In the matter of Westfield Holdings Limited & ors; Application of RE1 Limited (ABN 80 145 743 862) and RE2 Limited as responsible entities for Westfield Retail Trust 1 and Westfield Retail Trust 2 (No 5) [2014] NSWSC 976

Judgment (ex tempore) 1HIS HONOUR: Although the matter has now been before the Court on four occasions, this is the nominal second hearing of an application for judicial advice pursuant to (NSW) Trustee Act 1925, s 63, by the responsible entities of the Westfield Retail Trust No 1 and the Westfield Retail Trust No 2 as to the implementation of a proposal which involves amendments of the constitution of those trusts and associated steps in connection with the proposed de-merger of the Westfield Group's Australian and New Zealand operations and the joinder of those operations with those of the Westfield Retail Trusts to form a new group, to be called the Scentre Group. 2In short, at present the Westfield Retail Trusts own a 50% share in the Westfield Australian and New Zealand shopping centres, and the Westfield Group owns the other 50% and provides management services in connection with them. The effect of the proposal is that all of those interests will be joined in the Sentre Group. From the perspective of the Westfield Retail Trusts, they will acquire from Westfield Group the other 50% interest in the Australian and New Zealand properties, and also gain management rights and responsibilities in respect of them, but at the cost of increased debt to do so. 3When the matter first came before the Court, the Court advised that the responsible entities would be justified in convening a meeting to consider resolutions to approve the proposed amendments to the trust constitutions, in distributing a security holders booklet in a form approved by the Court that explained the proposal to security holders, and in proceeding on the basis the proposed amendments to the constitution would be within power [see [2014] NSWSC 158]. 4The plaintiffs then returned to the Court in order to obtain advice that they would be justified in distributing a supplementary security holders booklet in circumstances whereas a result of negotiations an offer that increased the benefits to WRT from the proposed transaction had been negotiated with Westfield Group. That advice was given [see [2014] NSWSC 601]. 5The matter returned to the Court a third time, following the adjournment of the security holders meeting, in circumstances where Westfield Group had confirmed its intentions, in the event the proposal was not approved by WRT, and in circumstances where it appeared likely at that stage that the security holders might, by a narrow margin, not approve the proposal. The Court expressed the view that the adjournment of the meeting was within power; and gave advice in respect of certain procedures to apply at the adjourned meeting, including that those who had previously lodged proxies would be able to change their vote, if so minded, and those who had not previously attended or lodged proxies be able to do so, but the cut-off date for eligibility purposes remained unchanged [see [2014] NSWSC 762]. The meetings proceeded on 20 June 2014. In those circumstances the scheme now comes before the Court on what, as I have said, is the so-called second hearing. 6The Court proceeds in respect of the trust schemes by analogy with the process that applies on the approval of schemes of arrangement under (Cth) Corporations Act 2001, s 411 [see Sydney Airport Holdings as responsible entity of Sydney Airport Trust 2 [2013] NSWSC 1665; In the Matter of Commonwealth Managed Investments Ltd (ACN 084 098 180) [2014] NSWSC 74]. Essentially, the Court is concerned to be satisfied that the legal and procedural requirements, including any stipulated in its earlier advices have been fulfilled; that the requisite majority was obtained at the meeting, and that the proposal is one which could legitimately be approved by the shareholders or security holders acting reasonably in their commercial interests. The Court is not concerned to second-guess commercial judgments, but is concerned to ensure that minority interests are dealt with fairly. 7The evidence establishes that, in conformity with the Court's advice on the third occasion, a second supplementary security holders booklet was distributed to security holders. The evidence also indicates that the Court's advice as to the conservative approach that should be adopted in soliciting votes and seeking to influence security holders was heeded. 8The adjournment resulted in an increased participation by security holders, from 78% by value at the original meeting to 81% at the adjourned meeting. The procedures as to eligibility to vote, cut-off dates for proxies and the like referred to in the advice given on third occasion were followed. 9It is of some concern that it seems that upwards of 500 proxies were received late and that those votes were therefore excluded, which might reflect the relatively short time between the distribution of the second supplementary security holders booklet and the adjourned meeting. That said, the security holders had ample opportunity to lodge proxies by the time of the first meeting, and the dates fixed for the adjourned meeting and the cut-off for proxies were reached after the intervention and with the agreement of ASIC, and the approval of the Court. 10At the meeting, the relevant resolution was approved by votes representing just in excess of 76% of the holdings and in excess of 74% by number of the security holders voting. It is the former figure that is relevant for the purposes of whether the requisite majority of 75% was achieved, as it was. 11Accordingly, as it seems to me, the formal legal and procedural requirements have been satisfied. 12In addition, the Court has previously advised that the trustee would be justified in proceeding on the footing that the preferred constitutional amendments are within power. The Court has also previously advised that the responsible entities were justified in distributing the supplementary security holder booklet and the second supplementary security holder booklet to explain the scheme to security holders. Other sources of information have been made available to security holders, including a security holder information line, which the evidence demonstrates received a total of 617 enquiries. 13As to whether the proposal is one which could legitimately be approved by security holders acting reasonably in their own interests and deals fairly with minority interests, it is noteworthy that while the proposal achieved the support of in excess of the requisite of 75%, it did so only narrowly. At the same time, 75% represents the support of 3 out of 4 votes of the more than 80% of eligible votes that were cast, which remains a significant majority of security holders who have judged the proposal to be in their best commercial interests. That of itself is a significant factor. 14Moreover, as I understand such controversy as there has been in respect of this scheme, it is very much a matter of pure commercial judgment as to whether the price effectively being paid by WRT for the additional assets it will acquire is an appropriate one, or the best that can be negotiated in the circumstances; and whether to the extent WRT will incur increased debt, reduced NTA and a higher gearing ratio that is justified by what are seen to be the benefits of the consolidation of the ownership and management of all the Australian and New Zealand assets in a single entity. As I say, those are exquisitely matters of commercial judgment with which the Court would not lightly interfere. It does not appear that the 24% who have voted against approval represent any distinct minority class in the shareholding, whose interests are in some way different from those of the majority. As it seems to me, so far as the evidence goes, the difference is one of commercial judgment. In those circumstances it is not the Court's role to substitute its own judgment for that of the requisite 75% majority at the scheme meeting. 15It is also very much in point in that respect that no dissident security holder has sought to appear to oppose the approval of the scheme by the Court. Had there been anything more than a legitimate difference of commercial judgment involved, one would have expected such an appearance to oppose approval. 16On 13 June, I indicated that subject to the approval of the WRT scheme I would approve the WDC scheme and make the requisite orders to that effect. I now make those orders, in accordance with the document entitled "Order dated 23 June 2014" and signed and sealed by the Court. 17In the RE1 and RE2 application, I make orders in accordance with the document entitled "Order".