Reported Decision : 81 ACSR 218 New South Wales Supreme Court CITATION : AvSuper Pty Ltd v Commonwealth Managed Investments Limited [2010] NSWSC 1499 HEARING DATE(S) : 5 August 2010 JUDGMENT DATE : 22 December 2010 JURISDICTION : Equity JUDGMENT OF : White J DECISION : Order that the plaintiffs' amended originating process be dismissed. CATCHWORDS : CORPORATIONS – construction of constitution of registered managed investment scheme – operation of provisions governing redemptions of units – where constitution provided for staggered redemptions of units at particular dates – where scheme illiquid at redemption dates – whether redemption right suspended during illiquidity until scheme becomes liquid – effect of Corporations Act 2001 (Cth), s 601KA on members' right of withdrawal – when redemption is "effected" or "satisfied" – price payable for redemption of units LEGISLATION CITED : Corporations Act 2001 (Cth) CATEGORY : Principal judgment Lion Nathan Australia Pty Ltd v Coopers Brewery Limited [2006] FCA FC 144; (2006 156 FCR 1 CASES CITED : Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Basis Capital Funds Management Limited v BT Portfolio Services Limited [2008] NSWSC 766; (2008) 67 ACSR 297 ING Funds Management Limited v ANZ Nominees Limited [2009] NSWSC 404; (2009) 72 ACSR 67 1st Plaintiff: AvSuper Pty Ltd & Anor (ACN 050 431 797) PARTIES : 2nd Plaintiff: National Nominees Limited ((ACN 004 278 899) 1st Defendant: Commonwealth Managed Investments Limited (ACN 084 098 180) 2nd Defendant: Colonial First State Property Limited (ACN 085 313 926) FILE NUMBER(S) : SC 2010/92470 COUNSEL : Plaintiffs: A A Monichino Defendants: I M Jackman SC with V R Brigden SOLICITORS : Plaintiffs: Greenfields Financial Services Lawyers by their Sydney agents Holman Webb Defendants: Freehills IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Wednesday, 22 December 2010 2010/92470 AvSuper Pty Ltd & Anor v Commonwealth Managed Investments Limited & Anor JUDGMENT 1 HIS HONOUR: This case concerns the proper construction of provisions of a trust deed providing for the redemption of units. The first defendant is the trustee and responsible entity of a trust known as the Commonwealth Property Hotel Fund ("the Fund"). The Fund is a registered managed investment scheme. The second defendant is the manager of the Fund. The first plaintiff is the beneficial holder of special units in the Fund. The second plaintiff is the registered holder of those units. 2 At all relevant times there have been only eight unitholders in the Fund. The Fund was established by a trust deed made on or about 24 May 2000. It was due to be wound up in May 2008. On 21 May 2008 the unitholders passed special resolutions the effect of which, amongst other things, was to extend the term of the Fund by three years. Unitholders were given the option of converting their units into special units to be redeemed at six-monthly intervals. As the Fund is a registered managed investment scheme, the right of members to withdraw from the scheme is regulated by Chapter 5C of the Corporations Act 2001 (Cth). That Chapter restricts the right of a member to withdraw from a scheme where the scheme is not liquid. 3 The plaintiffs' units were converted to special units. Had the scheme remained liquid the units would have been redeemed in three tranches on 30 November 2008, 31 May 2009 and 30 November 2009. Had redemption occurred on those dates the amounts to be paid to the plaintiffs on redemption of the units would have been the "Redemption Price" on those days. However, no redemption was effected on those days because the Fund was not liquid. 4 It is a term of the trust that the first defendant wind up the trust by 24 May 2011 unless that date is extended pursuant to clause 16.2 of the trust deed. 5 The plaintiffs contend that upon the fund again becoming liquid, the first defendant is obliged to redeem their units and to do so at prices the plaintiffs say are the prices that prevailed on 30 November 2008, 31 May 2009 and 30 November 2009. These prices had been set as at midnight on the last day of the previous month. For the reasons which follow, those contentions should be rejected. 6 The plaintiffs claimed a number of elaborate declarations. There was no dispute as to some of the matters about which declarations were sought. As to the matters in issue, in final submissions, the plaintiffs contended that the following declarations should be made: " 1. A declaration that upon the proper interpretation of clauses 4.9, 4.11 and 20.4 of the Fund: ... (d) the responsible entity is required to redeem the specified number of special units at the redemption price for the special units prevailing at the relevant redemption dates specified in clause 20.4; (e) if the Fund is illiquid for the purposes of section 601KA of the Corporations Act 2001 (Cth) on any of the specified redemption dates such that the responsible entity is not able to wholly satisfy a special unitholder's right of redemption on that date, the responsible entity's obligation to redeem, and the special unitholder's corollary right to redeem, on the relevant redemption date is not thereby extinguished but rather the satisfaction of the obligation/right to redeem is postponed or deferred until: (i) such time as the Fund is no longer illiquid; alternatively (ii) such time as particular assets are available and are able to be converted to money in order to meet the Fund's obligation to redeem special units, whether in whole or in part; or at the latest (iii) the date of winding up of the Fund. ... 2. A declaration that in exercising its powers and carrying out its duties under section 601FC(1) of the Corporations Act 2001 (Cth), the responsible entity must apply the Constitution of the Fund on the footing referred to in paragraph 1 above. " 7 Clause 3.1 of the trust deed provides that the beneficial interest in the Fund is divided into Units. No unit confers any interest in a particular part of the Fund. Prior to amendments made in 2008 the trust deed provided that the Trustee had no obligation to redeem or repurchase any Units. It was empowered in very limited circumstances to redeem units against the wishes of a Unitholder. 