Ing Funds Management Ltd v Anz Nominees Ltd; Ing Funds Management Ltd v Professional Associations Superannuation Ltd

[2009] NSWSC 243

---

(Judgment by: Barrett J)

Ing Funds Management Ltd
v.Anz Nominees Ltd; Ing Funds Management Ltd v Professional Associations Superannuation Ltd

Court:

Judge:
Barrett J

Case References:
Windsor Refrigerator Co Ltd v Branch Nominees Ltd - [1961] Ch 375
British America Nickel Corporation Ltd v M J O'Brien Ltd - [1927] AC 369
Follit v Eddystone Granite Quarries Ltd - [1892] 3 Ch 75
Australia and New Zealand Banking Group Ltd v National Mutual Life Nominees Ltd - [1977] HCA 42; (1977) 137 CLR 252
Cachia v Westpac Financial Services Ltd - [2000] FCA 161; (2000) 33 ACSR 572
Chelsea and Walham Green Building Society v Armstrong - [1951] Ch 853
Oakes v Commissioner of Stamp Duties - [1954] AC 57
Macdonald v Law Union Fire & Life Insurance Co - (1874) LR 9 QB 328
Toal v Aquarius Platinum Ltd - [2004] FCA 550
West v Blakeway - (1841) 2 Man & G 751; 133 ER 940
Nash v Armstrong - (1861) 10 CB(NS) 259 142 ER 451
Hougham v Sandys - (1837) 2 Sim 95 57 ER 725
Kindimindi Investments Pty Ltd v Lane Cove Council - [2006] NSWCA 23; (2006) 143 LGERA 277
Smith v Permanent Trustee Australia Ltd - (1992) 10 ACLC 906
Eagle Star Trustees Ltd v Heine Management Ltd - (1990) 3 ACSR 232
Wilson v Meudon Pty Ltd - [2005] NSWSC 448; [2006] ANZ ConvR 93
White v Bristol Aeroplane Co Ltd - [1953] Ch 65
Delma Investments Pty Ltd v Shillito - [1971] VR 442
Dainford Ltd v Lam - (1985) 3 NSWLR 255
Gypsy Jokers Motorcycle Club Inc v Commissioner of Police - [2008] HCA 4; (2008) 234 CLR 532
George v Rockett - [1990] HCA 26; (1990) 170 CLR 104
Hoobin v Samuels - (1971) 2 SASR 238
Presentaciones Musicales SA v Secunda - [1994] Ch 271
Hughes v NM Superannuation Pty Ltd - (1993) 29 NSWLR 653
Attorney-General v Wylde - (1946) 47 SR (NSW) 99
Davison v Vickery's Motors Ltd - (1925) 37 CLR 1
Gra-ham Australia Pty Ltd v Perpetual Trustees WA Ltd - (1989) 1 WAR 65
Pepe v City & Suburban Permanent Building Society - [1893] 2 Ch 311

Hearing date: 24/03/09, 25/03/09
Judgment date: 3 April 2009

---

Judgment by:
Barrett J

Introduction

1. The plaintiff ("INGFM") is the "responsible entity" of each of two managed investment schemes registered under Part 5C of the Corporations Act 2001 (Cth). In that capacity, it seeks declaratory relief as to the validity of amendments to the constitution of each scheme.

2. Proceedings 1342/09 concern the ING Wholesale Enhanced Cash Trust (which I shall call "the Enhanced Trust"). The defendants in those proceedings are ANZ Nominees Ltd ("ANZ") and National Nominees Ltd ("National"). ANZ has been joined as a representative defendant to represent the members of that managed investment scheme who sought redemption of units in the period to which the controversy in these proceedings relates. National is a representative defendant representing the other members.

3. Proceedings 1344/09 concern the ANZ Cash Plus Fund ("the Cash Fund"). The defendants are Professional Associations Superannuation Ltd ("PASL") as representative of members who sought redemption of units during the relevant period and ACIRT Pty Ltd (which filed a submitting appearance) as representative of other holders.

4. Both proceedings were commenced on 3 February 2009. The claims of INGFM for declaratory relief were heard on 24 and 25 March 2009. Mr I M Jackman SC and Mr J R Williams of counsel appeared for INGFM. Mr R A Dick of counsel and Mr Anthony D'Arcy of counsel appeared for ANZ. Mr D G Collins SC and Mr D C Gration of counsel appeared for PASL. Mr R M Foreman of counsel appeared for National. There are cross-claims that will be relevant if the declaratory relief claimed by INGFM is not granted. It was ordered at an earlier stage that the cross-claims be separately and subsequently determined, if determination of them becomes necessary at all.

5. The issues in each case are the same. They concern the effectiveness of actions taken by INGFM in November 2008, December 2008 and January 2009 to suspend the rights of members of the managed investment schemes to require redemption of their units.

6. It is contended by INGFM that the actions of November 2008 were effective to modify the constitution of the two schemes to create the suspension. One of the representative defendants in each proceeding (ANZ in the case of the Enhanced Trust and PASL in the case of the Cash Fund) maintains that those actions were ineffective. The position is the same in relation to the actions of December 2008: INGFM contends that, even if the variations were not validly made in November 2008, they were validly made in December 2008; while the representative defendants just mentioned argue to the contrary. The actions of January 2009 were intended to ratify or, as necessary, repair what had been done in November 2008. There is a dispute about the effectiveness of those measures.

7. If the November 2008 actions were effective to modify the constitutions, the responsible entity's refusal to act on redemption requests made after the purported modification date was justified. If the November 2008 actions were not effective to modify the constitutions (and those actions were not validated by the actions of January 2009 so as to be effective from November 2008) but the December 2008 actions were effective, the responsible entity's refusal to act on redemption requests made after the purported November 2008 modification and before the purported December 2008 variation were not justified, but the refusal to act on requests made after the December 2008 variation was justified. If none of the actions of November 2008, December 2008 and January 2009 were effective to achieve their ostensible purposes, the responsible entity was not justified in refusing to act on any redemption requests.

8. It will be necessary, in due course, to examine precisely what was done on each occasion. First, however, it is convenient to describe the central features of the managed investment schemes.

The Enhanced Trust

9. The Enhanced Trust was established by a deed dated 15 December 2001 executed and delivered by INGFM which declared, among other things, that the assets of the trust constituted by the deed would be held by it "on trust for Members", that is, the persons registered as the holders of "units", being undivided interests in the beneficial interest in the trust. The structure is that of a unit trust, with each unit holder (or, in Part 5C terminology, "member") having an interest in the assets as a whole, but no interest in any particular asset.

10. Clause 4 of the constitution provides for the calculation of the application price for a unit. This is, in general terms, the net asset value of the fund divided by the number of units on issue. The amount so calculated is the price that a person wishing to have a unit allotted to him or her must pay to the responsible entity for that unit.

11. Clause 6 sets out the manner of calculating the redemption price per unit. This too is, in general terms, the net asset value of the fund divided by the number of units on issue. A member wishing to surrender his or her units (or to have them "redeemed" by the responsible entity) will receive upon surrender or redemption a sum so calculated.

12. Clause 7 is headed "Redemption procedures". It provides that any member may at any time request redemption of the member's units or some of them. The responsible entity is required to give effect to the request at the time and in the manner set out in clause 7. Provided that the fund is "liquid" (a term that takes its meaning from s 601KA of the Corporations Act), the responsible entity must satisfy a redemption request by paying the appropriately calculated sum out of the fund "within 30 days of receipt of the request or such longer period as allowed by clauses 7.6", which allows the responsible entity an additional 30 days where "circumstances outside its control" render it unable to satisfy the request despite its having taken all reasonable steps to realise sufficient assets to satisfy the request. Upon redemption of all his or her units, a member ceases to be a member. The redemption concept and procedures in this case are in substance the same as those described by Austin J in Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 766; (2008) 219 FLR 157 at [142] and following.

13. There are also provisions dealing with cases in which small balance of units would be left. These are of no present relevance. Also irrelevant for present purposes are provisions concerning the treatment of redemption requests when the fund is not "liquid".

14. It is provided that the responsible entity may, with a member's consent, satisfy a redemption request by transferring to the member in specie assets of the relevant value instead of paying cash.

15. Clause 9 provides for the distributable income of the fund to be distributed to members periodically in proportion to their unit holdings.

16. As far as investment and redemption are concerned, the basic workings of the constitution may be illustrated by a simple example. Take the case of someone who invests $100,000. Upon payment of that sum to the responsible entity, the person will receive an allotment of the number of units obtained by dividing $100,000 by the application price calculated under clause 4. Assume that this is, at the time, 90 cents, so that the number of units to be issued is 111,111. Let it next be assumed that the unit holder makes a redemption request in respect of all these units one year later. If, at that time, the redemption price is $1.10 per unit, the holder will receive on redemption $122,222. But if it is 80 cents, the holder will receive only $88,888.

17. The modes of investment open to the responsible entity are limited to a range of securities akin, in practical terms, to cash. The general expectation is that there will not be great fluctuations in the value of the fund. In the example quoted, the general expectation and practical likelihood would be that the payment of $100,000 would result in the issue of a number of units which, when redeemed, yielded something very close to $100,000.

