National Nominees Limited v Agora Asset Management Pty Ltd
[2011] VSCA 327
•28 October 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2011 0133
| NATIONAL NOMINEES LIMITED (ACN 004 278 899) & COMMONWEALTH SUPERANNUATION CORPORATION | Appellants |
| v | |
| AGORA ASSET MANAGEMENT PTY LTD (ACN 122 895 989) | Respondent |
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JUDGES: | WARREN CJ, MANDIE JA and JUDD AJA |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 21 October 2011 |
DATE OF JUDGMENT: | 28 October 2011 |
MEDIUM NEUTRAL CITATION: | [2011] VSCA 327 |
JUDGMENT APPEALED FROM: | National Nominees Limited & Anor v Agora Asset Management Pty Ltd (No.2) [2011] VSC 425 |
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CONTRACT – Interpretation – Managed investment scheme – Public unit trust - Membership in trust by application contained in information memorandum – Constitution and information memorandum formed the contract – Discretionary imposition of an exit fee up to 5% authorised by constitution – Initial information memorandum specified nil exit fee and required 30 days’ written notice of “any proposed change” to fees – Whether notification that after 30 days there would be a withdrawal fee of up to 5% of the withdrawal proceeds at the absolute discretion of the responsible entity satisfied the notice requirement.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr J B Davis | Norton Gledhill |
| For the Respondent | Mr P D Corbett | DLA Piper |
WARREN CJ:
I have had the benefit of reading in draft form the reasons for judgment of Mandie JA. I agree with his Honour, for the reasons that he gives, that the appeal should be dismissed.
MANDIE JA:
The respondent (‘Agora’) is a funds manager and the trustee and responsible entity of a public unit trust called the Agora Absolute Return Fund II (‘the Fund’).[1] For the purposes of the appeal, it is sufficient to state that the appellants are entitled to units in the Fund and that, upon the appellants notifying Agora that they wished to redeem those units, Agora imposed an exit fee of 5 per cent of the value of the units. A judge in the trial division declared that Agora was entitled to the payment of an exit fee pursuant to cl 4.5 of the Constitution of the Fund in the sum of $7,857,649.13 plus GST from the proceeds of the withdrawal and upon redemption of the appellants’ units. That sum amounted to 5 per cent of the amount redeemed.
[1]The Fund is an unregistered managed investment scheme regulated under the Corporations Act 2001 (Cth).
It was common ground that at all relevant times the appellants’ investment was contractually governed by the Constitution of the Fund.
Clause 4.5 of the Constitution provided that:
The Responsible Entity may determine that a Unitholder has to pay a fee (Exit Fee) not exceeding 5% of the proceeds of a Withdrawal Request.
The judge held that this provision entitled Agora to impose a 5 per cent exit fee on the appellants in the way that it had done. The appellants dispute this conclusion particularly by reference to the terms of an Information Memorandum dated 13 November 2007. The appellants applied for units in the Fund on the basis of this Information Memorandum. Paragraph 1.1 of the Information Memorandum contained a table summarising a number of details relating to the Fund and specifying the ‘Contribution/Withdrawal Fee’ as ‘Nil’.
Paragraph 8.1 of the Information Memorandum stated:
This IM shows fees and other costs that you may be charged…
Paragraph 8.3 of the Information Memorandum relevantly provided
Can the fees change?
Yes, all fees can change. Reasons might include changing economic conditions and changes in regulation. The Trust Deed for the Fund sets the maximum amount we can charge for all fees. If we wished to raise fees or performance fees above the amounts allowed for in the Fund’s Trust Deed, we would need the approval of investors. We will give you 30 days’ written notice of any proposed change to these fees.
The appellants considered the material in the Information Memorandum prior to investing and asked Agora a number of questions. A relevant question, and the answer given by Agora on or about 7 May 2008 was as follows:
Exit fees – The IM states that admission and exit fees are nil. However, Clauses 4.3 and 4.5 of the constitution state that fees are limited to 5% of the application moneys or withdrawal requests. Could you please clarify which one is correct.
The IM specifies the correct current fee level.
The constitution specifies a permanent maximum fee which cannot be exceeded by an IM
IM’s are issued and updated periodically to provide the exact current terms and conditions.
It was common ground that the appellants applied for units on an application form detached from the Information Memorandum which stated, among other things:
I/we agree to be bound by the terms of the information memorandum and the trust deed of [the Fund], as amended from time to time, and understand that a copy of the trust deed has been made available to me for free if I wished.
The judge held that the Information Memorandum formed part of the contract between the appellants and Agora. Although the respondent argued at trial that the Information Memorandum had no contractual effect, on appeal the respondent did not challenge the conclusion of the trial judge that it did form part of the said contract.
By letter dated 24 November 2010 from Agora to the appellants, Agora enclosed an updated version of the Information Memorandum for the Fund dated 24 December 2010 and, inter alia, the letter stated that:
The IM also provides for increases in fees charged by Agora, which are within the fee amounts permitted to be charged under the Fund’s Trust Deeds.
The relevant change in the enclosed Information Memorandum was that the table in para 1.1 provided for a withdrawal fee of ‘up to 5% of the withdrawal proceeds of a withdrawal request, at the absolute discretion of Agora.’
The appellants did not notice the change in relation to the exit or withdrawal fee and subsequently requested Agora that the units be redeemed.[2] When Agora gave written confirmation of its redemption instructions from the appellants, Agora indicated that there would be a 5 per cent withdrawal fee. The appellants then sought to cancel their redemption request but Agora refused to accept that cancellation. Clause 2.30 of the Constitution provided that a withdrawal request could not be withdrawn without the consent of Agora and the judge held that Agora’s refusal of consent was authorised thereby and was not unreasonable, capricious or in breach of trust, as the appellants contended. This conclusion was not challenged on appeal.
[2]There were a series of communications between the appellants and Agora but nothing turns on the timing of the request for redemption.
The learned trial judge concluded that para 8.3 of the Information Memorandum required Agora to give unitholders 30 days’ notice of any fee change but that Agora had complied with para 8.3 by notifying the appellants that there would be at its discretion an exit fee of up to 5 per cent.[3]
[3]National Nominees Limited & Anor v Agora Asset Management Pty Ltd (No.2) [2011] VSC 425, [24].
In their written outline, the appellants submitted that the trial judge should have found that, where the exit fee had been nil, if Agora sought to charge any exit fee, it was obliged by cl 4.5 of the Constitution and/or paras 1 and/or 8 of the Information Memorandum to determine or fix the exact amount, or percentage of the withdrawal proceeds, which it proposed to charge as an exit fee and to provide the appellants 30 days’ notice in writing of that fee so determined or fixed. The appellants submitted that the notice in fact given by Agora was insufficient because it informed the appellants that there would be an exit fee of ‘up to 5%’ at its absolute discretion and that Agora did not ‘determine’ the exit fee until after the request for redemption had been made. In oral argument, the appellants placed greater emphasis upon the contention that Agora had failed to comply with para 8.3 of the Information Memorandum because the notice given did not identify any ‘proposed change’ to the exit fee. In support of those submissions, the appellants said that the Constitution and, in particular, the Information Memorandum had to be given a purposive construction and one that made commercial sense. The appellants said that the purpose of the notice provisions in the Information Memorandum was to give a unitholder time to make a considered decision. A unitholder would have 30 days in which to decide whether to avoid any exit fee by seeking immediate redemption of its units and, for that purpose, a unitholder would need to know the precise exit fee for which it would be liable if it retained its units in the Fund and subsequently sought redemption of its units. The precise exit fee could be set at a specific percentage rate but not as a range, as had been done.
Agora submitted that the Constitution authorised it to determine an exit fee of up to 5 per cent of the proceeds of a withdrawal request and that is what it did. Agora said that the appellants’ argument was contrary to the plain meaning of the relevant provisions and that the contention that Agora had to fix an exact fee prior to giving notice was inconsistent with the meaning and intent of cl 4.5 of the Constitution which authorised it to impose a fee up to a stipulated maximum. Agora was entitled to determine the precise fee, pursuant to the discretion granted to it by the Constitution, at the time when it received a particular withdrawal request.
Agora put two alternative arguments concerning the operation of the notice provision in para 8.3 of the Information Memorandum. The first argument was that the notice provision only applied to changes to fees beyond the maxima provided by the Constitution. The alternative argument was that the words ‘any proposed change’ to a fee or fees were wide enough to cover a change that involved providing for a range of fees at Agora’s discretion.
In my opinion, the construction adopted by the learned trial judge was correct and the appellants’ submissions should be rejected. If cl 4.5 of the Constitution had stood alone, I am in no doubt that it would have authorised Agora to determine an exit fee at the time of any unitholder making a withdrawal request provided that the fee so determined did not exceed 5 per cent of the proceeds of that request. In other words, ‘determine’ has the meaning for which the appellants contend but the question is: at what time might Agora determine the exit fee pursuant to cl 4.5 of the Constitution? In my opinion, the plain meaning of cl 4.5 is that a different exit fee may be determined by Agora in relation to each withdrawal request at the time when it is received. Clause 4.5 does not require Agora to determine an exit fee for all withdrawal requests in advance of receiving them. The power of determination under cl 4.5 is expressly related to the position of ‘a’ unitholder and to the proceeds of ‘a’ withdrawal request. A unitholder investing in units, unless some specific agreement was reached to the contrary, would know upon entry into the Fund what the maximum exit fee would be if it made a withdrawal request.
It seems to me, therefore, that the appellants’ case necessarily turns upon the proper construction of the Information Memorandum and the appellants ultimately approached the appeal from that standpoint. When the appellants invested their funds, it was clear from the Information Memorandum that no exit fee was chargeable but that ‘all fees can change’. The Information Memorandum further made clear that, if fees did change, the maximum fee or fees that could be charged were limited by the Constitution. I am satisfied that the notice requirement was plainly intended to apply to all changes to fees and not only to those that necessitated a change to the Constitution. I would reject the respondent’s argument in that regard.
Accordingly, if Agora wished to make any change to fees, Agora was required by para 8.3 of the Information Memorandum to give the unitholders 30 days’ written notice of the proposed change. Agora purported to do so. The relevant change so notified was in effect that, whereas there had been no exit fee until then, Agora would, after 30 days, impose such exit fee (if any) as was determined by it in accordance with a formulation that mirrored (and complied with) cl 4.5 of the Constitution. I consider that the words ‘any proposed change’ to a fee or fees are properly and naturally to be construed as extending not only to the setting of a specific monetary fee or to the fixing of a specific rate but also to establishing a range (subject to constitutional limits) within which a fee would be determined. What Agora proposed was in substance no different to providing that the exit fee would be 5% of the value of the redemption proceeds subject to a discretion to reduce or eliminate that fee in any particular case. This interpretation is supported in a context in which the Constitution contemplates that an exit fee may be determined at the time of a particular withdrawal request, that an exit fee might be negotiated at the outset or later, and that an exit fee may be varied from investor to investor.
I would add that the appellants had the opportunity during that period of 30 days, knowing what the maximum fee could be, to withdraw their funds without incurring any exit fee at all. The purpose of the notice provision was thus satisfied and the construction urged by the appellants is not necessary to achieve any commercial purpose.
In short, if it be correct (as I think it is) that cl 4.5 of the Constitution permitted Agora to determine the actual exit fee at the time of a particular withdrawal request without fixing a fee in advance, then the terms of the Information Memorandum did not in my view constrain Agora from in the future imposing an exit fee (pursuant to the terms stipulated in the replacement Information Memorandum), provided that appropriate advance notice was given that Agora proposed to do so.
There is nothing in Agora’s written answer to the appellants’ question, asked prior to making the investment, concerning the exit fee, that is inconsistent, contextually or textually, with the above conclusions.
The appellants submitted, in the alternative, that, if Agora was entitled to an exit fee as claimed, Agora was nevertheless not entitled to recover GST (if any) from the appellants in addition to that fee. The appellants submitted that neither the Constitution of the Fund nor the Information Memoranda of 2007 and 2010 gave Agora a right to reimbursement of GST. Alternatively, the appellants submitted that cl 4.5 provided the outer limit of the exit fee (including any GST thereon).
In answer, the respondent emphasised that cl 4.12 of the Constitution provided that the fees payable to Agora under cll 4.1 to 4.8 were ‘exclusive of GST’ and that cll 4.13 and 4.14 of the Constitution entitled it to reimburse itself for all expenses properly incurred. In addition, the respondent pointed to a number of terms in the Information Memoranda, including para 8.3 which provides:
Government charges and taxation
Government taxes such as GST will be applied to your account as appropriate.
and para 9 which provides:
Goods and Services Tax (GST)
The issue and withdrawal of units in the Fund, and the receipt of distributions will not be subject to GST. However, GST is payable on our fees…
The question of Agora’s entitlement to the reimbursement of GST was raised during argument at trial but, it would seem, not pressed and so the judge did not deal with it in her reasons for judgment. It is probably inappropriate that the appellants sought to raise the question on the appeal but, in any event, I consider that the above provisions contained in paras 8.3 and 9 of the Information Memorandum make it clear that Agora is entitled to recover any GST payable on the exit fee, in addition to the fee itself and I see no reason to interpret cl 4.5 of the
Constitution as preventing this result.
For the foregoing reasons I would dismiss the appeal.
JUDD AJA:
I also agree with Mandie JA.
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