Re Co-Operative Building Society of South Australia Limited v Australian Securities Commission [1993] FCA 55; (1993) 11 ACLC 262 (1993) 10 ACSR 89 (1993) 113 ALR 244 (25 February 1993)

FEDERAL COURT OF AUSTRALIA

Re: CO-OPERATIVE BUILDING SOCIETY OF SOUTH AUSTRALIA LIMITED
And: AUSTRALIAN SECURITIES COMMISSION
No. S G3062 of 1992
FED No. 74
Number of pages - 25
Corporations
[1993] FCA 55; (1993) 11 ACLC 262
(1993) 10 ACSR 89
(1993) 113 ALR 244

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

CATCHWORDS

Corporations - Companies - Company Finance - Interests other than shares or debentures - Offer of "prescribed interest" - Interest of purchaser of stratum fee simple title to an apartment in residential accommodation business to which all the strata estates in the building are committed - Whether the interest is "in a trust or proposed trust".

The Corporations Law - s.9

The Corporation Regulations - Reg. 7.12.04.(c)

HEARING

MELBOURNE, 4 and 5 February 1993
25:2:1993

Counsel for the Applicant : Mr. B.T. Lander QC and

Mr. R. Walsh

Solicitors for the Applicant : Piper Alderman

Counsel for the Respondent : Mrs. C.M. Bronson QC and
Mr. P. Dugan

Solicitors for the Respondent : Regional General Counsel
for the Australian
Securities Commission

ORDER

The Court orders that:

Further consideration of the proceeding on the originating

application and the cross-claim be adjourned to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

JENKINSON J. Trial of a proceeding and a cross-claim intended to elicit a judicial determination whether invitations issued to the public by the applicant and others to buy residential apartments on certain terms constituted invitations to buy any "prescribed interest", within the meaning of that expression in the Corporations Law.

2. The applicant succeeded on 1 January 1992 to all the property, and to all the liabilities, of the Hindmarsh Adelaide Building Society, in consequence of an amalgamation of the latter society and another such a society under s.21 of the Building Societies Act 1975 (SA). In 1989 the Hindmarsh Adelaide Building Society ("Hindmarsh") had entered into a joint venture with another company for the development of apartment buildings in Hindley Street Adelaide. Later a different company, I.Q. Westend Pty. Ltd., took the place of the first joint venturer with Hindmarsh. The apartment buildings were constructed on land of which Hindmarsh was registered proprietor of the fee simple estate. In 1990 or 1991 Hindmarsh made an agreement under seal with I.Q. Westend Pty. Ltd. ("I.Q."), Park Apartments Management Pty. Ltd. ("Park"), Westend Apartments Management Pty. Ltd. ("Westend") and another company which, having later withdrawn from participation in what the deed contemplated, may be ignored for present purposes. The deed recites, inter alia, that the two joint venturers are developing the land by constructing thereon -

"(a) At ground level, retail shop areas fronting Hindley Street
(hereinafter called 'the Retail Units') and a carpark for
approximately 144 cars behind the Retail Units (hereinafter
called 'the Carpark Areas');
(b) At first level, a concrete landscaped podium above the Retail
Units and carpark; and
(c) On the podium level, 4 separate blocks of residential apartments
(each block comprising 36 apartments) (hereinafter called
'Residential Units'),
for the purposes of selling, as strata titled units, fully furnished
Residential Units with carparking subsidiaries and the Retail Units
(hereinafter called 'the Development')."

