Wellington Capital Limited v. Australian Securities & Investments Commission & Anor [2014] HCATrans 198 (9 September 2014)

Last Updated: 9 September 2014

[2014] HCATrans 198

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S275 of 2013

B e t w e e n -

WELLINGTON CAPITAL LIMITED ACN 114 248 458

Appellant

and

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

First Respondent

PERPETUAL NOMINEES LIMITED ACN 000 733 700

Second Respondent

FRENCH CJ
CRENNAN J
KIEFEL J
BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 9 SEPTEMBER 2014, AT 10.16 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: May it please the Court, I appear with my learned friend, MR N.M. BENDER, for the appellant. (instructed by McCullough Robertson Lawyers)

MR J.T. GLEESON, SC, Solicitor-General of the Commonwealth of Australia: May it please the Court, I appear with MR J.A. HALLEY, SC and MR D.F.C. THOMAS for the first respondent. (instructed by Australian Securities and Investments Commission)

FRENCH CJ: Yes, Mr Walker.

MR WALKER: Your Honours, there is a submitting appearance, as I understand it, for the second respondent.

FRENCH CJ: Thank you.

MR WALKER: We seek leave, the grant of which is unopposed, for the filing of an amended notice of appeal. The only amendment is to insert that which was missing, namely the date of the costs order.

FRENCH CJ: Yes, you have that leave.

MR WALKER: If it please the Court. Your Honours, as you can see from our outline of propositions, I wish to start with that which appears last in our written submissions, quickly to show your Honours the rather striking way in which the relief eventually granted in the Full Court emerged from the proceedings. Could I take your Honours first to page 4 of the appeal book, where you will see the prayers for relief as originally sought at first instance.

I draw to particular attention prayer 1, which can be described as being in two halves, separated by the comma in the second line. The first half is that which survived to the grant of relief eventually. It is a declaration that there was an excess of exercise, that is, there was no power to do that which was done. The second half of prayer 1 perhaps might be described as the second shoe dropping, was that which said “and thereby the transfer to the unit holders was invalid”. That means all the several transfers to all of the unit holders was invalid.

Prayer 2 directed itself to what might be called the heart of trustee duties, particularly given the express terms of the deed in question to which I will come, namely, that my client “did not act in the best interests of the Unit Holders”. Prayer 3 did that which might be regarded as logical and proper in light of any such finding, namely, an order to remedy that, a statutory injunction to undo the transfers – perhaps I should call them the purported transfers as this originating process would have them appear.

Then finally in prayer 4, another statutory injunction, as it were, providing information to, amongst others, the unit holders about – if you see at the top of page 5, something described as being:

the reasons why –

my client –

did not consider it was necessary to disclose the transfer to Unit Holders.

I need hardly tell your Honours that the transfers were of course disclosed in the most obvious way possible, namely, they were all given notices of becoming shareholders. This was amended, as your Honours know. Could I ask you to turn, please, to that which occurred before Justice Jagot.

At page 34 at first instance you will see that there was accomplished more or less in the same stroke as the hearing and dismissal of the proceedings at first instance - there were made those orders for joinder and representative orders of Mr Charles Hodges and IOOF Investment Management Ltd. I will not read the terms, but you will see that they plainly were directed to covering - if not completely, they were directed to covering the various cases of transferees. Those orders were made, as you will appreciate, at 145 at first instance. The amendment, which is to be seen at 40, keeps prayer 1 with both its halves; removes the best interests issue, prayer 2; adds a prayer, 2A, which did survive through to final relief, which invokes 601FB(1) of the Act.

FRENCH CJ: That is not a contravention provision.

MR WALKER: No. I was about to say, the terms of which are perhaps not entirely apposite if they were designed as some kind of functional equivalent of – as the Chief Justice puts it – a contravention including in the technical sense of the contravention provision.

FRENCH CJ: That is picked up, I think, in 1317E. You have to make a declaration if you find there has been a contravention of one of a number of listed provisions of which that is not one.

MR WALKER: Quite, and that has certain utility thereafter as well. But, that is not prayer 2A. You will see that prayers 3 and 4 continued with the alteration that the oddity in 4(d) had been removed by amendment. Could I then take your Honours through to one aspect, just for the time being, of the decision in the Full Court? At page 179, in paragraphs 75 to 79, the members of the court deal with what has been variously called the “consent” or, perhaps more properly speaking, the “agreement” point – agreement to become members of ARL.

As we read those paragraphs together, it is clear in paragraph 78 that the Full Court did not decide whether or not the so-called Re Crusader point was good or not. As we read paragraph 77, it is clear that that is shorthand for the way in which the trial judge had reached her conclusion and the way in which senior counsel for my client in the Full Court put the matter in vindication of the trial judge’s conclusion.

CRENNAN J: Is the Full Court saying anything more than the clauses which they have considered do not authorise distribution in specie so that what was assented to did not include ultra vires actions, if you like?

MR WALKER: Ultimately, that is the only way that one could sensibly read this, but I think the literal answer to your Honour’s question, Justice Crennan, is that in the last line of 79, they are saying more than that. In any event - - -

CRENNAN J: It is a bit Delphic, actually.

MR WALKER: It is. I point it out because of the oddity that results. Your Honours will then see on page 181, in paragraph 90 in the reasons for judgment preceding the making of orders, there is a reference to the intention by their Honours to:

make declarations in terms of paras 1 and 2A –

Paragraph 1 is the one that had the two halves. However, when one sees what was actually done, page 185, you will see that the order numbered 3 is of course just the first half of prayer 1. The invalidity of the transfers, having been raised all the way through the proceedings, disappears from the final orders.

CRENNAN J: But that is because ASIC was not seeking to impugn the transaction, is it not?

MR WALKER: Well, it says that, but whatever meaning one gives to the word – the metaphorical term “impugn”, to say of a transaction there was no power to undertake it would comfortably fall within the heartland of impugning it, particularly as there was never a stance taken by ASIC to the effect that denying that there was power to undertake the transaction would say nothing about its efficacy, which of course is a possible legal outcome, but that was never ASIC’s position. Theirs was contrary. Because it lacked power it was thereby invalid. That was their - - -

CRENNAN J: Well, are we in the region where something done ultra vires the constitution might be cured by some sort of extraordinary resolution or something of that sort?

MR WALKER: We may well have been – we may well have been in a not unfamiliar area where a discretion, albeit in relation to a statutory injunction, may have been enlivened to refuse relief for various reasons. But all of that remains speculative because the persons affected - those who were the transferees and had become registered as shareholders - were not joined.

KIEFEL J: Should the declaration – is it more a question of how the declaration should have been framed, that is, more narrowly without necessarily implying that invalidity follows? That is to say, the declaration could have said that the clauses of the constitution relied on 13, 16 - or 13.1, 13.2.5 - - -

MR WALKER: Did not authorise.

KIEFEL J: - - - do not authorise.

MS WALKER: Your Honour, that - - -

KIEFEL J: Is that all that we are really talking about?

MR WALKER: No, I am going further. That would have been better, but it is not the gist of my point.

FRENCH CJ: Or I suppose that relief could have stopped, subject to the contravention point, at the declaration in 4 without going to the question of invalidity, if it was simply a matter of marking the disapprobation of the - - -

MR WALKER: Yes, that is another possibility. In our submission, this was irreparably, incurably limping by the time it got to this point.

KIEFEL J: Since we have interrupted you, was the court, both the primary judge and the Full Court, given much information about the background to this distribution?

MR WALKER: No.

FRENCH CJ: .....need not have the complete constitution, did it?

MR WALKER: No, is the answer – sorry, yes, is the answer to your question. They did not.

CRENNAN J: Is there a real controversy?

MR WALKER: I cannot say. On the papers, as we have pointed out, there is no transferee who is disgruntled. Now, equally I cannot say there was a unanimity of transferees who were delighted with the boom they received, but there is no transferee who says what is this purported transfer, unwind it, take this from me. It is important therefore to see the way in which this odd proceeding started.

KIEFEL J: Did the responsible entity explain what its purposes were, apart from the obvious of distributing part of the property?

MR WALKER: Which would have, I suppose, really restated the question rather than supplied an answer, yes. No, the record does not contain what might be called a policy justification. There are hints and traces, but of course it was never an issue because finally ASIC declined to press, at the hearing, declined to press anything about it being contrary to best interests.

There is no finding about being contrary to best interests and the very deliberateness with which that issue was raised and then abandoned speaks volumes concerning the reality of a controversy. The fact that the people whose transfers are unquestionably subject to a kind of cloud, they are described as dealings for which there was no power which ordinarily would mean that that means ineffective dealings, so those people were not joined.

There was a joinder and a representative order made that might have covered some, maybe all, it depends on the way in which one interprets it and the way the facts turn out, but there is no suggestion that those orders were served. There is no suggestion that those new parties were served or entered appearances, and they took no active role.

FRENCH CJ: Do we know anything about the relationship between the responsible entity and ARL? We know that ARL was a purpose-built - - -

MR WALKER: A special purpose vehicle designed to take these investments.

FRENCH CJ: So was a transfer of part of the scheme property to be managed by ARL and the - - -

MR WALKER: Well, ARL was to be the new owner of all those assets.

FRENCH CJ: Forty one per cent of the scheme property.

MR WALKER: Yes, on its face, so there is no difference between form and substance here. This was, if effective, a method by which assets formerly managed by the RE would now be managed pursuant to the corporate constitution of ARL.

FRENCH CJ: Outside the framework of the statutory regulation of managed investment schemes.

MR WALKER: Quite removed from it and subject to the statutory regulation of corporate investment.

CRENNAN J: You just cannot help saying “pourquoi?”

MR WALKER: Your Honour, which I might answer “on ne sait pas”. It is certainly not from the record. Your Honours, there is a danger that the very obvious set of questions about what might be called commercial as well as regulatory matters raised by just simply reading the bare facts will distract from the way in which ASIC chose to run its case and the way in which the reasoning of the Full Court produced the kind of relief which was granted, against which our complaint is directed because ASIC was in a better position than anyone to put a contention, if there was something which ought to have done more than raise eyebrows concerning this transaction.

Indeed, they started off saying in the most formal way fashioned that is what they were going to do, and they did not, and that is why the record is bereft of any suggestion that there was, for example, any impropriety. It was a bare question of power according to construction of terms. There could be no suggestion of impropriety in us taking the position that the provisions empowered us to act accordingly. It would be absurd, bearing in mind the success we had before the first instance judge to that effect, in other words, minds have differed about the interpretation of these provisions.

FRENCH CJ: I must say that it strikes me as an odd position that in a case which concerns a construction of terms of the constitution of the scheme we do not have the complete document and I wonder if there is any reason why we should not have it.

MR WALKER: There is no reason whatever, subject to a gingerly comment about section 73, which I will withdraw as soon as I have uttered it - there is no reason whatever and my only difficulty is I have been told - - -

FRENCH CJ: I mean, there would be an issue, I suppose, if some new light were cast on the document by reference to the clauses which are not reproduced.

MR WALKER: Your Honour, I think the practical difficulty is the Court has before it – as the courts below had before them – the best we have got in that regard.

CRENNAN J: What is described as the “consolidated constitution”?

MR WALKER: That is right.

FRENCH CJ: Or which is not in fact.

CRENNAN J: Which does not reproduce certain clauses.

MR WALKER: I appreciate that.

FRENCH CJ: It is a coversheet attached to a supplemental deed.

MR WALKER: Yes. I am told that there is nothing else that can be found. Now, that does not mean that is the last word on that.

FRENCH CJ: I see. That it is, is it? It is as good as it gets.

MR WALKER: That is what I am told.

FRENCH CJ: But, presumably, there is something with ASIC.

MR WALKER: Yes. May I and my friend, as it were, take that on notice?

FRENCH CJ: Yes, all right.

MR WALKER: Your Honours, there is no resistance from us to that being made available if it can be.

Just to complete what I wanted to say, therefore, about our first two propositions. This is a case where transactions which have been completed – that is, transfers have been accomplished – are the subject of two species of attack – query, whether they have been the subject of two reasons for the order being made against them. The two species of attack are first, that the provisions of the deed did not empower the distribution of the assets comprising this part of the scheme property. Second, that they being shares – those assets being shares – the transfers could not be accomplished because the prospective new members of that company had not agreed to become members of that company.

