In the matter of Asia Pacific Data Centre Limited

[2018] NSWSC 1375

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Asia Pacific Data Centre Limited [2018] NSWSC 1375
Hearing dates:	12, 13 and 14 June 2018Last submissions (20 June 2018)
Decision date:	07 September 2018
Before:	Gleeson J
Decision:	(1) Declare that for the purposes of Corporations Act 2001 (Cth), s 253E, and in the events which have happened up to and including 14 June 2018, 360 Capital FM Limited is entitled to vote its interests on the proposed resolutions at the extraordinary general meeting of unitholders of the Asia Pacific Data Centre Trust the subject of a notice of meeting dated 20 December 2017 to be held on the adjourned date as determined by the chairperson of the meeting originally convened on 31 January 2018.  (2)   The second defendant to pay the plaintiff’s costs.
Catchwords:	CORPORATIONS – meetings – voting – responsible entity and associates – Corporations Act 2001 (Cth), s 253E – resolution to direct responsible entity to wind-up the Trust – where responsible entity has interest in resolution other than as a member – whether member is permitted to vote – whether member is associate of responsible entity – whether member and responsible entity acting in concert in respect of Trust’s affairs
Legislation Cited:	Corporations Act 2001 (Cth), ss 12, 53(j), 252S, 253E, 253G, 601NE(1)(b), 912A(1)(e), 1074E(2)(g)(i), Ch 5C, Pt 2G.4 Corporations Regulations 2001 (Cth), regs 7.11.37, 1.0.18(b) Evidence Act 1995 (NSW), s 136 Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited:	AMP Life Ltd v AMP Capital Funds Management Ltd (2016) 312 FLR 391; [2016] NSWCA 176 Australian Olives Ltd v Livadaras (2008) 172 FCR 34; [2008] FCA 1407 Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 13 WAR 407; (1995) 16 ACSR 501 Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233; (2010) 77 ACSR 410 C & C Fisher Pty Ltd v Livadaras [2010] FCA 11; (2010) 265 ALR 301; (2010) 77 ACSR 244 Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735; [1999] NSWCA 422 Endresz v Whitehouse (1997) 139 FLR 359; (1997) 24 ACSR 208 Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296; (2013) 17 BPR 32,709 Gooley v Motasea Pty Ltd [2015] NSWCA 31 IPT Systems Ltd v MTIC Corporate Pty Ltd [2000] WASC 316; (2000) 36 ACSR 454 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Massoud v NRMA Insurance Ltd (2005) 62 NSWLR 653 MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 Payne v Parker [1976] 1 NSWLR 191 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; (2012) 91 ACSR 530 Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Michael Crivelli) v IOOF Investment Management Ltd (2013) 278 FLR 49; [2013] NSWCA 231 Re AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund (ARSN 122 303 744)) (2016) 310 FLR 382; [2016] NSWSC 986 Re Asia Pacific Data Centre Limited [2018] NSWSC 817 The Trust Company (Australia) Ltd v NEXTDC [2018] NSWSC 736 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2008] NSWSC 654
Texts Cited:	Anderson, Williams and Clegg, The New Law of Evidence: Annotation and Commentary on the Uniform Evidence Acts (2nd ed, 2009, LexisNexis Butterworths)
Category:	Principal judgment
Parties:	360 Capital FM Limited (Plaintiff) Asia Pacific Data Centre Limited (First Defendant) NEXTDC Limited (Second Defendant)
Representation:	Counsel: Dr R P Austin / Mr N Mirzai (Plaintiff) Mr S A Lawrance (First Defendant) Dr A S Bell SC / Mr E A J Hyde (Second Defendant)   Solicitors: Minter Ellison (Plaintiff) Arnold Bloch Leibler (First Defendant) Herbert Smith Freehills (Second Defendant)
File Number(s):	2018/24961

Judgment

1. GLEESON J: This proceeding concerns a unit trust registered as a “managed investment scheme” under Ch 5C of the Corporations Act 2001 (Cth), known as Asia Pacific Data Centre Trust (APDC Trust).

The parties

2. The first defendant, Asia Pacific Data Centre Limited (APDC), is the responsible entity of the APDC Trust. Each unit in the APDC Trust is stapled to one share in Asia Pacific Data Centre Holdings Limited (Holdings). The APDC Trust and Holdings are together known as the Asia Pacific Data Centre Group (APDC Group), which is a real estate investment trust (also known as a REIT) listed on the Australian Stock Exchange (ASX). It has the ASX code “AJD”. As the responsible entity of the APDC Trust, APDC owns a portfolio of three properties in Sydney, Melbourne and Perth that are operated as data centres.

3. The securityholders of the APDC Group comprise the plaintiff, 360 Capital FM Limited (360 Capital) holding 67.31 percent, the second defendant, NEXTDC Limited (NEXTDC) holding 29.2 percent, and other investors holding 3.49 percent.

