Shao v One Funds Management Ltd - [2024] VSCA 231

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0065

JIANQIANG SHAO & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Applicants
v
ONE FUNDS MANAGEMENT LTD (ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY JY HOTEL FUND) & ORS (ACCORDING TO THE ATTACHED SCHEDULE)	Respondents
AND
DAVID HING	Class C Representative

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JUDGES:	KENNEDY, MACAULAY and ORR JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	14 June 2024
DATE OF JUDGMENT:	10 October 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 231
JUDGMENT APPEALED FROM:	[2023] VSC 192 (Derham AsJ)

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TRUSTS – Unit trust – Managed investment scheme – Insufficient assets to meet unitholders’ claims – Terms of issue provided that on ‘Redemption Date’ trustee became obliged to redeem units by paying cash to unitholders – Redemption Date for ‘Class C’ unitholders preceded that for ‘Class A’ unitholders – Whether judge erred in finding that on Class C’s Redemption Date assets became segregated for purpose of paying Class C – No error.

TRUSTS – Unit trust – Whether judge erred by finding redemption occurred ‘automatically’ on the Redemption Date – No such finding.

TRUSTS – Unit trust – Class A unitholders given information memorandum stating that they were entitled to periodic payments in priority over payments of income or capital to other classes – Information memorandum not given to other classes – Resort to non-constituent documents to be avoided in investment trusts – Class A terms of issue provided that Class A’s rights could be subordinated to other classes’ rights – No basis for priority.

Basis Capital Funds Management Ltd v BT Portfolio Services Ltd (2008) 219 FLR 157; Fischer v Nemeske Pty Ltd (2016) 257 CLR 615; ING Funds Management Ltd v ANZ Nominees Ltd (2009) 2 ASTLR 326; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 ; MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 198 CLR 494.

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Counsel
Applicants:		Mr J Evans KC with Ms BE Slocum
First respondent:		Ms E Doyle-Markwick
Class C representative:		Mr C Möller SC with Mr DW Foster
Solicitors
Applicants:	Madgwicks Lawyers
First respondent:	Allens
Class C representative:	Resolve Litigation Lawyers

TABLE OF CONTENTS

Introduction

Background

Reasons of the Associate Judge

The applicants’ submissions

The Class C Representative’s submissions

The associate judge’s findings

Issues 1 & 2: Have the Class C units been redeemed, and did the decision in ING v ANZ apply?

Issue 3: What is the priority of distributions from the Fund if it is not terminated before the Class A Redemption Date?

Grounds of appeal

Relevant legal principles

Did the judge err in finding that redemption of the Class C units occurred ‘automatically’ on the Class C Redemption Date (ground 2)?

Applicants’ submissions

Class C’s submissions

OFM’s submissions

Consideration

Did the judge err in (a) failing to have regard to the Information Memorandum in construing the Class C Terms (ground 1), and (b) finding that, upon redemption of the Class C units, OFM was required to pay…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] VSCA 231
Decision Date: 10 October 2024

CaseChat Overview and Summary

Shao, an investor in a managed investment scheme, sued One Funds Management Ltd, the trustee of the scheme, over how it handled the redemption of units held by various classes of unitholders. The primary contention was whether the trustee correctly segregated assets for the redemption of 'Class C' unitholders before addressing the claims of 'Class A' unitholders, and whether the redemption process was correctly deemed automatic. The High Court of Australia was tasked with determining these issues.

The legal issues before the court involved the interpretation of the terms of issue and the management of the scheme’s assets during the redemption process. Specifically, the court had to ascertain whether the assets were properly segregated for 'Class C' unitholders upon the specified redemption date, and whether the redemption was automatic as per the terms. Additionally, the court needed to clarify the rights of 'Class A' unitholders based on the information memorandum they received, which was not provided to other classes.

The court found that there was no error in the lower court's decision that assets were segregated for 'Class C' unitholders at the specified redemption date. It further clarified that no finding of automatic redemption was made. Regarding 'Class A' unitholders, the court held that the information memorandum did not confer any priority over other classes as the terms of issue explicitly allowed for the subordination of 'Class A' rights. The reliance on non-constituent documents was discouraged, and the terms of issue were given precedence.

The court did not make any further orders beyond clarifying the points of law regarding the redemption process and the rights of unitholders. The decision reinforced the importance of adhering to the terms of issue and avoiding reliance on external documents when interpreting the rights and obligations within a managed investment scheme.

Orders