Supreme Court New South Wales Medium Neutral Citation: In the matter of Australian Unity Property Limited as responsible entity for Australian Unity Diversified Property Fund [2021] NSWSC 1494 Hearing dates: 11 November 2021 Date of orders: 11 November 2021 Decision date: 19 November 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Direct that the Plaintiff is justified in convening meetings of unitholders in fund to consider proposed trust scheme. Direct that the Plaintiff is justified in proceeding on the basis that, if approved by unitholders, consequential amendments to the constitution of the fund would be within powers conferred by each constitution and s 601GC of the Corporations Act. Catchwords: CORPORATIONS – Managed investments – Judicial advice sought under s 63 of the Trustee Act 1925 (NSW) by responsible entity – Whether to convene meetings of unitholders – Whether responsible entity would be justified in treating consequential constitution amendments as within power. Cases Cited: - Macedonian Orthodox Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; (2008) 249 ALR 250; [2008] HCA 42 - Re APN News & Media Ltd (2007) 62 ACSR 400 - Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 - Re Coles Group Ltd (2007) 25 ACLC 1380; [2007] VSC 389 - Re DUET Finance Ltd (2013) 95 ACSR 34; [2017] NSWSC 415 - Re DUET Management Company 1 Ltd [2013] NSWSC 817 - Re Hostworks Group Ltd (2008) 26 ACLC 137; [2008] FCA 64 - Re Macquarie Capital Alliance Ltd (2008) 67 ACSR 484 - Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366 - Re Magellan Asset Management Ltd (as responsible entity of Magellan Global Fund) (2020) 150 ACSR 23; [2020] NSWSC 1535 - Re Mirvac Funds Management Ltd [2014] NSWSC 1569 - Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 - Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 - Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 - Re Sydney Airport Holdings Ltd [2013] NSWSC 1665 - Re Villa World Ltd [2019] NSWSC 1207 - Re Walsh & Company Investments Ltd [2020] NSWSC 1509 Category: Principal judgment Parties: Australian Unity Property Limited as responsible entity for Australian Unity Diversified Property Fund Representation: Counsel: D Thomas SC (Plaintiff) J Giles SC (Interested Person) Solicitors: King & Wood Mallesons (Plaintiff) MinterEllison (Interested Person) File Number(s): 2021/301978 Judgment 1. By Originating Process filed on 22 October 2021, the Plaintiff, Australian Unity Property Limited ("AUPL") as responsible entity for Australian Unity Diversified Property Fund ("DPF") applies for the opinion, advice and direction of the Court, under s 63 of the Trustee Act 1925 (NSW) in respect of a proposed transaction by which DPF would merge with the Australian Unity Office Fund ("AOF") ("Trust Scheme"). If the proposed transaction is implemented, DPF unitholders (being persons who are registered, at the relevant time, as holders of DPF units in the register maintained in accordance with the Corporations Act) will be entitled to receive 0.4550 units in the merged entity for each DPF unit held on the record date. I refer to the treatment of Foreign DPF Unitholders (as defined) below. On completion of the merger, DPF unitholders will own approximately 46% of the merged entity, with current AOF unitholders owning approximately 54% of the merged entity. 2. At the first Court hearing, AUPL sought the Court's opinion, advice and direction that it is justified in convening the relevant unitholder meeting, circulating the explanatory statement for it and proceeding on the basis that the proposed amendments to the DPF constitution contemplated by the Trust Scheme would be within its powers, including the powers of alteration conferred by the DPF constitution and s 601GC of the Corporations Act 2001 (Cth). I made the orders sought at the conclusion of the first Court hearing. These are my reasons for doing so. I have drawn on the helpful submissions of Mr Thomas, who appears for AUPL, in these reasons. Affidavit evidence 1. AUPL reads the affidavit dated 22 October 2021 of Mr Alexander Morris, a solicitor acting for it in the proceedings, which annexes organisation extracts obtained from the Australian Securities and Investments Commission ("ASIC") in respect of AUPL and the Australian Unity Diversified Property Fund. 2. By her affidavit dated 10 November 2021, Ms Louise Cahill-Mulvogue, who is General Manager – Strategy and Support – Real Estate Investment of AUPL refers to an announcement on 4 October 2021 of the proposed merger of the DPF with the AOF, by way of the Trust Scheme, and to alternatives to that transaction which had been considered by AUPL including asset sales, raising additional equity and delaying potential growth opportunities. Ms Cahill-Mulvogue also refers to the proposed issue of units in the merged fund as the consideration for the transaction and to the treatment of "Foreign DPF Unitholders" (as defined) whose units would be dealt with under a foreign sale facility in common form. She also refers to a capped withdrawal facility to be provided to DPF unitholders in connection with the proposed transaction, subject to a resolution of DPF unitholders and the satisfaction of conditions precedent to the scheme, and to the nature of those conditions precedent. 