8 As at May 2008 the assets of the fund consisted of four hotels (or in one case, the shares in the company that owned the hotel). The hotels are known as Marriott Hotels. There were hotels in Sydney, Brisbane, Melbourne and Surfers Paradise. 9 On 14 March 2008 the second defendant, the manager of the Fund, wrote to the first plaintiff, AvSuper, advising that the majority of investors in the Fund were keen for the Fund to continue. For the Fund to continue changes needed to be made to its Constitution. This required a special resolution of unitholders. The second defendant noted that AvSuper owned approximately 20.16 percent of the Fund's units and if it voted against the proposal it was unlikely that a resolution to extend the life of the Fund would pass. 10 On 24 April 2008 the first plaintiff gave notice of its intention to convene a meeting of unitholders to vote on the future of the Fund including an extension of its term. It was proposed that if the term of the Fund were extended, units could be converted into special units which would be redeemed as to one-third of each holding no later than six months after conversion, as to one-half of each remaining holding no later than 12 months after conversion, and, as to the balance, no later than 18 months after conversion. Unitholders were required to state the number of units for which conversion was requested. Depending upon the number of acceptances it might have been necessary for the trustee to scale back the number of special units that would be issued if the proposed resolution were passed. At the same time the first defendant proposed to staple ordinary units (not special units) to shares in a company named CPHF Hotels Pty Ltd which company would acquire certain other shares. The Explanatory Statement to the notice of meeting of unitholders in relation to the proposed resolutions stated: " (a) Special units Special units will not be stapled to Shares but will otherwise rank pari passu with ordinary units except as provided below. If ordinary units are redesignated as special units, the Responsible Entity is taken to make, and the holder of special units is taken to accept (unless otherwise agreed between a special unitholder and the Responsible Entity), a redemption offer to redeem the following proportion of special units then held by a special unitholder at the following times: one third – 6 months after the Stapling Date; one half of the number then held – 12 months after the Stapling Date; and all remaining special units – 18 months after the Stapling Date. At any time, a special unitholder may elect to have all or some of its special units redesignated back to ordinary units. If this occurs, the Stapled Company and Responsible Entity will cause the stapling of those ordinary units to newly Issued Shares. " 11 AvSuper elected to convert all of its units to special units if the proposed resolutions were passed so that the units would be redeemed over three successive periods of six months. 12 On 21 May 2008 resolutions to amend the trust deed to give effect to the proposal were passed by the unitholders by the requisite majority. Relevant Terms of the Trust Deed 13 Following the amendments made on 21 May 2008 the trust deed (which is also the Constitution of the managed investment scheme) relevantly provides as follows: " 1.3 General compliance provision (a) A provision of this deed which is inconsistent with a provision of the Corporations Act does not operate to the extent of the inconsistency. ... (c) This clause 1.3 prevails over all other provisions of this deed including any that are expressed to prevail over it. ... 4.9 Redemption (a) The Trustee has no obligation to redeem or repurchase any Units except pursuant to the terms of a redemption offer made pursuant to clause 4.11 or clause 20.4. ... 4.10 Redemption of Units (a) The amount paid to a Unitholder on the redemption of units is the Redemption Price for those Units on the day the redemption is effected. (b) Before payment of the Redemption Price, any costs payable by the Trustee in relation to those Units or the redemption of those units may be deducted. (c) On the redemption of Units, the Trustee must: (1) cancel the Units redeemed; (2) immediately remove the name of the Unitholder from the Register in respect of the redeemed Units; and may deliver to the Unitholder a transaction advice. ... 4.11 Redemption Offers (a) The Trustee may from time to time make redemption offers to all Unitholders on such terms and conditions as the Trustee may determine provided only that the redemption offers made to each Unitholder are the same. (b) The maximum period in which redemptions must be satisfied while the Fund is liquid is 24 months. ... 8.1 Valuation of Assets (a) The Trustee may at any time, cause the valuation of any asset of the Fund. (b) In determining whether a valuation accurately reflects the current value of an asset of the Fund, the Trustee is not to be regarded as having the knowledge of a valuer or any other expertise in respect of the valuation of assets of the Fund. (c) Each asset of the Fund must be valued at its market value unless the Trustee determines: (1) there is no market in respect of the asset of the Fund; or (2) the market value does not represent the fair value of the asset of the Fund. (d) Where the Trustee makes a determination under clause 8.1(c), the Trustee must at the same time determine the method of valuation of the asset of the Fund. (e) Where any asset of the Fund is to be valued or the Net Asset Value of the Trust is to be determined, the valuation or determination is to be as at a time determined by the Trustee. (f) Where the calculation of the Issue Price is to be made as at a particular date, the Trustee need not cause a valuation of the Fund to be performed as at that date but may rely on the most recent valuations for the purposes of that calculation. ... 