It is further recited that the joint venturers have resolved to enable "the use and operation of the Residential Units and other parts of the Development as a serviced apartment accommodation complex", that Westend shall be constituted trustee of a unit trust and shall act as "Manager for the letting of the Residential Units and as the Caretaker/Manager of the Common Property and other property of the Strata Corporation". The Strata Titles Act 1988 (SA) required that there be a strata corporation in respect of each strata plan. The parties to the deed other than Westend were to be the shareholders of Westend and the beneficiaries of the unit trust. It was a term of the deed (wherein Westend is called "the Company") that "the sole object of the Company shall be to act as Trustee of the Unit Trust and in such capacity its sole object shall be to act as manager of the Residential Units and the Carparks and the letting thereof (including but not limited to serviced apartments) and as manager and caretaker of the Common Property". While the buildings were being constructed, in 1989, 1990 and 1991, and thereafter offers were made to the public to sell fee simple estates under the Strata Titles Act 1988 in the residential apartments. The contract of sale which was offered provided for a monetary consideration as the price of the fee simple estate and fixtures and chattels in the apartment, and it included other, special conditions. The purchaser is bound by one such a condition to accept and execute, on or before completion of the contract of sale, an assignment by the vendor (until 1 January 1992 Hindmarsh and thereafter the applicant) of an agreement made between the vendor and Westend (which agreement is called, in the contract of sale and in the deed to which I have previously referred, "the Management and Letting Agreement"), in accordance with provisions, and in terms specified, in the deed. The Management and Letting Agreement, the form of which is annexed to the contract of sale, effects the appointment of Westend, by the vendor as owner, "in all things as the letting agent and manager of the Owner's Unit and operator of the Business" for a term of ten years from 6 May 1991, and confers on Westend options to extend the term for two successive periods of ten years. The expression "the Business" in the Management and Letting Agreement is defined to mean "the operation of the Common Property, the Residential Units and the Carpark Areas as a residential accommodation complex (including but not limited to the operation of such complex as a serviced apartments complex) pursuant to this Agreement and the Other Agreements". The expression "Other Agreements" is defined to mean "agreements between the Manager and each of the other Owners upon the same terms and conditions as this Agreement in respect of the other Residential Units". The form of the deed of assignment is annexed to the contract of sale. The form provides for Westend's execution as a party to the deed of assignment and includes a covenant by the purchaser to observe and perform all the obligations imposed on the vendor by the Management and Letting Agreement. The latter agreement expresses the following recitals:

"WHEREAS:-
A. The Owner is registered as proprietor of Unit No. in Strata
Plan No. being a Residential Unit in the property known as West
End Apartments which Unit comprises a carpark unit subsidiary and
is fully furnished and fitted out for letting purposes and
includes the chattels listed in Schedule 1 hereto (hereinafter
called 'the Owner's Unit').
B. The Owner wishes to provide for the letting of the Owner's Unit in
conjunction with the letting of all other Residential Units on the
Site principally as serviced apartments together with the
caretaking and management of the Common Property.
C. The Manager has the expertise to manage the letting of the
Residential Units as serviced apartments and in caretaking,
management and regulation of Common Property.
D. The Owner and the Manager have agreed on the performance of
certain duties by the Manager and the granting to the Manager of
certain rights and privileges as Manager of the West End
Apartments."

The Management and Letting Agreement confers on Westend "full free and unfettered control of the Owner's Unit and the terms of letting the Owner's Unit". The owner is by the terms of that Agreement obliged to forgo "any right or entitlement to occupy the Owner's Unit other than upon the same terms as the manager lets the Owner's Unit in the ordinary course of business". Westend is obliged to "(l)et the Residential Units at the best rates reasonably available". The owner is obliged to pay municipal rates, land tax, water supply rates and "all contributions and levies by the Strata Corporation in respect of the Unit", and to "do all things necessary as a member of the Strata Corporation to ensure that the ..... rights of the Manager under the Management/Caretaking Agreement", between the Strata Corporation and the Manager, "continue and that the Manager has unfettered use of the Common Property as is necessary to carry on the letting and management of the Owner's Unit and operate on (sic) the Business". Clause 3 of the Management and Letting Agreement provides:

"3. NO RIGHT TO SEPARATE ACCOUNTING
3.01 The Manager warrants and the Owner acknowledges that the
Manager has entered into the Other Agreements with the Other
Owners on the same terms as herewith.
3.02 The Owner acknowledges and agrees that the Manager shall not be
responsible to maintain a separate accounting for the Owner of
income and expenses pertaining the Owner's Units or to the
Business but that rather the Manager shall and is hereby
authorised to:-
(a) to (sic) co-mingle income received by the Manager in
respect of the Owner's Unit with both income received by
the Manager in respect of all other Residential Units
owned by the Other Owners and any other income received
generally from the Business, and
(b) to (sic) co-mingle expenses incurred by the Manager in
respect of the Owner's Unit with both expenses incurred
by the Manager pursuant hereto in respect of all other
Residential Units owned by the Other Owners and any
other expenses incurred generally in the operation of
the Business.
3.03 The Owner acknowledges and agrees that:-
(a) the Owner is entitled to share in the Gross Revenue in
the amount equal to the owner's proportion thereof; and
(b) the Owner is obliged to contribute to the Operating
Expenses, the Management Fee, the Management Incentive
Fee and the Repair and Replacement Fund in the amount
equal to the Owner's proportion thereof."

The expression "Owner's Proportion" is defined to mean "the proportion that each Owner's Unit Entitlement bears to the sum of Unit Entitlements of all the Residential Unit Holders". "Unit Holder" means the person registered as proprietor of the fee simple estate, or of the life estate if there be one, in a Unit, and "Unit Entitlement" means "the number so assigned to a Unit as specified in the Strata Plan in pursuance of Section 6 of the Strata Titles Act 1988". Sub-section 6(1) of that Act provides:

"The unit entitlement of a unit is a number assigned to the unit that
bears in relation to the aggregate unit entitlements of all of the units
defined on the relevant strata plan (within a tolerance of plus or
minus 10 per cent) the same proportion that the capital value
of the unit bears to the aggregate capital value of all of the units."

Clause 5 provides:

"5. RECEIPT OF REVENUE
5.01 The Manager shall receive the Gross Revenue as trustee for and
on behalf of the Owner and the Other Owners, who shall
(subject to the right of the Manager to pay therefrom the
Operating Expenses, the Management Fee and the Management
Incentive Fee) have beneficial ownership of the Gross Revenue
in their respective Owner's Proportions.
5.02 The Manager shall open a bank account in the name of the
Manager and styled 'Management Account' (herein referred to as
'Management Account') and shall therein bank all monies
received on account of the Gross Revenue.
5.03 As trustee for and on behalf of the Owner and the Other
Owners, the Manager is hereby authorised and requested by the
Owner to invest any funds standing to the credit of the
Management Account at any time for a term not exceeding ninety
(90) days in the following:-
- interest bearing deposits with any bank, building
society, merchant bank or cash management trust;
- any authorised interest bearing trustee investment;
and any interest earned through such investment shall be and
form part of the Gross Revenue of the Business.
5.04 In each Operating Year, the Owner shall be entitled to and
shall be paid by the Manager an amount equal to the Owner's
Proportion of the Gross Revenue for the relevant Operating
Year less the aggregate of the Owner's Proportion for the same
Operating Year of:-
(a) the Operating Expenses, and
(b) the Management Fee, and
(c) the Management Incentive Fee, and
(d) the contributions to the Repair and Replacement Fund
under Clause 7.02 hereof.
5.05 The Manager shall account to the Owner in respect of the
monies due the Owner under this Clause 5 in the manner set out
in Clause 6 and shall pay the Owner monies due to the Owner
under this Clause 5 at the times and in the manner set out in
Clause 6 hereof.
5.06 The Owner's Proportion of Gross Revenue shall be deemed to
accrue from day to day and shall be calculated in respect of
and adjusted so that it applies to an Operating Year or other
period in relation to which a calculation is being made.
5.07 Any credit balance remaining in the Management Account on the
expiration or earlier determination of the Term shall be paid
to the Owner in the Owner's proportion after payment or
allowance for Operating Expenses, Management Fees and
Management Incentive Fees."

