Reported Decision : 66 ACSR 580 New South Wales Supreme Court CITATION : Basis Capital Funds Management Limited v BT Portfolio Services Limited (ACN 095 055 208) [2008] NSWSC 555 HEARING DATE(S) : 2 June 2008 JUDGMENT OF : Hammerschlag J EX TEMPORE JUDGMENT DATE : 2 June 2008 DECISION : ANZ Nominesss Limited appointed representative defendant for continuing unit holders CATCHWORDS : PRACTICE AND PROCEDURE – Application to appoint parties as representatives of investors in certain managed investment schemes in respect of proceedings concerning the entitlements of those investors under the schemes – Uniform Civil Procedure Rules 2005 (NSW), r 7.6 – Application opposed by proposed representatives – Factors relevant to the exercise of discretion under r 7.6 – Determinative factor whether appointment of representative would be expedient and save expense LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) Corporations Act 2001 (Cth) CASES CITED : Avanteos Investments Limited (2008) NSWSC 370 Basis Capital Funds Management Limited as Responsible Entity of Basis Yield Fund (ARSN 107 898 948) PARTIES : Basis Aust-Rim Diversified Fund (ARSN 099 160 095) BT Portfolio Services Limited (ACN 095 055 208) and Others (according to the Schedule attached) FILE NUMBER(S) : SC 1137/2008 I M Jackman SC with JR Williams (Plaintiffs) P Kulevski (First Defendant) A G Bell SC (Second Defendant) COUNSEL : R M Foreman (Third Defendant) M. Moshinsky SC (Fourth Defendant) A Leopold SC with N C T Bilinsky for Bond Street Custodians Limited P J Brereton for Asgard Ms Chater, Solicitor, for WA Local Government Superannuation Plan Pty Limited Mallesons Stephen Jaques (Plaintiffs) Freehills (First Defendant) Henry Davis York (Second Defendant) SOLICITORS : Minter Ellison (Third Defendant) Allens Arthur Robinson (Fourth Defendant) HWL Ebsworth Lawyers (Bond Street Custodians Limited) Allens Arthur Robinson (Asgard) Deacons (WA Local Government Superannuation Plan Pty Limited) - 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST HAMMERSCHLAG J 2 JUNE 2008 1137/2008 BASIS CAPITAL FUNDS MANAGEMENT LIMITED AS RESPONSIBLE ENTITY OF BASIS YIELD FUND (ARSN 107 898 948) AND BASIS AUST-RIM DIVERSIFIED FUND (ARSN 099 160 095) -V- BT PORTFOLIO SERVICES LIMITED (ACN 095 055 208) AND OTHERS (according the the Schedule attached) EX TEMPORE JUDGMENT 1 HIS HONOUR: By interlocutory process, the plaintiff, which is the responsible entity of two managed investment schemes, seeks orders for the appointment of persons to represent the interests of investors in those schemes in proceedings which are set down for hearing on 24 and 25 June 2008 and which concern the rights and entitlements of certain unit holders (I shall refer to the investors where appropriate as unit holders). 2 There are three notional categories of unit holders, relevant for present purposes, in each of the funds. 3 The first consists of those who applied for units in June 2007 ("the applicants" or the first category); the second consists of those who submitted redemption requests in the June 2007 quarter in respect of which redemption would be effective on 2 July 2007 ("the redeemers" or the second category); and the third consists of those who fall into neither the first nor the second category ("the continuing unit holders"). 4 The proceedings arise because there is uncertainty with respect to the entitlements of the first two categories. Declaratory relief which will resolve that uncertainty is being sought by the plaintiff. 5 In the Basis Yield Fund (the "Yield Fund") there are 36 investors in the first category, 21 in the second and 822 in the third. 6 In the Aust-Rim Fund there are 27 in the first category, 21 in the second and 818 in the third. 7 There is an overlap of unit holders across the two funds in the third category. However, even taking account of that overlap, there are no less than 1,000 unit holders whose rights or entitlements are potentially affected by the relief sought in the proceedings. 8 The application is brought by interlocutory process dated 2 June 2008 for the appointment, pursuant to the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") Pt 7 r 7.6(1), for the appointment of a representative or representatives in relation to proceedings concerning the property of a trust. 9 The rule provides that in relation to proceedings involving a trust the Court may appoint one or more persons to represent any one or more of them. 10 Section 601FC(2) of the Corporations Act 2001 (Cth) provides that the responsible entity holds scheme property on trust for scheme members. It is not in issue that, by operation of s 601FC(2), r 7.6 UCPR is enlivened. 