ING Funds Management Ltd v JP Morgan Nominees Australia Ltd

CATCHWORDS : PROCEDURE - proceedings in respect of trust property - circumstances divide beneficiaries into two classes - appointment of representatives of classes - matters relevant to choice of representative - CORPORATIONS - registered managed investment scheme - proceedings by responsible entity seeking to establish validity of alterations to constitution - need for defendant contradictors - where persons interested in units fall into two classes - appointment of representatives

Civil Procedure Act 2005, s 56 LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5C, ss 167A, 168(1)(a), 169(6A)(c)), 601GB, 601FC(2) Trustee Act 1925, ss 63, 85 Uniform Civil Procedure Rules 2005, rule 7.6

Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 555; (2008) 66 ACSR 580 Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617 CASES CITED : Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 82 ALJR 1425 Re Avanteos Investments Ltd [2008] NSWSC 370 Sharpe v San Paulo Railway Co (1873) 8 Ch App 597

ING Funds Management Limited as responsible entity of the ANZ Cash Plus Fund - Applicant PARTIES : JP Morgan Nominees Australia Ltd - First Respondent ACIRT Pty Limited - Second Respondent Professional Associations Superannuation Limited - Third Respondent

Mr I M Jackman SC - Applicant COUNSEL : Mr J E Sexton SC - First Respondent Mr D G Collins SC/Mr D C Gration - Third Respondent

Mallesons Stephen Jaques - Applicant SOLICITORS : Allens Arthur Robinson - First Respondent Clarendon Lawyers - Third Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1344/09 ING FUNDS MANAGEMENT LIMITED AS RESPONSIBLE ENTITY OF THE ANZ CASH PLUS FUND v JP MORGAN NOMINEES AUSTRALIA LIMITED AS CUSTODIAN FOR PROFESSIONAL ASSOCIATIIONS SUPERANNUATION LIMITED & ANOR JUDGMENT 1 The plaintiff is the responsible entity of a managed investment scheme known as the ANZ Cash Plus Fund. The scheme is registered under Part 5C of the Corporations Act 2001 (Cth). 2 By its originating process filed on 3 February 2009, the plaintiff seeks declaratory relief recognising the validity and effectiveness of steps taken to alter the constitution of the scheme so as to suspend the rights of scheme members to require redemption by the plaintiff of members' units in the scheme. 3 Steps to effect the suspension were initially taken on 27 November 2008. Further steps were taken on 24 December 2008 with a view to confirming or validating or putting beyond doubt what had been done on the earlier occasion. In the intervening period, ten members, accounting for almost 140 million units, delivered notices requiring redemption of units. One of these was J P Morgan Nominees Australia Ltd (which I shall call "JPM"). The plaintiff declined to redeem the units held by the ten members. 4 JPM is named as one of two defendants in the originating process. The other named defendant is ACIRT Pty Ltd ("ACIRT"). ACIRT is a holder of units in respect of which no request for redemption was made within the relevant period. 5 The plaintiff's intention is that JPM, as first defendant, should be the representative of all the unit holders who delivered redemption requests during the relevant period, while ACIRT, as second defendant, should be the representative of all the unit holders who did not do so. By an amended interlocutory process heard by me on 16 February 2009, the plaintiff sought representative orders accordingly. 6 ACIRT is content to play the representative role envisaged for it. JPM, by contrast, resists any order that it be made a representative defendant. JPM contends that Professional Associations Superannuation Ltd ("PASL") should be appointed to represent the persons entitled to units in respect of which relevant redemption requests were made. PASL was therefore made a party to the amended interlocutory process so that the plaintiff might advance an alternative claim with a view to appointment of PASL accordingly 7 PASL is one of several entities for which JPM holds units as a nominee or bare trustee. The units held by JPM for PASL were the subject of a redemption request made by JPM within the period 28 November 2008 to 23 December 2008. PASL, for its part, is unwilling to be appointed and maintains that JPM is an appropriate representative defendant. 8 There is no submission that the case is not apt for the appointment of representatives of the two classes of unit owners, that is, those in respect of whose units redemption requests were made within the relevant period and those in respect of whose units no such request was made. The relevant provision of the Uniform Civil Procedure Rules 2005 is rule 7.6: "(1) In relation to proceedings concerning: (a) the administration of a deceased person's estate, or (b) property the subject of a trust, or (c) the construction of an Act, instrument or other document, where a person or class of persons is or may be interested in or affected by the proceedings, the court may appoint one or more of those persons to represent any one or more of them.

(2) A person or persons may not be appointed under subrule (1) unless the court is satisfied of one or more of the following: (a) that the person or class, or a member of the class, cannot, or cannot readily, be ascertained, (b) that the person or class, or a member of the class, although ascertained, cannot be found, (c) that, although the person or class, or a member of the class, has been ascertained and found, it is expedient for the purpose of saving expense (having regard to all of the circumstances, including the amount at stake and the degree of difficulty of the issue or issues to be determined) for a representative to be appointed to represent any one or more of them.