The expressions "Operating Expenses", "Management Fee" and "Management Incentive Fee" are given precise definition by several provisions of the Letting and Management Agreement. The Repair and Replacement Fund is constituted by annual deduction from gross revenue of a specified percentage thereof. Clause 7.03 provides:

"The monies standing to the credit of the Repair and Replacement Account
from time to time shall be known as the Repair and Replacement Fund and
shall be held by the Manager as trustee for and on behalf of the Owner
and the Other Owners who shall have (subject to the right of the Manager
to use the Repair and Replacement Fund in pursuance of its rights in
Clause 7.05 hereof) the beneficial ownership of the Repair and
Replacement Fund in their respective Owner's Proportions."

Clause 7.05 provides:

"The Repair and Replacement Fund shall be used by the Manager in its sole
discretion for the purposes (whether under this Agreement, the Other
Agreements or the Management/Caretaking Agreement) of all or any major
and substantial repairs, replacements, redecoration, alteration or
improvement in or to the Common Property, the Residential Units, any
item of Owner's fitout, Furniture and chattels or Operating Equipment,
including but without limiting, heating, lighting, sanitary equipment,
air-conditioning, laundry, refrigerating equipment, lifts, carpark,
basement areas, lounges and accommodation and all other areas occupied
by licensees and lessees which shall be required at any time during the
term of this Agreement to maintain the Site and the Owner's fit out,
furniture and chattels and the Operating Equipment therein in good
operating condition or by reason of any laws, ordinances, rules or
regulations now or hereafter in force, or by order of any governmental
or municipal power, department, agency, authority or officer, or
otherwise."

The Management and Letting Agreement contains a covenant by the owner of the residential unit to procure from any person to whom he sells or otherwise disposes of his interest in the unit a covenant that the transferee will be bound by all the owner's covenants contained in the Management and Letting agreement and will himself procure like covenants from any person to whom the purchaser in turn sells.

3. Another special condition of the contract of sale of a strata unit provides for the procurement by the vendor of a guarantee by a wholly owned subsidiary of the vendor that from the completion of the sale the annual return of income from the unit will equal 7 per centum per annum on the purchase price of the unit for 5 years.

4. Not all the 144 units have been sold. Advertising of the units for sale continued until shortly before this proceeding was instituted in December 1992. The applicant is not a "public corporation" within the meaning of that expression in the Corporations Law, nor has any prospectus been lodged in relation to what has been advertised for sale. The respondent alleges that what are being offered for purchase are, or include, "prescribed interests", within the meaning of that expression in the Corporations Law, and therefore "securities" within the meaning of that Law. The applicant accepts that what is being offered includes that which would be a "prescribed interest" but for the circumstance that the interest is included in a class of interests declared by the Corporations Regulations to be exempt interests. The expression "prescribed interest" is defined by s.9 of the Corporations Law to mean:

"(a) a participation interest; or
(b) a right, whether enforceable or not, whether actual, prospective
or contingent and whether or not evidenced by a formal document,
to participate in a time-sharing scheme;

but does not include:

(c) a right or interest, or a right or interest included in a class
or kind of rights or interests, declared by the regulations to be
an exempt right or interest or a class or kind of exempt rights
or interests, for the purposes of Chapter 7; or
(d) an exempt prescribed interest in relation to this jurisdiction
(as defined by section 68A);"

It was not suggested that paragraph (d) of the definition applied in this case. The expression "participation interest" is defined by s.9 to mean:

"any right to participate, or any interest:
(a) in any profits, assets or realisation of any financial or
business undertaking or scheme whether in Australia or elsewhere;
(b) in any common enterprise, whether in Australia or elsewhere, in
relation to which the holder of the right or interest is led to
expect profits, rent or interest from the efforts of the promoter
of the enterprise or a third party; or
(c) in any investment contract;
whether or not the right or interest is enforceable, whether the right
or interest is actual, prospective or contingent, whether or not the
right or interest is evidenced by a formal document and whether or not
the right or interest relates to a physical asset, but does not include:
(d) such a right that is a right to participate in a time-sharing
scheme;
(e) any share in, unit of share in, or debenture of, a body
corporate;
(f) any interest in, or arising out of, a policy of life insurance;
(g) an interest in a partnership agreement, unless the agreement or
proposed agreement:
(i) relates to an undertaking, scheme, enterprise or
investment contract promoted by or on behalf of a person
whose ordinary business is or includes the promotion of
similar undertakings, schemes, enterprises or investment
contracts, whether or not that person is, or is to
become, a party to the agreement or proposed agreement;
or
(ii) subject to section 85, is or would be an agreement, or is
or would be within a class of agreements, prescribed by
the regulations for the purposes of this paragraph;
(h) a cheque, order for the payment of money, bill of exchange or
promissory note;
(j) a document issued or executed by an Australian bank in the
ordinary course of its banking business, being a document that
evidences or acknowledges indebtedness of the bank arising in the
ordinary course of that business; or
(k) a document that is not a debenture by virtue of paragraph (a) or
(f) of the definition of 'debenture' in this section;"

The expression "investment contract" is defined to mean "any contract, scheme or arrangement that, in substance and irrespective of its form, involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, that, under, or in accordance with, the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in, or right in respect of, property, whether in this jurisdiction or elsewhere, acquired in or under like circumstances". Regulation 7.12.04 of the Corporations Regulations includes the following provision:

"For the purposes of the definition of 'prescribed interest' in section
9 of the Corporations Law, the following rights or interests are
declared to be exempt rights or interests for the purposes of Chapter 7
of the Law:
...............................................
(c) rights or interests in a trust or proposed trust, unless:
(i) the trust deed or proposed trust deed relates to a
scheme promoted by or on behalf of a person, or an
associate of a person, whose ordinary business is or
includes the promotion of similar schemes, whether or
not that person is, or is to become, a party to that
deed or a beneficiary of that trust; or
(ii) those rights or interests are rights or interests in a
superannuation fund; or
(iii) except in the case of a trust that existed when this
provision commences, the deed of the trust or proposed
trust provides or will provide for more than 15
beneficiaries."

Regulation 7.12.01 provides that the word "'scheme', in relation to prescribed interests, means an arrangement, common enterprise, financial or business undertaking, investment contract or scheme". The applicant contends, but the respondent denies, that the only "prescribed interest" being offered is the interest of the owner of a strata unit in the trust constituted by Clause 5 of the Management and Letting Agreement.

5. The provisions of the Companies Act 1961 (NSW) which were under consideration in Australian Softwood Forests Pty. Ltd. v. Attorney-General for New South Wales [1981] HCA 49; (1981) 148 CLR 121 are for present purposes so nearly the same as the provisions of the Corporations Law that certain observations of Mason J. in that case may be taken to be applicable to those latter provisions. Mason J. said (148 CLR at 129, 133):