8.3 Trustee to determine Current Unit Value The Trustee may determine the Current Unit Value at any time. ... 12.1 Transfer (a) A Holder may only transfer a Unit or Option with the approval of and subject to any conditions imposed by the Trustee. ... 15. Alterations to Trust Subject to section 601GC of the Corporations Act and any approval required by law, the Trustee may by deed replace or amend this deed (including this clause). 16 Term of Trust and termination of Trust 16.1 Term of Trust (a) The term of the Trust ends on the earlier of: (1) the date determined by Unitholders pursuant to clause 16.2; (2) the date determined by the Trustee as the date on which the Trust is to be terminated; and (3) the date on which the Trust is otherwise terminated under this deed or by law. (b) The Trustee must wind up the Trust pursuant to clause 16.3 on the 11 th anniversary of the date of its establishment (unless this date is extended pursuant to clause 16.2). ... 16.3 Procedure on winding up of Trust (a) In winding up the Trust the Trustee must: (1) realise the Fund; (2) pay any amount due to it under clause 16.3(c); (3) pay all Costs of the Trustee in its capacity as Trustee of the Trust including, but not limited to, liabilities owed to any Unitholder who is a creditor of the Trust; (4) after payment of the amounts referred to in paragraphs (2) and (3) above and subject to any special rights or restrictions attached to any Unit or the direction in writing of all Unitholders, calculate and distribute a priority return among the Unitholders in respect of each Unit on the issue at the time of winding up on the following basis ... ... 20 Special Units 20.1 Creation of Special Units If the Unitholders have approved a stapling pursuant to clause 19.1, to the extent that Unitholders have accepted the Special Unit Offer by specifying the number or all Units held by them be converted to Special Units, the Trustee must immediately prior to the approved Stapling by notation in the Register designate those Units as Special Units and thereafter clauses 20.2 to 20.4 have effect. ... 20.4 Terms of Special Units (a) Special Units must not be stapled to an Attached Security but otherwise rank in all respects pari passu with Ordinary Units except as provided in this clause 20.4. ... (c) A holder of Special Units may at any time by notice in writing to the Trustee elect to have those Units designated as Ordinary Units and forthwith upon receipt of such notice, the Trustee must: (1) as agent for that holder apply for a number of Securities in the Stapled Entity equal to the number of Special Units held by that holder in consideration for a reduction in the Principal of the Loan pursuant to clause 20.3(d); and (2) upon issue of those Securities, by notation in the Register designate those Units as Ordinary Units and cause those Ordinary Units to be stapled to the Securities issued pursuant to clause 20.4(c)(1). (d) Upon the designation, issue and stapling, the Units the subject of the notice referred to in clause 20.4(c) cease to confer on the holder any rights under clause 20.4(b) and are for all purposes Ordinary Units. (e) Except as otherwise agreed between the Trustee and a holder of Special Units, the Trustee is taken to make, and the holder of Special Units is taken to accept, a redemption offer to redeem the following proportions at the following times: (1) 1/3 of each holder's Special Unit Holding on the date which is 6 months after the Stapling Date; (2) ½ of each holder's Special Unit Holding on the date which is 12 months after the Stapling Date; and (3) all of each holder's Special Unit Holding on the date which is 18 months after the Stapling Date. ... 21.3 Binding Conditions The terms and conditions of this deed and any amending deed are binding on the Trustee, each relevant Holder and any other person claiming through any of them as if each was a party to this deed and each supplemental deed. " 14 Unless the context otherwise requires the following expressions in the trust deed have the following meanings. 15 "Redemption Price" means "at any time the Current Unit Value calculated by reference to valuations which are not more than 3 months old at the time." 16 "Current Unit Value" means: " 1 on the day on which Units of the Trust are created, one dollar; and 2 on any subsequent day, the amount calculated as follows: CUV = NAV NU Where: CUV is Current Unit Value NAV is Net Asset Value NU is the number of Units on Issue. " 17 "Net Asset Value" means: " the Gross Asset Value less the following: 1 all amounts required to meet Liabilities Before Unitholder Funds (including the amount of any provisions the Trustee determines should be made); and 2 the amount of any Distributable Amount payable but not paid to Unitholders on the day on which the Net Asset Value is determined. " 18 "Gross Asset Value" means: " 1 the assets of the Fund; and 2 any adjustments which, in the opinion of the Trustee should be made for the purpose of making a fair and reasonable determination of the value of the Trust on an undiscounted basis, having regard to generally accepted accounting principles. " 19 "Liabilities Before Unitholder Funds" means: " all liabilities in respect of the Trust and includes: 1 unpaid administrative costs and expenses including fees of the Trustee; 2 accrued charges in respect of or owing in relation to any asset of the Fund; 3 amounts required to meet present liabilities; 4 amounts of all borrowings; 5 any provision for Tax which in the opinion of the Trustee should be taken into account; and 6 any other amounts required to meet liabilities or other expenditure (including deferred liabilities), other than those to meet Unitholder