In the matter of Westfield Holdings Limited & ors; In the matter of RE1 Limited (ABN 80 145 743 862) and RE2 Limited as responsible entities for Westfield Retail Trust 1 and Westfield Retail Trust 2 [2014] NSWSC 158

Judgment (ex tempore) 1HIS HONOUR: Before the Court are two related applications for orders convening a meeting of a company pursuant to (CTH) Corporations Act 2001, s 411, and giving judicial advice in respect of trust schemes pursuant to (NSW) Trustee Act 1925, s 63 in connection with a proposed restructure of the Westfield Group and the Westfield Retail Trusts. 2In short, what is proposed is that the Westfield Group - which presently comprises Westfield Holdings, the Westfield Trust and the Westfield America Trust - demerge its Australian and New Zealand assets; and that those assets be linked with the Australian and New Zealand assets of the Westfield Retail Trust Group under a new entity to be called Scentre, in which the present security holders in the Westfield Group, and those in the Westfield Retail Trust Group, will share in a proportion which has been determined according to the relative values of their respective current assets and interests. It is unnecessary for the purposes of this judgment to set out in detail the complex nature of what is proposed. 3The order pursuant to s 411 is sought in respect of Westfield Holdings, and is principally concerned with a scheme to distribute shares of Westfield Corporation Limited to Westfield Holdings shareholders. Section 411 confers on the Court a discretion to order a meeting of members of the company to be convened and to approve the applicable explanatory statement, where it is satisfied that a compromise or arrangement is proposed between a Part 5.1 body and its members or any class of them, upon application made in a summary way by the body with 14 days' notice of the hearing of the application to ASIC; and if the Court is satisfied that ASIC has had a reasonable opportunity to examine the terms of the proposed compromise or arrangement and the draft of the explanatory statement, and to make submissions to the Court in relation to it. 4In this case, Westfield Holdings is a Part 5.1 body. The scheme falls within the concept of a compromise or arrangement within the meaning of s 411. Westfield Holdings has applied by way of the originating process for an order pursuant to s 411(1), and that process was served on ASIC more than 14 days prior to today. ASIC has indicated that it considers that it has been afforded a reasonable opportunity to examine the scheme and to make submissions. Although at this stage it reserves until the second hearing what it may say in terms of s 411(17), ASIC does not, at this stage, seek to be heard on the question of the orders to be made at this hearing. 5The factors to be taken into account in whether to make an order convening a meeting under s 411 were summarised by Barrett J, as his Honour then was, in Re Westfield Holdings Ltd (2004) 49 ACSR 734 (at 736). Important considerations, once the jurisdictional facts to which I have referred have been satisfied, are whether there will be available to members the appropriate main facts relevant to the exercise of their judgment, and whether there is any apparent reason why, if approved at the meeting, the Court would nonetheless not approve the compromise or arrangement. Of course, the Court does not substitute its business or commercial judgment for that of those with a financial interest in the company, namely, its shareholders. 6In this case, the draft Security Holder Booklet describes the scheme in what appear to be comprehensive terms, and I am influenced by the circumstance that ASIC, having had an opportunity to review it at length, does not at this stage wish to make any submissions about it. The Security Holder Booklet has been the subject of what appears to be a rigorous verification process to ensure that evidence is available to support each statement made in it. As I have indicated in the course of argument, I think it desirable that the booklet makes clear to security holders how, if they wish to oppose the proposal, they can do so, and an amendment to that effect is to be included. 7There is nothing in the scheme, as revealed by the statement of facts, which would indicate at this stage that there is any fatal obstacle to its approval by the Court at the second hearing. It is unanimously supported by the Board. It does not involve the acquisition of securities by a third party bidder, and the independent expert has concluded that it is in the best interests of security holders in the absence of a superior proposal and fair for security holders. 8The requirements of Corporations Rules, r 3.2, as to who is to chair the meeting have been satisfied by affidavits of a proposed chair and alternate. 