Invesco Australia Limited v Taylor [2012] NZHC 1924 (1 August 2012)

Last Updated: 15 August 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2012-409-000855 [2012] NZHC 1924

IN THE MATTER OF the Securities Act 1978

BETWEEN INVESCO AUSTRALIA LIMITED Plaintiff

AND MARTIN WAYNE TAYLOR Defendant

Hearing: 1 August 2012

Appearances: V L Heine and M J R Conway for the Plaintiff Defendant in Person, abides the decision of the Court T C Tran for the Market Authority (a party served)

Judgment: 1 August 2012

_{ORAL JUDGMENT OF HON. JUSTICE FRENCH}

Introduction

[1] Invesco Australia Limited applies for relief orders under ss 37AI and 37AH Securities Act 1978.

[2] The defendant, Mr Taylor, decided not to actively defend the application and,

accordingly, this morning’s hearing has proceeded by way of formal proof.

[3] Despite the applications not being defended, the Court must nevertheless still subject the application to appropriate scrutiny to ensure that Invesco is entitled to the relief it seeks, the burden of proof being on Invesco.

[4] In order to assist the Court with that task, the Financial Market Authority has helpfully provided submissions. The position of the Financial Market Authority is

INVESCO AUSTRALIA LIMITED V TAYLOR HC CHCH CIV-2012-409-000855 [1 August 2012]

that it does not support Invesco, nor does it support Mr Taylor. It is not here to advocate the merits or otherwise of the application, but simply to assist the Court.

[5] I record my thanks to Mr Tran for the work he has done.

Factual background

[6] The application is made against the following factual background.

[7] Invesco Australia is the entity responsible for a number of Australian

Registered Managed Investment Schemes offered in New Zealand.

[8] In order to be able to offer the funds in New Zealand, Invesco is required to comply with the Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 1999.

[9] The exemption notice (known as the ARMIS notice) exempted Invesco from the requirement in s 37(1) Securities Act to provide New Zealand investors with a New Zealand prospectus. The exemption is subject to compliance with certain conditions. Those conditions included a requirement (cl 5) that certain Australian documents be deposited with the Registrar of Companies at Wellington.

[10] As noted by Mr Tran in his submissions, the purpose of cl 5 is to ensure prospective investors have access to information. The Registrar does not actually vet the documentation. The condition relates only to the lodgement of the information. The other purpose, of course, is to allow access if needed by regulatory authorities.

[11] In 2003, Invesco undertook a review of its compliance with the conditions and discovered that a number of documents relating to its investment schemes had been filed late (ie, deposited outside the requisite time period). For present purposes, the relevant period during which there were instances of non-compliance is from

30 September 1999 to 30 September 2002.

[12] All documents were eventually registered, but there was a delay of between two weeks and six months between the date the documents in question were created and the date of registration.

[13] The effect of Invesco’s failure to file the documents in time was that any units allotted during the non-compliant period were rendered void by virtue of s 37(4) Securities Act, there being no registered prospectus.

[14] In order to cure this problem, Invesco decided to apply for relief orders under ss 37AA to 37AK Securities Act.

[15] As required by s 37AE, it notified subscribers of its intention to apply for relief orders.

[16] Mr Taylor was the only person of those who had purchased units during the non-complying period to object. His objection necessitated the current application in respect of his units in two schemes. The two schemes in question are the Invesco European Share Fund and the Invesco Japanese Share Fund.

[17] All of the documents filed late in relation to Mr Taylor’s units were either new documents or updated documents required to be filed as a result of the Managed Investment Scheme Amendments to the Australian Corporations Act 2001. Those amendments required managed investment schemes to register and file a compliance plan by 30 June 2000. A range of consequential amendments to the trust deed for funds and the prospectus were also necessary.

[18] In addition to the delay in filing documents in New Zealand after the new regime was introduced, Invesco was also late in filing a replacement compliance plan when a small number of Mr Taylor’s void units were allotted.

[19] As I have mentioned, all of the documents not filed were eventually filed in

New Zealand. This is therefore a case of late filing rather than non-filing.

Discussion

[20] I turn now to consider the relevant provisions. [21] The pre-requisites to relief under s 37AI are:

(i) The contravention at issue must have been caused solely by failure to comply with the ARMIS Exemption Notice.

(ii) The contravention occurred prior to 15 April 2004, s 37AI being a transitional provision.

(iii) The contravention did not materially prejudice the interests of

Mr Taylor.

[22] If those prerequisites are satisfied, then the Court must grant relief.

[23] What constitutes “material prejudice” has been defined in the following terms. There must be: [1]

... a substantial likelihood that disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information [...] made available to him or her.