Funds, which in the opinion of the Trustee should be taken into account in determining the amount of liabilities in any of the preceding paragraphs. " 20 "Distributable Amount" refers to amounts of net income to which unitholders are entitled calculated by reference to a formula it is not necessary to set out. Relevant sections of the Corporations Act 21 Because the Fund is and was intended to be a registered managed investment scheme, the trust deed is to be construed by reference to the Corporations Act. Section 601GA(4) provides: " 601GA Contents of the constitution ... (4) If members are to have a right to withdraw from the scheme, the scheme's constitution must: (a) specify the right; and (b) if the right may be exercised while the scheme is liquid (as defined in section 601KA)—set out adequate procedures for making and dealing with withdrawal requests; and (c) if the right may be exercised while the scheme is not liquid (as defined in section 601KA)—provide for the right to be exercised in accordance with Part 5C.6 and set out any other adequate procedures (consistent with that Part) that are to apply to making and dealing with withdrawal requests. The right to withdraw, and any provisions in the constitution setting out procedures for making and dealing with withdrawal requests, must be fair to all members. " 22 There is no provision in the Constitution of a kind described in s 601GA(4)(c) providing for the exercise of a member's right to withdraw while the scheme is not liquid. 23 Part 5C.6 provides: " 601KA Members' rights to withdraw Withdrawal from schemes that are liquid (1) The constitution of a registered scheme may make provision for members to withdraw from the scheme, wholly or partly, at any time while the scheme is liquid (see subsection 601GA(4)). Withdrawal from schemes that are not liquid (2) The constitution of a registered scheme may make provision for members to withdraw from the scheme, wholly or partly, in accordance with this Part while the scheme is not liquid (see subsection 601GA(4)). Restrictions on withdrawal from schemes (3) The responsible entity must not allow a member to withdraw from the scheme: (a) if the scheme is liquid—otherwise than in accordance with the scheme's constitution; or (b) if the scheme is not liquid—otherwise than in accordance with the scheme's constitution and sections 601KB to 601KE. (3A) An offence based on subsection (3) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code . Liquid schemes (4) A registered scheme is liquid if liquid assets account for at least 80% of the value of scheme property. Liquid assets (5) The following are liquid assets unless it is proved that the responsible entity cannot reasonably expect to realise them within the period specified in the constitution for satisfying withdrawal requests while the scheme is liquid: (a) money in an account or on deposit with a bank; (b) bank accepted bills; (c) marketable securities (as defined in section 9); (d) property of a prescribed kind. (6) Any other property is a liquid asset if the responsible entity reasonably expects that the property can be realised for its market value within the period specified in the constitution for satisfying withdrawal requests while the scheme is liquid. 601KB Non liquid schemes—offers (1) The responsible entity of a registered scheme that is not liquid may offer members an opportunity to withdraw, wholly or partly, from the scheme to the extent that particular assets are available and able to be converted to money in time to satisfy withdrawal requests that members may make in response to the offer. ... ... 601KE Non liquid schemes—responsible entity may cancel withdrawal offer (1) The responsible entity of a registered scheme that is not liquid: (a) may cancel a withdrawal offer before it closes if the offer contains a material error; or (b) must cancel a withdrawal offer before it closes if it is in the best interests of members to do so. (2) The cancellation must be made: (a) if the constitution specifies procedures for cancelling the withdrawal offer—in accordance with those procedures; or (b) otherwise—by notice in writing to the members to whom the withdrawal offer was made. (3) The responsible entity must lodge written notice of the cancellation with ASIC. " The first due date for Redemption 24 The stapling of ordinary units occurred on 31 May 2008. Accordingly one-third of AvSuper's special units were due to be redeemed pursuant to clause 20.4(e) on 30 November 2008. At the time the amendments to the trust deed were approved on 21 May 2008, the Fund was liquid. No doubt the possibility of the Fund's ceasing to be liquid was foreseeable. By a letter dated 8 December 2008 Freehills advised the directors of the second defendant that it was their understanding that the Fund was liquid at the date the amendments were agreed and were made, and that at that time there was no reason to believe that the situation would change before the special units were redeemed. 25 By 30 November 2008 the Fund was adversely affected by the global financial crisis. It is not disputed that the Fund was not liquid at any of the three redemption dates. 26 Prior to the first redemption date the second defendant apparently took the view that in order to comply with clause 20.4(e) of the trust deed it was necessary to make a formal offer to redeem one-third of the special units. Nonetheless it foreshadowed that it would cancel the offer pursuant to s 601KE(1)(b) and that no special units would be withdrawn whether or not the offer was accepted. On 28 November 2008 the second defendant served a "withdrawal offer" on AvSuper offering to redeem one-third of the special units held by AvSuper. At the same time it advised of its intention to cancel the offer. 