The Cash Fund

18. The Cash Fund was established by a deed dated 19 July 1999 executed and delivered by ANZ Managed Investments Ltd. In September 2005, that company was replaced as responsible entity by INGFM. It is accepted that, since that time, the constitution of the Cash Fund has been binding on INGFM in the same way as it was originally binding on ANZ Managed Investments Ltd.

19. Although the constitution in this case is not in precisely the same terms as that of the Enhanced Trust, the basic structure is the same.

20. In the Cash Fund's constitution, the issue price of units is dealt with in clause 9. It is $1.00 each for the firsts 100 units and, for the balance, the amount obtained by dividing the Net Trust Value by the number of units on issue. The redemption price, when the fund is "liquid" (again defined in the same way as in s 601KA of the Corporations Act), is calculated in essentially the same way as for the Enhanced Trust. Again, a transfer in specie may be made upon redemption with the consent of the holder concerned.

21. The provisions with respect to redemption allow a member to make a redemption request but do not prescribe any time within which redemption must be effected by the responsible entity once the request has been made. The parties accept that the matter should be approached on the footing that a requirement to redeem within a reasonable time is implied. Clause 11 allows the responsible entity to suspend redemptions for up to 30 days in case of certain kinds of market emergencies.

22. Clause 30 deals with the periodic distributions to members.

23. As with the Enhanced Trust, the fund is invested in securities akin, in practical terms, to cash, so that marked fluctuations in unit value are not expected.

24. The illustrative examples given in relation to the Enhanced Trust (see paragraph [16] above) are equally applicable to the Cash Fund.

The actions of November 2008

25. In November 2008, two relevant documents were signed, one relating to the Enhanced Trust and the other to the Cash Fund. Each was described as a supplemental deed the only party to which was INGFM as responsible entity. Clause 2 of the document concerning the Enhanced Trust was in these terms:

" Modification to the Constitution

The Constitution is modified from the Effective Date by inserting the new clause 7.7A:

'Despite clause 7.5, any redemption request received during the Suspension Period will for the purposes of this constitution (including clause 6.2) be taken to be received by the Responsible Entity immediately after the end of the Suspension Period. The Responsible Entity must call and hold a meeting of Members within 50 Business Days after the date of the insertion of this clause 7.7A to consider a special resolution (within the meaning of the Corporations Act) to modify this constitution. The meeting may also consider other resolutions. If a special resolution (within the meaning of the Corporations Act) passed at the meeting specifies a later time at which redemption requests received during the Suspension Period will be taken to be received, those redemption requests will for the purposes of this constitution (including clause 6.2) be taken to be received at the specified later time. In this clause 7.7A:

(a)

"Suspension Period" means the period commencing immediately at the time clause 7.7A is inserted into the constitution and ending on midnight on the earlier of the fourth Business Day after the date of the Meeting and the day that is 50 Business Days after the date of the insertion; and

(b)

"Meeting" means the date that the first meeting of Members is held after the time clause 7.7A is inserted into the constitution.

Any application for Units received during the Suspension Period will be void and may not be accepted.'"

26. The new clause 7.7A purported to make any new redemption request inoperative until the end of the "Suspension Period". The objective was to freeze redemptions for a time sufficient to allow a meeting of members to be held to consider a resolution to modify the constitution so as to impose a further embargo on redemptions.

27. Clause 2 of the document concerning the Cash Fund was in identical terms, save that the new clause inserted was numbered clause 10D and contained cross-references appropriate to that case.

28. Each document contained recitals in like form. It is sufficient to set out those in the document relating to the Enhanced Trust:

"A

The scheme is governed by the Constitution. The Scheme is registered as a managed investment scheme under Chapter 5C of the Corporations Act.

B

Section 601GC(1) of the Corporations Act provides that the constitution of a registered scheme may be modified, or repealed and replaced with a new constitution:

(a)

by special resolution of the members of the scheme; or

(b)

by the responsible entity if it reasonably considers the change will not adversely affect members' rights.

C

Under clause 22.1 of the Constitution, the Responsible Entity may, if the Corporations Act allows, modify the Constitution by supplemental deed.

D

The Responsible Entity wishes to modify the Constitution as set out in this deed.

E

The Responsible Entity reasonably considers that the modifications to the Constitution contained in this deed will not adversely affect the rights of Members of the Scheme."

29. The document concerning the Enhanced Trust is dated 24 November 2008. It concludes:

30. The Cash Fund document is dated 27 November 2008. Its concluding part is in this form:

31. The document was, in each case, signed after certain decisions had been made within INGFM. It will be necessary to look at the decisions and the decision-making processes in due course.

32. Each November 2008 document was lodged with Australian Securities and Investments Commission soon after being signed. Lodgment of the Enhanced Trust document was made at 9.01am on 24 November 2008. The document in relation to the Cash Fund was lodged at 3.42pm on 27 November 2008.

The events of December 2008

33. A further document was, in each case, created on 24 December 2008. Each such document is again described as a supplemental deed and is in the form of a deed with INGFM alone as its party.

34. The recitals to each of the December documents were exactly the same as those in the corresponding November document. The operative clause 2 was also the same as clause 2 of the November document (see paragraph [25] above), but with "within 50 Business Days after the date of the insertion of this clause [number]" (and the corresponding reference in the definition of "Suspension Period") replaced by a reference to a fixed date, being 6 February 2009 in the case of the Enhanced Trust and 11 February 2009 in the case of the Cash Fund. The fixed date was, in each case, the last day of the period of 50 business days referred to in the November 2008 document. The meaning of the new clause sought to be introduced in December 2008 was thus exactly the same as that of the new clause sought to be introduced in November 2008.

35. Each of the December documents, expressed to be a deed, was signed by a director and a secretary of INGFM in the manner contemplated by s 127(1) of the Corporations Act. It is accepted that, by force of s 127(1) and s 127(3), each of the documents took effect as a deed executed by INGFM.

36. The December documents were lodged with Australian Securities and Investments Commission at 3.45pm on 24 December 2008.

The events of January 2009

37. On 8 January 2009, two further documents were signed, one in relation to the Enhanced Trust and the other in relation to the Cash Fund. Each is expressed to be a deed and it is accepted that it took effect as a deed.

38. In each case, the deed recited the steps taken in November 2008 and a subsequent resolution of the board of directors of INGFM "adopting and ratifying the acts of" the signatories to the November document (referred to as "the Officers"). The first four operative clauses were, in each case, as follows:

" 1 Adoption of relationship of agency

1.1 Principal and Agent

The Responsible Entity hereby ratifies the acts of the Officers in executing, on behalf of the Responsible Entity, the Supplemental Deed. In this regard, the Responsible Entity affirms that the Officers acted, or should be taken to have acted, as the authorised agents of the Responsible Entity.

1.2 Supplemental Deed binding

The Responsible Entity ratifies and adopts as binding the terms of the Supplemental Deed, as executed by the Officers, from the Effective Date (as defined in the Supplemental Deed).

2 Confirmation of acts and confirmatory appointment

2.1 Confirmation

The Responsible Entity confirms the ratification of:

(a)

the Supplemental Deed; and

(b)

the acts of the Officers in executing the Supplemental Deed,

takes effect from the time of the execution of the Supplemental Deed.

2.2 Confirmation of appointment

To the extent that it is necessary to do so:

(a)

to effect, or perfect, the adoption of the relationship of principal and agent as between the Responsible Entity and the Officers; or

(b)

to give effect to:

(i)

the Supplemental Deed; or

(ii)

the acts of the Officers in executing the Supplemental Deed,

the Responsible Entity appoints the Officers as its attorneys for the purpose of executing the Supplemental Deed.

This appointment is to take effect on the terms of the following clauses 3, 4 and 5 and with effect from the earlier of:

(c)

the time the Management authorised (or purported to authorise) the Officers execute the Supplemental Deed; and

(d)

immediately before the Officers executed (or purported to execute) the Supplemental Deed.

3 Appointment as attorneys

The Responsible Entity appoints, jointly and severally, the Officers to be the Responsible Entity's attorneys the ' Attorneys' ).

4 What the Attorneys may do

The Attorneys may in the name and on behalf of the Responsible Entity:

(a)

execute and deliver the Supplemental Deed;

(b)

do all other things necessary to effect the amendment to the Constitution in the terms contemplated by the Supplemental Deed; and

(c)

stamp and register this power of attorney."

39. The deed is, in each case, executed by INGFM in a manner consistent with s 127(1) of the Corporations Act so as to be a deed by virtue of s 127(3). It also carries the signature of each of Ms Den-Toll and Ms Mezrani. Each signature is attested, with the result that the deed is deemed by s 38 of the Conveyancing Act 1919 to be sealed by the signatory. The form of execution by each individual is therefore that necessary for a deed.

