Solicitors:
Ashurst (Plaintiff)
Herbert Smith Freehills (First Defendant)
Allens (Second and Third Defendants)
King & Wood Mallesons (Fourth Defendant)
File Number(s): 2021/171239
[2]
Background and history of the application
By Interlocutory Process filed on 30 November 2022, the Plaintiff, Northwest Healthcare Australia Re Ltd as trustee of NWH Australia Hold Trust No. 2 and trustee of Northwest Australia Hospital Investment No. 2 Bid Trust ("NHA") brought an application, under r 31.19 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), for leave to lead expert evidence of two experts at the trial of these proceedings. It will immediately be noted that that application was bought over three months ago, and that it has taken a significant time to reach the final determination of it which will occur today. Part of the delay reflects the Court vacation, and part the way in which the application developed, in successive stages, in that period. I now turn to the initial form of the application and evidence led in support of the application, then to the subsequent iterations of the application, then to the basis on which the current version of the application is put and the Defendants' response to the application, before determining it below.
Initially, NHA sought leave to lead expert evidence in two areas. The first related to valuation of certain rights, and orders were made by consent granting that leave. The second area of expert evidence was initially described by NHA as follows:
"A person with specialised knowledge based on the person's training, study or experience in corporate finance and capital markets, to provide an expert report with respect to the factors and considerations that would be taken into account (in the person's expert opinion) by a reasonable entity and manager of a real estate investment trust, in assessing a proposal to raise equity capital for the trust and whether such proposal is in the best interest of unit holders."
NorthWest Healthcare Australia RE Limited v Australian Unity Funds... [2023] NSWSC 86 | Case summary | Zoe
The application in that form was supported by an affidavit dated 30 November 2022 of NHA's solicitor, Mr James Clarke, which referred to the factual background of the proceedings, in which NHA challenges steps taken by Australian Unity Funds Management Ltd ("AUFM"), associated entities, and certain third parties, in respect of an offer made by NHA to acquire control of a real estate investment trust ("AUHPT"). Mr Clarke refers, in his affidavit dated 30 November 2022, to NHA's contention that:
"The causative purpose of these transactions was to maintain AUFM as responsible entity of AUHPT for reward and impede control transactions in respect of AUHPT, and that this purpose was pursued through the restrictions on voting and unit disposal that conditioned the placements and were the imperative for them."
Mr Clarke there refers to AUFM's response that its capital raising and the placement of units with other Defendants was for the purpose of funding a pipeline of development projects and acquisition opportunities, for the benefit of and in the best interest of unitholders in AUHPT, and notes that AUFM had led evidence from its management in support of that pleaded, implicitly proper, purpose. Mr Clarke also there indicates, by way of submission, that on his understanding of the case law, a central issue for the Court will be whether the allegedly improper purpose pleaded by NHA was causative of AUFM undertaking the relevant transactions. He refers to the scope of the then proposed expert evidence, that is now in contest, as:
"The evidence of a person with specialised knowledge based on the person's training, study or experience in corporate finance and capital markets as to the factors and considerations that would be taken into account (in the person's expert opinion) by responsible entity and manager of a real estate investment trust in assessing a proposal to raise equity capital for the trust and whether this is in the best interest of unit holders."
Mr Clarke also expresses the view that the expert evidence would have several benefits, including assisting the Court in analysing and assessing document produced by the Defendants during discovery concerning certain matters. He in turn addresses the allegations in the proceedings including, specifically, the allegation of improper purpose made by NHA in the proceedings, in paragraph 82 of its Further Amended Statement of Claim, to which I will refer below.
The parties then made detailed written submissions as to the matters in issue, and I should briefly refer to those submissions, although subsequent iterations of the scope of the expert evidence that NHA seeks to lead have narrowed its scope. Ms Wong, with whom Ms Phillips appeared for NHA, then submitted, and I accept, that the Court would be permitted, and likely required, to look objectively at surrounding circumstances in order to assess the claims made by AUFM as to the propriety of its motivations and purposes, and I would add, the basis on which NHA seeks to impugn AUFM's claim as to the propriety of those purposes. She refers, in that respect, to Advance Bank Australia (1987) 9 NSWLR 464, and to the recent decision of Robson J in Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136 at [919] - [933]. In oral submissions today, Ms Wong added reference to the first instance decision in Ampol Petroleum Ltd v R W Miller (Holdings) Ltd (1972) 2 NSWLR 850 and Darvall v North Sydney Brick & Tile Co Ltd (1987) 16 NSWLR 212.
