An application is brought by Investa Listed Funds Management Ltd (in its capacity as responsible entity of the Armstrong Jones Office Fund and of the Prime Credit Property Trust) ("Investa Listed Funds"), the proponent of a trust scheme, for judicial advice under s 63 of the Trustee Act 1925 (NSW) in relation to a communication with unit holders. That application is brought because Investa Listed Funds seeks to send a supplementary explanatory memorandum to unitholders and the Court has long made clear its expectation that, in the course of a scheme or a trust proposal that is analogous to a scheme, an entity should not dispatch additional explanatory material to investors without first obtaining court approval: Re Centro Retail Ltd (in its capacity as responsible entity of Centro Retail Trust) [2011] NSWSC 1321 and see the earlier application of that principle, in the context of this trust scheme, in Re Investa Listed Funds Management Ltd (as responsible entity of Armstrong Jones Office Fund) [2016] NSWSC 344 at [4].
When the application was brought, Investa Office Management, a party with an interest in the matter, at least at a commercial level, appeared, and sought to be heard in respect to the application for judicial advice. That application to be heard raises both questions of principle, and questions of practice, which involve issues of some difficulty. The urgency of the application has had the result that neither Counsel nor the Court have had the opportunity fully to explore any relevant authorities. So far as the questions of principle are concerned, s 63(1) of the Trustee Act provides that a trustee may apply to the Court for an opinion, advice or direction on any question regarding the management or administration of the trust property or regarding the interpretation of the trust instrument. The effect of such advice or direction, under s 63(2) of the Trustee Act, is that the trustee is deemed, so far as the trustee's own responsibility, to have discharged its duty as trustee in the subject matter of the application, provided it has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion, advice or direction. The section is facilitative of the performance of a trustee's duties. There are limited circumstances in which, after such advice is given, the trustee is required to give notice to any person whose rights as beneficiary may be prejudiced by a conveyance or distribution, and that person will have a right to be heard under s 63(8) and s 63(10) of the Trustee Act. There may also be circumstances, again limited, where beneficiaries of the trust may be heard in respect of such an application.
I should also add, in addition to the observations I made orally, that the Court's jurisdiction under s 63 of the Trustee Act was described by the plurality of the High Court in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [64] as affording "a facility for giving 'private advice'", which has that character "because its function is to give personal protection to the trustee". Their Honours also referred (at [65]) to ss 63(8)-(11) of the Trustee Act and observed that:
"Section 63 reflects a compromise between a procedure for affording private advice to trustees and the need for affected persons to be given a hearing in some cases."
At the same time, the courts have been prepared to permit a creditor to be heard in broadly analogous applications for directions to an administrator or liquidator under s 447D and s 479 of the Corporations Act respectively, although an intended defendant in proceedings to be brought by a liquidator will not generally be heard as to the terms of a litigation funding agreement or whether it should be approved: Strawbridge v Retail Adventures Pty Ltd (admin apptd) [2013] FCA 891; (2013) 95 ACSR 121 at [39]-[41]; Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (as liquidators of Octaviar Administration Pty ltd (in liq)) [2015] NSWCA 85; (2015) 105 ACSR 581.
Both Mr Thomas who appears for Investa Listed Funds and Mr Hutley who appears for Investa Office Management accept, that whether a third party should be permitted to appear in such an application is a matter of discretion, not a matter of right. It seems to me that the Court must have regard to the fact that s 63 of the Trustee Act is here operating in the commercial context of an arrangement which is analogous to a company scheme, although it is not in fact a company scheme and it is not governed by the provisions of the Corporations Act 2001 (Cth) which apply in respect of such a scheme. On the one hand, the Court should have regard to the circumstances in which an interested person may be permitted to be heard in respect of a company scheme, because the practical approach which has been adopted by courts, in dealing with trust schemes, gives considerable weight to their commercial context, and the commercial similarity of such a scheme and a company with the conduct of a corporate scheme. On the other hand, the Court's requirement that communications with persons who have a right to attend a scheme meeting and beneficiaries of a trust scheme are approved by it should not be used to give a forum for any party with a commercial interest adverse to a scheme to seek to attack communications between the scheme proponent and security holders, as a general matter, or obtain access to such communications before they are made available to the market generally. It would be unsatisfactory if, for example, a competing takeover bidder in respect of a company scheme was itself free to communicate with the market at will, but had the opportunity to delay any communications by the scheme proponent, each time such a communication was proposed, by intervening and seeking to engage in a close scrutiny of it before it was approved by the Court.
The Court must, it seems to me, have regard to the fact that these applications do not operate, in any narrow sense, as between the trustee and its beneficiaries only. The arrangements in issue are not in the nature of private trusts, and a trust scheme affects the market generally, where communications are released to Australian Securities Exchange, are made available to the public and members of a listed scheme may change on a regular basis. The issues which arise in an application for judicial advice in such a scheme therefore seem to me to be somewhat different from those which may arise in respect of a private trust. In particular, there is a greater possibility that the Court's granting advice that a trustee may communicate with the market in a particular way is understood, albeit incorrectly, as an imprimatur for the subject matter or content of the communication. There is also a greater risk that the process by which the Court scrutinises communications in a trust scheme, to be satisfied that they could properly be made, may be weakened, if relevant matters are not fully exposed in such applications. In making that observation, I do not suggest that the trustee would not bring relevant matters to the Court's attention, in this and all applications, but common sense suggests that, where matters are contested, an opponent may bring a different perspective to bear.
This application for leave for Investa Office Management to be heard is by no means a simple one, and the competing considerations seem to me to be finely balanced. It seems to me, however, that the position is neither that intervenors would always be heard or on the other hand that they would never be heard in applications of this kind. If there is, for example, a short point to be made, which would cause the Court, if it became aware of it, not to provide judicial advice that a particular document could properly be dispatched, then it seems to me that it would be unfortunate if a refusal to permit an intervenor to be heard were to deprive the Court of access to that point, for example, because it had not occurred to the trustee seeking that advice. Equally, an intervenor in a different interest should not be given free rein to scrutinise communications between a trustee and the members of the scheme, or advance notice of them, in the hope that some basis to attack them may turn up. I proceed, on the basis, of course, that applications for intervention will typically not be used in that way, because the duties of counsel and of solicitors acting in such matters would prevent their use in such a way and, in any event, the Court has ample power to deal with an improper use of such an intervention, including by withdrawing any leave to be heard that it may otherwise have granted.
On balance, and with hesitation, it seems to me that the preferable course in this matter, given the nature of the issue that has been foreshadowed by Investa Office Management, is that I should grant leave to it to be heard, on a limited basis, and on the understanding that its opportunity to do so is confined by the scope of an advice under s 63 of the Trustee Act. However, this is not an occasion, for example, to explore contested facts, historical, present or future. The trustee is entitled to define the scope of the matters which it brings to the Court's attention, and the basis on which the advice is sought, because the effect of the advice is limited by the matters which the trustee brings to the Court's attention. It is not a matter for an intervenor to suggest, for example, that the facts are different. If the facts are different, then that is a matter to be determined in litigation about the facts, not in an application for judicial advice. Having said that, it seems to me that Investa Office Management should be given a narrow opportunity, where it has a proper and potentially significant matter to raise, to identify and be heard as to that matter. The Court would only grant that opportunity if it appears, in the particular circumstances, that the nature of the matter raised may be sufficient to warrant that opportunity, and it is likely that opportunity would only be granted as a matter of exception, and by no means as the rule. I will therefore grant leave to be heard to Investa Office Management, in respect of the limited issue to which Mr Hutley referred.
[3]
Application for judicial advice
As I noted above, Investa Listed Funds, in its capacities as responsible entity of the Armstrong Jones Office Fund and the Prime Credit Property Trust, seeks judicial advice, under s 63 of the Trustee Act, that it would be justified in adjourning concurrent extraordinary general meetings of security holders of the two trusts to consider resolutions set out in a proposed notice of meeting in respect of trust schemes. That adjournment is sought in circumstances that a revised trust scheme proposal has already been announced to the market and a supplementary explanatory memorandum is now sought to be circulated to security holders in the trusts. There is no doubt as to the power to adjourn the meetings under the constitutions of the trusts. It seems to me plainly desirable that security holders be given further time to consider that proposal and, accordingly, judicial advice should be given to that effect.
Investa Listed Funds also seeks judicial advice that it would be justified in publishing and distributing a supplementary explanatory memorandum in a form which is marked Exhibit A1 as further amended in Exhibit A2 to registered security holders of the fund. That judicial advice is sought because the courts have emphasised, in authorities to which Brereton J has referred in his recent decision in Re Investa Listed Funds Management Ltd above, that it requires that a scheme proponent seek approval for further material to be sent to security holders in respect of meetings ordered by the Court, before it is despatched, and that principle has been extended beyond company schemes to trust schemes.
The information contained in the proposed supplementary explanatory memorandum includes an independent expert's report, which is supported by an affidavit of Mr Jedlin dated 31 March 2016, which indicates that he holds the views expressed in that report. The verification process for that report is dealt with in affidavits of Mr Hanson dated 31 March 2016 and Mr Cameron dated 31 March 2016 and that verification has been in standard form. I have been taken through the supplementary explanatory memorandum, which is detailed. As I noted above, I granted leave to appear, in an exceptional circumstance, to a party with a competing commercial interest, Investa Office Management, which was heard in respect of the application. Mr Hutley, who has appeared for Investa Office Management, drew attention to one issue in respect of the letter from the Chairman of Investa Listed Funds, which has prompted the amendment proposed in Exhibit A2, which seems to me to address that issue for reasons that I will indicate below.
Mr Hutley has fairly pointed out that he has had limited time to review the supplementary explanatory memorandum and the independent expert's report, and it might fairly be said that he has had almost no time at all to review those documents. However, the basis on which Investa Office Management was permitted to be heard was to address a particular issue, and that supported an exception to what would normally be the process of hearing a judicial advice application on an ex parte basis. It does not seem to me that, where that exceptional course is adopted, on the basis of a particular issue identified by an intervenor, it should then be leveraged up into an opportunity for the intervenor to review the document to be circulated to security holders generally, in case it may wish to raise other issues which are not encompassed in the original application to be heard. To the extent that other issues exist, as Mr Thomas has pointed out, there are ample means for Investa Office Management to address them, by advancing its view in the marketplace, and also by bringing any appropriate application in this Court or in the Takeovers Panel, or raising matters of concern with the regulator, or opposing the trust scheme at the second Court hearing (assuming that it has standing to be heard as an interested party). An opportunity to be heard, in respect of a particular issue, does not support a wider opportunity for prior review of communications between the trustee and unitholders generally by a party with a competing commercial interest.
Mr Hutley raised a particular issue, which seemed to me to have substance, as to the way in which the comparison of implied announcement value and special distribution was treated in the Chairman's letter contained in the supplementary explanatory memorandum. That issue involves a reference to those figures at several dates in a table which was said to indicate that the proposal, together with the special distribution, delivered an attractive premium to unit holders. A difficulty with the form of table, as originally proposed, was that its last column indicated figures at 24 March 2016, at which date the "implied announcement value" reflecting the Dexus security price would not have adjusted for the special distribution, and added the special distribution to it. Mr Hutley pointed out that that had the capacity to overstate the consideration, by adding the implied announcement value and the special distribution, if the implied announcement value (or the Dexus security price which is reflected in it) ought to be reduced by reason of the special distribution, or an anticipated distribution had already been factored into the Dexus security price. The effect of that distribution upon the value of the relevant securities is dealt with at considerable length in the supplementary explanatory memorandum, and particularly in the independent expert's report, and I proceed on the basis that security holders will generally have regard to that document and, even if they do not, a market which contains numerous informed participants will do so.
That issue has been addressed, in the present case, by Investa Listed Funds having updated the table to include an additional column and added an additional note to it. It seems to me that that column addresses the difficulty to which Mr Hutley had referred, by providing information that postdates the announcement of the proposed special distribution, such that the market will have had the opportunity to adjust the Dexus security price to take account of the proposed special distribution. In the event, it appears the market did not, at least immediately after that special distribution was announced, adjust the Dexus security price downward by reason of that matter. It seems to me that the information contained in this table, as extended to a point after the announcement of the special distribution, reflects an available approach, notwithstanding that Investa Office Management will seek to persuade investors in the trusts that a different approach should be preferred. As I noted above, the more detailed economic analysis required to value the securities is undertaken at length in the independent expert's report. The table also makes clear, by way of an additional footnote, that prices prior to the announcement of the special distribution did not take into account the special distribution. That might, as Mr Thomas points out, have been self-evident, and it would certainly have been evident to informed market participants and those who read the independent expert's report and supplementary explanatory memorandum with any care. In any event, the note makes that matter sufficiently clear for a person who reads the Chairman's letter alone.
Mr Hutley also submitted that the effect of the table, and the introductory words to it, was to cause confusion, because it referred to the proposal, together with the special distribution, as delivering an attractive premium, and historical prices were irrelevant in that respect. I do not accept that submission, where the calculation seems to me analogous to a pro forma adjustment of historical security prices for the additional distribution, and is one that investors might well wish to have access to, whatever the weight they give to it. It appears to me that the statement that introduces that table is not misleading, where the proposal did, as far as the evidence goes, deliver a premium to unitholders at relevant times; the proposal, together with the special distribution, also delivers such a premium; and the attractiveness of such a premium is a matter that investors in the trusts will assess for themselves, having regard to the supplementary explanatory memorandum as a whole, the independent expert's report, and other publicly available information and market commentary. Issues of any necessary adjustment for the impact of the distribution are addressed by the reference to market price after the distribution was announced, in the additional column that has been added to the table, and are recognised as a matter of economic analysis in the independent expert's report.
Mr Hutley submits, more widely, that that Chairman's letter is in the nature of a "sales document". It does not seem to me that, in circumstances where there are competing proposals, and where the Chairman has formed the view, for reasons that emerge from the letter, that one proposal is preferable, then he should be constrained from expressing that view, albeit in a balanced way, and the Court should bear in mind that the proponent of a competing proposal is also free to express its views in the public domain. That is not less so, and may be more so, where the Chairman is an independent director in the relevant circumstances. I have also had regard to the fact that, to the extent that Investa Office Management takes a different view from that which is put in the Chairman's letter and the supplementary explanatory memorandum, at least in the ordinary course it would be free to express that view. If it is constrained from doing so by any other action, including an action in the Takeovers Panel to which brief reference has been made (albeit that reference was constrained by the confidentiality applicable to proceedings before the Panel), that will no doubt reflect issues arising from the particular circumstances that are properly matters for the Takeovers Panel.
For all these reasons, I am satisfied that the judicial advice that is sought may properly be given. While the Court has dealt with this matter within a confined timeframe, I should make clear that I would not have proceeded to judgment in this way unless I was satisfied, on the basis of the evidence and argument before me, that the Court was in a position to reach a properly informed view, albeit one that has been reached within the short time that is available in matters which are driven by the commercial urgencies of the marketplace. For these reasons, I make orders in accordance with the short minutes of order that are initialled by me and placed in the file.
[4]
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Decision last updated: 06 April 2016
Parties
Applicant/Plaintiff:
- Fortress Credit Corporation (Australia) II Pty Ltd