27 By letter dated 3 December 2008 AvSuper argued that the second defendant's letter of 24 April 2008 (see para [10] above) was a withdrawal offer. AvSuper said that it accepted that offer to convert it to units and that there was an automatic redemption of one-third of its special units. However, AvSuper did not submit that the obligation to redeem was enforceable while the Fund was illiquid. 28 On 12 December 2008 the second defendant cancelled its withdrawal offer of 28 November 2008. 29 The procedure of making a fresh withdrawal offer and then cancelling the offer was not followed on the subsequent two redemption dates. It is common ground that the Fund was illiquid at the two subsequent dates. 30 On 17 April 2009 the second defendant provided an update of the position of the Fund to unitholders. It stated: " 5. IMPLICATIONS ON REDEMPTIONS 5.1. As a consequence of the likely continuing asset valuation decrements, and the discontinuation of the current formal sales program, it is likely that the Manager will recommend to the Board of the Responsible Entity at its scheduled meeting on 11 May 2009 that the Board forms the view the Fund remains illiquid in accordance with those liquidity tests imposed under Corporations Law. 5.2. On the basis that the Board forms the view that CPHF remains illiquid, the scheduled Special Unitholder redemptions (the 'tranche 2' redemptions) provided for under clause 20.4 of the CPHF Constitution, and due in May 2009, will not proceed at that point in time. 5.3. As a consequence, the next trance of Special Unit redemptions (the 'remaining' redemptions) provided for under the CPHF Constitution, and due in November 2009, will comprise 100% of the outstanding Special Unit redemption requests. " 31 On 29 May 2008 the defendants wrote to the chief executive officer of Av Super as follows: " For the purposes of the Corporations Act, 2001 the Commonwealth Property Hotel Fund (CPHF) continues to be illiquid. The CPHF Constitution states that Commonwealth Managed Investments Limited as Responsible Entity of CPHF is taken to have a [sic] made a withdrawal offer to each Special Unitholder on the terms set out in the Constitution. However, as CPHF is illiquid the Responsible Entity cannot allow any redemptions otherwise than pursuant to a withdrawal offer which satisfies s.601KB of the Corporations Act. Section 601KB is unable to be satisfied because: 1. CPHF has insufficient liquid assets to make a withdrawal offer of an amount sufficient to satisfy the requirements to redeem one half of the Special Units held by each holder of Special Units as at 31 May 2009; and 2. In any event, any withdrawal offer would not be in the best interests of scheme members. Accordingly the Responsible Entity is not in a position to redeem any Special Units as at 31 May 2009. " 32 On 17 September 2009 the second defendant announced that contracts had been exchanged for the sale of the Marriott Hotel at Surfers Paradise and that the settlement was expected to take place at the end of October 2009. The second defendant advised that the proceeds from the sale would be used to reduce debt and to provide "balance sheet flexibility to meet future capital commitments for the balance of the portfolio". 33 On 9 October 2009 Messrs Greenfields acting on behalf of AvSuper wrote as follows: " On behalf of our client, we hereby demand that the responsible entity satisfies our client's redemption rights that have previously crystallised under clause 20.4 of the Fund's constitution. The debt owing to our client in respect of the November 2008 redemption was $18,617,790.61 (i.e. 12,595,162 units @ $1.478170) while the debt in respect of the May 2009 redemption was $16,597,386.76 (i.e. 12,595,161 units @ $1.317759). The aggregate debt of the two redemptions is $35,215,177.37. We consider that the responsible entity's obligation to redeem under clause 20.4 continues under clause 20.4 in respect of the redemptions falling due in November 2008 and May 2009. In other words, those redemption rights did not evaporate because the responsible entity was not in a position to satisfy its redemption obligations on the due dates for redemption (a factual proposition that we do not accept). In any event, the position has now changed in light of the sale of the Surfers Paradise Marriott. " 34 In similar vein, Messrs Greenfields wrote to Freehills, the solicitors for the defendants, on 23 November 2009 setting out AvSuper's contentions as to the construction of the trust deed. Messrs Greenfields wrote: " Our client contends that upon the proper interpretation of the Constitution, on each redemption date its rights to redemption of the specified portion of its special units crystallises subject only to be postponed by the operation of Part 5C.6 of the Corporations Act , such that if the Fund is illiquid throughout the period between the first and third redemption dates, the fund nevertheless has a continuing obligation to redeem its special units following the third redemption date at the unit price applicable at the relevant redemption date as and when the Fund is able to do so. In other words, our client contends that its redemption rights, as special unit holders, do not evaporate because the Fund is not in a position to satisfy its redemption obligations on the three specified dates for redemption in the Constitution. " 35 By contrast the defendants' position as expressed by Freehills in their letter of 26 October 2009 was as follows: " ... We believe the position to be as follows: (1) It is common ground that it was the common expectation of all relevant parties – investors, the RE and the Manager – at the time the Fund constitution was last amended that the Fund's Special Unitholders (of which AvSuper is one) would have various specified percentages of redemption amounts met in the amounts and at the times outlined in the Fund constitution. (2) Notwithstanding such provisions, you will be aware that section 601KA(3)(b) of the Corporations Act prohibits the RE from allowing Fund members to withdraw from the scheme otherwise than