I accept, of course, that the Court would have regard to objective evidence in determining whether to accept evidence given by company officers as to their subjective purposes in undertaking a particular transaction. However, I also bear in mind that it does so, not at large, but by reference to the case which has been defined by the parties, by the process of pleadings which is undertaken in order to ensure that procedural fairness is afforded to the parties, and to identify the matters that have been placed in issue. Ms Wong there refers to NHA's wish to lead expert evidence from an expert in corporate finance and equity capital markets, in a manner that is broadly consistent with Mr Clarke's evidence.
The application was first listed on 16 December 2022 when, in the course of argument, a question arose as to whether the Court should be provided by NHA with a more precise document which showed the nature of assumptions that were to be made by the expert, the nature of his or her expertise, and the nature of his or her reasoning. I there observed that (at T14) that this should not require that every assumption to be made by the expert or all documents to be briefed to him be identified, but would likely be addressed by identifying categories of assumptions and documents. Nonetheless, it must also be recognised that NHA is seeking to invoke a discretion of the Court, which, must be exercised by reference to ss 56-58 of the Civil Procedure Act 2005 (NSW), and in a manner that will promote the just, quick and cheap resolution of the real issues of dispute in the proceedings, and the expert evidence for which NHA seeks leave must be defined with sufficient specificity that the Court can make a reasoned decision in that respect. On 16 December 2022, I adjourned the application, and directed NHA to provide a synopsis of the expert evidence that it proposed to adduce, and any amended form of its proposed order granting leave for that evidence.
NHA in turn provided an amended form of its proposed order, a synopsis of the expert evidence it sought to lead, and further submissions on 30 January 2023. The synopsis of that expert evidence identified the nature of the factual assumptions to be provided to the expert, in relatively broad categories, which identified the general subject matter of those assumptions, and the relatively wide categories of documents to be provided to the expert. For example, NHA proposed that the expert would be provided with the lay affidavit evidence of the Defendants, or at least of AUFM, immediately raising the question whether the expert would then be left to reach his own assessment as to what that lay evidence did or did not disclose and what should be made of it, independent of any assumptions he was asked to make, the evidence led by the parties or the findings ultimately made by the Court. Other categories of documents were identified, in relatively broad form, including documents relating to consideration by AUFM or its financial advisers over an extended period of proposals to raise equity or debt, financial modelling undertaken by AUFM or its financial advisers over that extended period, and documents evidencing the factors and considerations taken into account by or on behalf of AUFM or its financial advisers in that period. That document, in that form, did not make clear how the documents provided to the expert would correspond to the assumptions which were given and, in particular, whether the expert would be left to undertake his or her own fact finding by reference to the documents, making assessments of what was or was not important in them, and what they did nor did not establish, or instead those documents would simply be provided to give background to assumptions that were identified, and in due course would be sought to be proved by admissible evidence on the proceedings. That, presently, remains an unknown.
That synopsis went on to provide a reservation that NHA may provide further assumptions or documents as may be required to ensure that the expert was briefed "appropriately", with the consequence that the scope of any expert report for which the Court granted leave, by reference to the synopsis as it then existed, could be expanded by such further documents or assumptions as were provided to the expert. The Court was also provided with a curriculum vitae of the proposed expert, and some criticism has been made by AUFM as to whether that expert's expertise is relevant to the matters as to which he will be asked to give evidence. It will also not be necessary to address that matter to determine this application.
In submissions in response to that synopsis, Mr Nixon, who appears for AUFM, submitted that the expert evidence that NHA then sought to lead was generalised and not of a character that would assist the Court in determining the matters in issue. Ms Smith, who appeared for the Second and Third defendants, adopted Mr Nixon's submissions. The Fourth, Fifth and Sixth Defendants, represented by Mr Koch, made an additional submission as to the scope of the transactions which had been defined for review by the expert which NHA sought to retain, and the extent to which they did not take into account other ancillary benefits which would arise from associated transactions. It will not be necessary to deal with that issue in order to determine this application.
The matter was again listed on 7 February 2023 but, as matters developed on that occasion, Ms Wong indicated that NHA wished further to revise the scope of the expert's evidence, which is now reflected in an amended document provided to the Court today.
