Smartec Capital Pty Limited v Centro Properties Limited

REASONS FOR JUDGMENT 1 In an Australian Securities Exchange (ASX) media release made on 1 March 2011, the Centro Properties Group (CNP) announced a proposed restructure involving, relevantly, a sale by Centro and its managed funds of their "US assets and platform for an enterprise value of approximately US$9.4 billion" (US Asset Sale). Additional steps in the restructure are also described in the media release. They involve a "Headstock Debt Restructure" and discussions between Centro and its senior lenders and other Australian managed funds with a view to amalgamating their respective portfolios. The release states: On completion of the debt restructure, all Centro's external senior debt would be extinguished, and Centro would have no substantive assets other than a cash sum of up to $100 million. 2 The plaintiff in these proceedings, Smartec Capital Pty Limited (Smartec), holds 4,720,000 stapled securities in the entities that comprise CNP. It is also a member of the CNP Shareholders Association, the members of which hold, in aggregate, 10.65% of the issued CNP securities. Smartec contends that, pursuant to the ASX listing rule 11.2, the defendants in this proceeding (collectively, Centro) must obtain the approval of holders of its ordinary securities and must comply with any requirement of the ASX in relation to the notice of meeting. 3 Smartec seeks expedition in respect of the claims made in its originating process filed on 14 June 2011, in which it seeks the following relief: 1. A declaration that it would be a contravention of ASX Listing Rule 11.2 for the defendants to give effect to or complete the proposed [US Assets Sale] and other transactions referred to in the announcement by [CNP] dated 1 March 2011, released to ASX on that day … (the Announcement) without CNP first having: (a) obtained the approval of holders of CNP securities for the "US Assets Sale" and other transactions referred to in the Announcement in accordance with ASX Listing Rule 11.2; and (b) complied with any requirements of ASX in relation to a notice of meeting. 2. A direction, pursuant to section 793C and/or section 1101B of the Act, and/or the general law, that the defendants shall: (a) comply with ASX Listing Rule 11.2 by arranging a general meeting at which holders of CNP securities shall be entitled to vote on the "US Assets Sale" and other transactions referred to in the Announcement; and (b) give to holders of CNP securities such notice of general meeting and other information as and when required or contermplated by the ASX Listing Rules and Corporations Act 2001 (Cth). 3. A final injunction restraining the defendants from giving effect to or completing the "US Assets Sale" or any other transaction referred to in the Announcement without the following first having occurred: (a) the defendants having arranged and conducted a general meeting at which holders of CNP securities shall be entitled to consider and vote on whether the "US Assets Sale" and other transactions referred to in the Announcement should be approved; (b) the defendants having given to holders of CNP securities such notice of general meeting and other information in relation thereto as and when required or contemplated by the Listing Rule 11.2 and other applicable ASX Listing Rules and the Corporations Act 2001 (Cth); and (c) the holders of CNP securities having at such general meeting approved the "US Assets Sale" and other transactions referred to in the Announcement in accordance with ASX Listing Rule 11.2. 4. If and to the extent that the defendants have completed the "US Assets Sale", or any other transaction referred to in the Announcement, without the defendants first having taken the steps referred to in paragraphs 2 and 3 hereof, and before the date on which the Court decides to grant any relief of the kind referred to in paragraphs 2, 3 or 5 hereof, the following orders pursuant to section 793C and/or section 1101B of the Act and/or the general law: (d) an order declaring such transaction or transactions to be void and, if the Court thinks fit, to have been void ab initio or, alternatively, to have been void at all times on and after such date before the date on which the order is made as is specified in the order; (e) an order for recission setting aside any such transaction or transactions; and (f) orders in the nature of restitutio in integrum directing the refund of money and/or the return of property purportedly transferred pursuant to any such transaction or transactions. 4 As the US Assets Sale is to be completed (or closed) no later than 30 June 2011 Smartec is seeking a hearing, and a decision, prior to that date. It is Smartec's interlocutory application for expedition that is presently before the Court. In addition, there are before the Court, two notices of motion filed in court today by Centro seeking: (a) to set aside a notice to produce served on the solicitors for Centro yesterday and returnable at 9.30 am today, and (b) a notice of motion for summary judgment in Centro's favour pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth). 5 Mr Jackman, of senior counsel, who appeared for Centro, opposed the application for expedition and pressed the claim for summary dismissal on the basis that the proceeding is futile. He submitted that: the proceeding was not properly constituted because not all the parties who would be affected by the orders sought have been joined to the proceeding; that the joinder of the necessary parties would require orders for leave to serve outside the jurisdiction; and that no application for such leave has been made. Moreover, he submitted that Smartec must demonstrate a prima facie case for the relief it seeks. 6 Mr Jackman submitted that, in demonstrating that it has a prima facie case, there is "insuperable obstacle" before Smartec, namely that the ASX does not require compliance with listing rule 11.2 in this case and that "the authorities say with absolute clarity" that the ASX's view on the matter is decisive. The ASX's view was communicated to Smartec's instructing solicitors in a letter, dated 9 May 2011, from the ASX. The letter states that listing rules 11.1.2 and 11.2 do not apply to the proposed US Assets Sale from which it follows that the ASX does not require compliance with those rules in the present circumstances. 