4. 360 Capital is a wholly owned subsidiary of 360 Capital Group Limited (360 Capital Group). 360 Capital is the responsible entity of the 360 Capital Investment Trust. Each unit in that trust is stapled to one share in 360 Capital Group, and together they are known as the 360 Capital Group, an ASX listed real estate investment and funds management group.

5. NEXTDC is an ASX listed technology company which provides data centre services. NEXTDC launched the APDC Group in January 2013 when it sold the three data centre properties to APDC as responsible entity of the APDC Trust. Those properties were leased back by APDC to NEXTDC. Title to the properties is held by a custodian for the APDC Trust, The Trust Company (Australia) Limited (Trust Company). The terms of each lease confer on NEXTDC a first right of refusal if the landlord proposes to sell the leased data centres, at such price as the landlord is prepared to sell the leased data centres.

Context of the dispute

6. Following competing takeover offers by NEXTDC and 360 Capital, 360 Capital acquired control of the APDC Group in November 2017 with its holding of 67.31 percent of the stapled securities. On 23 November 2017, the directors and secretary of Holdings and APDC resigned and Mr David van Aanholt was appointed as an independent director and chair of Holdings and APDC, Mr Tony Pitt was appointed as director of Holdings and APDC and Mr John Wilson and Mr Lawrence Gibbs were appointed as independent directors of Holdings and APDC.

7. In early November 2017, 360 Capital approached Perpetual Limited (Perpetual) in relation to the proposed externalisation of the responsible entity function for the APDC Trust. An earlier proposal by 360 Capital in June 2017 that the responsible entity function of the APDC Trust be externalised to itself, did not proceed. By early December 2017 a draft notice of meeting and explanatory memorandum which sought securityholder approval to appoint a subsidiary of Perpetual, The Trust Company (RE Services) Ltd (Trust Company RE), as the responsible entity of the APDC Trust had been prepared and discussed.

8. On 14 December 2017 NEXTDC announced that it intended to convene a meeting of the members of the managed investment scheme to consider a proposed resolution to direct the responsible entity to wind up the APDC Trust for the purposes of s 601NE(1)(b) of the Corporations Act (the Resolution). Shortly after that announcement, 360 Capital approached One Investment Group Pty Ltd (OIG), a funds management business specialising in responsible entity services, concerning the possible acquisition of the responsible entity, APDC. At that time, Holdings held all of the shares in APDC.

9. On 20 December 2017, Perpetual informed 360 Capital that following its due diligence review and recent announcements, Perpetual would not be able to progress with consenting to becoming the responsible entity.

10. On 21 December 2017 NEXTDC announced that it had scheduled the meeting of scheme members for 31 January 2018 to vote on the Resolution. In early January 2018 NEXTDC commenced despatching the meeting booklet to scheme members. Two statements in the meeting booklet should be highlighted at this point.

11. First, the notice of meeting dated 20 December 2017 included a statement by NEXTDC under the heading “Eligibility to vote”, that in accordance with s 1074E(2)(g)(i) of the Corporations Act, and reg 7.11.37 of the Corporations Regulations 2001 (Cth), it had determined that, for the purpose of determining entitlements to attend and vote at the meeting, units will be taken to be held by the persons who are the registered holders at 7pm (Sydney time) on Monday, 29 January 2018.

12. Second, the explanatory memorandum in the meeting booklet included a statement by NEXTDC that 360 Capital is an associate of the responsible entity, that APDC as the responsible entity has an interest in the Resolution other than as a member, and that 360 Capital is not entitled to vote its 67.31 percent interest on the Resolution.

13. On 16 January 2018 the following transactions occurred:

• Holdings sold and transferred all of the shares in APDC to OIG;

• APDC appointed a wholly owned subsidiary of Holdings, Asia Pacific Data Centre SPV Pty Ltd (APDC SPV), as Manager of the APDC Trust pursuant to an Investment Management Agreement dated 16 January 2018 (IMA). The directors of APDC SPV are Mr Gibbs and Mr Wilson;

• APDC SPV entered into a Services Agreement with Holdings dated 16 January 2018 (Services Agreement).

14. Also on 16 January 2018, Mr van Aanholt, Mr Pitt, Mr Gibbs and Mr Wilson resigned as directors of APDC, and Mr Frank Tearle, Mr Justin Epstein and Ms Elizabeth Reddy were appointed directors of the APDC. Ms Jennifer Vercoe resigned as secretary and Ms Sarah Wiesener was appointed secretary of APDC.

15. On 17 January 2017, the APDC Group announced that it had sold APDC the responsible entity of the APDC Trust to OIG (which was described in that announcement as a leading independent provider of responsible entity services), and in conjunction with the outsourcing of the responsible entity function of APDC, OIG had appointed a wholly owned subsidiary of APDC as investment Manager of the APDC Trust (the January Announcement). (The announcement incorrectly referred to OIG as having appointed the investment Manager, rather than APDC having done so.)