Subsequent events

40. Meetings of the members of the two managed investment schemes were held in February 2009. In one case, the members resolved by special resolution to modify the provisions of the constitution with respect to the redemption of units. In the other case, the members did not pass such a resolution and the responsible entity later took action to wind up the scheme.

41. The matters just mentioned are of no direct relevance to the issues with which I am here concerned. I mention them merely by way of background.

The competing contentions - November 2008

42. INGFM accepts that each November 2008 document is not in truth a deed. It acknowledges that the signatories, being INGFM's general counsel and secretary, are not persons whose signatures were together capable of causing the document to be a deed by operation of s 127(1) and s 127(3) of the Corporations Act. For those provisions to operate in that way, it is necessary that the document be signed by two directors or by a director and a secretary. Nor does INGFM contend that any other rule of law causes the November documents to be deeds.

43. INGFM says, however, that a deed was not necessary and that, having regard to decisions of the board of directors of INGFM to be mentioned presently, the document actually signed was binding on INGFM. Furthermore, it is said, the document was effective, in terms of s 601GC(1)(b) of the Corporations Act, as an act of INGFM modifying the constitution of the relevant managed investment scheme. It will be necessary in due course to examine s 601GC(1)(b). For the moment, it is sufficient to note the relevant parts of s 601GC:

"(1)

The constitution of a registered scheme may be modified, or repealed and replaced with a new constitution:

(a)

by special resolution of the members of the scheme; or

(b)

by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights.

(2)

The responsible entity must lodge with ASIC a copy of the modification or the new constitution. The modification, or repeal and replacement, cannot take effect until the copy has been lodged."

44. ANZ and PASL argue, in relation to the November 2008 documents, that neither document is a deed and that the action taken was, in each case, ineffective to vary the constitution of the managed investment scheme. It is common ground that the lodgment requirement under s 601GC(2) was satisfied. Beyond that (and INGFM's concession that neither November 2008 document was a deed), there is no agreement about the effect of what was done in November 2008.

45. The issues raised in relation to the actions of November 2008 are:

(a)

whether each relevant document, not being a deed, was a document that was capable of effecting a modification of the constitution under s 601GC(1)(b); and whether it did so; and

(b)

whether, in any event and as a matter of fact, the condition precedent to the existence of the s 601GC(1)(b) power of variation - that is, the condition that "the responsible entity reasonably considers the change will not adversely affect members' rights" - was satisfied.

The competing contentions - December 2008

46. In relation to the actions of December 2008, it is common ground that the document executed was, in each case, a deed and that it was, therefore and to that extent, capable of modifying the constitution.

47. The matter in dispute in relation to the events of December 2008 is issue (b) above - in other words, whether the condition necessary to be satisfied to allow resort to s 601GC(1)(b) was in fact satisfied.

The competing contentions - January 2009

48. The actions of January 2009 were intended to repair any defect in what had been done in November 2008. It is accepted that the documents executed on that occasion took effect as deeds. It is argued against INGFM, however, that there was no effective ratification, first, because there was nothing capable of being ratified and, second, because rights of holders lodging redemption requests after the purported modifications of November 2008 had intervened and could not be divested by ratification.

49. It is also submitted against INGFM that it would be unconscionable for INGFM to rely on the deeds of ratification, assuming that they are effective. This will be relevant to defences if the ratification procedures are found to have been effective.

November 2008 - was a deed necessary?

50. The first issue to be addressed in relation to the actions of November 2008 is whether a deed was necessary. As I have said, INGFM accepts that the documents of 24 November 2008 and 27 November 2008 did not have effect as deeds. That does not necessarily mean, however, that they did not take effect as writings of the company: Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] Ch 375. INGFM maintains that, despite their not being deeds, the documents were effective to cause each constitution to be modified pursuant to s 601GC(1)(b) .

51. The core requirement concerning the form of the constitution of a registered managed investment scheme is found in s 601GB:

"The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity."

52. Reference has already been made to s601GC(1) (which says how the constitution may be modified) and s 601GC(2) (concerning the time at which a modification takes effect). Sections 601GC(1) and (2) are set out at paragraph [43] above.

53. Section 601GC(1)(a) is of no direct relevance to this case. But a comparison of it with s 601GC(1)(b) does much to elucidate the meaning and scope of the latter provision.

Contextual assistance from s 601GC(1)(a)

54. Section 601GC(1)(a) proceeds on the basis that, whatever means may have been adopted to cause the provisions making up the constitution to be contained in a document that is legally enforceable between the members and the responsible entity in accordance with s 601GB, a special resolution of members (as defined by s 9) may itself be the means by which those provisions are modified, although the modification is not able to take effect, at the earliest, until a copy of the resolution is lodged with ASIC (the possibility that the modification may take effect at a time after lodgement fixed by the special resolution is discussed in Re Macquarie Goodman Funds Management Ltd [2004] NSWSC 1197; (2004) 52 ACSR 194).

55. Section 601GC(1)(a) creates a means of modifying the constitution. It "may be modified . . . by special resolution of the members of the scheme". A special resolution of members is thus made the instrument that, by force of statute, effects the modification, subject only to the embargo on the effectiveness of the modification arising from s 601GC(2). It follows that s 601GC(1)(a) not only confers a power to modify but also identifies the process by which that power is exercisable. The power is confided to the general body of members assembled at a duly convened meeting. They may exercise the power by passing a special resolution.

56. Section 601GC(1)(a) draws on familiar analogies. One, of course, is the power of a company's members to alter its constitution and to do so by special resolution: see s 136 of the Corporations Act. Another is the power usually created by a debenture trust deed for debenture holders to sanction, by resolution, a modification or compromise of their rights. The learned author of Palmer's Company Precedents claims credit for having invented this type of clause in 1879 (see A F Topham, "Palmer's Company Precedents", 13th edition (1927), Vol 3, p 162) and goes on to refer to many cases in which its effectiveness has been upheld. One such case is British America Nickel Corporation Ltd v M J O'Brien Ltd [1927] AC 369, where Viscount Haldane, speaking for the Privy Council, said at 371:

"To give a power to modify the terms on which debentures in a company are secured is not uncommon in practice. . . . The provision is usually made in the form of a power, conferred by the instrument constituting the debenture security, upon the majority of the class of holders. It often enables them to modify, by resolution properly passed, the security itself."

57. His Lordship went on to observe that such a provision bears "some analogy" to the power of a company's members to alter the articles of association by special resolution. In Follit v Eddystone Granite Quarries Ltd [1892] 3 Ch 75, another case concerning a debenture trust deed provision, an analogy was drawn with the power of a majority to bind a minority created by the Joint Stock Companies Arrangement Act 1870 (UK), the progenitor of Part 5.1 of the present Corporations Act.

58. Powers of amendment conferred by debenture trust deeds are generally regarded as contractual, no doubt because debenture holders stand in a contractual relationship with the issuing company: Australia and New Zealand Banking Group Ltd v National Mutual Life Nominees Ltd [1977] HCA 42; (1977) 137 CLR 252. Another kind of case, now obsolete, is that in which persons (essentially partners) holding shares in the capital of a joint stock company and contractually bound by a deed of settlement were afterwards made by statute into a corporation aggregate. A statutory power to alter the deed of settlement was, in such cases, commonly vested by statute in the general body of members: see, for example, Bank of New South Wales Act 1850, s 2.

59. Against this background, s 601GC(1)(a) of the Corporations Act is properly to be regarded as a provision that enables members, by a particular form of collective action by way of voting, actually to alter the constitution of a managed investment scheme, with the effectiveness of the modification deferred in the way specified in s 601GC(2).

60. The power of modification that s 601GC(1)(a) vests in the members is a plenary power. There is no kind of modification that cannot be made in exercise of the power and by the means it prescribes, although the power is no doubt subject to the implied limitations that generally attend any power enabling a majority to bind a minority.

Contrasting s 601GC(1)(b)

61. Section 601GC(1)(b) differs from s 601GC(1)(a) in at least two important respects. First, of course, the power it creates cannot be exercised - or, more accurately, does not exist - unless the threshold condition is satisfied. That condition goes to the state of mind of the responsible entity. It is thus, by comparison with the plenary power created by s 601GC(1)(a), in the nature of a special power available only in the particular circumstance to which it refers.

62. The second and, for present purposes, particularly significant aspect of s 601GC(1)(b) distinguishing it from s 601GC(1)(a) is that it creates power but makes no attempt to prescribe the method of exercising the power. Section 601GC(1)(a) makes a particular form of action by "the members of the scheme" the mechanism that actually carries the constitutional modification into effect, subject to s 601GC(2). It specifies both the "who" and the "how" of modification. Section 601GC(1)(b), by contrast, identifies the competent actor but does not identify the act of that actor that will effect the modification. It specifies only the "who".

63. Mr Jackman SC submitted on behalf of INGFM that the power given to the responsible entity by s 601GC(1)(b) is therefore exercisable in whatever way the responsible entity chooses - in essence, that whatever the responsible entity does with the intention of modifying the constitution will be effective to achieve that end. He emphasised that the power is a statutory power and referred to observations of Hely J in Cachia v Westpac Financial Services Ltd [2000] FCA 161; (2000) 33 ACSR 572 at [73] to the effect that a statutory power to amend a unit trust deed was not curtailed by limitations upon a like power created by the deed itself.

