In the matter of Centro Properties Limited and CPT Manager Limited in its capacity as responsible entity of Centro Property Trust [2011] NSWSC 1403

Judgment 1I am dealing with an amended interlocutory process by which PricewaterhouseCoopers ("PwC"), a non-party, seeks an order that it be joined as a defendant and an order that the first and second plaintiffs (together "CNP") give discovery of documents within certain defined categories. 2The proceedings have been brought by CNP under s 411 of the Corporations Act 2001 (Cth) in relation to proposed schemes of arrangement between the CNP companies and certain groups of their creditors. 3After a hearing on 29 and 30 September 2011, the court made orders under s 411(1) for the convening of meetings of creditors. The orders were made on 5 October 2011. The meetings are to be held today, 22 November 2011. A hearing has been fixed for 24 and 25 November 2011 to deal with such application for approval under s 411(4)(b) as may be pressed by CNP following the meetings. 4PwC made submissions on 29 and 30 September 2011, having been granted leave under rule 2.13(1) of the Supreme Court (Corporations) Rules 1999 to be heard without becoming a party. That leave continues. PwC now seeks to be joined as a party in order, it says, to forestall any questions about its ability to participate fully in the anticipated hearing commencing on 24 November 2011, including by cross-examining witnesses upon whose evidence CNP relies and potentially by seeking to adduce evidence of its own (see the discussion in Re NRMA Ltd [2000] NSWSC 82; (2000) 33 ACSR 595 at [43] and following which points to the clear possibility that party status may not be necessary for these purposes in this particular context). 5CNP is not, in general, opposed to the joinder. It regards the matter of discovery as much more significant. 6The two aspects are necessarily linked. Leaving aside cases of preliminary discovery, discovery is only available as between parties. It would seem to follow, therefore, that no order for discovery should be made against CNP on PwC's application unless PwC is a party. The result of the joinder application should therefore, in general terms, follow on from the decision on discovery. Since PwC will, in any event, have a right to be heard if the matter comes back before the court on 24 November 2011, the application for joinder as a party does not, in its own right, raise any substantial point. 7PwC seeks discovery of documents by reference to six categories. Before describing the categories, I should say something about matters of background and context. 8PwC considers itself a contingent creditor of CNP. It has foreshadowed an intention of arguing against the making of orders under s 411(4)(b) if such orders are sought by CNP. PwC objects to what it sees as subversion of the natural order of things in that, under the total proposal of which the schemes of arrangement form part, equity holders of CNP (being holders of stapled securities consisting of shares in one plaintiff and units of a registered managed investment scheme of which the plaintiff is the responsible entity) will receive payment of a specified amount per unit from funds which, in the event of a winding up, would be available to unsecured creditors rather than equity holders. In circumstances of financial stress, PwC emphasises, it is the duty of directors to pay attention predominantly to the interests of creditors in deciding where the interests of the company as a whole lie; and allocation of funds to equity holders ahead of unsecured creditors raises, at least in PwC's mind, real questions about due discharge of that aspect of directors' duties. 9The money for equity holders (as well as a residual sum for unsecured creditors) will come from a larger fund designated the "Junior Stakeholder Amount" which, by arrangement between CNP and its secured creditors, is to be split among various groups ranking, in terms of priority, behind secured creditors. 10PwC has further foreshadowed an argument that the schemes and the wider proposal have been designed to provide what PwC considers an artificial or contrived basis on which to justify payment to equity holders, in that those holders are to be invited to pass an approving resolution and will, as it were, "earn" their payment by doing so - but in circumstances where, according to PwC, the directors of CNP could have arranged matters to avoid the need for any such approving resolution. The perceived need for the resolution comes from the listing rules of Australian Securities Exchange ("ASX") and, in particular, rule 11.2; and PwC's foreshadowed argument is that any such need could have been avoided by either obtaining a relevant waiver or dispensation from ASX or having the CNP securities removed from the official list. 11A further aspect of PwC's foreshadowed objection goes to the question whether the moneys to be paid to equity holders represent, in company law terms, an unlawful return of capital or, in the managed investment scheme context, an application of the corpus of the trust in breach of trust. 12PWC's general apprehension is to the effect that the directors of CNP, in promoting and pursuing the schemes, may be found to have acted for purposes that are impermissible, having regard to the duties to which directors are subject; also that aspects of the schemes may be unlawful or contrary to the public policy. 