Reported Decision : 72 ACSR 67 New South Wales Supreme Court CITATION : ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 404 HEARING DATE(S) : 15/05/09 JUDGMENT DATE : 18 May 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Redemptions of units in train at termination of trust not halted by such termination CATCHWORDS : CORPORATIONS - managed investments - redemption of units - where trust terminated after making of request for redemption and before redemption completed - whether holders of relevant units entitled to redemption despite intervention of termination of trust - whether holders of relevant units participate with other holders in termination of trust - nature of redemption of units discussed LEGISLATION CITED : Corporations Act 2001 (Cth), s 601GA(4)(a) CATEGORY : Principal judgment Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 766; (2008) 219 FLR 157 CASES CITED : ING Funds Management Ltd v ANZ Nominees Ltd; ING Funds Management Ltd v Professional Associations Superannuation Ltd [2009] NSWSC 243 MSP Nominees Pty Ltd v Commissioner of Stamps (SA) [1999] HCA 51; (1999) 198 CLR 494 ING Funds Management Limited as responsible entity of the ING Wholesale Enhanced Cash Trust - Plaintiff PARTIES : ANZ Nominees Limited - First Defendant National Nominees Limited - Second Defendant FILE NUMBER(S) : SC 1342/09 Mr I M Jackman SC/Mr J R Williams - Plaintiff COUNSEL : Mr R A Dick/Mr A D'Arcy - First Defendant Mr R M Foreman - Second Defendant Mallesons Stephen Jaques - Plaintiff SOLICITORS : Freehills - First Defendant Minter Ellison - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J MONDAY, 18 MAY 2009 1342/09 ING FUNDS MANAGEMENT LIMITED AS RESPONSIBLE ENTITY OF THE ING WHOLESALE ENHANCED CASH TRUST v ANZ NOMINEES LIMITED & ANOR JUDGMENT 1 Following judgment delivered on 3 April 2009 (ING Funds Management Ltd v ANZ Nominees Ltd; ING Funds Management Ltd v Professional Associations Superannuation Ltd [2009] NSWSC 243) and discussions between the parties, all but one of the issues remaining in these proceedings 1342/09 have been determined. 2 The remaining issue concerns those members of the ING Wholesale Enhanced Cash Trust whose redemption requests made before termination of the trust on 5 February 2009 had not resulted in payments to them by that date. The question is, in essence, whether those members are entitled to receive money in consequence of and in fulfilment of their redemption requests notwithstanding the intervention of the termination of the trust or whether their entitlement is solely an entitlement to participate along with all other members in the consequences of the termination. 3 I heard submissions on the one remaining issue on 15 May 2009. Mr Jackman SC and Mr Williams of counsel again appeared for the plaintiff, as responsible entity of the trust. Mr Jackman sought to outline the possible answers to the question posed but, because it concerns rights as between groups or classes of beneficiaries, he did not, in representing the responsible entity (or trustee), urge one construction on the court in preference to any other. Mr Dick of counsel with whom Mr D'Arcy of counsel appeared for ANZ Nominees Limited argued the cause of the class of beneficiaries consisting of members who continue to be recorded as holders of units even though they had made requests for redemption of those units before the termination of the trust. Mr Foreman of counsel appeared for National Nominees Limited in the interests of the remaining beneficiaries, that is, the holders of units in respect of which no unsatisfied redemption request was outstanding on 5 February 2009. 4 The answer to the question about the rights of the members represented by Mr Dick and Mr D'Arcy depends wholly on the construction of provisions of the constitution. The submissions of counsel dealt with a number of specific matters of construction and canvassed a range of possible outcomes. The submissions have been of value in identifying doubts and difficulties and in elucidating possible ways of resolving them. In the end, however, the court must make its own assessment by reference to the words as it finds them. 5 It is necessary, at the outset, to set out relevant provisions dealing with redemption. Clauses 7.1 to 7.5 are as follows: "7.1 A Member may make a request for the redemption of some or all of their Units in any manner approved by the Responsible Entity and, while the Trust is Liquid and before the Trust is terminated, the Responsible Entity must give effect to that request at the time and in the manner set out in this clause 7. 7.2 A Member may not withdraw a redemption request unless the Responsible Entity agrees. 7.3 If, after a Member has made a redemption request, the Trust ceases to be Liquid, the redemption request is deemed to be withdrawn unless the Trust becomes Liquid again within 5 Business Days. 7.4 Clauses 7.5 to 7.11 apply only while the Trust is Liquid. 7.5 The Responsible Entity must satisfy a redemption request for a Unit by payment from the Assets of the Redemption Price calculated in accordance with clause 6. The payment must be made within 30 days of receipt of the request or such longer period as allowed by clause 7.6." 