64. I do not consider the observations of Hely J to be relevant to this case. The statutory power of amendment with which his Honour was concerned specified in some detail the way in which it was to be exercised. That - what I have called the "how" of the modification - is left at large by s 601GC(1)(b) and must, of necessity, be dictated by the form of the constitution. Since the statute confers a power to "modify" the constitution but stops at that point, it must be the "modify" concept itself that supplies the methodology. The power allows - and, indeed, only allows as effective - whatever is necessary and appropriate to effect the modification, having regard to the form that the constitution actually takes in the particular case.

65. The leading requirement as to the form of the constitution is s 601GB (see paragraph [51] above). The constitution must be "contained in a document" that is "legally enforceable between the members and the responsible entity". It must follow from this that the method of effecting a modification chosen by the responsible entity when acting under s 601GC(1)(b) will be one that ensures that, after the modification, the constitution continues to be contained - and contained wholly - in a document of the s. 601GB kind.

66. The constitution in each of the cases before me is a deed executed and delivered by the responsible entity, its sole party. It is therefore a deed poll. That form was no doubt chosen as a means of satisfying the twofold requirement arising from s 601GB. The deed poll is acknowledged to be binding on the responsible entity in such a way that each member of the managed investment scheme for the time being may sue on the deed's covenants. Clause 25.4 of the constitution of the Enhanced Trust is in these terms:

"This constitution binds the Responsible Entity and each present and future Member and any person claiming through any of them in accordance with its terms (as amended from time to time) as if each of them had been a party to this constitution"

67. The corresponding provision in the case of the Cash Fund (part of clause 1) is:

"This Deed is the constitution ("Constitution") of each Trust for the purposes of the Law and is binding upon the Holders and the Responsible Entity."

68. The status of the constitution as a deed poll says much about the way in which it is capable of being modified.

69. In Chelsea and Walham Green Building Society v Armstrong [1951] Ch 853, Vaisey J considered the difference between a deed inter partes and a deed not inter partes (which may or may not be a deed poll):

"[T]he deed inter partes is essentially a private arrangement; whereas a deed not inter partes, and in particular a deed poll, is a matter of public record and is announced not to the whole world in the sense that everybody is concerned in it, but to the world who are concerned, or who are interested, in what is being done."

70. Vaisey J then quoted with approval a statement in the second edition (1928) of "Norton on Deeds" at 29:

"A deed poll could always be sued on by any person with whom the covenant was made, and an indenture not inter partes is for this purpose a deed poll."

71. Classes of non-parties who typically derive rights under deeds poll are beneficiaries under a declaration of trust created by deed (see, for example, Oakes v Commissioner of Stamp Duties [1954] AC 57) and creditors to whom a guarantee is extended by deed poll (an example is found in Re A&K Holdings Pty Ltd [1964] VR 257). An entitlement may be claimed under a deed poll by a person within the relevant class only upon satisfaction of any condition that the deed attaches to the entitlement: Macdonald v Law Union Fire & Life Insurance Co (1874) LR 9 QB 328. A recent case in which an order for specific performance was made in respect of a covenant in a deed poll created in favour of a company's members in the context of a Part 5.1 scheme of arrangement is Toal v Aquarius Platinum Ltd [2004] FCA 550.

72. In the case of a deed inter partes - in essence, a deed embodying the contract of its parties - there can be no variation except by another deed. The common law rule was stated by Bosanquet J in West v Blakeway (1841) 2 Man & G 751; 133 ER 940 (at ER 949): a contract under seal cannot be varied by parol contract.

73. Tindal CJ (also at ER 949) referred to the maxim unumquodque ligamen dissolvitur, eodem ligamine quo et ligatur (or, as it appears in R H Kersley, "Broom's Legal Maxims", 10th edition (1939) at 592, nihil tam conveniens est naturali aequitati quam unumquodque dissolvi eo ligamine quo ligatum est: "nothing is so consonant to natural equity as that every contract should be dissolved by the means which rendered it binding"). The Lord Chief Justice then said:

"But in the case of a covenant the whole matter is under the seal of the party; and the contact into which he has entered can be discharged only by an instrument of the same nature as that by which the contract was created."

74. The matter was put thus by S M Phillipps and A Amos in "A Treatise on the Law of Evidence", London, 1838, at 774:

"Where, however, the parties have defined the terms by a writing under seal, (which must be taken to be made with great care and formality,) the policy of the law will not permit it to be altered by matter of a lower nature."

75. A concept different from variation or abrogation of the covenant itself is that which leaves the covenant intact but superimposes some promise not to sue on it or otherwise superseding it. Such a promise will be effective if given for consideration and otherwise supportable as a contract: Nash v Armstrong (1861) 10 CB(NS) 259; 142 ER 451. The effect and force of a covenant in an inter partes deed can in this way be mitigated by a collateral contract of the parties to the deed. At law, the covenant remains but equity sees the collateral contract as a source of a right to enjoin reliance on the covenant by the party having the benefit of it.

76. In the case of a deed poll or other deed not inter partes, the position must be the same, so that neither abrogation nor variation of the covenant (if possible at all) can be achieved except by another covenant created with the same "great care and formality" and in the same way as that sought to be abolished or varied. In Hougham v Sandys (1837) 2 Sim 95; 57 ER 725, an appointment by deed poll of 20 June 1760 was held to be "null and inoperative" because the relevant power of appointment had been exercised again by deed poll of 14 April 1761 which expressly revoked the first. Taken together, the two deeds executed and delivered by the appointor produced a situation where the second superseded the first.

77. If a person has covenanted by deed poll in favour of a class in such a way that the members of the class for the time being are to have the continuing benefit of the covenant, any variation of the covenant, assuming that it may be made at all, must require the creation of a new covenant by like deed. The case might be viewed as one in which a new and different covenant in favour of the class (that is, the original covenant, as varied) replaces the original covenant.

78. For both the Enhanced Trust and the Cash Fund, the original covenant contemplates variation as, of course, does s 601GC. Clause 22.1 of the constitution of the Enhanced Trust says:

"Subject to the Corporations Act, the Responsible Entity may by deed amend this constitution"

79. There is a footnote:

"See Section 601GC for the power to amend the constitution. The amendment cannot take effect until a copy of the modification is lodged with the ASIC."

80. The relevant provision of the constitution of the Cash Fund is clause 45 which, so far as relevant, provides:

"The Responsible Entity may by supplemental deed, make any modification, addition or deletion to this Constitution."

81. In each case, therefore, the original covenant took effect subject to the proviso that, if the original terms were later altered by deed made by the responsible entity, the covenant would become the original covenant as so varied.

November 2008 - a deed was necessary

82. Having regard to the specific provision of each constitution concerning variation, to the common law about variation of deeds and to the implicit requirement of the Corporations Act that any modification of the constitution made by the responsible entity under s 601GC(1)(b) be made in such a way that the constitution, as modified, continue to be contained in a document that is legally enforceable between the members and the responsible entity in accordance with s 601GB, I am of the opinion that it was not open to the plaintiff to modify the constitution except by another deed having the binding effect described in clause 25.5 of the Enhanced Trust constitution and clause 1 of the Cash Fund constitution.

83. It follows that the documents of 24 November 2008 and 27 November 2008 accepted by INGFM as not being deeds were not effective to modify the respective constitutions of the managed investment schemes and that the execution and lodgement of those documents did not cause the constitutions to be modified pursuant to s 601GC(1)(b) and s 601GC(2).

The pre-condition to the existence of the s 601GC(1)(b) power

84. The conclusion just expressed as to deficiency in the form of the November 2008 documents makes it unnecessary to consider whether, in terms of s 601GC(1)(b), the situation at that time was one in which INGFM "reasonably considers the change will not adversely affect members' rights". I nevertheless proceed to consider that matter.

85. Before the factual context is examined, the content of the condition must be addressed. The necessary inquiry concerns the state of mind of INGFM and what, as a matter of fact, it "considered" (in the sense of "concluded"). There must be factual findings about the assessment INGFM actually made concerning the impact of the modification. For the condition to be satisfied, several components must be established. In the present proceedings, it is for INGFM as plaintiff to establish them.

86. The first component involves an assessment of how INGFM viewed "members' rights" before the modification and the impact that the modification would have on those rights. The process of determining the state of mind of a company arises for consideration here, as does the meaning of "members' rights".

87. Second, it must be seen that INGFM considered that, according to a comparison of "members' rights" before the modification with the changed rights that would exist after the event, there would be no "adverse" affectation of the "rights" whatsoever, this being the import of the words "the change will not adversely affect members' rights". It is necessary here to consider the meaning of "adversely affect".

88. Third, it is necessary that the opinion formed by INGFM as to the absence of adverse affectation be seen to be something that the responsible entity "reasonably considers".