3. Ms Cahill-Mulvogue also refers to exclusivity provisions contained in the proposed Merger Implementation Deed, and indicates that she was involved on behalf of AUPL in arm's length negotiations with the responsible entity for the AOF concerning those provisions, and it had required those provisions in order to progress the transaction. Those provisions are qualified by the usual fiduciary exception, which I address below. Ms Cahill-Mulvogue also addresses the process which would be adopted to dispatch scheme documents and the verification process which had been adopted in respect of the unitholder booklet. Her affidavit exhibited the proposed unitholder booklet, and Mr Thomas took me through that booklet in detail in submissions. 4. By his affidavit dated 9 November 2021, Mr Rohan Mead, who is the Group Managing Director and Chief Executive Officer of the Australian Unity Group and a director of AUPL, indicated his consent to act as chair of the relevant meeting. By her affidavit dated 9 November 2021, Ms Esther Kerr-Smith, who is Chief Executive Officer for Wealth and Capital Markets for the Australian Unity Group and also a director of AUPL, indicated her consent to act as chair of that meeting if Mr Mead was not willing or able to do so. 5. By his affidavit dated 9 November 2021, Mr Robert Kelly, a solicitor acting for AUPL in respect of the proposed transaction, referred to extensive correspondence with ASIC relating to the transaction, so far as ancillary relief was sought in respect of the transaction and ASIC had indicated its in principle decision to give that relief. It is apparent from that correspondence that ASIC had undertaken a close review of the proposed unitholder booklet and comments which it had raised have been addressed by AUPL. 6. By his affidavit dated 8 November 2021, Mr Tapan Parekh, who is a partner in Deloitte Australia and an authorised representative of Deloitte Corporate Finance Pty Ltd, refers to the independent expert report which Deloitte Corporate Finance has provided in relation to the transaction, and he confirms that he holds the opinions expressed in that report and has made the inquiries that he believes are desirable and appropriate to prepare that report. By an affidavit dated 9 November 2021 Mr Andrew Welsh of PricewaterhouseCoopers Securities Ltd addresses the preparation of an independent limited assurance report in relation to certain financial information regarding DPF and AOF, which is contained in the proposed unitholder booklet. 7. By his affidavit dated 9 November 2021, Mr Andy Ma, who is a client service manager with Boardroom Pty Ltd, addresses the services which it will provide in respect of the Trust Scheme including the dispatch of documents in respect of the proposed scheme in electronic and hard copy form, and the provision of a virtual meeting platform using the "Lumi AGM" virtual meeting platform. Mr Ma confirms that that platform will provide a means for voting at the Trust Scheme meeting and asking questions at the Trust Scheme meeting both in writing, using the virtual scheme platform, and orally. 8. By her affidavit dated 9 November 2021, Ms Liesl Petterd, who is the company secretary of the responsible entity of AOF, addresses the background to the Trust Scheme, and the verification process which was adopted for information concerning AOF contained in the unitholder booklet. She also addresses the execution of a deed poll by AOF in favour of DPF unitholders, by which the responsible entity of AOF covenants in favour of DPF unitholders to observe and perform its obligations under the Merger Implementation Deed and the Trust Scheme, including the obligation to provide scheme consideration in accordance with the terms of the Trust Scheme. 