demand pursuant to Corporations Act 2001 (Cth) s 459H(1)(b) - Offsetting claim based on alleged breach of s 601FC(1)(d) - Whether evidence relied on by respondent satisfied threshold for offsetting claim - Whether applicant required to negate existence of offsetting claim and/or to address duty which may have been breached - No copy of constitution or product disclosure statement in evidence - No evidence of unfairness between class members in contravention of s 601FC(1)(d) - Evidence only established that respondent suffered loss on investment - Insufficient evidence to meet threshold for establishing offsetting claim - Leave to appeal granted - Appeal allowed.

Corporations Act 2001 (Cth) ss 459H(1)(b), 459G, 601GA, 601GB, 601FC.

TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67; Re Libdy Developments Pty Ltd [2023] NSWSC 647; Snelgrove v Great Southern Managers Australia Ltd (in liq) [2011] WASC 103; Westfield Management Ltd v AMP Capital Property Nominees [2012] HCA 54; (2012) 247 CLR 129; MacarthurCook Fund Management Ltd v TFML Ltd (2014) 254 CLR 168, considered.

1. This application for leave to appeal relates to a statutory demand served by the applicant, E&P Investments Limited ('E&P'), on the respondent, Keybridge Capital Ltd ('Keybridge'), on 9 May 2024 ('the statutory demand'). The statutory demand claimed that Keybridge owed E&P a judgment debt in the sum of $253,151.87, 'as ordered by the Principal Registrar in the District Court of New South Wales on 13 March 2024'.
2. E&P is the responsible entity of the US Masters Residential Property Fund ('the Fund'). At the relevant time, the Fund was made up of ordinary and priority units. Keybridge held a number of priority units in the Fund.[1] In the circumstances set out below, E&P determined to convert all the priority units in the Fund into ordinary units, and it did so on 3 January 2023.
3. Prior to the conversion, Keybridge sought to convene a meeting of investors in the Fund, with a view to having E&P's decision to convert all priority units into fully paid ordinary units overturned. Keybridge's attempt to call the meeting was successfully challenged by E&P in proceedings in the Supreme Court of New South Wales in December 2022 ('the proceedings'). Black J held that the meeting was 'not validly requisitioned' on the basis that 'less than 5% of the members who requisitioned it were shown in the register of members as unit holders in the fund'.[2] His Honour ordered that Keybridge pay E&P's costs of the proceeding.[3] The judgment debt claimed in the statutory demand represented those costs.
4. Keybridge applied under ss 459G and 459J of the Corporations Act 2001 (Cth) ('the Act' or 'Corporations Act') to have the statutory demand set aside. On 9 September 2024, Associate Justice Efthim held that Keybridge had established an offsetting claim and ordered that E&P's statutory demand be set aside.[4]
5. E&P seeks leave to appeal against his Honour's judgment on the basis that he erred in concluding that Keybridge had an offsetting claim for the purpose of s 459H(1)(b) of the Act because:

(a) the evidence relied on by Keybridge to establish such a claim did not satisfy the threshold for demonstrating the existence of such a claim; and

(b) in order to negate the existence of an offsetting claim, it was not necessary for E&P to address whether there was a duty which may have been breached.

While E&P referred to this as one ground, there were apparently two components: the sufficiency of the evidence before the associate judge and whether E&P needed to address the issue of the alleged breach of duty.

1. Section 459G of the Act permits a company served with a statutory demand to apply to the Court for an order setting the demand aside, including on the grounds set out in ss 459H and 459J of the Act.[5]
2. Relevantly for the applicant's case before us, s 459H will apply where the Court is satisfied that 'the company has an offsetting claim'.[6] An 'offsetting claim' is defined in s 459H(5) to mean:

a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).[7]

1. At the hearing before the associate judge, both parties relied on their written and oral submissions. In the submissions relied on by Keybridge dated 15 August 2024, Keybridge claimed that it had an offsetting claim against E&P 'arising from E&P failing to redeem priority units held by Keybridge in [the Fund] for their full value, and instead converting the units to ordinary units'. Keybridge alleged that in particular, '[i]n converting the priority units to ordinary units, E&P breached, at least, its duty to treat the members of the class of priority unit holders fairly (see section 601FC(1)(d))'. These submissions added that:

To that end, on 30 November 2022, E&P issued a Conversion Notice to Keybridge in which E&P informed Keybridge that it had determined to reclassify priority units to ordinary units, which took effect in January 2023. At the relevant time, the priority units had a value of $100.00 per unit and ordinary units had a value of $0.25 per unit. The number of ordinary units which could be issued was capped and accordingly there was not enough units that could be issued that would give the priority unitholders an amount of ordinary units that would be equal in value to their previously held priority units. As a result of the conversion, the priority units were not treated fairly, as required by s 601FC(1)(d), and resulted in Keybridge receiving ordinary units valued at $1,433,000 rather than having the priority units redeemed for $2,797,000.

