National Nominees Limited v Agora Asset Management Pty Ltd (No. 2)
[2011] VSC 425
•1 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
LIST D
No. 2672 of 2011
| NATIONAL NOMINEES LIMITED (ACN 004 278 899) & COMMONWEALTH SUPERANNUATION CORPORATION | Plaintiffs |
| v | |
| AGORA ASSET MANAGEMENT PTY LTD (ACN 122 895 989) | Defendant |
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JUDGE: | Davies J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 – 10 August 2011 | |
DATE OF JUDGMENT: | 1 September 2011 | |
CASE MAY BE CITED AS: | National Nominees Limited & Anor v Agora Asset Management Pty Ltd (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 425 | |
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MANAGED INVESTMENT SCHEME – Public unit trust – Membership in trust by application contained in an information memorandum – By signing the application form the applicant agreed to be bound by the terms of the constitution and the information memorandum – Power under the trust deed to impose an exit fee up to 5% of withdrawal proceeds of redemption at trustees discretion – Information memorandum specified nil exit fee but fee subject to change on 30 days notice in writing – Whether responsible entity obliged to give 30 days notice – Whether information memorandum contractually binding on responsible entity – Information memorandum part of contractual matrix
TRUSTS – Whether breaches of trust – Proscribed duties not to act in conflict and not to profit excluded by terms of the constitution – Power exercised in good faith, honestly and for a proper purpose
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr. P J Cosgrave SC with Mr. J B Davis | Norton Gledhill |
| For the Defendant | Mr. P D Corbett | DLA Piper Australia |
TABLE OF CONTENTS
INTRODUCTION.............................................................................................................................. 1
FACTS.................................................................................................................................................. 1
ISSUE 1: DOES AGORA HAVE THE RIGHT TO CHARGE AN EXIT FEE?........................ 6
Decision................................................................................................................................................ 7
ISSUE 2: DOES AGORA HAVE THE RIGHT TO REQUIRE MILITARY SUPER TO REDEEM ITS UNITS?............................................................................................................................................... 11
Decision.............................................................................................................................................. 12
ISSUE 3: HAS AGORA ACTED IN BREACH OF TRUST IN IMPOSING A FEE OF 5%? 14
CONCLUSION................................................................................................................................. 14
HER HONOUR:
INTRODUCTION
The defendant (“Agora”) is a funds manager and the trustee and responsible entity (“RE”)[1] of a public unit trust called the Agora Absolute Return Fund II (“the Fund”), which is an unregistered managed investment scheme regulated under the Corporations Act2001 (Cth) (“the Act”) and used by clients of Agora as a commercial investment vehicle. The first plaintiff (“National Nominees”) holds the majority of units in the Fund as nominee for the second plaintiff (“CSC”). CSC is a statutory body which administers the Military Superannuation and Benefits Scheme for persons in, and associated with, Australia’s armed forces. CSC is the successor in law to Military Superannuation & Benefits Board of Trustees No 1 (“Military Super”).[2] The parties are in dispute over an exit fee of approximately $8m that Agora has determined to charge CSC on the redemption of all its units in the Fund. The dispute is over whether Agora has the right to charge the exit fee and to require CSC to proceed with the redemption, notwithstanding that its predecessor, Military Super, cancelled the redemption request when it learnt that the exit fee would be charged on the redemption. The plaintiffs have challenged Agora’s legal ability to charge the exit fee as a matter of contract. They have also challenged Agora’s exercise of its discretionary powers under the constitution governing the Fund, claiming that the Agora imposed the exit fee and refused its consent to the cancellation of the redemption in breach of its duties as trustee. The plaintiffs have sought Agora’s removal as trustee by way of remedy for breach of trust. For the reasons that follow, I have concluded that Agora is entitled to charge the exit fee and that it has not acted in breach of trust, either in imposing the exit fee or in refusing its consent to the cancellation of the redemption.
[1]Agora holds an Australian Financial Services Licence which authorises it to act as the RE of the Fund.