"Paragraph (a) of the Definition of 'Interest'.
In attempting to apply the statutory definition of "interest" to the
transactions already outlined, we must ask ourselves, first, whether
there is a 'financial or business undertaking or scheme' and, secondly,
what are its elements. We begin with the circumstance that the words in
question are of very wide import. For example, all that the word
"scheme" requires is that there should be 'some programme, or plan of
action' (Clowes v. Federal Commissioner of Taxation [1954] HCA 10; (1954) 91 CLR
209, at p 225). The next step is that, in contradistinction to s.26 (a)
of the Income Tax Assessment Act 1936, as amended, which, as Clowes
shows, is directed to a profit-making undertaking or scheme carried on
by the taxpayer, the statutory definition is not concerned with the
identity of the person or persons who carry it on. It is not material
that the person who offers the "interests" to the public does not
himself carry on the undertaking or scheme. Nor does it matter that by
subscribing for an interest a member of the public will constitute
himself as one who is engaged in carrying on the enterprise.
Nor again does it matter that the subscriber by accepting the offer
constitutes himself as one who executes some elements of the scheme and
derives from so doing a financial advantage which is not earned by other
participants whose activities relate to other elements in the scheme.
It is not an objection to an enterprise qualifying as an undertaking or
scheme that it consists of a number of parts or elements, the
participation of individual parties being limited to one of these parts
or elements, their profit or remuneration being derived from the
particular activities in which they engage. There is nothing in the
notion of an undertaking or scheme that requires or implies that there
is joint participation in everything comprised in the plan or that there
must be a share or pooling of profits or receipts.
...............................................
Paragraph (b) of the Definition of 'Interest'
Although, in the light of the conclusion I have reached in connexion
with par. (a), it is unnecessary for me to examine this question, I do
so because it was fully argued. The argument is that in order to
constitute a "common enterprise" there must be a joint participation in
all the elements and activities that constitute the enterprise. I do
not agree. An enterprise may be described as common if it consists of
two or more closely connected operations on the footing that one part is
to be carried out by A and the other by B, each deriving a separate
profit from what he does, even though there is no pooling or sharing of
receipts of profits. It will be enough that the two operations
constituting the enterprise contribute to the overall purpose that
unites them. There is then an enterprise common to both participants
and, accordingly, a common enterprise."

6. In this case the parties' assiduity in submission as to the identification of the elements of the "business undertaking or scheme" and of the "common enterprise" in which purchasers of the strata units were acquiring rights to participate was excited by the interest each had in the answer to the question whether those rights were "rights ... in a trust or proposed trust" within the meaning of that phrase in Regulation 7.12.04(c). Mr. Lander QC, who appeared with Mr. Walsh for the applicant, submitted that it was only in the sharing among themselves of the income receipts and the expenses of carrying on "the Business", in the sense in which that word is defined in the Management and Letting Agreement, that there could be found anything answering the description "business undertaking or scheme" in the profits or assets or realisation of which those purchasers acquired rights to participate, or answering the description "common enterprise" in which they acquired such rights. In support of the submission he cited authorities denying the application of any of those descriptions to the common rights enjoyed by strata unit holders in common property (Brisbane Unit Development Corp. Pty. Ltd. v. Deming No. 456 Pty. Ltd. (1983) 7 ACLR 729), even if the vendor is empowered by the contract of sale of each unit to procure the making of a contract, between the strata body corporate and the vendor or a person nominated by the vendor, for management of the building in which the units are situated, and the making of a contract, between such parties, for the appointment, by the strata body corporate, of the other party to carry on in that building the business of letting units in the building as agent of any unit holder who should choose to employ that agent for that purpose (Jones v. Acfold Investments Pty. Ltd. (1984) 6 FCR 512). When the fee simple estate in each strata unit was subject to a lease for a term of ten years by the vendor to a particular company, which thus held such a term in respect of all the units, the Full Court of the Supreme Court of Western Australia held, in Maunder-Hartigan v. Hamilton (1984) 8 ACLR 937, that a unit holder had no right of a kind specified in paragraph (a) or (b) of the definition of "participation interest" : he had merely a right to the rent reserved by the lease of his unit, and there was no common enterprise in which the unit holders were involved and in relation to which the evidence showed rent might be expected from the efforts of the promoter of the enterprise or a third party. Each purchaser of a strata unit was obliged by a term of the contract for purchase of the unit to appoint a specified company to manage his unit for the term of the lease. The same company was specified in all the contracts, and identical terms were specified in each contract as those of the management contract with that company. The manager was obliged to collect the rent, to account for the rent to the unit holder after deduction of a commission of 5 per centum of the rent, and to negotiate rent review on the unit holder's behalf. There was no evidence as to what rent review the lease contemplated. The only person suggested as "promoter" was the vendor, the relationship of which to the lessee, or to the manager, was not shown. Brinsden J. said (8 ACLR at 948) that the vendor could not be regarded as the promoter from whose efforts rent could be expected "for (the vendor) had fallen out of the picture". Pidgeon J. did not refer to the vendor as a person who might be considered to be "the promoter" for the purposes of paragraph (b) of the definition of "participation interest". The majority in the Full Court did not find in the contractual imposition of the management agreement on all unit holders any circumstance by which the application of paragraph (a) or (b) of the definition of participation interest was attracted. Maunder-Hartigan v. Hamilton was a case, according to the submission of Mr. Lander, in which were present substantially all the circumstances which in this proceeding might be indicated as satisfying the definition of "prescribed interest", except the pooling of rent receipts and operating expenses and the constitution of a trust of the pooled receipts. Therefore the conclusion followed, according to the submission, that only the trust constituted by Clause 5.01 of the Management and Letting Agreement could be identified as that in which was offered a "prescribed interest".

