IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
 
S ECI 2023 00414

BETWEEN:

JIANQIANG SHAO & ORS  
(according to the attached Schedule) 	Plaintiffs	
		
v  		
		
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY JY HOTEL FUND) & ORS 
(according to the attached Schedule) 	Defendants	

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JUDGE:	Derham AsJ 	
WHERE HELD:	Melbourne	
DATE OF HEARING:	5 May 2023	
date of JUDGMENT:	18 May 2023	
CASE MAY BE CITED AS:	Shao & Ors v One Funds Management Limited & Ors	
MEDIUM NEUTRAL CITATION:	[2023] VSC 251	

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MANAGED INVESTMENTS – Trusts – Priorities between classes of units issued in trust – Orders and costs consequent upon Shao & Ors v One Funds Management Limited & Ors [2023] VSC 192 – ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 404; Re Buckton [1907] 2 Ch 406; Warton v Yeo [2015] NSWCA 115, referred to.

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APPEARANCES:
	Counsel	Solicitors	
For the ‘A’ class unit holders	Mr J Evans KC one of his Majesty’s counsel with him Ms B Slocum of counsel	Magwicks	
			
For the First Defendant	  Ms C Ernst of counsel	Allens	
			
For the ‘C’ Class unit holders	Mr C Moller SC	Resolve Litigation	

TABLE OF CONTENTS

Introduction	1
Background	1
Class A submissions - orders	5
Class C submissions – orders	8
OFM submissions – order	11
Costs - Class C submission	14
Costs – Class A submission	16
Costs - OFM submission	17
Consideration - Class C Unitholders trust	17
Costs - background	18
Costs - consideration	21
Appropriate orders	24
Conclusion	28

