In the matter of Challenger Managed Investments as responsible entity for Challenger Howard Mortgage Fund [2011] NSWSC 721

Further judicial advice was sought by the transferee of shares in a fund and also the trustee in relation to previous judicial advice pursuant to section 63 of the Trustee Act 1925 (NSW) and the transfer of units from unitholders to the transferee at a price below the unit price. The previous judicial advice required a unitholder to give clear indication to the trustee that they wished the transfer to be registered. Transfer forms signed by the transferee under POA were not sufficient. However the trustee was required to write to unitholders to ascertain their wishes and was justified in not registering transfers if a unitholder gave a negative response or did not respond at all. The transferee wanted guidance on late responses given after a cut off date. Late responses were accepted by the trustee as sufficient during the course of the application and so judicial advice was unnecessary on this point. However the trustee also sought guidance as to what was a sufficient indication in the situations where conflicting responses have previously been given and after correspondence had been sent by the transferee threatening litigation. The trustee wanted to know whether it was justified in asking for some form of independent confirmation of the unitholders’ wishes for those unitholders who had changed their minds or who had responded after the transferee had circulated correspondence to them threatening litigation if they did not confirm their previous acceptances of the offer to transfer their units to the transferee .

Judicial Advice

The judge held that there was a proper purpose for seeking judicial advice in this case because there were legitimate doubts genuinely held by the trustee as to the proper course of action.

The judge noted that the previous courts orders were on the basis that a clear indication to the trustee of the unitholders’ wishes was sufficient but how that indication might be given or what it might comprise may differ from case to case, and it is not for the court to provide guidelines for all possible factual scenarios. However the court gave further judicial advice that a written direction for the transfer from a unitholder with a written confirmation from a solicitor, financial adviser or accountant, independent of the transferee that advice in relation to the transfer had been given and the unitholder had confirmed his wishes to have the transfer registered would be a sufficient indication of a unitholder’s wishes. Such advice is not prescriptive or exhaustive.

The court also ordered that the trustee’costs to be paid out of the fund on an indemnity basis because it was reasonable for the trustee to seek judicial advice. The transferee was also awarded its costs of the motion, having obtained the relief it sought, to be paid out of the fund.

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