1. Keybridge also relied on two affidavits, only one of which is presently relevant. This is the affidavit of the managing director of Keybridge, Mr Bolton, dated 30 May 2024. E&P relied on the affidavit of its solicitor, Mr Gatto, dated 25 June 2024.
2. The evidence before his Honour disclosed that following Black J's costs order in E&P's favour, a court-appointed costs assessor carried out a costs assessment.[8] The costs assessor issued two certificates of determination of costs, pursuant to which E&P's costs were assessed as $243,182.57 (for the costs of the proceeding) and $9,969.30 (for the costs of the costs assessment).[9] E&P filed for a registration of certificate of judgment/order in the District Court of New South Wales on 8 March 2024.[10] On 13 March 2024, the Principal Registrar of the District Court ordered that Keybridge pay E&P the sum of $253,151.87. On 9 May 2024, E&P served a statutory demand on Keybridge for that amount; and on 30 May 2024, Keybridge applied to have the statutory demand set aside under s 449G of the Act.[11]
3. Relevantly for the argument advanced before us,[12] Mr Bolton deposed that:

Keybridge has a claim against E&P for a breach of its duty under section 601FC of the Corporations Act (Cth) in relation to its election to convert priority units to ordinary units rather than redeem them or wind up the Fund. Keybridge has suffered damages in the amount of $1,364,000 arising from the failure to redeem the Priority Units.

Keybridge intends to issue proceedings against E&P in relation to its loss and damage in the sum of $1,364,000.

The claim was said to arise in the circumstances set out below.

1. Prior to 28 March 2022, the Fund had consisted of priority units and ordinary units. Priority unit holders had accounted for about 51-52 per cent of the units in the Fund. Keybridge then owned a 'substantial portion' of the priority units.
2. On 28 March 2022, E&P announced to the market that it had entered into a conditional purchase and sale agreement with a joint venture between Brooksville Company, LLC and affiliates, and Rockpoint Group LLC and affiliates for the sale of the Fund's Family property portfolio ('the March 2022 Announcement').
3. In the March 2022 Announcement, E&P stated that the proceeds of the transaction were expected to be used to retire 'URF Convertible Preference Units ("URFPA")[13] at their $100 face value, in line with the terms of these securities as outlined in the Fund's Constitution'.[14] Under the heading 'Expected cash proceeds and uses via proposed Transaction and resulting Fund wind-up', the Announcement also stated:

Subject to completion of the Transaction, URFPA holders are expected to be repaid in full at the security Face Value of A$100 per URFPA, plus any accrued interest that is outstanding for the half year.

All remaining proceeds were to be distributed to URF ordinary unit holders.

1. The March 2022 Announcement also indicated that the ordinary and priority units were tradeable and that their tradeable value varied depending on the market. For example, the March 2022 Announcement stated:

The 52 week price range of the URF Convertible Preference Units is $48.05 to $84.50 and the 52 week price range of the URF ordinary units is $0.195 to $0.39.

A footnote to the March 2022 Announcement indicated that, as at 25 March 2022, the traded price of priority units was $81.00 per security and a '3 month VWAP ... of $73.50'.

1. Over the ensuing eight months, the anticipated position of the priority unit holders altered. Under the arrangement foreshadowed in E&P's subsequent announcement on 28 November 2022 ('28 November 2022 Announcement'), the priority unit holders were no longer assured that their priority units would be retired at their face value. The 28 November 2022 Announcement stated that E&P would convert all priority units into fully paid ordinary units at the first available opportunity in January 2023. It included a 'CPU Conversion Announcement'. This began by announcing that:

In accordance with the terms of the CPUs as set out in the Product Disclosure Statement (PDS) dated 1 December 2017 for the CPUs,[[15]] E&P Investments Limited (ACN 152 367 649 I AFSL 410 433) (E&PIL) as responsible entity (RE) of URF has determined that it will convert all of the CPUs into fully paid ordinary units (Ordinary Units) at the first available opportunity in January 2023. The RE foreshadowed the likelihood of this conversion in an announcement on 14 June 2022. The conversion of a CPU will take effect by way of the reclassification of an interest in URF in the nature of a CPU to an Ordinary Unit in URF (Conversion). The date for Conversion is 3 January [2023] (Issuer Conversion Date), being the business day after the last date of the then current CPU distribution period (31 December 2022). The PDS for the CPUs outlines that the CPUs convert to the aggregate of:

(a) the number of Ordinary Units determined by dividing the Issue Price by the VWAP of Ordinary Units over the 10 business days prior to Conversion less a discount of 2.5% (whether or not trading of Ordinary Units occurs on those business days) up to but excluding the conversion date (Conversion VWAP) subject to a minimum conversion number of 44 Ordinary Units per CPU (Minimum Conversion Number) and a maximum conversion number of 205 Ordinary Units per CPU (Maximum Conversion Number) subject to adjustment (Conversion Number); and

(b) the number of Ordinary Units determined by dividing the aggregate of all distributions that remain outstanding at the date of Conversion by the Conversion VWAP (Additional Conversion Number). This Additional Conversion Number is not subject to the Maximum Conversion Number or Minimum Conversion Number. The Additional Conversion Number is not applicable, given that no distributions are outstanding and, as noted below, a distribution will be paid in respect of the period to 31 December.

1. The 28 November 2022 Announcement went on to address the 'Conversion Number' as follows:

The trading price of Ordinary Units as at market close 25 November 2022 was $0.25. During the last three months Ordinary Units have traded at a low of $0.25 and a high of $0.34. Based on the current trading price, it is expected that the Conversion VWAP will be below $0.50, and as a result CPU Holders will receive the Maximum Conversion Number of ordinary units, 205 Ordinary Units per CPU as the Conversion Number in accordance with the terms of the CPU.

1. Under the heading 'Fund update' (and apparently referencing the March 2022 Announcement)[16] the 28 November 2022 Announcement concluded:

The US Management team and Board of the Responsible Entity have been focused on progressing the externalisation of the Fund's US operating divisions through the previously announced strategic joint venture with Brooksville and Pinnacle City Living. The joint venture documentation was significantly progressed during the September quarter, and it is expected that the final agreement will be formalised before the end of the year.

1. On 30 November 2022, the Fund issued a Conversion Notice to Keybridge in relation to its priority units. The Notice informed Keybridge that E&P had determined to reclassify all its preference units as ordinary units. E&P subsequently did so in conformity with the 28 November 2022 Announcement. We observe that the Conversion Notice also commenced with the statement that the conversion was to occur '[i]n accordance with the terms of the CPUs as set out in the Product Disclosure Statement (PDS) dated 1 December 2017 for the CPUs' and indicated that the 'conversion number' was consistent with that announced in the 28 November 2022 Announcement.
2. In January 2023, as a result of the foreshadowed conversion, Keybridge received 5,733,850 ordinary units ('Ordinary Units') in place of its priority units.
3. Mr Bolton's evidence was that, by reason of a cap on the number of ordinary units that could be issued, Keybridge received ordinary units with a lower total value than its previously-held priority units. In his affidavit, Mr Bolton deposed that:

At the relevant time, the Priority Units had a value of $100.00 per unit. The ordinary units had a value of $0.25 per unit. The number of ordinary units which could be issued was capped, and accordingly there was not enough units that could be issued that would give the priority unitholders an amount of ordinary units that would be equal in value to their previously held priority units.

As a result of the conversion of the Priority Units into Ordinary Units, Keybridge received Ordinary Units valued at $1,433,000 rather than having Priority Units redeemed for $2,797, 000.

1. Mr Bolton further deposed that Keybridge had a claim against E&P for a breach of duty under s 601FC of the Act, in relation to its election to convert priority units to ordinary units (instead of redeeming them or winding up the Fund). He stated that Keybridge had suffered damages in the sum of $1,364,000, and that Keybridge intended to issue proceedings against E&P.

1. We note that the associate judge rejected a number of submissions that Keybridge has not sought to reagitate before us by way of a notice of contention. We therefore limit the following account of the associate judge's reasons to the issue that is the subject of the application and argument before us.
2. The associate judge accepted Keybridge's contention that it had an offsetting claim (within the meaning of s 459H(1)(b) of the Act) against E&P arising from E&P's failure to redeem the priority units held by Keybridge in the US Masters Residential Property Fund for their full value.[17] This was a claim 'capable of being quantified in money terms' as s 459H(1)(b) required;[18] and, in his Honour's view, there was sufficient evidence for this offsetting claim in the affidavit of Mr Bolton, the managing director of Keybridge.[19]
3. The associate judge noted Keybridge's submission that its offsetting claim was the loss suffered by it as a result of E&P's conduct in breach of s 601FC of the Act. His Honour summarised Keybridge's submissions as follows:

The plaintiff asserts that the offsetting claim is the loss suffered by the plaintiff, due to the conduct of the defendant, of at least $1,364,000 in breach of s 601FC of the Act.

The plaintiff submits that s 601FC of the Act sets out the duties imposed on the defendant in the exercise of its duties as a responsible entity of the US Masters Residential Property Fund.