HIS HONOUR:
Introduction
1	These reasons arise from reasons for judgment delivered on 17 April 2023 in this proceeding: Shao & Ors v One Funds Management Limited & Ors [2023] VSC 192 (‘Primary Reasons’).  The Primary Reasons dealt with the preliminary or separate trial of relief claimed by the plaintiffs, ordered by Garde J pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’).  
2	The proceeding, commenced by originating motion on 3 February 2023, sought orders pursuant to r 54.02 of the Rules requiring the first defendant (‘OFM’), as trustee of the iProsperity JY Hotel Fund (‘JY Hotel Fund’ or ‘Fund’) take steps to wind up the Fund with the effect that the Class A Unitholders’ claims on the remaining assets of the Fund have priority over the claims of the Class C Unitholders, and other relief. 
3	In broad summary, in the Reasons I rejected the plaintiffs’ arguments, including about the construction of trust documents, whether the Fund should be wound up, and that the assets should be paid to the Class A unitholders in priority to the Class C unitholders.  Some of the relief the subject of the order of Garde J, which I formulated as questions, were unnecessary to answer because the parties agreed that the Court need not determine them.
4	After I answered the questions, as restated by me, I called for a hearing to hear submissions as to the appropriate orders to be made consequent upon the Reasons (held on 5 May 2023).  Each party made submissions and proposed orders.   These reasons deal with the issues raised in that hearing.  In these reasons I use the terms defined in the Primary Reasons.
Background
5	On 28 February 2023 Garde J made orders (‘Court Orders’) (so far as presently relevant) that: 
(a)	Pursuant to r 47.04 of the Rules, the relief sought in paragraphs 2, 5, 6, 7, 8 and 9 of the originating motion is set down for a preliminary hearing on an estimate of 1 day on a date convenient to the Court between 4 April and 14 April 2023 (order 2).
(b)	Subject to any further order of the Court, pursuant to r 16.01(c) of the Rules, the plaintiffs are appointed to represent the interests of all Class A Unitholders of the JY Hotel Fund in the proceeding (order 3).
(c)	Subject to any further order of the Court, pursuant to r 16.01(c) of the Rules, the following are appointed to represent the interests of all Class C Unitholders of the JY Hotel Fund in the proceeding (‘Class C Representative’):
(i)	Any current Class C Unitholder who does not hold a direct or indirect interest in the Class A Units notified to the plaintiffs’ solicitors by the first defendant’s solicitors; or
(ii)	If no such person is identified, a legal practitioner nominated by the first defendant and notified to the plaintiffs’ solicitors by the first defendant’s solicitors,
in each case, to occur by 9 March 2023 (order 4).
(d)	The costs of the plaintiffs, the Class C Representative (including any nominated legal practitioner) and of the first defendant, in relation to the Preliminary Hearing, be paid out of the assets of the JY Hotel Fund on an indemnity basis (order 5).
(e)	The provision to all Class A and Class C unitholders of the OM, supporting summons and the Court Order together with an offer to give them copies of the affidavits in the proceeding (order 6).
(f)	That OFM disclose certain documents certain critical documents (order 7).
(g)	Subject to any further order of the Court, the Preliminary Hearing shall be conducted on the basis of an Agreed Statement of Facts and Agreed Tender Bundle (order 8) and directions as to the process to agree the facts and documents (orders 9-11).
(h)	The filing of written outlines of submission (orders 12-13).
(i)	The summons on the originating motion be adjourned for further directions to the judge hearing the preliminary hearing at its conclusion (order 14).
6	The relief sought in paragraphs 2, 5, 6, 7, 8 and 9 of the originating motion set down for a preliminary hearing were restated in the Reasons as questions.  That was because r 47.04 of the Rules, pursuant to which Garde J ordered the ‘relief’ claimed in the several paragraphs of the originating motion (‘OM’) to be set down for preliminary hearing, empowers the Court to order ‘any question in a proceeding be tried before, at or after the trial of the proceeding, and may state the question or give directions as to the manner in which it shall be stated’.  The view I took was, in its effect, the Court Order stated the questions by reference to the relief claimed in the OM.   Be that as it may, the ‘relief’, restated as questions, together with my short answers, were as follows:
(a)	Question 1: 	Whether an order should be made pursuant to r 54.02 of the Rules directing  OFM to give, prior to 1 April 2023, a notice to the Unitholders of the JY Hotel Fund specifying 16 April 2023 as the date of termination of the Fund pursuant to cl 2.3 of the Constitution of the Fund dated 4 January 2017 (paragraph 2).
Answer: 	No order requiring notice of termination of the Fund should be made.
(b)	Question 2: 	Whether there should be declarations as to the Redemption Date in respect of the Class A Units and the Class C Units in the JY Hotel Fund. (paragraph 5)
Answer: 	Unnecessary to answer.
(c)	Question 3:	 If the relief in Question 1 is granted, whether there should be a declaration that the Class A Unitholders of the JY Hotel Fund are entitled to the payment of the whole of the net assets of the JY Hotel Fund after the payment of liabilities incurred by OFM as Trustee in the administration of the Trust (Net Assets):
(i)	First, in satisfaction of the right to unpaid Coupon payments in accordance with the Class A Units Terms of Issue; 
(ii)	Second, in satisfaction of the right to payment of the Redemption Amount in accordance with the Class A Units Terms of Issue, and to the extent of any shortfall, to be paid pari passu. (Paragraph 6)
Answer: 	Unnecessary to answer.
(d)	Question 4:	 If the relief in Question 1 is not granted, whether there should be a declaration that the Net Assets are payable by OFM as Trustee of the Fund in the following priority:
(i)	First, in satisfaction of the right of the Class A Unitholders to unpaid Coupon payments in accordance with the Class A Units Terms of Issue;
(ii)	Second, in satisfaction of the right of the Class C Unitholders to unpaid Coupon payments in accordance with the Class C Units Terms of Issue;
(iii)	Third, in payment of the Redemption Amount under the Class A Terms of Issue and the Class C Terms of Issue on a pari passu basis. (Paragraph 7)
Answer: 	The priority should be, first, Class C Redemption Amount, second, Class A unpaid Coupons, third, Class A Redemption Amount.
(e)	Question 5:	Alternatively to paragraphs 6 and 7, whether there should be such other declarations as to the order of payment of Unitholders of the Net Assets as the Court determines. (Paragraph 8)
Answer: 	Further submissions required.
(f)	Question 6:	whether there should be an order directing OFM as Trustee of the Fund to make payment to the Unitholders of the Fund in accordance with the declarations made by the Court. (Paragraph 9)
Answer: 	Unnecessary to answer.
7	The parties had agreed at the hearing that it was neither necessary nor appropriate to determine the answers to questions 2 and 6 (paragraphs 5 and 9 of the OM).  That was because there was a factual dispute that had first to be resolved to answer those questions and neither the parties nor the Court was equipped to resolve them.
8	The parties appearing then and now are:
(a)	two representative parties appointed pursuant to r 16.01 of the Rules:
(i)	The plaintiffs were appointed to represent the interests of all Class A Unitholders of the JY Hotel Fund (‘Class A’).  
(ii)	The Class C Unitholders are represented by Mr David Hing of Resolve Litigation.  He was appointed by OFM’s solicitors pursuant to the Court Orders (‘Class C’).
(b)	OFM appeared as Trustee of the Fund.
Class A submissions - orders
9	Class submitted that apart from dismissing the plaintiffs’ application for relief under paragraph 2, 6 and 7 of the OM (Questions 1, 3 and 4), the balance of the relief sought at the Preliminary Hearing in paragraphs 5, 8 and 9 of the OM (Questions 2, 5 and 6) should not yet be determined, because:
(a)	Paragraphs [105] – [122] of the Reasons has the result that the Court  has determined that the Class C Unitholders entitlement to the Class C Redemption Amount were, from the Class C Redemption Date, excluded from the ‘Assets’ of the JY Hotel Fund, and held on a separate (and presumably bare) trust from that date (Class C Trust). 