11 Rule 7.6(2) UCPR provides as follows: "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." 12 Orders are sought that the first defendant be appointed to represent members in the first category in both funds, and that the second defendant be appointed with respect to the second category. Those orders are not contentious and the parties who are sought to be made representatives consent to them, provided an order is made appointing an appropriate representative with respect to the third category. The condition which they impose for their consent arises as appears below. 13 On 24 April 2008, Barrett J gave judicial advice with respect to these proceedings at the instance of Avanteos Investments Limited (see Avanteos Investments Limited [2008] NSWSC 370). The second defendant is the sub-custodian of Avanteos and holds units in that capacity in both funds. His Honour's advice was in the context of a proposal that the second defendant be appointed representative defendant. His Honour's advice was that it was appropriate for the second defendant in its capacity as sub-custodian of Avanteos to be appointed to represent the redeemers in both funds provided, as His Honour put it, it would not participate as principal of the representative defendant unless it is satisfied that the interests of its beneficiaries other than redeemers are separately represented in the proceedings by respectable, responsible and adequately resourced financial institutions as representative defendants. 14 The consents of the first defendant and the second defendant are conditional upon such an order being made because this will meet the condition stipulated by the learned Judge. 15 Orders are accordingly sought for the appointment of a representative to the unit holders falling into the third category as well. 16 The plaintiff has put forward three alternatives. Because a number of the proposed appointees are reluctant protagonists and because there is an additional complication with respect to one of the proposals, it is necessary to deal with them in some little detail. 17 The first proposal is that ANZ Nominees Limited ("ANZ") which is the third defendant to the proceedings (in its capacity as sub-custodian of Synergy Capital Management Limited), be appointed to represent members of both the Yield Fund and the Aust-Rim Fund who are neither applicants nor redeemers. 18 The second (alternative) proposal is that Bond Street Custodians Limited, in its capacity as custodian of Macquarie Investment Management Limited, be substituted as the third defendant in the place of ANZ and then be appointed in equivalent fashion as is sought with respect to ANZ. 19 The third is that WA Local Government Superannuation Plan Pty Ltd (which I shall call WA), be appointed with respect to members of the Yield Fund who are neither applicants nor redeemers and that Asgard Capital Management Limited (which is associated with St George Bank) be appointed with respect to the Aust-Rim Fund in equivalent fashion. 20 All these named institutions, except for WA, resist appointment. 21 WA, however, does not satisfy the requirements of UCPR r 7.6 with respect to the Aust-Rim Fund because it does not have an interest in it. For this reason, if it is to be appointed, there will have to be an additional representative with respect to the Aust-Rim Fund. Hence the proposed appointment of Asgard. 22 On the application before me, the plaintiffs were represented by Mr Jackman of senior counsel together with Mr Williams. Mr Kulevski of Counsel appeared for the first defendant, Mr A G Bell of senior counsel for the second, Mr Foreman of counsel for the third, Mr Moshinsky of senior counsel for the fourth, Mr Leopold of senior counsel and Mr Bilinsky for Bond Street Custodians and Mr Brereton of counsel for Asgard. Ms Chater, solicitor, appeared for WA. 23 There was no issue that each of the suggested appointees is a financial institution which meets the requirement of being respectable, responsible and adequately resourced. 24 The Court was informed by counsel that their researches had revealed no authority illuminating the approach to be taken by the Court with respect to UCPR r 7.6 where there is non-consent (indeed opposition) on the part of a nominated proposed representative. 