[2]As from 1 July 2011.
BACKGROUND FACTS
Agora has been managing the investment of $150m in assets of Military Super since 2007. Initially Agora did this under, and on, the terms of a contract[3] made between the parties, as the Fund was not in existence at the time. When Agora had the Fund set up as an investment vehicle for its wholesale clients, Military Super, a professional investor, transferred its portfolio into the Fund. Agora has continued to manage this fund in its capacity as RE of the Fund. Military Super has been a member of the Fund since May 2008 and, since joining the Fund, has held around 95% of the units in the Fund.
[3]The Military Superannuation and Benefits Fund Trust (No1) Investment Management Agreement
At a Board meeting on 8 – 9 December 2010, Military Super received advice from its then external investment advisor, Strategic Capital Management Limited (“SCM”), that:
Agora had consistently underperformed over the last year and that SCM was reviewing the manager’s suitability for the Fund and would submit an out of session recommendation for the Board’s consideration in respect of [Agora].[4]
Shortly afterwards, SCM recommended to Military Super that it redeem $50m of its investment in the Fund.
[4]Minutes of Military Superannuation and Benefits Board of Trustees No. 1 Board Meeting (8-9 December 2010).
James Tsiolis (“Tsiolis”) of SCM contacted the principal of Agora, Peter Apostolopoulos (“Apostolopoulos”), to tell him that there was a possibility that Military Super would want to withdraw $50m of its investment by Christmas. Tsiolis sought assurance from Apostolopoulos that Agora would not require Military Super to stagger the withdrawal of its investment[5] or to give 30 days’ notice of withdrawal. Apostolopoulos gave Tsiolis those assurances which he also confirmed in writing in a letter that he sent to Military Super on 22 December 2010.
[5]Constitution for the Agora Absolute Return Fund II, Cl 2.33.
Military Super received further advice from SCM on 21 December 2010 that its entire investment in the Fund should be redeemed in tranches, commencing with $100m at the end of February 2011 with the remainder to be redeemed at a later date to be advised. On 7 February 2011, the board of Military Super formally resolved to “terminate the Fund’s investment in the [Fund]” and to “delegate to the CEO the timing and method of redeeming the investment”.[6] Apostolopoulos was told by Sue Knowles (“Knowles”) at Military Super on 9 February 2011 of Military Super’s decision to redeem the whole of its investment. Agora received formal notification and written instructions later that day from Michael Seton (“Seton”), the CEO of Military Super, who wrote that Military Super required full redemption by 31 May 2011 by transfer in-specie and cash and that:
The Board would look to Agora for the amount of redemption tranches, eg 3 x $50m or 1 x $100m followed by 1 x $50m or a full redemption as long as this is fully completed by 31 May 2011. We take this opportunity to thank you in advance for your letter of 22 December 2010 which alleviates the gate and redemption notice period.
This letter had been drafted for Seton by Knowles.
[6]Minutes of Military Superannuation and Benefits Board of Trustees No. 1 Board Meeting (7 February 2011).
Between February and May 2011 Apostolopoulos had numerous conversations and communications with Knowles concerning the processing of Military Super’s request for redemption. On 5 May 2011, Apostolopoulos informed Knowles that Agora would be able to deliver the equity component of the redemption on a “T+1 basis” (i.e. close of trading date plus 1 day) and the cash component on a “T+4 basis” (i.e. close of trading date plus 4 days) upon confirmation of the net asset value (“NAV”) from Citco Fund Services (Australia) Pty Ltd (“Citco”), the Fund’s administrative services provider, and that Agora would be processing the redemption by the end of May “as per your request”. Apostolopoulos explained in evidence that for the Fund to be redeemed by 31 May 2011, the close of trading date had to be at an earlier time, in this case “T+4” to enable the transfer of shares in specie and “T+1” for redemption in cash.
