Australian Pipeline Ltd v Hastings Funds Management Limited

The relevant contractual provisions 4The material before the Court contained the constitution of only one of the three managed investment schemes, the APA Subtrust No 1 (the Constitution). However, it was common ground that the constitution of each of the three schemes contained similar provisions and it is convenient to deal with the issues on the basis that the Constitution before the Court was representative of the constitution of the other two schemes. 5Clause 10.1 of the Constitution provided a responsible entity (the trustee) was entitled to receive out of the assets of the trust remuneration, including a management fee and an incentive fee as specified in schedule 3. The dispute in the present case concerns the incentive fee which schedule 3 provided to be calculated in the following manner: "2 The Incentive Fee (which accrues periodically) payable to the Trustee under clause 10.1 of this deed is calculated and payable as follows: The Incentive Fee equals 20% of the Fund Return for a Period above the Benchmark Return for the Period. If the Fund Return for a Period is less than the Benchmark Return for that Period, the amount of the deficit ('Previous Shortfall' as defined below) is carried forward and taken into account in calculating whether the Fund Return exceeds the Benchmark Return in subsequent Periods. The Incentive Fee for each Period is the greater of: (a) $0; and (b) 20% x (Fund Return - Benchmark Return - Previous Shortfall), where Fund Return for a Period equals: (1) the average of the daily Market Price of Stapled Securities, multiplied by the number of Stapled Securities on issue, in respect of each of the last 15 Business Days of the Period (except for the first Period, where it is the number of Stapled Securities on issue on the date on which unconditional trading in Stapled Securities commences on ASX, multiplied by the issue price of those Stapled Securities); multiplied by (2) the movement in the Securities Index over the relevant Period expressed as a fraction, where: (A) the numerator is the average daily closing value of this index over the last 15 Business Days of the Period minus the average daily closing value of this index over the last 15 Business Days of the previous Period (except for the first Period where it is the initial accumulation index figure ascribed to the Stapled Securities); and (B) The denominator is the average daily closing value of this index over the last 15 Business Days of the previous Period (except for the first Period where it is the initial accumulation index figure ascribed to the Stapled Securities). The Securities Index is the accumulation index for the Group which calculates the accumulated total return received by Security Holders, including all distributions form [sic] the date on which unconditional trading in Stapled Securities commences on ASX. It will be specifically calculated for the Group by an Approved Valuer. The opening value of the Securities Index will be one. The value of the Securities Index at any particular time subsequently will be: TP x (one plus A) IP where: TP means the price at which Stapled Securities were most recently traded on ASX (excluding any special crossings or other trades which the Approved Valuer considers have not occurred in the ordinary course of trading); A means the number (or fractions of numbers) of Stapled Securities which would notionally have been issued if each distribution in respect of a Stapled Security (and any other Stapled Securities (or fractions of Stapled Securities) issued pursuant to the reinvestment of distributions prior to the distribution in question) was reinvested at the closing price of Stapled Securities on the date of payment of the relevant distribution. IP means the aggregate issue price of a Stapled Security in an initial capital raising as contemplated by clause 5.6(a)(2) of this deed and the equivalent provisions of the constitutions of any other Group members. In the case of any bonus issues, security splits or consolidations, or other reconstructions, the value of TP and IP will be adjusted to take into account these changes as the Approved Valuer considers appropriate. Group means the Trust and any entities whose securities are Stapled to Units in the Trust. Benchmark Return for a Period equals: (a) the average of the Market Price of Stapled Securities, multiplied by the number of Stapled Securities on issue, in respect of each of the last 15 Business Days of the Period (except for the first Period where it is the number of Securities on issue on the date on which unconditional trading in