Determining the company's state of mind

89. I need not dwell on this topic. The decision to take the action that culminated in the execution and lodgement of the documents of 24 November 2008 and 27 November 2008 was, in one case, a decision made at a meeting of the board of directors of INGFM and, in the other, a decision made at a meeting of three employees to whom authority to act had been delegated by the board of directors. The deliberating body had before it, in each case, certain written recommendations and advice. No member of either decision-making body who participated has given evidence; nor has any person who was in attendance or who was party to the recommendations or the advice.

90. While there can in some cases be difficulty in discovering the state of mind of a corporation or other body (see, for example, the observations of Basten JA in Kindimindi Investments Pty Ltd v Lane Cove Council [2006] NSWCA 23; (2006) 143 LGERA 277 at 294-295), this case has been presented in such a way that regard can only be had to inferences available from documentary evidence, including the minutes of the relevant meetings. With no witness having been called by INGFM to give evidence about relevant matters, those inferences, such as they may be, are all that the court has.

91. In the case of the Enhanced Trust (where the relevant decision was made by the three employees), it may also be necessary to consider whether persons appointed by the board of directors of the responsible entity may perform the necessary function.

"Members' rights"

92. Counsel have referred to only one decided case in which the expression "members' rights", as used in s 601GC(1)(b), has received direct attention. In Seabrook; Re Takeovers Panel and the Corporations Act [2002] FCA 1219; (2002) 21 ACLC 82, Conti J expressed a preference for adoption of the approach taken by Young J in Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906 to the expression "rights of the unitholders" in an amendment clause in a unit trust deed. Young J said at 913-914:

"There are a series of cases in the reports dealing with what are the rights attached to a class of shares... These cases hold that where the shareholder is personally affected in a commercial sense by a scheme, such as a watering down of the value of shares in a particular class by increasing the number of shares of that class or reducing capital, etcetera, one cannot say that the rights attached to the shares are affected."

93. Young J drew a sharp and clear distinction between the rights of unitholders and the interests of unitholders as a whole. In the context with which I am concerned, that distinction appears clearly on the face of the statute: while s 601GC(1)(b) refers to "members' rights", s 601FC(1)(c) requires a responsible entity, in exercising its powers and carrying out its duties, to "act in the best interests of the members". Mr Dick pointed out numerous other provisions of the Corporations Act referring to the "interests of members as a whole", whether of a company or of a managed investment scheme. He did so in order to emphasise the distinction the legislation makes between "rights" and "interests".

94. Young J accepted a submission that the "rights of unitholders" referred to "the contractual and equitable rights conferred on unitholders by the deed". This is consistent with the earlier decision of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd (1990) 3 ACSR 232 where, in circumstances similar to those now before me, the right of unitholders to have their units repurchased was seen as a central component of "the rights of unitholders" for the purposes of an amendment provision denying the trustee ability to act alone if of the opinion that "the rights of unitholders may be adversely affected".

95. The company law cases to which Young J referred are those considered by the Court of Appeal in Wilson v Meudon Pty Ltd [2005] NSWSC 448; [2006] ANZ ConvR 93. They are concerned with modification of class rights or, to quote the provision under consideration in White v Bristol Aeroplane Co Ltd [1953] Ch 65, modification or abrogation of "the rights or privileges attached to any class of shares". The test applied by the English Court of Appeal in that case (and by the same court some two months later in Re John Smith's Tadcaster Brewery Ltd [1953] Ch 308) was whether the rights of persons holding relevant shares, as created by the company's constitution, remained the same, not whether enjoyment of the rights was impaired or diluted.

96. It is consistent with what was said by Young J in Smith v Permanent Trustee Australia Ltd (above) and approved by Conti J in Seabrook (above) to apply this test to s 601GC(1)(b). The task of the responsible entity, when approaching that provision, is first to ascertain the rights of members created by the constitution, as they exist immediately before the modification. The responsible entity must then decide whether those rights - as distinct from the enjoyment of them or their value - will be changed or impinged upon by the modification. If that question is answered in the affirmative, the responsible entity must undertake a process of comparison and assessment in order to decide whether the impact is within the "adversely affect" description.

97. There is a question whether s 601GC(1)(b) is confined to rights of the members as a whole, being rights of the generality of members or perhaps the hypothetical individual member; or whether the provision is concerned also with rights of some part of the membership distinct from rights of the remainder. I do not need to decide that question here. The actions of November 2008 did not differentiate among members. Had those actions been effective, they would have had the same effect upon all members and all units of the relevant managed investment scheme.

98. It is possible to argue that "members' rights" include a right to have the managed investment scheme operated and administered according to the constitution as it stands. If that is so, any modification of the constitution involves an invasion of that right that is arguably adverse. I am not persuaded that this is a correct approach. It denies all efficacy to s 601GC(1)(b) and must, for that reason, be rejected. Because the power to modify is concerned with the constitution, the focus is on rights created or secured by the constitution itself.

"Adversely affect"

99. These words are used in many legal contexts. It has been held, for example, that a person is "adversely affected" by a caveat if the caveat operates to foreclose a course that would otherwise be open to the person: Delma Investments Pty Ltd v Shillito [1971] VR 442. In Dainford Ltd v Lam (1985) 3 NSWLR 255 at 269, Powell J observed that "adverse" affectation, in the context before him, was that which was "unfavourable", "hurtful" or "injurious".

100. The task of a responsible entity under s 601GC(1)(b), then, is to assess members' rights as they exist before the modification and members' rights as they will exist after the modification and, if the rights afterwards are different from the rights beforehand, to decide whether the difference in the rights will be, from a member's perspective, unfavourable. To put this another way, the responsible entity must decide whether the change will remove, curtail or impair existing rights in a way that is disadvantageous to the persons whose holdings of units cause them to possess and enjoy the rights. No particular degree of affectation is contemplated by the legislation. Any adverse affectation at all, however slight, is sufficient to deny the responsible entity the modification power.

101. The question is not a general question whether members will be "worse off" if the change is made (to use language found in the judgment of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd (above)). Nor is it a general question of prejudice or disadvantage. It is a specific question that goes wholly and exclusively to the much narrower matter of members' rights. Their interests are, as stated, another thing altogether. So is the value of their rights.

"Reasonably considers"

102. The s 601GC(1)(b) power is available to a responsible entity only if it "reasonably considers" that the modification will not adversely affect members' rights. This form of words has the same meaning as "considers on reasonable grounds" or "believes on reasonable grounds". The requirement is twofold: first, that the relevant belief or opinion be actually held by the responsible entity; and, second, that facts exist that are sufficient to induce the belief or opinion in a reasonable person. This is the approach indicated by Gummow J, Hayne J, Heydon J and Kiefel J in Gypsy Jokers Motorcycle Club Inc v Commissioner of Police [2008] HCA 4; (2008) 234 CLR 532 at [28]. Their Honours referred with approval to George v Rockett [1990] HCA 26; (1990) 170 CLR 104 where all seven members of the High Court said (at 112):

"When a statute prescribes that there must be 'reasonable grounds' for a state of mind - including suspicion and belief - it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person."

103. It is not sufficient, the High Court said (at 113), for the decision-maker to act "parrot-like" upon the bald assertion of an informant. The decision-maker must be "satisfied that there are sufficient grounds reasonably to induce the state of mind".

104. Walters J pointed out in Hoobin v Samuels (1971) 2 SASR 238 that an inquiry into the existence of grounds for a belief is an objective inquiry into a positive fact capable of determination in the same way as a broken ankle; and that when the reasonableness of the grounds is challenged, it is for the tribunal to examine those grounds and to determine whether they are reasonable.

105. In the present case, attention is directed to whether the responsible entity "reasonably" considered, so that inquiry must be made into the basis on which the decision was made and the rationale for the decision; in other words, what were the considerations that led the responsible entity to the conclusion reached? It is the basis for the decision and rationale for the decision, as they actually existed in the mind of the decision-maker, that must be found to conform to the standard of reasonableness.

The decision of November 2008 concerning the Enhanced Trust

106. The board of directors of INGFM met on 21 November 2008. According to the minutes of the meeting, the following resolution was passed:

"The Board resolved to delegate to any two of the Chief Executive Officer, the Chief Financial Officer, and the Executive Director Wealth Management ('Management') the authority to:

1.

take such action as was necessary or desirable to protect members in the fund, including to effect an amendment to the Fund's Constitution to invoke a temporary suspension pending the holding of a meeting of unitholders; and

2.

such matters or decisions that are necessary, desirable or incidental to effect that suspension and amendment."

107. The minutes record the following before the passing of the resolution:

"DC [David Callan] spoke to the issues that had been identified regarding the Fund.

Harry Stout joined the meeting

Discussion followed, including:

•

the current financial position of the Fund (including available cash), redemptions received, and the extraordinary circumstances exhibited in the general market for the Fund's assets;

•

the duties and obligations of the RE;

•

options that had been considered in order to protect Unitholders, including the imposition of a buy/sell spread, the deferral of the calculation of the Net Asset Value, and a temporary suspension of the Fund pending the holding of a meeting of unitholders;

•

the timing of decision-making; and

•

communication with both members of the Fund, and with ING Investment Management regarding any decision that was made by the RE.

