Magellan Asset Management Limited as responsible entity for the Magellan Global Fund

[2023] NSWSC 1332

Supreme Court

New South Wales

Medium Neutral Citation:

Magellan Asset Management Limited as responsible entity for the Magellan Global Fund [2023] NSWSC 1332

Hearing dates:

30 October, 1 November 2023

Date of orders:

1 November 2023

Decision date:

07 November 2023

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

The request dated 13 October 2023 is invalid and ineffective and the Plaintiff is not required to comply with the request. Costs are to be paid out of the fund assets.

Catchwords:

EQUITY — Trusts and trustees — Construction of a managed investment scheme’s constitution — Where constitution adopts the mechanisms for the call of meetings from Part 2G.4 of the Corporations Act 2001 (Cth) — Where a minority of unitholders requested a meeting be called to consider a resolution to wind up the fund — Whether the proper construction of the constitution or the Corporations Act 2001 (Cth) requires the responsible entity to comply with the request.

Legislation Cited:

- Corporations Act 2001 (Cth), Ch 5C, Pt 2G.4, ss 252B, 252D, 252E

- Supreme Court Act 1970 (NSW), s 75

- Trustee Act 1925 (NSW), s 63

Cases Cited:

- Ali v Insurance Australia Ltd [2022] NSWCA 174

- Australian Centre for Corporate Responsibility v Commonwealth Bank of Australia (2016) 248 FCR 280; [2016] FCAFC 80

- Australian Pipeline Ltd v Hastings Funds Management Ltd (2014) 103 ACSR 343

- Charter Reinsurance Co Ltd v Fagan [1997] AC 313

- HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296

- Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; 306 ALR 25; [2014] HCA 7

- HNA Irish Nominee Ltd v Kinghorn (2010) 78 ACSR 553; [2010] FCAFC 57

- Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144

- Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; 325 ALR 188; [2015] HCA 37

- Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 307; [1974] HCA 18

- New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act (2016) 260 CLR 232

- Price (as executor of the estate of Price (dec’d)) v Spoor (as trustee) (2021) 391 ALR 532; [2021] HCA 20

- SIF Holdings Pty Ltd v CRC Gosford Pty Ltd [2021] NSWCA 174

- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52

Texts Cited:

- J D Heydon et al, Meagher, Gummow and Lehane's Equity, Doctrines and Remedies (LexisNexis, 5th ed, 2015)

Category:

Principal judgment

Parties:

Magellan Asset Management Limited as responsible entity of the Magellan Global Fund (Plaintiff)
Keybridge Capital Limited (Defendant)

Representation:

Counsel:
D Thomas SC/B Michael (Plaintiff)
C N Bova SC/K Petch (Defendant)

Solicitors:
MinterEllison (Plaintiff)
Allen & Overy (Defendant)

File Number(s):

2023/333493

Judgment

Nature of the application and background

1. By Amended Summons filed, by leave, on 30 October 2023, the Plaintiff, Magellan Asset Management Ltd (“MAM”) as responsible entity of the Magellan Global Fund (“Fund”) seeks judicial advice under s 63 of the Trustee Act 1925 (NSW) (“Trustee Act”) or in the Court’s inherent jurisdiction as to matters arising in respect of a meeting requisitioned by holders of Closed Class Units, as defined in the Fund’s constitution (“Constitution”), by request to MAM made on 13 October 2023 (“Request”).

2. MAM also there seeks declaratory relief, now as its primary relief, as follows, namely declarations that:

“(a)   the Request is invalid and ineffective;

(b) MAM is not required by the Fund Constitution or the Corporations Act to comply with the Request; and

(c) alternatively to (a) and (b) above, if the special resolution proposed in the Request is passed at a meeting of Holders of Closed Class Units convened by MAM under s 252B of the Corporations Act (as incorporated into the Fund Constitution) as requested by the Request, then that special resolution will be invalid, ineffective and will not constitute a special resolution passed at a meeting convened and held by Holders of Closed Class Units for the purposes of Schedule 1, paragraph 2.4(g) of the Fund Constitution.”

3. By orders made without opposition on 30 October 2023, Keybridge Capital Ltd (“Keybridge”) was joined as Defendant in the proceedings, and was appointed as representative of the holders of the Closed Class Units which had requisitioned the meeting.

4. By way of background, MAM is a subsidiary of Magellan Financial Group Ltd and is the responsible entity for the Fund, which is a managed investment scheme under Ch 5C of the Corporations Act 2001 (Cth) (“Act”). From 17 July 2007 to 27 November 2020, the Fund was unlisted. Following a restructuring proposal implemented by a trust scheme in late 2020, three funds were consolidated into a single fund with two unit classes, an open class and a closed class of units. The Fund was admitted to the official list of the Australian Securities Exchange (“ASX”) on 30 November 2020 and the restructure was completed on 8 December 2020. Unitholders were offered the opportunity to subscribe for new Closed Class Units in January 2021 and, on 1 March 2021, MAM issued holders of Closed Class Units one bonus option for every two Closed Class Units held as at 26 February 2021.