Stapled Securities commences on ASX, multiplied by the issue price of those Stapled Securities); multiplied by (b) the movement in the Benchmark Index over the relevant Period expressed as a fraction, where: (1) the numerator is the average daily closing value of this index over the last 15 Business Days of the Period compared with the average daily closing value of this index over the last 15 Business Days of the previous Period (except for the last Period where it is the average daily closing value of this index over the last 15 Business Days immediately prior to the date on which unconditional trading in Stapled Securities commences on ASX); and (2) the denominator is the average daily closing value of this index over the last 15 Business Days of the previous Period (except for the first Period where it is the average daily closing value of this index over the last 15 Business Days immediately prior to the date on which unconditional trading in Stapled Securities commences on ASX. Benchmark Index means ASX/S&P 200 Industrials Accumulation Index (or such other equivalent index as may replace that index from time to time, as determined by an Approved Valuer) as reported by Bloomberg (or such other appropriate reporting agency as may be selected from time to time by an Approved Valuer). Period means: (a) subject to paragraphs (b) and (c) below, each six month period ending 30 June and 31 December; (b) for the first period, the period commencing on the date on which unconditional trading in Stapled Securities commences on ASX and concluding on 30 June 2005; and (c) in the case of the last period, the period which ends on the date of termination of the Trust or the date on which the Trustee ceases to be responsible entity of the Trust (whichever occurs first) and which commences on 30 June or 31 December which occurs last before this event." Capitalised terms throughout this judgment refer, as appropriate, to the capitalised terms in schedule 3 set out above. 6ASX was defined in the Constitution to mean ASX Limited. The expression Market Price was relevantly defined in the Constitution as follows: "1.3 Market Price (a) The Market Price for a Stapled Security in a class or an Option (as the case requires), on any Business Day is: (1) the daily weighted average traded price for a Stapled Security in that class or Option in that class for all sales on ASX for the period of the lesser of: (A) 15 Business Days immediately preceding the relevant Business Day; or (B) the number of Business Days immediately preceding the relevant Business Day during which the Stapled Security was quoted on ASX, in either case whether or not a sale was recorded on any particular day (apportioned between the Unit and any Attached Securities as the Trustee determines); or (2) if the Trustee believes that the calculation in clause 1.3(a)(1) does not provide a fair reflection of the market price of a Stapled Security or Option, an amount as determined by an Approved Valuer, as being the fair market price of the Stapled Security or Option." 7Two other matters should be noted. First, cl 1.5 of the Constitution requires that, if the relevant managed investment scheme was admitted to the official list of the ASX, the Constitution was to be read as being in conformity with the listing rules of the ASX (the Listing Rules). Second, cl 1.6(c) provided that at all times the relevant managed investment scheme was admitted to the official list of the ASX it must comply with ASTC Settlement Rule 5.12. 8ASTC was defined to mean ASX Settlement and Transfer Corporation Pty Limited. There is no issue between the parties that it provided a settlement facility for traded securities listed on the ASX (the ASTC Settlement Facility).

Factual background 9On 15 December 2011 APT Pipelines Limited (APT), the parent company of the appellant, lodged with ASIC an off-market bidders statement in respect of an offer for all the Stapled Securities. A copy of the statement was lodged with ASX on the same day. 10The consideration for the offer was increased on two occasions during the course of the bid. As a result of the final increase announced on 15 November 2012 the offer price comprised $0.775 cash and 0.390 APA Group Stapled Securities for each Stapled Security (the Takeover Offer). The APA Group Stapled Securities were also listed on ASX. 11On 16 November 2012 APT, having acquired 90% of the Stapled Securities, lodged compulsory acquisition notices under s 661B of the Corporations Act 2001 (Cth) (the Act). The notices were given to ASIC as required by s 661B(1)(b) of the Act and to ASX as required by s 661B(1)(d). 