The plaintiff states that [the] defendant, as a responsible entity of the registered scheme by force of the Act operating on its status as the responsible entity:

- holds scheme property on trust for its members (s 601FC(2) of the Act);

- is obliged to operate the scheme and to perform the functions conferred on it not only by the Act itself, but also by the constitution (s 601FB(1) of the Act); and

- in exercising its powers and carrying out its duties, it is obliged to act in the best interest of members (s 601FC(1)(c) of the Act), to treat members who hold interests of the same class equally and members who hold interests of different classes fairly (s 601FC(1)(d) of the Act), and to ensure that all payments of the scheme are properly made in accordance with the constitution and the Act (s 601FC(1)(k) of the Act).

The plaintiff also submits that in converting the priority units to ordinary units, the defendant breached at least its duty to treat the members of the class of priority unit holders fairly and it did not do so (s 601FC(1)(k) of the Act).[20]

1. The associate judge observed that E&P had characterised this case as 'mere assertion' of the kind described by this Court in TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd ('TR Administration').[21] His Honour noted that:

- does not identify which of the twelve sub-sections of s 601FC is alleged to have been breached by the defendant;

- does not suggest that the defendant acted beyond power in acting as it did;

- does not suggest that the defendant failed to disclose its intention to act in the way it did; and

- does not otherwise identify with any necessary particularity the elements of the defendant's conduct which might give rise to a claim.[22]

1. The associate judge rejected E&P's submissions. In his Honour's view, it was sufficient that Mr Bolton had referred to 'the factual matrix' and that E&P's counsel had identified the legislation that was said to apply to that matrix.[23] His Honour held that:

The evidence produced by Mr Bolton is such that to distinguish the claim from a merely spurious, bluster or assertion and it does have sufficient particularity to exclude the mere fanciful or futile. The plaintiff has not advanced a fully evidenced claim but it is not necessary for it to do so. In my view, this is more than mere assertion. The threshold required by the plaintiff to meet is low.[24]

1. The associate judge concluded that Keybridge had met the low threshold required of it to have the statutory demand set aside.[25] His Honour reached this conclusion, while acknowledging there were countervailing considerations, including that Keybridge had not yet instituted proceedings against E&P 'even though the cause of action would have arisen in January 2023'.[26] His Honour also noted that Mr Bolton had deposed that Keybridge 'intends to bring proceedings in relation to its loss and damage'.[27]
2. Also in this context, his Honour noted that E&P had not filed any affidavit evidence denying that it had breached any duties imposed by s 601FC of the Act.[28] His Honour stated that:

The defendant says there is nothing it could say in response other than it denies the allegations. In my view the defendant needed to address whether there was a duty which may have been breached.[29]

1. His Honour also rejected E&P's submission that 'the absence of substance in the proposed offsetting claim' might be inferred 'from the very matters giving rise to the debt'.[30] His Honour noted that:

[E&P] refers to the proceeding in the New South Wales Supreme Court which gave rise to the costs order which concerned an attempt by [Keybridge] to call a meeting of unit holders in respect of the proposed conversion of units.[31]

The attempt was disallowed by the Court by reason of the plaintiff's failure to procure the support of unit holders holding 5% of the voting units.

[T]hat does not deal with the cause of ... action which arose after the units were converted.[32]

1. Having rejected E&P's submissions as to the inadequacy of the evidence in support of Keybridge's offsetting claim, the associate judge set aside the statutory demand on the basis that the claim exceeded the amount claimed in the statutory demand and was capable of being quantified in money terms.[33]

1. E&P's principal contention was that the evidence on which Keybridge relied before the associate judge was insufficient to establish an offsetting claim entitling Keybridge to have the statutory demand set aside under s 459H(1)(b) of the Act. At the hearing, E&P submitted that 'the evidence was just so weak that it was no more than mere assertion and therefore didn't clear that, albeit low, bar'. E&P noted that it raised this issue in its proposed first ground. It was on this basis that it contended that his Honour's judgment was attended by sufficient doubt to warrant the grant of leave to appeal.[34] E&P added that its proposed second ground (as to whether E&P needed to address its alleged breach of duty) was really 'a particular of' its first ground and that on its own it would not be sufficient for the appeal to succeed.
2. E&P submitted that Mr Bolton's affidavit was deficient, because:

(a) it did not identify which subsection or subsections of s 601FC were said to have been breached; and

(b) it did not identify any matter which might give rise to a breach, for example, any matter said to demonstrate a lack of honesty, a conflict, a failure to act in the best interests of members, or unfairness.

1. In particular, in E&P's submission, Keybridge did not identify any evidence to support its submission that '[i]n converting the priority units to ordinary units, E&P breached, at least, its duty to treat the members of the class of priority unit holders fairly'.[35] Instead, so E&P submitted:

... Keybridge identified an economic outcome, being an alleged loss of value, without identifying (for example) why the redemption price should have been the issue value of the units, or how any other unfairness arose.

1. This was not enough, in its submission, to establish an offsetting claim for the purpose of s 459H(1)(b). In this context, E&P observed that 'making a loss is ... part and parcel of investment'; and that the quantum of economic loss was an 'unsafe prism through which to view fairness or unfairness'. Further, E&P contended that there was evidence that its actions were aligned with the product disclosure statement ('PDS') and priority unit holders would therefore have known that conversion was a possible outcome.
2. At the hearing before us, E&P acknowledged that the focus of submissions before the associate judge was on s 601FC(1)(d) of the Act; and that it had understood Keybridge was alleging it had failed to treat 'members who hold interests of different classes fairly' in a relatively narrow sense: that is, fairness was to be considered by reference to the relative treatment of one class of unit holders in comparison with the other class of unit holders. It submitted, however, that Keybridge's case before the associate judge did not rise above 'mere assertion'. E&P submitted that there was no 'evidence identifying the matters which constituted a breach of the relevant section of the Act' before the associate judge. E&P's submission was that 'different treatment' does not necessarily amount to unfairness, even when accompanied by economic loss. Put simply, E&P submitted that 'merely the fact that $1,000,000 has been lost by one person' does not amount to unfairness. E&P submitted a case of unfairness was not made out by the fact that the holders of the priority units had lost half the value of their units through the conversion process, because 'all of this was done in accordance with the PDS, and so priority unit holders would be taken to know that conversion was a possible outcome'. In other words, it was E&P's case that Keybridge had not identified any integer in the transaction that made it relevantly 'unfair'.
3. Further, so E&P submitted, the alternative action to which Mr Bolton referred in his affidavit (redemption of priority units or winding up the Fund) would have disadvantaged the ordinary unit holders, including in the case of redemption by depleting the funds held for their benefit Relying on TR Administration[36] and Re Libdy Developments Pty Ltd,[37] E&P submitted that Keybridge had failed to identify an offsetting claim.
4. E&P maintained that the associate judge 'fail[ed] to address the essential and missing element in the evidence: how and on what evidentiary basis it is alleged that there has been a breach of duty, and therefore a breach of s 601FC of the Act'. It was not enough, so E&P submitted, for the associate judge to have been satisfied that Keybridge had identified 'the factual matrix' and 'the relevant legislation that is said to apply to the factual matrix'.[38]
5. E&P also contended that the associate judge failed to give adequate weight to the fact that Keybridge had not explained why so much time had gone by without it commencing proceedings. Further, E&P submitted that the associate judge erred in so far as his Honour placed any weight on the fact that E&P had not filed any affidavit evidence in response to Keybridge's allegations. E&P submitted that there was no such obligation because

... the identification of which of the 12 subsections of s 601FC of the Act ... was said to have been breached ... only occurred in Keybridge's submissions which were filed the night before the hearing.

1. Further, in E&P's submission, it had no obligation to respond, since the matter said to constitute the breach was not identified; and it was for Keybridge to 'marshal some evidence to which [E&P] could respond'. E&P contended that the associate judge 'stray[ed] very close to a reversal of onus' by 'elevat[ing] the failure to deny a breach as being effectively an essential condition of ... refuting the offsetting claim'. By reversing the onus, so E&P submitted, the associate judge went further than a Jones v Dunkel analysis.[39] E&P contended that a Jones v Dunkel inference could not have arisen in this circumstance as 'Mr Bolton's evidence was so vague and unspecific that a failure to respond to that allegation doesn't really give rise to the inference'.
2. At the hearing, E&P confirmed that the terms of the 'CPUs', the PDS and the constitution of the Fund[40] were not in evidence before the associate judge. E&P ultimately submitted that the constitution and the PDS for the priority units were 'critical' and ought to have been brought forward in evidence by Keybridge if it was to make out its case. In this context, E&P added that Keybridge had not alleged that E&P 'acted beyond power or without authority'. That is, Keybridge had not alleged that E&P had acted outside the terms of the PDS or the constitution.

1. In written submissions, Keybridge submitted that it had only to meet a relatively low threshold to establish an offsetting claim for the purpose of s 459H(1)(b). Citing TR Administration[41] and Re Libdy Developments Pty Ltd,[42] it submitted that the offsetting claim must be arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim was not fanciful.
2. Keybridge submitted in writing that its offsetting claim arose from the fact that E&P contravened s 601FC(1)(d) of the Act by failing to redeem the priority units it held in the Fund for their full value and instead converting those units to ordinary units valued at $1,433,000. In particular, it submitted that E&P contravened s 601FC(1)(d) of the Act by failing in its duty to treat the members of the class of priority unit holders fairly.
3. Keybridge relied on Mr Bolton's affidavit, which, in its submission, set out the factual matrix underlying its offsetting claim and provided the requisite factual particularity. It contended that the associate judge gave appropriate weight to the fact that a proceeding had not yet been instituted and to the fact that E&P did not rely on an answering affidavit. E&P made a forensic decision, so Keybridge submitted, to proceed without such material, and therefore the associate judge was entitled to make the Jones v Dunkel inference.[43]
4. At the hearing, Keybridge acknowledged that the priority unit holders were informed by the 28 November 2022 Announcement that there was a potential for conversion to ordinary units at between 44 to 205 ordinary units per priority unit. In the course of argument, however, Keybridge accepted that it might be inferred that this was the best that the priority unit holders could do under the PDS.
5. Keybridge contended that the 'unfairness' that existed was that priority unit holders had their interest diluted by half on 3 January 2023 - the last date after the distribution of dividends - whereas ordinary unit holders did not. The unfairness, so Keybridge submitted, was not connected with the market value of the units, but rather the loss of rights attaching to the value of a priority unit on 3 January 2023. According to Keybridge:

They can never [sic] put in a position where they're put back in the place of having the equivalent of $100 face value of units.

...

[A]s at 3 February [the unfairness is] that the priority preference unit holders, vis-a-vis the ordinary unit holders, had their interest diluted by 50 per cent, whereas the ordinary unit holders did not suffer the same fate ...

1. In Keybridge's submission, the loss of the rights attaching to the priority units was the unfairness (that is, the right to redemption at face value) - regardless of what they were actually worth in the market and in circumstances where there is 'the pivot from a sale of assets and a wind-up of the fund'. Keybridge submitted that the risk of redemption of units was not unfair to priority unit holders in and of itself, but the unfairness arose where the responsible entity (that is, E&P) elected to adopt the redemption course when it had other available options.
2. Relying on Snelgrove v Great Southern Managers Australia Ltd (in liq) ('Snelgrove'),[44] Keybridge submitted that s 601FC(1)(d) of the Act was a fiduciary-type duty, and that the particulars of the breach (including analysis of the PDS) were a matter for trial. Keybridge submitted that, at trial, the Court could assess whether the transaction itself was objectively unfair, including treating different unit holders differently, accepting that the choice made by E&P was to dilute significantly the interests of the ordinary unit holders.[45]

1. The central issue before us is whether the evidence relied on by Keybridge is sufficient to show the existence of an offsetting claim within s 459H(1)(b), being E&P's alleged failure to treat priority unit holders fairly contrary to s 601FC(1)(d) of the Act, so as to entitle Keybridge to have the statutory demand set aside under s 459G. To establish an offsetting claim for this purpose, Keybridge needed to show that the claim had 'sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion' and 'sufficient factual particularity to exclude the merely fanciful or futile'.[46] However, the claim did not need to be 'a fully evidenced claim': rather, '[s]omething "between mere assertion and the proof that would be necessary in a court of law" may suffice'.[47]
2. For the reasons set out below, we have concluded that there was insufficient evidence before the associate judge to support the conclusion that the proposed offsetting claim had a sufficient objective existence and plausibility to support a decision to set aside the statutory demand. We turn first to s 601FC(1)(d) of the Act.
3. Section 601FC(1)(d) of the Act provides that:

In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

...

(d) treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; ... [48]

1. The parties in this case did not dispute that the Fund had two different classes of members: that is, the members holding priority units[49] and the members holding ordinary units.
2. Further, the parties did not dispute the nature of the duty imposed by s 601FC(1)(d). For present purposes, we accept that this duty was in the nature of 'a fiduciary type duty', as Le Miere J described it in Snelgrove.[50] In this case, E&P, as the responsible entity, was required to treat the two classes of members fairly, in the sense that it could not favour one at the expense of the other. The duty imposed on E&P in this regard was akin to the duty of a trustee at general law to act fairly and impartially towards the beneficiaries as a whole, so that the trustee cannot favour one class of beneficiaries at the expense of another.[51]
3. The question is whether there was sufficient evidence to give rise to a plausible claim that E&P failed in its duty to treat the two classes of unit holders fairly, in the sense that it favoured one class over the other. Plainly enough, the fact that Keybridge suffered a loss on its investment was not sufficient on its own to show that E&P failed to treat the priority unit holders fairly in comparison with the ordinary unit holders. We accept, as E&P submitted, that it is in the nature of almost any investment that the investor may suffer a loss. Equally, the scale of the loss suffered by one member in one class of unit holders is not indicative of a breach on the part of the responsible entity of the duty to treat the different classes of unit holders fairly. There must be further evidence that the loss arose because E&P favoured one class at the expense of another.
4. The nature of the evidence that may be relevant reflects the nature of the regime for the regulation of managed investment schemes. This regime is set out in ch 5C of the Act. Its components were summarised in Westfield Management Ltd v AMP Capital Property Nominees[52] and MacarthurCook Fund Management Ltd v TFML Ltd.[53] For present purposes, it suffices to note that the statutory regime identifies some matters bearing on whether there was sufficient evidence that E&P favoured the ordinary unit holders at the expense of the priority unit holders, so as to give rise to a plausible offsetting claim by Keybridge against E&P under s 601FC(1)(d).
5. Evidence of the constitution of a registered scheme (or of the Fund as the parties called it in this case) may be significant. Under the Act, the constitution of a registered scheme is a legally enforceable instrument as between the members (here, the priority and ordinary unit holders) and the responsible entity (here, E&P).[54] Amongst other things, the constitution must make adequate provision for the powers of the responsible entity, including with respect to investments and dealing with scheme property.[55] Depending perhaps on the circumstances, it may be difficult to characterise any constitutionally authorised conduct undertaken by E&P as unfair. The provisions of the scheme's constitution may therefore bear on whether E&P's conduct can plausibly be characterised as unfair for the purposes of s 601FC(1)(d). The constitution was not, however, in evidence before the associate judge.
6. Conduct of the kind that Keybridge challenges here - namely, the conversion of its priority units into ordinary units - was governed by the Act (and other applicable legislation), the scheme's constitution, and the relevant PDS. Amongst other things, the PDS advised the relevant unit holders of their rights and liabilities as unit holders. Evidence of the PDS applicable to the priority units would have indicated the nature of the rights conferred on those unit holders. These were the rights that those unit holders can be taken to have known they had at the time of acquiring their units. This is, in turn, relevant to an assessment of whether the responsible entity, E&P, acted unfairly with respect to the priority unit holders. If the PDS contemplated that priority units might - in the circumstances of the kind that arose here - be converted into ordinary units, then it is difficult to see how there might be a plausible offsetting claim of the kind asserted by Keybridge. If the effect of the PDS had been to the contrary, then it might well have supported the plausibility of Keybridge's alleged offsetting claim.
7. In this case, however, neither the scheme's constitution nor any relevant PDS was in evidence before the associate judge. There was no basis upon which it might be said that the constitution and/or the PDS supported the plausibility of the proposed offsetting claim on which Keybridge sought to rely.
8. Indeed, such evidence as there was before his Honour was to the contrary. This evidence included public statements by E&P prior to the conversion that the proposed conversion was in accordance with the terms of the CPUs set out in the PDS and the scheme constitution.[56] Keybridge has not alleged that these statements were false.[57] In the absence of any evidence or allegation to the contrary, it may be inferred that the conversion of the priority units into ordinary units was consistent with the scheme's constitution and with any relevant PDS. It may also be inferred from this that the priority unit holders have always been on notice that their priority units could be converted into ordinary units, as happened here.
9. Furthermore, although the parties have made general statements about the effect of this and other possible alternative action on the different classes of unit holders, there was no evidence before his Honour about this, other than evidence about the loss that Keybridge, in common with other priority unit holders, sustained as an alleged consequence of the conversion of the priority units into ordinary units.
10. Putting this evidence to one side, there was no other evidence before the associate judge that gave rise to a plausible claim that, in converting the priority units into ordinary units, E&P favoured the ordinary unit holders over the priority unit holders, in breach of its duty to treat the two classes of unit holders fairly.
11. Indeed, there was little, if any, evidence before the associate judge to show the 'sufficient objective existence and prima facie plausibility' of the claim.[58] In truth, the offsetting claim was 'mere assertion'. The evidence did not provide sufficient 'factual particularity' to exclude the possibility that the claim was 'merely fanciful or futile'.[59]
12. Having reached this conclusion, it is unnecessary to address E&P's second or subordinate ground of appeal. It is apparent, however, that we would reject the proposition that it was incumbent on E&P in this case 'to address whether there was a duty which may have been breached' or to adduce affidavit evidence in opposition to Keybridge. Rather, it was incumbent on Keybridge to show that there was a plausible contention that it had an offsetting claim. As we have seen, it was unable to meet this admittedly low threshold.
13. For these reasons, we would grant leave to appeal on ground 1 and allow the appeal.