I have drawn to attention in the reasons of the Full Court that, Delphic as they are on this point – paragraphs 75 to 79 – one cannot actually tell what is being said about that second point. The last part of 79 reads, oddly, as if there has been a conclusion, that there has been a failure to demonstrate agreement or there has been a showing that there was an agreement – one of the two. However, the preceding paragraphs make it quite clear that their Honours are not going to determine that which had to be determined in order to reach that conclusion, leaving the matter, perhaps, with respect, as Justice Crennan suggested.

However, we know that there was a two-pronged attack. As we understand it – and is clear from the exchange of written submissions in this Court – ASIC certainly maintains that there was an independent point, apparently, that for lack of agreement by the several prospective new members of ARL, the transfers could not be accomplished even if there had been power to effect such a distribution.

GAGELER J: But that is not reflected in the terms of the order that appears at 185.

MR WALKER: No, it is not. That is why I said it is highly doubtful whether or not the relief can be explained as having been granted for that ground. Your Honour, of course, is quite correct, with respect. However, it has to be said that there is this uniform approach apparently sought to be vindicated by ASIC, that is, the relief granted by the Full Court is defended by ASIC as flowing from both those independent objections to what happened. It is true that the Full Court does not signify that either by anything specific in the terms of the order or, as we would put it, properly read by their reasons for making the orders.

In our submission, once one turns to the second of the issue, the failure properly to constitute this suit – to use the jargon – is all the more obvious. No one was before the court to answer the proposition for themselves, did I agree or not? No one was before the court to say, leaving aside whether I agreed or not, I do not wish that point to be raised because I am content with the matter. None of that was available because of the way in which the case was constituted and the way in which it was and, perhaps more to the point, was not argued and proved. It is for those reasons, in our submission, that there are substantial reasons to set aside the relief granted on grounds that the remedy was quite misconceived bearing in mind the absence of necessary parties before the Court and the absence of reasoning by the Full Court concerning, in particular, the second of those grounds.

CRENNAN J: The trouble is, you cannot cure, if I can just speak colloquially, the power point if you are not right on the power, just by pointing to the fact that there is a silence about cure - - -

MR WALKER: Of course you cannot.

CRENNAN J: - - - because an extraordinary resolution, I take it, or just applying the general analogies in relation to ultra vires conduct that might arise in the corporations context as distinct from a managed investment context.

MR WALKER: I accept all of that, your Honour. However, that really rather underlines the incompleteness of the constitution of the suit for parties, for issues, for findings to support the conclusion which is reflected in the two orders that were made. In relation to cure, can I point out, as we have noted in proposition 5 in our outline, that it appears to be ASIC’s position in this Court – see their written submissions, paragraph 51 – that that which was done could have been done had the deed been appropriately amended. So in terms of the cure, there was a long way around, I suppose, namely to accept the inefficacy - - -

FRENCH CJ: That is to bring in an express power?

MR WALKER: Quite, namely the – the word “express” is perhaps loaded, but to bring in a power which explicitly in terms permitted that which was done. We say there was an express power, but I am perhaps in danger of becoming purely semantic.

To return to the idea of cure, there was a long way around, namely to accept the inefficacy of that which had occurred, to go through the necessary procedures to amend the deed and to do it again pursuant to an explicit in terms power. That, of course, is something upon which it may have been appropriate, bearing in mind the invocation of statutory injunctive powers in the originating process, it would have been appropriate to hear from those who would have been affected, including in their purse, by the expense of such an approach. None of that has happened, and it is for those reasons, in our submission, that this, notwithstanding everything that is urged in familiar and unexceptionable terms about the appropriateness of declaratory relief, particularly at the suit of a regulator, this is a case where on scrutiny, it appears to have been a completely inappropriate course to take in the absence of those who are affected.

It is said against us that they are indirectly affected, but that is to make the word “indirectly” do some very special work indeed. A transfer which purports to give them property is said to have been beyond power. Designedly, or studiously, that which the proceedings had raised as the consequence of that, namely the invalidity of that transfer, is not then pronounced on by the court. But the cloud remains, and in our submission, it is for those reasons that for once a regulator’s bare declaratory or vindicatory relief ought to have been refused.

KIEFEL J: But in the circumstance that if this Court considered that there was no authority to make the distribution, what do you say should occur? Should the matter be remitted so that representative proceedings can be constituted to determine the outcome?

MR WALKER: Yes.

FRENCH CJ: It is not the relief you seek.

MR WALKER: We seek to have the present relief set aside, which embraces the proposition that Justice Kiefel has raised with me; that is, it was inappropriate relief even if it was held that the clauses invoked did not justify that which was done.

FRENCH CJ: You want the appeal to the Full Court to be dismissed though, do you not? I am sorry, it is in lieu of just the setting aside of the orders.

MR WALKER: Yes.

FRENCH CJ: Yes.

GAGELER J: Mr Walker, what happened to Mr Hodges? He was joined as a defendant at first instance.

MR WALKER: The best information I can give you – I will be corrected I hope if I get this wrong – is that on the day of joinder, which I think was also the day of dismissal of the proceedings, someone - apparently his son - conveyed to the court, I do not know whether as a professional or otherwise, Mr Hodges’ consent to be joined but that is when the story finishes. There is no participation in the hearing, there is no demonstration of service of the proceedings, and there is certainly no appearance.

GAGELER J: But there is an order that he be joined as a representative defendant.

MR WALKER: Quite so.

GAGELER J: Then in the appeal he is just forgotten, is he?

MR WALKER: I do not want to put it quite like that but it does look very like that. Nothing seems to have happened.

CRENNAN J: Well, there is no appearance and then he is not a respondent to – he is not a - - -

MR WALKER: Neither is IOOF.

CRENNAN J: No.

MR WALKER: No, neither of them.

CRENNAN J: Are parties subsequently.

MR WALKER: An order was made. They are joined.

GAGELER J: As a representative.

MR WALKER: And as a representative. We have made the point in our written submission that it is, in our submission, unaccountable why the relief was granted as it was, bearing in mind the recognition conveyed by the making of those orders, notwithstanding they were not carried through. The notion of a court making a representative order and then not hearing any submissions or at least hearing that there, after due consideration, would not be submissions, is, in our submission, very odd indeed. I am bound to say I have never seen it.

BELL J: What does the court do when it makes such an order and the person the subject of it does not put on an appearance?

MR WALKER: Ordinarily with representative orders, your Honour, in my experience you try again.

KIEFEL J: You would name another representative.

BELL J: What does that mean?

CRENNAN J: Find another representative.

MR WALKER: You would revoke the order appointing X the representative because - - -

CRENNAN J: Find another one.

BELL J: And you would find another representative.

MR WALKER: You would find another representative because the premise of the court’s procedural steps had been, there should be a voice for such and such a set of interests.

BELL J: Just in terms of the chronology, was the order made before the discontinuance of the prayer for relief in paragraph 2 of the originating proceedings?

MR WALKER: I think it was made at the same time, or it may have been made afterwards - the same day, but within the day I cannot be sure what the sequence was. I will try and find out.

BELL J: Once that prayer for relief disappeared rather different considerations might have informed the - - -

MR WALKER: They might.

BELL J: - - - requirement that there be an order made in relation to a representative of the unit holders and that might explain the failure to make some further effort when it became clear that the subject of the order had not made an appearance.

MR WALKER: Your Honour appears perhaps too kind because the second half of prayer 1 still subsisted; invalidity.

KIEFEL J: Do I take it that the two orders for representatives remained in existence throughout the whole of the proceedings?

MR WALKER: From what I can see in the record, yes. That means that the Full Court proceeded in a fairly extraordinary state of affairs. Your Honours – I invite my friends to correct me if I am wrong about this factually – I cannot find any trace of the objects of those orders being served and certainly there appears to be no appearance either by notice of appearance or by some other conduct by which the court was able, most unusually, to dispense with the filing of an appearance. All we have got is the orders and nothing thereafter. So the purpose of those orders seems to have been, put mildly, not fulfilled and, put perhaps more accurately, frustrated.

BELL J: Was this matter agitated in the Full Court?

MR WALKER: Yes.

BELL J: This particular aspect of it?

MR WALKER: Yes, that there was, in the absence of participation by those affected – the transferees – to which the representative orders went, and only in part. I do not need to elaborate in address what we have put in our written submission. We have taken the point that the representative orders in fact do not cover the field in various respects. I do not need to elaborate that here.

KIEFEL J: Would it be possible to make available to the Court copies of the transcript or written argument before the Full Court on that point?

MR WALKER: Yes. Including the written submissions would be - - -

KIEFEL J: If it is clear enough from the written submissions.

MR WALKER: Yes. I was about to say that should be part of what is made available to the Court as well. Your Honours, perhaps then if I could understand that request from Justice Kiefel as to supply the material, be it written submissions or transcript or both, which shows the taking of this point in the Full Court.

FRENCH CJ: Thank you.

MR WALKER: Your Honours, can I then turn to the second - - -

BELL J: Just before you move on, can I just take one matter up? It relates to your response to the respondent’s submission that the unit holders may have had an indirect interest in the outcome of the proceedings. As I understand the respondent’s position, it points to the provisions of section 1101B(1) and the capacity of the regulator to seek declaratory relief and it notes the unit holders are not bound by the declarations and that their interest is, as it puts it, indirect. You say they are under a cloud.

MR WALKER: Yes.

BELL J: I am having difficulty understanding the cloud.

MR WALKER: Your Honour, it has been declared that the transaction by which they became shareholders was beyond power.

BELL J: I understand that. They still hold the shares. The shares have such value as they have. What is the cloud?

MR WALKER: That the consequence of the transfer having been beyond power can remain to be worked out among different camps of those transferees.

BELL J: Yes, all right.

MR WALKER: That, of course, raises questions which are very likely to have market ramifications and the fact that I speculate makes this none the worse. Indeed, it is because of speculation.

CRENNAN J: Well, they are all beneficiaries, I suppose, on one analysis.

MR WALKER: Yes.

CRENNAN J: Able to accept what has been done ultra vires.

MR WALKER: Yes, yes.

CRENNAN J: Able to reject what has been done ultra vires.

MR WALKER: Yes.

CRENNAN J: I presume that the declaration works to facilitate those who wish to reject.

MR WALKER: Yes. Not by way of an estoppel.

CRENNAN J: No.

MR WALKER: But stare decisis will – if I may put it this way – do the trick at first instance.

CRENNAN J: Well, I suppose the responsible entity is in a position of not being able to resist the rejection. I am sorry that sounds a bit longwinded, but that is the analysis really.

MR WALKER: Yes, quite. So, as it were, they are on the edge of a precipice. Who knows who is going to push? The record does not show anyone as dissatisfied but that does not mean satisfaction cannot be engendered. But, in any event, that is my answer to Justice Bell’s question. In our submission, if that is indirect then who knows what direct would be short of an order declaring all transfers invalid and, by injunction, requiring them to be reversed and register corrected. There is not much of a difference. It is the difference between an incomplete sequence and a complete sequence but it is - - -

FRENCH CJ: But if you reject it, if you had some unit holders rejecting the transfer of the shares to them then, presumably, that would mean those shares would fall back into the scheme properly to the disadvantage of the individual unit holder who would no longer have - - -

MR WALKER: Quite. Plus, it also complicates affairs in ARL. Who votes those shares in the meantime? In our submission, these are matters of an obvious kind to have been considered and if thought appropriate by autonomous parties to have been raised, if only in relation to discretion. That is, making an assumption against myself concerning power. It is for those reasons and in this highly peculiar situation that what otherwise appears to be the kind of bare vindicatory declaration appropriate in modern times to be sought and granted to regulators, for once was inappropriate. Could I move to the second topic?

GAGELER J: Sorry, Mr Walker, what was the source of power to grant these declarations? Was it just the Federal Court Act provision?

MR WALKER: That will do it. That is, declaration of right.

GAGELER J: Yes.

MR WALKER: And, also it is - - -

FRENCH CJ: Well, it was not within the scope of the expressed statutory power to grant declarations under 1317E.

MR WALKER: No.

FRENCH CJ: Is there another provision?

MR WALKER: I do not think so. It is the Federal Court Act that - - -

FRENCH CJ: But, it would be just the general relief provision.

MR WALKER: Yes – a declaration of right.

FRENCH CJ: Yes.

GAGELER J: I may have misunderstood you, but you mentioned something about lack of power. Are you saying this is not a declaration of right?

MR WALKER: No, I am sorry – a lack of power. I am sorry. If I used that phrase I was making an assumption against myself that my client lacked power to distribute.

GAGELER J: I am sorry. I misunderstood.

MR WALKER: I am so sorry. I have not taken any point about what I will call a “jurisdictional” limit, no. That is why I have emphasised that, ordinarily, perhaps usually, a bare declaration – the epithet is beginning to lose its sting after all in the 21st century – a bare declaration sought by a regulator concerning departure from a norm required by either trust law or statute law is not objectionable, depending upon circumstances. Things have moved on in the last 80 years. This is a case where, for the reasons I have put, an opposite outcome should have resulted.

Your Honours, can I move to the second topic, which is the matter of interpreting the incomplete document. Could I take your Honours to page 51 of the appeal book first? Your Honours are familiar with the nature, as described by the deed, of a so-called unit. It:

confers . . . an undivided interest in the . . . Scheme Property as a whole –

et cetera. At 2.2.2 on page 52, it –

does not confer any interest in any particular part of . . . Scheme Property –

et cetera. Could I go immediately but briefly to clause 16, which is starting on page 71, headed “Income of the Scheme”. One sees in a very familiar way that the responsible entity determines various matters which affect what I will call routine distributions, but among the defined concepts which produce the periodic cheques, could I draw to your attention on page 72 in 16.3.1 – the distribution amount, which is a critical integer of that cheque, includes item C – I think it is C – being:

any additional amount (including capital . . . that the Responsible Entity has determined . . . is to be distributed –

We have drawn to attention that in an entirely familiar way from private trust deeds, the power to vest capital or to vest corpus will of course bring to an end the relationship of trustee and cestui que trust in relation to that property.

CRENNAN J: So are you treating this as a reduction in capital?

MR WALKER: Yes is the short answer. It is not a reduction in capital in a corporate sense - - -

CRENNAN J: Strictly speaking.

MR WALKER: There has been misunderstanding by our friends of the argument we have put, that I will come to in a moment. We use a corporate reduction of capital case not because this is a reduction of capital case, although in effect that is exactly what has happened, but for what that says about the capacity for there to be distributions against the opposition of a voting minority, what that says about agreement. I will come back to that point.

The point we make about clause 16 is right at the heart of the way in which this property is to be stewarded and periodically distributed as to what is superficially called “income” includes, in an entirely ordinary familiar fashion, the possibility of, to use trust language, vesting corpus, bits of corpus.

CRENNAN J: Well, distributions of income or capital.

MR WALKER: Quite. By definition, such a provision obviously permits in its terms – this one is cash – it permits the bringing to an end of the trust relation created. There is nothing remarkable or reprehensible about that; in other words, one does not start in some circular fashion, assuming a conclusion by saying this is a deed which requires the trustee to stay the game, to remain trustee of all the property, because at its heart - - -

CRENNAN J: But there are special winding up provisions, are there not?

MR WALKER: Quite so, but we are not winding up. Partial winding up is a nonsense term, contradiction in term. Winding up means the whole. So partial winding up is a concept that plays no part in either rhetorical argument or legal analysis in this case. There are winding up provisions, yes, but what they say concerns a situation to which the present situation bears no relevant resemblance.

FRENCH CJ: Variable C on its face assumes the power of the responsible entity to determine that capital be distributed.

MR WALKER: It does.

FRENCH CJ: Is that the source of the power?

MR WALKER: Yes. In our submission, yes, it is. The power is also informed by that to which I am coming, of course, clause 13.

KIEFEL J: But it only appears under the heading “Calculation of Distributable Amount”.

MR WALKER: It does.

KIEFEL J: Not under the provisions of determination of income and reserves and distribution of distribution entitlement.

CRENNAN J: It is arithmetic about cash, is it not?

MR WALKER: And as we have put in our outline, this is about cash, that is, it produces the cheque and it is about cash, yes. But my point is – can I try and deal with what Justice Kiefel has raised, that yes, 16.1 focuses on determination of “Income”, but also requires distinguishing between income account and capital account. It also refers to “reserves or provisions”, and Variable C of course refers to previous reserves, previous provisions, and also that which is characterised as capital and assumes, that is, explicitly assumes that the responsible entity has power to determine, and then follows the gerundive, “is to be distributed”. So that is a discretion the exercise of which involves a power to determine that something regarded as capital is to be distributed and that is then included in a distributable amount - - -

KIEFEL J: You are relying upon the outgoings from the capital account?

MR WALKER: Yes.

KIEFEL J: But that would not cover distribution in specie.

CRENNAN J: No.

MR WALKER: No, no, no. No, I am not - - -

FRENCH CJ: You just put that as a straw in the wind, do you?

MR WALKER: Your Honours, I was asked about whether the determination provisions explain or provide the power for the determination referred to in Variable C, and the answer is - - -

FRENCH CJ: I understand that.

MR WALKER: - - - it will be part of that because there will be determinations – there will have been determinations about reserves, there will have been determination about income and capital. However, this is a determination about distribution, what is to be distributed. That is not covered by 16.1. It is explicitly assumed to exist as a power in the definition of Variable C and then clause 13 is more than ample to supply the grant of power to that end.

But my point about clause 16 is not that it provides a source of power for what happened, it does not; clause 16 is about cash, and we are about kind. My point about clause 16 is that it gives the lie to the idea that this is a trust deed which requires all the scheme property to be continued to be held on trust, subject only to what I will call “distributions of income”. That is not true, and short of winding-up, whether it be four per cent, 41 per cent or 81 per cent, just to pick random numbers, apart from the middle one, of the cash value of the scheme property, could be the subject of determinations under the definition of Variable C.

Your Honours, can I then come, crab-wise, to clause 13, by touching at 14.7 on page 70? There is the deeds equivalent of the statutory provisions that we have noted in proposition 6 in our outline, that is, subsection 601FC(1) – I do not need to go to it, they are familiar – and obviously that is what was, in the first iteration of these proceedings, invoked against us. It is no longer apparently in issue. So, we then come to the beginning and end of this main point, which is the reading of clause 13 in the context of – I was about to say the deed as a whole, for once I cannot – for the whole of the document that you see before you.

It starts at page 66 and at the crux of the matter is this not unfamiliar, but perhaps not unproblematic drafting technique that we have described as the “as though” or “as if” description. The parties have in their written submissions developed argument involving what is called a “counterfactual”. The corporation is not a natural person. The corporation is a trustee by which it follows that it cannot be said of the corporation that it is not a trustee. It cannot be said of the corporation that it is bereft of trust obligations, which, in any event, are imposed by statute, exactly in parallel as the general law would impose them, see subsection 601FC(2), to which we refer in proposition 3.

KIEFEL J: But the provision in 13.1 and what follows in 13.2 and 13.2.5 are perfectly apt to the position of trustee.

MR WALKER: That is my point, yes.

KIEFEL J: But the point made in the Full Court which I think really needs to be dealt with is that these clauses are not dealing with the position of the trustee qua beneficiary.

MR WALKER: Your Honours, we challenge that. That is a conclusion; it is not an apt or proper starting point to the argument. Could I go to those –

KIEFEL J: It might reflect how one reads the powers that they are talking about.

MR WALKER: Yes. Could I pick it up on page 175. That part of their Honours reasons commences in paragraph 51. Of course, in 51, as I have just agreed with Justice Kiefel, these powers may without difficulty be read as applicable to a trustee. No part of our argument requires one to ignore or let alone defy the proposition that my client is a trustee. If one wants to use the figure of speech of approaching it through the prism of trust law, as is said in paragraph 51, yes, of course that is right.

In paragraph 52, it is of course true, as in the third sentence, their Honours point out, that the text of 13.1 “recognises the nature of the office as the Responsible Entity as a trustee”, et cetera. Well, yes, there is no problematic counterfactual driving one to some distorted interpretation or spurious implication.

However, when one comes to paragraph 53, there is, as it were, a conclusion leapt to which lacks prior demonstration. It is said to be no more than a saving provision. On its face, it does not announce any modesty of purpose at all; to the contrary, for reasons I am going to put, particularly 13.2, but the same is true of 13.1. The second sentence of 53 – with great respect, we do not cavil with the appropriateness of the paraphrase set out in that sentence – rather gainsays the notion that this is no more than a saving provision.

CRENNAN J: Well, on one view that first sentence is not necessary to the reasoning. The gravamen of what Justice Kiefel was putting to you is in the balance of 53 and 54, is it not?

MR WALKER: Yes, 54 is what I am coming to. Then we come to 54, the first sentence of which we most certainly challenge:

is not concerned with the powers of the Responsible Entity in relation to –

in paragraph 69 one is going to see the expression “viz-a-viz” –

in relation to Unit Holders.

With respect, clause 13 regulates the administration of the property. It says what the trustee is empowered to do.

KIEFEL J: Their Honours are talking about a direct relationship.

MR WALKER: It may be, it may be but, with respect, that will not add to the analysis because the fact remains that either in relation to unit holders or viz-a-viz face-to-face with unit holders, the RE is entitled to point to powers bestowed by 13, on its proper interpretation, and say, “This is what I did. You may not complain unless there is a best interests argument”, which there is not in this case.

In other words, as we have put in proposition 7 in our outline, there cannot be some invisible distinction in these powers bestowed by clause 13 whereby they will vindicate the position of the trustee to the outside world some kind of version of the indoor management rule but will say nothing about the rights or entitlement of the trustee if there is a beneficiary who complains or a unit holder who complains. Of course, the trustee can point to clause 13 and say, “You can’t say I’m not empowered to do this because I am”, just as the trustee could say to the conveyancer on the other side dealing with an outsider, “Yes, I have power to do this. See clause 13”.

CRENNAN J: Do you accept a point of the Full Court’s which is that those clauses must be read together with - - -

MR WALKER: Of course.

CRENNAN J: - - - section 601FC(2), namely, that:

The responsible entity holds scheme property on trust for scheme members.

MR WALKER: We embrace that.

CRENNAN J: You accept that?

MR WALKER: We assert that as an answer to nearly all of the argument against us by the respondent on this point. It is absurd to suggest that we are to any degree denying the nature of our client as a trustee by the interpretation we advance.

CRENNAN J: I do not want to waste your time too much, but did Justice Jagot deal with section 601FC(2)?

MR WALKER: No I think is the answer. If I am wrong I will correct that.

CRENNAN J: I appreciate it was ex tempore and done in quite a hurry for various reasons.

MR WALKER: But neither does her Honour treat this trustee as somehow not a trustee.

KIEFEL J: I take it you would not suggest that clause 13 would be the source of power for the responsible entity unilaterally to distribute all of the property?

MR WALKER: No, it would not do that because that would be – that would be winding up.

KIEFEL J: Winding up, effectively.

MR WALKER: So the provisions which - - -

KIEFEL J: So the question is, where is the line drawn?

MR WALKER: That example gives you the line. The specific governs the specific and the general does not derogate from that.

KIEFEL J: So long as there is some property left.

MR WALKER: Yes, yes. One cannot and should not test this by the mythical groat left in the purse for the trust to remain in existence and everything else distributed. That is not realistic and we are not talking about abuses of that kind which would surely involve a rather more strenuous assertion of a lack of best interests, for example, than can be displayed in these proceedings. We can leave to, as it were, fantastic abuses the circumstances that would obtain in such a case if and when they ever did occur. No one is saying that is what happened here. No one is saying that there were commercial doubts that made this an inappropriate exercise of discretion.

Going back to Justice Kiefel’s question about the line, it is not difficult and does no violence to the language and is in accordance with ordinary approaches to interpretation to say that, where there is a specific provision for a particular circumstance, that governs clause 26, and winding up is the example of that.

KIEFEL J: But it is after all an investment scheme and property is meant to be utilised to produce income.

MR WALKER: Yes, your Honour, it is an investment scheme on terms that include, for example, you may get back nearly all of your cash by distribution, that the trustee will determine – no meeting, no consultation, not even any explanation. Now, if it is sufficiently weird, then no doubt there will be a best interests question, but in the absence of such a thing, yes, there is power to do so. So it is investment but on terms which include these maximally ample powers of dealing with property.

People want that apparently, in the investment world, as your Honours know, going into cash or going into a direct shareholding may be from time to time the kind of flexible response to investments positions. This is a pooled investment fund which includes the possibility of significant portions of the pool being distributed back to its source. It is not a pooled investment fund which insists that the pool must always remain as large as it was at its maximum extent.

KIEFEL J: Are you saying that if the property had been converted to cash and found its way into a capital account, there would be no problem; therefore, what is the difference?

MR WALKER: I do say that in terms of what I might call that dubious notion of commercial equivalency – economic equivalency; yes, of course, I do say that, and it is significant that there is not a best interest complaint here.

KIEFEL J: Presumably there would be revenue implications.

MR WALKER: There may well be, but the other – and the respondent actually raises revenue implications. I am not quite sure whether ASIC is saying that one would read these provisions in such a way as to minimise what another Commonwealth agency might regard as due tax; that would be absurd. Revenue implications play no part in the interpretation of clause 13. On its face, they are maximally ample. Question, have they carried as far as we need; that is the question, but one cannot, from its terms, impose some idea that there is a limitation on what would be the literal width of these words in deference to what is apparently an imperative not to pay as much tax as you might otherwise pay, which is - - -

BELL J: I must say, I had read it in response to your submission about the commercial attractiveness sometimes of the flexibility for which you contend and I think the respondent was merely pointing out that mum and dad investors might not be grateful to find themselves facing taxation issues that they did not contemplate.

MR WALKER: Quite. I understand that and that is one of the reasons why there would be a “best interests” scrutiny if, in effect, people who thought their money was pooled, being looked after by the RE, suddenly found themselves not only with a cheque, say, from the RE, but also a bill from the ATO. That does not affect the interpretation of 13. That goes to a best interests question.

BELL J: It was in response to your submission, as I understood it, and no further.

MR WALKER: In which case, I need say nothing further on that.

FRENCH CJ: What do you say to the proposition in paragraph 55 of the Full Court judgment as a statement of the law of trusts, that:

absent the consent of all beneficiaries it is not open to a trustee simply to transfer the trust property to the beneficiaries.

MR WALKER: It is completely beside the point, because this is a trust under which there is – see clause 16 – an express power to bring the trust relation to an end with parts of corpus. If the terms of a trust were as simple as to hold Blackacre for cestui que trust, then that must be complied with. That is why it is outside the terms of the trust and imposed by general, that is, judge-made law, the so-called rule in Saunders v Vautier; query whether it is a rule, query whether it is found in Saunders v Vautier, but your Honours understand my reference, which of course operates contrary to the terms of the trust. That is the whole striking point of it.

Paragraph 55 is saying something which is true only of a trust which does not have, for example, a power to vest capital. Paragraph 55, in particular, says nothing about the recourse to such a power where it is found in the terms of a trust. You do not, as it were, apply some sceptical or especially testing approach to the interpretation of the provision of a trust that says “and from time to time in its discretion the trustee may vest such parts of the capital as it stands possessed in such of the beneficiaries, et cetera, absolutely”.

Such provisions appear in many, many trusts around this country. There is no principle of the law that says because of what is recited in 55 one looks askance at such provisions. You just give effect to them. You do not approach 13, in particular, by saying that cannot possibly be part of it.

Could I then go to – the last sentence of 54, in our submission, is a travesty of our position. We do not say that there is power to act as if you were not trustee. That is not what the wording in 13.1 and 13.2.5 means. We do not argue, and have not argued that. Paragraph 64 – it is a straw man, in the second sentence, to suggest that our argument construes these provisions “in a way that overrides the terms of the Act”. That would be obviously in vain and no part of our argument does so. On page 178, in paragraph 69, one sees a variant expression of the same point as was made in 54 in relation to 13.2.5 now, namely, that it:

addresses only the question of the power of the Responsible Entity, vis-à-vis, the Unit Holders –

now it said -

to engage in a wide range of dealings with commercial parties in respect of Scheme Property.

Query how that is consistent with what is called only the saving provision of 13.1, described in 53 and 54 - it sits oddly, in our submission. It is not a coherent form of reasoning. But in our submission if one accepts, as we do, the import of the last sentence of 69 it leaves as the decisive question “and does clause 13 in either of the aspects of 13.1 and 13.2.5 that we rely upon authorise the transfer of the legal title by my client to the unit holders as, in fact, occurred?”

Now, that in turn, we submit, is going to be a question as to whether the words of 13.1 and 13.2.5 include that kind of dealing with property. Before I come to it, may I complete what I wanted to say about the reasons at 178, 179? In 73, there is a reference there only as we understand it to the rule in Saunders v Vautier. It leaves out of account expressly authorised distributions by vesting which, of course, will bring to an end the trust relation so far as it concerns that piece of property.

Paragraph 74, which concludes this part of the judge’s reasoning, in our submission is unsupported by any prior demonstration of the conclusion contained in it. The special and unique features of the so-called process is that of the rule in Saunders v Vautier which, as I have pointed out, has nothing to do with this case and nothing to do with the interpretation of a trust. The rule in Saunders v Vautier says, despite what the trust says, the trustee is obliged, not empowered, is obliged to deliver the legal title, thus bringing to an end the trust relation.

Now, we know that the so-called exceptions to the rule, that is circumstances in which that obligation does not descend on the trustee, will include what are sometimes called the currency of active trust duties, to name just one. The others include the so-called requirement of unanimity, which is subject to important qualifications and the qualification of everyone being sui juris.

That has nothing to do with the interpretation of a trust power and 74 errs by treating the so-called special and unique features of invocation of the rule in Saunders v Vautier as casting any light upon the express terms of clause 13. “Or otherwise deal with” - what their Honours call the general words - “or otherwise deal with” could not be, as a matter of ordinary English in a legal context more apt to include everything else.

Their Honours raise but do not decide whether there in fact is an ejusdem generis reading whereby “or otherwise deal with” is somehow to be limited by that which preceded it, a reading which would have, had their Honours proceeded with it, presented major difficulties with giving any meaning to the word “otherwise”. “Otherwise” means not in the manner preceding and it is for those reasons, in our submission, that there is error in the approach of the Full Court.

Can I come back then finally to complete what I wanted to say on this second topic in relation to 13.1 and 13.2.5? I do not want to repeat the point we have made in written submissions and in our outline more than once, namely, of course the words are in their ordinary meaning and in this context easily wide enough to include the unremarkable dealing which comprises the transfer to another of legal title to property. That is what happened here.

In 13.2, as we have made clear in proposition 8 in our outline, there appear words in its second sentence which are simply not accommodated and given their obviously intended effect by the argument of the respondent, let alone by the failure to deal with them in the Full Court. “These powers”, it is said:

shall not limit or be limited by, or be construed so as to limit or be limited by the powers, authorities and discretions otherwise by this Constitution or by the Corporations Act vested in the Responsible Entity –

So that means that an argument about 26 somehow having an effect on the interpretation of these powers in a case which is not a winding-up case has been contemplated by the drafters and rejected as a possibility.

Those who invested by buying units did so on the grounds that clause 13.2 bestowed powers which would not be limited, affected by other provisions. Of course other provisions govern the specific case that the other provisions on their face deal with and you would not interpret general powers to derogate from specific. Thus, safeguards for a specific provision would require to be observed regardless of the literal falling within the general words of another power of the same circumstance. The specific will govern and not the general in such a case.

But we are not in any specific case covered by any other provision. We turn against our friends what they point out concerning clause 16, namely that it is cash only - quite so, that is cash, and that is dealt with in that fashion. By the way, that is only for the periodic distributions. In terms of the additional powers, in our submission, the convenience, as it strikes a responsible entity from time to time, of vesting directly in the unit holders rather than remaining part of a pool, shares in a company, holding certain kinds of assets, that is, within the discretion, regulated as it is by the fiduciary obligations, both express and implied, both in the deed and in the Act, none of which has been alleged to have been infringed in this case.

BELL J: The specificity of the provision with respect to periodic distributions of cash would not preclude an extraordinary distribution of cash on this argument, or would it?

MR WALKER: If it were not part of one of the periodic distributions, no, is the answer. So if investment conditions were such that pooling cash made no sense, and it is not obvious to us, your Honours, why that would be so, it would have to be a massive pool for individual investors to be able to do better with the cash in the market than the manager. So it is an example that is quite unlikely in commercial terms. But no, clause 16 deals with what I will call periodic distributions. Anything which was not a periodic distribution would not fall accordingly. Mind you, it does not have anything further by way of safeguard. There is what I will call an equality of treatment which is required by 14.7 in any event, and would be required by the trust law imposed as a matter of general law and by the statute.

CRENNAN J: Clause 13.2.5 does not immediately appear to have anything to do with distribution, does it?

MR WALKER: No. In 13.2.5 the critical words are “dispose of” and “deal” and one disposes of and deals with property by transferring the legal title to it to someone. There is no strain involved in that. It is the other way around. There is unjustifiable strain involved in somehow exempting the transfer of legal title to property from the description of disposing of it or dealing with it.

CRENNAN J: It is just that distribution is a well-understood event in relation to income and capital, for that matter.

MR WALKER: True.

CRENNAN J: It is in that context that one would not immediately think of disposing of or dealing as governing a distribution or return of capital as that would be normally understood.

MR WALKER: But what your Honour has done there, with great respect, is to act, to reason, contrary to what the second sentence of the chapeau of 13.2 requires. That is my answer to that. Could I turn then to the third and last topic?

KIEFEL J: Just before you do, Mr Walker: is it relevant, in the context of the reading of the constitution generally and notions of distribution, to take account of the definition of the beneficial interest in the scheme of a unit holder under clause 2?

MR WALKER: Yes, it is. That is why I took your Honours to that of the - yes, it is.

KIEFEL J: In particular, the fact that the unit holder has, as one might expect, no interest in any specific scheme property.

MR WALKER: That is true of all scheme property – cash and other property which is equally fungible, such as the shares in this case.

KIEFEL J: That means that the unit holder could never demand – I think that is made clear – the property.

MR WALKER: Quite so. Is that relevant? No, because we are here talking about a power to do something; that is all – a power in the trustee to do something. That actually brings me to the third point. It is not clear, either in the way the Full Court reasons and grants an order or the way in which ASIC argues in this Court, whether it is said that a lack of agreement in statutory terms to become a member of ARL deprives the trustee of power to do that which it did.

Probably and, with respect, although tangentially we would say questions of power in the RE are sensibly directed only to those things which fall to a trustee as RE in any particular transaction. Take land; the RE of course does not have power to execute a transfer both as transferor and transferee. It is for the transferee to execute a Torrens system memorandum in order for the transaction to be completed. One would not say that the RE lacks power because the transferee has not executed the memorandum.

The question about power is sensibly directed to that which is apposite to the RE, and that would be executing as transferor. You could ask a question about: has the transaction been completed in the absence of that which the law requires, execution by the transferee, and the answer would be no, but not for want of power on the part of the transferor, for want of failure of requisite conduct by the transferee.

A similar kind of analysis surely was appropriate here. If we were correct on power, then it is sensible simply to say, well, the RE can do this. The question then arises, can it be accomplished in the case of a unit holder who resists? It is in that context that, perhaps regrettably, we raised what has become a bit of a red herring, namely, the passage from Archibald Howie that we have quoted. Of course this is not a case about corporate reduction of capital; neither do we say it is. Our point is this. A reduction of capital, in the days when it required a meeting of the kind that was held in that case, contemplated by the requirement for a special majority – contemplated that there would be some who would resist. A voting minority, as I have called it in my last proposition 11 in our outline. There would be a voting minority say, “Don’t want this”.

CRENNAN J: That is why court approval actions were quite complex sometimes.

MR WALKER: But if there were shares to be distributed, that is, if the company in question was a shareholding company, and its assets included shares in another company and the reduction of capital was to be accomplished in that fashion – not unknown – it is absurd to suppose that the voting minority could say, “Well, I don’t agree to this. I don’t want this to happen. I want the company in which I am a shareholder to remain the shareholder in the other company”. It would be absurd to say that they therefore have defeated what would otherwise be the special majority approved and if necessary court sanctioned reduction of capital by distribution in specie of such shares.