25 The rule does not make consent a prerequisite for appointment in contrast to UCPR 7.10(2)(b) which applies when a deceased person's estate has an interest in proceedings but is not represented or where executors or administrators of a deceased estate have an interest in the proceedings adverse to the interests of the estate. The sub rule is in the following terms: "The Court…may appoint a representative of the deceased person's estate for the purposes of the proceedings, but only with the consent of the person to be appointed." 26 The test posited by r 7.6(2)(c) is one of expedience for the purpose of saving expense having regard to all of the circumstance including the amount at stake and the degree of difficulty or the issue or issues to be determined. 27 Consent, all other things being equal, may be relevant as one factor to be taken into account but it is not, it seems to me, relevant where saving expense transpires to be the determining factor. 28 For this reason, I have formed the view that there should only be one representative rather than two. 29 Even though the firm of solicitors which has presently been retained for WA has properly suggested that if two representatives were appointed it would accept a retainer from both, I am not satisfied that the appointment of two representatives would not involve additional expense. Indeed, it seems to me that having two representatives will almost inevitably involve that consequence. 30 Appointment as a representative is a serious matter and, if there was a joint appointment, neither appointee could safely conduct itself as a cypher. 31 On that basis, it falls only to be decided whether ANZ or Bond Street Custodians should be appointed. Mr Leopold of counsel made a submission that the order should be deferred because the evidence did not establish, having regard to the large number of substantial unit holders, that someone else might not be a willing representative. 32 I do not accept that submission, in the present circumstances where it is not in issue that both ANZ and his client are appropriate persons to be appointed and it was not suggested (nor could it properly in my view have been) that if appointed either would conduct itself other than in a proper and responsible fashion. 33 Mr Foreman on the part of ANZ in resisting appointment put that lack of consent was a relevant feature. I have already dealt with that, but if it is, both ANZ and Bond Street Custodians have distinguished themselves by failing to consent. He also put that the size of the investment of each in the funds mattered. There are no doubt circumstances where again, all other things being equal, that might be a relevant consideration. 34 It is correct, as was pointed out by Mr Foreman, that the value of units which the ANZ represents is smaller than that which Bond Street Custodians does but it was not put that the size of the ANZ interest was not material. In the present context it does not seem to me that considerations of expediency are impinged upon, having regard to the functions of the representatives, by the unit holding represented by ANZ being smaller than that represented by Bond Street Custodians. 35 Mr Foreman also put that the potential conflicts might be a relevant consideration. Again, in the event that saving expense was not determinative, that might also be so. However, in the present context, I do not think that there is any difference in substance between the position of ANZ and Bond Street Custodians. 36 I also take into account a submission made that Bond Street Custodians has made its position publicly known in the circumstances where it would accept appointment as a representative. I do not think that this is a relevant factor in the present circumstances of which account should be taken in the exercise of the discretion which I undoubtedly have under r 7.6. 37 Mr Leopold pointed out that ANZ has been involved in these proceedings, as he put it, and is "across them" and has been for some months. Bond Street Custodians has been concerned with the proceedings (as opposed to the issues to which they give rise) for only a short period of time. 38 The hearing has been set down for two days, as I said, on 24 and 25 June 2008. 39 In my view, given ANZ's involvement, the most expedient course and the course most likely to involve reduction of expenses or saving of cost is to appoint ANZ to be the representative, and I will so order. 40 I make the orders in the document entitled Short Minutes of Order being orders 1, 2 and 3, and I give the directions in paragraphs 6, 7, 8, 9, 10, 11, 12 and 13. 41 Orders 1, 2 and 3 may be entered forthwith. ********** 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. 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