9Importantly, in the context of an independent expert's report which points out that the transaction is not a "must do" for Westfield, the "Frequently Asked Questions" portion as well as the independent expert report, fairly points out disadvantages as well as advantages associated with the proposal. Ultimately, the independent expert has concluded, as I understand it, from the perspective of the Westfield Group, that the proposal, though not a "must do", is likely to result in future benefit and financial growth for the Westfield Group, and represents a logical step in the evolution of its corporate structure in response to changing times. 10The proposal includes a provision by which ineligible foreign security holders will be cashed out, as is common in arrangements of this kind, and as courts have frequently been prepared to sanction in the past, including a deemed warranty by which each ineligible foreign security holder warrants that their shares are fully paid and unencumbered. As such clauses have now frequently been accepted, I do not think that this warrants further comment. 11Associated with the company scheme are two trust schemes relating to the Westfield Trust and the Westfield America Trust. Conformably with the practice that has evolved in respect of trust schemes that are not Part 5.1 bodies, judicial advice is sought pursuant to (NSW) Trustee Act 1925, s 63, with respect to proposed amendments to the constitution of those trusts in order to give effect to the proposal. The Court proceeds in substantially the same way and by analogy with its approach under (CTH) Corporations Act 2001, s 411. The first matter upon which advice is sought is whether the responsible entities of the Westfield Trust and the Westfield America Trust - namely, the second plaintiff Westfield Management Limited, and the third plaintiff, Westfield America Management Limited - would be justified in convening meetings of the trust of which they are respectively the responsible entity, for the purpose of considering, and if thought fit, agreeing to special resolutions amending the constitutions of the trusts to give effect to the proposal. The matters to which I have referred in the context of the company scheme apply equally here. There does not appear to be any fatal obstacle to the Court approving the scheme at the second hearing. 12Secondly, the responsible entities seek advice that they would be justified in proceeding on the basis that the making of the proposed amendments to the constitutions of the trusts, if approved, would be within their powers as trustees, including the powers conferred by their respective constitutions and by Corporations Act, s 601GC. The constitutions contain plenary powers of amendment, as does Corporations Act, s 601GC, and there does not appear to be any basis upon which it could be said that the proposed amendments, extensive as they are, would not be within those ample powers. 13Thirdly, advice is sought by the responsible entities that they would be justified in circulating an explanatory statement in the form of the draft Security Holder Booklet, which has been exhibited. This is the same explanatory memorandum as referred to in the company scheme. As I have said, the explanatory memorandum appears fully to explain the proposal, and has been the subject of a rigorous verification process. For the reasons already mentioned, subject to the one amendment I have mentioned, it seems to me that that explanatory memorandum is appropriate. 14The second application is made by RE1 Limited as responsible entity for the Westfield Retail Trust No 1, and RE2 Limited as responsible entity for Westfield Retail Trust No 2. What is proposed so far as the Westfield Retail Trust Group is concerned is that, after the separation of Westfield Group's Australian and New Zealand business from its international business and the destapling of the relevant securities of the Westfield Group, the Scentre Group will then be created. This involves a return of capital to each security holder in the Westfield Retail Trust Group, and the linking of the interests of security holders in the two Westfield Retail Trusts with the entities that will hold the former Australian and New Zealand assets of the Westfield Group so as to form a single stapled security under the Scentre Group. 15At the meeting which the Court is asked to advise the plaintiffs that they would be justified in convening, resolutions will be proposed: first, to ratify the appointment of a director, this is not a matter in respect of which the Court's advice is required or sought; secondly, to approve the proposal; thirdly and fourthly, to amend the constitutions of the two trusts; and fifthly, to terminate a Corporate Governance Deed, which will no longer be necessary following the implementation of the proposal. Again, the issues at this hearing are whether the proposals are adequately explained to the security holders and whether there is any obvious flaw in the scheme that would preclude its ultimate endorsement by the Court even if approved by the security holders. 