5. The Fund currently has three classes of financial products on issue, namely an open class of units quoted on the ASX under the AQUA Rules; Closed Class Units quoted on the ASX under the ASX Listing Rules; and options convertible into Closed Class Units also quoted on the ASX under the ASX Listing Rules. As at 18 October 2023, there were 1,408,944,856 Closed Class Units and 33,396 Closed Class Unit holders.

6. By the Request dated 13 October 2023, purportedly in accordance with s 252B of the Act, 118 holders of Closed Class Units requested MAM to call and arrange to hold a meeting of holders of Closed Class Units to consider and vote on the following special resolution:

“That in accordance with and for the purposes of Schedule 1, clause 2.4(g) of the MGF Constitution, the Responsible Entity must take all steps to remove MGF from the official list of the Australian Securities Exchange and redeem all Closed Class Units at a Redemption Price determined in accordance with clause 15 of the MGF constitution, otherwise on the terms of and in accordance with Schedule 1, clause 2.4(g) of the MGF Constitution.”

7. It is common ground that the signatories to the Request hold 10,707,791 Closed Class Units out of a total of 1,408,944,856 Closed Class Units in the Fund. The signatories therefore carry 0.76% of the votes that may be cast at a meeting of Closed Class Unit holders.

8. On 16 October 2023, MAM published two announcements to the ASX, one of which disclosed that Keybridge and other unitholders had requisitioned the relevant meeting. On 20 October 2023, MAM commenced these proceedings seeking confirmation that it would, inter alia, be justified in declining to convene a meeting of Closed Class Unit holders in compliance with the Request.

Affidavit evidence

9. MAM relies on the affidavit dated 20 October 2023 of its Chief Legal Officer, Mr Leo Quintana. Mr Quintana there outlines the matters which have led to this application, which I have summarised above, and draws attention to cl 2.4(g) of Schedule 1 of the Constitution which is in issue in this application. He indicates MAM’s concern that a meeting convened by it in accordance with s 252B of the Act would not be a meeting convened and held by holders of Closed Class Units, for the purposes of Sch 1, cl 2.4(g); a special resolution passed at a meeting convened by MAM in accordance with s 252B of the Act would not be a special resolution of the type provided in cl 2.4(g) of Schedule 1 and would be invalid; and the request for the meeting is invalid so that MAM is not required to call that meeting under s 252B of the Act. Mr Quintana in turn expresses the view, for which MAM contends in this application, that a valid meeting of holders of Closed Class Units for the purposes of Sch 1, cl 2.4(g) of the Constitution could be convened by holders of Closed Class Units holding at least 5% of the votes that may be cast at such a meeting, in accordance with s 252D of the Act. Mr Quintana also estimates the cost to the Fund of calling and holding that meeting as approximately $85,000.

10. MAM relies on the affidavit dated 27 October 2023 of its Deputy Chief Legal Officer, Ms Mariana Kolaroski, who refers to notice of this application given to holders of Closed Class Units by a letter dated 20 October 2023 sent by MAM to holders of Closed Class Units who had requisitioned the relevant meeting, by an announcement dated 20 October 2023 made by MAM to the ASX, and a further letter dated 23 October 2023 sent by MAM to persons who had requisitioned the relevant meeting and an update placed on the Fund’s website on that date. Ms Kolaroski also refers to correspondence between the solicitors for Keybridge and the solicitors for MAM in respect of the application. .

The jurisdiction to grant declaratory relief

11. The Court may, of course, make a declaration of right under s 75 of the Supreme Court Act 1970 (NSW) where, inter alia, the making of a declaration has practical utility. However, in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 307; [1974] HCA 18, Barwick CJ and Jacobs J observed that a declaration should not be made where the consequences that flow from it may leave other issues between the parties undetermined and no other relief is sought, or where the suggested declaration is merely an anterior step to inevitable future litigation. That principle is not controversial, although it should not be applied too rigidly: see the cases cited in J D Heydon et al, Meagher, Gummow and Lehane's Equity, Doctrines and Remedies (LexisNexis, 5th ed, 2015) at [19-305]. I am satisfied that this is a proper case to grant declaratory relief, where there is a real issue of construction in dispute and a declaration will resolve that dispute. Where declaratory relief is given, MAM did not press its application for a direction under the Trustee Act.

The issue as to construction of Sch 1, cl 2.4(g) of the Constitution

12. Mr Thomas, with whom Mr Michael appeared for MAM in this proceeding, points out that the issue in contest between the parties is the proper construction of cl 2.4(g) of Schedule 1 to the Constitution which provides that:

“If Holders of Closed Class Units convene and hold a Meeting and pass a special resolution requiring it, the Responsible Entity must take all steps to remove the Trust from the official list of the Securities Exchange and redeem all Units in the Class at a Redemption Price determined in accordance with clause 15 of the Constitution (but not until the period of 60 days referred to later in this paragraph has ended). The obligation to effect redemptions is subject to the [Act] (including Part 5C.6). Also, if the Holders of Open Class Units pass a resolution under paragraph 2.4(g) of Schedule 2 within 60 Business Days of a special resolution being passed under this paragraph then the Responsible Entity must instead proceed to wind up the Trust in accordance with clause 26 of the Constitution and will have no further obligations under this paragraph.” [Emphasis added]

13. I should also note other applicable provisions of the Constitution, which relevantly apply ss 252 and 252D of the Act to calling meetings of unitholders of the Fund. As Mr Thomas points out, cl 39.1 of the Constitution provides that a meeting can be convened and conducted in accordance with the Constitution and the Act. Clause 39.5 provides that cl 39 applies to meetings of unit holders of any type, and the provisions of “Part 2G.3” of the Act “are taken to apply (with necessary changes) to convening and conducting a meeting of Holders of any type as if they were the only members of the Trust”. Mr Thomas submits and I accept that the reference to “Part 2G.3” should be read as “Part 2G.4”.

