Summary

The High Court has provided some helpful analysis in relation to the inter-relation of rights under the Corporations Act and rights and obligations under a unitholder agreement in Westfield Management Limited v AMP Capital Property Nominees Limited [2012] HCA 54.2.1

The High Court commented (in obiter) that:

  • it is in the public interest that scheme members are provided with the right to wind up a managed investment scheme following an extraordinary resolution pursuant to section 601NB of the Corporations Act; and
  • consequently, this right cannot be “contracted out of” or “bargained away”. 

Factual background

Westfield Management Limited (Westfield) holds one-third of the units and AMP Capital Property Nominees Limited as nominee for UniSuper Limited (AMPCN) holds two-thirds of the units in the KSC Trust, a registered managed investment scheme (scheme). 

Westfield and AMPCN had entered into a Unitholders’ and Joint Venture Agreement (Agreement). Relevantly, clause 10.1(a) of the Agreement provides that the responsible entity of the scheme (RE) must not sell the scheme property without the unitholders’ written consent and clause 16.2 obliges the unitholders to exercise their voting rights to give effect to the intent of the Agreement. 

In August 2011, at AMPCN’s request, the RE issued a notice of unitholders’ meeting, to consider an extraordinary resolution pursuant to section 601NB of the Corporations Act 2001 (Cth) (Corporations Act) to wind up the scheme. 

Westfield sought and obtained an injunction in the Supreme Court of New South Wales to prevent AMPCN from voting for the extraordinary resolution. 

At trial, the primary judge held that if AMPCN used its voting power to vote in favour of the extraordinary resolution, it would be a breach of clause 16.2 of the Agreement. 

On appeal the court held that clause 16.2 read in conjunction with clause 10.1(a) did not prevent AMPCN from exercising its voting rights to support the winding up resolution. Westfield appealed to the High Court.

High Court Judgment

In finding for AMPCN, the High Court held that clause 10.1(a) of the Agreement, on its proper construction, restricts only the RE’s power to sell the trust property before the scheme commenced winding up and does not, as Westfield contended, restrict AMPCN from voting on a resolution to the RE to wind up the scheme pursuant to section 601NB of the Corporations Act. 

The High Court went on to provide helpful comments in obiter in relation to whether the rights conferred by section 601NB could be ‘contracted out of’ or ‘bargained away’ by the unitholders:

  • In response to Westfield’s submission, the High Court observed that just because Chapter 5C of the Corporations Act does not contain an express prohibition on unitholders contracting out of the right afforded by section 601NB, it does not follow that the right can be bargained away. 
  • The High Court cited the judgment of Windeyer J in Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 456 “that a person upon whom a statute confers a right may waive or renounce his or her rights unless it would be contrary to the statute to do so" and stated that this test would be met where:
  1. the statute contains an express prohibition against ‘contracting out’ of rights; and
  2. additionally, the provisions of a statute, read as a whole, might be inconsistent with a power to forego statutory rights. 

The High Court observed that it is a policy of the law that where a contractual arrangement would defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest rather than for the benefit of an individual alone, the court will treat such arrangements as ineffective or void. 

Westfield argued that there is a distinction between a scheme member’s right to initiate a meeting and the member’s right to vote at that meeting. The High Court observed that this approach would treat the rights afforded by section 601NB as divisible, and held that the section should not be viewed in this way. The court considered that “in reality” the right to request a meeting be called and a resolution be put to wind up the scheme would be lost if the distinction was maintained. 

The High Court went on to observe that that the rights conferred by section 601NB cannot be contracted out of. In arriving at this conclusion, the High Court considered that an agreement to deprive members of the rights given by Chapter 5C would be prejudicial to the interests of the members and contrary to the protective purposes underlying Chapter 5C. The High Court recognised the intent of the legislature, that it is in the public interest that scheme members be provided with the rights in section 601NB. 

In practice

The High Court decision and observations provide helpful guidance for REs and unitholders in relation to the inter-relation of rights under unitholder agreements or constitutions and rights and obligations under the Corporations Act. 

The decision re-affirms the principle that an agreement purporting to fetter a right  conferred by statute in the public interest will be unenforceable.