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Publications / Financial Services

24 Mar 11
Win for fund managers - scheme documents protected

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In a recent case, a member of a registered managed investment scheme lodged a broad and wide-ranging request for information, seeking access to the scheme’s internal documents. The request was denied by the Supreme Court. The responsible entity was successfully represented by McCullough Robertson.

Summary

On 11 March 2011, Justice Hammerschlag of the NSW Supreme Court’s Equity Division denied an application by a member of a registered managed investment scheme to obtain access to a number of documents held by the scheme’s responsible entity.

In coming to this conclusion, Justice Hammerschlag clarified that a member’s right to access scheme documents would not arise merely because the documents were prepared by the responsible entity (a trustee) and could thus be argued to be property of the scheme.

It was determined that a beneficiary/member would not necessarily have a proprietary interest in such documents, which would require the responsible entity to provide access. Rather, that access to such documents was more appropriately allowed at the discretion of the Court exercising its inherent jurisdiction to oversee and intervene in the administration of trusts.

Based upon the material provided under the legislation covering registered managed investment schemes and the overly broad range of documents requested by the member in this case, the Court refused to exercise its discretion to grant access to the documents requested.

Background

The member was a member of a registered mortgage managed investment scheme. The withdrawals from the scheme were frozen at the time, though distributions had continued.

The member, on the grounds of wanting further information about their investment, sought access to:

  • the scheme’s investment register
  • credit applications, credit assessments, credit reference searches, bankruptcy searches, valuations, appraisals, estimates and financial statements, securities provided and transaction documents for any loan or investment, any provision for impairment or any variation or extension of a mortgage loan
  • communications between the responsible entity and any borrower, and
  • correspondence between the responsible entity and the scheme auditor.

Initially, access was sought to these documents under the Corporations Act and under general equitable principles. The application to inspect under the Corporations Act was not pursued but the case based upon general equitable principles continued, (in reliance upon a 1954 English case) on the basis that such documents could be considered property of the scheme and consequently something which a beneficiary would be entitled to inspect.

Decision

Justice Hammerschlag preferred to adopt a more principled approach advocated in a 2003 English Privy Council decision that indicated that access to such documents was discretionary.

Justice Hammerschlag in refusing to exercise his discretion to allow access to the documents indicated the following factors contributed to the decision to deny access to the documents:

  • the applicant did not establish that the responsible entity had fallen short of its statutory disclosure obligations
  • the responsible entity had offered to provide sufficient information to explain queries held by the member, and
  • the wide ambit of the documents sought were beyond what was necessary to ascertain whether the responsible entity was providing adequate information to scheme members.

Although denying the request, Justice Hammerschlag did indicate that the responsible entity could not deny access merely because it had unfettered discretion to make investments as there were some limitations in the scheme constitution. It also couldn’t deny access on the basis that the scheme member may have intended to use the information to seek appropriate remedies (had the documents revealed a breach of the responsible entity’s duties).

Prior to the member commencing action, the responsible entity had attempted to answer the member’s queries but these offers were rejected by the member.

The member’s application for access was dismissed and the responsible entity secured an order the member pay the responsible entity’s costs of the proceedings.

Lesson

While this case provides some minor concessions to scheme members if they wish to seek access to information included within documents prepared by or for the responsible entity, it confirms that getting access to such documents will be at the discretion of the Court. As long as a responsible entity complies with its statutory disclosure obligations, access to a wide range of internal documents prepared for the responsible entity is likely to be difficult.

McCullough Robertson represented the responsible entity in the proceedings.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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