6 Clause 7.6 is irrelevant for present purposes. 7 I should also set out clauses 7.21 and 7.22: "7.21 When Units have been redeemed, the Responsible Entity must make an appropriate entry in the Register and issue a written confirmation of redemption stating the balance of the holding (if any) of the Member whose Units have been redeemed. 7.22 Units are deemed to be redeemed on the date of redemption recorded in the Register." 8 The "Register" referred to here is, according to the clause 25.1 definition of the term, "the register of Members kept by the Responsible Entity under the Corporations Act". 9 Clause 20.2 fixes the point at which the trust terminates. It is in these terms: "The Trust terminates on the earliest of: (a) the 80th anniversary of the day before the Trust commenced; (b) the date specified by the Responsible Entity as the date of termination of the Trust in a notice given to Members; and (c) the date on which the Trust terminates in accordance with another provision of the constitution or by law." 10 It is common ground that the date 5 February 2009 was specified by the responsible entity in conformity with clause 20.2(b) and that the trust terminated on that day. 11 Clause 21 deals with the consequences of termination in these terms: "21.1 Following termination, the Responsible Entity must: (a) realise the Assets as soon as practicable; and (b) notify Members in writing of the impending distribution. 21.2 If and to the extent that ASIC policy so requires, the Responsible Entity must arrange for independent review or audit of the final accounts of the Trust by a registered company auditor. 21.3 Subject to the terms of issue of different Classes of Units, the net proceeds of realisation, after making allowances for all Liabilities of the Trust (actual and anticipated) and meeting the expenses (including anticipated expenses) of the termination, must be distributed pro rata to Members according to the number of Units they hold in a Class (with each Fractional Unit being treated as though it were the appropriate fraction of a whole Unit). The Responsible Entity may distribute proceeds of realisation in instalments, and may postpone the realisation of the Assets for such time as it thinks desirable in the interests of Members and shall not be responsible or liable for any loss attributable to such postponement. 21.4 Subject to the Corporations Act, the provisions of this constitution continue to apply from the date of termination until the date of final distribution under clause 21.3, but during that period the Responsible Entity may not accept any applications for Units or give effect to any redemption requests." 12 Having regard to clause 21, it is relevant to note the definitions of "Assets" and "Liabilities" in clause 25.1: " Assets : all the property, rights and income of the Trust, but not application money or property for which Units have not yet been issued, proceeds of redemption which have not yet been paid or any amount in the distribution account. " Liabilities: all present liabilities of the Trust including any provisions which the Responsible Entity decides should be taken into account in determining the liabilities of the Trust." 13 The starting point in the analysis must be clause 7. The scope and operation of that clause with respect to the making and consequences of a redemption request should be considered before attention is directed to the provisions about the consequences of the termination of the trust. 14 Although the concept of "redemption" plays a central part in clause 7, no provision of the deed attempts to define what is meant by "redemption" and "redeem", as applied to the units of a member. It is clear from the context, however, that the concept is, at least metaphorically, that of buying back – that the responsible entity, in a figurative sense, takes back the issued unit in return for a payment, although it cannot be suggested that the responsible entity actually acquires anything from the member. Rather, the redemption effectuates, fulfils or realises the member's rights or interests in respect of the fund: MSP Nominees Pty Ltd v Commissioner of Stamps (SA) [1999] HCA 51; (1999) 198 CLR 494 at [8]. 15 Important words in clause 7.1 are, "while the Trust is Liquid and before the Trust is terminated" in clause 7.1. These words come immediately before "the Responsible Entity must". Having regard, in particular (and for reasons I shall mention presently), to clause 7.3, I consider "while the Trust is Liquid and before the Trust is terminated" to be words describing two circumstances that must exist at the time of the making of the member's request in order to create or activate the obligation arising from the words "the Responsible Entity must". If, when a member makes "a request for the redemption of some or all of their Units", both those circumstances exist – that is, first, the trust is "Liquid" and, second, a point at which the trust is terminated has not arrived – the making of the request causes the responsible entity to be obliged to proceed in the specified way. And if, when the request for redemption is made, either circumstance does not exist (or both do not exist), the making of the request does not create or activate any such obligation of the responsible entity. 