CRENNAN J: But is that not when you have a vote and presumably also when an in specie distribution is sanctioned by the articles?

MR WALKER: Your Honour, that is exactly our point. In other words, it is not to the point that they resist the instant transaction. They have agreed to be bound by the constitution and, if it matters, by the law. But by agreeing to the constitution, they agree to that which falls out even though they vote against it.

CRENNAN J: How is the chapeau, the latter part upon which you rely, to be construed, having regard to section 601FC(2) to which we made reference before? So the scheme property is the trust property, the unit holders, as Justice Kiefel has pointed out, have nothing other than an interest in the scheme property.

MR WALKER: Well, an interest of a non-aliquot kind, yes.

CRENNAN J: Yes, but it is in the scheme property. This is a distinction between members of a managed investment scheme and a corporate member.

MR WALKER: Yes.

CRENNAN J: So the question is - - -

MR WALKER: The question I am now depends on me having succeeded on power.

CRENNAN J: Yes.

MR WALKER: It is only if I succeed on power that we reach this point. That is, if I have correctly understood our friend’s submissions – they seem plain in this regard – even if there is power, they say, the relief was appropriate because there was not agreement.

CRENNAN J: Sorry, I was not talking about relief. I was just talking about the consistency between the legislative scheme and the chapeau, the 13.2.5.

MR WALKER: I suppose it is obvious for me to point out, but I should point out, that we do not offer a reading in writing or in my address of the second sentence of that chapeau of 13.2 which is at odds with the basal trust relation. We are talking here about the powers of a trustee and one never gets away from it being a trustee. So that I think my proper answer to Justice Crennan is that the statutory provision which perhaps supererogatorily but nonetheless explicitly imposes the relation of trust is - - -

CRENNAN J: You are saying read it consistently, if I cut to the chase.

MR WALKER: Yes, is operating in a different area of discourse from these provisions which, accepting and taking the trust and indeed giving terms of the trust, say, and these are the powers of the person who does not happen to be a trustee but a person who is essentially, preternaturally, a trustee. Your Honours, to complete - - -

CRENNAN J: Well, 13.2.5 on one view is saying can do all these things because in that context, query whether distribution is covered at all, the responsible entity acts as an absolute owner vis-à-vis – well, in those contexts.

MR WALKER: Can a person with the - - -

CRENNAN J: It is not exactly a savings provision necessarily, but - - -

MR WALKER: No, we submit that that epithet is quite beyond the point.

CRENNAN J: - - - that is a distraction.

MR WALKER: This is a provision which, as I say, there may be problematic features of it – not in this case, we would say – but there may be problematic features about saying of a trustee you have got the powers as if you were an absolute owner. An absolute owner can, subject to safety requirements, set fire to his house. The trustee cannot, unless it is full of Ebola virus, in which case it might be in the best interests of the unit holders. Of course there are limits, and 14.7 is part of the terms of the trust. No one has ever suggested, least of all us, that anything in 13.1 or 13.2 by its generality diminishes the protection to unit holders and the obligations posed on the RE by 14.7, and of course by the statute, and of course by general law.

We simply say that taken in that context, the question does this trustee, RE, have the power to transfer legal title is answered by the express provision that says you have the power to dispose of or deal with property to the fullest extent known to the law by any kind of person. We know there are qualifications of that; you cannot steal it for yourself, you cannot do it contrary to the best interests of the unit holders, but can you transfer the legal title to the property? The answer is yes, because that is what people can do. Indeed, there is no outer reach or limit being explored when we talk about the transfer of legal title to property. It is a mundane, probably essential attribute of our concept of ownership that you can alienate.

Your Honours, the final thing I wanted to say about our third point, which is the agreement, is that the agreement is an agreement imported by agreeing to hold units on terms which include the potential exercise of the power in question on the assumption that we succeed in making good the existence of the power. It therefore follows, regardless of what a person may say now about the particular transaction, that they have agreed to be bound by the determinations and exercise of discretion within power by the RE.

Otherwise, there leads to the absurdities that we have tried to highlight by the imperfect analogy drawn with the corporate production of capital case discussed by Sir Owen Dixon in Archibald Howie. May it please your Honour?

FRENCH CJ: Thank you, Mr Walker. Yes, Mr Solicitor.

MR GLEESON: Your Honours, would it be convenient to go immediately to the last two points in the outline which concern the procedural background of the matter as that has been developed in some detail this morning and then come back to the substantial point?

FRENCH CJ: Yes.

MR GLEESON: I trust I will be able to fill in some of the gaps which made the moment appear either troublesome or at least call for a question.

Firstly, your Honour the Chief Justice asked about the constitution. The copy of the constitution which the Court has is the one that was tended at trial under cover of an affidavit of an ASIC officer, Mr T.J. Walker, who at paragraphs 7(c)(iii) of his 11 October 2012 affidavit said that was the constitution relevantly lodged by Wellington with ASIC. The proceedings were conducted at first instance and on appeal on the basis that anything that was in the cross-referenced but not reproduced clauses was irrelevant to any argument any party wished to put. In those circumstances, we would submit that it is appropriate for the Court to proceed on that agreed assumption between the parties reflective of the document that Wellington chose to lodge with ASIC.

FRENCH CJ: What was Wellington obliged to lodge with ASIC?

MR GLEESON: It is obliged under section 601EA(4) to lodge a copy of the scheme’s constitution and it is further obliged under 601GC(2) and (3) to lodge any alterations or modifications. So, presumably, it originally lodged something and then this was the modified form lodged.

Your Honours, the second matter concerned the way in which the representative persons were brought into the proceedings at trial and then not brought into the proceedings on appeal. Can I distinguish those two stages? As to what occurred at trial, if your Honours would go to page 40, that is the amended originating process which ASIC moved upon on 17 October 2012 and which her Honour, later that day when she gave extempore judgment, formally granted leave to ASIC to amend. Could I observe these features of it?

Firstly, Mr Walker is correct that paragraph 1 started with a question of power and included an allegation about consequential invalidity. Paragraph 2 was the civil penalty declaration which was dropped from the matter. Paragraph 2A is what was added which was the prayer for a declaration under section 601FB(1) that there was a failure to operate the fund and perform functions in accordance with the constitution and the Act.

In answer to your Honour the Chief Justice’s question, of course that matter does not found a civil penalty proceeding for the reasons given. However, it is an obligation under the Act and if it is breached it is a relevant contravention which could lead to a declaration under section 1101B(1)(a)(i). To answer your Honour Justice Gageler’s question, the power to grant the declaration was not only under the Federal Court Act – sections 21 to 23 which were fully sufficient – but also under this particular provision and the reason that that provision is attracted, if one needed the detail, is that this contravention concerns a dealing in financial products or the provision of financial services. If I can simply reference the three other sections which make that good? They are section 766A, 764A, and 761A(a).

So, what ASIC was doing on page 40 was bringing into the proceedings a claim for a declaration for a contravention which would not attract a civil penalty consequence. Then on page 40 in paragraph 3 as Mr Walker has observed, a form of injunction was sought which would, if granted, unwind the transaction.

The net effect of that was the reason that the parties properly, and Court properly, required steps to be taken to have representatives is that prayer 1 in its second limb and prayer 3, if granted, would directly affect rights. It would directly affect whether the unit holders were now members in respect to ARL. That is the reason why the step was taken, and I will come to why on appeal, ASIC no longer seeking that form of relief, the need for the representatives fell away.

Now, your Honours, in terms of the question of what Mr Hodges and the other representatives’ role was in the proceedings, Mr Walker said he wanted to be corrected if the representatives were served or if the representatives appeared. I would wish to correct him by handing up the transcript of the final hearing on 17 October 2012.

FRENCH CJ: Have that handed up to the Court please?

GAGELER J: Mr Solicitor, while that is happening, can you remind me what provision of the Corporations Act was the source of power to make the declaration?

BELL J: Section 1101B(1)(a)(i).

MR GLEESON: Yes, that is what we rely upon.

CRENNAN J: And the court is not to make such orders if prejudice would be occasioned by the making of them?

MR GLEESON: Exactly. So the court need be satisfied that so far as the declaration went, anyone who was directed affected was joined. So in the transcript on the final hearing on 17 October on page 2 after the appearances were announced, Mr Jones appearing for ASIC, informed the court that Mr Hodges had agreed to act a representative respondent and so had IOOF and that affects what he put were the relevant categories. Then he made a submission about whether there were any other affected categories, so that what the court was informed, and this is the basis upon which her Honour proceeded, was that there was relevant service on these representative respondents covering two different interests and that they did not wish to put any submissions before the court which would go beyond what was put by the two parties in contest.

So your Honours see that there is no appearance for the representative respondents but the court is informed, they have agreed to act, and the court was entitled to act upon that assurance which was clearly one which as between the parties the correctness of which had been ascertained and Mr Bender is here in Court today and he can say if there is anything incorrect about what I have said. So the court on that basis was satisfied that if it were to make orders one way or the other which affected the questions of whether they were members or ARL, it would not be affecting rights without proper representation. At that point Mr Jones went on to explain the civil penalty proceeding was dropped, that the 601FB proceeding was sought to be added to the proceeding.

Your Honours would then see, over on page 42, her Honour Justice Jagot proceeded – extremely expeditiously, if I may say – with an important point and, having heard argument and submissions, reserved and, at line 33, delivered an extempore judgment that afternoon. Then, as Mr Walker has correctly said, because she had rejected ASIC’s claims, she went on to frame orders which dealt with that appropriately. It is important to observe, on 43, that when it came to costs there was further discussion about the position of the representatives. The real issue was should Mr Hodges and IOOF – this is line 26 – get costs. Her Honour asked, quite correctly:

did they put on a submitting appearance?

Mr Newlinds, leading Mr Bender, said:

Well, they were here this morning - - -

That is about Perpetual. But the discussion to that effect is that there should be no costs order in favour of the representatives, even though the argument had played out as it had. In the circumstance they chose not to present further argument before the court. Our short submission is that, although it is no longer relevant to what is before this Court, at the time of the trial when relief was being sought, which could directly affect interests, proper steps were taken by ASIC, steps which were accepted by Wellington as proper steps, and then accepted by her Honour, in order to ensure that there were representatives before the court. That brought the matter to its conclusion before Justice Jagot.

Could I then go to the next stage, which is the notice of appeal, at page 155, to show how – and this has been partly adverted to Mr Walker, but not fully – ASIC narrowed its case on appeal. If your Honours look at the orders that were sought, order 2i now was limited to the question of power and did not seek any order about validity. So the second limb was removed.

CRENNAN J: So no rectification of the register is sought.

MR GLEESON: No rectification of the register.

CRENNAN J: So the transfers just lie where they do.

MR GLEESON: The essence of the case, the issue narrowed, was in a temporal sense on 4 September, when the trustee purported to do these things, was there power and compliance with the constitution in so acting? Was it ultra vires, in effect? The court was asked to say yes or no to that question and to the consequential question under 2ii, which was, under section 601FB, was there a failure to operate the fund in accordance with its rules?

CRENNAN J: You wanted notice to the shareholders, but no rectification - - -

MR GLEESON: Notice to the shareholders, not - - -

CRENNAN J: - - - to unravel, to record an unravelling?

MR GLEESON: The point of the notice order would have been that over to them, if they were to do anything in response to this, and therefore, contrary to what Mr Walker put, the Full Court was not being asked to consider any question of validity in the sense of who were the members today. The register sat as the register sat. If any unit holder wanted to take action in light of the court’s declarations that would be for the unit holders and the court was therefore not pronouncing on the current day position of any of the unit holders. It was pronouncing upon a historical fact whether there was an excess of power on 4 September 2012.

What would then happen if unit holders subsequent to the Full Court’s orders decided to act or not would involve notions of acquiescence and possibly, as your Honours have raised questions of steps under the corporate constitution to cure an excess of power – none of those issues, that is, of acquiescence or of cure were before the Full Court. The short reason why the Full Court, with respect, did not exceed its function was that the case narrowed to those issues was one where the only parties directly affected within the authorities were ASIC, the RE and potentially Perpetual, but really just ASIC and the RE.