7 Mr Jackman relied on two decisions of the New South Wales Supreme Court in support of the proposition that the ASX's view on the matter is final. In Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 454 at [9]-[10], Barrett J rejected the proposition that the views of the ASX as to the construction of its listing rules were essentially beside the point and that, in the absence of the ASX exercising its power of waiver reserved by the listing rules, the rules "must take effect according to a proper construction of their terms". His Honour referred to this proposition as "an uncompromisingly literal approach" and held that the ASX's indication that it did not require compliance with rule 14.1, was determinative. 8 The second case, also a decision of Barrett J, involved the same parties as the present proceeding: see Smartec Capital Pty Limited v Centro Properties Limited [2011] NSWSC 495. Justice Barrett had occasion to consider again the application of listing rules 11.1, 11.2 and 11.3 and, in particular, the concept of "main undertaking" in rule 11.2. His Honour concluded at [37]: Except in an obvious case admitting of no doubt, therefore, the position seems quite clearly to be that a disposal will, for the purposes of listing rule 11.2, entail the "main undertaking" if ASX deems it to entail the "main undertaking"; and that, as a corollary it will not entail the "main undertaking" if ASX does not deem it to entail the "main undertaking". 9 Smartec accepted that security holder approval would not be required unless the contemplated disposal was of the main undertaking of the listed entity however it did not accept that the ASX's view on the matter was conclusive. Mr Stoljar, who appeard for Smartec on the second day of the hearing mentioned that there were authorities in favour of a contrary view, including appellate authority but did not identify these authorities saying that this was a matter for the final hearing. In the absence of any reference to such authorities it is difficult for me to reject Mr Jackman's assessment of the obstacle that the ASX's view poses for Smartec. 10 In addition to the above, Mr Jackman submitted that the plaintiffs had unreasonably delayed in seeking relief from the Court and that, as a matter of discretion, expedition on this ground should be refused. Finally, it was submitted that even if the Court was otherwise minded to grant expedition the case that Centro would have to meet is not apparent from the originating process and would need to be reduced to pleadings. Smartec would need to provide a statement of claim that articulates precisely the issue to be raised. Centro would then know the case that had to be met and would be able to assess the evidence required to meet that case. The delay that this would necessitate would almost inevitably mean that no decision could be reached prior to 30 June 2011 when the US Asset Sale will have closed. 11 All of the points made by Mr Jackman were persuasive but the most telling of them, and the one which is sufficient in itself to deal with this matter, was that the matter could not proceed unless the parties to the asset sale were joined. Exhibit B to the Stock Purchase Agreement dated 28 February 2011 lists each of the sellers involved in that transaction. Neither of the defendants is listed in exhibit B. The purchaser of the assets is BRE Retail Holdings Inc, which is also not a party to this proceeding. At the end of the first day of the hearing I indicated that this was a matter of concern and agreed to adjourn the matter until the morning of 21 June 2011 to allow Mr Bender, who appeared for Smartec on that day, to obtain instructions as to whether Smartec was intending to seek leave to join additional parties and for service outside the jurisdiction. 12 On the second day of the hearing, Mr Stoljar SC, who appeared with Mr Bender, submitted that orders 1 and 2 in the originating process are directed only to Centro and do not require the joinder of the other parties. I do not accept this submission. In my view those orders, along with orders 3 and 4, are directed to postponing or restraining completion of the Stock Purchase Agreement. As such they have the potential to affect adversely the interest of parties to that agreement who have not been joined as parties to the proceeding. That potential cannot be explored in the absence of those parties. In my view this is the insuperable obstacle to expedition. It is patently obvious that these parties could not be joined in time for the application to be heard and determined prior to 30 June 2011. 13 Order 4, however, is premised on the US Asset Sale having been completed. It seeks an order declaring the transaction void or alternately, an order for rescission. It nevertheless still raises the question of joining all necessary parties. At the hearing the proceeding was briefly adjourned to enable Mr Stoljar to obtain instructions in relation to any application to join additional parties. When the hearing recommenced Mr Stoljar informed the Court that he had no such instructions. In my view, in the absence of a clear indication from Smartec that it intended to join the necessary parties, not only must the application for expedition fail but also, Centro's application for summary dismissal must succeed. 14 Mr Stoljar argued that it was premature for the application to be summarily dismissed at this point. He submitted that following the settlement of the transaction, questions of who should be joined might well bear a different complexion. He submitted that the declaratory relief that the applicant seeks has relevance to issues of corporate governance as well as to other aspects of the corporate restructure, of which the US Assets Sale is the first part. I am not convinced by this submission. The question before me is whether the case, as presently constituted, has any prospect of success. 