13I turn therefore to the categories of documents sought. They are as follows: Category 1 Copies of documents evidencing or recording any consideration given by the directors and/or officers (or any of them) of CNP to the allocation of the Junior Stakeholder Amount, whether before or after the allocation was made, including without limitation all papers, presentations and other materials provided to the directors and/or officers for the purpose of considering the allocation as well as the minutes of a meeting of the boards on or about 29 July 2011. Category 2 Copies of documents evidencing or recording any advice given to the chief executive or other officers of CNP in respect of the possibility or feasibility of applying to the ASX for a waiver of ASX listing rule 11.2 in connection with the proposed restructure of CNP. Category 3 Copies of any documents evidencing or recording any advice given to the chief executive or other officers of CNP in respect of the possibility or feasibility of applying to the ASX to de-list CNP in connection with the proposed restructure. Category 4 Copies of all correspondence entered into between CNP (and or its advisers) and the Australian Taxation Office relating to any application for a class ruling in respect of the "capital return" described in the explanatory memorandum. Category 5 Copies of the Amendment and Waiver Agreement executed by the parties to that Agreement. Category 6 Copies of documents evidencing or recording any consideration given by the directors and/or officers (or any of them) of CNP to amending of clause 12.3 of the Implementation Agreement in terms to the effect set out at clause 3.2 of the Amendment and Waiver Agreement, including without limitation all papers, presentations and other materials provided to the directors and/or officers for the purposes of considering the amendment. 14In approaching these categories and PwC's application in relation to them, I proceed on the basis that discovery of a document will properly be ordered if the document has any capacity to rationally affect the assessment of the probability of a contentious fact ( Uniform Civil Procedure Rules 2005, rule 21.1(2)); and that the test is a wide one so that there should be discovery of any document that is likely to throw light on the case, regardless of whether the document will be, in its own right, admissible. It is not for the court, at the discovery stage, to come to hard and fast views about which contentions will ultimately prevail and which will not. The task is, rather, to put the parties into like positions of full access to documentary material that might conceivably have a rational bearing on matters so that neither is, in that respect, at a forensic disadvantage. 15In relation to Category 1, PwC points to a statement by CNP's chief executive in a recent television interview to the effect that, had CNP embarked on a course of selling all assets and converting them into cash (instead of undertaking the total proposal now in train), there would have been a "problem" that cash "would have been ... trapped inside the companies - or company - and couldn't have been distributed, and certainly would have emboldened the claimants under the class actions" (PwC stand, in general terms, in the same interest as the claimants thus referred to). 16PwC also points to the fact that such affidavit evidence as there is concerning the directors' deliberations on the allocation of funds is largely hearsay and inadmissible. 17Upon any s 411(4)(b) hearing, the court will be concerned with questions of fairness. It is too early to express an opinion on the extent to which fairness to PwC and persons in a like position will be a proper object of consideration. For the time being, the appropriate course is to assume that it will be a proper object of consideration and that any deliberate policy of, as it were, manufacturing a means of passing value to equity holders at the expense of PwC and persons in like position would be a matter potentially relevant to the court's decision. Any possibility that funds were being applied in an illegal way (having regard to the maintenance of capital rules) or in breach of trust would certainly be relevant to the court's decision. 18It was submitted on behalf of CNP that there is no good reason for PwC to have the documents sought in order to enable it to delve into the matters it has foreshadowed; that the directors of CNP have formulated the schemes as they think fit; that the directors were free to formulate the schemes in any way they wished; and that the foreshadowed objection can be mounted quite simply by reference to the terms of the schemes and the materials already available. 19I prefer the arguments advanced by PwC. If it were shown (and I express no opinion on the question whether it could be or will be) that the schemes were proposed in their present form for a purpose of channelling to equity holders funds they would not have received had some realistically available alternative been adopted and that that channelling operates to the detriment of PwC and like persons, that might be material to the court's decision under s 411(4)(b) - and this will be particularly so if the chosen methodology is seen to involve an unlawful return of capital or an impermissible application of trust property. 20There will be an order for discovery of the Category 1 documents. 21Category 2 and Category 3 may be taken together. They both go to what is, in broad terms, the question whether means might have been available to CNP to avoid the operation of the provision of the ASX listing rules under which the need for an approving resolution of equity holders arises. If CNP had been successful in an application for waiver of the listing rule or, more radically, termination of official quotation of the equity securities, the need for the approving resolution would not have arisen and, to the extent that the payment to the equity holders is being characterised as the payment of a "price" for their approval, CNP may have failed to take reasonably available steps that could have avoided the need to pay that "price". 