of Corporation Law,[59] the list of “professional” investors “is rather wider than the word ‘professional’ might suggest”.
[59]12th edition (2005), 1034 [22.150]. This publication addressed the legislation as it stood in 2003.
Concluding on this topic, as the evidence led by Buckley’s current accountant, Hindle, indicates his gross assets in 2003 exceeded $10 million, this is a further basis upon which the court finds Buckley was a “professional investor”.
F. Other matters
F.1 Estoppel
In light of the findings made in relation to the application of s 708(11) of the Act, it is not necessary for the court to make any findings on the alternate submissions made by MIS Funding in support of the existence of an estoppel, either by convention or promissory. If I were to consider that matter in full, I would have made the following factual findings.
(1)Buckley represented to Willmott and Willmott Finance that he was a professional investor, and he had total assets of $17.05 million and net assets of $16.1 million as at 21 March 2003.
(2)The representations made by Buckley in relation to his status and financial position entitled Willmott and Willmott Finance to reasonably assume that Buckley was a “professional investor” for the purposes of the Act as it then stood.
(3)In reliance upon the representations, Willmott allowed Buckley to invest in the Scheme and Willmott Finance agreed to advance the sum of $1.071 million. These events also enabled Buckley to obtain a substantial tax deduction for the year ending 30 June 2003.
(4)The parties proceeded on the basis that Buckley was a professional investor, and that he was legally obligated to repay the Loan, for a period of 7 years.
(5)If Buckley was entitled to resile from his position, Willmott Finance would suffer detriment which equated to, at least, the amount of the moneys advanced under the Loan.[60]
[60]It is not necessary to consider precisely what the amount would be to compensate Willmott Finance (or any person claiming based on Willmott Finance’s entitlement) by reason of any equity created.
Because of the court’s findings, it is not necessary to further decide whether, if an estoppel would otherwise entitle Willmott Finance to recover moneys advanced under the Loan:
(1)MIS Funding, as assignee, would be entitled to enforce the Loan in its own right.
(2)Whether, if the court were otherwise minded to grant relief in accordance with the equity created on the grounds of an estoppel, any orders which might have been made would stultify the purposes of the Act and, consequently, would preclude any such orders being made.[61]
[61]Compare Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, 513 [23] (French CJ, Crennan and Kiefel JJ), 537-538 [96] (Gummow and Bell JJ).
F.2 Issues concerning double counting
In relation to the figures contained in exhibit P4, there was a difference between the parties in relation to how the gross assets should be assessed. Buckley submitted that, to the extent that each asset recorded in the financial statements of the 22 Entities was offset by a corresponding liability in the financial statements of another of the 22 Entities, the court was not entitled to take these assets into account. It was suggested that if those assets were taken into account, there was effectively a double counting, or an acknowledgement of an “asset”, which was not really an asset of the group on a consolidated basis.
In response, MIS Funding submitted that as the court could not be satisfied that Buckley was the only person with an economic interest in the 22 Entities, the assets and liabilities did not cancel each other out.
By reason that I have found that Buckley had control of all the assets of the 22 Entities, even if I were to find in favour of Buckley on this submission in relation to all of the related assets and liabilities, the gross assets as recorded in exhibit P4 still exceeded $10 million. [62] Accordingly, any decision on this issue would not alter the outcome of the case.
[62]The adjusted figure was $10,242,067.
F.3 Remaining submissions on issues relating to “professional investor”
There were yet further arguments raised in relation to the proper construction of the term “professional investor” as it stood in the Act in 2003. For reasons already given, it is not necessary for the court to consider the question of whether or not Buckley would be treated as a “professional investor” if (contrary to what has been found) he had control of assets totalling less than $10 million, but had represented to Willmott and Willmott Finance that he was a professional investor and he had assets well in excess of $10 million. It is also not necessary to consider, on this hypothetical factual scenario, what, if any, obligations might have been imposed on Willmott or Willmott Finance as to issues of notice and reliance in light of the representations contained in the Loan Application.
G. Conclusion
For the reasons stated, in March 2003, Buckley was a professional investor for the purposes of the Act. His case of seeking to avoid payment to MIS Funding on the basis he was not such an investor must fail. I will make an order for judgment in favour of MIS Funding in an amount which is reflected in the Certificate, adjusted to the date of judgment.
As the Loan Agreement also expressly provided for costs of any enforcement proceedings to be paid by Buckley “on a full indemnity basis”,[63] the costs order will include this as the basis of awarding costs in favour of MIS Funding. In short, on the facts presently before the court, there is no discretionary consideration which militates against the court making an order in accordance with what was expressly agreed by the parties.[64] However, the costs order will be stayed for 14 days, with liberty to apply, in case there are further matters Buckley would want to put before the court on the question of costs.
[Deliberately left blank.]
[63]See clause 4(c).
[64]See, for example, Chen v Kevin McNamara & Son Pty Ltd(No 2) [2012] VSCA 229, [8], [10]-[11], [13].
Annexure “A”
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