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Primary Securities Limited v Aurora Funds Management Limited [2020] NSWCA 230

Ben Katekar and Michael Bersten appeared for the respondent in the NSW Court of Appeal in the matter of Primary Securities Limited v Aurora Funds Management Limited [2020] NSWCA 230 in which the appeal was refused.  The Appeal concerned the requirements of the Corporations Act in respect of the giving of notice and for the explanatory memorandum for a meeting of unitholders of a managed investment fund in the financial services sector.

The judgment can be found here.

 

White JA (Bell P and Leeming JA agreeing) said, referring to Ben Katekar, at para 177:

The assurance of reputable and experienced counsel as to how the trial might have been differently conducted if the point sought to be taken on appeal had been raised below is not to be lightly set aside. I accept that the trial may have been conducted differently had the issue been raised below.

 

The Appeal concerned the requirements of the Corporations Act in respect of the giving of notice and for the explanatory memorandum for a meeting of unitholders of a managed investment fund in the financial services sector.

There were four issues on appeal:

(1) Was the notice calling the meeting invalid for failing to identify the members;

(2) Was the failure to give the required notice to 25 per cent of the members a substantive irregularity or procedural irregularity which caused substantial injustice;

(3) Should the primary judge have found that the notice of meeting and explanatory memorandum were not sent to the directors and to its auditor within 21 days of the meeting, and if so was a substantive irregularity, or, alternatively, a procedural irregularity that caused substantial injustice;

(4) Was the explanatory memorandum that accompanied the notice of meeting misleading and deceptive by not disclosing that certain members of the Fund, who between them held more than 20 per cent of the units, were acting together in a covert and concerted attempt to remove the respondent.

White JA (Bell P and Leeming JA agreeing) found that:

(1) For the notice to be valid, there must be disclosure of the members calling the meeting. Leave to amend the notice of appeal should not be given to the appellant to seek an order pursuant to s 1322(4) of the Corporations Act curing this irregularity as it would substantially widen the inquiry. It is reasonable to accept that the trial may have been run differently had such an order been sought below.

(2) The deliberate decision to call the meeting on the basis of an incomplete register did not prevent its being a procedural irregularity pursuant to s 1322(2). Unlike s 1322(4) which raises the question of whether the making of a validating order would cause substantial injustice, under s 1322(2) the question is whether the procedural irregularity has caused or may cause substantial injustice. Contrary to the primary judge, there was no substantial injustice caused by failing to provide proper notice. There was no evidence that a unitholder would have conducted themselves differently or that the respondent would have become aware of the meeting at an earlier stage had proper notice been given.

(3) The notices were sent to “the directors” collectively on that date to the respondent’s office which was the directors’ last known place of business. The notice was sent to the auditor at the same time.

A failure to give the requisite notice to the directors would be a procedural irregularity which would give rise to substantial injustice. However there was no irregularity in the giving of notice to the directors.

The notice to the auditor was wrongly addressed but there was no evidence that if notice had been properly given that any alternative action would have been taken by the auditor or that he would have informed the respondent’s managing director of the meeting earlier than when the director became aware of the calling of the meeting in any event.

(4) The evidence does not establish that the appellant knew or actually suspected that the undisclosed investors were acting in concert in a way inconsistent with the requirements of Ch 6 of the Corporations Act. In any event, the unitholders would not hold a reasonable expectation that the appellant would disclose a mere suspicion in the explanatory memorandum; particularly where that suspicion relates to alleged illegal behaviour. The explanatory memorandum was not misleading by omission.

 

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