On 5 May 2011, Military Super made a formal request to Citco for redemption of its unitholding. This was followed by a formal request from National Nominees on 11 May 2011, which Citco required because the units were held in the name of National Nominees as nominee for Military Super.
On 20 May 2011, Citco emailed Knowles a document titled “Order Receipt Confirmation Redemption”. This document contained confirmation of the redemption instructions, noted the NAV date as 31 May 2011 and showed an estimated charge of $7,885,878.74, being a “5% Withdrawal Fee” on a estimated NAV of $152,181,222.03. Knowles’ evidence was that she first became aware that an exit fee applied when she read this document, despite the fact that the document had been attached to a previous email sent by Citco to Knowles on 15 April 2011. Knowles admitted in her evidence that she had received that email from Citco but said that she had not opened the attachment at the time as she thought it was a Market Value Statement.
Knowles brought the exit fee charge to the attention of Seton and Ephraim Grunhard (“Grunhard”), a senior investment advisor at Military Super. Grunhard and Knowles made inquiries the same day of Citco and Agora about the exit fee. They were told that there would be a withdrawal fee of “up to 5%”, although a definitive answer was not given on the amount that would be charged.
On the afternoon of 23 May 2011, Seton met with Apostolopoulos to discuss the exit fee. Seton and Apostolopoulos each gave evidence about what was discussed. There were some differences in their accounts but their accounts were not substantially different in substance. It was apparent from both accounts that, amongst other matters, Seton told Apostolopoulos that the board had been unaware that an exit fee may be charged when they made their decision to redeem all their units and raised with him the possibility that the board may want to cancel its redemption request. It was also apparent that Apostolopoulos conveyed to Seton that he would not cancel the redemption unless Agora was going to have an on-going relationship with Military Super. Seton did not have authority from the board to engage in discussions with Agora about any continuing business relationship and the meeting concluded at about 3.30 pm, after approximately an hour and a half, without any resolution.
On the morning of 24 May 2011, Apostolopoulos initiated the process for transferring the shares in-specie, although he was aware from the meeting the previous day that Military Super may decide to cancel its redemption request, Apostolopoulos had no contact from, or with, Military Super until 4:30pm on 24 May 2011 when he received an email letter. The letter from Military Super advised Apostolopoulos that “regarding the unexpected claim for an exit fee, made known to [Military Super] only last Friday [20 May 2011]” and the fact that the redemption was planned for 31 May 2011, Military Super had no alternative but to submit a Cancellation Notice to cancel the redemption. Apostolopoulos received a Cancellation Notice shortly afterwards. The Cancellation Notice was in the following terms:
In view of the responsible entity/trustee (RE) of the Agora Absolute Return Fund II (Fund) seeking an unspecified Exit Fee in respect of the withdrawal or redemption of the units in the Fund held by National Nominees Limited as nominee for the Military Superannuation & Benefits Board of Trustees No 1 (Military Unit Holder) and the Military Unit Holder disputing that the RE has an entitlement to an Exit Fee in this case, you are hereby notified that the redemption request (Military Redemption Request) set out in the notification dated 5 May 2011 signed by Michael Seton on behalf of Military Superannuation & Benefits Board of Trustees No. 1 and confirmed by facsimile transmission dated 11 May 2011 signed for and on behalf of National Nominees Limited, is revoked, cancelled and of no effect.
To the extent that the Military Redemption Request cannot be revoked or cancelled or constitutes a Withdrawal Request that cannot be revoked or cancelled (which is not admitted), you are hereby further notified that the Military Unit Holder wants to withdraw the Military Redemption Request and hereby requests that it be withdrawn. Kindly confirm that cancellation of the Military Redemption Notice is accepted, and that no action will be taken to redeem or withdraw any units in consequence of the Military Redemption Notice, by 5:00pm on Wednesday 25 May 2011.
