Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli) v IOOF Investment Management Ltd; Murray v Perennial Investment Partners Ltd - [2012] NSWSC 1318 - NSWSC 2012 case summary — Zoe

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Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli) v IOOF Investment Management Ltd; Murray v Perennial Investment Partners Ltd

[2012] NSWSC 1318

Supreme Court of NSW|2012-10-03|Before: Stevenson J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2012-10-03

Before

Stevenson J

Catchwords

(2002) ATPR 41-877 Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co Ltd [1985] 1 Qd R 127
(1984) 14 ACLR 456 Austral Coal Ltd (No. 2) [2005] ATP 13
(2005) 55 ACSR 60 Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566
(2010) 201 IR 64 In the matter of Hostworks Group Ltd [2008] FCA 64

Source

Original judgment source is linked above.

Catchwords

(2002) ATPR 41-877 Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co Ltd [1985] 1 Qd R 127(1984) 14 ACLR 456 Austral Coal Ltd (No. 2) [2005] ATP 13(2005) 55 ACSR 60 Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566(2010) 201 IR 64 In the matter of Hostworks Group Ltd [2008] FCA 64SC 2012/113927 Publication restriction: Nil

Judgment (28 paragraphs)

[1]

ed (sixth defendant) Representation: Counsel: I M Jackman SC with R Scruby and B Le Plastrier (plaintiffs) P J Jopling QC with P G Liondas and L T Livingston (defendants) R J Weber SC (first and second cross claimants, 2012/113927) Solicitors: 2012/68986: Atanaskovic Hartnell (plaintiffs) King & Wood Mallesons (defendants) 2012/113927: Atanaskovic Hartnell (plaintiffs) King & Wood Mallesons (first defendant) Holman Webb (second, third, fourth and fifth defendants and first and second cross claimants) Henry Davis York (sixth defendant) File Number(s): SC 2012/68986; SC 2012/113927 Publication restriction: Nil

[2]

[15]

Entitlement 44The definition of Change in Control requires that a person and that person's Associates together become "entitled" to more than 40 per cent of the voting shares in IOOF. 45Before considering whether AWM and the Voting Members were "Associates", I will consider whether AWM and the Voting Members ever "together became entitled" to more than 40 per cent of the voting shares in IOOF. 46At all relevant times, AWM held 1,460,632 voting shares in IOOF. Prior to the Merger this amounted to approximately 2.1 per cent of those voting shares. Once the further shares in IOOF were allotted to AWM members (on 12 May 2009) AWM's shareholding in IOOF was reduced to approximately 0.64 per cent of the total shareholding. 47The Executives submitted that the Voting Members became "entitled" to voting shares in IOOF as soon as they had an enforceable right to become beneficial owners of the IOOF shares. The Executives submitted that by 30 April 2009, or alternatively by 1 May 2009, and certainly by 7 May 2009, AWM shareholders, including the Voting Members, obtained a present unconditional right to the future property represented by the IOOF shares, to be allotted on 12 May 2009. 48IOOF submitted that AWM shareholders only became "entitled" to IOOF shares when the shares were actually issued (on 12 May 2009). IOOF submitted that to "become entitled" to shares means, in effect, to become possessed of the voting power associated with those shares. 49I prefer the Executives' submissions. 50In my opinion, AWM shareholders (including the Voting Members) became "entitled" to the shares that were to be allotted to them in IOOF on 1 May 2009. On that date, AWM shareholders lost their right to trade AWM shares, but obtained an equivalent right to trade, on a deferred settlement basis, the IOOF shares which they were to receive on the Implementation Date, 12 May 2009. I accept the Executives' submission that the right to trade IOOF shares on a deferred basis necessarily bespoke an "entitle[ment]" to IOOF shares for the purposes of the definition of Change in Control. 51Both parties referred me to the observations of White J in Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346; (2010) 201 IR 64. In that case, White J construed a contract containing the words "any person becomes entitled to more than 50% of Coates Hire's shares". One question was when an "entitle[ment]" to such shares arose in circumstances where they were required to be issued under a scheme of arrangement. The particular question was whether such an "entitle[ment]" arose after the date of court approval but before the acquisition of the shares the subject of the scheme. 52There is an important distinction between the facts in Fardell and the facts in this case. In Fardell, the scheme of arrangement provided that all existing shares in Coates Hire would be transferred to the bidder. In this case new shares were to be issued and allotted to AWM members. 53Nonetheless, the observations of White J have some bearing on this case. His Honour held that "entitled" means having a title, right or claim to something (at [69]) and that a change in legal title was not necessarily a condition precedent to a change in "entitlement" (at [70]). 54In this case, on 1 May 2009, AWM shareholders obtained a right to trade, on a deferred settlement basis, the IOOF shares they would receive on the Implementation Date (12 May 2009). They thus had a right or claim to the IOOF shares, notwithstanding the fact that they did not then have legal title to the shares. 55Therefore my conclusion is that between 1 May and 12 May 2009, the Voting Members "became entitled" to more than 40 per cent (in fact around 48 per cent) of the voting shares in IOOF. 56At that time AWM owned, and was thus entitled to, 2.1 per cent of the voting shares. 57Thus, during this period, AWM and the Voting Members "together became entitled" to something in the order of 50 per cent of the voting shares in IOOF.