16 The responsible entity's obligation to redeem thus becomes binding (or, as the case may be, does not become binding) according to circumstances existing when the member's redemption request is made. And it becomes binding at that time. The obligation, if it becomes binding, reflects the member's right of withdrawal which, in accordance with s 601GA(4)(a) of the Corporations Act 2001 (Cth), must be specified in the constitution of a registered management investment scheme: see Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 766; (2008) 219 FLR 157 at [153] ff. 17 Clause 7.3 is helpful in this context because it deals with the case where, "after a Member has made a Redemption Request", the trust ceases to be "Liquid". If that happens, what would otherwise be the course dictated by clause 7.1 is interrupted by a deemed withdrawal of the redemption request. Any such concept of interruption would have no meaning unless the requirement or condition in clause 7.1 that the trust be "Liquid" was concerned with the position at the time of the making of the redemption request. The collocation in clause 7.1 of "Liquid" status and absence of termination of the trust therefore indicates that the existence of both those circumstances at the time a redemption request is made causes the making of the request to give rise to the clause 7.1 obligation on the part of the responsible entity. 18 The content of the responsible entity's obligation under clause 7.1 to redeem which becomes binding when the member's redemption request is made comes from clause 7.5. The obligation is there described as an obligation to "satisfy" the member's "redemption request" (being, obviously enough, the member's "request for the redemption of some or all of their Units" referred to in clause 7.1). The obligation to "satisfy" the request is, in terms of clause 7.5, an obligation to pay money from the fund. No other step or process is envisaged as constituting "redemption". I say this because payment in accordance with clause 7.5 is the means by which satisfaction of a redemption request is effected. Satisfaction of the request occurs "by" payment; and once a request has been satisfied, the request no longer exists and redemption is complete. 19 In Basis Capital Funds Management Ltd v BT Portfolio Services Ltd (above), Austin J observed (at [142]) that redemption of units of a registered managed investment scheme does not happen automatically. Some act of the responsible entity is needed. In this case, the act is payment. 20 Clauses 7.21 and 7.22 then arise for consideration. Clause 7.21 requires an entry to be made in the register "[w]hen Units have been redeemed" – that is, after their redemption is complete. Clause 7.22 then says that units are "deemed to be redeemed on the date of redemption recorded in the Register". On one reading, clause 7.22 means that there is no redemption until the date of the relevant recording in the register. I am of the opinion, however, that the temporal aspects of clause 7.21 militate against that construction given that, as I have said, it is redemption – by which I mean completed redemption by payment - that gives rise to an obligation to make in the register what can, at that point, only be, of its nature, a record of an established and past event. The time at which the recording of the past event later occurs cannot play a part in determining the time of the happening of the event itself. 21 There is a time specification in clause 7.5. The payment "must be made" within 30 days after receipt of the redemption request. Since it is the making of the payment that effects and constitutes the redemption, the time requirement, although applying, in terms, to payment applies, in substance and reality, to redemption as well. This is because payment and redemption are inseparable and indivisible. 22 In summary, therefore, the responsible entity's obligation to redeem units of a member becomes operative under clause 7.1 when the request for redemption of those units is made by the member, provided that, at the time of the making of the request, the trust is "Liquid" and has not been terminated. Subject to that proviso, the making of the request causes the responsible entity to be fixed immediately with an obligation owed to the requesting member and related to the particular units. The obligation is an obligation to pay to the member a sum calculated as mentioned in clause 7.5; and to do so within the time stated in clause 7.5. By making that payment within that time, the responsible entity satisfies the redemption request and thereby both redeems the units and performs its obligation in respect of redemption. 