12As envisaged by r 17.4 of the Listing Rules, ASX suspended the Stapled Securities from trading on 21 November 2012. 13Between 23 November 2012 and the date of removal of the respondent as the responsible entity (17 December), a number of stapled security holders accepted the Takeover Offer. It was common ground that acceptance of the Takeover Offer by CHESS-sponsored security holders were subject to, what was described in the agreed statement of facts as, the ASX Settlement Operating Rules. At the time the rules in question were in fact the operating rules of the ASTC Settlement Facility, the holder of a CS Facility Licence granted under s 824B of the Act. The rules were called the ASTC Settlement Rules. 14On 13 and 14 December 2012 the respondent paid itself, out of the assets of the relevant managed investment schemes, an amount of $28,680,000 in respect of the Management and Incentive fees said to be owing to it. The Management Fee component of this amount was $3,873,838. There is no dispute that the latter amount was properly payable. 15The balance of the amount paid was in respect of the Incentive Fee. The respondent claims to be entitled to a total payment of $33,078,948 in respect of that fee with the result that it asserts it is entitled to a further payment of $8,272,786. 16The respondent's calculation of the Incentive Fee was founded on the premise that acceptances of the Takeover Offer settled on the ASTC Settlement Facility after the compulsory acquisition and suspension of trading between 16 November 2012 and 13 December 2012 (the Post Compulsory Acquisition Acceptances), were trades in the Stapled Securities on ASX for the purpose of calculating the number TP. TP is the numerator of the formula used to determine the value of the Securities Index referred to in cl 2 of schedule 3 of the Constitution. 17In using the Post Compulsory Acquisition Acceptances in the calculation of TP, the respondent calculated the price at which the Stapled Securities were traded by first calculating the volume weighted average price (VWAP) of the APA Group Stapled Securities, which formed part of the consideration for the takeover bid. Then, what was described as a "Proxy VWAP of HDF Securities" was calculated by reference to the consideration for the Takeover Offer. The Proxy VWAP so calculated ranged between $2.893 and $3.020 over the relevant time period (being the 15 business days prescribed by schedule 3 of the Constitution). 18By contrast, the appellant calculated TP on the assumption that the most recent trading of the Stapled Securities was trading which had taken place immediately prior to the suspension and therefore the Post Compulsory Acquisition Acceptances were not relevant to the calculation of TP. This was at a price of $2.85. The Incentive Fee so derived amounted to $14,619,411. If this calculation was correct, it would follow that the respondent had been overpaid in an amount of $10,186,751. 19The issue between the parties is thus, whether the Post Compulsory Acquisition Acceptances could be taken into account in calculating the price at which the Stapled Securities were "most recently traded on the ASX" for the purposes of determining the value of TP. The primary judge held that they could be so used and found in favour of the respondent: Australian Pipeline v Hastings [2013] NSWSC 1657 (the primary judgment).

Legal Principles 20The principles surrounding the construction of commercial contracts of the nature of those in question were not in dispute. Those principles were recently affirmed by the High Court in Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447 in the following terms at [35]: "[35] Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (References omitted) 21It was not in dispute between the parties that it was appropriate to take into account the regulatory background in considering the words in the formula used to calculate TP in the Securities Index or, more precisely, to determine whether the Post Compulsory Acquisition Acceptances fell within the term "traded on ASX". That was plainly correct. It would not be possible to determine what fell within that term without a consideration of the operation of the market maintained by ASX and the regulatory regime which surrounded its operation. 22In these circumstances it is not necessary to consider further whether there remains any limitation on the use which may be made of surrounding circumstances in construing a commercial contract: see Mainteck Services Pty Ltd v Stein Huertey SA [2014] NSWCA 184; (2014) 310 ALR 113 at [69]-[86] and c/f Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164 at [33]-[48] and [216]-[217].