(b)	the Court has not found (and the conclusions in the reasons are contrary to a finding) that the liability of OFM to make payment of the Class C Redemption Amount to the Class C Unitholders was the subject of a charge against the JY Hotel Fund; rather, a separate trust has come into existence, over particular property, at a particular time. 
(c)	It is trite that a trust attaches to specific property. As a necessary conclusion of paragraph [122] of the Reasons, on the Class C Redemption Date (which has not been determined, but is likely to be either 18 April 2018 or 24 April 2021) assets sufficient to meet the Class C Redemption Payment (the quantum of which depends on the determination of the Class C Redemption Date) were excised from the JY Hotel Fund to be held on the Class C Trust.
(d)	It is not possible, given the definition of ‘Assets’ in the JY Hotel Fund’s constitution, for particular assets to be both held beneficially as part of the JY Hotel Fund and as part of the Class C Trust. The Court’s reasons have not determined the Class C Redemption Date, nor what assets of the JY Hotel Fund became excised from that trust and held on the Class C Trust. 
(e)	If the value of the ‘Assets’ of the JY Hotel Fund were, at the time when the Class C Trust came into existence, less than the amount of the Class C Redemption Amount, then there would be no issue in determining that the whole of the Assets ceased to be assets of the JY Hotel Fund and became instead subject to the Class C Trust, subject only to the Trustee’s rights of indemnity and lien over those assets to support the indemnity, in respect of liabilities of OFM qua trustee of the JY Hotel Fund. But this is not yet known to be the case. 
(f)	The Class C Trust assets cannot be identified until the Class C Redemption Date is determined, for these reasons:
(i)	The date informs the value of the assets that were to be set aside and held on the Class C Trust (because unpaid Class C Coupons will form part of the Class C Redemption Amount); and 
(ii)	If the Class C Redemption Date was 18 April 2018, this predated the sale of the Hotel and the investment of monies in the New SIV Bond Fund. At that time, the only asset of the JY Hotel Fund was the unit(s) it held in the JY Hotel Sub Trust (which was the registered proprietor of the Hotel). It is unclear what impact this might have on the identification of the assets of the Class C Trust;
(iii)	If the Class C Redemption Date was 24 April 2020, this post-dated the sale of the Hotel, and the receipt by OFM of $13.4 million from the proceeds of sale of the Hotel, between July 2019 and September 2019.  Again, it is unclear what impact this might have on the identification of the assets of the Class C Trust.
(iv)	On 1 September 2020, when OFM paid Class A Unitholders a partial return of capital and Coupon Payments, those monies may (depending on the determination of the Class C Redemption Date) have been paid from Class C Trust assets.
(g)	Thus, before any directions to OFM as to payment out can be made, the Class C Redemption Date must be determined, and the assets of the Class C Trust must be identified.
10	The plaintiffs are seeking instructions to appeal the dismissal of the plaintiffs’ application for the relief sought in paragraph 7 of the OM (Question 4). If those instructions are obtained and the plaintiffs succeed on that appeal, then:
(a)	there will be no Class C Trust – therefore the determination of the assets of that trust will be otiose;
(b)	the priority of payment of the JY Hotel Fund assets will be as described in paragraph 7 of the originating motion; and
(c)	the Class C Redemption Date will still be required to be determined (to assess the quantum of the JY Hotel Fund assets that are distributed pari passu as between the Class A and Class C Unit Holders).
11	Class A therefore propose that the determination of the remaining issues required prior to a declaration justifying payment by the first defendant out of the assets held by it be adjourned for directions until after the date for the filing of the plaintiffs’ foreshadowed appeal.
12	This meant that the orders to be made would be, in substance:
(a)	A varied costs order to account for the existence of a separate Class C trust;
(b)	Dismissal of the claims for relief in paragraphs 2, 6 & 7 of the OM (questions 1, 3 & 4).
(c)	Orders adjourning for further directions the hearing of the claims in paragraphs 5, 8 & 9 of the OM and the determination of which assets of the Fund are held or were required to be held by OFM as bare trustee for the Class C unitholders from the Class C Redemption Date.
Class C submissions – orders
13	The Class C representative submitted that it is incorrect to conclude that a separate trust came into being as a result of the operation of the constitution and the Class C Terms.  The reasoning of Barrett J in ING Funds Management Ltd v ANZ Nominees Ltd (‘ING v ANZ’), referred to at [122] of the Reasons, does not indicate that the trustee held the Redemption Amount (as it is called in this case) under a separate trust.  What he does say is that a member of the Fund whose units become subject to the responsible entity’s obligation to pay the Redemption Amount remains a beneficiary of the Fund and that right to payment is a right, as beneficiary, to have the trust Fund applied in satisfying the payment.  So the Redemption Amount, or so much of it as is available to OFM, is held subject to the subsisting trust, the JY Hotel Fund, but for the specific purpose of payment to the relevant class of beneficiaries.
14	It was submitted that Class A seize upon one sentence, the final sentence in paragraph [122] of the Reasons, and upon that build an edifice which is the existence of an entirely separate trust.  That is not a finding made in the Reasons, it is not a conclusion that results from the Court’s reasoning, nor is it a conclusion that follows from the reasoning of Justice Barrett in ING v ANZ.  The reference to the trust that is found in Justice Barrett’s reasons, and in the Reasons, is a reference to the capacity in which the trustee holds the money.  The Redemption Amount is held in trust by the trustee but there is no suggestion it is a separate trust.  As Justice Barrett said in ING v ANZ ‘…the sum must be regarded as held for the specific purpose of discharging the responsible entity’s obligation, owed to the particular member, to redeem by payment, being the obligation created by the member’s making of the particular redemption request’, as it was in that case.
15	The result of the redemption is that trustee becomes subject to an obligation to pay the money.  It's an obligation to the relevant beneficiaries.  There is no separate trust.  Once that is clear, then the rest of Class A’s elegant edifice falls away.  The obligation is to pay the Class C unitholders the Redemption Amount.  That is an obligation that has subsisted since either April 2018 or April 2020, it matters not for present purposes.  It is of no consequence whether the Class C Redemption Date is 18 April 2018 or 24 April 2020 because the assets in the hands of OFM in total amount to less than the issue price of the Class C units.  
16	The character of the funds held by OFM is funds subject to a specific obligation, an obligation enforceable in equity, an obligation that the court can enforce by order.  When it is said that the funds are held in trust, it means only to distinguish between that position and the position of debtor and creditor.  
17	If there is, as Class A contends, a separate Class C Unitholder's Trust, what are the liabilities of that trust?  Is it permissible to visit upon that trust liabilities incurred by OFM as the trustee?  An incident of trusteeship is the right to indemnification.  But what liabilities?  What terms govern that relevant trust?  It can't be an express trust, it must be implied or constructive.  It is not known what rights are pertinent to it or the like.  Such a trust is not necessary and, in fact, it is productive of legal and practical confusion, to give the proceeds of redemption after the relevant Redemption Date the character of being held on any trust separate from the existing trust.  It is simply not necessary.  It is not the logical extension of the Reasons or of Justice Barrett's reasons in ING v ANZ.