Agora responded by letter dated 25 May 2011 advising Military Super that Agora did not consent to any withdrawal of the existing redemption request and sought Military Super’s confirmation that it still desired to accept an in-specie transfer of a pro-rata amount of stock held in the Fund in consideration of the redemption. The letter further advised that Agora was entitled and intended to charge a withdrawal fee in respect of the redemption of 5% plus GST of the withdrawal proceeds. The letter concluded:
Agora’s entitlement to charge the withdrawal fee is expressly provided for in the trust deed for the Fund. Agora also expressly informed you of fee increases for the Fund as detailed in the replacement information memorandum accompanying our letter dated 24 November 2010.
On 27 May 2011, the plaintiffs obtained an interim injunction restraining Agora until 4:00pm on 2 June 2011 from taking or purporting to take any steps to act upon the withdrawal requests of 5 and 11 May 2011. That injunction was extended by consent of the parties until 4:00pm on 7 June 2011 when the plaintiffs applied to continue the injunction until trial. On 7 June 2011 Dixon J extended the injunction until trial. Further orders were subsequently obtained to preserve the respective rights of the parties pending the determination of the proceeding, which was given an expedited hearing. The trial was heard over three days from 8 August 2011.
ISSUE 1: DOES AGORA HAVE THE RIGHT TO CHARGE AN EXIT FEE?
It was not in dispute that the constitution governing the Fund entitles Agora as RE to charge a unitholder an exit fee not exceeding 5% of the proceeds of a withdrawal request.[7] The relevant power is contained in clause 4.5 of the constitution which provides as follows:
The [RE] may determine that a Unitholder has to pay a fee (Exit Fee) not exceeding 5% of the proceeds of a Withdrawal Request.
[7]Constitution for the Agora Absolute Return Fund II, Cl 4.5.
The plaintiffs’ case was that the exercise of power under clause 4.5 required a determination that a precise fee would be charged to Military Super on the redemption of its units. It was also argued that Agora was obliged to put Military Super on notice of the particular fee that it had determined to charge Military Super by giving 30 days’ notice of the fee payable before any redemption request. The plaintiffs relied on the terms of an information memorandum (“IM”) published for the Fund for the 30 day notice requirement, which the plaintiffs argued had contractual force.
For Agora, it was argued that the IM did not have contractual force. It was further argued that Agora had, in any event, given Military Super notice of its intention to charge an exit fee when, on 24 November 2010, it sent Military Super an IM with updated information about fees, including that an exit fee of up to 5% of the withdrawal proceeds would be charged at Agora’s absolute discretion.
Decision
The competing arguments require determination of the documents governing the legal relations between the parties. There is no doubt that the legal relations between the parties are regulated by the constitution, which establishes the managed investment scheme and is a binding contract between the RE and all of the unitholders. The enforceability and binding nature of the terms of the constitution are expressly provided for in the constitution.[8] Agora has the undoubted entitlement under clause 4.5 of the constitution to charge an exit fee of up to 5% of the withdrawal proceeds, at its discretion.
[8]Constitution for the Agora Absolute Return Fund II, Cl 2.51, 2.52 and 2.53.
The IM is not imported into the constitution. It is a separate document published by Agora periodically to provide information on and about the Fund. It also contains the application form that an applicant for units must complete to subscribe for units in the Fund. The application form relevantly provides that in signing the form, the applicant makes a representation that it has read the IM and agrees to be bound by the terms of that IM and the trust deed of the Fund, as amended from time to time. Military Super made the representation in the application form that was signed on its behalf on 16 May 2008 that it had read the IM dated 13 November 2007 and agreed to be bound by the terms of that IM and the trust deed as amended from time to time.
In my view, the clear intent of the parties as evidenced by the form of wording used in the application form was for the terms of the IM to have contractual force. That clear intent is not negated by the fact that the constitution also constitutes a binding contract on the parties. The IM simply forms part of the contractual matrix governing the legal relations between Agora as RE and the respective unitholders in relation to matters relevant to the Fund.[9] Thus it becomes necessary to consider whether any and, if so, what terms applicable to exit fees appeared in the IM.