in accordance with sections 601KB to 601KE if the Fund is not liquid as defined in section 601KA(4). The RE has accordingly cancelled the redemption payments due to be made to Special Unitholders to date, the Fund being illiquid at the relevant times. (3) We draw your attention to section 601KE(1)(b) of the Corporations Act. In accordance with that section, and clause 20.4(e) of the Fund constitution, the RE made a subsequent withdrawal offer to Special Unitholders, but (as it is obliged to do pursuant to section 601KE(1)(b)) then cancelled that withdrawal offer as it judged it not to be in the best interests of all members. (4) The Fund constitution provides a mechanism for adjusting future redemption payments if the first or second of three scheduled redemptions are unable to be made. Non-payment of any scheduled redemption does not of itself create a 'debt owing' to a Special Unitholder. (5) At the time of the first scheduled redemption (November 2008) the Fund was illiquid, and accordingly the first scheduled redemption payments of 33.33% of each Special Unitholder's redemption amount were unable to be made. (6) At the time of the second scheduled redemption (May 2009) the Fund was illiquid, and accordingly the second scheduled redemption payments of 50% of each Special Unitholder's redemption amount were unable to be made. (7) The next (and final) scheduled redemption payment of 100% of each Special Unitholder's redemption amount occurs in November 2009. If, at that time, the Fund is still illiquid (which we are instructed will almost certainly be the case) the third redemption payments will also be prohibited. (8) Thereafter the Special Unitholders' entitlements to receive their redemption payments at the times and in the amounts specified in the Fund constitution will fall away. In summary, the relevant redemption provisions of the Fund's constitution have not been able to be activated – indeed, they have been prohibited – by the application of the Corporations Act. There has been no 'crystallisation' of redemption rights on the part of any Special Unitholder, and no 'debt' created in relation to them. " Are the units to be redeemed if the Fund becomes liquid after the dates for redemption? 36 The parties provided elaborate submissions as to the proper approach to the construction of the trust deed. From the Fund's inception there have been only eight or nine unitholders. A unitholder can only transfer a unit with the approval of the trustee. Counsel for AvSuper submitted that the general principles of construction of commercial contracts are applicable to the construction of the trust deed. In particular it was submitted that the amendments to the trust deed should be given a "businesslike interpretation" which avoided a result that was commercially inconvenient. Counsel submitted that the trust deed and its amendments were to be construed having regard to the surrounding circumstances in which the amendments were made. The commercial purpose of the amendments was to extend the life of the Fund by three years and at the same time to provide a mechanism for unitholders who elected to become members of a defined class to enable them to redeem their investment within 18 months at three intervals. 37 I do not consider that any different interpretation would be arrived at whether the trust deed is construed as a commercial contract, or construed more strictly as in the case of construction of articles of association of a company. It seems to me as a matter of principle that the construction of the constitution of a managed investment scheme is analogous to the construction of articles of association of a company such that "it may be proper to place greater store by the constitutive text in construing a company's constitution as opposed to a private contract" (Lion Nathan Australia Pty Ltd v Coopers Brewery Limited [2006] FCA FC 144; (2006 156 FCR 1 at 587 [124]), and the range of surrounding circumstances that may be taken into account might be more limited than in the case of some commercial contracts. However it is not necessary to resolve this question. Undoubtedly a purpose of the amendments to the trust deed was to allow those unitholders who elected to convert their units to special units to have their units redeemed at three six-monthly intervals. However there is nothing in the extrinsic materials leading up to the making of the amendments which throws any light on the question of what the parties are taken to have intended if redemption at one or more of those intervals was not possible because the Fund was not then liquid. Whilst it may be taken that those unitholders who elected to convert their units to special units would have wished their units to be redeemed once the Fund became liquid, there is nothing other than that what can be gleaned from the text of the trust deed, read in the context of the Corporations Act, to indicate whether that intention should be ascribed to all unitholders who voted on the amendments, or to the trustee who exercised its power to amend. 38 The constitution contained no provisions providing for members to have a right to withdraw from the scheme by redeeming their units when the scheme was not liquid. Accordingly the terms for redemption in clause 20.4(e) specifying the members' right to withdraw from the scheme are exercisable only while the scheme is liquid (s 601GA(4)). On the election of a unitholder to take up special units and the making of the amendments to the trust deed, the first defendant was taken to have made, and AvSuper was taken to have accepted, a redemption offer for the redemption of units in accordance with clause 20.4(e). The acceptance of that redemption offer was complete when the trust deed was amended. No further offer and acceptance was required. However, because of s 601GA(4) and s 601KA(3)(b), clause 20.4(e) is to be read as applying only if the scheme is liquid. In other words, clause 20.4(e) is to be read as stipulating that except as might otherwise be agreed with the trustee, the trustee is taken to make, and the holder of special units is taken to accept, a redemption offer to redeem the specified proportions at the following times, namely: 1. one-third of each holder's special unitholding on the date which is six months after the stapling date, if the Fund is then liquid; 2. one-half of each holder's special unitholding on the date which is 12 months after the stapling date, if the Fund is then liquid; and 3. all of each holder's special unitholding on the date which is 18 months after the stapling date, if the Fund is then liquid. 