It is for that reason that when one looks at the narrowing of ASIC’s case - and your Honours will see there that the original order 3 has also gone, that is the unwinding order – when the matter came to the Full Court, and if I could hand up now the transcript, if that is admissible, of the Full Court - the argument was heard on 17 May 2013 - Justices Jacobson, Gordon and Robertson. Mr Sheahan of Senior Counsel, now appearing for ASIC, on page 2 in answer to a question from Justice Jacobson at line 13 of “what relief are you seeking?” he indicated the case was essentially what I have now put. It was simply about whether the in specie transfer was beyond power. Was it a contravention of the provisions in the way described and should there be some ability to notify the unit holders:

so that if, in effect, they wanted to do something about it on their own account they could so the relief we seek doesn’t directly effect the rights of any party.

That is the narrowed case which ASIC raised on appeal and Justice Jacobson said thank you and the argument moved on. There was a little discussion orally at pages 33 and 34 to 35 in the course of the submissions of Mr Morrison of Queen’s Counsel leading Mr Bender for Wellington about the role of the representatives at the first instance hearing which does not take the matter terribly far, other than there was some discussion about the matter.

Now, the other question the Court raised was, are there copies available of the written submissions of the parties on appeal? They are now available. What I would seek to do is to hand them up but not go to them at the moment. The essence of them is that, while Wellington raised some issues about parties, ASIC – I am sorry, while Wellington raised some issues about parties, Wellington confirmed this at paragraph 57 of their submissions, if I could just briefly record it.

[ASIC] does not seek relief aimed at unwinding the initial transaction . . . Nor does it seek to unwind the in specie distribution . . . nor any transaction carried out on the faith of [it]. The substantive point is one concerned with the construction of the Constitution of the Scheme. In truth the Appellant seeks an advisory opinion from this Court.

So it was perfectly clear between the parties that the issue was narrowed to the question of power, the question of compliance with the constitution, and there was then a separate issue raised of whether it was appropriate for the court to grant declaratory relief, to which ASIC’s short submission was there and here that there is clearly a controversy joined on a very precise issue that if resolved in ASIC’s favour should lead to a declaration. So the key parts in those submissions on the parties’ questions, in the case of Wellington it is paragraphs 34 to 58, and in the case of ASIC in reply it is paragraphs 12 through to 16.

CRENNAN J: How does that all wash up in terms of the orders made by the Full Court and the discussion which you would have heard about the width this morning and possible causes of action if you were to win the power point?

MR GLEESON: Well, if I could go then to page 185, which is the order that we are seeking to defend. Paragraph 3 of the order deals with the ultra vires question, was it beyond power for Wellington to do what it did? That order speaks only to power and it speaks only to the circumstance temporarily at the time of the transfer of the shares which was 4 September. It does not speak to the question of whether the persons are members today, and so it has not trespassed into the matter which would affect their rights.

Then paragraph 4, which is the declaration of failure to comply with 601FB, would follow and, as I have indicated, that is a contravention that can be vindicated by a declaration without triggering the civil penalty consequences. So, in answer to one of your Honour Justice Kiefel’s questions, we would submit that if ASIC succeeded the maintenance of orders 3 and 4 has not trespassed into the areas which Mr Walker says might be of concern to individuals.

The individuals remain today as far as we know on the register of ARL and whether they are members is not a question before the Court today but will depend upon whether, as of the date it might be litigated, there is a relevant agreement between them and ARL to become members, and it may be with the passage of time, if persons have not objected, they may be facing an argument of agreement by acquiescence, but that is not before the Court and would not be affected by the Court upholding those orders.

Your Honours, I had passed over one reference which is important. In the transcript of 17 May 2013 at page 17, lines 25 to 35, Mr Sheahan for ASIC informed the court that the representative parties had been served with the notice of appeal and he made a submission that in the light of the change in relief it is perhaps not surprising they are not represented and in those circumstances nothing further needed to be done.

So, your Honours, in terms of the legal authorities, the principle is clearly stated in News Limited v Australian Rugby Football League Ltd. I do not need to go to it now. The reference is [1996] FCA 870; 64 FCR 410 at 525, paragraph 68 to 73. So that deals with the question of proper constitution. As to the related matter which is the discretionary point, should the court have made a declaration, the short submission is there being a concrete controversy as to this question of power and that being resolved at the Full Court level in favour of ASIC, the purpose of the declaration was to record the basis of liability and that would provide a useful consequence in terms of certainty at least in respect to this RE and this trust deed, knowing that this exercise in the future would not be within power and would consequentially mark the court’s disapproval of the contravention of the law.

The only other authority I need to refer the Court to on that topic is we have provided the decision in ACCC v MSY Technology [2012] FCAFC 56; 201 FCR 378, and it is a Full Federal Court decision which, between paragraphs 9 through to 18, and then finally 31 to 35, deals with the appropriateness of granting declaratory relief in circumstances like the present. It draws as its starting point Ainsworth v Criminal Justice Commission in paragraph 9[1992] HCA 10; , 175 CLR 564 at 581 to 582, traces the development of the declaratory jurisdiction through the Federal Court Act in paragraphs 10 and following, and usefully in paragraph 35, applies what this Court said in Rural Press [2003] HCA 75; 216 CLR 53 at 95, where there is utility where a declaration sets out the basis of liability. That, we would submit, includes the present case.

GAGELER J: Mr Solicitor, are we to read the declaration as saying anything about section 231(b) of the Corporations Act?

MR GLEESON: On its face, it is not explicit on that question. To understand whether it is saying anything about 231, one would need to look to the declaration together with the reasons and that would take one to page 179, paragraphs 78 and 79. Read in that light, the Full Court appears to be saying that if you have no authority under clause 13 to distribute in specie, then it follows as night follows day that you as the RE had no authority to act on behalf of the unit holders to communicate an assent to ARL that they wish to become members of that company. In that sense, the RE, when it so dealt with ARL, did so in a way which could never satisfy the requirements of 231.

GAGELER J: Which means they could not become members, or did not become members.

MR GLEESON: Which means that the act of the trustee was insufficient as a matter of power to do what would be necessary to establish agreement between the members and ARL.

GAGELER J: So if we were to read the declaration that way, one, we would have to add some words but, two, would it not be quite clearly a declaration about the rights of parties not before the Court?

MR GLEESON: Well, not in the sense that its focus is simply whether this RE has acted within or beyond the powers available to it. Now, the consequential effect of that in respect of membership would take one into the issues which were not before the Court. The declaration is framed is, is this beyond your power as an RE and, in other words, that looks at the relationship established within the trust deed and what are the powers available to an RE.

CRENNAN J: So it does not deal with acquiescence, for argument’s sake?

MR GLEESON: It does not deal with acquiescence.

CRENNAN J: Of a transferee who thereby becomes a member.

MR GLEESON: Yes, and as to whether any transferee is a member today, one would go back to section 231 today and ask the question, are you on the register? Presumably, yes. Have you reached an agreement to be on the register? That will depend upon the facts relevant to the person. Any person who has taken no step to get off the register would face a very difficult challenge in an acquiescence action. So, in that sense, focusing on power and not seeking to focus on the position today as to membership, it has restricted itself in the way I have identified.

FRENCH CJ: It is a declaration which, at the time it was made – to use the metaphor that Mr Walker offered – puts a cloud at least over the title of the unit holders to the shares that have been purportedly transferred them.

MR GLEESON: Could I answer that in two steps? Firstly, no cloud, no legal cloud, as in whether a person was a valid member or not would depend upon the questions under 231(b), are you on the register, have you agreed to become a member, and that could be dealt with if any person wished to raise it in their particular circumstances at the time. That would be the first answer, your Honour.

The second answer, which was the reason I took you to page 17 I think it was of the appeal, was Mr Sheahan indicating that the representatives had been served with the notice of appeal and knew what was the narrowed form of relief and were content, it would seem, content that the issues so narrowed could properly be dealt with on both sides by the arguments of Wellington v ASIC. So that is the second fall back answer, that steps were taken to notify them that an appeal was proceeding in the Full Court on this very question.

GAGELER J: Well, a transfer of legal title in breach of trust is still a transfer of legal title, and whether or not the transfer could be unwound would depend on equitable considerations when they arose - - -

MR GLEESON: That is correct.

GAGELER J: - - - presumably in other proceedings.

FRENCH CJ: But this is a statutory context we are talking about in terms of what you have to do to become a shareholder.

MR GLEESON: Yes. So there are a couple of different perspectives on it. On what Justice Gageler put to me, we know that in fact, whatever be its legal effect, a transfer of title occurred in the sense that all of these person are now on the register of ARL. There is no issue before the Court to date that any person has sought to rectify that title. So, at the moment, whether any member would ever wish to do that is hypothetical.

What the proceeding as narrowed sought to deal with was, in terms of the powers properly available to the RE, were you permitted under your trustee to do the things that you purported to do, vis-à-vis your unit holders, and did clause 13 give you the power to effectively distribute or, as ASIC contends, was that power found solely in 16 and 26.

GAGELER J: I think all I was trying to suggest was that there is at least on one view a difference between the section 231 question - - -

MR GLEESON: Yes.

GAGELER J: - - - and the breach of trust question or ultra vires question.

MR GLEESON: Your Honour, there is a difference available in law and that is what we seek to go to in the second part of our argument, and the difference is that if Mr Walker was correct and you read clause 13 as an authority to make in specie distributions, if you make that assumption for one minute, is clause 13 also an authority in advance to the RE that the RE can choose as the form of in specie distribution shares in any company that appeals to the RE from time to time.

That is a further question, and it is ASIC’s submission which goes beyond the briefly expressed reasoning of the Full Court at page 179 that on any view clause 13 does not contain that authority. In other words, these unit holders, merely by accepting units in this constitution, did not agree in advance that they could go to sleep one night as unit holders and wake up the next day as shareholders in any company which appealed to the RE.

That was just beyond the scope of authority and that is because the whole purpose of section 231, going back to its antecedents, is that if you become a member of a company that usually contains mutual covenants with rights and obligations between you and the company and you and the other members of the company, and a person should not find themselves in that position without agreement. So you would not readily read the generality of the language of clause 13.1 as conveying, as it were, an advance authority to the RE.

As my RE, you may at any point in the life of the trust choose to act on my behalf and communicate an agreement to any company you like to make me a member, and one need only to think of partly paid shares as one example where you could end up with substantial liabilities as well as membership. But the logic of Mr Walker’s argument is that that is what clause 13 does. It allows the trustee, subject to questions of fiduciary duty - as a pure matter of power or authority the trustee can choose any company and any form of membership including partly paid shares and, in the language of Justice Lockhart in Hunter Resources, force them upon, in this case, the beneficiaries.

That is a separate and discrete step in the argument and, to be clear, ASIC’s position is that there are two reasons why Justice Jagot’s judgment was incorrect. The first is that 13.1 does not convey an authority to distribute in specie or indeed an authority to distribute outside the code of 16 and 26. Secondly, in any event, if the property in question is shares, clause 13.1 does not convey an authority from the unit holders that the trustee may select any and every form of share which appeals to the trustee for the in specie distribution. If ASIC is correct on one of those two arguments, or both, then the substance of the Full Court’s decision is correct.

Your Honours, could I then return to our outline to the substantive points? In points 1 to 3 we would seek to characterise the first issue in this sense, that the Court is dealing with an interrelationship between clauses 16 and 26 of the constitution on the one hand, and clauses 13.1 and 13.2.5 on the other, always within the context that this is a trust established under section 601FC(2) of the Corporations Act and governed by the rules of trust law, general law and as modified by the Act. That critical context of the trust and the statute, it was one of the differences between the trial judge and the Full Court.

ASIC’s contention at its simplest is that you look to clauses 16 and 26, and they are an exclusive code. They tell you how and when there can be distributions made to the unit holders from the fund, either during the life of the fund, or in its winding-up. They are a complete code; they deal fully with the subject, and they leave no room for the generality of other language to provide some additional means of achieving that result.

CRENNAN J: What about Mr Walker’s argument about 13.2.5, the words “dispose of . . . deal with” can include transferring legal title to property?

MR GLEESON: In one sense, read in their most general fashion, yes. The critical question is is the generality of that language designed to permit there to be a supplemental or additional means of liberating assets from the trust obligations and placing them beneficially in the hands of the unit holders. Even within 13.2.5, which we would submit in general is about allowing the trustee the fullest power to deal with the outside world, we have a series of expressions - “acquire, dispose of” and so on:

or otherwise deal with Scheme Property as if the Responsible Entity were the absolute and beneficial owner.

It has the “as if” language in it, and the connotation of it is the same as 13.1, which is when this trustee is dealing with the outside world, the outside world should be able to treat the trustee as if there were no beneficial interests. It does not have to be concerned to get a separate consent from the beneficiaries. It facilitates dealings with the outside world, and no more.

Your Honours, it is the effect of Mr Walker’s submissions, and it is made clear in paragraph 9 of the reply, and I believe he confirmed it this morning, that on his construction, clause 13 is not just about allowing in specie distributions, which cannot be done under 16 or 26, but it is about what he calls additional cash distributions. At any time in the light of this fund, the trustee can say without needing to go through the rigour of clauses 16 and 26, “I have power to convey to my unit holders any cash or any form of property that I think appropriate”. In that sense, the appellant’s construction allows the RE the ability, as a matter of power, to set aside 16 and 26 in respect to any form of property.

There is, with respect, no answer to your Honour Justice Kiefel’s question about where the dividing line is drawn. It is accepted, apparently, that you cannot use the generality of these clauses to distribute all property because that would be a winding-up, and it is accepted that that would contravene or cut across the specificity of clause 26. But at what point short of distributing all of the property does one encounter this problem? That is unclear. Why does not the same sort of language or concept apply to clause 16? Why should not the specificity of clause 16 be treated as indicating this is how one returns property during the life of the fund?

Your Honours, what I then wished to do in points 5 and following was just make some observations about clauses 16 and 26 themselves in aid of the submission that they represent a code and a code that sits neatly with the trust framework both at general law and under the Act. Your Honours, in clause 16 one sees that it starts with a duty in clause 16.1. There is a positive duty to determine the “Income” of the scheme and that duty has a number of aspects.

Firstly, the trustee must comply with general accepted accounting principles and practices which apply to trusts. So already the trustee is bound to conform to the rules which have been established under the law of trusts when it goes through this process of establishing the income. The second observation is that the income of the scheme involves the trustee looking at receipts and outgoings and making decisions as to whether they are on income account or capital account and then decisions about whether reserves or provisions should be set aside.

FRENCH CJ: The accounting principles and practices which are applied to trusts are, in this context, directed to the process of determination of the income of the scheme and whether receipts or outgoings are on income or capital account.

MR GLEESON: Yes, and that is - - -

FRENCH CJ: That is as far as it goes?

MR GLEESON: As far as it goes but that being a little universe of discourse of its own which the Court referred to in Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481. We have provided a separate copy. The Court at paragraph 17 refer to what the Full Court had said about the distinctions between income and capital as they developed in trust law and:

the “rules” which were developed in Chancery regarding apportionment between capital and income of receipts and outgoings and losses largely took the form of presumptions which would yield to provision made in the trust instrument.

So those presumptions developed in Chancery are carried through into clause 16. I might also refer your Honours to paragraph 39 where the Court discussed the concept of the present entitlement:

to a share of the income” directs attention to the processes in trust administration by which the share is identified and entitlement established.

Now, that process of trust administration is picked up here, your Honours will see in clause 16.2.2, where the trustee must go through a regular process of determining income and upon those regular determinations a present entitlement is established both as a matter of contract and trust law which will then have consequences for tax law. It is that present entitlement that in 16.2.3 becomes the subject of the duty to pay. It is accepted in cash. So one has a regime where the trustee surveys everything, applies the rules of trust law, determines what is the income on a regular basis, establishes present entitlement and then must pay in cash. The question is whether one can set all that aside and say under clause 13 I will do it in some other fashion.

KIEFEL J: You are saying that the trust constituted under this constitution is a trust for income only, except for the purpose of final distribution?

MR GLEESON: It is a trust for income only in the precise sense allowed for by these clauses where the one degree of liberality is that in clause 16.3.1 as we have seen in calculating the formula, the income in the trust sense must be distributed, save for reserves. So there is a mandatory duty to distribute income, save for reserves, and there is a discretion to add capital or previous reserves. So, in that sense, the trustee is bound every quarter or month to apply its mind to the entirety of the financial state of the fund through the concepts of income, capital reserves, and the like and decide, as a matter of duty or discretion, how much and then how much is paid in cash.

FRENCH CJ: And imported into that is a power, you accept, to distribute such amount of the capital as the RE determines?

MR GLEESON: Yes, and what unit holders are getting by going into an income fund – it is called an income fund and this is the clause that gives content to it – what you are getting is you are trusting the RE’s judgment to make good investments which will produce regular income that can be paid to you quarterly or monthly, plus you are allowing the trustee the discretion to add some capital to that income, if thought appropriate, recognising that, to the extent capital is added, that has denuded the fund from which you can earn future income. But that indicates that clause 16 has in fact straddled the entire concept of income and capital and provided - - -

CRENNAN J: But still the capital has to come back as cash.

MR GLEESON: And the capital has to come back as cash. So, in deciding whether to add capital to income, in a practical sense, a trustee must take into account, can I turn that into cash? If I cannot, practically, there is no point thinking too hard about it. But that is why it is an income fund, that primarily you should get – if the investments are well done – a good stream of income plus, possibly, capital always reduced to cash. If you want a fund that sees you ending up with things other than cash, you choose a different fund. This fund tells you in clause 16 the process will survey the whole of income and capital but the end result will be cash. That is then confirmed in 16.4; the amount is to be paid into a bank account or it can be “reinvested in the scheme or otherwise as directed by the Unit Holder”. That confirms the unit holder has the discretion to say –

CRENNAN J: If you have got the money, you can buy more units.

MR GLEESON: Money can be used to buy more units or applied in some other fashion “as directed by the Unit Holder”. The RE’s argument, in effect, says the trustee can set that at nought and give you property, whether you like it or not, and not go through the discipline of reducing the property to cash which you get in hand or by reinvestment or direction.

GAGELER J: If it is in your best interest.

MR GLEESON: I am sorry?

GAGELER J: The argument against you is that that could only occur if it were in the best interests of the shareholders.

MR GLEESON: Yes, to which we would submit that questions of power are anterior to questions of proper exercise of power. The logic of this case must be tested on the proposition that, as a matter of power, notwithstanding the specificity of clause 16, the RE can use the generality of clause 13 at any point in time to distribute cash or non-cash without having to go through this discipline, and this discipline is what we submit creates the code.

GAGELER J: So we do not get to Janus on your argument?

MR GLEESON: No, 16 and 26 are the scheme for distributions; 13 does not touch that and in a sense – we have also sought to hand up to your Honours the Court’s decision in Commissioner of Taxation v Bargwanna [2012] HCA 11; 244 CLR 655. The relevant paragraphs are 13 and 61. The context, of course, is a little different. That was a trustee of a charitable trust who had done a few things wrong and was trying to rely upon the generality of certain trust provisions to cover its conduct. But, interestingly, at paragraph 13 the Court was dealing with the clause effectively like clause 13.1. There were references to clauses 4 and 5 and 6 of the deed and then about halfway down this is said:

The statement of intent in cl 4 that the trustees were to have the same powers in all respects “as if they were absolute owners beneficially entitled”, must be read as subject to the requirement in cl 3 that the trustees hold the Trust Fund –

for the defined charitable purposes. That is an approach which we would commend in a general sense, that the language in clause 13 of “as if they were absolute owners” must be read subject to the more specific requirements in the deed for what this deed is and how this trust is to operate. So on any view, clause 13 – even if read generally – should be read subject to the specific requirements of clause 16 which deal with distribution. In Justice Heydon’s judgment at paragraph 61 he expressed the same point but slightly differently:

Wide powers of investment and wide discretionary powers will not cause application of part of the Trust Fund to purposes other than public charitable purposes to meet the terms of s 50-60. They relate to the techniques by which purposes may be achieved. They do not widen the purposes themselves.

We would take that a step further. Clause 13 might relate to techniques by which a trustee is enabled to perform its function as an RE, but they do not widen the nature of the trust relationship in its critical provision such as clauses 16 and 26.

Could I then come, your Honours, to clause 26 which deals with winding-up because this completes the code for distributions. The Court will see in clause 26.2 a number of triggers for a winding-up, and the origins of clause 26.2 lie in the provisions of the Corporations Act referred to, which is 601NC, and that provision was explained by the Court in Westfield Management Ltd v AMP Capital [2012] HCA 54; 247 CLR 129 at 135, paragraphs 10 and 11. These provisions were introduced as required by the amendments to the Act to ensure there was a more liberal ability to wind-up schemes which presented either difficulty or departure from what may have been the original intention of the schemes.

The Court can see in 26.2 that the triggers span across special resolution of unit holders, court order, removal of the RE. Very importantly, under 26.2.5, the RE can terminate the scheme on three months’ notice, and 26.2.6, the RE can give a notice under 601NC that it considers the purpose of the scheme cannot be accomplished. So part of the reform to deal perhaps with the sorts of practical issues raised by the appellant in its written submissions, what if too many are liquid assets, are to provide a range of means by which a scheme may be wound up if it can no longer achieve its defined purposes.

If one of the triggers is present, then the primary duties on the RE in the following clauses involve reducing the property of the fund ultimately to cash form, paying off liabilities, and one sees in 26.4 that the net proceeds of realisation will be distributed, so that is a cash distribution, and likewise in 26.6. So part of the bargain is, if this scheme comes to an end and I am still a unit holder, what I will get will be cash which reflects that which is able to be realised after meeting liabilities.

The only reference – and the appellants refer to this in written submissions – to property being transferred is in 26.7. That is the ultimately fall-back where, if there is no one to claim money or property it goes to ASIC, and that provision reflects 601NG. It simply restates the law. If anything, it reflects that in that ultimate fall-back position where if nothing else is possible and no one has claimed it and there is still property left, then ASIC gets it. So our submission is that this completes the code to deal with distributions.

Your Honours, I need to make one other submission on the proposition that illiquid assets somehow should drive a construction of 13 which allows for what the appellant seeks. I have so far indicated how the constitution works on its face. Could I now identify four ways in which the Act permits a variation to the scheme I have identified and for this purpose go to the Act?

The first is under section 601GC, and that allows for amendments to the constitution. To clarify what Mr Walker put, ASIC accepts that in general 601GC may as a matter of power permit amendments to allow for in specie distributions. That is paragraph 51 of ASIC’s submissions. That is subject to the qualification that where the property is shares, that will not achieve the result without going through section 231 in a correct manner.

Your Honours will see under 601GC that there are two possibilities. One is amendment by 75 per cent resolution of the members and, secondly, the RE can make the amendment if it forms the opinion that there is no adverse effect. That is significant because Mr Walker suggested, well, all this could have been done in a longer, more roundabout way. One of the answers to that is that what the RE was required by law to do was to go through the discipline of either obtaining a special resolution or forming a lawful opinion of no adverse effect on members’ rights. Neither of those steps has been taken here.

FRENCH CJ: If the power of amendment encompasses amendment to allow for in specie distribution, is the power confined by some line between that and what would amount to a winding-up of the scheme?

MR GLEESON: Yes. At some point under the doctrine of substratum, it may be that if the amendment has so – I am not sure this answers your Honour’s question but if the amendment has so radically altered what was the trust to which the persons had agreed, it may be that it is not a proper use of the amendment power and the winding-up is the available mechanism.

FRENCH CJ: I am really asking, I suppose, whether you accept that it is possible to draw some kind of line, albeit it may be fuzzy.

MR GLEESON: There would be cases where the only proper course would be to use the winding-up power. The second option for differential outcome is under 601QA, where ASIC can modify provisions of the chapter, and the court dealt with a like power – I will just give the reference in ASIC v DB Management [2000] HCA 7; 199 CLR 321. The third provision for variation is under 601KB, which is interesting. KA and KB deal with liquid and illiquid schemes, and it seems the effect of 601KA(3) is if you want to allow withdrawals in liquid schemes you must have a provision in the scheme’s constitution. There is none here.

Under 601KA(3)(b), if the scheme is not liquid you have to comply with anything in the constitution plus what follows below, and coming directly to what follows below 601KB, where the scheme is illiquid then the RE can fashion a scheme whereby the assets which are liquid can be the subject of proportionate withdrawals between members. So the Corporations Act has recognised this distinction between liquid and illiquid and provided a limited mechanism for withdrawal under KB.

The fourth mechanism is under clause 26 itself, which is the winding-up, but I wanted to draw particular attention to 601NC, which is a winding-up where the scheme has not been accomplished and this is what I was seeking to deal with in the answer to your Honour the Chief Justice’s question, that there is a specific power to wind up where the purpose either has been or cannot be accomplished, and it may be that a use of the amendment power in this situation to circumvent the results for winding-up may not be a proper use of the power.

But, significantly, under 601NF(2), in a winding-up, that is any form of winding-up, the court can give directions about how the scheme is to be wound up including if the provisions in the scheme’s constitution are inadequate or impracticable.

Now, that is the square way to deal with a fund such as the present which does not allow for in specie distribution if that becomes the only way of getting some return to members. So what would happen is that in the winding-up the RE would establish to the court on evidence that the only way it could produce a sensible return was by forcing members to take shares and the court would have its ability to determine whether that was necessary and, in effect, all of that has been circumvented by what has happened here. Really, what should have happened was, through one or more of these means, there could have been a process by which there was some oversight of what occurred and not simply an assertion of power in the manner that was done.

GAGELER J: What do we get out of the right to withdraw provisions? I did not understand your submission.

MR GLEESON: To the extent the appellant’s argument rests on alleged problems with illiquidity and that that should drive a broad construction of clause 13, that that is the means to deal with the illiquid fund. The Corporations Act has already recognised a range of ways in which these issues are dealt with and the right to withdraw provisions specifically recognises there can be issues in the area of liquidity or illiquidity and they provide a means to respond to it. So they are simply part of what I would put as the package of secondary arrangements from the law itself which supplement the primary exclusive code which is found in clauses 16 and 26 themselves. Your Honours, I think I will be about another 15 minutes.

FRENCH CJ: I think you have about another five to go.

MR GLEESON: Sorry, your Honour.

FRENCH CJ: Before we adjourn. You have about another five minutes to go before we adjourn. I see, you think you will finish before – yes, all right.

MR GLEESON: I think I would be about another 15 minutes. I am not sure what Mr Walker required in reply.

FRENCH CJ: All right. We will hear you out then, Mr Solicitor.

MR GLEESON: Your Honours, with that framework we then turn back to clause 13 and submit that the Full Court correctly understood that nothing in these clauses was designed to create some separate and parallel means of engaging in distributions and their subject matter was really rather different, namely, fully empowering the RE to be able to engage in the transactions necessary in the assets of the fund from time to time.

In respect to 13.1, it starts by a broad conferral of powers which a natural person or a corporation would have and we have made the submission that a natural person or corporation as such does not have a power to distribute assets to a beneficiary. Then, it goes on to the “as if” proposition for the reason we have sought to advance which is that that enables third parties to deal securely with the trustee without having to go to the beneficiaries. Your Honours, I should perhaps refer to section 124 of the Corporations Act because the trial judge thought that was significant although it is not now expressly relied upon by the appellant. Her Honour thought that because:

A company also has all the powers of a body corporate, including –

then we see a series of powers issuing and cancelling shares et cetera, and (d) the power to:

distribute any of the company’s property among the members, in kind or otherwise –

that that somehow by analogy carried over to the RE so that the RE could distribute scheme property to members of the scheme in kind or otherwise. The Full Court correctly rejected that and said that these are powers between the company and its members and are not powers that are apt to speak to the relationship between the trustee and the beneficiary. One only needs to look at the other powers there such as the power to issue and cancel shares – was her Honour saying that that should somehow be applied by analogy so the clause 13 gives the RE the power to issue and cancel units because units are the equivalent of shares. That would seem to be the underlying consequences of the form of argument. If that were right, clause 13 would swallow up the entire trust deed.

CRENNAN J: It is possible, I suppose, in all the urgency that her Honour was not taken to section 601FC(2)?

MR GLEESON: Yes, the case was dealt with in exceptional urgency and while Mr Walker is correct that her Honour was clearly aware that the RE had duties under a deed that the significance, the true significance of 601FC(2), the stamping of the trust obligations over the property and the differences that would generate in law between the before and after situation may not have been fully pointed out by everyone there and it may not have been fully appreciated in the course of argument.

CRENNAN J: Or more particularly in the context of section 124.

MR GLEESON: In the context of section 124 because once you put 124 with 601FC(2), you either say those parts of 124 are uninformative, which is ASIC’s position because they are dealing with relation between company members, or you say well, they must be being applied by some form of analogy. But if that is right, as I say, 124 by analogy swallows up the entire deed because that gives you the power to issue and cancel units but that surely cannot be intended to cut across the power to issue and cancel units in the deed.

So in the end, the 124 cannot have that result with FC(2). Your Honours, in relation to the other source of power, 13.2.5, it really cannot rise any higher than the argument based on 13.1. Could I say something about the issue of section 231(b) and its independent operation? We have provided your Honours with an early decision in this Court in Farmers’ Mercantile Union v Coade [1921] HCA 48; (1921) 30 CLR 113. Between pages 117 and 125, there is discussion of the 1893 Western Australian antecedent to section 231(b). The Court makes the perhaps unsurprising proposition that “agreement” means agreement and it can be evidenced in a variety of ways. But what one is ultimately looking at is have the persons said to be members communicated an assent to the company that they wish to be a member of the company?

In the present case, of course, no member communicated with ARL directly. They woke up on 4 September and found they were shareholders. So, if one is to find such agreement, logically the only place it could rest is in the notion that in clause 13 that conveys within it an advance authority by the unit holders to the RE that the RE can choose any and every company – any and every share, fully paid or partly paid – and as a matter of power at least, communicate the assent from the shareholder to that company.

It is sort of the broadest form of managed discretionary account one can think of, “You can turn my units into any shares you think appropriate from time to time”. Now, our short point is, to reach that extraordinary conclusion that you could wake up finding yourselves being a shareholder in any or every company, one would need to have language far more explicitly dedicated to that result than the language in clause 13.1.

FRENCH CJ: This is on the premise that a distribution in specie is within power?

MR GLEESON: Even if it were in power the premise is that, having agreed that distributions could be in specie and having agreed that they could be done through this more liberal route without the express constraints of clause 16, have I nevertheless further agreed that the form of the distribution could be shares in any company the RE may choose from time to time? There are two authorities that I want to just mention on this: Hunter Resources, and then Archibald Howie.

If your Honours could go to Hunter Resources [1992] FCA 133; (1992) 7 ACSR 436, which is of some significance, Justice Lockhart was dealing with a reduction of capital under what was then section 195 of the Corporations Law at a time when the court still had an approval role. The nature of the transaction was that the company sought to reduce capital by distributing assets, being shares in its holding company. So it sought to transfer to its members shares in its holding company. His Honour rejected that as being an available reduction of capital for two reasons. At page 442 in the second full paragraph, he observed that companies could “return capital in specie”. So that is the equivalent of the section 124 point.

He goes through and discusses whether this is a return in specie and concludes at page 443, lines 10 to 15, that it is not a distribution of assets in specie because it is shares in the holding company. So that point can just be placed there that it was not a distribution in specie. But he then came to a second and independent point at line 28, which was that this transaction did not comply with 184 of the Corporations Law which is now 231. What he said between lines 40 to 50 was that the:

application is in effect forced upon shareholders, whether they like it or not, assuming the court approves the reduction. This is not a case where a provision has expressly been made to allow such coercion of shareholders. The only permitted case of such coercion –

is a scheme of arrangement. So what his Honour held was that the reduction of capital provisions was not available to lead to a company transferring shares to the members without there being some express provision to grapple with the section 231 problem or the use of a takeover scheme. His problem was that there was not sufficient evidence of the agreement.

Now, what that means is that the company would need to have had in its articles from the outset not just recognition there could be reductions of capital but recognitions that in reductions of capital what could be forced upon shareholders were shares in companies. That is the missing element his Honour identified.

What is absolutely critical is that, although his Honour does not refer to it, at the time of this case the equivalent to our section 124 was in the Corporations Act in substantially the form it is in now – that is, section 161 of the then Act. In other words, in 1992 there was a provision substantially equivalent to 124 expressly saying companies could distribute assets in specie, but that was not good enough for his Honour to say that there had been an agreement to become a member. So that drew clearly the distinction between distributions in specie, for which a company may have power in general, and members doing enough in advance to agree to distributions of shares.

Your Honours, in Re Crusader Limited, which is Justice Thomas’s decision, at page 129, lines 3 to 16, that was the element that plugged the

gap. In that case, the deed from the outset had provided that the members may, by extraordinary resolution, sanction exchange of notes for shares in any company to be formed. His Honour ruled, well, if that is what the meeting ultimately resolved, you have agreed in advance to it.

So our short point is that in order to get the advance approval for the purpose of 231 one would have needed to have in the trust deed from the outset the sort of provision that Justice Thomas identified on page 129 where people had agreed “By an extraordinary resolution I can be bound to exchange my notes for shares”, your Honour, which leads me to the final point, which was Archibald Howie which Mr Walker said provided considerable assistance.

In Archibald Howie [1948] HCA 28; 77 CLR 143 at 144, paragraph 6 of the case stated, you will see that in that case it was a special resolution passed by unanimous vote of all members. So that court did not need to grapple with the 231 problem because everyone had agreed to take shares in this other company. So where we would go from that is, there is nothing in the reduction of capital provisions which would lead to the result that a general power to distribute in specie provides the sort of advanced approval that is needed for agreement under section 231(b). May it please the Court.

FRENCH CJ: Thank you, Mr Solicitor. The Court will – yes, Mr Walker.

MR WALKER: Sorry, there are just a couple of - - -

FRENCH CJ: How long do you expect to be in reply?

MR WALKER: About two minutes I think.

FRENCH CJ: In that case we will hear you out, without wishing to constrain you in any way.

MR WALKER: On the last point it is of course the general propositions in the dictum of Sir Owen Dixon that we have quoted in our written submissions from Archibald Howie which, in our submission, refer to what I will call the question of anterior power with no suggestion that something upon which, in general terms, there needs to be a vote - it was unanimous in that case but it need not have been unanimous - would suffice to permit the outcome to be effectuated, namely, transfer. That, in our submission, fits the theory of agreement for statutory purposes to which we have referred in-chief.

Your Honours, otherwise I have some material to give in response to some questions to me earlier from the Bench including a matter raised with

my learned friend. It is, as your Honours have observed, correct that Justice Jagot does not refer in terms to section 601FC(2). However, it is appropriate to draw to attention what you find in the appeal book at pages 139 to 140 in paragraphs 56 and 57, particularly the reference to clause 14.7 and on page 141, paragraph 62, particularly the references both to section 601FB(1) and as it happens paragraph 601FC(1)(m). It is not to be supposed, as it were, that there were blinkers in relation to what those provisions are directed to in general terms.

We can supply references now to the material that the Bench has after my learned friend handed up some transcript and submissions to satisfy the request earlier made to me about the point being taken about the representative parties and the effect on the relief granted.

Could I simply give you these references - at first instance, in the transcript of 12 October 2012, which you will find in the appeal book at pages 105 to 106, in particular, transcript 5, point 3 to 6, point 21; in the transcript at first instance of 17 October 2012, which my learned friend handed up today. It is, in particular, page 2, lines 18 to 27. In the Full Court you now have our written outline of submissions in that Court dated 26 April 2013 handed up today. Paragraphs 34 to 53 relate to the matter. In the transcript of argument in the Full Court of 17 May 2013, handed up today by my learned friend – pages 34, line 5 to 34, line 40.

Your Honours, could I note that in relation to what I will call explanation or announcement of the distribution about which some questions were directed to my learned friend as well as to me, at page 125 of the appeal book, paragraph 3, item 5, you will find a reference to a contemporaneous announcement. It would be, I think, gilding the lily to describe that as an explanation, but that may explain why prayer 4(d) was abandoned by ASIC when it was. May it please the Court.

FRENCH CJ: Thank you, Mr Walker. The Court will reserve its decision. The Court adjourns until 10.15 tomorrow morning.

AT 1.00 PM THE MATTER WAS ADJOURNED