KD [Karen Den-Toll] provided legal advice regarding the RE's powers under the Constitution and general law.

108. On 23 November 2008, the three persons referred to in the board's resolution met. It is convenient to refer to them as "the Officers". Other persons, including Mr Callan, Director Strategic Programs, were in attendance. The Officers considered a paper prepared by Mr Callan and dated 22 November 2008. The paper was accompanied by a letter of advice from Mallesons Stephen Jaques and a draft supplemental deed. Mr Callan's paper, the solicitors' advice and the draft deed are in evidence, along with the minutes of the Officers' meeting. The minutes record a determination or resolution of the Officers as follows:

"Pursuant to the terms of its delegation, Management resolved to do the following:

(a)

determine that the amendment in paragraph (b) will not adversely affect members' rights; and

(b)

to make the amendment to the Fund's Constitution in accordance with the attached Supplemental Deed; and

(c)

authorise the General Counsel and/or the Company Secretary to do all things necessary to effect the amendment, including executing the Supplemental Deed on behalf of INGFM."

109. The terms of this resolution correspond with those of a recommendation in Mr Callan's paper. The persons mentioned in (c) are the signatories to the document of 24 November 2008.

110. The minutes also record matters discussed. The only one relevant to the action decided upon (as distinct from the consequences of a suspension of redemptions) was:

"The duties of the RE, and in particular the obligation to act in members' best interests and to ensure that it did not unilaterally amend the Constitution in a way that was adverse to the rights of members."

111. Mr Callan referred in his paper to receipt of several large redemption requests and an expectation that there would be more. He said that there had been "a significant impact on the realisation of liquidity in the Fund, exposing the Fund to the risk of large redemptions". He continued:

"In light of the tightening of credit markets, and the impact to unitholders as a whole of these, the RE needs to urgently consider options to protect investors in the Fund."

112. Mr Callan went on to point out that the responsible entity had power to terminate the fund but that that "was not necessarily the most appropriate short-term solution". He noted that, because of the nature of the fund's assets, s 601KA of the Corporations Act (concerning funds that are not "liquid") could not be relied on as a basis for suspension of redemptions. Mr Callan then said:

"As a result, unless it terminates the Fund, the RE could be forced to continue to sell assets in order to meet redemptions in circumstances where there is little or no rational market for quality assets. This would potentially be to the detriment of unit holders who had not submitted redemption requests."

113. Mr Callan's recommendation was then stated:

"Given the rapid deterioration in credit markets, in order to enable the RE to properly consider the options that are in the best interests of investors, it is recommended that the Fund be suspended on a temporary basis to enable a meeting of investors to be called. This will enable the RE to consider all appropriate options for the future management of the Fund, and to seek further amendments to the Constitution to enable this."

114. The whole tenor of Mr Callan's paper was that a combination of an abnormally large volume of redemption requests, both received and expected, and a tightening of markets productive of expected difficulties in realising assets except on heavily discounted terms exposed the fund to instability. There was a preoccupation with preserving value for members - of necessity, it seems, members who chose to remain into the period when the effects of the difficulties would actually be experienced, not those who had already sought redemption. The recommended strategy for the medium term was to formulate for members' consideration a constitutional modification pursuant to s 601GC(1)(a) allowing greater scope to control the timing and rate of the outflow of money in response to redemption requests. The immediate proposal was to prevent the recognition of redemption requests for a period sufficient to allow the necessary meeting of members to be convened.

115. The letter of advice from Mallesons Stephen Jaques canvassed various matters concerning s 601GC(1)(b) and drew attention to the responsible entity's duties under other Corporations Act provisions and the general law. The central message was:

"While the meaning of section 601GC(1)(b) is unsettled, subject to the issues and considerations raised in this letter, in our opinion:

•

It is open for INGFM to reasonably form the view that the Amendments are not adverse to members' rights; and

•

If INGFM reasonably forms that view, the Amendments may be made by supplemental deed without a meeting of members.

In addition to forming that view INGFM, its directors and officers must consider their duties under section 601FC of the Corporations Act and under the common law. In particular, INGFM, its directors and officers should consider whether the Amendments are in the best interests of members. Based on our knowledge of the circumstances in which the Amendments are proposed, in our opinion a decision to make the Amendments would not be a decision that no reasonable trustee could make having regard to the interests of members. Nevertheless, INGFM must give due consideration to the issue and reach its own decision that the Amendments are in the best interests of members and in doing so give priority to the interests of members."

116. The Officers' resolution on the subject of members' rights is set out at paragraph [108] above.

Assessment of the decision of November 2008 concerning the Enhanced Trust

117. Mr Callan's paper made scant reference to the subject of members' rights. It was mentioned only once (and then very briefly). The reference appears in the description of the power of modification conferred by s 601GC(1)(b). As the quoted extracts from the paper show, Mr Callan was alive to the question of members' interests and the need to protect them, with particular reference to the interests of members who had not submitted redemption requests. But that, of course, is something quite different from the question posed by s 601GC(1)(b) concerning members' rights.

118. On the evidence as it stands, it can be seen that the Officers discussed the need to "ensure that it [the responsible entity] did not unilaterally amend the Constitution in a way that was adverse to the rights of members" and recorded a decision that the modification they sought to implement "will not adversely affect members' rights". But there is no evidence of the basis on which they made that decision. Nothing in Mr Callan's paper can have put them into the necessary frame of mind. Nor could the Mallesons' letter have done so. Mallesons made it clear that the decision was one for the responsible entity and referred to matters relevant to the necessary process of decision-making. What is entirely lacking is evidence about the considerations by reference to which that process was undertaken and the thinking that led the Officers to the baldly stated conclusion.

119. INGFM has thus failed to prove the grounds on which the Officers formed the stated opinion or reached the stated conclusion that the modification would not adversely affect members' rights. By doing so, it has failed to prove that the grounds were reasonable grounds. This is an essential element of the positive case INGFM seeks to make for the award of declaratory relief.

120. It is nevertheless pertinent to consider whether there could have been any reasonable basis for a conclusion that the modification would not adversely affect members' rights.

121. Relevant rights of members are those created by clause 7 of the constitution of the Enhanced Trust. There are at least three such rights or, perhaps more accurately, a single right having at least three components or aspects. First, a member is given by that clause a right, exercisable at any time, to request redemption of the member's units or some of them. Second, the member is given the right to have the responsible entity act on and give effect to every such request in accordance with the constitution. Third (and disregarding as irrelevant the case where the fund is not "Liquid"), the member is given the right to have the request satisfied by the payment of money by the responsible entity to the member within 30 days after receipt of the member's request by the responsible entity or, in clause 7.6 circumstances, within 60 days after receipt of the request. The composite right is a right to be paid money, in return for surrender of units, within the specified period. The right will, of its nature, be exercised in a context where the member wishes to receive cash and no longer wishes to own the units in respect of which the redemption request is made.

122. The purpose of the modification was to deny efficacy to a redemption request by deeming its receipt to occur immediately after the earlier of two days, being the fourth business day after the day of the holding of the first meeting of members of the scheme held after the modification and the fiftieth business day after the modification. A redemption request in fact received by the responsible entity after the making of the modification would, by force of the modification, be regarded as not received until immediately after the earlier of the two identified days. The period within which the responsible entity was required to effect redemption and pay the redemption proceeds would therefore be computed from a time later than that which would otherwise have applied

123. The modification would not have imposed any requirement concerning the holding of a meeting of members. There would therefore have been no way of determining when the first meeting of members after the modification might be held, although the responsible entity had developed a plan to convene a meeting at an early date. The minimum period of notice required for a meeting was 21 days. The effect of the modification would thus have been that a redemption request in fact received after the modification became effective would be regarded as not received until a future date which would be, at the most, 50 business days and, at the very least, 21 days (or a little more) after the effective date of the modification. The deadline for payment by the responsible entity would have been accordingly deferred.

124. The impact of the modification would have been different according to whether a redemption request was lodged and, if lodged, when it had been received. If the request had been received on the day immediately after the modification became effective, the deadline for payment by the responsible entity would have been deferred by virtually the whole of the suspension period. If it had been received on the last day of the suspension period, the payment deadline would have been delayed by only one day.

125. The significant point, however, is that every member's rights would have been changed in such a way that any redemption request received after the modification took effect and before the end of the suspension period would have resulted in redemption, and therefore payment of cash to the member seeking redemption, at a later time than would have applied had there been no modification.

126. The modification would thus have changed member's rights by denying immediate efficacy to redemption requests lodged in the period immediately after the modification came into effect and requiring members lodging such requests to wait longer for their money. Because requesting redemption is, of its nature, a process engaged in by members wishing to see their units turned into money, the deferral in the availability of money cannot but be seen as adverse from the viewpoint of members. To a person wishing to have money, a right to receive money later is less favourable than the right to receive it in the very near future. The relevant right after the modification would therefore have been a less favourable right than that existing beforehand. It is, accordingly, not possible that a reasonable person would have come to any conclusion other than that the modification would adversely affect members' rights.