39 There is nothing in the text of clause 20.4 that provides that if the specified proportion of units is not redeemed at the specified date because the Fund is not then liquid, the units will be redeemed at such later date as the Fund becomes liquid. 40 No such term would be implied as a term necessary to give business efficacy to the document. Nor is it to be implied from the express language of the trust deed (Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [28]). To the contrary, the implication from the express words used is that any redemptions under clause 20.4(e) are to be made on the specified dates. The clause expressly so provides. I do not think it open to read the words "on the date" as meaning "on the date, or, if the Fund is not then liquid, on the next date the fund becomes liquid". 41 The plaintiffs submit that s 601KA(3)(b) merely suspends the right of a member to withdraw from a scheme where the scheme is not liquid. The legislation does not take away a member's vested right to redeem units. The mischief to which the section is addressed is the risk of a run on a registered managed investment scheme from redemptions at a time when the scheme is illiquid. The plaintiffs submit that on its proper construction s 601KA(3)(b) preserves a member's rights contained in the scheme's constitution, but suspends the exercise of that right for the period the Fund is illiquid. 42 The difficulty with this argument is that a member cannot withdraw from a scheme otherwise than in accordance with the scheme's constitution. The question is not whether the legislative intention behind s 601KA(3) is merely to suspend the exercise of a member's right to withdraw from a scheme whilst the scheme is illiquid. The question is whether on the proper construction of the trust deed, it confers a right on the member to withdraw from the scheme at different dates from those specified in clause 20.4, if the scheme is illiquid on the specified dates. In my view the trust deed does not allow for units to be redeemed other than on the dates specified. 43 This construction is consistent with commercial convenience. There would be real difficulty in ascertaining when redemptions were to be effected if units were liable to be redeemed at a time the scheme ceased to be illiquid. A registered scheme is liquid if "liquid assets" account for at least 80 per cent of the value of scheme property (s 601KA(4)). The value of the liquid assets described in s 601KA(5)(a), (b), and (c) could readily be ascertained. Theoretically, it would be possible to ascertain at any day whether the trustee, by its directors acting as a board, had a reasonable expectation that other property was a liquid asset within the definition in s 601KA(6). However, it would not be possible to ascertain whether liquid assets accounted for at least 80 per cent of the value of scheme property without a valuation being made from day to day of the whole of the scheme property, including the hotels. That would be impracticable. Accordingly neither the unitholder nor the trustee would know on what particular day redemption was required to be effected. 44 The amount to be paid to the unitholder on the redemption of units is the Redemption Price on the day the redemption is effected (clause 4.10(a)). 45 The plaintiffs argued that redemption was "effected" on each specified date for redemption in clause 20.4 because on those days there was an operative offer and acceptance. Counsel submitted that there was a difference between a redemption being "effected" and the redemption being "satisfied". Clause 4.11(b) refers to the period in which redemptions must be satisfied. 46 The plaintiffs submitted that redemption involved a two-stage process. They submitted that the obligation to redeem was effected when the deemed offer and acceptance occurred, being on the three scheduled dates in clause 20.4(e). Subsequently there was to be a process of implementing the redemption obligation by payment of the redemption price and cancellation of units. The plaintiffs submitted that redemption was effected when the redemption obligation arose on each of the redemption dates and this was different from implementing that obligation or satisfying it. 47 However, the expression used in clause 4.10(a) is "effecting" a redemption. No doubt what this entails depends upon the construction of each relevant trust deed. In some cases a redemption might be effected before the unitholder is paid so that the unitholder becomes a creditor of the trustee (Basis Capital Funds Management Limited v BT Portfolio Services Limited [2008] NSWSC 766; (2008) 67 ACSR 297 at [142]). In other contexts redemption may not be complete or effectuated until payment is made (ING Funds Management Limited v ANZ Nominees Limited [2009] NSWSC 404; (2009) 72 ACSR 67 at [14], [18], [22]). The question is what "effected" means in clause 4.10(a). I accept that redemption might be effected within the meaning of clause 4.10(a) before the redemption price is paid. But I do not accept that redemption is effected within the meaning of clause 4.10(a) before the redeemed units are cancelled and the unitholder's name removed from the register. Clause 4.10(a) and (c) say what is to happen on the redemption of