In the matter of Centuria Property Funds Limited

1. [1]

   By originating process filed on 16 June 2022, Centuria Property Funds Limited (Centuria) as responsible entity for a trust known as the 111 St George’s Terrace Fund sought declaratory relief and orders under s 1322(4) of the Corporations Act 2001 (Cth) (the Corporations Act). The application was not opposed. In essence, the application sought relief confirming that the term of the trust has been validly extended, in order to avoid the significant prejudice that would flow to unitholders if the trust was wound up. At the hearing on 21 June 2022, I made certain of the orders sought and indicated that I would publish my reasons for doing so subsequently. These are my reasons.

2. [2]

   The orders made on 21 June 2022 were as follows:

Background

1. [3]

   The plaintiff, Centuria, acts as the responsible entity (RE) of the 111 St Georges Terrace Fund ARSN 098 126 660 (Trust). The Trust is a single-asset, closed‑ended, unlisted property trust which owns a property located at 111 St Georges Terrace, Perth (Property). Under the trust deed of the Trust dated 10 September 2001 (which is referred to below as the Constitution), the term of the Trust was originally to expire in January 2012, subject to any extensions. Members subsequently voted by special resolutions to extend the term of the Trust, but issues have arisen as to whether this was effective.

2. [4]

   Centuria sought two forms of relief. First, it sought declaratory relief to confirm that, properly construed, the Supplemental Deed amending the Constitution dated 11 December 2014 (First Supplemental Deed) extended the term of the Trust until 31 January 2022. Alternatively, Centuria sought an order pursuant to s 1322(4) of the Corporations Act validating the continued operation of the Trust beyond the 15-year period referred to in cl 2.1(d) of the Constitution.

3. [5]

   Second, Centuria sought an order pursuant to s 1322(4) of the Corporations Act declaring that the lodgment of the Supplemental Deed amending the Constitution bearing the date 19 January 2022 (Second Supplemental Deed) with the Australian Securities and Investments Commission (ASIC) on 4 April 2022 was not invalid by reason of cl 22 of the Constitution, as well as other ancillary orders under s 1322.

4. [6]

   On the application, Centuria relied on affidavits from Stuart John Wilton (co-head of unlisted funds for Centuria) dated 16 June 2022 and 20 June 2022, and an affidavit of Selina Nutley dated 20 June 2022.

5. [7]

   Centuria submitted that, if it was not granted the relief sought, there would be the potential for unitholders to suffer considerable prejudice. Centuria sought a determination of these issues on an urgent basis in advance of the end of the 2022 financial year on 30 June 2022, in particular because of (a) the likelihood that unitholders will have arranged their tax affairs on the basis of selling or acquiring units within that financial year, and (b) the imminent expiry of Centuria's banking facility on 30 June 2022 (with any extension contingent upon the outcome of this application). Steps had been taken to notify ASIC and unitholders of the relief sought prior to the hearing.

6. [8]

   In order to allow a further opportunity for any objections by unitholders to be taken into account, Orders 4 and 5 set out in paragraph 2 above were made. The court has been informed on 29 July 2022 that the procedures outlined in Orders 4 and 5 were followed but no objections were raised.

Factual Background

1. [9]

   The original RE of the Trust was Glenmont Properties Limited which, at some time prior to 2017, was replaced by 360 Capital Investment Management Limited (360 Capital). In or about 2017, Centuria acquired 360 Capital and as a consequence, Centuria was appointed as RE of the Trust on 9 January 2017.

2. [10]

   At the date of the hearing the Trust had a finance facility with Bankwest, secured by the Property (Facility). The Facility had a limit of $90 million, was drawn to $80,043,531, and was due to expire on 30 June 2022 although Centuria was in the process of refinancing the Facility for a further three-year period (subject to the outcome of these proceedings).

3. [11]

   Clause 2.1 of the Constitution in its original form provided relevantly:

4. [12]

   Under cl 2.1(b), in its original form, the term of the Trust was originally to expire in January 2012 (being 10 years from the Purchase Date), subject to any extensions pursuant to cl 2.1(d) although by virtue of the proviso to cl 2.1(d) the term would not exceed 15 years. I note that this proviso is not entrenched in the Constitution, in the sense that there is nothing expressly or impliedly in the Constitution to prevent an amendment which would vary or delete the proviso.

5. [13]

   Clause 21 deals with the amendment of the Constitution in the following terms:

6. [14]

   The “Compliance Committee” is the compliance committee established by the RE in accordance with Part 5C.5 of the Corporations Act. The second sentence of cl 21 should be construed as imposing an obligation on the RE which is not a condition of the modification, repeal or replacement taking effect, because the first sentence indicates that the method by which this occurs is left to s 601GC of the Corporations Act (discussed below).

7. [15]

   Clause 22.1 of the Constitution provides that "[u]pon the expiration of the Term, which shall be determined pursuant to clause 2.1, the Responsible Entity shall cause the Trust to be wound up". The remaining provisions of cl 22 set out the procedure by which the winding up is to occur.

