The High Court has dismissed an appeal against the decision of the FCAFC in ASIC v Wellington Capital Ltd. Wellington sold a portion of a managed investment scheme to a listed company, ARL, in return for the entire issued share capital of ARL, which was then distributed in specie to unit holders of the fund in proportion to their holdings. ASIC contended that the fund’s constitution did not authorise Wellington to transfer its assets to unit holders, and sought declaratory and other relief. Clause 13 of the constitution outlined Wellington’s powers, including an authorisation to deal with the fund’s property as if it were the absolute and beneficial owner, rather than merely a trustee. Disagreeing with the primary judge and Wellington’s arguments, the FCAFC held that that authorisation did not extend to Wellington’s dealings with the unit holders, and holding that it did would violate the trust relationship between those parties. The FCAFC also rejected Wellington’s arguments that it held general company powers under s 124 of the Corporations Act 2001 (Cth) to distribute property among members (allegedly the unit holders). Finally, cl 13 could not be construed to confer a power on Wellington to make an in specie distribution. The FCAFC unanimously allowed ASIC’s appeal and granted the declaratory relief sought.

The Court unanimously dismissed Wellington’s appeal, though in doing so it differed from the FCAFC in construing Wellington’s powers. The joint judgment (French CJ, Kiefel and Bell JJ) held that while the FCAFC approached the construction of Wellington’s powers on the basis that they were constrained by its statutory capacity as trustee of the scheme property, the correct approach is to examine ‘the terms of the scheme constitution in light of such enhancements or constraints as are provided by statute and, subject to statute, the general law relating to trusts to the extent that it is applicable’ (at [32]). Here, the duties imposed on Wellington as a responsible entity of a registered scheme, and its statutory trustee duties, suggest that the relevant sub-clauses of cl 13 should be read as enabling provisions (at [35]):

A reading of cll 13.1 and 13.2.5, in the context of the Scheme Constitution as a whole, leads to the conclusion that they had nothing to do with the circumstances in which assets or capital forming part of the Scheme Property could be returned to unit holders. They were facultative. They equipped Wellington to deal with the Scheme Property, in accordance with its duties, in the interests of Scheme members … The conferral upon the responsible entity of power to act ‘as though’ it was the absolute owner of the property facilitated extramural dealings, which might have been by way of sale, purchase of property or investment of Scheme funds. It did not authorise the responsible entity to undertake intramural dealings involving non-consensual transfers of Scheme Property to unit holders.

Because other clauses in the Scheme Constitution only allowed for return of capital in cash (cl 16) or return of property following the winding up of the scheme (cl 26), the Scheme Constitution did not authorise Wellington’s in specie distribution of shares.

Gageler J also dismissed the appeal, and emphasised that the language of legal fiction —  ‘as if’ and ‘as though’ Wellington were the absolute and beneficial owner — was important for construction the power as broad, but only in relation to dealings with people other than the unit holders: ‘It makes no sense to refer to a trustee, when distributing trust property to a beneficiary, acting as though the trustee were the absolute owner of property and in a personal capacity, or as if the trustee were the absolute and beneficial owner. The hypothesis defining the scope of the power (that is, absolute and beneficial ownership) would be contradicted by the occasion for its exercise (that is, the existence of the trust relationship itself).’ (see at [50]–[54]).