23 It was suggested in the course of submissions that a member whose units become subject to the responsible entity's obligation just described becomes a creditor of the responsible entity (and see Basis Capital Funds Management Ltd v BT Portfolio Services Ltd (above) at [142]). While it is not necessary to decide whether that is so, my inclination is to think that the relationship remains that of trustee and beneficiary. The characterisation of redemption as a process that effectuates, fulfils or realises the member's rights or interests in respect of the trust fund (see paragraph [14] above) suggests that the right to payment is a right, as beneficiary, to have the trust find applied in satisfying the payment. The statement in MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (above) at [8] that the unit holder "had, at least, an absolute right to the price for the redemption" is consistent with this analysis. 24 It is next necessary to consider clause 21. That clause prescribes the actions that the responsible entity must take "[f]ollowing termination" which, in this case, occurred on 5 February 2009. Immediate tasks are to identify "the Assets" (so that clause 21.1(a) can be implemented) and "all Liabilities of the Trust (actual and anticipated)" the quantification of which is a necessary step in implementing clause 21.3. 25 Under the clause 25.1 definition, there is to be excluded, in determining "Assets", both "application money or property for which Units have not yet been issued" and "proceeds of redemption which have not yet been paid". The words "not yet", in the part concerning proceeds, direct attention, first, to the point at which "Assets" are being ascertained and, second, to some circumstance or event that, as at that time, lies in the future. In the case of "proceeds of redemption", the circumstance or event that lies in the future is the payment of those proceeds; and the point from which the future is determined is the point of termination of the trust. 26 The words "proceeds of redemption which have not yet been paid", viewed in isolation, suggest that redemption can be complete and can have produced proceeds which remain unpaid by the responsible entity. This is at odds with the redemption concept embodied in clause 7. Under that clause, it is payment that constitutes redemption: a redemption request is satisfied (and redemption is constituted) "by payment . . . ": clause 7.5. There is no redemption unless and until there is payment. But, of course, the redemption ultimately effected by payment occurs in discharge of the obligation to redeem that becomes operative when the redemption request is made and in fulfilment of the right of the member that is the concomitant of that obligation. 27 It follows, in my view, that the "proceeds of redemption which have not yet been paid" are the moneys that are to be paid in consequence of the creation of the obligation and the right that arise upon and by reason of the making of a redemption request. It also follows that when "Assets" are to be identified at a particular point in time, the exclusion of "proceeds of redemption which have not been paid" places outside "Assets" the moneys that are to be paid in discharge of the obligations (and in fulfilment of the rights) arising from the making of all redemption requests made before that time that have not already led to redemption by payment of those moneys. 28 The exclusion of the "proceeds" just discussed from "Assets" is significant in at least two ways. Under clause 19.7 of the constitution, all expenses properly incurred by the responsible entity are payable or reimbursable out of "Assets". Under clause 2.1, the "Assets" must be "held on trust for Members". Once a sum of "proceeds" is excluded from "Assets", it is no longer either available to meet expenses properly incurred by the responsible entity or "held on trust for Members". As a consequence, the sum must be regarded as held for the specific purpose of discharging the responsible entity's obligation, owed to the particular member, to redeem by payment, being the obligation created by the member's making of the particular redemption request. 29 It is necessary to refer briefly to the definition of "Liabilities" in clause 25.1. That definition says nothing about pending or incomplete redemptions. But the structure of the constitution as a whole is such that, once an obligation to redeem has arisen under clause 7.1 - so that, as just discussed, the moneys to be paid on and by way of redemption are excluded from "Assets" - there is a "liability" to the extent of those moneys. While, as I have said, the situation is probably not one of debtor and creditor (which would undoubtedly be the source of a "liability" of the debtor), the advent of the specific monetary obligation owed to the particular and identified member, being an obligation owed by a trustee to a particular and identified beneficiary, is quite properly regarded as a "liability". The words "liable to account", as applied to a trustee, occupy a prominent place in the lexicon of equity. 