[24] In the same case, it was said by Gendall J that the threshold of establishing a causative nexus (between the contravention and the investors’ loss) should be relatively low, given that many objectors are lay people.

[25] In this case, Mr Taylor has not filed a statement of defence.

[26] However, in objecting to relief being granted, he wrote:

I understood that Invesco was a professional fund manager who would comply with all relevant legislation in this country. If I had known that your company was not compliant I would not have invested in these funds. Oversights and procedural errors do not inspire the confidence necessary to entrust my savings for management and safe keeping.

[27] The nature of Mr Taylor’s objection is such that he falls within the category

of what has been termed “reliant objectors.”[2]

[28] Mr Taylor purchased the majority of his units on 31 March 2000. At that time, Invesco was in fact in compliance with the ARMIS Notice (ie, it had filed all requisite documents). All of Mr Taylor’s void units actually comprise later distribution reinvestments which he had requested in his initial application form. These units were allotted automatically, he not being notified until after the event.

[29] This is the uncontested evidence of Mr Burrell, Invesco’s company secretary:

[19] It follows that all of the Defendant’s Void Units were distribution reinvestments. These units would have been allotted automatically, because the defendant had indicated on his application form that any dividends should be reinvested. The defendant would have been notified that the allotments had been made, but would not have been consulted or provided with any documentation prior to the allotment. The investment statement, prospectus, and related documents, would have been available on request.

[30] As also noted by Invesco, Mr Taylor in his initial application form acknowledged having read the investment statement and agreed to be bound by the provisions of the trust deed. There is also evidence quoted above that had he requested any of the relevant documents, the investment statement, prospectus and related documents would all have been available on request.

[31] In those circumstances, I am satisfied that Mr Taylor has not been materially prejudiced within the meaning of s 37AI as discussed in the case law.

[32] I am reinforced in that conclusion by the following comments made in the

Henderson decision about the reliant objection:

[77] The gist of this objection, in terms of prejudice identified as regards non-compliance, is that investors implicitly relied on the ability of those promoting the Funds to comply with the statutory regime in New Zealand. If Objectors had known of the Compliance Failures they would have re- assessed their view of the Funds as a suitable investment, and decided not to make that investment.

[78] The fact of non-compliance therefore goes to the suitability of the Funds as persons to be trusted with the Objectors’ investments, rather than to the quality of those investments themselves.

[79] I accept that evidence of material non-compliance with statutory obligations could be a relevant consideration for an investor. It seems a relatively obvious proposition that a person seeking public moneys would be judged critically if, at the same time as seeking those moneys, that person was unable to organise its affairs so as to comply with the relevant statutory regime. The scheme of the Relief Provisions is, however, based on the proposition that the mere fact of certain types of non-compliance, in the circumstances that arose as regards the Funds and other offshore investors, is not material. I think that conclusion is evidenced by the legislative history referred to above at [23] and following. Moreover, if that were not the case, it is difficult to see why Parliament would have enacted the Relief Provisions in the first place.

[80] There may also be particularly scrupulous investors for whom any non-compliance, no matter how immaterial, would be sufficient to deter them from investing. In this context, however, I think objections have to be assessed objectively, and against a standard of reasonableness. Again, I draw that conclusion based on the scheme of the Relief Provisions, and the fact of their enactment.

...

[83] In my judgement, if a reasonable investor had had that situation explained to them, I do not think such an investor who had otherwise decided to make an investment in the Funds would have changed their mind.

[33] Those comments appear particularly apposite to the circumstances of this case.

[34] It follows that, in my view, Invesco is entitled to the relief orders it seeks under s 37AI.

[35] Given the view I have taken of the application under s 37AI, it is not necessary for me to consider the alternative application under s 37AH. Suffice it to say, I would also have found that Invesco was entitled to relief under that provision on the grounds that it would be just and equitable having regard to the statutory criteria. The evidence establishes that Mr Taylor has redeemed all of his units.

Outcome

[36] The application for relief under s 37AI is granted and an order made in terms of the statement of claim.

[37] As regards costs, there will be no order as to costs. Invesco is seeking an indulgence from the Court. Further, Mr Taylor did not defend the application, and a Court hearing was necessary in any event.

Solicitors:

Chapman Tripp – [e-mail], [e-mail]

Mr M W Taylor – [e-mail]

Financial Markets Authority – [e-mail]

---

[1] Re Perpetual Investment Management Limited (2006) 9 NZCLC 264,207, at 264,212

[2] See Henderson Global Funds v Securities Commission (2009) 10 NZCLC 264,477.