[3]
The scope of the expert evidence for which NHA now seeks leave
That scope of the expert evidence for which NHA now seeks leave identifies a question to be directed to the expert, by reference to categories of assumptions and categories of documents to be provided to him which have largely remained unchanged, which is directed to the reasons identified by the AUFM board's recommendation to approve certain resolutions as set out in lay evidence led by AUFM in the proceedings, and the matters referred to by the AUFM board in considering and approving those resolutions, including those set out in specified minutes and lay evidence. The expert is in turn asked to assess whether those reasons and matters:
"accord with the factors and considerations that you would expect to be taken into account by a responsible entity, manager and trustee of a real estate investment trust in the position of AUHPT leading up to 8 June 2021, in preparing, assessing and determining whether or not to proceed with the Equity Raise Proposal and whether such a proposal was in the best interests of unit holders?"
The expert is also asked to give reasons for his answer, including in relation to specified matters, namely the amount of equity capital proposed to be raised; the timing of the proposed capital raising; the terms of the proposed capital raising; or the investors providing the proposed capital.
It is, of course, possible that the expert retained by NHA would, in having regard to those mattes, express the view that nothing relating to any of these matters that gave rise to any concern, so that the expert report did not support NHA's claim against AUFM. It is, however, perhaps more likely that NHA expects that the expert, in dealing with those matters, will make a criticism of some of those matters, in a manner which has yet to be identified in NHAS's case, possibly by reference to the amount of equity capital raised, the timing of the capital raising, the terms of that raising or the identity of the investors in it.
[4]
Matters relevant to the grant of leave
It is necessary now to identify the matters to which the Court should have regard, by reference to the authorities, in granting or withholding the leave sought, and then to refer to the pleadings, so far as they identify the issues in the proceedings, which provide an important context for that decision. In Botany Bay City Council v Minister of Planning and Infrastructure [2014] NSWCA 141, a unanimous Court of Appeal (Beazley P, Ward JA and Gleeson JA) referred to the scope of UCPR r 31.19, under which this application is brought which provides as follows:
"(1) Any party:
(a) intending to adduce expert evidence at trial, or
(b) to whom it becomes apparent that he or she, or any other party, may adduce expert evidence at trial,
must promptly seek directions from the court in that regard.
(2) Directions under this rule may be sought at any directions hearing or case management conference or, if no such hearing or conference has been fixed or is imminent, by notice of motion or pursuant to liberty to restore.
(3) Unless the court otherwise orders, expert evidence may not be adduced at trial:
(a) unless directions have been sought in accordance with this rule, and
(b) if any such directions have been given by the court, otherwise than in accordance with those directions."
The Court of Appeal there noted that the context to that rule is identified in UCPR r 31.17 which provides that the main purposes of the Division in which that rule is found are to ensure that the Court has control over the giving of expert evidence and to restrict expert evidence in proceedings to that which is reasonably required to resolve proceedings. Their Honours also referred, with approval, to the observation of Giles JA in Shellharbour City Council v Minister for Planning [2011] NSWCA 195 at [35] that:
"The primary purpose of the rule is to control the calling of expert evidence, restricting it to that which is reasonably required to resolve the proceedings having regard to the admonition of just, quick and cheap. That evidence may be relevant and admissible is not enough, let alone that it is possible to argue that it is relevant and admissible."
That rule has in turn been considered in Robb J's decision in Arida v Arida [2018] NSWSC 1416, and the approach taken in Botany Bay City Council has been applied in subsequent cases, particularly in the Land and Environment Court, including Ross v Lane [2021] NSWLEC 61 and Nature Conservation Council of NSW Inc. v Minister for Water, Property and Housing [2022] NSWLEC 69. Ms Wong rightly points out that Botany Bay Council is a case about judicial review, as are the cases in the Land and Environment Court which have subsequently referred to it. Nonetheless, I understand the observations of the Court of Appeal, which I have quoted above, to be directed to the wider purpose of the rule.
[5]
The scope of NHA's pleaded case
It is important to recognise that the purposes to which that rule is directed include, expressly, restricting expert evidence to that which is reasonably required to resolve the proceedings. That, in turn, must require the Court to identify what is in issue in the proceedings, and in order to do so, it must have regard to the pleadings, which are the process by which the issues in the proceedings are defined.