(3) For the purposes of this rule, persons may be treated as having an interest or liability: (a) even if, in relation to one or more of them, the interest or liability is a contingent or future interest or liability, or (b) even if one or more of those persons is an unborn child.

(4) This rule does not limit the operation of rule 7.10." 9 The proceedings are, clearly enough, proceedings "concerning … property the subject of a trust" (rule 7.6(1)(b)). The property concerned is the scheme property out of which valid redemption requests are liable to be satisfied. That that property is trust property is made clear by s 601FC(2) of the Corporations Act which, dealing with a registered scheme, says that the responsible entity holds scheme property on trust for scheme members. The power arising under rule 7.6(1) is therefore exercisable, subject to the other provisions of the rule. 10 The parties who appeared upon the hearing of the amended interlocutory process consider the case to be within rule 7.6(2)(c) and, with no argument to the contrary having been put and the proposition about cost-saving on which that provision is based having apparent validity, I accept that rule 7.6(2)(c) is satisfied. 11 In the absence of any submission that representative appointments should not be made and with ACIRT content to represent the owners of units in respect of which no redemption request was made within the relevant period, I turn to the question of who should represent the owners of units in respect of which redemption requests were made within the period. I do so on the footing that the candidates are JPM and PASL, that neither wishes to be appointed, that each submits that the other is an appropriate appointee and that the plaintiff is content to see either appointed. 12 The full constitution of the scheme is not yet in evidence. I note, however, s 601GB of the Corporations Act: "The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity." 13 I infer from this that the constitution of the scheme has been structured so that it is binding on and legally enforceable as between the plaintiff and the "members" of the scheme - that is, in terms of the s 9 definition of "member", the persons who "hold" interests in the scheme. Furthermore and in light of the provisions concerning the register of members of a registered scheme (particularly s 167A, s 168(1)(a) and s 169(6A)(c)), I proceed, for the purposes of the present application, on the footing that only a registered holder of units is within the Act's concept of "member" in relation to a registered scheme. 14 Having regard to what is actually before me, the central question is, I think, which of a registered holder of units (JPM) and a person for whom a registered holder holds units as nominee (PASL) is, in the particular circumstances of this case, a more appropriate representative of "persons … [who] may be interested in or affected by the proceedings". 15 In one sense, the description applies more aptly to JPM than to PASL. I say this because PASL has no rights directly against the plaintiff and the plaintiff owes no obligations directly to PASL. If the collection of provisions that is, in accordance with s 601GB, "legally enforceable as between the members and the responsible entity" were somehow contravened by the plaintiff as responsible entity, it is JPM that would have a right of action against the plaintiff. If JPM neglected or declined to proceed against the plaintiff in respect of the contravention I have hypothesised, it would not be open to PASL to do so directly. PASL, as the beneficiary of the bare trust on which JPM held the units, would have to obtain an order from a court of equity enabling it to use JPM's name in the proceedings or appointing a receiver of the cause of action: Sharpe v San Paulo Railway Co (1873) 8 Ch App 597 at 610. 16 Prima facie, therefore, it is the registered holder having the legal relationship with the responsible entity that might be considered the appropriate party to proceedings concerning alleged non-compliance with or the effect of the constitution of the managed investment scheme.