9. AUPL also tenders a statement of facts (Ex P1), as is customary in an application by a trustee for directions (Ex P1). Applicable legal principles and matters relevant to approval of the Trust Scheme 1. Mr Thomas rightly submits that it is now commonplace for a responsible entity of a registered managed investment scheme to seek judicial advice pursuant to s 63 of the Trustee Act in connection with a trust scheme. In giving advice in such an application, the Court proceeds by analogy with the approach governing the exercise of its discretion under section 411(1) of the Corporations Act 2001 (Cth): Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 at [47]; Re Macquarie Capital Alliance Ltd (2008) 67 ACSR 484 at [19]; Re Sydney Airport Holdings [2013] NSWSC 1665 at [2], [6], [19]; Re DUET Finance Ltd [2017] NSWSC 415 at [16]; Re Magellan Asset Management Ltd (as responsible entity of Magellan Global Fund) (2020) 150 ACSR 23; [2020] NSWSC 1535 at [17]; Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 at [26]. He refers to my summary of the applicable principles in Re DUET Finance Ltd above at [14] and [16] as follows: "[I]t is now common practice in a trust scheme for the responsible entity to seek judicial advice in a two-stage process by analogy with schemes of arrangement under Part 5.1 of the Corporations Act …. A responsible entity may seek judicial advice at the first hearing that it is justified in propounding resolutions to implement the trust scheme and proceeding on the basis that the amendments to be made to the constitution of the registered managed investment scheme to implement the trust scheme would be within the powers of alteration conferred by that document and s 601GC of the Corporations Act ... That judicial advice, and the right of any unitholder in the managed investment scheme to appear at the second court hearing and object, is disclosed in the explanatory statement sent to unitholders for a meeting of unitholders to consider the resolutions to implement the trust scheme; and further judicial advice is sought at the second hearing that the responsible entity is justified in implementing the trust scheme ..." 1. Section 601GC(1)(a) of the Corporations Act in turn provides that the constitution of a registered scheme may be modified or repealed and replaced with a new constitution by special resolution of the members of the scheme, being 75% of the votes cast by members entitled to vote on the resolution. The power of alteration under s 601GC(1)(a) of the Corporations Act is very wide, unlimited in terms, and its exercise is within the Court's jurisdiction under s 63 of the Trustee Act in a trust scheme context: Re Mirvac Ltd above at [44]-[47]; Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 at [10]. There is no implied limitation on the Court's power to give advice pursuant to s 63 of the Trustee Act, nor on the discretionary factors that the Court may take into account: Macedonian Orthodox Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; (2008) 249 ALR 250; [2008] HCA 42 at [55]-[59]. The practice of bringing an application for judicial advice under s 63 of the Trustee Act 1925 (NSW) in connection with a trust scheme has advantages in allowing the Court's oversight of transactions which have a similar commercial effect to Part 5.1 schemes of arrangement: Re Mirvac Ltd above; Re Walsh & Company Investments Ltd [2020] NSWSC 1509 at [20]. 2. Mr Thomas submits that the Trust Scheme is fit for consideration by a meeting of DPF unitholders and reflects a commercial proposition that, if passed by the requisite majorities, is likely to be approved by the Court, and that there are no discretionary reasons why the Court would refuse to grant the judicial advice sought by AUPL. He points out that the proposed transaction has received the unanimous support of the board of AUPL in the absence of a Superior Proposal (as defined), and the chairman's letter records the AUPL board's belief that the proposed transaction has a strong strategic rationale and provides DPF unitholders with a superior investment proposition and enhanced sustainability of income returns, relative to DPF on a standalone basis; the independent expert retained by AUPL to consider the proposed transaction has concluded that it is fair and reasonable to, and therefore in the best interests of, DPF unitholders in the absence of a Superior Proposal, and the independent expert report has been verified by affidavit; and the Court should be satisfied that the proposed transaction has been accurately and fairly described in the unitholder booklet, which has been the subject of verification process. 3. It seems to me that no doubt has arisen as to the structure of the proposed transaction or the adequacy of the information to be provided to unitholders concerning it, and the explanatory statement was verified in the usual way. The proposed unitholder meeting would be held, as a virtual meeting as is now commonplace, as permitted by s 253Q of the Corporations Act provided the technology used gives members as a whole a reasonable opportunity to participate. These matters do not give rise to any reason not to give the advice sought. Other matters 1. In the usual way, Mr Thomas draws attention to several matters that warrant the Court's attention prior to exercising the discretion conferred by s 63 of the Trustee Act in respect of the Trust Scheme. The first of these is the question of performance risk, which is ordinarily considered at the first Court hearing in respect of a company scheme or trust scheme, where a third party provides consideration or benefits to shareholders or unitholders under the scheme: Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 at [4]; Re APN News & Media Ltd (2007) 62 ACSR 400 at 405; [2007] FCA 770; Re Sydney Airport Holdings above at [17]; Re Mirvac Funds Management Ltd [2014] NSWSC 1569 at [7]; Re Villa World Ltd [2019] NSWSC 1207 at [22]; Re Spark Infrastructure RE Ltd above at [29]. 