127. Mr Callan's paper and the minutes of the Officers' meeting exhibit concern about the fund's ability to realise assets advantageously to meet redemption requests and that asset values might fall. The worry, obviously enough, was that the hypothetical person described at paragraph [16] above who had invested $100,000 might, because of those factors, receive much less than that upon redemption; and that the deficiency might increase as time went on. But that is irrelevant to an assessment of members' rights. Every member stood to receive on redemption whatever sum was produced by the application of the formula in the constitution, with each member enjoying, as it were, a withdrawal right corresponding to the member's proportionate interest in the fund, whatever the fund's value might be. That was the member's right. The concern with declining asset values went merely to the value or enjoyment of the right.

128. The letter from Mallesons Stephen Jaques referred in some detail to one aspect of the decision of J D Phillips J in Eagle Star Trustees Ltd v Heine Management Ltd (above). The circumstances in that case were similar to those of the present case. In the face of increased demands for redemption and problems in realising assets to provide the necessary cash, the trustee of three unit trust schemes purported to amend the trust deeds to suspend redemptions. The redemption provision required a redemption request to be met within seven days. The provision was purportedly altered to extend the period to 90 days in one case and to suspend redemptions altogether for six months in the other two cases. It was held that the amendments were not authorised by a provision allowing the trustee to act unilaterally to amend only if, in the trustee's opinion, the "rights of unitholders" could not be "adversely affected".

129. J D Phillips J went on, however, to offer, by way of obiter dictum, what was really a suggestion as to how the situation might be dealt with. The suggestion was that the trustee execute a new amending deed the effect of which was, first, to provide for the convening of a meeting of unitholders to consider appropriate substantive amendments to the trust deed in exercise of unitholders' power of amendment and, second, to "preserve the status quo" (by way of freezing of redemptions) pending the decision of such a meeting. His Honour said of this hypothetical possibility:

"[I]n my view, if the amending deeds are limited to what is necessary for the purpose of calling and holding the meeting of unitholders which might provide the consent required by [the clause allowing amendment by resolution of unitholders], it must follow that the interim amendments cannot, in themselves, be reasonably understood as 'adversely affecting' the 'rights of unitholders' within the operation of [the clause allowing amendment by the trustee alone]. In view of the emergency that has arisen, it is not practicable to obtain the consent which is required before making some such amendments and so long as they are limited to what is strictly needed for the purpose of holding the meeting, I think that the trustee could form no opinion other than that the amendments did not adversely affect the rights of unitholders."

130. As I have said, this is purely obiter. In addition, there is no explanation of how it might be that an amendment removing the right of a unitholder to be paid within seven days of receipt of a redemption request (which amendment had been held to fail the test of lack of capacity to affect unitholders' rights adversely) would somehow cease to be capable of affecting unitholders' rights adversely just because coupled with a requirement that some longer term amendment proposal be put to unitholders themselves for decision. In this part of the judgment, there was, in my respectful opinion, a conflation of unitholders' interests with unitholders' rights and an incorrect assumption (it cannot be seen to be more than an assumption) that an adverse effect on interests was the same as an adverse effect on rights. The distinction extracted by Young J in the later case of Smith v Permanent Trustee Australia Ltd (above) from the company law cases about modification of class rights was not mentioned. J D Phillips J was acutely aware of the economic and financial factors making it desirable, in a general commercial sense, to halt a "run" on the funds. But concern for those matters was concern for unitholders' interests and for the possible devaluation of their units, not a concern for their rights. Those rights would have remained precisely the same, whatever may have been the deterioration of asset values and the pressures produced by unprecedented levels of redemption requests.

131. The Mallesons Stephen Jaques letter referred to the views expressed by J D Phillips J and advised caution in relying on them for the purposes of the present case.

132. I am of the opinion that there did not exist any reasonable basis for a conclusion or a belief that the modification purportedly made by the November 2008 document would not adversely affect members' rights.

133. This conclusion means that, even if there had been no need for a deed - and assuming that a responsible entity can exercise the s 601GC(1)(b) power through delegates - there was no proper or valid basis for the making of the modification of the constitution of the Enhanced Trust purportedly made by the document of 24 November 2008.

134. Having reached this point, I do not need to consider whether the state of mind of the three Officers may be attributed to the responsible entity itself.

The decision of November 2008 concerning the Cash Fund

135. The board of directors of INGFM met on 26 November 2008. The minutes record that the following resolution was passed in relation to the Cash Fund:

"The Board resolved to approve the following recommendation contained in the RE paper:

(a)

'to determine that the amendment in paragraph (b) below, will not adversely affect members' rights; and

(b)

to make the amendment to the Fund's Constitution in accordance with the abovementioned 'Supplemental Deed'; and

(c)

to authorise the General Counsel and/or Company Secretary to do all things necessary to effect the amendment'."

136. The minutes refer to several documents as having been considered. These, in addition to a draft supplemental deed, were a paper prepared by Mr Callan (the "RE paper) and a letter of advice from Mallesons Stephen Jaques. Mr Callan's paper dated 27 November 2008 was in very substantially the same form as the paper of 22 November 2008 concerning the Enhanced Trust. The solicitors' letter was virtually identical with that prepared for the Enhanced Trust.

137. The board minutes also refer to "key discussion points". There is no reference in those points to the matter of members' rights. In fact, the only reference in the minutes to members' rights is in paragraph (a) of the resolution set out at paragraph [135] above - as to which it may be noted that the quoted words were taken from Mr Callan's paper and constituted the only reference to members' rights in that paper.

138. In this case, of course, the decision was made by the board of directors and it is not suggested that the decision was not a decision of the company or that the grounds on which the decision was made were not grounds subscribed to and held by the company.

139. Beyond that, however, the decision attracts precisely the same objections as those affecting the Officers' decision in the matter of the Enhanced Fund. The minutes of the board meeting do not show any basis or rationale for the recorded decision as to absence of adverse impact on members' rights. There is nothing to show what the directors took into account in making the recorded decision about members' rights. Nor is there, on the evidence, any discernible basis on which it could have been decided that members' rights would not be adversely affected by the modification.

140. In the case of the Cash Fund also, INGFM, in seeking to prove its case, has elected not to call any witnesses to give evidence of what transpired at the crucial board meeting. It has been content to rely on the minutes of the meeting and the various documents recorded as having been before the meeting. Those items do not show the basis or rationale for the expressed conclusion that the modification would not adversely affect members' rights. INGFM has therefore not established that the condition laid down by s 601GC(1)(b) was satisfied.

141. The document of 27 November 2008, even if a deed, would not have been effective to modify the constitution of the Cash Fund.

The purported ratifications of January 2009

142. Having reached this point in relation to the actions of November 2008 concerning both the Enhanced Trust and the Cash Fund, it is necessary to consider whether INGFM derives any assistance from the attempted ratification or repair in January 2009.

143. Each of the documents of 8 January 2009 may be accepted as being a deed. By the operative part of each deed (see paragraph [38] above), INGFM "ratifies the acts of the Officers in executing on behalf of the Responsible Entity the Supplemental Deed". INGFM also "affirms that the Officers acted, or should be taken to have acted, as the authorised agents of the Responsible Entity"; and "ratifies and adopts as binding the terms of the Supplemental Deed, as executed by the Officers, (as defined in the Supplemental Deed)". The "Officers" are the two persons who actually signed the documents of 24 November 2008 and 27 November 2008.

144. Even if the deeds of 8 January 2009 were somehow effective, in a retrospective way, to add substantive force to the documents of 24 November 2008 and 27 November 2008, they did nothing to remedy the absence of a decision of the kind called for by s 601GC(1)(b), that is, a decision by the responsible entity on reasonable grounds that the modification sought to be made in November 2008 did not adversely affect members' rights. For that reason alone, the deeds of 8 January 2009 cannot have done anything to repair or validate the attempted modifications of November 2008.

145. There is, in any event, force in the submissions made on behalf of ANZ and PASL that effective ratification would be denied by the principle stated thus by Roch LJ in Presentaciones Musicales SA v Secunda [1994] Ch 271 at 285, referring the judgment of Cotton LJ in Re Portuguese Consolidated Copper Mines Ltd; Ex parte Badman & Bosanquet (1890) 45 ChD 16:

"I would suggest that that exception ought to be stated in these terms: that the putative principal will not be allowed to ratify the acts of his assumed agent, if such ratification will affect adversely rights of property in either real or personal property including intellectual property, which have arisen in favour of the third party or others claiming through him since the unauthorised act of the assumed agent."

146. The same limitation was referred to by Sheller JA (with whom Kirby P and Meagher JA agreed) in Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 664-665. In addition and as Davidson J said (with the concurrence of Street J) in Attorney-General v Wylde (1946) 47 SR (NSW) 99 at 115, quoting Isaacs J in Davison v Vickery's Motors Ltd (1925) 37 CLR 1 at 18, the fiction of the retrospective effect of ratification was intended to prevent mischief or to remedy inconvenience that might result from the general rule of law and therefore the fiction will not be allowed to be invoked so as to cause injury by altering the ordinary course of law.