17 JPM contends, however, that PASL is a more appropriate party as representative of the relevant class. JPM makes several points in support of that contention. 18 JPM points out that it is PASL, rather than JPM itself, that has a commercial and financial interest in the outcome of the proceedings; also that PASL has canvassed direct with the plaintiff objections and concerns it has about events preceding the actions of 28 November 2008 and events associated with those actions. PASL, which has the commercial and financial interest, has seen fit to pursue in correspondence with the plaintiff arguments relevant to that interest. The same course should be followed in the proceedings, says JPM: if PASL has manufactured the bullets, it is better that PASL be left to fire them itself rather than to load them into the magazine of a trigger-shy JPM. 19 JPM further submits that, while PASL as the beneficial owner of units registered in JPM's name is clearly "interested in or affected by the proceedings" (to quote the words in rule 7.6(c)), the same cannot be said of JPM itself. JPM, as a bare trustee, considers itself to have no real or separate interest in the proceedings - its interest is no more or less than a reflection of the interests of the persons for whom it holds units upon a bare trust. 20 This raises another issue. JPM holds units for more than one underlying owner. A redemption request was made in the relevant period in respect of only part of the units held by JPM, being the units it held for PASL. JPM is thus in a position where its pursuit of the interests of PASL in this litigation might be contrary to the interests of other persons for whom JPM held units at the time and continues to hold units. JPM thus has a divided allegiance that will in all probability impel it to seek judicial advice in relation to executing the role of representing the interests of one group of underlying unit owners only. 21 The points made by JPM have substance. The real protagonist is PASL and the evidence makes it clear that PASL has made forceful and reasoned complaints to the plaintiff about the actions of November and December 2008 concerning suspension of redemptions. Those complaints may be taken to reflect the interests of all persons who are the beneficial owners of units sought to be redeemed in the relevant period, including beneficial owners who are also registered holders. JPM, by contrast, has no financial interest in the outcome of the controversy. And, having regard to observations of Gummow ACJ, Kirby J, Hayne J and Heydon J in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 82 ALJR 1425, it is, I think, virtually certain that JPM would wish to seek judicial advice about its approach to the representative role (as in the analogous case of Re Avanteos Investments Ltd [2008] NSWSC 370). After referring to the court's power under s 85 of the Trustee Act 1925 to excuse a breach of trust after the event and the power under s 63 to give judicial advice to trustees, their Honours said (at [36]): "The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused from is failure to seek s 63 advice." [emphasis added] 22 If PASL were the representative defendant, the possibility that time and expense would be devoted to an application for judicial advice would, it seems, be avoided and opposition to the plaintiff would be offered by a real protagonist, having an interest apparently coinciding with that of each other person (whether or not a registered holder) beneficially owning units in respect of which redemption requests were made within the period. 23 An analogy of sorts might be drawn with a case where there has been no grant of probate or administration but it is necessary for the estate to defend proceedings. Speaking of that situation, Hutley JA said in Government Insurance Office (NSW) v Johnson [1981] 2 NSWLR 617 at 623: "The basic principle which should govern the appointment of somebody who does not do so in fact and law to represent the estate is that there should be someone with a real interest before the Court to contest the liability which it is sought to visit on the estate. Discussing 15 and 16 Vict c 86 s 44, the remote ancestor of the present rule, Romilly MR in Gibson v Wills (1856) 21 Beav 620; 52 ER 999 said: 'It is clear that there is a hostile question for discussion, and no representation having been taken out to either of the deceased daughters, the Plaintiffs ask the Court to appoint a nominee of their own to represent their adversaries. If appointed, he may make a feeble defence, and a decree may be obtained which will be binding on those absent. The object of the statute was this: Where you have real litigating parties before the Court, but it happens that one of the class interested is not represented, then, if the Court sees that there are other persons present who bona fide represent the interest of those absent, it may allow that interest to be represented; but it will not allow the whole adverse interest to be represented.' See also Fowler v Bayldon (1853) 9 Hare App II 78; 68 ER 802." 24 Hutley JA added (at 624): "A wholly uninterested party should never represent an estate against which an adverse claim is being made." 25 The analogy with the situation before the Court of Appeal in that case is by no means complete, in that there is, in the present case, someone to "represent the estate": JPM, as bare trustee, stands in a legal position to do so. Also, JPM cannot, strictly speaking, be regarded as "wholly uninterested", since its duties as a bare trustee require it to uphold the trust. But in a practical sense, the position is one in which PASL is a "real litigating party", so far as concerns the interests of the beneficial owners (whether or not also registered holders) of units in respect of which redemption requests were made. And where a registered holder is not also the beneficial owner, it cannot, it seems to me, have any different or other interest. 26 Section 56 of the Civil Procedure Act 2005 identifies, as the "overriding purpose" of that Act and the rules of court, the facilitation of "the just, quick and cheap resolution of the real issues in the proceedings". In a case similar to this that arose last year, Hammerschlag J took into account the saving of costs as a factor in deciding among reluctant and non-consenting candidates for appointment as a representative defendant: see Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 555; (2008) 66 ACSR 580 at [39].

27 In my opinion, several circumstances combine to make PASL the appropriate representative according to the s 56 criteria: first, PASL appears to be prepared already to run arguments of substance in opposition to the grant of the relief the plaintiff seeks; second, those arguments will promote the cause of all owners of units whose attempts to redeem were blocked by the measures to which the proceedings relate; and, third, PASL will, it appears, not make a preliminary application for judicial advice so that time and expense will be saved. 28 Although a submission to the contrary was foreshadowed, PASL ultimately accepted that JPM, as the registered holder of units, will not be a necessary party to the proceedings if PASL is, as envisaged by the amended interlocutory process, appointed "to represent the holders of units in the Fund (including legal and beneficial holders) in respect of which a request for redemption of units was lodged on or after 27 November 2008 and before 24 December 2008". 29 I am satisfied that this formulation, although encompassing both registered holders and beneficial holders, sufficiently delineates the relevant class, although I am inclined to vary the wording to read: "to represent the class consisting of all persons having interests in those units in the Fund in respect of which requests for redemption were lodged on or after 27 November 2008 and before 24 December 2008 (including the registered holders of those units)." 30 I shall make a representative order generally of the kind the plaintiff seeks in respect of the units redemption of which was sought within the period in question. PASL will be appointed representative. I shall hear submissions on the precise form of order. An order appointing ACIRT as representative in respect of the other class of units will also be made. The question of the costs of the amended interlocutory process is at this stage reserved. **********

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