8. [16]

   In April 2011, unitholders voted to extend the term of the Trust for five years until January 2017 (reflecting the proviso to cl 2.1(d) of the Constitution).

9. [17]

   In November 2014, a notice of meeting and explanatory memorandum (2014 NOM) was issued to unitholders convening a meeting of unitholders of the Trust on 10 December 2014 for the purpose of voting on amendments to the Constitution which would have the effect, among other things, of extending the term of the Trust by a further five years until 31 January 2022, subject to any further extensions. The form of the proposed special resolution was as follows:

10. [18]

    On 11 December 2014 the First Supplemental Deed was executed by 360 Capital and a copy of it was lodged with ASIC on or about 17 December 2014. Recital D states that "[o]n 10 December 2014, the members of the Scheme approved a special resolution to modify the Constitution as set out in this Supplemental Deed". I infer both from the terms of the special resolution and recital D that an unsigned copy of the First Supplemental Deed was tabled at the meeting.

11. [19]

    Clause 3 of the First Supplemental Deed provides relevantly:

12. [20]

    However, cl 2.1(d), which provided that the aggregate of the term and any extension was not to exceed 15 years, was not modified or deleted.

13. [21]

    On 8 July 2016, a product disclosure statement produced by 360 Capital during the course of seeking to raise approximately $10m in capital repeatedly referred to the Trust expiring in January 2022 (unless extended by unitholders by a special resolution).

14. [22]

    In approximately November or December 2021, Mr Stuart Wilton, co-head of unlisted funds at Centuria, in conjunction with Centuria's management and compliance team, formed the view that it would be in the best interests of unitholders if the term of the Trust was further extended beyond 31 January 2022. Mr Wilton began preparations to call a meeting to further extend the term of the Trust, and also to offer an exit/matching facility to any unitholders who did not wish to continue their investment in the Trust.

15. [23]

    In December 2021 Centuria issued to unitholders a notice of meeting and explanatory memorandum (2022 NOM) for the purpose of convening a meeting of unitholders on 19 January 2022 to consider and vote on an “Extension Proposal”. The form of the proposed special resolution was as follows:

16. [24]

    The 2022 NOM set out the “key terms” of the "Extension Proposal" as follows:

17. [25]

    At the unitholders’ meeting on 19 January 2022, the special resolution was passed, with 97.18% of unitholders who voted on the resolution voting in favour.

18. [26]

    Subsequently the Second Supplemental Deed was executed by Centuria as a deed poll. It bears the date 19 January 2022, but appears not to have been executed until around 14 March 2022 and was not lodged with ASIC until 4 April 2022. Clause 2 provides that the Constitution is amended as set out in sch 1 to the deed. Schedule 1 includes the following amendments to cl 2.1(d):

19. [27]

    It may be noted that the Second Supplemental Deed did not amend cl 2.1(b) and the reason for this appears to be that the resolution passed at the meeting on 19 January 2022 had the effect of extending the term of the Trust under the amended cl 2.1(d) to 31 January 2027 through the operation of s 601GC(1)(a) of the Corporations Act subject to lodgment of a copy of the deed with ASIC in accordance with s 601GC(2).

20. [28]

    The failure to lodge the Second Supplemental Deed with ASIC until 4 April 2022 gave rise to a concern on the part of Centuria that the term of the Trust may have expired on 31 January 2022 and led it to bring this application.

Consideration

1. [29]

   Centuria seeks a declaration that, properly construed, the First Supplemental Deed extended the term of the Trust until 31 January 2022.

2. [30]

   Subsections 601GC(1) and (2) of the Corporations Act provide as follows:

3. [31]

   These provisions confer a power to amend the constitution of a registered managed investment scheme in two alternative ways. The first alternative under s 601GC(1)(a) is the one relevant to the First Supplemental Deed and makes a special resolution of the members of the scheme the means by which the Constitution may be modified, but the modification will not take effect until a copy of the modification is lodged with ASIC by virtue of s 601GC(2): see ING Funds Management Limited v Professional Association Superannuation Limited [2009] NSWSC 243; 228 FLR 444 (ING) at [54]–[60]. Section 601GC(2) does not prescribe the form in which the “copy of the modification” lodged with ASIC must take and that will depend on the circumstances of the case.

4. [32]

   In the present case, cl 21 of the Constitution sets out how the Constitution may be amended. Clause 21, which is set out earlier, provides that the Constitution may be modified “only in accordance with section 601GC of the Corporations Act”. It is apparent from the terms of the First Supplemental Deed and the special resolution passed at the unitholders’ meeting on 10 December 2014 that the modification was made relying on s 601GC(1)(a), i.e. it was the special resolution itself which modified the Constitution and the nature of the modification was set out in the form of the (unsigned) copy of the First Supplemental Deed tabled at the meeting. When a copy of the First Supplemental Deed was lodged with ASIC on 17 December 2014, that satisfied the requirement of s 601GC(2) as the First Supplemental Deed set out the modification to the Constitution made by the special resolution.