7. In my opinion there are other circumstances, not present in Maunder-Hartigan v. Hamilton, which in this proceeding indicate the elements of the "business undertaking or scheme" in the profits and assets of which the purchaser of a unit is offered an interest, and indicate also what the "closely connected operations" are which constitute a "common enterprise" by contributing to the overall purpose that unites them. Clause 5.01 of the Management and Letting Agreement declares that the Manager shall receive "Gross Revenue as trustee for and on behalf of the Owner and the Other Owners". If and when all the strata units have been sold the "Other Owners" will not include the applicant. But the beneficial ownership of the Gross Revenue is "subject to the right of the Manager to pay therefrom the Operating Expenses, the Management Fee and the Management Incentive Fee". The expression "Operating Expenses" is defined to include repayment of "Establishment Expenses", an expression defined to mean "the amounts agreed between the Manager and the Original Owner (and estimated to be in the sum of $150,000.00) pursuant to this Agreement and the Other Agreements already provided or hereafter to be provided prior to the Commencement Date by the Original Owner for the Manager to promote, market and establish the Business prior to the Commencement Date". The latter date is the date on which the ten year appointment of the Manager commenced. Clause 2.07 of the Management and Letting Agreement provides that the Establishment Expenses "shall be and be deemed to be on and from the Commencement Date a liability of the Owner and the Other Owners in their respective Owner's Proportions for a term not exceeding the Income Guarantee Period and shall bear interest at the fixed rate of 18 per annum (or such other fixed rate of interest as the Manager and the Original Owner may agree) and shall be repayable by equal annual repayments of principal and interest in arrears with interest calculated and accruing annually (or such other terms of repayment as the Manager and the Original Owner may agree)." Clause 4.01 provides:

"In each Operating Year, the Owner shall pay to the Manager, the Owner's
Proportion of an amount equal to the aggregate of:-
(a) five per cent (5%) of the Gross Revenue of the Business for that
Operating Year (hereinafter called 'the Management Fee'); and
(b) ten per cent (10%) of the Owner's Return (as hereinafter defined)
for that Operating Year (hereinafter called 'Management Incentive
Fee')."

Clauses 5 and 6 make it clear, however, that the Owner does not pay those amounts : they are paid out of the bank account called the "Management Account" (see Clauses 5.02, 6.02, 6.03). Clause 4.02 provides:

"For the purposes of calculating the Management Incentive Fee pursuant
to Clause 4.01(b) hereof, the Owner's Return shall mean in respect of
the relevant Operating Year the amount calculated by deducting from the
Owner's Proportion of Gross Revenue the following:-
(a) the Owner's Proportion of the Adjusted Operating Expenses;
(b) the Owner's Proportion of the Management Fee; and
(c) the Outgoings of the Owner's Unit."

The expression "Outgoings of the Owner's Unit" is defined to mean:

"(a) all Council Rates, Engineering and Water Supply Department Rates
and Land Tax assessed on the Unit, and
(b) all contributions levied by the Strata Corporation in respect of
the Unit."