18	The plaintiffs came to the Court with claims for relief that have been ordered to be tried separately.  The principal issue between Class A and Class C was priority to payment if there was no direction to OFM to wind up the Fund.  Central to the Class A argument was that the decision in ING v ANZ was either wrong or distinguishable.  There was never any suggestion by Class A that if they were unsuccessful and the logic of the decision in ING v ANZ was applicable to this Fund, that there was any separate trust to be explored and thus further delay in payment to the Class C unitholders..
19	The form of order for which Class A contends includes no order about the priorities.  This whole application was concerned principally with two things; first, whether this trust should be wound up so that Class A could avail themselves of the winding up benefits that apply under the trust deed.  Second, what is the proper priority as between the different classes of units if there is no winding up.  
20	Apart from the question of whether the plaintiffs should be ordered to pay costs, which I deal with below, Class C proposed orders that, in substance, provided:
(a)	Formalising the questions and answers set out in the Reasons; 
(b)	A direction be made that OFM is justified in paying the Class C Redemption Amount to the Class C unitholders and an order for payment of that amount;
(c)	An order for costs, including a variation of Garde J’s orders; and 
(d)	dismissal of the proceeding.
OFM submissions – order 
21	X OFM sought a direction that it would be justified in paying the remaining funds in the iProsperity JY Hotel Fund to Class C Unitholders up to the aggregate of the Class C Redemption Amount in priority to payments to the Class A Unitholders.  OFM sought that direction to give effect to the Court’s Reasons.   It gives effect to the Court’s conclusion that Class C Unitholders are entitled to payment of the Class C Redemption Amount, and that this entitlement takes priority over any payments to Class A Unitholders of unpaid Class A Coupons or the Class A Redemption Amount. 
22	As the Reasons anticipate, it is necessary for the parties to propose a form of order because the plaintiffs’ originating motion sought relief in terms which presupposed that the Class A Unitholders would have priority of payment.  In referring the separate relief claimed in the OM for determination, Garde J resolved that it was unnecessary for the Trustee to file a cross-summons seeking relief in terms favourable to the Class C Unitholders.
23	OFM’s proposed order is framed as a judicial direction. The Court’s power to give a direction as to the administration of a trust is well-established.  The relevant principles and authorities are canvassed in the Reasons ([51]-[54]).  The Trustee submitted that a judicial direction is the most appropriate form of relief in circumstances where:
(a)	the Court has determined that the relief sought by the Class A Unitholders should not issue; and 
(b)	although the questions were referred to the Court on the motion of the Class A Unitholders, OFM would have applied for a judicial direction on the issue of priority had the questions not otherwise been referred.
24	The formulation of the order clarifies, for the avoidance of doubt, that OFM proposes to pay the Class C Redemption Amount to Class C Unitholders once it has paid its trust expenses.  That is consistent with the principle that a trustee is entitled to be indemnified for expenses properly incurred.  It also accords with order 5 of the Court's orders dated 28 February 2023 that the parties' costs in relation to the Preliminary Hearing be paid out of the assets of the JY Hotel Fund. 
25	In relation to the orders proposed by Class A, it is not obvious to OFM that an adjournment is required.  However, OFM also recognises its duties to all unitholders and that this issue is one which may most appropriately be addressed by Class A and the Class C Representative.  Class A propose a further hearing to determine which assets of the JY Hotel Fund are held, or were required to be held, by OFM as bare trustee for the Class C Unitholders from the Class C Redemption Date.  OFM understands the genesis of the proposed further question to be the Court’s finding, at Reasons [122], that the amounts due to the Class C Unitholders were held on trust by the Trustee as at the Redemption Date.  
26	OFM understands the Class A position to be that, having regard to Reasons [122], the Court cannot make a direction for the payment of the Class C Unitholders in priority to the Class A Unitholders without deciding which of the two possible Redemption Dates ((i.e. 18 April 2018 or 24 April 2020) was the Redemption Date.  Given that on either case the Redemption Date will have preceded the Class A Redemption Date of 18 April 2023, it is not apparent to the Trustee why a determination of the precise Redemption Date is necessary in order for a direction to be made as to priority of payment.  As the Trustee apprehends Class A’s position, they contend that it is relevant that if the Redemption Date is the earlier of the two dates, the trust assets may not have been liquid at that time.  The Agreed Facts disclose that:
(a)	on 18 April 2018, the JY Hotel Fund, through the JY Hotel Sub Trust, held an interest a real property asset, being the Novotel Hotel; and
(b)	by 24 April 2020, the JY Hotel Sub Trust had sold the Hotel and invested part of the proceeds into the New SIV Bond Fund and held the rest in cash.
27	It is not clear to OFM why the form in which the trust assets existed impacts the analysis of whether a trust was imposed over those assets for the benefit of the Class C Unitholders and, accordingly, why the cash now held cannot now be distributed in the order of priority identified by the Court.
28	OFM notes, for completeness, that if Class A were to appeal the Court’s orders on the separate questions, OFM would not distribute the funds to the Class C Unitholders until the appeal had been finally determined or withdrawn.  While the point is obvious, the Trustee makes it in the event that any application for an adjournment is said to be founded upon the possibility of an appeal.
29	For these reasons, OFM submitted that it is open to the Court to order that, after payment of trust expenses, OFM would be justified in paying the remaining funds in the iProsperity JY Hotel Fund to Class C Unitholders up to the aggregate of the Class C Redemption Amount in priority to payments to the Class A Unitholders.
30	OFM acknowledges, however, that it is ultimately a matter for the Court and the representatives of the Class A and Class C Unitholders.  As to the balance of the orders sought: the Trustee does not understand these to be in contest.  The Trustee notes that the orders as to costs are confined, as is appropriate, to the hearing of the separate questions (and the consequential hearing on 5 May 2023).
Costs - Class C submission
31	 Class C made submissions that the plaintiff pay the costs of OFM and Class C of the proceeding.  Essentially this was put on the basis that the trial of the relief ordered pursuant to r 47.04 of the Rules fell into the third category of cases referred to below.
32	The Class C representative referred to three categories of application of the kind made here:
(a)	The first category of case is where a trustee brings an application for judicial advice.  The normal rule in such a case is that the trustee will be entitled to costs from the fund or estate, as will any person who is a necessary or proper party to the litigation.  This is because the costs of all parties are ordinarily viewed as necessarily incurred for the benefit of the trust or estate.
(b)	The second category is where, although the application is brought by a beneficiary (with the trustee as a respondent), it raises the same type of point as a trustee might have raised.  The costs of the  parties are also ordered to be paid from the fund or estate for the same reason.
(c)	The third category of case is where a beneficiary makes a claim that is adverse to the trustee and/or other beneficiaries and takes advantage of a procedure (such as Rule 54.02) ‘to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation.’
33	Class C submitted that, although dressed up as an application under Rule 54.02, it was really an adversarial proceeding.  As well as declarations, the plaintiffs sought orders that would have the effect of terminating the trust (which, the Court has found was ‘an attempt to obtain the advantage of the operation of the Class A Terms concerned with a winding up’) and for the payment of money.  Having been unsuccessful, the normal costs rule should apply: the plaintiffs should pay costs, which requires two orders be made.  