5. [33]

   It is clear from the terms of the special resolution (which states that the constitution is to be modified “as set out in the instrument tabled at the meeting … in accordance with the Explanatory Memorandum accompanying this Notice of Meeting”) and the terms of the 2014 NOM itself that the intention was that the term of the Trust was to be extended to 31 January 2022. While the form of the First Supplemental Deed (both as tabled at the meeting and subsequently executed) did not recognise that this required a consequential amendment to cl 2.1(d), that was an obvious mistake.

6. [34]

   As the chosen method of modifying the Constitution was by a special resolution which identified the modifications being made as those contained in an instrument tabled at the unitholders’ meeting (being the First Supplemental Deed), the issue which arises is the proper construction of the Constitution after those modifications were made to it by that instrument. The principles to be applied in determining that issue of construction are the same as for the construction of contracts: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [17], [53]-[55], [59]; [102]-[105].

7. [35]

   A court can correct a mistake in a contract by construction, rather than through the equitable remedy of rectification, where there is a clear mistake and it is clear what correction ought to be made to cure the mistake: Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; 9 BPR 17,521 at [34]-[37]. As Dixon CJ and Fullagar J said in Fitzgerald v Masters at 426:

8. [36]

   The existence of a clear mistake and relevant absurdity here is indicated by:

9. [37]

   Here the mistake is clear and the correction to be made to cure it is clear – cl 2.1(d) should be read as if the proviso commencing “but in no event” was omitted. Accordingly, I was satisfied that the declaration made in Order 1 was necessary and appropriate.

10. [38]

    Order 2 is made under s 1322(4)(d) to extend the period of time in which Centuria could execute and lodge a copy of the Second Supplemental Deed with ASIC pursuant to s 601GC(2) of the Corporations Act to 4 April 2022.

11. [39]

    It is apparent from the terms of the Second Supplemental Deed and the special resolution passed on 19 January 2022 that the modification to the Constitution recorded in the Second Supplemental Deed was made in reliance on s 601GC(2)(a) and consequently would not take effect until lodgment of a copy of the modification with ASIC by virtue of s 601GC(2): ING at [55]; Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; 52 ACSR 194 at [12]-[15]. In the present case, the requirement of s 601GC(2) would only be satisfied on lodgment of a copy of the Second Supplemental Deed with ASIC as that contains the relevant modification. That lodgment did not occur until 4 April 2022, which was after the term of the Trust would but for the modification have expired.

12. [40]

    Section 1322 of the Corporations Act provides relevantly as follows:

13. [41]

    This provision reflects a broad legislative policy that the Corporations Act should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements where such non‑compliance is the product of honest error or inadvertence and where the court can avoid its effects without prejudice to third parties or to the public interest in compliance with the law: Re Wave Capital [2003] FCA 969; 47 ACSR 418 at [29].

14. [42]

    Under s 1322(4)(d) the court can extend the period of time for doing any act in relation to a corporation. I note the following about the scope of the power:

15. [43]

    Applying the principles, stated in the previous paragraph, the court has power under s 1322(4)(d) to make the order sought. To the extent that the presence of inadvertence or honest error is a relevant consideration to the exercise of the power, I am satisfied on the evidence before the court that the failure to execute and lodge the Second Supplemental Deed prior to 31 January 2022 was caused by inadvertence or honest error and that no substantial injustice has been or is likely to be caused to any person if the order sought is made. To the contrary, the relief would give effect to the intention of unitholders as expressed in the special resolution passed on 19 January 2022 and if the order is not made, there will be a material adverse impact on the unitholders being the requirement to wind up the Trust.

16. [44]

    Section 1322(4) confers a power on the court to make any consequential or ancillary order that it sees fit and consistently with the purpose of the provision, the court also has jurisdiction to make consequential or ancillary orders under s 23 of the Supreme Court Act 1970 (NSW): AHEPA at [32].

17. [45]

    In AHEPA, the court made ancillary orders under s 1322(4) to give effect to resolutions passed by the members of an incorporated association to make amendments to its constitution which had not come into effect by reason of failure to lodge those resolutions with NSW Department of Fair Trading as required under provisions of the Associations Incorporation Act 1984 (NSW) and the Associations Incorporation Act 2009 (NSW) analogous to s 601GC(2) of the Corporations Act. The association had acted in accordance with amended provisions of the constitution since the resolutions were passed in 2005, 2007 and 2010. The ancillary orders made by the court were that acts, matters or things purporting to have been done by the plaintiff, or by persons acting on the plaintiff’s behalf, were not invalid by reason of the failure to lodge the resolutions in accordance with those Acts: AHEPA at [33].

18. [46]

    The declaration sought in this matter that Centuria has validly operated the Trust in accordance with the special resolution passed on 19 January 2022 reflects the outcome of Order 2 which has the effect that the Constitution was validly amended pursuant to s 601GC(1)(a) and s 601GC(2) of the Corporations Act.

19. [47]

    For the reasons given above, I am satisfied that no substantial injustice arises from the making of Order 3.