14. Section 252B of the Act falls within Part 2G.4 and relevantly provides that:

“Calling of meetings of members by responsible entity when requested by members

(1)   The responsible entity of a registered scheme must call and arrange to hold a meeting of the scheme's members to consider and vote on a proposed special or extraordinary resolution on the request of:

(a)   members with at least 5% of the votes that may be cast on the resolution; or

(b)    at least 100 members who are entitled to vote on the resolution.

(1A)    The regulations may prescribe a different number of members for the purposes of the application of paragraph (1)(b) to:

(a)   a particular scheme; or

(b)   a particular class of scheme.

Without limiting this, the regulations may specify the number as a percentage of the total number of members of the scheme.

(2)   The request must:

(a)    be in writing; and

(b)    state any resolution to be proposed at the meeting; and

(3)   The request may be accompanied by a statement about the proposed resolution provided by the members making the request.

(4)   Separate copies of a document setting out the request and statement (if any) may be used for signing by members if the wording of the request and statement (if any) is identical in each copy.

(5)   The percentage of the votes that members have is to be worked out as at the midnight before the request is given to the responsible entity.

(6)   The responsible entity must call the meeting within 21 days after the request is given to it. The meeting is to be held not later than 2 months after the request is given to the responsible entity.

(7)   The responsible entity must give to each of the members a copy of the proposed resolution and statement (if any) at the same time, or as soon as practicable afterwards, as it gives notice of the meeting. The responsible entity must distribute the copies in the same way in which it gives notice of the meeting.

(8)   The responsible entity does not have to distribute a copy of the resolution or statement if either is more than 1,000 words long or defamatory.

(9)   The responsible entity is responsible for the expenses of calling and holding the meeting and making the distribution. The responsible entity may meet those expenses from the scheme's assets.”

15. Section 252D of the Act also falls within Part 2G.4 and relevantly provides that “[m]embers of a registered scheme who hold interests carrying at least 5% of the votes that may be cast at a meeting of the scheme’s members may call and arrange to hold a meeting of the scheme’s members to consider and vote on a proposed special resolution or a proposed extraordinary resolution”. As picked up by clause 39.5 of the Constitution, the adopted s 252D regime enables holders of Closed Class Units carrying at least 5% of the votes that may be cast at a meeting of Closed Class Unit holders to call and arrange to hold such a meeting.

16. Importantly, neither s 252B nor s 252D have direct application here, because both are directed to a meeting of all of the members of the scheme, not the members of a particular class, here the holders of Closed Class Units. No question of any narrowing of their application arises, because they do not apply, other than to the extent that the Constitution adopts their mechanism. The question here instead relates to whether a meeting of a class of unitholders, called in a particular manner as permitted by the Constitution, satisfies the requirements of Sch 1, cl 2.4(g) of the Constitution.

MAM’s submissions

17. Mr Thomas in turn submits that the ultimate question for the Court is whether the Request made in reliance on s 252B of the Act (as incorporated into the Constitution) involves the holders of Closed Class Units convening and holding a meeting for the purposes of Sch 1, cl 2.4(g). He submits that the Request necessarily involves MAM itself convening and holding a meeting of members under s 252B of the Act and that that is not the mechanism contemplated by Sch 1, cl 2.4(g) which is directed to a meeting to be convened and held by unitholders, which could be called by them pursuant to s 252D of the Act. Mr Thomas points to the practical difference between the two sections, namely that the requisitioners comprise in excess of 100 unitholders and therefore meet a threshold under s 252B, but have only 0.76% of the votes that may be cast and therefore fall well below the 5% threshold in s 252D of the Act. That is, however, a consequence of resolving the question of construction raised by these proceedings rather than a matter which goes to its resolution.

18. In support of the construction for which MAM contends, Mr Thomas submits, first, the terms of the constitution of a managed investment scheme are to be construed like any other commercial contract. I have regard to the High Court’s observations as to the objective approach to construction in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40], Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd (2014) 251 CLR 640; 306 ALR 25; [2014] HCA 7 at [35] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; 325 ALR 188; [2015] HCA 37 at [46]–[52], [59] and I proceed on the basis that construction should commence with the language used by the parties, although, subject to the qualification noted below, the Court may also have regard to objective surrounding circumstances. In Price (as executor of the estate of Price (dec’d)) v Spoor (as trustee) (2021) 391 ALR 532; [2021] HCA 20 at [27], the High Court again observed that an objective approach is applied in determining the rights and liabilities of a party to a commercial contract, by reference to its text, context and purpose, and “[t]he meaning to be given to its terms is determined by reference to what a reasonable business person would have understood those terms to mean”.