15 In a comprehensive review of the principles governing the exercise of the Court's discretion under s 31A of the Federal Court of Australia Act 1976 (Cth), Sundberg J said in Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499 at [37]: The principles governing the operation of s 31A of the Act were canvassed in detail by Lindgren J in White Industries Aust Ltd v Federal Commissioner of Taxation (2007) 160 FCR 298 (White Industries) and Rares J in Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 (Boston). In White Industries 160 FCR at [59], Lindgren J considered that a claim requires "real" as opposed to "fanciful" or "merely arguable" prospects in order for it to have reasonable prospects of success as required by s 31A. Justice Rares in Boston 236 ALR at [45] was of the view that, unless there are no real issues of fact - such that "only one conclusion can be said to be reasonable" - summary judgment (or dismissal) ought not be given pursuant to s 31A. The Full Court has recently considered the summary judgment standard in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 (Finkelstein, Rares and Gordon JJ) (Jefferson Ford). Although different views were taken as to the precise operation of s 31A, the following principles appear to have been endorsed: • In applying s 31A, the court does not conduct fact finding but must assess the strength of the allegations made by reference to the pleadings, affidavits and any other evidence adduced, in order to determine whether the claim is sufficiently strong to warrant a trial: see Jefferson Ford 167 FCR at [23] (Finkelstein J), [74] (Rares J) and [130] (Gordon J); see also Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd [2008] FCA 1257 at [28] (Emmett J); Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [6] (Finkelstein J). Ultimately, the court must consider whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at a trial. • In assessing whether there are reasonable prospects of success, the court should draw all reasonable inferences (but only reasonable inferences) in favour of the non-moving party: see Jefferson Ford 167 FCR at [132] (Gordon J). Moreover, where the evidence on a summary judgment application is of an ambivalent character, there will be a real issue of fact and therefore reasonable prospects of success for the purposes of s 31A: see Boston 236 ALR at [45]; Jefferson Ford 167 FCR at [73] (Rares J) and [130] (Gordon J). • The moving party bears the onus of persuading the court that its opponent has no reasonable prospects of success: see Jefferson Ford 167 FCR at [127] (Gordon J); Boston 236 ALR at [45]. However, where the moving party establishes a prima facie case for summary judgment, the opposing party must be able to point to "specific factual or evidentiary disputes that make a trial necessary": see Jefferson Ford 167 FCR at [127] (Gordon J). • As s 31A requires in effect a prediction as to the outcome of a claim, the court should be more reluctant to summarily dismiss a claim where real questions of fact and credit arise. In those cases, the court will not have all material evidence before it until trial, the credit of important witnesses will not have been tested and it will as a consequence be very difficult if not impossible to fairly assess the prospects of the claim: see Jefferson Ford 167 FCR at [20] (Finkelstein J); Dandaven v Harbeth Holdings Pty Ltd [2008] FCA 955 at [6] (Gilmour J). In Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296, Kenny J, at [40] quoted Sundberg J's comments and added, "This remains an accurate account of the operation of s 31A". I respectfully adopt both Sundberg J's analysis and Kenny J's conclusion. 16 In my view, Centro has discharged its onus under s 31A and has satisfied me that the application made by Smartec in its originating process has no reasonable prospects of success. This must be so where all persons materially interested in the subject matter of the proceeding have not been joined as parties and, moreover where, the issue having been brought to its attention, and the hearing adjourned to permit its counsel to obtain instructions on the point. Smartec has not indicated any intention to join such parties. This much follows from a long line of authority and, more particularly, from the comment of the High Court in John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [136] that "a person directly affected by an order in proceedings to which that person was not party is entitled as of right to have it set aside". 17 It follows that it is not necessary for me to deal with the question of the notice to produce. There is, however, the issue of costs. Centro has made a claim for indemnity for costs in support of which it has tendered a letter dated 17 June 2011 from Freehills, the solicitors for Centro, to Atanaskovic Hartnell Lawyers, the solicitors for Smartec. It is clear from the content of the letter that it was written after the hearing was adjourned on 17 June 2011. 18 In summary, the letter expresses the view that Smartec's application is "futile" because the necessary parties have not been joined, applications for service outside the jurisdiction have not been made and that a prima facie case cannot be made out. The letter invites Smartec to discontinue the proceeding and states" If your client accepts this invitation by 5:00 pm today, our client is willing to forgo its entitlement to costs of this proceeding, which are already significant. If your client declines this invitation, our client will: (a) move on the enclosed motion for summary dismissal of all, or part, of your client's application when the matter is before the Court next Tuesday morning; and (b) seek in due course to rely on this letter in support of an application that your client pay our clients' costs of the proceedings incurred after 5 pm today on an indemnity basis. 19 The offer was not accepted and, in these circumstances it is appropriate that Centro have its costs on an indemnity basis as foreshadowed in the letter. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.