units. The redemption price is to be struck as at the date the units are cancelled and the unitholder ceases to be a unitholder. Accordingly the redemption price is not the price that would be payable were the units redeemed on the dates specified in clause 20.4(e) if the units were not in fact redeemed on those days. 48 There is also an implication from the structure of clause 20.4(e) that redemption might not be effected on the first specified date, in which case redemption of a different quantity of units would be made on the second or third specified dates, assuming they could lawfully be done. That is to say, the clause does not provide for the redemption of one-third of the unitholders' special units at six-monthly intervals. That would be the effect of the clause if redemptions could be effected on each of the specified dates and there were no other changes to the unitholding. In other words, one-third of the units would be redeemed after six months, another one-third (being half of the remaining two-thirds) would be redeemed after 12 months, and the remaining one-third would be redeemed after 18 months. The way the clause is structured provides some measure of protection to the holder of special units if redemption cannot be effected on the first or second date. The plaintiffs point out other possible reasons for the structure of clause 20.4(e), including the possibility that the trustee might make a separate redemption offer under clause 4.11 to all Unitholders. Moreover, there was a possibility of special unitholders converting back their special units to ordinary units which would be a further reason for clause 20.4(e) being drafted in the fashion it is. Those other considerations would no doubt have influenced the drafting of clause 20.4(e). But that does not mean that the clause was not also drafted to provide a measure of protection to holders of special units if the first or second tranche of redemptions could not occur because the Fund was illiquid. 49 The structure of the clause supports my conclusion that it is not to be implied that if redemption could not occur on any of the three redemption dates because the Fund was then illiquid, that redemption could occur upon the Fund becoming liquid. I do not consider that the fine distinctions the plaintiffs sought to draw between redemption being effected and redemption being satisfied, or between redemption and a member's withdrawing from the scheme within the meaning of Part 5C.6, have substance. 50 The plaintiffs argued not only that the trustee was required to redeem the special units once the Fund again became liquid, but that the redemption price payable was the price that "prevailed" on 30 November 2008, 31 May 2009, and 30 November 2009. I have rejected the argument that if the trustee were required to redeem after the Fund became liquid, the dates on which redemption would be effected within the meaning of clause 4.10(a) would be the dates specified in clause 20.4(e). But in any event, there was no "prevailing" unit price on those days before midnight. The trustee published each month a unit price as at midnight on the last day of the month. The plaintiffs argued that this was the price for units of the Fund for the following month. Hence the plaintiffs say that upon the Fund becoming liquid, the trustee is required to redeem one-third of the special units at a price which "prevailed" on 30 November 2008, being the price published as at midnight on 31 October 2008 for the following month. That is not correct. I accept the evidence of Mr van der Wallen, the fund manager of the Fund, that the published price is struck at a particular point in time and there is no implication that the same price applies until a new price is struck. I accept his evidence that had the Fund been liquid at each of the three redemption dates, he would have caused a unit price to be struck as at the date of each redemption based on the most recent valuations received by the Fund. The unit price struck as at each of those days would have been similar to the unit price that applied from the end of the day on each redemption date. 51 This would have been significant if the trustee were required to redeem the units on the Fund becoming liquid as at each of the specified redemption dates. That is because the price published as at midnight on 31 October 2008, 30 April 2009 and 31 October 2009 was in each case higher than the price struck at midnight on 30 November 2008, 31 May 2009 and 30 November 2009. However the question does not arise. The trustee is not obliged to redeem the units upon the Fund becoming liquid. If it were, the relevant date for redemption would not be the scheduled dates, but the dates upon which redemption was to be effected, that is, the date upon which redemption was effected upon the Fund becoming liquid. 52 The plaintiffs did not press their application for a declaration that there could be partial redemption of special units with the agreement of the trustee and the special unitholder whether or not the fund was illiquid within the meaning of s 601KA of the Corporations Act. That claim raised an hypothetical issue. It need not be further considered. 53 It follows from these reasons that the plaintiffs would not be in a special position on the winding-up of the Fund, whether or not the Fund has then become liquid. At the date of winding-up of the Fund no special right would attach to any of the second plaintiff's special units. Its right to have the units redeemed under clause 20.4(e) has ceased to exist because the Fund was not liquid at the specified dates. 54 For these reasons the plaintiffs are not entitled to the declaratory relief sought. I order that the plaintiffs' amended originating process be dismissed. I will hear the parties on costs. Prima facie the plaintiffs should be ordered to pay the defendants' costs. ****** 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.