The regulatory background at the time 23At the date of the Constitution trading of listed securities on the trading platform operated by ASX was governed by the Listing Rules, the ASX Market Rules (the Market Rules) and the ASTC Settlement Rules (the Settlement Rules). The Listing Rules took effect as a contract between the entity licensed to operate the market (ASX) and the listed entity. The contract was given statutory effect by s 793C(3) and s 793C(4) of the Act. 24The Market Rules took effect as a statutory contract between the licensee (in this case ASX) and each participant (see s 793B of the Act and the definition of operating rules in s 761A). 25The Market Rules, at the relevant time, regulated trading on the ASX trading platform. Rule 16.2 of the Market Rules provided that transactions in traded products had to be made in SEATS (the operating platform then used by ASX) in accordance with r 16.3. Rule 16.3 provided, among other things, for bids and offers to be placed in priority according to the highest priced bid and the lowest priced offer. In the case of equality of bid prices or offer prices, the first entered bid or offer took priority. Bids and offers were matched in accordance with that order of priority. Thus the trading was based on an automated system which matched bids and offers by reference to price and priority at the time. A helpful description of the market operation can be found in the judgment of Sackville J in Australian Securities Commission v Nomura International PLC (1998) 89 FCR 301 at [321]-[324]. 26The Market Rules also dealt with transactions described as crossings and special crossings. Crossing was relevantly defined as a transaction in respect of which a trading participant acts on behalf of both buying and selling clients. (The trading participant was defined as a market participant who had trading permission.) 27Rule 17.1 of the Market Rules provided that a crossing could only be effected in accordance with r 17 or, if it constituted a special crossing, in accordance with r 18. Rule 17 provided a method by which crossings could be effected in SEATS either by the simultaneous entry of bids and offers or by matching in SEATS a bid or offer with a pre-existing bid or offer. Such transactions had to be disclosed in accordance with r 16.12. 28Rule 18 of the Market Rules dealt with special crossings. A special crossing could be effected by a trading participant acting on behalf of two clients at a price negotiated on behalf of the clients or, if the trading participant was acting as the principal, at a price negotiated between the principal and the client. Rules 18.2 to 18.7 provided for particular types of special crossings. 29Special crossings were not effected on the SEATS trading platform, which had no capacity for trading at a particular negotiated price. However, r 16.12 of the Market Rules provided that all special crossings had to be reported on SEATS. 30Rule 16.4 of the Market Rules provided for suspension and trading halts. Rule 16.4.1(a) provided that trading in products suspended from official quotation could only be traded with the permission of ASX. Further r 20.8 prohibited special crossings during the bid period in respect of a takeover offer of listed securities. 31Thus although special crossings were not traded on the SEATS platform, the ability of trading participants to effect such transactions was regulated by the Market Rules, including, in particular, by the reporting obligation and the restriction on such crossings being effected whilst the securities in question were suspended or during the currency of a takeover bid. 32Rule 20 of the Market Rules dealt with both on and off-market takeover bids. Rule 20.4 stated that when ASX received information relating to an off-market bid it would take the action set out in the Market Procedures. It should be noted that s 633(1) of the Act requires notification of an off-market bid to be given to the operator of each prescribed financial market on which the target's securities are quoted. Appendix 20.4 in the Market Procedures set out the procedure which would be adopted. Broadly speaking the procedures involved an adjustment to normal trading for a minimum of 50 minutes after the announcement of the bid, a similar adjustment upon the variation of the consideration for the offer and shorter adjustments in respect of certain other events. 33Rule 20.5 of the Market Rules obliged a market participant who had an order from a bidder in relation to an off-market bid, to not accept or transact the order unless the market participant advised the seller that it was acting for the bidder. The market participant was also prohibited from giving the seller any advice in respect of the proposed sale. 34The Listing Rules as they existed, both at the date of the Constitution and the date of the suspension of the Stapled Securities, obliged a listed entity to comply with the operating rules of the approved CS Facility under which securities of the entity were approved. Rule 8.2 of the Listing Rules also obliged the listed entity to maintain an issuer sponsored sub-register. 