2. This issue is sufficiently addressed by cl 30.3 of the proposed amended DPF constitution provides that it is only subject to, and after, the provision of the Scheme Consideration in the manner contemplated by clause 30.8 that the Trust Scheme Units will be transferred to Australian Unity Investment Real Estate Limited ("AUIREL") as responsible entity of AOF. Mr Thomas points out that a Deed Poll executed by AUIREL in favour of each scheme unitholder requires it to observe and perform all obligations contemplated of it under the Trust Scheme including, without limitation, the obligation to provide the scheme consideration in accordance with the terms of the Trust Scheme and further protects scheme participants. Mr Thomas submits and I accept that corresponding arrangements have been held to be sufficient in previous cases: Re APN News & Media Ltd above at [23]; Re Mirvac Funds Management Ltd above at [7]. 3. Mr Thomas notes that cl 7 of the Merger Implementation Deed is an exclusivity provision, which includes "no-shop", "no-talk" and "no due diligence" restrictions together with a "notice of approaches" obligation. The "no-talk" and "no due diligence restrictions" are subject to a "fiduciary carve out" and I accept that the case law does not require a fiduciary carve-out with respect to "no-shop" provisions: Re Macquarie Private Capital A Ltd (2008) 26 ACLC 366 at [18]-[19]; Re Coles Group Ltd (2007) 25 ACLC 1380; [2007] VSC 389 at [62]–[63]; Re Hostworks Group Ltd (2008) 26 ACLC 137; [2008] FCA 64 at [34]–[37]. Mr Thomas submits and I accept that exclusivity restrictions in this form are commonplace in company schemes and trust schemes: Re Villa World Ltd above at [23]. 4. The Court is concerned to ensure that any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; an exclusivity clause directed at dealing with an unsolicited alternative merger proposal should be subject to a fiduciary carve-out; and the provisions must be clearly disclosed in the explanatory statement sent to shareholders, or in this case unitholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9]. The exclusivity period is here capable of precise ascertainment, and extends to the earlier of the termination of the Merger Implementation Deed, the End Date (being 31 March 2022 or such later date agreed by the parties in writing) and the Implementation Date (being the date which is two business days after the record date or such other date as the parties agree in writing). I accept that this is a reasonable period have regard to the nature of the transaction. For completeness, the Merger Implementation Deed does not provide for the payment of a break fee. 5. Mr Thomas points out that cl 30.18(g)-(h) of the supplemental deed poll contains a "deemed warranty", by which each participant in the Trust Scheme warrants that all their units transferred to under the Trust Scheme will, at the implementation date, be fully paid and free from all encumbrances, and that they have full power and capacity to transfer their units together with any rights attaching to those units. Mr Thomas submits, and I accept, that clauses in these terms are also permissible and commonplace: Re APN News & Media Ltd above at [62]; Re Hostworks Group Ltd above at [41]; Re Coles Group Ltd above at [45]; Re Magellan Asset Management Ltd (as responsible entity of Magellan Global Fund) above at [22]. The existence of the deemed warranties are appropriately disclosed in the unitholder booklet as contemplated by Re APN News & Media Ltd above at [63]. Determination and orders 1. I am satisfied that AUPL as responsible entity of the DPF would be justified in proceeding on the basis that the making of the proposed amendments to DPF's constitution in connection with the Trust Scheme, following the requisite approval by unitholders, would be within its powers, including the powers of alteration conferred by that constitution and s 601GC of the Act. I am also satisfied as to the other issues that I have addressed above. For these reasons, I made the orders sought by AUPL at the conclusion of the first Court hearing on 19 November 2021. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2021