147. The fact that redemption requests had been made after the original actions of November 2008 and were unsatisfied as at 8 January 2009 would, in my opinion, bring this principle into play. The ratification or confirmation could not, in some retrospective way, defeat the accrued rights arising from a combination of the making of those requests, the existing provisions of the constitution and the ineffectiveness of the actions of November 2008 to modify the constitution.

148. Mr Jackman, in submitting to the contrary, sought to rely on statements of Hely J in Cachia v Westpac Financial Services Ltd (above). Reference was there made to Gra-ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65 in which a trustee's power to amend a trust deed had been exercised so as to defeat the redemption rights of unitholders who had already lodged redemption requests. Likewise, in Pepe v City & Suburban Permanent Building Society [1893] 2 Ch 311, a building society member who had given notice of withdrawal and thereby became entitled to be paid was held to be deprived of his right by a subsequent alteration of the society's rules.

149. The distinction is, to my mind, clear. The rights arising under a constitution or a trust deed or a set of rules which is susceptible to amendment are rights that exist subject always to the possibility that the governing instrument will be changed. It is an incident or aspect of every right arising from that instrument that the amendment power may alter or abolish the right subject, no doubt, to the doctrine of fraud on a power.

150. Ratification does not work in the same way. If the original action is invalid, the position immediately after the action is taken is the same as if it had not been taken. Rights continue to be those conferred by the unamended governing instrument. New rights will thereafter accrue according to the governing instrument and without reference to the invalid action. Any subsequent ratification of that action purports to divest such accrued rights not by operation of the governing instrument but by action intended to produce a legal conclusion that that governing instrument was, by the subsequent action, put into a form that it did not, in reality, have at the time of the accrual of the right. The operation of the fiction is limited as referred to in Attorney-General v Wylde (above). It may well be that a new and effective modification of the managed investment schemes' constitutions on 8 January 2009 imposing a freeze on redemptions, if appropriately framed, would have been effective to defeat existing but unsatisfied redemption requests. But that is not what happened.

151. The actions of January 2009 were not effective to cause the constitutions of the Enhanced Trust and the Cash Fund to be altered as from the respective dates in November 2008 or at all.

December 2008 - assessment

152. The documents of 24 December 2008, one in relation to the Enhanced Trust and the other in relation to the Cash Fund (see paragraphs [33] to [36] above), may be accepted as having effect as deeds. They are accordingly, of their nature, documents capable of effecting a modification of the constitution of each managed investment scheme.

153. The decision to execute each such deed was made by INGFM's board of directors held on 24 December 2008. The minutes are in evidence. They show that matters concerning the Cash Fund were discussed first, that discussion on the Enhanced Fund followed and that resolutions were then passed, first in relation to the Cash Fund and then in relation to the Enhanced Trust.

154. There were tabled and considered in relation to the Cash Fund a paper dated 24 December 2008, a copy of the original advice from Mallesons Stephen Jaques and a draft supplemental deed. The minutes record that Ms Den-Toll reported that PASL had raised "a question over the validity of the first supplemental deed dated 27 November 2008". Ms Den-Toll also provided "an update on the legal advice received regarding the issue". She went on to explain the purpose and effect of the further proposed deed. The minutes contain a statement as follows:

"It was further confirmed by JB [Mr Boynton of Mallesons Stephen Jaques], and noted by the Directors, that the Supplemental Deed does not adversely affect PASL's rights."

155. This was after Mr Boynton had "advised the Directors regarding the legal tests that needed to be met in considering, and deciding to make, any amendment to the Fund's Constitution". The resolution concerning the Cash Fund is recorded in these terms:

" ANZ Cash Plus Fund

The Board resolved to:

(a)

determine that the amendment in paragraph (b) will not adversely affect members' rights; and

(b)

make the amendment to the Fund's Constitution in accordance with the attached Supplemental Deed; and

(c)

authorise under clause 8.2(b)(ii) of the Company's Constitution any Director and any Company Secretary to execute the attached Supplemental Deed; and

(d)

authorise the General Counsel and/or the Company Secretary to do all things necessary to effect the amendment."

156. The tabled paper concerning the Cash Fund repeated much of what had been said in the corresponding November 2008 paper. It noted that the responsible entity had power to amend the constitution "if it reasonably considers the change will not adversely affect members' rights". There was then a paragraph as follows:

"The Fund's Constitution can be amended either by special resolution of members, or by the RE if it reasonably considers the change will not adversely affect members' rights.

Attached to this memo is a legal advice from Mallesons Stephen Jaques, which confirms that it is likely the RE has the power to unilaterally make this amendment and also provides an overview of its duties and responsibilities. Mallesons has confirmed separately that the conclusions in this advice also apply to this new Supplemental Deed."

157. The minutes of the board meeting of 24 December 2008, dealing with the Enhanced Trust, noted that, while no member had questioned the validity of what had been done in November, the "same reasoning" applied to produce "doubt as to the effectiveness of the deed lodged on 24 November 2008". No discussion is recorded on the matter of adverse impact on members' rights. The tabled paper was similar to that relating to the Cash Fund. It contained statements corresponding with those in the Cash Fund paper referred to and quoted at paragraph [156] above. There was, in this case, no minute of any contribution by Mr Boynton.

158. The resolution in relation to the Enhanced Trust was:

" Wholesale Enhanced Cash Trust

The Board resolved to:

(a)

determine that the amendment in paragraph (b) will not adversely affect members' rights; and

(b)

make the amendment to the Fund's Constitution in accordance with the attached Supplemental Deed; and

(c)

authorise under clause 8.2(b)(ii) of the Company's Constitution any Director and any Company Secretary to execute the attached Supplemental Deed; and

(d)

authorise the General Counsel and/or the Company Secretary to do all things necessary to effect the amendment."

159. Like the meetings of November 2008, this board meeting did not, on the face of the available documents, articulate any reason for the stated conclusion that the new modification of each constitution (in effect, a modification re-creating, for the balance of the original term, the suspension purportedly made in November) would not adversely affect members' rights. In the section of the minutes dealing with the Cash Fund, it is said that Mr Boynton confirmed "that the Supplemental Deed does not adversely affect PASL's rights". That, if a correct reflection of what Mr Boynton said, does not, of course, say anything about the rights of members generally (also, having regard to what is recorded earlier in the minutes about PASL, it may well be that Mr Boynton's statement was to the effect that, since the amending deed under consideration by the meeting would operate only prospectively, it would not interfere with any accrued rights of PASL). The only statement in the minutes about members' rights (as distinct from PASL's rights) is in paragraph (a) of the resolution. The paper before the board did not mention members' rights except in the passage quoted at paragraph [156] above.

160. When it comes to the Enhanced Trust, the position is, as I have said, that the minutes of the meeting record no discussion on the matter of adverse impact on members' rights and the paper before the board contained only passages corresponding with those quoted at paragraph [156] above.

161. INGFM has failed to prove the grounds on which the board of directors reached the recorded conclusion of 24 December 2008 that the modification of each constitution then approved would not adversely affect members' rights. INGFM has therefore failed to prove that the conclusion was one arrived at on reasonable grounds so that the directors reasonably considered that the modification would not adversely affect members' rights. As for whether there was, in fact, any objectively reasonable basis available for the conclusion, the position in December was exactly the same as the position in November.

162. Although the purported modifications of 24 December 2008 were by deed executed by INGFM and, to that extent, were properly made, it has not been established that INGFM was of the reasonable opinion necessary to enable resort to the s 601GC(1)(b) power of modification.

Conclusion and disposition

163. The relief sought by the amended originating process filed on 19 February 2009 in each proceeding (1342/09 and 1344/09) is, in substance, the same. First, there is a claim for a declaration that the document of November 2008 is valid and binding, operates in accordance with its terms from the date it bears and validly amended the constitution of the relevant managed investment scheme with effect from that date. Second, there is a claim, in the alternative, for a declaration that the constitution of the managed investment scheme was amended on the relevant date in November 2008 in accordance with the terms of the November 2008 document upon the authorised delegates of INGFM's board resolving so to amend the constitution with effect from the November 2008 date when the document was lodged with Australian Securities and Investments Commission. Third, there is a claim for a declaration that the December 2008 document is valid and binding, operates in accordance with its terms from 24 December 2008 and validly amended the constitution of the managed investment scheme with effect from that date.

164. For the reasons I have stated, INGFM has not established an entitlement to any part of this relief. In each proceeding, therefore, the claims in paragraphs 1 to 3 of the amended originating process will be dismissed. There is no need for the question of unconscionability to be addressed.

165. PASL and ANZ have filed cross-claims. These are concerned with the rights of members by whom unsatisfied redemption requests have been made. In view of the decision on INGFM's claims, it will be necessary for the cross-claims to be determined in accordance with the orders for separate and subsequent determination previously made.

166. It will also be necessary to deal with the matter of costs at the conclusion of each proceeding.