[9]See Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399; Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd (2008) 66 ACSR 594.
The 13 November 2007 IM was the first IM issued on the Fund, which at that point in time was newly established. The IM specified the current fee charges, which included the exit fee shown as “Nil”.[10] However the IM also stated that information in the IM was “subject to change from time to time” and that Agora intended “to issue a supplementary or replacement IM where any changes [were] … materially adverse to unitholders”.[11] The IM went on to advise that all the fees could change:
[10]Agora Absolute Return Fund – Leveraged, Information Memorandum (13 November 2007), [1.1].
[11]Ibid, [1.3].
8. FEES AND OTHER COSTS
8.1 Important
This IM shows fees and other costs that you may be charged …
You should read all the information about fees and costs because it is important to understand their impact on your investment …
8.2 Application of fees and costs
…
8.3 Explanation of Fees
...
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 out 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.
Can fees be different for different investors?
Yes, because all investors in the Fund are “wholesale” clients we may negotiate fees with you. The size of the investment and other relevant factors may be taken into account. The terms of these arrangements are at our discretion. Contact us to see if you’re eligible to negotiate fees with us.
(italics added for emphasis)
The term which the plaintiffs argued has contractual effect is the statement that Agora would give investors “30 days’ written notice of any proposed changes to the fees”.
Agora relies on a later version of the IM that Agora published with effect from 24 December 2010, which Military Super received undercover of a letter from Agora on 24 November 2010, as constituting “30 days’ written notice of any proposed changes to the fees”. The current fee charges shown in this version of the IM included an exit fee of “up to 5% of the withdrawal proceeds of a withdrawal request, at the absolute discretion of Agora.”[12] Moreover, the letter informed that:
The IM … provides for increases in fees charged by Agora, which are within the fee amounts permitted to be charged under the Fund’s Trust Deed.
[12]Agora Absolute Return Fund II, Information Memorandum (24 December 2010), [1.1].
Knowles, to whom the letter was addressed, either did not read the IM or, if she did, did not appreciate that Agora proposed to start charging exit fees at its discretion whereas hitherto unitholders had been told that no exit fee would be charged. The question, however, is not her actual knowledge and when she personally realised that Military Super may be charged an exit fee on redemption. The question is whether Military Super was put on notice at least 30 days before its redemption request that Agora may impose of an exit fee of up to 5% of the withdrawal proceeds of a withdrawal request. I am satisfied on the evidence and I find that the provision of the updated IM to Military Super constituted notice to it of a proposed change to the exit fee. I am also satisfied on the evidence and I find the notice was given on 24 November 2010, which was more than 30 days before Military Super advised Agora of its intention to redeem the whole of its units, which occurred under cover of Seton’s letter to Apostolopoulos of 9 February 2011.
The plaintiffs further argued however, that notice had to be given of the fee that would be charged, as distinct from a range of fees that might be charged by Agora. It was submitted that this notice requirement followed from a literal and purposive construction of paragraph 8.3 of the IM when considered in its commercial context and in the context of clause 4.5 of the constitution. It was submitted that the text of clause 4.5, literally construed, requires as the relevant exercise of power, a determination by Agora of the fee that a unitholder must pay and that it therefore followed that any notice must be of the fee so determined. Moreover, that a reasonable person would have understood that the purpose of the notice was to give the unitholder time in which to make a considered decision whether to remain in the Fund subject to the increased fees or whether to redeem its units within the 30 day notice period on the then current applicable terms.[13] Reliance was placed on the fact that prior to investing in the Fund, Military Super had sought clarification on the admission and exit fees, having regard to the nil fee shown in the 2007 IM and the terms of clauses 4.3 and 4.5 of the Constitution. The response given to Knowles in writing by Apostolopoulos was that:
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 submitted that Military Super’s concern about the prospect of an exit fee, as evidenced by this inquiry, was an objective fact known to both parties before Military Super became bound by the constitution and the 2007 IM. It was further submitted that the fact that its inquiry was met with the response that there was no current entry or exit fee but that if one was to be charged, the terms of that fee would be the subject of “exact” notice in an IM, supported the construction of the IM that if Agora wished to charge an exit fee, it was obliged to determine and give notice of the precise fee.
[13]Toll (FGCT)Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165.
I reject both the literal and purposive constructions of paragraph 8.3 of the IM contended for by the plaintiffs. In my view, there is no warrant for construing paragraph 8.3 other than on its terms. Paragraph 8.3 required Agora to give unitholders 30 days’ notice of any fee change, which meant that any variation to the relevant term took effect prospectively upon notice of the fee change. However, Agora was not under any contractual obligation to make a determination under clause 4.5 to charge an exit fee nor under any contractual obligation to fix the exit fee in the IM. In my view, it was plainly open to Agora to import clause 4.5 into the IM as the applicable charge. In other words, to pick up as a term of the IM the actual contractual term in clause 4.5 of the constitution. It was sufficient to denote the current fee charge with respect to an exit fee as a fee of up to 5% at the discretion of Agora. The “exact” terms and conditions were conveyed by the notification in the December 2010 IM that an exit fee of up to 5% of the withdrawal proceeds may be payable at the absolute discretion of Agora. A purposive construction does not require any other outcome. It was clear from the terms of the constitution that the exposure to an exit fee was up to a maximum amount at the discretion of the Agora. It was always an option for a unitholder, including Military Super, to negotiate an exit fee, if it wanted certainty about the fee that it would have to pay on redemption of its units. Accordingly I find that Military Super is bound by the constitution to pay such exit fee as determined by Agora under clause 4.5 to a maximum amount of 5% of the withdrawal proceeds.
ISSUE 2: DOES AGORA HAVE THE RIGHT TO REQUIRE MILITARY SUPER TO REDEEM ITS UNITS?
It was not in dispute that the constitution governing the Fund entitles Agora as RE to refuse its consent to the cancellation. This is contained in clause 2.30 which provides:
A Withdrawal Request may not be withdrawn without the consent of the [RE]
The plaintiffs have argued that Agora has acted in breach of clause 2.30 of the constitution in that it was unreasonable for Agora to withhold its consent to the cancellation of the redemption request because of the circumstances in which it was made. It was further argued that the Court should find that terms are to be implied into clause 2.30 that Agora must not withhold its consent unreasonably and must only withhold its consent in good faith. Further, that Agora’s refusal of consent was in breach of contract and in breach of trust because the withholding of consent was not done in good faith, was capricious and that Agora acted for its own benefit in conflict with its duties to the plaintiffs. Put precisely, the plaintiffs’ case was that Agora, in refusing consent, has acted in its own interests, in conflict with the interests of Military Super and without regard to the best interests of Military Super. Further, that Agora was motivated by the desire to maximise the chance to obtain the exit fee moneys rather than giving genuine consideration to Military Super’s situation.
Decision
Clause 2.30 does not in terms prescribe any qualification on the right of the RE to refuse consent. As trustee, however, the obligations on Agora with respect to the operation of the Fund are regulated by the constitution of the Fund and the general law applicable to trustees. Thus Agora has responsibilities as a fiduciary to Military Super, as a unitholder, in the exercise of its powers conferred on it by the terms of the constitution.
However, the plaintiffs’ case fails to give due regard to the fact that the Fund is a public unit trust which is fundamentally contractual in nature. That is not to say that Agora as RE and as trustee does not have fiduciary duties. It plainly does. It is trite law that as a fiduciary, Agora must act honestly and in good faith when it exercises the powers given to it under the constitution. Agora must also not act irresponsibly, capriciously or wantonly but with due consideration to the purpose for which the powers are conferred on it, and not for some ulterior purpose.[14] These duties arise out of the trust relationship and it is not necessary to imply terms of reasonableness and good faith into clause 2.30 in order to create those duties. There are also corresponding statutory duties on Agora, as the RE of the Fund.[15]
[14]JD Heydon and MJ Leeming, Jacobs Law of Trusts in Australia (7th ed, 2006) 358 [1608]; Karger v Paul [1984] VR 161
[15]Corporations Act 2001 (Cth) s 601FC
The duties arising out of the fiduciary relationship between Agora as RE and the members of the Fund are however circumscribed by the contractual relations between them. Here the parties have, by express provision in the constitution, excluded the proscriptive fiduciary duties not to act in conflict and not to profit by use of the fiduciary position that otherwise would apply to Agora as RE. The exclusion is contained in clause 6.19 of the constitution which provides:
The [RE] and any Associate of the [RE] may do any of the following and is not liable to account to the Unitholders or any other person for doing so:
6.19.1 deal with themselves (as trustee of the Trust or in any other capacity) …;
6.19.2 be interested in any contract or transaction with its Associates, the Trust or any Unitholder and retain for its own benefit any profits or benefits derived from any such contract or transaction.
Thus the fact that Agora stands to benefit from the imposition of the exit fee and the withholding of its consent to the redemption cancellation does not mean that Agora has acted capriciously and in breach of trust. It is authorised by the terms of the constitution to act in a position of conflict and to make a profit by use of its position as the RE of the Fund. The constitution has expressly conferred the right on Agora to charge an exit fee to be retained by itself for its own benefit and Military Super acquiesced to that conflict of interest by its agreement to be bound by the terms of the constitution.
Furthermore, it is clearly contemplated by the express terms of the constitution that Agora has the right to charge a fee up to 5% of the withdrawal proceeds in addition to costs properly incurred in effecting a withdrawal request. This is provided for in clause 2.39 which states that:
The [RE] may reimburse itself for any costs properly incurred in effecting a Withdrawal Request. This may include paying the proceeds of a Withdrawal Request to the Unitholder net of such costs.
Furthermore, the evidence bore out that the impetus for Military Super taking the step to cancel the redemption request was its realisation that an exit fee would be charged, not because it wanted to pursue some other commercial proposal with Agora. Military Super wanted the whole of its investment redeemed because it had received advice from its external investment advisors that Agora had consistently underperformed. That position had not altered when Agora received the cancellation notice. Whilst Apostolopoulos had indicated to Seton that he would consider a commercial arrangement, no proposal was put by Military Super before or after the cancellation request was given for the continuation of their business relationship. I would not conclude that Agora acted unreasonably or capriciously in refusing to consent to the cancellation of the redemption request in those circumstances. The evidence did not support a conclusion that Agora acted other than honestly and for a proper purpose in refusing to consent to the cancellation of the redemption request.
ISSUE 3: HAS AGORA ACTED IN BREACH OF TRUST IN IMPOSING A FEE OF 5%?
Next it was submitted that Agora acted capriciously and in breach of its fiduciary obligations to Military Super in determining to impose a fee of 5%. The submission was based on the contention that Agora did not fix the fee with regard to the actual costs of redemption or the financial impacts on Agora. However Agora was not required to fix the fee by reference to, or with regard to, the actual costs to it of redemption. As I have stated, the exit fee under the constitution was a fee that Agora could charge additionally to recouping its costs of redemption. Moreover, the evidence was that there would be significant financial implications for Agora from the loss of management fees and performance fee bonuses by reason of the redemption as the management of Military Super’s funds has been a sizeable part of Agora’s funds management business. Apostolopoulos gave evidence to the effect that the exit fee of 5% was intended to compensate Agora for the loss of business. I would not draw the conclusion merely from the fact that it did impose a fee at the maximum amount, that it was not acting in good faith, particularly as Agora was entitled to charge 5% under the terms of the trust deed.
CONCLUSION
For the above reasons, I have concluded that Agora did not act other than in accordance with its fiduciary and contractual duties to Military Super. Accordingly the plaintiffs’ case against Agora fails.
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