In my opinion the foregoing provisions point to the existence of a "business undertaking or scheme" and "a common enterprise" in which the applicant, Westend and those who purchase strata units establish a serviced apartments complex and carry it on for profits in which the applicant, as a unit holder in the unit trust, and the purchasers share. The purchaser's right to participate in those profits is not a right or an interest which derives merely from his interest in the trust. The right in my opinion derives from the terms of the contract of sale of the strata unit. It is an essential element of the scheme or enterprise that for at least ten years there will be at the place where the proposed business is to be carried on a substantial number of apartments available for letting. The business can only be carried on profitably if such a number of what the business is engaged in selling - residential accommodation - is available. In my opinion it is an implied term of each contract of sale of a strata unit that the vendor warrants that each unit previously sold has been sold under a contract the express terms of which are the same as those of that contract and that the vendor promises that all the other units not yet sold will be sold under contracts in the same terms. It is that implied term which confers on the purchaser his right to participate in the profits of the scheme : without that term the scheme and the common enterprise as I have described them would not exist. The right to participate in the trust, the interest in the trust, declared in Clause 5.01 of the Management and Letting Agreement might perhaps be said in one sense to constitute, or to confer, the purchaser's right to participate in the profits of the scheme. But to say that is to make an incomplete statement of the sources of that latter right. Without provision for contractual assurance to the purchaser that other purchasers will buy on the same terms there is no right or interest in a legal sense, but at best a hope or expectation that a scheme and a common enterprise may emerge, in the carrying out of which profits may be gained. In the case of paragraph (b) of the definition of "participation interest" the implied term both contributes an important definitional element of the common enterprise and is the source of the right of the purchaser to participate in that enterprise. It is in my opinion clear that the right to participate in that common enterprise cannot be characterised as a right in a trust or proposed trust. The right derives from the implied warranty and promise of the vendor of the strata unit. The right in the proposed trust, which is contractually promised by the vendor of the strata unit, and which is perfected by Westend's subsequent execution of the deed of assignment of the Management and Letting Agreement, is but one element of the common enterprise. It cannot be doubted that the purchaser is led to expect profits in relation to the common enterprise from the efforts of a third party, namely Westend.

8. I am further of the opinion that what was being offered by the applicant to prospective purchasers of units was a right to participate in an "investment contract", within the defined meaning of that term. The "contract" being offered in substance involves the investment of money. The purchase price buys no right to enjoyment of possession for the first thirty years of fee simple ownership of the land purchased. That land being a stratum parcel in a building, thirty years is a not insubstantial part of the period during which possession might be enjoyed. The payment of the purchase price in those circumstances suggests that an investment of that money is being made. That such an investment is made is confirmed by the circumstance that profit during the ensuing ten years, at least, is expected to be derived from the carrying out of what the contract contemplates. And the circumstances under which that payment occurs are such that the purchaser acquires a right in respect of his property, the unit, namely the right to have the unit used in the apartment complex business, a right that under the terms of investment will be used in common with each of the other unit holders' rights in respect of their units, which are acquired in like circumstances. If it is, as McPherson J. in Munna Beach Apartments Pty. Ltd. v. Kennedy (1982) 7 ACLR 257 at 263-264 found it to be, helpful to consider United States' authorities on similar legislation, application of the test which his Honour's citations reveal, if applied in this case, suggests that here an investment contract was being offered by the applicant. Even without that help I think the conclusion must be drawn that the contract being offered, and the scheme to which the contract was designed to give effect, answer the definition of "investment contract". The interest of the purchaser in that investment contract was not, for the reasons already stated, an interest in a trust, in my opinion.

9. For the foregoing reasons the proceeding must be dismissed. At the request of the parties further consideration of the proceeding and the cross-claim will be adjourned to a date to be fixed, so that they can consider what other orders ought to be made.