16Once again, a comprehensive explanatory booklet has been prepared. It has been the subject of a rigorous verification process, to ensure, so far as can be done, that the statements made in it are accurate. 17The booklet appears adequately to point out the disadvantages as well as the advantages of the proposal in the context of this case. That is important, because amongst the disadvantages are a significant reduction in the net tangible assets of the Westfield Retail Trust Group. The independent expert addresses that, but it is nonetheless important that that circumstance be drawn to the attention of security holders, as it is in the booklet. 18The statement of facts upon which this advice is based asserts as facts, which of course the Court assumes, that an independent board committee was constituted to consider and negotiate the proposal with the Westfield Group, and that the independent board committee excluded those Westfield Group directors who are also members of the boards of RE1 and RE2. The confidential supplement to the statement of facts indicates that robust and careful negotiations were pursued to endeavour to gain the optimum result for the security holders in the Westfield Retail Trust Group. 19The independent expert has concluded that the proposal is in the interests of the security holders in the Westfield Retail Trust Group - as I understand it, essentially on the basis that there will be a significant capital return to security holders, that the merger ratio is an appropriate one having regard to the respective interests of those security holders and those in the Westfield Group, and that the proposal will remove a potential or perceived conflict of interest between the Westfield Retail Trust Group and the Westfield Group. 20Regulatory relief has been sought from the Australian Stock Exchange and from ASIC, and both have indicated, at least in principle, that such relief would be granted. Again, provision is made for the cashing out of ineligible foreign security holders and, as earlier indicated, this is no longer a particularly notable matter. 21There is no "no talk" or "no shop" or other exclusivity provision, nor any break fees. 22The constitutions of each trust contain ample powers of amendment such that the proposed amendments appear to be within those powers, notwithstanding that they are considerable in extent and go beyond the implementation of the scheme to the general updating of the trusts' constitutions. 23In proceedings 2014/94612, the Court orders that: (1)Pursuant to Corporations Act, s 411, the first plaintiff convene a meeting ("Scheme Meeting") of the shareholders of the First Plaintiff for the purpose of considering and, if thought fit, agreeing (with or without modifications) to a scheme of arrangement proposed between the First Plaintiff and its shareholders ("Scheme"), being the scheme substantially in the form contained at Appendix 3 of the Security Holder Booklet at exhibit A in these proceedings. (2)The Scheme Meeting be held on 29 May 2014 in the Grand Ballroom, Sofitel Sydney Wentworth, Phillip Street, Sydney in the State of New South Wales. (3)The chairman of the Scheme Meeting be Mr Frank Lowy AC and, in his absence, Mr Brian Martin Schwartz AM. (4)The Chairman appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion. (5)Except for procedural motions, all voting in the Scheme Meeting be by poll as declared by the Chairman. (6)The Security Holder Booklet is approved for distribution to shareholders of the Plaintiff, together with the Proxy Form substantially in the form of the pro forma document at Tab 21 of Exhibit SJT-1 to the affidavit of Simon Julian Tuxen sworn 10 April 2014 ("Tuxen Affidavit"), subject to the inclusion at the foot of page 28 thereof of a question and answer in the form set out in the document headed "To be placed at the foot of page 28". (7)Corporations Regulations 2001, Regulations 5.6.12 and 5.6.14 to 5.6.36A will not apply to the Scheme Meeting. (8)The plaintiff to be relieved from compliance with Supreme Court Corporations Rules, rule 3.4 subject to the First Plaintiff publishing once in the Australian newspaper on or before 4 June 2014, an advertisement substantially in the form of Annexure "A" to this order. (9) Pursuant to (NSW) Trustee Act, s 63: (a)the Second Plaintiff is justified in convening a meeting of the members of Westfield Trust for the purpose of those members considering and, if thought fit, agreeing to the resolutions set out in the Notice of Meeting set out at Appendix 2 of the Security Holder Booklet ("Westfield Trust Resolutions"); (b)subject to the members of Westfield Trust passing the Westfield Trust Resolutions the Second Plaintiff would be justified in proceeding on the basis that the making of the proposed amendments to the Westfield Trust Constitution recorded in a draft supplemental deed, being PX06 in these proceedings, would be within the Second Plaintiff's powers as trustee and responsible entity of the Westfield Trust