[20]

What was the purpose of the Voting Members in relation to the Scheme? 78No evidence was adduced from any of the Voting Members as to what their purpose was in voting in favour of the Scheme. 79AWM had an open register with a large, diverse and disparate shareholding. The vast majority of AWM shareholders were small shareholders. 80In my opinion, the fact that the Voting Members all voted the same way (that is in favour of the Scheme) does not, itself, give rise to any inference as to what their purpose was. 81There is no evidence, nor, in my opinion, inference available, that the Voting Members had any shared links, or prior dealings or prior collaborative conduct (cf Viento Group Ltd [2011] ATP 1 at [120]; Bentley Capital Ltd 01R [2011] ATP 13 at [38]; Mount Gibson Iron Limited [2008] ATP 4). 82The inference I would draw is that the purpose of the Voting Members was no more than to acquire shares in IOOF, and to thus have a share in a widely held public company and merged business. 83This was the unanimous recommendation to the Voting Members (and all AWM shareholders) from the AWM board. 84In the Scheme Booklet it was stated: - "The AWM Directors...consider that the Merger is in the best interests of AWM and the AWM Shareholders. The AWM Directors unanimously recommend that, in the absence of a superior offer [and none was received], you vote in favour of the Scheme." 85The basis of that recommendation was set out in detail in s 1 of the Scheme Booklet. 86Further the AWM Directors had engaged Ernst & Young as an independent expert to provide a report on the Scheme. Ernst & Young's Independent Expert's Report and Financial Services Guide was included as an annexure to the Scheme Booklet. The report was some 70 pages in length and examined the merits of the proposed merger in great detail. 87Ernst & Young's conclusions were: - (a)the value of the consideration being offered to AWM shareholders (being shares in IOOF) was greater than the value of an AWM share on a stand alone basis; (b)taking into consideration the matters set out in the report, the Scheme was in the best interests of AWM shareholders. 88The inference I would draw from this evidence is that the "operative, subjective purpose" of the Voting Members was no more than to act on these recommendations and become shareholders in the merged business by reason of their shareholding in IOOF.

[27]

Conclusion 113For these reasons, my opinion is that there was no Change in Control of IOOF as a result of its merger with AWM. 114I have come to this conclusion based upon my analysis of the language used by the parties, including the language, incorporated by reference into the Share Sale Agreement, of the provisions of the Act to which I have referred. 115IOOF advanced extensive submissions as to the other matters relevant to my consideration of the proper construction of the expression Change in Control, namely: - (a)the context in which the language of the parties was used; and (b)the purpose and the object of the transaction comprised by the Share Sale Agreement. 116IOOF also made submissions as to the "absurd" consequences that it argued followed from adoption of the plaintiffs' submissions. 117In view of the conclusion to which I have come it is not necessary for me to deal with these matters. 118However, I do accept IOOF's submission that the conclusion that there was no Change in Control as a result of the Merger is consistent with, and promotes the evident object and purpose of the relevant part of the Share Sale Agreement. 119As IOOF submitted, the commercial purpose or object of the Accelerated Deferred Payment provision in the Share Sale Agreement was to protect the Executives if a change occurred that might adversely affect their ability to control whether PIPL met the agreed budgets, and, therefore whether they earned the Deferred Payment. Their ability to meet those budgets, and claim the Deferred Payment, might have been impacted either by their removal from their current roles, or by new controlling shareholders of IOOF or PIPL changing the way in which PIPL was run and affecting such operational independence that PIPL had previously enjoyed. 120The Merger between IOOF and AWM was unlikely to have any effect on the ability of the Executives to do what they could to ensure that PIPL met the agreed budgets for the financial year ended 30 June 2009. 121The board of IOOF remained controlled by directors nominated by IOOF. The shareholding in IOOF remained widely held, without any party having a controlling interest. 122Were the Executives to be entitled to the cash payment comprised in the relevant Accelerated Deferred Payment, rather than the share of PIPL's performance over budget for the financial year ended 30 June 2009, they would achieve a windfall of a kind that, in my opinion, could not possibly have been contemplated by the parties to the Share Sale Agreement. 123I invite the parties to bring in short minutes to give effect to these reasons.

Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli) v IOOF Investment Management Ltd; Murray v Perennial Investment Partners Ltd

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