A unit holder who has lost money wants to know one thing: can the trustee be made to pay? The Capital Market Act 2015 answers with several overlapping routes, and ordinary trust law adds another.
The statutory action in section 262
“(1) A member of a scheme who suffers loss or damage because of conduct of the trustee that contravenes a provision of this division may recover the amount of the loss or damage by action against the trustee whether or not the trustee has been convicted of an offence, or has had a civil penalty order made against it, in respect of the contravention. (2) An action under Subsection (1), shall commence within six years after the cause of action arises. (3) This section does not affect any liability that a person has under other provisions of this Act or under other laws.”
The claim is independent of any prosecution, runs for six years, and leaves every other remedy intact (subsection (3)).
Section 262 refers to conduct that “contravenes a provision of this division”. It sits in Division 8 of Part V, which contains only sections 262 and 263. Read literally, the right would be almost empty. The provision mirrors an Australian model that refers to the whole chapter on managed investment schemes, and the evident intention is to cover contraventions of Part V, including the trustee’s duties in section 191 and the trust account rules in sections 193 and 194. Claimants should plead breach of trust and of the deed alongside section 262.
Other statutory routes
- The deed. Section 212 makes the trust deed “legally enforceable as between the members and the trustee”. Breach of the deed is actionable in its own right, and section 191(1)(k) turns every deed duty into a statutory one. See enforcing the deed.
- Agents. Under section 190(3) the trustee is taken to have done or failed to do whatever its agents and outsourced managers did or failed to do, “even if such duties or functions were performed fraudulently or outside the terms of their engagement”. A member sues the trustee for the manager’s default. See trustee versus fund manager.
- Proxy failures. Where the trustee fails to send proxy forms or lists it was required to send and a member misses out on representation, the trustee “shall be liable for damages incurred by the member”, to be sought in the National Court (section 234(2)–(3)).
- Court orders. Section 256(1) empowers the Court to “make any order which it considers appropriate to protect the interests of existing or prospective members of the scheme”, and section 449(1)(d) lets any aggrieved person apply for orders including restitution and the removal of directors.
- Prospectus and misconduct claims. Section 446 gives a person who loses money by relying on conduct contravening Part IV (prospectuses) or Part VI (takeovers) a civil action within six years of the later of accrual and discovery. See prospectus liability.
General trust law remains available. The trustee holds the property on trust (section 191(2)), so a member can bring an ordinary claim for breach of trust under the principles reflected in the Trustees and Executors Act (Ch 289) and equity, seeking an account, compensation or the restoration of the fund.
The Commission suing on members’ behalf
Many unit holders hold small parcels and cannot fund litigation. Two provisions let the regulator sue for them. Section 101(1) of the Securities Commission Act 2015 provides that the Commission “may, on behalf of a unit holder, an investor or a beneficiary to a security … file civil proceedings in the National Court to recover any assets, securities, properties or its value in money form, from an issuer, promoter, trustee, manager or any person dealing with securities”. Section 447 of the Capital Market Act lets the Commission recover loss caused by Part IV or Part VI contraventions where it is in the public interest, within six years, and distribute the proceeds to those who lost money after deducting its costs. The Commission can also, without going to court, direct a trustee in breach to make restitution under section 443(3)(d) or 445(2)(d) and sue for it as a civil debt if unpaid (sections 443(8), 445(7)). See the Commission’s powers and how to complain.
Whom to sue and when
The right defendant. Where the trustee has since been replaced, section 206(2)(d) keeps with the former trustee “any liability for which the former trustee could not have been indemnified out of the scheme property”. Losses from its own breach of duty are therefore claimed against the former trustee, not its successor. Directors and officers who breached section 192 may be joined. See liabilities on a change of trustee.
Acting together. Thousands of members with the same complaint need not each issue proceedings. Order 5 of the National Court Rules 1983 allows proceedings to be brought by one or more persons on behalf of others who have the same interest, so a representative action by a group of unit holders is possible.
Time. Section 262 and section 446 each allow six years; section 446 runs from the later of accrual and discovery, while section 262 runs from when the cause of action arises, which for a continuing failure to account may be hard to fix. A complaint to the Commission does not stop the clock.
Before suing, obtain copies of the book entries relating to the transactions under section 195, which the trustee must supply on demand, and the deed registered under section 208. These establish what the trustee was obliged to do and what it did.
Sources
- Capital Market Act 2015 — ss 190(3), 191, 192, 193, 194, 195, 206(2), 208, 212, 234, 256, 262, 443, 445, 446, 447, 449
- Securities Commission Act 2015 — s 101
- Trustees and Executors Act (Ch 289)
- National Court Rules 1983 — Order 5
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.