34	The reason that two orders are required is that paragraph 5 of the Court Order (the order made by Garde J on 28 February 2023) ordered the costs of the plaintiffs, OFM and the Class C Representative be paid out of the Fund, on an indemnity basis.  That order should be varied to exclude the plaintiffs.  The plaintiffs should not have their costs out of the Fund, particularly when there is already a shortfall such that the Fund is insufficient to meet the claims of the Class C unitholders which (as the Court has determined) have priority. To allow the plaintiffs’ costs out of the Fund would mean not only that the successful beneficiaries would pay all the costs of a proceeding in which they were successful but also to do so in circumstances where the successful beneficiaries' own claims will not be paid in full. It is difficult to conceive of a more unjust outcome, which can be avoided by amending paragraph 5 of Garde J’s orders to delete the reference to the plaintiffs.   The second order should provide for the plaintiffs to pay the costs of the proceeding of both OFM and the Class C representative.
35	Class C also submitted that the proceeding should be dismissed because:
(a)	Paragraph 3 (although not part of the preliminary hearing) seeks provision to the plaintiffs of an account of the Fund’s assets and liabilities. Given the outcome that has befallen the plaintiffs, it is difficult to see why they need that now.
(b)	Paragraph 4 (also not part of the preliminary hearing) concerns whether particular fees payable to a third-party are subject to a set-off claim that OFM has pleaded in defence to the parallel proceeding the plaintiffs have brought against it (and others) in this Court. That question can – and should – be resolved in that proceeding. 
(c)	Paragraph 5 (which the parties agreed could not be determined in the preliminary hearing) concerns the ‘Redemption Date’ for the Class A and Class C units. It is irrelevant whether the Class C Redemption Date fell in 2018 or 2020 because the funds available (approximately $7.9 million) are insufficient to meet even the issue price component of the Class C Redemption Amount, which totals $8.17 million.
(d)	For the same reasons, determination of paragraph 9 of the motion is also inutile.
(e)	The result is the OM should be dismissed.
Costs – Class A submission
36	Class A submitted that the usual order as to costs should be made, as set out in the Order of Garde J, namely that the costs of Class A, OFM and the Class C representative in relation to the preliminary hearing should be paid out of the assets of the JY Hotel Fund on an indemnity basis, but with a variation, as follows:
The costs of the plaintiffs, the Class C Representative (including any nominated legal practitioner) and of the first defendant, in relation to the Preliminary Hearing, be paid out of the assets held by the first defendant, whether in its capacity as trustee of the JY Hotel Fund or as bare trustee of a separate trust in favour of the Class C Unitholders, on an indemnity basis.
37	There is no basis for the orders to be vacated and replaced by an order that the plaintiffs pay the costs of OFM and the Class C Representative.  Contrary to the submissions of the Class C Representative, the determination of the questions of who should be paid from the assets held by OFM was a question that OFM needed to have determined and where OFM recognised that it would be necessary and appropriate for it not to make submissions advocating the position of the Class A and Class C, but rather have the issues determined by representatives appointed for that purpose.
Costs - OFM submission
38	OFM proposed an order substantially the same as proposed by Class A.
Consideration - Class C Unitholders trust 
39	I am persuaded by the arguments advanced by Class C that properly understood there is no Class C Unitholders trust as Class A contends.  I agree that no separate trust came into being as a result of the operation of the Constitution and the Class C Terms.
40	The reasoning of Barrett J in ING v ANZ, referred to at [121] of the Reasons does not indicate that the trustee in that case held the proceeds of the redemption under a separate trust.   They were held for the specific purpose of discharging the trustee’s obligation to redeem by payment the redemption amount.  What he does say is that a member of the Fund whose units become subject to the responsible entity’s obligation to pay the redemption amount remains a beneficiary of the Fund and that right to payment is a right, as beneficiary, to have the ‘trust fund’, being monies held by the trustee, albeit notionally monies not falling within the definition of Assets, applied in satisfying the payment.  So the Redemption Amount, or so much of it as is available to OFM, is held subject to the subsisting trust, the JY Hotel Fund, but for the specific purpose of payment to the relevant class of beneficiaries.
41	The final sentence in paragraph [121] of the Reasons, does not lead to the existence of an entirely separate trust for Class C Unitholders.  That is not a finding I make, it is not a conclusion that results from my reasoning, nor is it a conclusion that follows from the reasoning of Justice Barrett in ING v ANZ.  The reference in the critical paragraph of Justice Barrett’s reasons to the ‘trust fund’ is a reference to the funds held by the trustee in trust for the members.  Otherwise, what he says is consistent with the trustee holding the redemption amount for the member who redeemed as a beneficiary as distinct from as a creditor.  The redemption amount is held in trust by the trustee but there is no suggestion it is a separate trust.  As Justice Barrett said in ING v ANZ:
‘…the sum must be regarded as held for the specific purpose of discharging the responsible entity’s obligation, owed to the particular member, to redeem by payment, being the obligation created by the member’s making of the particular redemption request’.
42	The result of the redemption is that trustee becomes subject to an obligation to pay the money.  It's an obligation to the relevant beneficiaries.  It is not a separate trust.  The obligation in this case is to pay the Class C Unitholders the Redemption Amount.  It is of no consequence whether the Class C Redemption Date is 18 April 2018 or 24 April 2020 because the assets in the hands of OFM in total amount to less than the issue price of the Class C units.   OFM issued 8,170,000 Class C Units at $1.00 each.  It is therefore clear that the assets of the Fund are insufficient to pay event the issue price part of the Redemption Amount, let alone any accrued and unpaid Coupons.  Accrued and unpaid Class C Coupons amount to $2,834,894.08.  As at 28 February 2023, the JY Hotel Fund held approximately $0.4 million in cash and approximately $7.5 million in bonds issued by NAB and ANZ Banks, totalling $7.9 million plus interest.
Costs - background
43	It is clear from the correspondence between the solicitors acting for the plaintiffs and OFM that was exchanged between November 2022 and February 2023, that OFM was preparing to make application to the Court for judicial advice, but was beaten to the punch, so to speak, by the plaintiffs issuing the OM.  
44	In the first of the letters, on 29 November 2022 OFM wrote to Madgwicks (solicitors for the plaintiffs and then for most Class A Unitholders) that ‘[t]he Trustee is currently considering the competing priorities between the different unit classes (including the matters that you have raised in correspondence). That process involves the Trustee obtaining external legal advice.  The Trustee will advise its position as soon as it is able to do so.’ 
45	On 23 December 2022, Allens Linklaters (‘Allens’) wrote on behalf of OFM setting out OFM’s views as to how the remaining assets should be distributed and the steps OFM intended to take before distribution.   OFM acknowledged that as Trustee, it was bound to act impartially and to distribute the net assets in accordance with the legal requirements.  It stated that OFM had formed the preliminary view that the terms of the Trust required it to return the remaining net assets to the Class C Unitholders (noting that there will be insufficient net assets to repay the full amounts due to the Class C Unitholders), and set out why it had formed that view.  The letter then went on to explain that before making that distribution, OFM intends to seek judicial advice to confirm how the remaining net assets should be distributed between the classes of unitholders.  The letter went on:
However, the Trustee is cognisant that if there is a dispute between classes of unitholders as to the proper distribution of the remaining funds, an application for judicial advice is not the appropriate means of resolving that dispute. Instead, the proceeding would need to be commenced by way of an originating process which is served on Class A Unitholders and Class C Unitholders.
We would be grateful if you could confirm whether your clients dispute the manner of proposed distribution set out above (such that an originating process should be filed and served). Please provide that confirmation by 20 January 2023.
46	On 18 January 2023, Madgwicks responded on behalf of the Class A Unitholders (or most of them) that its clients’ position was that OFM should resolve immediately to terminate the JY Hotel Fund, under clause 2.3(a) of the Constitution, with a termination date of the trust of not later than 1 April 2023; and Class A Unitholders should be entitled to receive the whole of the remaining assets of the JY Hotel Fund, in satisfaction of their rights to unpaid Coupon Payments, and partial payment of the Redemption Amount, in priority to any amount being payable at all to Class C Unitholders.  Madgwicks stated its instructions were to commence proceedings as soon as practicable seeking orders and declarations to that effect.  The letter also requested that OFM consider resolving to terminate the JY Hotel Fund without the need for Class A to seek such an order.  Madgwicks stated that the parties would be OFM and all Class A and Class C Unitholders.  The letter sought information to enable that proceeding to be commenced.
47	The next day, 19 February 2023, Allens responded that it would be appropriate for that proceeding to be commenced by OFM and explained some of the advantages of that course.  The letter stated that OFM did not agree immediately to terminate or wind up the iProsperity JY Hotel Fund.  On 20 January 2023, Allens emailed Madgwicks and others with a timetable for the commencement of proceedings.
48	On 3 February 2023, Allens wrote on behalf of OFM to Madgwicks:
The Trustee considers that the most efficient way for the matter to proceed would be by way of the Trustee commencing the proceeding, and, noting its obligation to act impartially, for separate law firms to represent the interests of Class A and Class C Unitholders. Noting that the costs of the proceeding will ultimately be likely to be paid out of the trust assets, the Trustee also considers that the proceeding should be run in as cost-effective a way as possible.
The Trustee proposes the following steps:
(a)	the Trustee will file a detailed pleading setting out the relevant provisions of the Constitution and the Terms of Issue;
(b)	the representative Class A Unitholder and Class C Unitholder will file any responsive pleading;
(c)	the Trustee will file an affidavit that puts into evidence the relevant factual background and any documents required by the parties (that is with a view to obviating the need for discovery or responsive evidence); and
(d)	the matter proceed to a final hearing at which the parties make their legal submissions. 
49	The plaintiffs commenced this proceeding on 3 February 2023.
Costs - consideration
50	Unless otherwise expressly provided by any Act or by the Rules of Court, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid.  
51	The discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation.  In the exercise of the discretion, practices or guidelines have been developed, which are not legal rules that confine the exercise of the discretion.
52	Kekewich J in Re Buckton, Buckton v Buckton identified three classes of litigation regarding the construction of trust instruments (in that case a will trust), equally applicable to proceedings for judicial advice generally, as follows:
(a)	applications made by trustees of a will or settlement who ask the Court to construe the instrument for their guidance in order to ascertain the interests of the beneficiaries.  In cases of this character the costs of all parties as necessarily incurred for the benefit of the estate, and should be taxed as between solicitor and client and paid out of the estate;
(b)	applications made by some beneficiaries in which the trustees are respondents, made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient.  In cases of this class, the operation of the same rule is observed as in cases of the first class.  The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole; and
(c)	the third class of case differs in form and substance from the first, and in substance, though not in form, from the second.  In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation.  It is often difficult to discriminate between cases of the second and third classes, but when once convinced that the Court is determining rights between adverse litigants, the rule which ought to be enforced in adverse litigation applies and the unsuccessful party should pay the costs.
53	The circumstances facing Kekewich J in Re Buckton were that a beneficiary had commenced the proceeding and made the trustee and other beneficiaries, who might be affected if his contention proved incorrect, respondents.  His Honour said that the case looked much like hostile litigation, but in the end concluded that although it was in the form of adverse litigation, in substance it was an amicable procedure for determining speedily and inexpensively a question the solution of which must sooner or later be found for the benefit of all concerned, including the trustees.
54	In Warton v Yeo, Ward JA said of these three classes of case:
If litigation seeking to construe a will falls within the first or second class of case, then the court is in substance carrying out the same task (with respect to costs) as it would have carried out had it been administering the estate itself.  On the other hand, if such litigation falls into the third class of case, the court is concerned only with who, out of the parties before it, should pay the costs of any other of the parties before it (that is, it applies the usual rule as to costs), and does not need to be concerned about indemnification from the estate.
55	In this case, the contention by Class C that the case falls into the third class ignores the undoubted fact that the case was adverse principally in the same sense that it would have been adverse had OFM proceeded as it proposed in its letter of 3 February 2023 (see above at [48]).  That adversity arises because of the desirability that the court have contradictors who raise the arguments on both sides of the question or questions that face OFM as trustee of the Fund.  Had OFM commenced the proceeding that it proposed, there would have been pleadings to define the issues and representatives of Class A and Class C would have made the cases in much the same way as they were made in the preliminary hearing before me.  
56	The principal additional matter the subject of the plaintiff’s proceeding, compared with OFM’s anticipated proceeding, is that the plaintiffs sought a direction to OFM immediately to terminate the JY Hotel Fund, under clause 2.3(a) of the Constitution, with a termination date of the trust before the Redemption Date of the Class A units.  This is the element that is identified particularly by Class C as the reason for an order for costs against the plaintiffs.  Class C was unable to submit that that the hearing would have been any longer or that the work involved in preparing for it would have been much different had OFM proceeded with its intended proceeding.  The principle question debated between the parties was the construction of the constitution and the Class A and Class C Terms of Issue to determine the respective rights to the Coupons and Redemption Amounts as between Class A and Class C.
57	If OFM had commenced the proceeding it proposed in its 3 February 2023 letter, there is a likelihood that the Class A Unitholders would have pleaded their case for termination of the Fund.  Most probably that would have been too late having regard to the Class A Redemption Date of 18 April 2023, but even then a preliminary question may have been raised expeditiously.  It is likely that the same issues would have been raised and argued in that proceeding as in the hearing of preliminary issues or questions.
58	This proceeding does look a little like hostile litigation, but in the end, although in the form of adverse litigation, in substance it is a proceeding for the determination speedily and inexpensively of questions the answers to which are for the benefit of all concerned, including OFM as the trustee.