22CNP says again that PwC should take the schemes as it finds them; that there was no application for dispensation from the listing rule or for termination of official quotation; and, in effect, that CNP simply faced up to the need to comply with the listing rules by seeking a resolution of equity holders and had no occasion to seek to avoid its obligations in that respect. 23Again, I prefer the argument of PwC. If it were to appear that officers of CNP knew that there was some chance of obtaining a waiver or termination and preferred to refrain from doing so, the case under s 411(4)(b) might have some complexion different from that which it would take on if the true position was that the matter of dispensation or termination was simply impossible or not a realistic prospect. 24There will be an order for discovery of the Category 2 and Category 3 documents. 25Category 4 goes to the apprehension of PwC that there might be an unlawful return of capital or an impermissible application of trust corpus. The fact that CNP has sought a ruling from the Australian Taxation Office as to the tax status, in equity holders' hands, of the funds to be paid to equity holders is mentioned in the materials distributed to stakeholders for the purposes of the several meeting that are to be held in connection with the wider plan of which the schemes of arrangement form part. 26PwC refers to a question touched upon in my judgment of 5 October 2011 ([2011] NSWSC 1171 at [32] and following) as to the source of the funds from which the payments to equity holders will be made - whether the funds are "owned" by CNP (and, if so, by which of the two companies that make up CNP) or by CNP's senior lenders (secured creditors) so that, perhaps, CNP itself (or either of its constituents) makes no active decision with respect to the passing of those funds to the equity holders. PwC regards the answer to that question as unclear at this point and takes the view that it is entitled to a better understanding of the position. Furthermore, PwC says, CNP must have given the full facts to the ATO for the purposes of the application for the tax ruling, so that the documents submitted to the ATO are of a quality that makes them discoverable. 27CNP's response is that the tax ruling that has been sought goes to the question of assessability of the relevant receipts in the hands of equity holders only; and that there is a very great difference between that characterisation and characterisation of the fund from which the payments to security holders are to be made. 28CNP is obviously correct. But the fact remains that, in order to obtain a reliable ruling from the ATO for the guidance of its equity holders regarding their own tax position, CNP must have given to the ATO a detailed and accurate explanation of the source of the relevant funds. PwC is therefore correct in its contention that the submission of CNP to the ATO and documents given by CNP to the ATO are likely to throw some light on the issue of source of funds that is germane to the matters on which PwC has foreshadowed submissions. 29There will therefore be an order in respect of Category 4. 30As to Category 5, CNP has already released to the market an unexecuted copy of the deed in question and does not resist discovery of the executed document. There will be an order accordingly. 31Remaining, therefore, is Category 6. The clause of the implementation agreement referred to in the description of this class deals with the split of the Junior Stakeholder Amount among several constituencies. Clause 12.3(a) set out particular allocations (these are mentioned at paragraph [29] of the judgment of 5 October 2011). Clause 12.3(b) permitted CNP to vary those allocations, but with certain constraints applying to the power of variation, including that the amount allocated to hybrid lenders should not be reduced and that relativities among the hybrid lenders should not be altered. By the deed the subject of category 5, a new clause 12.3(c) was added. It states that "For the avoidance of doubt" CNP has no power to "vary downwards" an allocation referred to in published material relating to the schemes. 32PwC considers that CNP has thus bargained away a right or power it may have had to reduce the sum to pass to equity holders. The rationale for that apparent surrender of freedom is something that PwC considers may be relevant to exploration of the concerns that lie at the heart of its foreshadowed objections. 33There is substance in PwC's view and there will be an order for discovery in relation to Category 6. 34I should make it clear that I have not overlooked the submission of CNP that deliberation of officers other than directors are not relevant, since everything that has been done in relation to the schemes and the wider proposal stems from a decision of the directors. PwC makes the point, which I consider valid, that directors' decision making is likely to have been influenced by officers' advice and other inputs and that decisions of officers as to what should and should not be recommended or submitted to the board or placed before the board may throw light on the reasons behind directors' decisions and the purposes of the directors in making decisions. 35The orders of the court are as follows: