Re Challenger Managed Investments Limited as responsible entity for Challenger Howard Mortgage Fund [2011] NSWSC 213

Supreme Court of NSW|2011-03-10|Before: White J

Judgment 1HIS HONOUR : The plaintiff ("Challenger") is the responsible entity of a registered managed investment scheme called the Challenger Howard Mortgage Fund ("the Fund"). The Fund is an express trust. It seeks advice under s 63 of the Trustee Act 1925 as follows: "1. A direction pursuant to section 63 of the Trustee Act 1925 (NSW) or the Court's inherent jurisdiction that the plaintiff is justified, in relation to unitholders and units in the Challenger Howard Mortgage Fund ARSN 090 464 074 ( CHMF ) referred to in the letters from Direct Share Purchasing Corporation Pty Limited ( DSPC ) to the Plaintiff dated 19 January 2011 and 26 January 2011, in refusing to: (a) Register the transfer of those units in CHMF to DSPC or to any third party; (b) Make any distributions to DSPC or to those unitholders; (c) Pay any redemption proceeds to DSPC or to those unitholders, until further direction or order of the Court. 2. A direction pursuant to section 63 of the Trustee Act or the Court's inherent jurisdiction that the plaintiff is justified in holding any distributions with respect to unitholders in paragraph 1 above in a separate bank account, until further direction or order of the Court. 3. A direction pursuant to section 63 of the Trustee Act or the Court's inherent jurisdiction that the plaintiff is justified in treating the entry of the unitholders in paragraph 1 above in the Register of CHMF as being conclusive evidence of those unitholders' title to units notwithstanding the request for transfer of units made by DSPC pursuant to DSPC's letters to the Plaintiff dated 19 January 2011 and 26 January 2011, until further direction or order of the Court. 4. Such further directions or advice as the Court thinks necessary after service of this Summons on the persons referred to in the Schedule to this Summons. " 2Section 63 relevantly provides: " 63 Advice (1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction. ... (4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application. ... (8) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution. ... (10) Any person who claims that the person's rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Court, apply to the Court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution. (11) Subject to subsection (10), and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance with subsection (8), shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings to which the person was a party. " 3On 22 February 2011 Gzell J made orders in relation to service of the summons, supporting affidavit and statement of facts. The persons served included Direct Share Purchasing Corporation Pty Limited ("DSPC"). DSPC appeared through counsel on the hearing of the application for judicial advice.

The Constitution of the Fund 4The Fund is a unit trust. Clause 10 of the trust deed as amended provides that units may be created and issued in the amount of $1 per unit. Clauses 20 and 22 provide: " 20. REGISTER The Responsible Entity will establish a unit register ( Register ). The Responsible Entity may establish branch registers anywhere in Australia. The Responsible Entity need not enter notice of any trust on the Register. The Responsible Entity may treat the registered Holder as the holder and absolute owner of the Units registered in that Holder's name and will not be bound to take notice of any trust or equity affecting any Unit. Entry on the Register is conclusive evidence of a Holder's title to Units. ... 22. TRANSFERS Subject to the Act, Holders may transfer Units in such manner and subject to such conditions as the Responsible Entity from time to time prescribes. A transfer of Units takes effect only when recorded in the Register. The Responsible Entity is not obliged to register a transfer where the transferee does not meet the Responsible Entity's criteria for a Holder, the transfer is not duly stamped (where required), or any amount is payable by the transferee to the Responsible Entity in respect of any of the transferor's Units. " 5Clauses 12 and 13 contain elaborate provisions in relation to the redemption of units. Clause 12 provides that a Holder may make a Redemption Request if the Responsible Entity so determines in its discretion. The clause provides that the Responsible Entity may also make available an opportunity for Holders to make a Redemption Request, known as a Redemption Gate. Provided the trust is liquid, redemptions may be effected pursuant to a Redemption Gate. Clause 12 provides that at least once before 31 December 2010 the Responsible Entity was to make available a Redemption Gate under which each Holder might redeem not less than 20 per cent of the units held by each Holder and from 1 January 2011 is to make available on at least four occasions per year a Redemption Gate under which each Holder might redeem not less than 10 per cent of the units held by each Holder. However the obligation to make available such Redemption Gates is subject to the Responsible Entity's reasonably considering that the trust has sufficient liquid assets and that the redemption of units under a Redemption Gate is in the best interests of Holders as a whole. Each unit to be redeemed would be redeemed for one dollar. If there were more Redemption Requests than funds that the Responsible Entity determines should be available to effect a redemption at any Redemption Gate, a pro rata percentage of the units requested to be redeemed would be redeemed. Separate provision is made for small balance holders and for holders whom the Responsible Entity considers are likely to experience hardship if not allowed to withdraw. 6Clause 32 provides for Distributable Income to accrue to Holders on a daily basis in proportion to the amount of Distributable Income referable to the class in which they hold Units and to the number of Units they hold in that class. Such Distributable Income is to be credited to a distribution account for the Holders. Holders at the close of business on the last day of a Distribution Period are entitled to the balance of the distribution account. Clause 32 provides that the amount will be distributed to registered Holders in each particular class as at the close of business on the last day of the Distribution Period. 7" Holder " is not defined. Clause 1 provides that the constitution is binding upon " the holders ( Holders ) of units in the Trust ( Units ) and the Responsible Entity ". Clause 20 quoted at para [4] above provides that the Responsible Entity may treat the registered Holder as the holder and absolute owner of Units registered in that Holder's name.

Challenger's withdrawal offer 8The product disclosure statement for the Fund dated 30 November 2008 stated that the Fund would be invested in a diversified portfolio of primarily commercial mortgage loans and interest-bearing securities. The investment objective was to provide investors with a diversified income-producing portfolio that aimed to provide regular income and capital stability. 9That product disclosure statement stated that the Fund was illiquid (as defined by the Corporations Act 2001 (Cth)) and unitholders were only able to withdraw from the Fund if Challenger made an offer of withdrawal. 10On 15 September 2010 Challenger provided unitholders with a supplementary product disclosure statement that recorded that a meeting of unitholders had been convened to be held on 28 October 2010 to amend the Fund's constitution to provide unitholders with certain opportunities to withdraw units in the Fund. On 29 October 2010 Challenger issued a second supplementary product disclosure statement that revoked the statement of 15 September 2010. It set out procedures for investors to request withdrawals from the Fund. This product disclosure statement recorded that Challenger intended from on or around 1 November 2010 to make approximately $850 million of the Fund's net assets available for investors seeking to withdraw. Approximately $150 million would be provided to allow Small Balance Investors with an account balance of $10,000 or less to redeem in full if requested and at least $700 million would be available for other investors to make withdrawals. The statement of 15 September 2010 recorded that the $700 million represented at least 32 per cent of the total value of the fund.

DSPC's offers to unitholders 11According to the Statement of Facts, on or around 15 November 2010 DSPC wrote to unitholders of the Fund offering to acquire their units at a price below the unit price for the units. The offer by DSPC to unitholders was to buy their units in the Fund for 30 cents each. The offer document included in capital letters and in a box and under the underlined heading " Important " statements that DSPC was not related to or associated with the Fund or the responsible entity and that its offer was independent of and separate from the special withdrawal offer sent to unitholders by the Responsible Entity by letter dated 1 November 2010. This was repeated on another page. 12DSPC's offer provided that if a unitholder accepted the offer, but also made a withdrawal request under the Special Withdrawal Offer, then DSPC would purchase the units held by the unitholder (if any) immediately after completion of the Special Withdrawal Offer. 13The offers of DSPC to purchase units were regulated by Division 5A of Part 7.9 of the Corporations Act . Section 1019I(2)(c) required that the offer document contain a fair estimate of the value of the units as at the date of the offer and an explanation of the basis upon which that estimate was made. DSPC stated that its fair estimate of value of a fund unit was one dollar. In setting out the basis for that estimate DSPC said, amongst other things: " The ASIC benchmark report states that for a withdrawal from the Fund, you will receive $1 for each unit redeemed, adjusted by adding any accrued (but unpaid) income entitlement or deducting any accrued income deficiency, and less any applicable withdrawal fee. DSPC therefore considers that on the basis of the above information a fair estimate of the value of a unit in the Fund at the date of the Offer is $1. The above fair estimate of value is provided by DSPC to satisfy a legal requirement that a person making an offer of this kind must provide such an estimate. It is provided in good faith. However, neither DSPC nor its director is qualified to provide valuations and this estimate should not be considered to be a valuation. DSPC makes no representation as to the amount you may receive for your units other than through acceptance of the Offer. If you wish to obtain a valuation of your units, you should consult an appropriately qualified valuer. " 14The offer document included in the middle of the form and in large bold type the statement: " Acceptance Form Challenger Howard Mortgage Fund " 15It also provided in a prominent box " Amount payable to you " (based on your holding on 27 August 2010). A figure, being the price payable if the offer were accepted, was then inserted in prominent black type. 16It was a term of the acceptance that the unitholder accepting DSPC's offer appointed DSPC as his or her attorney to exercise all powers and rights attaching to or arising from the holding of his or her units and to execute any document required by the Responsible Entity or the constitution of the Fund as a condition of the transfer of all or any of the units, and to perform any act or execute any other document necessary or desirable to enable or effect the transfer of all or any of the units or the receipt by DSPC of any payment made in respect of the units. The power of attorney was expressed to be irrevocable and to have been granted to protect the proprietary interest of DSPC in the units.

Correspondence from Challenger to unitholders 17On 26 November 2010 Challenger wrote to unitholders concerning the offers made by DSPC. Challenger stated: " We have recently been contacted by some investors who have accepted DSPC Offer dated 15 November 2010, but now think that they have made a mistake and have asked Challenger for assistance. Challenger is obliged to act in accordance with the Fund constitution and product disclosure statement for the Fund and cannot become involved in any dispute between an investor and a third-party purchaser of units such as DSPC. Where a valid unit transfer request is received by Challenger it will be processed in accordance with the Fund constitution. " 18Challenger then provided advice to unitholders who might have accepted the offer from DSPC that if they transferred their units to someone else prior to 10 December 2010 (when payment under the special withdrawal offer would be made) and the transfer was registered before 10 December 2010, then the unitholders would not hold any units to sell to DSPC at the relevant time.

Correspondence from DSPC to Challenger 19On around 14 December 2010 Challenger received a letter from DSPC dated 11 December 2010 attaching certified copies of 170 acceptance forms received by DSPC as a result of its offer to unitholders. Acting under the irrevocable powers of attorney, DSPC directed Challenger to amend the address on the register of members to its address and to terminate any participation in any withdrawal facility and to change account details for the credit of future payments in respect of a unitholder's holding to an account of DSPC with Westpac. It also directed Challenger to forward to the new registered address a statement showing movements in the unitholders' holdings since 1 November 2010 and the unitholders' current balance and account number. 20By 21 February 2011 Challenger had acted on that direction in respect of 105 unitholders by amending the address and payment details for the unitholders in accordance with DSPC's letters. The details for 55 unitholders were not updated because the account had been closed prior to the receipt of DSPC's letter. Details for nine other unitholders were not amended because of issues concerning signatures. Details for one unitholder were not amended because countermanding instructions were received. 21Between about 19 January and 26 January 2011 Challenger received correspondence from DSPC enclosing 106 transfer forms. Challenger has not registered the transfers.

Correspondence from unitholders 22Challenger has received correspondence or enquiries from 18 unitholders or persons acting on their behalf disputing the enforceability of contracts with DSPC or querying why account details had been changed. Submissions were made to Challenger on behalf of many of these persons. Submissions were made to Challenger on behalf of one unitholder (said to be an 83-year-old widow living in a retirement village) to the effect that she had invested $50,000 in the purchase of units in the Fund, but withdrawals had been frozen in about October 2008. It was submitted for her that she decided to accept Challenger's special withdrawal offer of 1 November 2010 and lodged a withdrawal request. It was submitted for her that she received advice from Challenger that her application had been received and would be processed, and approximately two days later received correspondence with a subheading in a large format which included the statement " Acceptance Form Challenger Howard Mortgage Fund " and understood that this was further correspondence from Challenger in relation to her proposed withdrawal. It was submitted for her that she signed and returned the acceptance form under the mistaken belief that she was executing documentation required for her withdrawal of units as offered by Challenger. It was submitted for this investor that she was of the view that the offer from DSPC was "open" until 14 January 2011 and that after receipt of Challenger's letter of 24 November 2010, but before that date she transferred her units to her son, I infer in order to escape the consequences of her acceptance of DSPC's offer. She has instructed Challenger to deal with her units in accordance with the transfer to her son. 23Submissions were made to Challenger for another unitholder who is said to be an 80-year-old widow who has given a power of attorney to her daughter. The attorney said that she signed and returned a withdrawal form for her mother's units received from Challenger and that when she received a further form from DSPC which had the words " Acceptance Form Challenger Howard Mortgage Fund " printed on it, she assumed it was also from Challenger and caused that form also to be signed and returned. 24The solicitor for another investor provided an affidavit to Challenger deposing to his client's instructions that the client believed the offer document from DSPC was an offer from Challenger which allowed him to make a further redemption, and that he would not have signed the form had he understood that it would lead to the transfer of his remaining units to a third party. The submission made for this investor was that the investor was aged 74, had little education, having left school at the age of 14, and suffers from poor health. 25Submissions to Challenger made on behalf of another investor who had accepted DSPC's offer stated that the investor signed the form of acceptance under the mistaken belief that it was from Challenger. The solicitors for this investor stated that he was 78 years old and a migrant from Italy with limited English. The solicitors wrote to Challenger requesting it to confirm that it would not register the transfer of units. 26A similar statement was made on behalf of another investor upon whose behalf it was said that she had been duped or tricked into assuming that she was dealing directly with Challenger and that she would not knowingly have signed an authority to deal with DSPC. 27Another investor complained to Challenger that she was informed that her account details had been changed to DSPC. She asserted that she had had no contact with that company and requested that the balance of her fund be returned to her as soon as possible. It can be inferred that she asserts that she was unaware that she was dealing with DSPC. Other investors have also said that they signed the documents received from DSPC under mistake.

Challenger's submissions 28The circumstances of the present application are similar to those I considered in Re Perpetual Investment Management Limited [2011] NSWSC 133 which was handed down the day before the hearing of the present application. Both applications concern offers made by DSPC to holders of units in unit trusts that are designed to provide income and stable capital. The nature of the trusts is that unitholders are likely to include the elderly. In both cases the offers were for a fraction of DSPC's estimate of fair value, but this is clearly stated in the offer documents. Counsel for Challenger submitted that substantially the same judicial advice ought to be given as was given to Perpetual, namely that Challenger would be justified in refusing to register the forms of transfer to DSPC pursuant to transfer documentation executed by DSPC under powers of attorney, unless unitholders indicated to Challenger that they wished the transfers to be registered. Counsel submitted that Challenger should be advised that it would be justified in distributing income and paying redemption amounts in respect of any requests for redemption received after receipt of the transfer documentation to the registered unitholders. Counsel for Challenger also submitted that it would be appropriate to provide advice that Challenger was justified in amending the register to reflect the address and payment details of the relevant unitholders as at 1 November 2010 unless otherwise directed by those unitholders.

DSPC's submissions 29Counsel for DSPC submitted that the application for judicial advice should be dismissed because of procedural irregularities. First, the relief claimed in the summons was not materially consistent with the orders sought at the hearing. Secondly, evidence was adduced by Challenger by affidavits which went well beyond the statement of facts. Thirdly, that the statement of facts did not state the question for opinion advice or direction and therefore did not comply with r 55.1(1)(c) of the Uniform Civil Procedure Rules 2005. To the extent that the statement of facts did not state facts referred to in affidavits read at the hearing, the statement also failed to comply with r 55.1(1)(b). Fourthly, not all of the persons on whom service was directed were served and persons were not served with all of the affidavits relied upon. Fifthly, the advice should be refused because of delay in bringing the application. 30I do not accept these submissions for the following reasons. 31The orders sought by counsel for Challenger are consistent with the claims for relief in the summons. In any event, the orders that the court can make in giving advice or direction pursuant to s 63 of the Trustee Act are not confined to the orders sought by the trustee. 32Whilst there has been some non-compliance with r 55.1 of the Uniform Civil Procedure Rules, that irregularity does not affect the validity of the proceedings. DSPC did not seek an adjournment to deal with the evidence contained in late affidavits. 33Service was effected in accordance with the orders of Gzell J. Those orders permitted service at the addresses of the seven named unitholders which had been notified to Challenger. At least one unitholder did not receive the documents personally because she was in hospital, but that does not affect the validity of service. None of the unitholders appeared on the application. The fact that Challenger relied on later affidavits not served on those unitholders does not affect the application. 34I do not consider that there has been any serious delay in bringing the application. Challenger's initial position as expressed in its correspondence of 26 November 2010 was that it would register transfers submitted by DSPC. That position appears to have changed as a result of a growing number of unitholders having written to Challenger or having told staff employed by Challenger that they had not signed documents for DSPC, or did not understand that they had done so. Challenger is entitled to the protection of judicial advice. 35Counsel for DSPC also submitted that the direction sought by Challenger did not concern the management or administration of trust property, but rather the entitlement of persons to be registered as the " legal holder " (sic) of units in the fund and consequently did not fall within the jurisdiction conferred on the court by s 63(1). 36I dealt with the same argument in Re Perpetual Investment Management Limited at [45]-[51]. I reject that argument for the reasons I there gave. 37DSPC also submitted that advice should be refused because such advice would prejudge proceedings that DSPC could take under s 1017F of the Corporations Act to compel Challenger to register the transfers, and for this reason it would not be appropriate to exercise the power conferred by s 63. 38I dealt with the same argument in Re Perpetual Investment Management Limited at [54]-[62]. DSPC accepted that this reasoning should be followed at first instance. 39DSPC also submitted that whilst the summons seeks directions from the court, in truth what is sought is an interlocutory injunction albeit not at the suit of affected unitholders. It submitted that the court has no jurisdiction to provide such interlocutory relief under s 63, or it would be inappropriate to do so in proceedings which are not adversarial in nature. The same argument was advanced in Re Perpetual Investment Management Limited (at [71]). I reject it for the same reasons.

What advice should be given? 40Challenger is not under a statutory obligation to register the transfers ( Re Perpetual Investment Management Limited (at [63]). Under the constitution of the Fund a unitholder is entitled to transfer his or her units in such manner and subject to such conditions as Challenger from time to time prescribes. There is no suggestion that the transfers do not comply with any conditions prescribed by Challenger in respect of such transfers. Nor is it suggested that DSPC does not meet Challenger's criteria for a holder, or that any amount is payable by it to Challenger in respect of any of the transferring unitholders' units. The transfers have been duly stamped. 41In Re Perpetual Investment Management Limited , I said that in the circumstances disclosed on that application, Perpetual would be justified in acting on the basis that there is no presumption that the contracts entered into between DSPC and accepting unitholders were binding and it was not required to assume any answer to that question except in the case of the unitholders who confirmed that they wished to proceed with the transfer of units. As Perpetual would be justified in not assuming that the contracts entered into as the result of the acceptances of DSPC's offers were binding, it would be justified in not registering the transfers of those unitholders who had not responded to the circular and questionnaire sent by Perpetual to unitholders, unless a unitholder confirmed that he or she wished the transfer to be registered. I gave that advice in the context of there being apparently serious questions to be tried between DSPC and unitholders in relation, amongst other things, to whether DSPC took unconscientious advantage of positions of special disadvantage under which offerees who accepted DSPC's offer may have suffered. The potential for such claims was revealed by the gross disparity between the offered price and DSPC's own stated estimate of fair value of the units to be acquired. Any rescission of contracts so entered into would operate ab initio and the grant of powers of attorney would also be liable to be rescinded. In other words, because of doubts as to the validity of the assignments to DSPC, I advised Perpetual that it would be justified in not registering the transfers unless unitholders confirmed that they wished the transfers to proceed; leaving it to DSPC to bring proceedings against the accepting unitholders to compel registration of the transfers. The question of the validity of the transfers would be determined in those proceedings (at [64]-[73]). 42Counsel for Challenger submits that the same reasoning applies to the present case. Counsel for DSPC submitted that there were significant factual differences that warranted different advice. Those differences were: (a) that by its letter of 26 November 2010 to unitholders, Challenger had stated that it would process a valid unit transfer request in accordance with the Fund's constitution; (b) clause 22 of the constitution of the Fund was in different terms from the provisions in the constitutions of the two unit trusts in the Perpetual decision; (c) Challenger had already acted on the powers of attorney by changing address and bank account details; and (d) there was no similar evidence such as was adduced by Perpetual of circulars or questionnaires having been sent to accepting unitholders to elicit their attitude to registration of the transfers, and their attitudes to the transactions. 43I do not accept DSPC's submissions. The fact that Challenger's initial position was that it would register valid transfers creates no estoppel and does not preclude it from seeking or obtaining judicial advice that it would be justified in adopting a different position. Likewise the fact that it has acted on the powers of attorney to the extent that it has amended address and bank account details in its records is not a relevant point of difference. Those records are primarily for Challenger's administrative convenience to ensure that distributions are made to the persons entitled to them. Income is distributable to the holders of units. Whilst there is no definition in the constitution of who is a "holder", Challenger is justified in proceeding on the basis that it means the person registered as such. Notwithstanding its having acted on the powers of attorney to the extent of amending its records, Challenger would be justified in re-amending its records if it is justified in not registering the transfers unless ordered to do so. That would ensure that its records reflect the identity of the persons who, for the time being, are entitled to distributions from the Fund. 44Clause 22 does not confer a general discretion on Challenger to refuse to register a transfer. In this respect it is in the same position as clause 18 of the constitution of the Monthly Income Fund that was in question in Re Perpetual Investment Management Limited (see at [7]). A unitholder who wishes to transfer his or her units to DSPC is entitled to do so. It does not follow that DSPC is entitled to register the transfers, unless it has entered into enforceable contracts with the unitholders. As in Re Perpetual Investment Management Limited , Challenger is not obliged to assume that the contracts between DSPC and the accepting unitholders are enforceable. That is a question between DSPC and those unitholders. 45It is true that the materials in relation to the position of the accepting unitholders on the present application is not as extensive as the materials adduced in Re Perpetual Investment Management Limited . Challenger has not written to the accepting unitholders to enquire of them whether they wish to proceed with the transfers. Nor has it sought to elicit from the unitholders any statements as to their understanding of the transactions with DSPC. The evidence adduced on this application as to the position of unitholders was only in respect of the 18 unitholders who have contacted Challenger. By contrast, in Re Perpetual Investment Management Limited , the overwhelming majority of unitholders said that they did not wish to proceed. 46Moreover, there are differences between the two proceedings in relation to the value of DSPC's offers and the circumstances of the funds. In the case of unitholders who accepted Challenger's special withdrawal offer, DSPC's offer was only for the balance of their unitholding after partial redemptions had been effected. The Fund had been illiquid since October 2008. There might be good reason for unitholders to accept 30 cents for their units when there was no guarantee as to when or whether they would be able to redeem the balance of their capital. 47Whilst there are such factual differences, there are also similarities. There is a gross disparity between the price offered by DSPC and DSPC's own fair estimate of value, indicating the potential for claims that contracts with unitholders are liable to be rescinded. A significant number of unitholders have informed Challenger that they do not wish the transfers to be registered, or have acted inconsistently with wishing the transfers to be registered. Some unitholders arguably occupy a position of special disadvantage by reason of age, health or capacity for understanding the materials provided. 48This application for judicial advice is not the occasion for considering the strength of any defences that unitholders might advance to resist enforcement of contracts with DSPC. Challenger is not required to assume that the contracts between DSPC and accepting unitholders are enforceable. Whilst it could not be criticised if it registered the transfers, it would be justified in refusing to do so, thus leaving it to DSPC to enforce its contracts. The position would be different if unitholders inform Challenger that they wish it to register the transfers. If Challenger refuses to register the transfers, it should inform unitholders of its position so that those unitholders who wish to proceed with the contracts with DSPC (and thereby receive the offered price and avoid the threat of litigation) can do so. 49In the meantime, income should be distributed to those persons registered as unitholders in accordance with the constitution. For these reasons, I order as follows: 50Order that the Court advises the plaintiff that: (a) subject to paragraph (b), the plaintiff would be justified in refusing to register the forms of transfer of units in the Challenger Howard Mortgage Fund (CHMF) to Direct Share Purchasing Corporation Pty Ltd (DSPC) pursuant to the transfer documentation executed by DSPC under powers of attorney granted by currently registered unitholders (Relevant Unitholders) that is contained in tabs 12, 13 and 14 of exhibit MAC-1 to the affidavit of Michelle Anne Court sworn 21 February 2011 and tab 7 to exhibit LSR-1 to the affidavit of Lee Stuart Roche sworn 9 March 2011, provided that the plaintiff write to the Relevant Unitholders at the last address notified to the plaintiff by such unitholders to ascertain whether it is their wish that such forms of transfer of units be registered; (b) if unitholders indicate to the plaintiff that they wish the transfers to be registered (otherwise than by having signed an acceptance form in the form contained in tab 3 of exhibit SOF-1 to the Statement of Facts) then the plaintiff would be justified in registering such transfers in respect of those unitholders; (c) the plaintiff would be justified in refusing to register transfers of units in CHMF to DSPC pursuant to such transfer documentation in respect of those unitholders who: (i) have not indicated to the plaintiff whether or not they wish the transfers to be registered (otherwise than by having signed an acceptance form in the form contained in tab 3 of exhibit SOF-1 to the Statement of Facts); or (ii) have indicated to the plaintiff that they do not wish the transfers to be registered, until ordered to do so by a court of competent jurisdiction. (d) the plaintiff would be justified in distributing each Relevant Unitholder's proportionate share of income to such of the Relevant Unitholder or DSPC as is registered as the unitholder at the time, when, according to the constitution of CHMF, a unitholder's distribution of income is to be determined. (e) the plaintiff would be justified in paying the redemption amounts that have been realised in respect of requests for redemption received from Relevant Unitholders after receipt by the plaintiff of transfer documentation executed by DSPC under powers of attorney relating to the same units, to the Relevant Unitholders who made such requests and, until otherwise ordered by a court of competent jurisdiction, would be justified in continuing to process withdrawal requests made by such unitholders where requests have been only partially redeemed, for so long as those unitholders remain registered unitholders; (f) the plaintiff would be justified in amending the Register of CHMF to reflect the address and payment details of the Relevant Unitholders as at 1 November 2010 or as otherwise directed by the Relevant Unitholders; and (g) the plaintiff would be justified in paying its costs and expenses incurred in connection with these proceedings out of the assets of CHMF on the indemnity basis. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 July 2011

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