Counsel have rightly taken me to NHA's pleaded case in the course of their submissions. Ms Wong directs attention, as Mr Clarke had also done in his affidavit evidence, to paragraph 82 of NHA's Further Amended Statement of Claim, where NHA pleads that, "[i]n the premises of paras 12 to 75 above," in entering into certain transactions, AUFM had acted for one or more pleaded improper purposes, and would not have engaged in certain conduct but for those purposes. It is not particularly satisfactory that a pleading advances an allegation of that character by reference to some 63 previous paragraphs, inviting the other parties and the Court to guess which of them may or may not be relevant to that allegation. However, Ms Wong has taken me to several paragraphs among those 63 paragraphs which advance the allegation of improper purpose, in the course of submissions.
Ms Wong refers, in particular, to paragraph 49 of the Further Amended Statement of Claim, which identifies elements of the 9 June transactions, to paragraph 51, which identifies the consequences of certain agreements, to paragraph 52, 53, and 54, which, relevantly, identify a claim that certain transactions gave rights to third parties which were adverse to investors in the relevant trusts, and entrenched AUFM as manager and responsible entity of AUHPT for a fee and made it more difficult for any third party bidder to acquire a controlling stake of AUHPT, and rendered it substantially less likely that unitholders would have an opportunity to sell their unit holdings at a substantial premium, or that a resolution proposed by NHA would be passed at a meeting called by it, and increased the acquisition cost to NHA or a third party of acquiring a controlling stake in AUHPT.
It is plain enough that, consistent with the case law to which I have referred, all of those matters could constitute improper purposes, and the Court could find that the alleged effects of those transactions indicated their objective purposes, so as to establish an improper purpose and falsify AUFM's claim for a proper purpose in that respect. However, the paragraphs to which Ms Wong refers are, largely or entirely, directed to the structural effects of the relevant transactions, and are matters which would be determined by a review of the features of the transactions, which was the basis on which NHA put its attack on the relevant transactions seeking interlocutory relief in respect of them at an earlier point. On the face of it, those paragraphs do not invite, and would not be advanced by, a consideration by an expert of what matters an expert would or would not have taken into account in assessing the relevant transactions, because they do not turn on any identified allegation that some matter ought to have been taken into account and was not, or that some other matter ought not to have been taken into account, but improperly was taken into account, beyond those structural aspects of the transaction which are identified and would not be advanced by expert evidence.
Ms Wong in turn refers to AUFM's Defence, which, in paragraph 41A, pleads that the relevant transactions were entered into for specified purposes, namely to raise equity capital of a specified amount; to introduce a substantial cornerstone investor; to provide existing members of AUHPT with an opportunity to participate in the capital‑raising activities, and thereby increase their investment in AUHPT; and to provide investors desiring liquidity with an opportunity to withdraw some or all of their investment in AUHPT. That is, plainly, at least an allegation of a subjectively proper purpose in respect of the transaction, held by AUFM or those making decisions on its part. It is likely also a pleading of an objectively proper purpose in that respect. NHA responds to that pleading, in reply, by denying that AUFM had that purpose. Importantly, that denial does not raise any specific allegation, which had not previously been raised in chief, for example, that there was something about the amount of equity capital proposed to be raised, or the timing of the proposed capital raising, or its terms, or the investors who provided it, which falsified AUFM's proper purposes in any identified manner.
[6]
The parties' submissions
As I have noted above, Ms Wong points out that, potentially, any of those matters could have impugned the relevant purposes, in a manner consistent with the case law, including the decision in Ampol Petroleum v R W Miller (Holdings) Ltd where the Court did not accept the asserted purpose of the target company. Nonetheless, the fact that other matters could, in principle, impugn an asserted purpose, does not have the consequence that they can do so if they are not first identified, so as to allow the parties and the Court to know what is in issue, or that expert evidence can be led about them where they have not been first raised in the proceedings.
Ms Wong submits that the Court should grant leave to lead the expert evidence that is sought, because NHA is entitled, by reference to objective considerations, to impugn the purpose which AUFM and its directors assert. She also points to the fact that the latest iteration of the question to be addressed to the expert will be more specifically limited to the reasons identified for the recommendation that AUFM approve the particular transaction and the matters referred to by the AUFM board in considering and approving that transaction.