19. Mr Thomas also submits and I accept that it is necessary to construe the language according to its natural and ordinary meaning, having regard to the circumstances which the document addresses, and the objects which it is intended to secure; and the inquiry will start, and usually finish, by asking what is the ordinary meaning of the words used: Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 384; Australian Pipeline Ltd v Hastings Funds Management Ltd (2014) 103 ACSR 343 at 348; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 at [22]; SIF Holdings Pty Ltd v CRC Gosford Pty Ltd [2021] NSWCA 174 at [73]; Ali v Insurance Australia Ltd [2022] NSWCA 174 at [29]. I also recognise a qualification noted by Mr Thomas in oral submissions, namely that the Court will exercise restraint in having regard to surrounding circumstances in the construction of the constitution of a company and, by analogy, a managed investment scheme: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144 at [56]ff; HNA Irish Nominee Ltd v Kinghorn (2010) 78 ACSR 553; [2010] FCAFC 57 at [42].

20. Second, Mr Thomas submits that, on both a literal and natural reading of Sch 1, cl 2.4(g) of the Constitution, that clause is directed to a resolution passed at a meeting convened and held by Closed Class Unit holders. He points out that the clause commences by expressly identifying the class of persons who may convene and hold the relevant meeting, the Closed Class Unit holders, and points out that no other class or persons, and no other entity, is identified as having an ability to convene and hold a meeting for the purposes of the clause. Third, he points out that there is no difficulty in giving effect to the literal and natural reading of that clause, because s 252D of the Act, as picked up by the Constitution and made applicable to Closed Class Units, provides a mechanism for holders of Closed Class Units themselves to convene such a meeting.

21. Fourth, Mr Thomas submits that the literal and natural reading of Sch 1, cl 2.4(g) of the Constitution is reinforced by the fact that there were two statutory mechanisms for the draftsperson to choose from at the time Schedule 1 of the Constitution came into force: namely, s 252B and 252D. He points out that, under s 252D of the Act, it is a cohort of members who may call and arrange to hold a meeting. Under s 252B, it is the responsible entity that must call and arrange to hold the meeting. That seems to me to be sufficient to lead to the result that, for the purposes of Sch 1, cl 2.4(g) of the Constitution, a meeting under s 252D of the Act satisfies the description of a meeting that “Holders of Closed Class Units convene and hold”, but a meeting under s 252B of the Act does not, because it is a meeting that the responsible entity convenes and holds, albeit at members’ request. That analysis is neither advanced nor undermined by the facts that, as Mr Thomas also points out, there are different thresholds in the two sections concerning the number of votes or members required to trigger the entitlement or obligation to call a meeting; and a different costs position also applies: if members call a meeting under s 252D, they must bear the costs of the meeting.

17. Fifth, Mr Thomas submits that the literal and natural reading of Sch 1, cl 2.4(g) of the Constitution is reinforced by other provisions of the Constitution, which do not confine the relevant clause by using the specific concept of a meeting that “Holders of Closed Class Units convene and hold”. I recognise that the Constitution is to be read as a whole, but the formulation of other clauses dealing with other matters does not seem to me to substantially advance the construction of Sch 1, cl 2.4(g) of the Constitution. Sixth, Mr Thomas submits and I also accept that a construction permitting a resolution under Sch 1, cl 2.4(g) to be passed at a meeting convened and held by MAM would leave the words “convene and hold a Meeting and” with no work to do, and that the words of a written instrument should be interpreted in a way which gives them an effect rather than in a way which makes them redundant.

18. Seventh, Mr Thomas submits that the literal and natural reading of Sch 1, cl 2.4(g) does not offend business common sense and there are sound commercial reasons for adopting a threshold of 5% of eligible votes in s 252D, rather than the potentially lower threshold of 100 members in s 252B, given the potentially very significant consequences of delisting and redemption of all Closed Class Units, as well as the instability potentially caused by the holding of a meeting to consider those matters. I accept that the meaning for which MAM contends does not offend business common sense, for a different reason. There are reasons to adopt either a more or less demanding threshold to call such a meeting and a choice to adopt the higher threshold, by requiring holders of Closed Class Units to convene and hold the meeting by the mechanism specified in s 252D of the Act, as applied by the Constitution, is no more and no less sensible than a choice to adopt a lower threshold by adopting the mechanism specified in s 252D of the Act.

19. For completeness, Mr Thomas identifies matters which may be put against the submissions noted above. First, he recognises that some authorities have treated the regime in Part 2G.4 of the Act as beneficial legislation that ought thereby be construed in favour of members. He submits, and I accept, that the issue for consideration here is not the scope of ss 252B and 252D of the Act but, rather, the proper construction of paragraph 2.4(g) of Schedule 1 to the Constitution, and that there are limits to the principle that beneficial legislation is to be construed expansively and legislation “rarely pursues a single purpose at all costs”: New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act (2016) 260 CLR 232 at [92]. For the reasons noted above, there is also no reason to assume that a lower threshold to call such a meeting is more “beneficial” to members than a higher threshold, which will at least turn on the wisdom of the particular proposal and the costs which will be incurred in calling a meeting at the request of a small number of unitholders to consider a proposal which may or may not have the support of unitholders generally.

20. Second, Mr Thomas notes a counterargument may be put that a construction that construes Sch 1, cl 2.4(g) of the Constitution as requiring Closed Class Unit holders to convene and hold the meeting pursuant to s 252D might mean that the paragraph does not contemplate a resolution being passed at a meeting convened by the Court under s 252E of the Act. He then submits that:

“… the operation of s 252E should be assessed on a case-by-case basis. It may be possible to identify circumstances in which, due to practical exigencies beyond their control, a cohort of members who would otherwise meet the threshold in s 252D is unable to call and arrange a meeting under s 252D. In such circumstances, it may be open to construe paragraph 2.4(g) as permitting the intervention of the Court for the sole reason of impracticability. In any event, the immediate question for the court is whether a request made by unitholders in purported reliance on s 252B of the [Act] is valid. In order to resolve that question, it is not necessary for the court to determine the scope or possible availability of s 252E in the present context – and there may be good reasons not to do so.”

26. The implied premise of that counterargument is that Sch 1, cl 2.4(g) of the Constitution ought to apply to a meeting called by the Court under s 252E of the Act, although I note that section is also directed to a meeting of all the unitholders in the Fund and not a class of them. That premise is not self-evident, where there is no obvious reason that the relevant resolution should be able to be passed in wider, or narrower, circumstances than where a meeting is called and held by holders of Closed Class Units. This matter provides no reason not to read that clause in accordance with its terms.

Keybridge’s submissions and MAM’s reply

27. In its outline of submissions in response, Keybridge contends that the Request is valid and effective under s 252B of the Act and that MAM is required to comply with the Request by calling and arranging to hold a meeting of Closed Class Unit holders on that basis. In reply, Mr Thomas responds that it is incorrect for Keybridge to begin with the premise that Closed Class Unit holders have a right to require MAM to call a meeting to vote on a resolution under Sch 1, cl 2.4(g), arising under s 252B of the Act, because that section creates no statutory entitlement for a class of unitholders to require a responsible entity to call and hold a meeting limited to that class. Mr Bova, with whom Ms Petch appears for Keybridge, fairly accepted in oral submissions that s 252B of the Act is directed to a meeting of the scheme members as a whole and does not apply to a meeting only of Closed Class Unit holders.

28. Keybridge identifies the issue in this case as whether Sch 1, cl 2.4(g) of the Constitution “operates so as to curtail the ability of the requisitioners to make the Request, or alternatively, to make any resolution passed at the meeting void or incapable of implementation”. I do not accept that formulation of what this inquiry involves, since holders of Closed Class Units only have an ability to make the Request under the Constitution, including Sch 1, cl 2.4(g), where s 252B of the Act does not apply to a meeting of a class of members and the constitution creates rather than curtails that ability.

29. Keybridge also submits that nothing in s 252B of the Act is capable of “abrogation” by the Constitution. In reply, Mr Thomas points out that the construction of Sch 1, cl 2.4(g) advanced by MAM does not “abrogate” s 252B because, as he had pointed out above, that section does not provide a right for a class of unitholders to request a meeting of that class, as Mr Bova fairly conceded in oral submissions. I do not accept Keybridge’s submission, where that section only applies in these circumstances to the extent that the Constitution applies it. Nothing in the question whether the form of the meeting requested by Keybridge satisfies the requirements of Sch 1, cl 2.4(g) of the Constitution “abrogates” any aspect of that section.

30. Keybridge also submits that:

“Paragraph 2.4(g) of Schedule 1 has no work to do until a special resolution has been passed at a meeting of Closed Class Unitholders. So much is plain from the opening words of the paragraph “If Holders of Closed Class Units convene and hold a Meeting and pass a special resolution requiring it, the Responsible Entity must...” (emphasis added). Paragraph 2.4(g) of Schedule 1 gives to the responsible entity an “if this then that” direction; that is, that upon the occurrence of a thing (the passing of a Closed Class Unitholder special resolution) a consequence will occur (MAML must do an act).”

31. In response, Mr Thomas recognises that Sch 1, cl 2.4(g) recognises that, as Keybridge contends, Sch 1, cl 2.4(g) is expressed as a conditional statement, in the form “if A, then B”; however, he points out that condition “A” in that conditional statement is that the holders of Closed Class Units both convene and hold a meeting and pass the special resolution at that meeting, and that Keybridge’s construction of the phrase seeks to omit the first of those requirements. It seems to me that Keybridge’s submission does not assist it where the event specified in Sch 1, cl 2.4(g) is that holders of Closed Class units have both convened and held the relevant meeting and have passed the special resolution, and not that the relevant resolution is passed at a meeting convened and held, for example, by MAM rather than the holders of the relevant units.

32. Keybridge also submits that the Constitution of the Fund does not set out how a meeting should be called but adopts the means to call meetings under the Act. While I again accept that submission, it does not assist Keybridge where the requirement in Sch 1, cl 2.4(g) is that the relevant meeting be a meeting convened and held by holders of Closed Class Units at which the relevant resolution is passed. That requirement would be satisfied by a meeting called by such holders under s 252D of the Act, as applied by the Constitution, but not by a meeting called by MAM under s 252B of the Act as applied by the Constitution in response to the Request.

33. Keybridge also submits that it cannot sensibly be suggested that, because of Sch 1, cl 2.4(g), MAM could not itself call a meeting of Closed Class Unit holders for members to instruct it to take the relevant steps, or the Court could not do so, and that:

“Similarly, it cannot have been intended that, without expressly saying so, the draftsperson intended to deprive the members of their right under s 252C, which provides a right for the members to call a meeting, albeit only engaged upon the failure of a request in s 252B. It is illogical that the draftsman of the Fund Constitution would intend, without saying so, to deprive members of an outcome reached one way (i.e. via s 252B and 252C), but not the other via s 252D of the Act.”

34. Mr Thomas responds, in reply, that there is no lack of sense in conferring the power to initiate the actions contemplated by Sch 1, cl 2.4(g) on holders of Closed Class Units, rather than on MAM as responsible entity. Mr Thomas also points out that s 252C of the Act, as applied by the constitution, does not apply unless there had first been a requirement for the responsible entity to call a meeting under s 252B and it had failed to do so.

35. It is not apparent to me that there is any lack of sense in restricting the trigger event for the steps set out in Sch 1, cl 2.4(g) to circumstances where holders of the relevant units call and hold the relevant meeting, where many alternative thresholds could have been specified for a meeting to trigger the steps specified in Sch 1, cl 2.4(g), and the clause adopts one rational alternative among the range of possible alternatives. It seems to me that Keybridge’s submission turns upon a premise as to what the constitution should provide, which has no apparent commercial or legal basis. It is not necessary to address the further questions posed by Keybridge as to whether the requirements of Sch 1, cl 2.4(g) would be met by a meeting called by unitholders under s 252C of the Act (which also has no application to a meeting of a class of unitholders, other than as applied by the Constitution) or by a meeting called by the Court under s 252E of the Act, where those questions do not currently arise.

36. Keybridge also submits that MAM’s preferred construction “improperly focuses on the person(s) who sign or issue the notice of the relevant Meeting”. I accept that MAM’s construction does focus on who calls and holds the relevant meeting, but it seems to me that is a proper rather than an improper question, being the matter to which the introductory words of Sch 1, cl 2.4(g) are directed.

37. Keybridge also submits that Sch 1, cl 2.4(g) does not limit the power of holders of Closed Class Units to convene and hold the relevant meeting. I accept that submission, but it also does not assist Keybridge here, where Keybridge has not sought to satisfy the requirements to convene and hold such a meeting itself, together with other unitholders holding the requisite percentage of units, as it would be entitled to do in the manner specified under s 252D of the Act as applied by the Constitution, but has instead sought to have MAM as responsible entity convene that meeting, on the request of a lesser number of unitholders. Keybridge also submits that it would be “strange” for the Court to construe Sch 1, cl 2.4(g) in a way which requires MAM to act on a special resolution only where it is convened pursuant to s 252D of the Act, and not where it is passed at a meeting convened pursuant to s 252B of the Act. Again, there seems to me nothing strange about that proposition, because it gives effect to the introductory words of Sch 1, cl 2.4(g). That paragraph specifies the boundaries of its application, and there is no basis for an assumption that those boundaries should have been drawn at a different point to that where they are drawn on their proper construction.

38. Keybridge also submits that there is no support in the language of cl 39.5 of the Constitution for a proposition that the Constitution “curtails the operation of the [Act] in relation to meetings”. That submission is based on a false premise, at least in its application to this situation, because (as Mr Bova accepts) the relevant provisions of the Act do not apply to a meeting of only holders of Closed Class Units, except as applied by the Constitution, and their application creates rather than “curtails” their operation in these circumstances.

39. Keybridge also makes a submission as to what “business common sense” requires and Mr Thomas, in reply, reiterates the commercial reasons that MAM support the approach taken in Sch 1, cl 2.4(g). Both submissions have the same difficulty, that there is no basis to find that one or other of the parties’ contentions is more or less sensible than the other, where they simply have different results as to how a meeting that complies with Sch 1, cl 2.4(g) can be called and as to the number of unitholders needed to call that relevant meeting. Business common sense would be equally satisfied by allowing such a meeting to be called in the manner specified in ss 252B or 252D of the Act as applied by the Constitution, and by a larger or smaller number of unitholders, and the terms of Sch 1, cl 2.4(g) again reflect a choice between available common sense alternatives.

40. Mr Bova also made oral submissions which he indicated were intended to be consistent with Keybridge’s written outline of submissions, although it seemed to me that they had a somewhat different emphasis. Mr Bova addressed the issue two classes of units in the Fund, namely Closed Class Units and Open Class Units (as defined in the Constitution) and referred to an explanatory memorandum issued by MAM in October 2020 (Ex A3) in respect of a scheme of arrangement which implemented a restructure of the Fund. Mr Bova pointed to a diagram in the explanatory memorandum (Ex A3, 19) which illustrated the issue of the Open Class Units and Closed Class Units and referred to an overview of the features of those units and the differences between them (Ex A3, 35) which noted that:

“Under the ASX Listing Rules, Closed Class Unitholders do not have the ability to apply for or redeem Closed Class Units directly with Magellan Global Fund RE.”

