I.Chapter 8 – Conclusions
II.Introduction
III.the key issues and problems identified
IV.Implications for State and Territory body corporates
V.Relevance of ratification to a responsible entity for a managed investment scheme
Managed investment schemes were first regulated by the Commonwealth from 1 July 1998 following the enactment of the Managed Investments Act 1998 (Cth) which amended the former Corporations Law. Generally, managed investment schemes were established as unit trusts, however the definition of ‘managed investment scheme’[1] does not restrict the structure which may be employed to allow people to contribute to the scheme. Some entities however are specifically exempted from the definition.
There is limited authority on the point, however pursuant to section 601FD(1) of the Corporations Act, it appears that officers of responsible entities of a registered managed investment scheme are subject to fiduciary duties by reason that the duties established by section 601FD(1) are in addition to the statutory duties imposed on officers of a company.[2]
These duties are owed to the members of the registered managed investment scheme.[3] Such a conclusion follows from at least the following two points:
(i)a comparison of the relevant sections imposing the duties. Section 181(1)(a) of the Corporations Act which requires ‘a director or other officer of a corporation must exercise their powers and discharge their duties in good faith in the best interests of the corporation’ and section 601FD(1)(c) of the Corporations Actwhich states that ‘an officer of the responsible entity of a registered scheme must act in the best interests of the members and, if there is a conflict between the members' interests and the interests of the responsible entity, give priority to the members' interests.’; and
(ii)section 601FC(2) establishes that ‘[t]he responsible entity holds scheme property on trust for scheme members.’. It is trite law that trustees owe fiduciary duties to each beneficiaries of the trust.[4]
Since the duties are owed by a trustee to the members who are the beneficiary of the trust, it was suggested in Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3)[5] that the duties may be more demanding.[6] The duties established by section 601FD(1) do not mirror the duties established by Chapter 2D.1, rather the duties expand the duties imposed upon the officers of the responsible entity of a registered managed investment scheme.
On the basis of the decision in Angas Law Services Pty Ltd (in liq) v Carabelas,[7] and for the reasons described earlier in Section H, it will not be possible for the members of the managed investment scheme to ratify a breach of fiduciary or statutory duties by the officers of the responsible entity principally because the duties are owed to the members and not to the company.
VI.Relevance of ratification to body corporates
In Section III of this Chapter above, the relevance of ratification to bodies corporate incorporated under the Corporations Act was considered. There are however a multitude of statutory schemes enacted by State and Territory parliaments under which bodies corporate may be incorporated. Such bodies corporate include:
(i)incorporated associations; and
(ii)strata companies.
Whether any officer’s duties:
(i)have been codified,
(ii)are criminal offences, and
(iii)cover some or all of the fiduciary duties of the officers
depends upon the proper construction of the specific statutory scheme. Further, an incorporated body’s constitution may modify the fiduciary duties owed by the officers at common law.[8] The statutory scheme may also require that the members of the body corporate in general meeting approve a ratification resolution.[9]
In relation to legislation permitting the incorporation of associations, each State and Territory has enacted legislation which have at least partially codified the duties of officers, thus there remains some reliance on the general law duties.[10] To the extent that officers’ duties are covered by the general law, Foss v Harbottle[11] continues to apply. In relation to strata titles legislation, this situation is the case under the Strata Titles Act 1985 (WA) andStrata Schemes Management Act 1996 (NSW).
In connection with State and Territory legislation, the States and Territories may pursuant to section 5F(1) of the Corporations Act declare that none of the Corporations Act provisions apply to anylegislation. This would relevantly include the operation of the statutory derivative action under section 236 of the Corporations Act.[12]
In the case of the Associations Incorporations Act 1985 (WA), there are no limits on exemptions and indemnities as there are pursuant to section 199A of the Corporations Act. Accordingly, an incorporated association may adopt a constitution which discharges the committee members from liability for breaches of their duties to the association and/or indemnify the committee members against liability to third parties.[13] It does not however appear possible for committee members to rely on the protection of the Volunteers (Protection from Liability) Act 2002 (WA) since pursuant to section 6, a lack of good faith is not protected.[14]
The type of ratification which is approved by the members of the body corporate will give rise to different effects such as exoneration, affirmation, promise not to sue and release (as previously considered in Chapter 2). The weight of authority indicates that a resolution which exonerates an officer will retrospectively extinguish any cause of action in respect of the breach of fiduciary duty.
In relation to body corporates which have been incorporated under State or Territory legislation, subject to the statutory scheme, a ratification resolution will therefore be relevant to:
(i)whether the body corporate is bound by the act of the director; and
(ii)the extent of the ratification applicable to an officer and therefore what rights may the body corporate and minority of members have in the circumstances.
VII.Conclusion
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[1]Corporations Act 2001 (Cth) s 9 definition (‘managed investment scheme’).
[2]Corporations Act 2001 (Cth) s 601FD(2). A duty of an officer of the responsible entity under subsection 601FD(1) overrides any conflicting duty the officer has under Part 2D.1 of the Corporations Act 2001. See also section 601FC(3) which establishes that ‘[a] duty of the responsible entity under subsection (1) or (2) overrides any conflicting duty an officer or employee of the responsible entity has under Part 2D.1’. See Alpha Wealth Financial Services Pty Ltd and Ors v Frankland River Olive Company Ltd [2005] WASC 189 at [33] Hasluck J described the duties imposed by s 601FD(1) as “essentially fiduciary”. See also Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342.
[3] See Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342. Section 601FD(1)(c) states that an officer of the responsible entity of a registered scheme must act in the best interests of the members and, if there is a conflict between the members' interests and the interests of the responsible entity, give priority to the members' interests.
[4]See generally De Bussche v Alt (1878) 8 Ch D 286; Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319. See also Halsbury’s Laws of Australia [430-5510] Consent or concurrence in a breach of trust.
[5] [2013] FCA 1342
[6]Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA at [524] per Murphy J.
[7] [2005] HCA 23.
[8]Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.
[9]See eg. The Owners - Strata Plan No. 2187 v Astoria Asset Management Ltd [2011] NSWDC 259
[10]See generally C Parkinson, Duties of committee members under the Associations Incorporation Acts (2004) Vol 30 No 1, Monash University Law Review.
[11](1843) 2 Hare 461.
[12] See especially Eastmark Holdings Pty Limited v Kabraji [2012] NSWSC 802 in relation to litigation concerning a strata company incorporated under the Strata Schemes Management Act 1996 (NSW).
[13]See generally L Warnick, Incorporated Associations: Liability of Board/Committee Memebrs, 1 Jne 2005,
[14]L Warnick, Incorporated Associations: Liability of Board/Committee Memebrs, 1 Jne 2005,