Full Federal Court overturns ASIC's win

15 August 2016

In its decision handed down on 14 July 2016, the Full Federal Court has allowed appeals by five former directors of Australian Property Custodian Holdings Limited (APCHL), against findings at first instance that they had breached their statutory duties to members of Prime Retirement and Aged Care Property Trust (Prime Trust), a managed investment scheme run by APCHL.

ASIC’s case was that the directors had breached their statutory duties under s601FD when they decided to amend Prime Trust’s constitution to make provision for the payment of a listing fee of $33 million to APCHL in its personal capacity, in the event of the trust listing on the ASX.  The decision to amend the constitution was made at a board meeting on 16 July 2006. ASIC, having commenced its action in August 2012, alleged that the directors’ statutory duties were such that they should have revisited that decision at a subsequent board meeting on 22 August 2006.

The main controversy on appeal was whether or not the directors, who on their own evidence had made the decision to amend the constitution at the July 2006 meeting, breached their statutory duties at the August 2006 meeting, having regard to the surrounding facts.

In a reversal of ASIC’s success at first instance, the Full Court held that ASIC was statute-barred in the most significant part of its claim, as the August 2006 board meeting was not the effective decision, it was at the previous meeting.


ASIC commenced litigation alleging breaches of the Corporations Act 2001 (Cth) (Act).  ASIC took issue with APCHL’s board’s decision to amend the Prime Trust constitution, the effect of which was that a listing fee would be payable to interests associated with the CEO, Mr William Lewski, upon Prime Trust listing.  As Mr Lewski controlled APCHL, he stood to benefit.

The first instance decision

In proceedings commenced on 21 August 2012, ASIC alleged that the directors breached their s601FD duties under the Act in connection with three issues:

  • August 2006 – the board’s decision to lodge an amended Prime Trust constitution, which permitted payment of a listing fee (Lodgement Resolution);
  • 2007 – whether the decision to pay the listing fee to APCHL breached s208 of the Act, concerning related party transactions;
  • 2008 – the payment of the listing fee.

A critical aspect of ASIC’s case was the alleged breach of duties at the 22 August 2006 board meeting, in circumstances where the 19 July 2006 board meeting saw the directors vote to amend the constitution.  ASIC alleged that whilst the decision to amend was made at the July 2006 meeting, the decision was not complete until the 18 August 2006 meeting.  Justice Murphy agreed.  ASIC had not been able to rely just on the events at the 19 July meeting because allegations about alleged breaches arising at that meeting were statute barred by s1317K of the Act.

The Judge at first instance imposed fines and banned the directors from managing corporations.

The directors appealed, and ASIC cross-appealed on penalties.

The decision on appeal

In allowing the directors’ appeals, the Full Court held that the decision to amend the constitution was made in July 2006, and there was no basis on the claim as pleaded for finding that the directors should have revisited that decision in the August 2006 meeting.

Their Honours considered ASIC’s pleading in some detail, for example noting that allegations pertained to the directors’ vote about the Lodgement Resolution and whether breaches of the Act transpired, but that there was “no allegation of an improper continuing course of conduct, or that the Directors were required to reconsider the decisions made prior to the Lodgement Resolution, or that any of the Directors knew or should have known that they had acted improperly prior to the relevant conduct directly complained of by ASIC”.1

In their defences, the directors had argued that the decision to amend was made at the July 2006 board meeting, and that the August 2006 meeting was purely administrative. Accordingly, their conduct in paying out the listing fee followed as a matter of course.  In effect, the Full Court agreed with this characterisation.  Interestingly, the Full Court did however note that:

Section 1317K would not prevent reliance on conduct occurring prior to the six year period, either to put in context a later contravention amenable to the making of a declaration, or a continuing course of conduct which continued within the period of six years prior to the commencement of the proceedings for a declaration of contravention under s1317J.2

The trial judge had decided that the execution of the amended deed of variation of the constitution was not binding as at 19 July 2006 and that in effect there was something more than administrative work done at the 22 August 2006 board meeting.  However, as the directors had executed the amended deed on 19 July 2006, there was nothing further for them to do, save to ensure its lodgement.

