In the matter of E&P Investments Limited as responsible entity of the US Masters Residential Property Fund

By Originating Process filed on 15 December 2022, the Plaintiff, E&P Investments Ltd (“E&P”) as responsible entity of the US Masters Residential Property Fund ("Fund") seeks both interlocutory and final relief. As events have developed, E&P and the First Defendant, Keybridge Capital Ltd ("Keybridge"), now agree that a notice issued by Keybridge and certain other unitholders convening a meeting of investors in the Fund did not comply with the statutory requirements for calling that meeting. The Court still has to address that question, which is to be determined as a separate question below, on its merits.

A preliminary question arises as to the service of the proceedings on the Defendants other than Keybridge (“Other Defendants”), who have not appeared in the proceedings. That question involves issues as to the Court's power to make confirming orders by way of substituted service under r 10.14 of the Uniform Civil Procedure Rules (“UCPR”), and any application of the Service and Execution of Process Act 1992 (Cth) (“SEPA”) in that regard. I bear in mind, in dealing with these questions, that the Court is here exercising Commonwealth jurisdiction, and not State jurisdiction, in exercising the powers conferred on it under the Corporations Act 2001 (Cth).

Rule 10.14(1) of the UCPR provides that, if a document that is required to be or permitted to be served on a person in connection with any proceedings cannot practically be served on the person, or cannot practically be served on the person in the manner provided by law, the Court may, by order, direct that, instead of service, such steps be taken as are specified in the order for the purpose of bringing the document to the person's attention. Rule 10.14(3) in turn provides that, if steps have been taken other than under an order under this rule, for the purpose of bringing a document to the notice of the person concerned, the Court may direct that the document be taken to have been served on that person on a date specified in the order. An order confirming service, by way of substituted service, is her sought here in respect of the Other Defendants, where personal service has not been effected upon them. I will address the manner in which service has been effected on the Other Defendants below. I also bear in mind that it is not necessary, to support an order under UCPR r 10.14, that personal service is impossible, but only that it impracticable in the particular circumstances, including because it could not be achieved in sufficient time for the Court's jurisdiction to be exercised in an urgent matter.

I will first deal with the matters relevant to substituted service under UCPR 10.14, and then with a question as to the possible application of the requirement for a notice in Form 1 under s 16 of SEPA, to which Mr Assaf, with whom Mr Anderson and Ms Hall appears for Keybridge, referred in submissions. (I deal with these matters in the opposite order in my oral ex tempore judgment). In determining whether to confirm service under UCPR r 10.14, I bear in mind that there is a significant degree of urgency in this case. In December 2022, Keybridge and some other unitholders called a meeting of unitholders, to be held on 30 December 2022, and E&P promptly commenced proceedings contesting the validity of that course, on 15 December 2022, as I noted above. The meeting is to be held shortly before the conversion of certain preference shares in the Fund, and would have a potential impact at least, upon the question whether E&P remains as responsible entity of the Fund at the time that conversion takes place. It is, as I noted above, now conceded by Keybridge that the notice calling that meeting was invalid, and it is obviously in the interest of unitholders of the Fund that that question be determined sooner rather than later.

It is also necessary to have regard to the steps taken to effect service upon the relevant Defendants. Those steps are set out in affidavits of Mr Gatto, a solicitor acting for E&P, dated 16 and 20 December 2022, and in several affidavits of a process server, Mr Matthews, dated 20 December 2022. E&P has in turn provided a summary of the steps taken to serve upon the relevant individuals, and I will address that summary in outlining the position.

No question arises in respect of substituted service upon Keybridge, which has appeared by counsel and by solicitors. So far as the Other Defendants are concerned, Mr Newlinds, with whom Mr Atkin appears for E&P, draws attention to cl 14 of the constitution of the Fund (Ex PB1, tab 4) which provides:

Mr Assaf submits, and I accept, that this provision does not deal with the service of proceedings, and I did not understand Mr Newlinds to contend to the contrary. It is, however, relevant for present purposes because it contemplates that notices in relation to constitutional issues, as distinct from the commencement of proceedings, may be given electronically, and it also contemplates communications to physical or electronic addresses of unitholders. It seems to me that the Court can, in dealing with the question of substituted service that arises here, have regard to the context that, as the evidence indicates, notice of the proceedings has already been given by announcement to ASX in the matter contemplated by that clause, and in the case of several members has been given to electronic addresses as also contemplated by that clause.