including (without limitation) the powers of alteration conferred by the constitution of Westfield Trust and s 601GC of the Corporations Act; (c)the Second Plaintiff is justified, prior to the meeting of the members of Westfield Trust, in distributing to the members of Westfield Trust an explanatory statement substantially in the form of the Security Holder Booklet subject to the amendment referred to in order 6 above. (10)Any person who claims that their rights as a member of the Westfield Trust will be prejudiced by the amendment of the Westfield Trust Constitution or by the Second Plaintiff implementing the proposal described in the Security Holder Booklet may at the Second Court Hearing, apply to the Court for such orders or such directions as the circumstance may require. (11)Except for the publication of a summary of the orders set out in paragraphs 9(a), (b) and 10 above in, and circulation of the Security Holder Booklet to members of the Westfield Trust, notice of these proceedings and the above orders need not be given or served on any person. (12)Pursuant to (NSW) Trustee Act, s 63: (a)the Third Plaintiff is justified in convening a meeting of the members of Westfield America Trust for the purpose of considering and, if thought fit, agreeing to the resolutions set out in the Notice of Meeting at Appendix 2 of the Security Holder Booklet ("Westfield America Trust Resolutions"); (b)subject to the member of the Westfield America Trust passing the Westfield America Trust Resolutions the Third Plaintiff would be justified in proceeding on the basis that the making of the proposed amendments to the Westfield America Trust constitution recorded in the draft supplemental deed at Tab 12 of Exhibit SJT-1 to the Tuxen Affidavit would be within the Third Plaintiff's powers as trustee and responsible entity including without limitation the powers conferred by the constitution of Westfield America Trust and in s 601GC of the Corporations Act; (c)the Third Plaintiff is justified, prior to the meeting of the members of Westfield America Trust in distributing to the members of the Westfield America Trust an explanatory statement substantially in the form of the Security Holder Booklet, subject to the amendments referred to in order 6 above. (13)Any person who claims that their rights as a member of Westfield America Trust will be prejudiced by the amendment of the Westfield America Trust constitution or by the Third Plaintiff implementing the proposal described in the Security Holder Booklet may at the Second Court Hearing apply for such orders or such a directions as the circumstances may require. (14)Except for the publication of a summary of the orders set out in paragraphs 12(a) and (b) and 13 above in, and circulation of the Security Holder Booklet to members of the Westfield America Trust notice of these proceedings and the above orders need not be given to or served on any person. (15)The originating process be adjourned to 10am on Friday 13 June 2014. (16)There be liberty to apply. (17)These orders be entered forthwith. 24In proceedings 2014/110824 the Court orders that: (1)The plaintiffs would be justified in convening a meeting of Security Holders (Security Holders) of Westfield Retail Trust 1 (WRT1) and of Westfield Retail Trust 2 (WRT) (together WRT) for the purpose of considering and, if thought fit, voting on the Proposed Resolutions (being resolutions 2, 3, 4 and 5 set out in the Notice of Meetings in Annexure A of the Security Holders Booklet). (2)The plaintiffs would be justified in distributing the Security Holder Booklet, substantially in the form of the document at SX10, to Security Holders. (3)Subject to Security Holders approving the Proposal Resolutions, the plaintiffs would be justified in proceeding on the basis that amending the WRT1 and WRT2 constitutions in the manner contemplated by the WRT1 Supplemental Deed and the WRT2 Supplemental Deed, being the documents at Tabs 24 and 25 respectively to Annexure A of the Statement of Facts being exhibit SX07 herein dated 10 April 2014 would be within the powers of alteration conferred by the WRT1 and WRT2 constitutions and s 601GC of the Corporations Act. (4)Pursuant to the Court Suppression and Non-Publication Orders Act 2010, s 8(1)(a) and (e) the confidential supplement to the statement of facts, being confidential exhibit SXO8 herein and the document annexed to it are not to be published, disclosed to or accessed by any person other than a judicial officer of the Court or the plaintiffs and their legal representatives and are to be kept confidential and stored in the Court records in a sealed and appropriately marked envelope. This order is to apply for a period of twelve months from the date of this order. (5)The costs of each of the plaintiffs be paid out of the assets of Westfield Retail Trust 1 and Westfield Retail Trust 2 respectively on the trustee basis pursuant to the Trustee Act s 93. (6)These orders are to be entered forthwith.