59	The Court has undoubted power to make an order for costs in relation to a particular question in or a particular part of a proceeding.  But, generally speaking, the power should be exercised only where the Court, on a consideration of all the circumstances, concludes that the raising of the issue was so unreasonable that it is fair and just to make the order. It was not so unreasonable that it is fair and just to make an order under the rules.  In any case, the extra matter became intertwined with the questions that would have been raised by OFM.  It added little to the work or argument, and there should be no order relating to that separate issue.
Appropriate orders 
60	As Class A submitted, the plaintiffs’ application for relief under paragraph 2, 6 and 7 of the OM (Questions 1, 3 and 4) should be dismissed.  On that there was agreement.  
61	For the reasons I have given, there is no reason for a further hearing of the relief in paragraphs 5 and 8 of the OM (Questions 2 and 5) and the determination of which ‘assets’ of the Fund are held or were required to be held by OFM as bare trustee for the Class C Unitholders from the Class C Redemption Date:
(a)	Paragraph 5 of the OM is concerned with the Redemption Dates of both the Class A Units and the Class C Units in the Fund.  For the reasons I have given there is no necessity to further cavass the Redemption Date of the Class C Units and the Redemption Date of the Class A Units was never in dispute.  So paragraph 5 of the OM may be dismissed.
(b)	Paragraph 8 of the OM seeks declarations as to the order of payment of Unitholders ‘of the Net Assets’ in the alternative to the relief sought in paragraphs 6 and 7.  Given my answer to Question 4 (paragraph 7 of the OM), it is appropriate to make a declaration as to the payment of the Class C Redemption Amount in priority to any payment to the Class A Unitholders, but without reference to the Assets of the Fund, as the Class C Redemption Amount held by OFM is not a part of the Assets, as defined.
62	But Paragraph 9 of the OM (Question 6) seeks that there be an order directing OFM to make payment to Unitholders in accordance with the declarations made.  OFM has sought a direction that– 
‘after the payment of trust expenses, the First Defendant would be justified in paying the remaining funds in the iProsperity JY Hotel Fund to Class C Unitholders up to the aggregate of the Class C Redemption Amount in priority to the Class A Unitholders.’  
63	I consider that to be an appropriate direction for the following reasons:  
(a)	It should be noted that the proposed direction dose not refer to the net Assets of the Fund.  It advisedly refers to ‘the remaining funds in the iProsperity JY Hotel Fund’.  This avoids a difficulty to which I now turn.
(b)	The difficulty which this wording avoids is whether OFM can have its expenses out of the funds and investments it holds which are, necessarily, not a part of the Assets of the Fund as defined, notwithstanding that they are clearly held by OFM in its capacity as Trustee of the Fund.  The answer to that, and to the ability of OFM to indemnify itself for its expenses in administering the Fund generally, seems to lie in the right of indemnity available to OFM either under the Constitution, under s 63(2) of the Trustee Act 1958 (Vic) or under the general law of trusts.  
(c)	Clause 13.7 of the Constitution authorises OFM to pay all expenses properly incurred out of the Assets, as defined, which excludes ‘proceeds from withdrawals which have not yet been paid’.  Whether there is a separate Class C trust or not, OFM would seem unable to indemnify itself for its expenses under that clause out of the funds held by OFM that are not a part of the Assets of the Fund.    Similarly, clause 21.2(a) also expresses the right of indemnity as one out of the Assets for liabilities incurred.  But it also expressly prefaces the right as being in addition to any indemnity allowed by law.
(d)	Section 63(2) of the Trustee Act 1958 (Vic) provides that ‘A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers.’  The law of trusts provides both for a right of reimbursement and a right of exoneration; if the trustee has discharged the liability out of his individual property, it is entitled to reimbursement; if it has not discharged it, the trustee is entitled to apply the trust property in discharging it, that is, it is entitled to exoneration.
64	Thus I consider that the judicial direction proposed by OFM, including as to the payment of its expenses, is appropriate to be made.  No party has contended that OFM is not entitled to its expenses properly incurred out of the trust property it holds, being the funds and investments referred to earlier.
65	For the same reason, it is necessary to vary the order made by Garde J (order 5 of the Court Orders) as it specifically refers to the costs of the parties being paid out of the assets of the JY Hotel Fund.  Class A and OFM proposed a further variation of the costs order to include the sentence ‘be paid out of the assets held by the first defendant, whether in its capacity as trustee of the JY Hotel Fund or as bare trustee of a separate trust in favour of the Class C Unitholders’.  Having regard to my finding that no such separate trust has come into existence, it is unnecessary to refer to it.  If Class A successfully appeals the orders made, then some such order may be necessary.  However, the costs order does need to be varied to refer to the costs being  ‘paid out of funds and investments in the iProsperity JY Hotel Fund’ and not to the assets held by OFM.
66	Class C also submitted that the OM be dismissed because other relief claimed in it that was not the subject of the preliminary hearing is unnecessary, inappropriate or inutile.  In my view the following paragraphs of the OM need not be dealt with:
(a)	Paragraph 1 has been dealt with (see paragraph 1 of the Court Orders)
(b)	Paragraph 3 (not part of the preliminary hearing) seeks provision to the plaintiffs of an account of the Fund’s assets and liabilities. Given the outcome that has befallen the plaintiffs, it is difficult to see why they need that now.
(c)	Paragraph 4 (also not part of the preliminary hearing) concerns whether particular fees payable to a third-party are subject to a set-off claim that OFM has pleaded in defence to the parallel proceeding the plaintiffs have brought against it (and others) in this Court. That question can – and should – be resolved in that proceeding.
(d)	Paragraph 5 (which the parties agreed could not be determined in the preliminary hearing) concerns the Redemption Date for the Class A and Class C units.  It is irrelevant whether the Class C Redemption Date fell in 2018 or 2020 because the funds available (approximately $7.9 million) are insufficient to meet even the issue price component of the Class C Redemption Amount, which totals $8.17 million.
(e)	Paragraph 9, which seeks an order that  JY Fund Trustee to make payment to the Unitholders of the JY Hotel Fund in accordance with the declarations made by the Court.   That order is unnecessary in light of the judicial direction to be made.  OFM will pay the appropriate amount out of the funds it holds once it knows whether an appeal is launched, and if it is, the outcome of the appeal.  It may also be necessary for OFM to deal with its expenses, and whether they have been properly incurred.
67	Thus, apart from the paragraphs to be dealt with as a consequence of the findings I have made in the preliminary hearing, paragraphs 10, 11 and 12 remain.  I will leave it to the plaintiffs to take such steps as they consider appropriate in order to advance any further relief pursuant to those paragraphs, pursuant to liberty to apply which will be reserved.  I would expect such application to be made to Garde J, but the liberty reserved will not be restricted in that way.
Conclusion
68	It is appropriate to formalise the stating of the Questions as I have set them out in the Reasons, as Class C proposed.  The answers I have proposed in the Reasons will be given with variations, first, that in answer to Question 4 the answer will be ‘No’;   second, the answer I gave to Question 4 in the Reasons will be, in substance, the answer to Question 5 (paragraph of 8 of the OM) varied so that the priority for payment is out of the funds and investments held by OFM as trustee of the Fund and not the net assets of the Fund; third, the answer to Question 6 (paragraph 9 of the OM) will be ‘Yes’, and the Court will make the judicial direction substantially as sought by OFM.