Turning to the position in respect of the Other Defendants:

Here, I bear in mind that, first, cl 14 of the Fund’s constitution, to which I have drawn attention, contemplates that notice or communications under the constitution could have been given by an announcement to ASX, which has occurred, although I accept that that does not apply to the service of legal proceedings. It is, however, relevant to the fact these proceedings and relevant documents are likely to have come to the Other Defendants’ attention when released to ASX. In respect of the Other Defendants, other than the Twenty-Third Defendant where there is a doubt that I noted above, it seems to me clear that the means of service adopted, whether by delivery to the registered office of a company, or by delivery in the case of one defendant to her father, or by delivery to email addresses shown on the Fund’s register, is likely to bring the proceedings to the Defendants’ attention. I am satisfied that, given the urgency of the matter, and the fact that the steps taken for service are likely to have brought those matters to those Defendants’ attention, then, subject to the question of notice under SEPA, an order should be made under UCPR r 10.14 (3) that the steps which have already been taken to serve those documents upon these persons have the consequence that the documents are taken to have been served on those persons.

I turn, now, to the question of how the Court's ability to make an order confirming service is affected, if at all, by the application of the requirement for a notice in Form 1 under s 16 of SEPA, where a number of the companies and individuals who have been served are situated in Victoria. Mr Assaf draws attention to several decisions which have dealt with the application of SEPA in the context of applications to set aside creditors’ statutory demands. He draws attention to Energy Conservation System Pty Ltd v Downer EDI Engineering Electrical Pty Ltd [2008] NSWSC 1139, where Barrett J observed that s 9 of SEPA was mandatory and precluded any other means of service on a company in any part of Australia outside New South Wales other than service in accordance with that section. That section provides for service on a company by leaving it at the company's registered office. His Honour also observed (at [23]) that ss 15 and 16 of SEPA were mandatory provisions, without which service would not be achieved. Section 15 deals with initiating process being served in another part of Australia, and specifies how service is to be effected on an individual or a company, and s 16 deals with certain information to be provided, by a notice in Form 1 prescribed in respect of SEPA. As Mr Assaf point out, I followed that decision in Re 8D Pty Ltd [2013] NSWSC 1297, also in the context of an application to set aside a creditor’s statutory demand. Mr Assaf also draws attention to Re Cummins Equipment Hire Pty Ltd [2015] NSWSC 2085, where Brereton J noted that s 16 of SEPA provides that service is only effective if copies of the prescribed notice is attached to the process, or the copy of the process served, and (at [12]) treated that section as relevant to the validity of service. As will emerge below, it seems to me that these observations require qualification, where s 8 of SEPA applies. That section was not relevant in those decisions, involving applications to set aside a creditor's statutory demand, but squarely arises here.

Mr Assaf also draws attention to the decision of Gleeson JA in Zervas v Burkitt [2019] NSWCA 112, where Gleeson JA made orders for substituted service under UCPR r 10.14, where he was satisfied (at [29]) that a notice could not practically be served personally on a particular person, and that it was reasonably likely that a proposed method of substituted service would bring the proceedings to that person's attention. Mr Assaf draws attention to the fact that the order orders made provided for a notice pursuant to SEPA to be given to that person. On one view, that decision does not support Mr Assaf's position, since the provision which his Honour included in that order would be superfluous, if Mr Assaf's reading of s 16 of SEPA were correct. However, as Mr Assaf points out, the fact that part of that order may have been superfluous, on that view, does not necessarily mean that Mr Assaf's submission is incorrect.

Mr Assaf submits that, if the Court makes an order for substituted service under UCPR r 10.14, s 9 of SEPA dealing with service on a company's registered office does not need to be complied with, and s 15 dealing with personal service on an individual does not need to be complied with, but s 16 of SEPA must be complied with. That section, as I noted above, requires that a notice in Form 1 prescribed under SEPA be attached when the documents are served. I cannot accept that submission, because it seems to me that it does not give effect to s 8(1) of SEPA, to which I now turn. That section provides that SEPA does not affect a decision of a court or tribunal to allow substituted service of a process.

The reading which Mr Assaf seeks to give to that section is, with respect, not consistent with its terms, since he seeks to read down that provision so that it excludes the application of some sections of SEPA, including ss 9 and 15, but provides that s 16 of SEPA does affect that decision, by requiring the giving of the notice under Form 1 to secure effective substituted service. It would have readily been open to the legislature to take that course, but it seems to me that it has not done so. Where the legislature has disapplied the operation of SEPA generally, and not only some sections of it, to the Court's decision to allow substituted service, it seems to me that non-compliance with s 16 of SEPA cannot then invalidate the service that has been permitted by way of substituted service. To put that proposition another way, Mr Assaf’s submission that the Court should decline to make an order under UCPR r 10.14 confirming substituted service, by reason of the absence of a notice in Form 1 prescribed by SEPA, requires the Court to do what s 8 of SEPA excludes, by treating SEPA as affecting its decision whether to permit that substituted service.

I bear in mind that, here, notice under s 16 of SEPA has not been given to the Other Defendants. For the reasons noted above, it seems to me that that does not prevent an order confirming service by way of substituted service under UCPR r 10.14 , because, as I have noted above, s 8 of SEPA has the consequence that that section does not affect the Court's decision to allow substituted service. It seems to me that persons who have received the relevant documents, in the context of the announcement of the proceedings and the release of the documents to ASX, the urgency of the proceedings, and in the context of media coverage of the proceedings, could be in no doubt, that, if they wished to be heard, they had an opportunity to be heard in the proceedings. In these circumstances, it seems to me that the policy requirements served by notice in Form 1 of SEPA have been met and, where SEPA does not apply by reason of s 8 of SEPA, the absence of notice in Form 1 is not sufficient reason to decline an order under UCPR r 10.14 in the relevant circumstances.

For these reasons, I make order 1 in accordance with the short minutes of order initialled by me and placed in the file inserting, after the words "the Defendants" in line 2, “other than the Twenty-Third Defendant”. The consequence is that the outcome of these proceedings will be binding upon Keybridge, so far as it appears, and upon all Defendants other than the Twenty-Third Defendant, where the service of documents upon them will take effect as substituted service, and they have had an opportunity to be heard.

The next question which arises in this application, which I have held should be determined as a separate question, is whether the notice given by Keybridge and other persons complied with the requirements of ss 252D and 601FM(1A)(b) of the Act in respect of the calling of the relevant unitholders meeting. Mr Newlinds contends that it did not. Mr Assaf did not contend to the contrary, and drew attention to one provision of the Fund’s constitution which is relevant and which I will note below. This question turns, in part, upon questions of fact, and in part, upon questions of construction. Matters of this kind have been considered, in the case law, in respect of corresponding provisions relating to meetings of shareholders in companies: for example, Rivkin Financial Services Ltd v Sofcom Ltd (2004) 51 ACSR 486; 23 ACLC 42; [2004] FCA 1538. However, the parties have not drawn my attention to any case where this question has arisen in respect of the requisition of a meeting of unitholders in a registered managed investment scheme under s 252D of the Act.

I first turn to the relevant factual matters, before turning to the relevant provisions in the Act and the Fund's constitution. E&P relies on a schedule which identifies the unitholders which have requisitioned the relevant meeting, and the number of units which they hold, and calculates their unit holding as 4.3%. That would not satisfy the requirement of s 252D of the Act which only permits the calling of a meeting by members who hold interest carrying at least 5% of the votes that maybe cast at the meeting. On the other hand, by an email dated 11 December 2022, Mr Bolton, who is associated with Keybridge, attached his calculation if the voting interests entitled to call the meeting. He calculated that the unitholders who had called the meeting held 5.14% of the relevant votes, which would exceed the threshold in s 252D of the Act, but his schedule indicated that units which were attributed to Keybridge and Aurora were held by BNP Paribas Nominees Pty Ltd (“BNP”) as bare trustee; that units held by Maxim Financial LLC were also held for it by BNP as trustee, and that units held by another unitholder were also held for it by BNP. In effect, Mr Bolton's approach seeks to treat persons are not the registered holders of units in the Fund as entitled to join in calling the meeting, where BNP has not itself joined in doing so in respect of those units.

This in turn raises a question of construction, partly involving the provisions of the Act, and partly involving the provisions of the Fund's constitution. Section 252D(1) of the Act provides that:

Mr Newlinds also draws attention to s 601FM(1A) of the Act, as inserted by ASIC Class Order CO 13/519, which modifies that section to provide for removal of a responsible entity by members taking action under Pt 2G.4 for the calling of a members meeting to consider and vote on a resolution that the responsible entity should be removed and choosing a company to be a new responsible entity. That is relevant here, so far as Keybridge and the other persons calling the meeting contemplate at least the removal of E&P as responsible entity by a resolution passed at the relevant meeting. That section in turn includes a provision broadly corresponding to s 252D of the Act that, members who hold interest carrying at least 5% of the votes that may be cast at a meeting of the members may call and arrange to hold such a meeting.

Mr Newlinds rightly notes that the power to call and hold such a meeting by members ss 252D and 601FM(1A)(b) can only be exercised by members who hold interests carrying at least 5% of the votes that may be cast at a meeting of the scheme's members. That requirement is not satisfied on the view taken by E&P that only a unitholder recorded in the register holds an interest carrying a vote that may be cast at a meeting of the scheme's members. On the other hand, Mr Bolton contended, in the email calculating the larger number of requisitionists to which I referred above, that:

I should pause there to note that this question does not involve any “fettering” of rights of a member pursuant to s 9 of the Act, but instead identifying who is entitled to vote at a meeting of unitholders. Votes are in no way fettered because the person who is entitled to exercise them is the trustee in whose name units are held, rather than the beneficiary who may have a beneficial interest in them, or a person who may have an expectation of obtaining a beneficial interest in them if, for example, a discretion is in future exercised by a trustee of a discretionary trust in his or her favour. Mr Bolton’s contention that it is the beneficiary, not the bare trustee, who holds the relevant interest, also has potentially odd consequences. The first is that the responsible entity would often not know who is entitled to vote at a unitholders’ meeting because it would not know who is the beneficiary of a trust, where the register records only the name of the trustee as unitholder. Second, if there was a contest between beneficiaries as to who held a beneficial interest in the units held in the trust and there would be no means available to the responsible entity to know which of them was correct. Third, perhaps most surprisingly of all, if a trustee held units within a discretionary trust but had not yet exercised a discretion in a manner that would allow any of the beneficiaries to obtain a beneficial interest in the units, then neither the trustee nor the potential beneficiaries would be entitled to vote on Mr Bolton's view, where that discretion had not yet been exercised. These are odd consequences, and one would not reach a view which gave rise to them unless there is good reason to do so. It is clear from the provisions of the Act and the Fund’s constitution that there is no good reason to reach that view.

Turning first to the Act, I have referred above to ss 242D and s 601FM(1A) of the Act, which provide that the persons who may requisition such a meeting, are members of a registered scheme who hold interests carrying at least 5% of the votes that may be cast at a meeting. The term "member" is defined in s 9 of the Act in relation to a managed investment scheme as a person who holds an "interest in the scheme", consistent with the language of ss 252D and 601FM of the Act. The term "interest" is defined in relation to a management investment scheme as "a right to benefits produced by the scheme (whether the right is actual, prospective or contingent, and whether it is enforceable or not)”.

The term "member" is in turn defined in the Fund’s constitution as the person registered as the holder of a unit, including persons jointly registered, and accordingly draws attention to the person who can be identified from the register as the unitholder, rather than beneficiaries of a trust, if that person is a trustee. Clause cl 7.6 of the Fund’s constitution, to which Mr Assaf refers, in turn provides that:

Importantly, the first of those provisions is mandatory, although the second is permissive. It directs the responsible entity to treat the registered unitholder as the absolute owner of rights and interests, and that in turn determines, as I have noted above, how distributions will be made, and how votes will be exercised. That is important for present purposes because s 252D requires the identification not only of those who hold interests, but of those who hold interests which carry at least 5% of the votes. The question of which interests in the fund carry the relevant votes is a matter to be determined, at least in part, by the Fund’s constitution, and cl 7.6 requires the responsible entity in that respect to treat the person entered on the register as the absolute owner of the rights and interests, which will in turn carry the relevant votes.

For completeness, the constitution in turn refers, in cl 15, to meetings of members and there it provides that, while the fund is a registered scheme, the provisions of the Act apply to determine the circumstances if any in which a meeting must be convened on the request of members, and therefore draws attention to ss 252D and 601FM of the Act. Certain other provisions dealing with voting, including cl 15.12 15.15, only apply while the trust is not a registered scheme, again implicitly recognising the regime for voting provided under Pt 2G.4 of the Act while the fund is a registered scheme.

In these circumstances, both as a matter of construction and as a matter of good sense, it seems to me plain that only the person who is, for the purposes of cl 7.6 of the Fund’s constitution, entered on the register as a member, is entitled to vote at a meeting of the scheme, and only that person is entitled to call a meeting of the scheme, and be counted in the 5% figure that is necessary to call a meeting under s 252D of the Act. The contrary view is not consistent with the provisions in the Act, to which I have referred above. For all these reasons, Mr Newlinds is correct in contending, and Mr Assaf is correct in not opposing, the proposition that the meeting was not validity requisitioned, where less than 5% of the members who requisitioned it were shown on the register of members as unitholders in the fund.

For these reasons, I also make order 2 in the short minutes of order initialled by me and placed in the file.

As the parties rightly recognised, it is not necessary to determine any of the other bases on which the calling of the relevant meeting could be invalid, and not necessary to determine the question which might otherwise have arisen under the Fund’s constitution, whether a conversion of convertible preference units to ordinary units could be reversed, after the decision to make it had been announced.

A question as to costs now arises in the proceedings, although that question has presented in what might, in some respects, seem a somewhat odd way. The Plaintiff, E&P, seeks an order that the First Defendant, Keybridge, pay the costs of the proceedings, as agreed or as assessed. E&P does not seek an order which might otherwise have been available in its favour, for costs against others which joined in calling the meeting and are joined as Defendants in the proceedings but did not take an active role in them. Mr Newlinds also makes clear that, if an order for costs were made against all of the Defendants, jointly and severally, E&P would choose not to enforce the order against other Defendants, but would only seek to enforce that order against Keybridge, presumably leaving Keybridge to seek such contribution against other Defendants as it chose. That position was understandable, where Keybridge seems to have played the most substantial role in calling the relevant meeting and in the proceedings.

Keybridge responds that, rather than an order for costs being made against it alone an order for costs should be made against all Defendants. The consequence of the position for which E&P contends is that not only E&P, but each other requisitionist and each other Defendant, including several individuals, would be jointly and severally liable for the entirety of the costs of the proceedings. Mr Assaf contends that is the usual result of an order for costs. Such an order is generally made where several defendants all take an active role in proceedings. It does not seem to me that that could be said to be a usual result in circumstances where one defendant takes an active role and others do not.

Turning now to the applicable statutory provisions, s 98 of the Civil Procedure Act provides that costs are in the discretion of the Court and the Court has full power to determine by whom, to whom, and to what extent costs are to be paid. The usual rule is that costs "follow the event", and, here, that usual rule would have the consequence that either Keybridge, or the Defendants generally, should pay the costs of the proceedings so far as E&P has been successful in the position for which it contends, and Keybridge has today abandoned the position for which it previously contended, and other Defendants have taken no active role. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:

It seems to me here that it is clear, on the evidence, that Keybridge has been a major participant in calling the meeting, and has corresponded with E&P in defending the validity of that meeting and maintained that position in the proceedings, until it today abandoned that position. It is not apparent, at least from the documents that are in evidence, that other Defendants have taken an active role in respect of the matter, other than joining in calling the meeting. It is not apparent they would have any expectation that, having joined with Keybridge in calling the meeting in that requisition, but not in the conduct of the proceedings, they would now be exposed to an order (which Keybridge rather than E&P sought) that they pay E&P’s costs, with the consequence that each of them was individually liable for the entire costs of the proceedings, subject only to E&P's decision to enforce the order for costs only against Keybridge and not against them.

I am satisfied that, the position for which E&P contends, namely an order for costs against Keybridge alone, and not against other Defendants, would lead to a just and fair result in the proceedings, fair, having regard to the responsibility of each party for the incurring of the costs. It seems to me that Keybridge took the substantial role in the correspondence that led up to the proceedings; it has maintained the validity of the relevant notice in the proceedings, until it today abandoned that position; and its conduct has given rise to the costs which have been incurred by E&P and the Fund in the proceedings. In those circumstances, the proper course, in my view, which will promote the interests of justice for the purposes of s 98 of the Civil Procedure Act, is to order that Keybridge pay the costs of the proceedings, to the exclusion of all of the other Defendants.

For these reasons, I make orders 3 and 4 of the short minutes of order in the form initialled by me and placed in the file.