In Westfield Management Limited v AMP Capital Property Nominees Limited  HCA 54, the High Court has cast doubt over the extent to which parties may 'contract out' of the statutory protections afforded to members of registered managed investment schemes (MIS) under Chapter 5C of the Corporations Act 2001 (Cth) (Act).
Contractual provisions which circumvent the protective purpose of Chapter 5C may be unenforceable.
Parties should take this into account when choosing to use a registered MIS, rather than an unregistered unit trust, as the preferred investment vehicle.
Westfield Management Limited (Westfield) and AMP Capital Property Nominees Limited (AMP Unitholder) are the sole unitholders in the KSC Trust, a registered MIS under Chapter 5C of the Act. Westfield holds one-third of the units and AMP Unitholder holds the remaining two-thirds. The sole property of the KSC Trust is the Karrinyup Regional Shopping Centre in Perth, Western Australia (Property). AMP Capital Investors Limited (AMP RE) is the responsible entity of the KSC Trust.
AMP Unitholder requested the calling of a meeting of unitholders to consider and vote on an extraordinary resolution directing AMP RE to wind up the scheme (Winding Up Resolution) pursuant to section 601NB of the Act. On 10 August 2011, AMP RE issued a notice of meeting of unitholders of the KSC Trust to consider the Winding Up Resolution. On the basis that AMP Unitholder would have voted in favour of the Winding Up Resolution, the Winding Up Resolution would have been passed, which would have resulted in the sale of the Property.
Westfield sought an injunction preventing AMP Unitholder from voting its units in favour of the Winding Up Resolution, without Westfield's prior written consent to the sale of the Property. Westfield contended that the Unitholders' and Joint Venture Agreement (Agreement) between Westfield, AMP Unitholder and AMP RE prevented the sale of the Property without the consent of all Unitholders.
In the New South Wales Supreme Court, Westfield successfully obtained an injunction, which was overturned on appeal. Westfield subsequently appealed to the High Court of Australia.
Essentially, Westfield argued that the Agreement, properly construed, excluded or at least limited the statutory rights given by section 601NB of the Act.
Westfield relied on two key clauses to support its contention. This included clause 10.1 of the Agreement, which provided:
[AMP RE] in its capacity as responsible entity of the KSC Trust, shall not sell the Property or any substantial part thereof, without the written consent of the Unitholders.
Westfield also relied on clause 16.2 of the Agreement, which provided:
Each and all of the Unitholders mutually agree that they will so exercise their respective voting rights as unitholders under the Trust Deed so as to most fully and completely give effect to the intent and effect of the provisions of this deed.
Westfield submitted that clause 16.2 evidenced an express agreement by the Unitholders that in the exercise of their voting rights, they would act in accordance with the commercial purpose of the Agreement, which was the acquisition and operation of the shopping centre for an indefinite period and would only realise their investment in a way which was not destructive of the venture and not by the sale of the Property, unless agreed to by all the Unitholders.
Did the Agreement exclude section 601NB?
After reviewing the Agreement, all of the presiding justices held that the Agreement did not exclude or limit the statutory rights given by section 601NB or in any way limit what unitholders may do in relation to the winding up of the scheme.
It was seen to be significant that the Agreement did not expressly exclude the operation of section 601NB of the Act. In fact, the Agreement provided at clause 18 that:
The rights, powers and remedies provided in this deed are cumulative with and not exclusive of the rights, powers or remedies provided by law independent of this deed.
Contractual exclusion of section 601NB
AMP Unitholder raised the contention that even if the Agreement did exclude section 601NB, such a provision would have been unenforceable as being inconsistent with Chapter 5C of the Act.
Given the court's decision in relation to the interpretation of the Agreement, it was unnecessary for the court to consider this point. However, interestingly, the majority judgment of French CJ, Crennan, Kiefel and Bell JJ (Majority) took the opportunity to consider this issue in detail.
Although Chapter 5C does not expressly prohibit 'contracting out' provisions which exclude statutory rights, the Majority stated that a contract will not be enforced where it circumvents or defeats a statutory purpose which confers statutory rights in the public interest rather than for the benefit of individuals.
The Majority reviewed the background to the enactment of Chapter 5C and emphasised Parliament's intent of protecting investors in enacting the provisions. This included providing an efficient mechanism for investors to wind up a scheme without the intervention of the courts. The Majority found that the rights given by section 601NB are clearly of benefit to each scheme member and the provisions of Chapter 5C have a regulatory and protective purpose.
The Majority also highlighted the fact that the Unitholders adopted a registered MIS as the vehicle through which to pursue their commercial interests which entails the very protections under Chapter 5C, which Westfield contended had been excluded.
The Majority concluded that an agreement between scheme members and the responsible entity which purports to deprive members of the rights given by Chapter 5C would be prejudicial to the scheme member's interests and contrary to the protective purposes which inform the regulatory scheme of Chapter 5C.
When drafting unitholder's deeds and trust deeds applicable to registered MISs, parties should be cognisant of the fact that courts are likely to interpret such agreements narrowly so as not to exclude the protections afforded to scheme members under Chapter 5C.
Although the Majority's comments on the enforceability of agreements seeking to exclude Chapter 5C are merely dicta, they provide an important indication of the High Court's views on this issue and will no doubt be heeded by state courts.
Therefore, investors and responsible entities should be aware of the implications of choosing a registered MIS when assessing the appropriate transaction vehicle. The statutory rights provided by Chapter 5C may impact upon the contractual arrangements between the parties and any purported attempt to exclude such statutory rights may be void and unenforceable.
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