By contrast, that page made clear that holder of Open Class Units could redeem those units on a specified basis. That page also referred, under the heading “[m]aterial voting rights specific to a Unit Class” to matters requiring specific approval of Closed Class Unit holders of which one was:

“Removal of Magellan Global Fund from the official list of ASX, a wind up of the Closed Class Unit Class and, where Open Class Unitholders have passed an equivalent resolution, a wind up of the Magellan Global Fund.”

41. Mr Bova also referred to a summary of the provisions of the Constitution in that explanatory memorandum (Ex A3, 48) which noted that:

“Holders of Closed Class Units may, subject to some conditions and qualifications, require [MAM], by special resolution, to apply to de-list Magellan Global Fund from ASX and redeem all Closed Class Units….”

The explanatory memorandum there noted that the redemption right was to simulate a right to wind up Magellan Global Fund insofar as it relates to holders of Closed Class Units. These observations do not advance the matters I have to decide, which relate to the nature of the conditions which the explanatory memorandum did not address in any detail. Mr Bova also pointed out that cl 14 of the Constitution prohibits redemption while the Closed Class Units are listed, reflecting a requirement of the ASX Listing Rules, and points out that delisting of the Fund would be required prior to a redemption of the Closed Class Units. Mr Bova again pointed to the difference between Open Class Unit holders, which were entitled to make a redemption request and redeem their individual units on specified terms, where those units were not listed on the ASX, and Closed Class Units in that regard. It is, of course, neither surprising nor a matter of concern that different classes of securities have different rights. Mr Bova also rightly points to the fact that one avenue is available for redemption of units by Closed Class Unit holders through Sch 1, cl 2.4(g) of the Constitution. I accept that submission, although it does not advance the question of construction of that clause. The fact that one avenue is available to redeem Closed Class Units does not require that that avenue be either wider or narrower or have any particular scope.

42. As I have noted above, Mr Bova rightly accepted (T4) in oral submissions that s 252B of the Act did not have statutory application to calling a meeting of Closed Class Unit holders and could only apply in a modified way, through the Constitution, to permit the class of Closed Class Unit holders to convene and hold such a meeting. He also fairly accepted (T4-5) that Keystone could not put that the Constitution abrogated, cut down or narrowed that section, where it had no application to the calling of such a meeting other than as it was applied by the Constitution.

43. Mr Bova also pointed (T5) to a difference in value between Open Class Units and Closed Class Units in the Fund. It is, of course, not surprising that different classes of units in a managed investment scheme, having different features and rights, would have a different value, and it would be more surprising if that was not the case. Ordinarily, that would generally not trouble unitholders (or shareholders in a similar position) where they would ordinarily purchase and sell those units in a liquid market at prices which reflect those different values.

44. Mr Bova also points (T5) to steps that MAM as responsible entity must take when the requirements of Sch 1, cl 2.4(g) are satisfied. There appears to be no contest as to the content of those steps, although there is a contest as to what is required for them to have to be taken. Mr Bova characterised (T6) MAM’s submission as requiring any meeting of Closed Class Unit holders to be convened and held by unitholders pursuant to s 252D of the Act, as applied by the Constitution. It seems to me that is something of an over-simplification, where MAM’s submission is that Sch 1, cl 2.4(g) requires, in its terms, that holders of Closed Class Units convene and hold the relevant meeting and pass the relevant special resolution for the purposes of that clause, and accepts that at least a meeting convened and held by unitholders under s 252D of the Act, as applied by the Constitution, would satisfy that requirement. As Mr Bova later recognised in his oral submissions, other meetings of Closed Class Unit holders for other purposes would need to satisfy the requirement arising in the opening words of Sch 1, cl 2.4(g). Mr Bova also pointed to (T6) a suggested “inconsistency” in MAM putting a position that only a meeting convened and held by unitholders under s 252D of the Act satisfied the requirement in Sch 1, cl 2.4(g) that the meeting be convened and held by Closed Class Unit holders. It is not apparent to me that there is any “inconsistency” in that proposition, which simply reflects the fact that the clause specifies the circumstances in which a delisting and redemption of unitholders may be triggered, and necessarily delimits the scope of those circumstances. There is no apparent “inconsistency” in the fact that a meeting convened in one way falls within those circumstances, and a meeting convened in another way does not.

42. Mr Bova (T7) then advanced the submission that what was required to trigger the requirements of Sch 1, cl 2.4(g) was “the convening and holding of a meeting of Closed Class Unit holders and the passing of that special resolution at the meeting of Closed Class Unit holders”. That submission neglects the fact that the clause is not expressed in the passive tense, and its opening words require that the holders of Closed Class Units convene and hold the relevant meeting, not merely that such a meeting be convened by some other entity. I accept that the clause could readily have been drafted differently, and in the passive tense, so that it was not limited to a meeting convened and held by Closed Class Unit holders, and extended, for example, to a meeting convened and held by MAM at the request of Closed Class Unit holders. However, to inquire what a clause could have provided, if it was not as it is, does not advance the question of what it does provide on its proper construction.

