Lewski v ASIC (No 2) [2017] FCAFC 171 - Analysis and Impact on Australian Corporations Law

Contents
Lewski v Australian Securities & Investments Commission (No 2) [2017] FCAFC 171............................2
Case introduction.....................................................................................................................................2
b. The duties/responsibilities breached (ex. CA sections 181 or 588G) Explain why the duties were
breached..................................................................................................................................................2
c. Discuss and critically ANALYSE the court/tribunal decision and the reason for the decision in view
of the Corporations..................................................................................................................................3
Decisions of the Court.........................................................................................................................3
Reasons for the decision......................................................................................................................3
d. Where possible and applicable, the relevance of the decision to the development of Australian
corporations law or the impact of the decision on the operation of companies in Australia....................6
Reference List.............................................................................................................................................7

Lewski v Australian Securities & Investments Commission (No 2) [2017] FCAFC 171
Case introduction
A Responsible Entity (RE) of a managed investment scheme (The fund - the Prime Retirement
and Aged Care Property Trust) was Australian Property Custodian Holdings Limited (APCHL).
The four directors of APCHL decided that the constitution of The Fund must be amended and the
decision is taken on 19th July 2006. By amending the constitution of The Fund, the directors of
APCHL decided that a substantial and new fees to be paid to APCHL in certain specified
conditions and events which also comprises of an event of listing of the fund on the ASX. (Jade
2018)
Later on 22nd August 2006, the directors of APCHL conducted a board meeting and they decided
that the amended constitution of the APCHL must be lodged to ASIC and the resolution is called
the lodgment resolution. The constitution was lodged to ASIC on 23rd August 2006. It is after the
lodgment of the constitution APCHL has listed the trust on the ASX and fees of listing @ $33
million was given to APCHL from The Fund. The fees were then given to the entities that were
linked with Mr Lewski (The director of APCHL).
On this account the ASIC has sued the directors of APCHL including Mr Lewski and four other
persons and initiated proceedings in 2012 in the Federal court.
Thus, it was contended by ASIC that there was violation of the statutory duties by the directors
of the APCHL. The duties were breached by the directors when the lodged the resolution related
to the amendment of the constitution, when they gave consent to the fees and thus must be
charged with civil penalties. It was also contended by ASIC that the directors of APCHL are also
involved in the violation of the prohibition on related party transactions.
Thus, after understanding the basic facts that resulted in the current proceedings, it is now
important to understand the duties that were expected to be breached by the directors of APCHL
and the reasons for the violation of the duties.
b. The duties/responsibilities breached (ex. CA sections 181 or 588G) Explain why the
duties were breached.
ASIC has submitted that after conserving the acts of the directors of APCHL, the main duties
and the reasons for their breach are:
i. Breach of section 601FD of the Corporation Act 2001 – It was contended by ASIC
that the conduct of the directors relating to the resolution to amend the constitution of
the APCHL and which took place on 22nd August 2006 is an act of the violation of
section Corporation Act 2001.
ii. Breach of section 208 of the Corporation Act 2001 – It was contended by ASIC that
the payment of the listing fees @ $33 million to APCHL from The Fund I the
violation of the section as the acts has contravened the rule relating to the ‘related
party transactions by the responsible entity’
iii. Breach of section 601FC of the Corporation Act 2001 - The section is also considered
to be breached when the decision of taken by the board for the payment of the listing
fees.

c. Discuss and critically ANALYSE the court/tribunal decision and the reason for the
decision in view of the Corporations
It is now important to understand the decision of the court before understanding the reasons for
such decision.
Decisions of the Court
It is ordered by the court that:
i. The court allowed the appeal and dismissed the cross appeal;
ii. The trial Judge orders on 2nd December 2014 in the proceedings VID 594 of 2012 are
set aside (ASIC v Australian Property Custodian Holdings
Limited (Receivers and Managers appointed) (in liquidation)
(Controllers appointed) [2014]. Thus, the claim of the plaintiff by the
originating process is dismissed;
iii. The costs of the defendants at the trial, proceeding are paid by the first respondent
including reserved costs;
iv. The costs of appeal and the cross appeals of the appellant is paid by the first and the
second respondents. The costs includes reserved costs and any other costs;
Now it is important to understand the reasons which has led the final decision of the court.
Reasons for the decision
By trial court
It was held by Murphy J that:
i. When the directors of APCHL approved the lodgment resolution then they are found
to be in contravention of their statutory duties under section 601FD(1)(b). The
directors have also violated the duty by not acting in the company’s best interest.
ii. The judge also held that there is contravention of section 208 of the Act as the
directors are involved in the violation by the Reliance Entity of the prohibition on
related party transactions. The Judge held that the amendments were not valid and
thus the exception under section 208 (3) is not applicable.
Aggrieved by the decision of the Trial court, an appeal is filed by ASIC.
On appeal the decision of the trial Judge was overturned by Greenwood, Middleton and Foster JJ
and thus dismissed the allegations of ASIC which are made against the directors of APCHL and
APCHL.
The Decision by the Federal Court