The matters for consideration on 22 August 2006 were matters of an administrative nature dealing with the formal requirements necessary for lodgement of the Amended Constitution with ASIC.  There was nothing that relevantly occurred between 19 July 2006 and 22 August 2006 that suggested any reconsideration by any of the Directors of the decisions made by the Board on 19 July 2006 was necessary.  No further reflection by any of the Directors was required on 22 August 2006 as to the appropriateness or otherwise of the decisions made on 19 July 2006.”3

The Full Court also made a critical finding with respect to voting at the August meeting.  One of the directors, Mr Peter Clarke, had denied ASIC’s claim that he voted for or agreed with the Lodgement Resolution. That meeting had been his first as director and in his defence he gave evidence that he neither voted in favour nor assented. Where he had given evidence that he had said nothing at that time, which was accepted by the Judge, and there was no evidence to contradict him, then there was no basis to conclude that his conduct was equal to a vote in favour.

In reviewing the statutory obligations imposed on the directors, the Full Court turned to consider the position as at 22 August 2006 and noted that as there was nothing in the pleadings about events pre-dating the August meeting, stated that “The approach to take in considering the contraventions as alleged by ASIC is not the approach taken by the trial judge.  The proper approach is to characterise the events that occurred at the meeting on 22 August 2006, and to consider the circumstances facing each of the directors at the time”4, and “The importance of failing to distinguish the purpose of the two meetings led the trial judge into error by failing to consider each breach alleged in proper context.”5

This is an interesting contrast to the tenor of Justice Murphy’s reasoning, where the statutory obligations on directors imposed on them a duty to consider members’ interests and avoid conflicts which in certain circumstances would cause them to reflect and reconsider earlier decisions, and relevantly such circumstances existed.


Overall, and having regard to ASIC’s allegations and the first instance reasons, the decision is an important reminder of the duties of and obligations on directors.  It is also a salient reminder of the effect of statutory limitations periods and whether there is ever any possibility of relying on prior, statute-barred, conduct to ground the alleged breach.

It is not presently known whether ASIC will seek leave to appeal.  Pending any appeal, ASIC is liable to the directors for their costs.  In the meantime, there are a number of other proceedings on foot arising out of the collapse of Prime Trust, and at least one other concerns the impugned listing fee payment, but as it was commenced earlier in 2012, the events of the July 2006 meeting would appear to remain open to examination.


This Full Court decision is another setback for ASIC in some of the cases ASIC has pursued in connection with directors’ statutory duties.

In June last year ASIC lost its civil penalty proceedings against three directors of Mariner Corporation Limited for alleged breach of s180 of the Act concerning a takeover announcement by Mariner Corporation Limited and whether the company had or would be able to obtain the resources to make the bid.  The Judge found for the directors.  Amongst other things the directors were satisfied the elements of the business judgment rule defence (s180(2)) (and also s189 – reliance on others).  ASIC faced significant adverse costs orders as each director was separately represented.

In a very recent matter involving some MFS executives, ASIC did succeed in establishing that five former officers of a managed investment scheme, MFS Investment Management, had dishonestly breached their duties under the Act, as they were involved in that entity using investors’ funds improperly to prop up other parts of the MFS group business and repay its debts.6

These types of cases demonstrate that ASIC has a continuing appetite to test aspects of the Act.  Even where unsuccessful, as was this case in this appeal by the APCHL directors, the actions of ASIC serve as important reminders to directors of their statutory duties to investors, companies and shareholders, amongst others.

This article was written by Ailbhe Kirrane, Partner and Jonathan Tapp, Partner.

1Lewski v Australian Securities & Investments Commission [2016] FCAFC 96 at [53]
2Ibid at [111]
3Ibid at [181]
4Ibid at [259]
5Ibid at [294]
6Australian Securities & Investments Commission  v Managed Investments Ltd and Ors (No 9) [2016] QSC 109

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us