43. Mr Bova also submitted (T8) that Sch 1, cl 2.4(g) was directed to the “Closed Class Unitholders” as a group and does not require that “a subset of Closed Class Unitholders … have to convene and hold a meeting, and pass a special resolution”. I cannot accept, that submission, where the question how many Closed Class Unit holders are required to convene and hold a meeting is addressed elsewhere in the constitution by applying the provisions of Pt 2G.4 of the Act to which I have referred to a meeting of, inter alia, Closed Class Unit holders. Plainly, the intent of that clause is not to require, and Mr Bova did not suggest that it required, all Closed Class Unit holders to convene and hold the relevant meeting, which would allow the clause the narrowest possible operation, rather than a sufficient number of Closed Class Unit holders do so to satisfy the statutory requirements to convene and hold such a meeting, as applied to a meeting of Closed Class Unit holders by the Constitution. Mr Bova then qualified his oral submissions to accept that the reference to holders of Closed Class Units did not mean all holders of Closed Class Units, but such holders of Closed Class Units as can properly convene and hold a meeting. The difficulty for Keybridge, here, is that it did not seek to convene and hold such a meeting with the support of the number of Closed Class Unit holders necessary for it to do so in the manner contemplated by Sch 1, cl 2.4(g). Mr Bova also addressed (T9ff) several other references to the concept of “Closed Class Units” and “Closed Class Unit holders” in the Constitution, and I have had regard to those provisions, without needing to address them in detail.

44. Mr Bova alternatively submits that the prerequisite to the requirement to redeem units is a valid meeting and that there is nothing on the face of Sch 1, Cl 2.4(g) to suggest that s 252B of the Act cannot be used to convene a valid meeting. I accept that s 252B of the Act, as applied by the Constitution, could be used to convene a valid meeting, for a proper purpose. However, for the reasons set out above, it could not be used to convene a meeting to pass a resolution that could not have effect, because it would not satisfy the requirements of Sch 1, cl 2.4(g) where the relevant meeting was not convened and held by unitholders for the purposes of that clause. In oral submissions, Mr Bova also right referred to the limited assistance which could be drawn from concepts of “business common sense” (T12ff) and I accept that submission, so far as both MAM and Keybridge sought to draw, in their outlines of submissions, upon those concepts in order to construe Sch 1, cl 2.4(g).

Determination

48. Mr Thomas submits, and it appears to be common ground, that, if Sch 1, cl 2.4(g) of the Constitution is read in the manner which MAM contends is its proper construction, then the 118 Closed Class Unit holders who made the Request have not sought to convene and hold a meeting which would satisfy its requirements. I accept that submission, where that would not be a meeting convened and held by holders of the Closed Class Units, for the purposes of Sch 1, cl 2.4(g) of the Constitution. That result arises because the relevant Closed Class Unit holders have not adopted the mechanism available to do so under s 252D of the Act, as applied by the Constitution, likely because they do not meet the numerical threshold to do so. I will make the first declaration sought in the Amended Summons to the effect that the Request is invalid and ineffective, where the resolution that it seeks to have passed would not meet the requirements of Sch 1, cl 2.4(g) of the Constitution for the reasons that I have set out above in dealing with the parties’ submissions.

49. Mr Thomas also submits that where the Request calls for a meeting to vote on a resolution which would be invalid if passed, MAM is not required to comply with the Request. He points out that the statutory obligation of directors of a company to call a meeting of members when requested does not require the directors to act on a requisition the sole purpose of which is to pass a resolution which cannot be effectively passed at the meeting. He submits that there is no reason to construe s 252B, as applied by cl 39.1 of the Constitution, differently. I did not understand Keybridge to contest that the responsible entity of a managed investment scheme, like a company, is not obliged to convene a meeting to pass a resolution that would be ineffective, because it is not within the unitholders’ power: Australian Centre for Corporate Responsibility v Commonwealth Bank of Australia (2016) 248 FCR 280; [2016] FCAFC 80 at [27]ff. I will also make the second declaration sought in the Amended Summons, that MAM is not required by the Constitution or the Act to comply with the Request. I have concluded that MAM is not required to convene the meeting under the Constitution, because the resolution could not properly be passed at that meeting; and MAM is also not required to convene a meeting under the Act, because s 252B of the Act does not apply to convening a meeting of a class of unitholders rather than unitholders generally.

50. I will not make the third declaration, which MAM only sought in the alternative, and which is not necessary where the first and second declarations are made. I have found above, in a manner that binds MAM, Keybridge and the holders of Closed Class Units that it represents, that, if the special resolution proposed in the Request were passed at a meeting of holders of Closed Class Units convened by MAM under s 252B of the Act (as applied by the Constitution) as requested by the Request, then that special resolution would be invalid and ineffective and would not constitute a special resolution passed at a meeting convened and held by holders of Closed Class Units for the purposes of Sch 1, cl 2.4(g) of the Constitution.

51. It was common ground, and I accept, that this is a matter where orders are properly made that MAM’s costs and Keybridge’s costs (as agreed or as assessed) are properly paid out of the assets of the Fund.

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Decision last updated: 07 November 2023