35The Explanatory Note to Ch 8 of the Listing Rules recognised that on-market transfers could take place in two ways. First, in respect of securities not approved under the rules of an approved CS Facility, such transfers would be by way of paper. Second, in respect of securities approved under the rules of such a facility, transfers would occur electronically, irrespective of whether they were on the CS Facility sub-register (CHESS) or on any other sub-register. 36By contrast, in relation to off-market transactions, the settlement of securities approved under the rules of an approved CS Facility were settled electronically if the transfers were to or from a CHESS sub-register, otherwise the settlement was paper based. 37Rule 17.4 of the Listing Rules provided that in the case of compulsory acquisition following a takeover bid, ASX would suspend quotation five days after it received the compulsory acquisition notice. 38As I indicated earlier, ASTC was licensed to operate a CS Facility. The operating rules of the facility took effect as a contract between the licensee and each issuer of the financial products in respect of which the facility provided its services, between the licensee and each participant in the facility, between each issuer and participant and between the participants themselves (s 822B of the Act). The Court has power to enforce the rules (s 822C). 39Rule 1.1.1 of the ASTC Settlement Rules stated that ASTC, as a holder of an Australian CS facility licence, provided a settlement facility to enable participants to pay money or otherwise meet settlement obligations arising out of transactions in financial products and to enable issuers and participants to record holdings of such products and take permitted action in accordance with instructions, agreements or arrangements in relation to those products. Rule 1.1.2 stated that ASTC provided services and facilities for, amongst other things, the electronic settlement of transactions in approved financial products and established and administered electronic CHESS sub-registers of approved financial products and provided facilities for effecting and registering transfers of approved financial products by electronic means. 40Rule 8.1 of the ASTC Settlement Rules entitled a person, who had applied for a class of financial products to be listed on an approved market operator, to apply to have the class of products approved for the purpose of the rules. Rule 5.2.1 provided that on approval from ASTC, the issuer irrevocably authorised ASTC to establish and administer a CHESS sub-register in respect of the financial products and acknowledged that ASTC acted as its agent in administering that sub-register. Rule 5.2.2 obliged the issuer, in addition, to administer an issuer operated sub-register. 41Rule 14.12.2 to r 14.12.7 of the ASTC Settlement Rules applied in respect of takeover bids for approved financial products. Rule 14.12.3 provided for ASTC to act as agent for the bidder in relation to acceptances by holders on the CHESS sub-register. Rule 14.12.7 provided that the bidder had to ensure that each of the takeover offers specified that an acceptance in respect of financial products held on a CHESS sub-register had to be made in accordance with the rules. Rule 14.14.2 provided for acceptances of an offer, in respect of such securities, to be initiated by what was described as a valid originating message transmitted to ASTC. ASTC then reserved the securities in the sub-register for the bidder. Rule 14.17.1 provided for completion of the transfer when a valid originating message was transmitted to ASTC by the bidder at a time when the bid was not subject to defeating conditions or the offer period had ended and all defeating conditions had been fulfilled or waived. There were certain other formal conditions required prior to effecting the transfer but it is not necessary to set them out. 42Rule 14.21.1 of the ASTC Settlement Rules provided for compulsory acquisition. A compulsory acquisition notice was required to be sent to ASTC and if the issuer became obliged to register the bidder as a holder of outstanding financial products under s 666B(2) of the Act, the issuer was required to initiate adjustments that would remove all outstanding financial products from the CHESS sub-register. 43It should be noted that reg 6.8.01 of the Corporations Regulations 2001 (Cth) provides that where the operating rules of a prescribed CS facility require an acceptance of an off-market bid to be made in a particular way, the acceptances must be made in that way. 44The rules which I have outlined above were as they existed at the date of the Constitution. There have been no relevant changes to the Listing Rules. However, the Market Rules have now been repealed and replaced by the ASX Operating Rules and Procedures and the ASIC Market Integrity Rules. There have been no substantive changes to the provisions which I have outlined above; although r 4811 of the ASX Operating Rules provides that a market transaction is entered into when a special crossing is effected. A market transaction is defined in those rules as a transaction entered into on a trading platform or reported to ASX under the rules. 45There have been no relevant changes to the ASTC Settlement Rules. However the name of ASTC has been changed to ASX Settlement and the rules are now referred to as the ASX Settlement Operating Rules.

The reasoning of the primary judge 46The primary judge stated that the evident purpose of the Incentive Fee was to reward the responsible entity if the relevant managed investment scheme outperformed the Benchmark Index. He stated that as a matter of common sense that might be thought to include amounts received by acceptances of the Takeover Offer (primary judgment at [40]-[41]). 47He also stated that he did not think that the words "most recently traded on ASX" could be read literally. He said this was made clear by the exclusion of special crossings along with the following reference to "other trades". He said by necessary implication the "other trades" would be "non-market trades" because "in the usual way... on-market trades would be trades 'in the ordinary course of trading'" (primary judgment at [42]). 48The primary judge stated that it followed from those matters that in seeking to give meaning to the formula, what was sought to be achieved should be borne in mind. 49The primary judge correctly stated that the expression "most recently traded on ASX" could not refer to ASX Limited, regardless of the definition in the Constitution. He concluded that it must connote the market operated by that company as well. 50The primary judge then stated that once it was concluded that the preposition "on" did not mandate that only on-market trades could be considered as candidates for the number TP, a search for, what his Honour described as the appropriate nexus, must take into account at least three matters. He said the first matter which was to be considered was what was capable of meeting a description of "trades". He said the second was that even if the word "on" was not to be read literally, there must be some objectively rational connection between the trades and the market operated by ASX. He said the third matter was that in selecting the nexus a construction that seeks to achieve or promote, rather than derogate from, the purpose for which TP was to be calculated should be preferred. 51The primary judge concluded that there was a real connection between off-market bids and the market platform operated by ASX so that they could be considered trades "on ASX". He stated that what was under consideration was the market for securities listed and quoted on ASX. He referred in particular to r 20 of the Market Rules to which I have referred above. 52The primary judge referred to the fact that the evidence suggested that 20% of the total value of trades were conducted off-market, which would affect the price at which the securities were traded on the market. 53The primary judge concluded that these considerations indicated that there was a sufficient nexus between off-market bids and the market operated by ASX, so that the off-market bids could properly be considered as candidates for TP (primary judgment at [61]). He stated that the nexus becomes more distinct when the securities are suspended as a result of the bidder moving to compulsory acquisition. He expressed his conclusions in the following terms: "[62] To my mind, that nexus becomes more distinct when, as here, the securities are suspended from quotation because the bidder, having reached 90%, has notified ASX that it proposes to move to compulsory acquisition (see s 661B of the Corporations Act). Sales effected by acceptances of the bid are then the only most recent candidates for TP. Reference to market sales necessarily involves travelling further back in time, more remote from the date at which the determination of the Incentive Fee is to be made. [63] Looking at the matter purposively, once a bidder, being entitled to do so, has informed ASX that it will move to compulsory acquisition, the price achievable is fixed at the bid price. In those circumstances, as a matter of commercial reality, it is clear that the accumulated total return achieved by one will include the return (positive or negative) referable to disposal of their securities at that price. [64] In this case, because the offer was for a combination of cash and scrip, the return would fluctuate according to movements in the price of the securities offered as part consideration. But that is a matter of machinery only. It has not prevented the parties from calculating what the Incentive Fee would be if Hastings' submissions were correct. [65] I referred earlier to APL's submission that 'trades not made on or effected on the ASX trading platform were nonetheless traded on ASX' because they were recorded on the ASX platform, and that was sufficient. [66] That seems to me to conflate the process or activity of trading - buying and selling, or exchanging - with the recording of the outcome of that process or activity. It is the sales that set the market, or fix the 'price' that is to be taken as TP. Recording the sales does no more than create a database from which price details can be extracted. By contrast to the mechanical process of recording trades, off-market trades also affect market prices. Purposively, they are more relevant to TP than the mechanical process of recording that which has occurred." 54The primary judge accepted the submission that this could lead to two different candidates for TP (an off-market price or an on-market price). He stated that the Approved Valuer could determine which was to be preferred. 55The primary judge also indicated that his conclusion avoided a mismatch between the time over which the Benchmark Index and the Securities Index was calculated. 56The primary judge concluded that his construction was supported by the fact that prices generated by an on-market bid would be taken into account.

Consideration 57Although the parties agreed on the principles concerning the construction of contracts, they differed as to the manner in which these principles should be applied in the present case to the Constitution. The appellant, both in its written submissions and orally, pointed to what it described as the plain meaning of the words. It submitted that, although ASX was defined in the Constitution to mean ASX Limited, where the expression ASX was used in the definition of TP it referred to the market operated or provided by that company. It submitted that acceptance of an off-market takeover bid, even if required to be effected through the ASTC Settlement Facility, did not constitute trading on the ASX. 58By contrast, the respondent placed significant emphasis on the purpose of the provision, which it said was to reward the responsible entity for outperforming the Benchmark Index. Whilst it was accepted that that was to be effected by the adoption of the formula, it submitted that construing the provisions as contended for by the appellant would mean they operated unfairly to the responsible entity. This was because it produced what senior counsel for the respondent described as an arbitrary result. Senior counsel for the respondent accepted that, although in the present case the appellant's construction produced a materially lower fee than the construction for which he contended, it could have the opposite effect. 59Although there is no doubt that the purpose of the Incentive Fee was to reward the responsible entity for outperforming the Benchmark Index, the parties chose the manner in which this was to be done. Any fee calculated by reference to a range of trading may have the effect of being perceived by one or other of the parties to operate unfairly as a result of events that occurred around the time of the calculation of the numerator or the denominator in the formula. However, that does not provide a warrant to adjust the formula to take account of such events. 60Suspension of trading can take place for a number of reasons, other than compulsory acquisition following a successful takeover offer. During the period of such suspension off-market trades may occur and, if the securities are in a CHESS sub-register, they will be settled through the ASTC Settlement Facility. It is not clear whether the appellant contended it would be artificial if all such trades were excluded and that that would be contrary to the purpose of the Incentive Fee. It is by no means clear to me that this is the case. 61In these circumstances the purpose of the Incentive Fee, in my opinion, is not of particular assistance in determining the correct construction of the provision. 62The words in question are "traded on ASX". In the context in which the words appear they refer to trading, namely, the buying and selling of securities, which took place on the trading platform provided by ASX, namely SEATS. The critical issue is whether acceptances of off-market trading bids settled through the ASTC Settlement Facility would fall within the expression. 63The primary judge held that they did. He concluded that once it was clear that the expression "ASX" in the words in question could not mean ASX Limited, it must mean on the market operated by that company. So much may be accepted. His Honour went on to conclude that what was to be considered was what was capable of being described as "trades" (primary judgment at [49]). So much again may be accepted, providing it is read as referring to a trade on the market operated by ASX. 64The primary judge then held that for the formula to apply there must be a rational connection between the trades or sales and the market operated by ASX. He found there was a sufficiently related connection between off-market bids and the market platform, as the securities were listed on the ASX (primary judgment at [56]). 65With respect to his Honour, the question is not whether there was a connection between the trades and the market, but whether the trades were on ASX, namely, the market operated by ASX. It is not enough, in my opinion, that some connection can be found between the trades and either ASX Limited or the market operated by that company. 66Both the primary judge and the respondent placed particular reliance on the exclusion of special crossings from the definition of TP. It was pointed out that special crossings were not traded on the SEATS platform and the respondent submitted that it follows that the expression "traded on ASX" must be more than trades on the SEATS platform. 67There is force in that submission but ultimately I am unable to accept it. In circumstances where, at the date of the Constitution, the power of market participants to effect special crossings was regulated by the Market Rules in the manner to which I have set out in pars [26]-[31] above, it is my opinion that the express exclusion of special crossings in the definition was simply to make it clear that they were not to be treated as market trades on ASX. It does not, in my opinion, lead to the conclusion that other off-market trades could fall within the definition. Rather to avoid any uncertainty as to whether an off-market transfer effected by a special crossing constituted a trade on the ASX, the exclusion was set out: c/f Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 274 and AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199 at [13]. 68Nor do I think that the balance of the exception in the definition ("other trades which the Approved Valuer considers have not occurred in the ordinary course of trading") supports the broad construction given to the formula by the primary judge. Trades engaged in for the purpose of, or adapted to set or maintain prices at a level which does not truly reflect the forces of supply and demand in a free and informed market, are examples of such trades: see North v Marra Developments Limited [1981] HCA 68; (1981) 148 CLR 42 (North) at 59 and Director of Public Prosecutions for the Commonwealth of Australia v JM [2013] HCA 30; (2013) 250 CLR 135 at [70]. The conduct the subject of the proceedings in Australian Securities Commission v Nomura International PLC supra provides a good example of trades not in the ordinary course of trading. Such conduct is not necessarily exhaustive of trades which could fall within the exception, but it does demonstrate that such trades can be on-market trades. 69The primary judge also considered that the fact that ASX itself was required to take certain actions in relation to off-market bids and that 20% of the trades in listed securities were conducted off-market, supported his conclusion. So far as the first proposition is concerned, the procedures the ASX is required to take in respect of off-market bids (see par [32]-[33] above) demonstrates that such bids have the capacity to affect the market price. It does not demonstrate that trades involving off-market acceptances of such a bid constitute trading on ASX. 70So far as the latter proposition is concerned, it could not be disputed that off-market trading has the capacity to influence the price at which securities are traded on ASX. That does not mean that off-market trades themselves are "trades on ASX". 71The respondent submitted that the primary judge was correct in stating that the construction contended for by the appellant produces anomalous results. The first anomaly said to arise was that on the construction contended for by the appellant there would be a mismatch between the period used in calculating the Benchmark Index and that used in calculating the Securities Index (primary judgement at [69]-[73]). This anomaly could equally occur if there was no trading in the Stapled Securities over part of the period and could occur if the Stapled Securities were suspended from trading for any reason. Whilst it must be accepted that a mismatch would result, that does not seem to me to be sufficient reason to conclude that the definition extended to off-market trades whether undertaken during the period of suspension or otherwise. 72The second anomaly said to arise was that acquisitions under an on-market bid would be taken into account whilst acquisitions resulting from acceptance of an off-market offer would not. The anomaly was expressed by the primary judge in the following terms: "[76] It follows that, where the bid is made as a market bid, and where the offer price is higher than the preceding trading price, then the Incentive Fee will reflect, among other things, the accumulated total return that picks up the increase in price resulting from acceptances of the market bid. However, on the approach taken by APL, the same result does not follow where the increase in price is driven not by a market bid leading to sales on the market, but by an off-market bid. That would be so even if the effect of the off-market bid were to produce a return to security holders that was greater than the return they would have received had their securities been valued at the immediately preceding price derived from market trades." 73It is not entirely clear what was the anomaly to which the primary judge was referring. There are significant differences in the regulation of on-market and off-market takeover bids. The differences are summarised in Renard and Santamaria "Takeovers and Reconstructions in Australia" (Service 70, March 2011, LexisNexis Butterworths) at [701] and it is unnecessary to set them out. However, in addition to what is referred to in that paragraph, it must be noted that the takeover offer must accompany the bidders statement for an off-market bid (s 633 of the Act) whilst the takeover offer for an on-market bid cannot be made through the relevant financial market until 14 days after the target statement is sent to the security holders (s 635). Thus, in both cases the market is informed as to the terms of the bid prior to any acceptances taking place. 74The differences between on-market and off-market takeover bids, particularly the fact that an on-market bid must be for cash and substantially unconditional unlike an off-market bid, means such bids may influence the market in different fashions. However, that does not produce any anomaly in the operation of the clause in the Constitution in question. 75Further it must be noted that compulsory acquisition provisions in the ASTC Settlement Rules and the provisions for suspension in the Listing Rules upon compulsory acquisition being notified to ASX, apply to both on and off-market bids. Whether the bid is on or off-market, in each case no further trading occurs on the ASX platform. 76In these circumstances the question is whether the expression "most recently traded on ASX" is apt to include off-market trades of listed securities or, more narrowly, acceptances of off-market offers communicated to and settled by the ASTC Settlement Facility. 77In my opinion the answer to these questions is no. The formula is directed to securities traded on ASX, not securities capable of being so traded. The fact that off-market trades on a CHESS sub-register are required to be settled through the ASTC Settlement Facility does not in my opinion mean that the trades take place on ASX. ASTC is a separate entity to ASX with a separate licence providing for settlement of transactions traded on the ASX trading platform SEATS or, trades in securities held on a CHESS sub-register, including transfers resulting from an acceptance of offers made under an off-market takeover bid. 78It follows that the transactions which took place after the suspension of trading were not traded on ASX. They resulted from an acceptance of an off-market offer, albeit that settlement took place through a facility associated with ASX. For the reasons I have given, neither the stated exceptions to the formula nor the suggested anomalies compel a different conclusion. Further the construction is not inconsistent with the purpose of the provision. In particular it does not produce a result which could be described as arbitrary or capricious: Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109. 79In these circumstances I would make the following orders: (1)Appeal allowed. (2)Set aside the orders made by the primary judge on 26 November 2013. (3)Direct the parties within 14 days to bring in Short Minutes of Order to give effect to these reasons. (4)Order the respondent pay the appellant's costs of the appeal and the costs in the Court below. 80BEAZLEY P: I have had the advantage of reading in draft the reasons of the Chief Justice. I agree with his Honour's reasons and the orders he proposes. 81MACFARLAN JA: I agree with Bathurst CJ.

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