SCHEDULE OF PARTIES

		
	S ECI 2023 00414	

BETWEEN:		

JIANQIANG SHAO	First Plaintiff 	
		
RUIXIANG YUAN	Second Plaintiff	
		
LINGYUN HUANG	Third Plaintiff	
		
TUNGPING SO	Fourth Plaintiff	
		
YUEFANG XU	Fifth Plaintiff	
		
HONGSHAN YANG	Sixth Plaintiff	
		
BINGHUA YUAN	Seventh Plaintiff	
		
GUIBAO YUAN	Eighth Plaintiff	
		
HONG GUO	Ninth Plaintiff	
		
- v -		
		
ONE FUNDS MANAGEMENT LIMITED 
(ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY JY HOTEL FUND)	First Defendant	
		
ONE FUNDS MANAGEMENT LIMITED 
(ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE GLEN WAVERLEY FUND)	Second Defendant 	
		
ONE FUNDS MANAGEMENT LIMITED 
(ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY CORNERSTONE PROPERTY INCOME FUND)	Third Defendant	
		
ONE FUNDS MANAGEMENT LIMITED 
(ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY PROPERTY OPPORTUNITIES FUND)	Fourth Defendant	
		
ONE FUNDS MANAGEMENT LIMITED 
(ACN 117 797 403) (IN ITS CAPACITY AS TRUSTEE OF THE IPROSPERITY CORNERSTONE 333 KENT FUND)	Fifth Defendant	
		
IPROSPERITY UNDERWRITING PTY LTD 
(IN LIQUIDATION) (ACN 619 068 969)	Sixth Defendant	
		
MINGHAO LI	Seventh Defendant