Ms Wong also submits, perhaps ambitiously, that that would be advantageous to AUFM, so far as the expert will identify, in advance, matters that might otherwise be raised in cross-examination. That, however, turns upon an assumption, which I do not presently accept, that, for example, Counsel could raise in cross-examination, or an expert could raise in an expert report, an attack on MUFM's conduct that was not previously raised in the pleadings, for example the transaction was improper because the amount of equity capital raised was twice that which was required, or the timing of the proposed capital raising was inappropriate, because capital should have been raised six months later, where there was no hint in a pleading of that allegation of fact. While I accept, as I have noted above, that objective considerations may impugn an asserted subjective purpose in a particular transaction, it does not follow that they can be relied on to do so, without them first being exposed in a way that will allow all parties a fair opportunity to know that they are in issue.
Mr Nixon, for AUFM, responds that the leave sought by NHA should not be granted for several reasons. First, he points to the need to approach the question of leave by reference to the matters that are in issue in the proceedings, and to the role of pleadings in identifying what is in dispute. Second, he points to the fact that the questions, as formulated for the expert, appear to invite the expert to identify factors that the expert would "expect" should have been taken into account, which were not taken into account, whether in relation to the particular matters as to which he is asked to give reasons, without regard to the case presently formulated by the parties for determination. Third, he submits, and I accept, that the question as formulated requires the expert to engage in a process of fact finding, at specific steps, as to what are the reasons identified for the relevant recommendation and what are the matters referred to, although Ms Wong sought to address that in reply by suggesting that should be the subject of assumptions given to the expert.
It seems to me that that the approach taken by NHA raises both a difficulty of principle, and a fundamental practical problem, and it is not apparent in NHA's submissions how it will in fact be addressed by providing assumptions to him. The difficulty of principle is that it is not an expert's role, in applying his expertise to assumed facts, to engage in a process of fact finding. Second, and practically, there is a real risk of wasted time and costs involved in that approach, where significant time may be spent in an expert reaching findings based on his or her perception of the facts, where that perception of the facts does not coincide with the case that is put by any party, or with the findings that are ultimately reached by the Court, and that is not transparent, because it is not identified in any assumptions which the expert has been asked to make.
Mr Nixon also points to the further difficulty, which it seems to me is real, that the expert is invited to engage in the assessment of decision making, by reference to what he would "expect" to be taken into account by a responsible entity, by reference to an undefined standard. First, it seems to me that that involves the risk of idiosyncratic opinions, based on the expert's subjective assessment of what a responsible entity or its officers should do; second, it seems to me that it involves a real risk that the expert report will become disengaged from the pleaded case, by exploring, for example, whether further inquiries could have been made as to particular matters by applying a standard of perfection; or whether further inquiries could have been made as to a particular matter, by a responsible entity exercising reasonable care and skill, but were not. The difficulty with that, of course, is that this is not a case of negligence brought against AUFM. It is instead a case that alleges that AUFM had an improper purpose, and that its evidence of its subjective purpose should not be accepted. It is unlikely to assist the Court to have an expert assess AUFM's decision‑making, not against an identified standard of what should have been taken to account, in its decision‑making, but instead against his or her subjective expectations of decision-making by responsible entities and their officers.
[7]
Determination
It will be apparent from the observations that I have made above that I am not satisfied that I should grant leave to lead expert evidence in the form that is proposed, and I am comfortably satisfied that I should not do so. That is not to say that I would not have granted leave for expert evidence of this character, which sought to establish some identified proposition, by reference to the expert's expertise, as to a matter that could have falsified AUFM's asserted purposes. A case could readily have been pleaded by NHA that the transaction was improper, notwithstanding the subjective purposes claimed by AUFM, by reason of identified factual matters , for example, because a director or manager or responsible entity, acting in accordance with its legal obligations, would have recognised that a lesser amount of funding was required by AUFM and would have recognised that that funding could have been raised in other less onerous ways than the entry into that transaction. If such a claim had been pleaded, and the expert had been asked to lead expert evidence about it by reference to assumptions and documents that had an apparent relevance to the claim, then one would expect that the Court would readily grant leave for an expert report that addressed that claim. That is not the approach taken by NHA here.
Accordingly, the position is not that NHA cannot lead expert evidence, but that it cannot lead expert evidence in the manner in which it proposes to lead expert evidence, unconfined by specific allegations, and in a way that has the difficulties which I have noted above. For these reasons, so far as NHA seeks leave to lead expert evidence of an investment banker is concerned, its Interlocutory Application is dismissed with costs.
[8]
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Decision last updated: 13 February 2023