30 It follows from what has been said about the definitions of "Assets" and "Liabilities" that, if a redemption request has been made before termination of the trust but redemption has not then occurred, the moneys necessary to effect the redemption by payment are excluded from the net proceeds of realisation of "Assets" referred to in clause 21.3 and allowance must be made in accordance with that clause for the element of "Liabilities" represented by the obligation, as yet unperformed, to redeem by payment of those moneys. The units redemption of which is pending are, by necessary implication, excluded from the pro rata distribution among members according to unit holdings for which clause 21.3 provides. I say this because the right of the member in respect of those units has, before the termination that brings clause 21.3 into operation, already become the specific right to performance of the redemption obligation. 31 I turn finally to clause 21.4 which regulates matters in the period from the date of termination until final distribution under clause 21.3. Clause 21.4 lays down a general rule that, during that period, the provisions of the constitution continue to apply. This is, however, "[s]ubject to the Corporations Act" (a qualification not relevant to this case) and on the footing that two things may not be done by the responsible entity during the period. It may not "accept any applications for Units" or "give effect to any redemption requests". The second of these prohibitions requires consideration. 32 On one view, the concluding words of clause 21.4 apply to deny the efficacy of a redemption request made before termination which has not then resulted in payment and the redemption that payment effects; and this is so even though the obligation and the right arising from the redemption request already subsist at the time of termination. But such a construction is at odds with recognition of the circumstance that, in the post-termination process under clause 21.3 just discussed, the moneys necessary to perform the obligation and satisfy the right are excluded from "Assets", while the obligation to account to the holder of the relevant units in discharge of the obligations is included in "Liabilities". The moneys thus earmarked are accordingly not available for application by distribution among members pro rata to their unit holdings in consequence of termination. 33 This is, to my mind, a powerful indicator that, despite the words at the end of clause 21.4, the obligation and right arising from the making of a redemption request before termination are to survive termination and that payment is to be made in performance of the obligation and in satisfaction of the right even though termination has intervened. If it were otherwise, what I have referred to as the earmarked moneys would fail to be dealt with at all in the clause 21.3 process and the constitution would identify no other destination or means of disposing of them. 34 It follows, in my opinion, that, although clause 21.4 uses the words "give effect to" in relation to a redemption request and these are the words used also in clause 7.1 ("must give effect to that request"), clause 21.4 does not intend to interrupt any redemption process which, at the time of termination, is already in progress in the sense that the clause 7 obligation and right have come into being by reason of the making of a redemption request. The making of the request causes the funds necessary to make the payment that effects requested redemption to be placed outside the termination process. The concluding words of clause 21.4 must accordingly be regarded as imposing a prohibition, commencing at termination, upon the recognition and processing of any redemption request that has not, at that time, already given rise to an obligation and right under clause 7. The concluding words are thus concerned only with redemption requests made after the start of the period referred to in clause 21.4. 35 The conclusion that the words at the end of clause 21.4 do not abolish the right arising from the making of a redemption request before termination is strengthened by a matter referred to by Austin J in Basis Capital Funds Management Ltd v BT Portfolio Services Ltd (above). His Honour noted that s 601AG(4) of the Corporations Act requires that the right to withdraw and the provisions of the constitution setting out procedures for making and dealing with withdrawal requests must be fair to all members. It would not be fair to members who had duly requested withdrawal for the manager to have the power to negate the right by terminating the trust. 36 All of the redemption requests made by members represented by Mr Dick and Mr D'Arcy were made before the start of the period referred to in clause 21.4. The last of them were made on the day immediately before the date of termination. All those redemption requests must be dealt with and satisfied according to clause 7 and related provisions and this is so despite the intervention of the termination of the trust. There will be declarations and orders accordingly. ********** 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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