Appendix 1 - Conversion announcement dated 28 November 2022

[1] The priority units were also referred to as preference units, URF Convertible Preference Units ('URFPA') and Convertible Step-up Preference Units ('CPUs').

[2] Re E&P Investments Limited as responsible entity of the US Masters Residential Property Fund [2022] NSWSC 1781, [26] ('Re E&P Investments Limited').

[3] Re E&P Investments Limited [2022] NSWSC 1781, [33].

[4] Keybridge Capital Limited v E&P Investments Limited (Supreme Court of Victoria, Efthim AsJ, 9 September 2024), [52] ('Reasons').

[5] Corporations Act 2001 (Cth) ss 459G, 459H, 459J ('the Act' or 'Corporations Act').

[6] Corporations Act s 459H(1)(b). There are other circumstances in which s 459H will apply, but Keybridge does not rely on them before us. Nor does Keybridge now rely on s 459J, although it did before the associate judge.

[7] See also McDonnell & East Ltd v McGregor (1936) 56 CLR 50; [1936] HCA 28 and Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269; [2006] SASC 91, [42], [45] (Debelle J).

[12] In his affidavit in support of Keybridge, Mr Bolton also claimed that 'there were reviewable errors in the costs determination' and foreshadowed an application for review of that determination. This issue did not fall for consideration here.

[13] As already noted, we were informed at the hearing that the reference to URF Convertible Preference Units ('URFPA') was a reference to the priority units. The priority units were also called 'CPUs'.

[14] We understand the reference to the Fund's constitution is a reference to the constitution of the registered scheme.

[16] See [12] above.

[18] Reasons, [16] citing No 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146, [27] (Barrett J).

[21] [2008] VSCA 70; [2008] 66 ACSR 67, 79 [71] (Neave, Kellam and Dodds-Streeton JJA); [2008] VSCA 70 ('TR Administration').

[34] Citing Rescom Asia Pacific Pty Ltd v Reapfield Property Consultants Pty Ltd [2014] VSCA 92, [5].

[35] See s 601FC(1)(d) of the Act.

[36] [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA, Neave and Kellam JJA agreeing at [1] and [2]); [2008] VSCA 70.

[37] [2023] NSWSC 647, [10]-[11] (Williams J).

[39] (1959) 101 CLR 298; [1959] HCA 8 ('Jones').

[40] See 601GA and 601GB of the Corporations Act, which provide for the mandatory contents of the constitution of a registered scheme and its legal enforceability.

[41] (2008) 66 ACSR 67; [2008] VSCA 70.

[42] [2023] NSWSC 647, [10] (Williams J).

[43] Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.

[44] [2011] WASC 103, [52] (Le Miere J) ('Snelgrove').

[45] Keybridge acknowledged that the fact that it had issued proceedings in the Supreme Court as a result of this transaction (the day before the hearing of this appeal) was irrelevant to its present application.

[46] TR Administration [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA, Neave and Kellam JJA agreeing at [1] and [2]); [2008] VSCA 70. See also Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, [48] (Kyrou, Ferguson and Kaye JJA).

[47] TR Administration [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA, Neave and Kellam JJA agreeing at [1] and [2]); [2008] VSCA 70 (citations omitted).

[48] Corporations Act, s 601FC(1)(d).

[49] Also referred to as preference units, CPUs, or URF Convertible Preference Units ('URFPA').

[50] Snelgrove [2011] WASC 103, [52] (Le Miere J).

[51] See eg: Cowan v Scargill [1985] Ch 270, 286-7 (Megarry J); Australian Executor Trustees (Sa) Ltd v Kerr And Others [2021] NSWCA 5; (2021) 151 ACSR 204, 234 [166] (Gleeson JA); [2021] NSWCA 5.

[52] [2012] HCA 54; (2012) 247 CLR 129, 136-7 [10]-[15] (French CJ, Crennan, Kiefel and Bell JJ); [2012] HCA 54.

[53] (2014) 254 CLR 168, 174-6 [2]-[6] (French CJ, Crennan, Kiefel, Bell and Gageler JJ); [2014] HCA 17.

[54] See s 601GB of the Act.

[55] See s 601GA(1)(b) of the Corporations Act.

[56] See, for example, the 28 November 2022 Announcement at Appendix 1.

[57] See [43] and [45] above.

[58] TR Administration [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA, Neave and Kellam JJA agreeing at [1] and [2]); [2008] VSCA 70.

[59] See TR Administration [2008] VSCA 70; (2008) 66 ACSR 67, 79 [71] (Dodds-Streeton JA, Neave and Kellam JJA agreeing at [1] and [2]); [2008] VSCA 70. See also Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq) [2015] VSCA 330, [48] (Kyrou, Ferguson and Kaye JJA).