16. The January Announcement also stated that an independent board committee (IBC) comprising Mr Gibbs and Mr Wilson (APDC IBC), had engaged an independent advisor, Wexted Advisors, which had concluded that the transactions are in the best interest of the APDC securityholders, and that the IBC believed that the transactions are in the best interests of securityholders, giving a number of reasons, including expected costs savings in excess of $200,000 per annum. The key terms of the sale of APDC and the investment management agreement were annexed to the January Announcements.

17. The corporate structure of the APDC Group following the 16 January 2018 transactions is represented in the following diagram:

18. On 19 January 2018, NEXTDC informed 360 Capital that it maintained its view that 360 Capital was not entitled to vote its interest in respect of the Resolution. On 24 January 2018, 360 Capital commenced this proceeding seeking declaratory relief in the following terms:

1. a declaration that it is, for the purposes of ss 252S and 253E of the Corporations Act, entitled to vote its interest on any resolution, or in respect of any election, regarding the identity of the chair of the meeting (or any meeting called or held in lieu of the meeting);

2. a declaration that it is, for the purposes of s 253E of the Corporations Act, entitled to vote its interest in respect of the resolution that the APDC Trust be wound up at the meeting (or any meeting called or held in lieu of the meeting).

19. On 31 January 2018, the meeting of the members of the APDC Trust was adjourned to a date five days after either the determination of this proceeding by court judgment at first instance, or the proceedings are otherwise settled. That adjournment followed the giving of certain undertakings by the parties to the Court on 29 January 2018, including that NEXTDC would propose and vote in favour of an adjournment.

20. In separate proceedings, APDC obtained judicial advice on 19 February 2018 that it would be justified in submitting to the orders of the Court, save as to costs, on the question of final relief in this proceeding: Re Asia Pacific Data Centre Limited [2018] NSWSC 817. APDC filed a submitting appearance (save as to costs). Although APDC appeared by counsel at the hearing, it did not depart from its submitting appearance.

The issue

21. The essential question for determination is whether 360 Capital is entitled to exercise its voting rights on the Resolution to be submitted to the adjourned meeting of the responsible entity. That question arises given the terms of s 253E of the Corporations Act:

253E Responsible entity and associates cannot vote if interested in resolution

The responsible entity of a registered scheme and its associates are not entitled to vote their interest on a resolution at a meeting of the scheme’s members if they have an interest in the resolution or matter other than as a member. However, if the scheme is listed, the responsible entity and its associates are entitled to vote their interest on resolutions to remove the responsible entity and choose a new responsible entity.

Note: The responsible entity and its associates may vote as proxies if their appointments specify the way they are to vote and they vote that way (see subsection 253A(2)).

22. This provision was described by Brereton J in Re AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund (ARSN 122 303 744)) (2016) 310 FLR 382; [2016] NSWSC 986 (AMP Life) at [36], as follows: “the prophylactic purpose of s 253E [is] to remove the potential for a conflict of interest, by precluding the responsible entity from exercising its voting power if it has an extraneous interest, so that votes will be informed only by the interests of members qua members”. His Honour observed at [37] that the disqualification of a responsible entity would achieve nothing if its associates were at liberty to vote in the manner in which the responsible entity would desire, because:

It is the fact of their association, not their interest, which is critical. If any one of a number of associated entities has an extraneous interest, there is potential for the others to vote by reference to the association rather than by reference to their own independent interests. … Thus, a responsible entity and its associates are regarded as potentially constituting a single voting block, the votes of which are not to be taken into account if the responsible entity or any associate has an extraneous interest in the resolution. As it seems to me, the purpose of s 253E is to preclude the risk that, if a responsible entity or any of its associates has an extraneous interest in a resolution, any of them might vote by reference to that interest regardless of which of them has it.

These remarks by Brereton J were referred to by the Court of Appeal with apparent approval in AMP Life Ltd v AMP Capital Funds Management Ltd (2016) 312 FLR 391; [2016] NSWCA 176 at [13].

23. There are two limbs of s 253E. The first concerns the associate reference; the second concerns whether the responsible entity or its associates have an interest in the proposed resolution “other than as a member”. It is convenient to address the latter requirement first.

Interest other than as a member

24. Although not expressly admitted, no argument was advanced by 360 Capital against the proposition that APDC as the responsible entity has, in terms of s 253E, an “interest in” the proposed Resolution “other than as a member” because the effect of the Resolution, if passed, would have an adverse impact on the remuneration receivable by it as the responsible entity. Such an interest has been held to be an interest “other than as a member”: AMP Life at [9] (Brereton J).

The associate reference

25. The associate reference in s 12(2) of the Corporations Act is in the following terms:

(2) For the purposes of the application of the associate reference in relation to the designated body, a person (the second person) is an associate of the primary person if, and only if, one or more of the following paragraphs applies:

(a) the primary person is a body corporate and the second person is:

(i) a body corporate the primary person controls; or

(ii) a body corporate that controls the primary person; or

(iii) a body corporate that is controlled by an entity that controls the primary person;

(b) the second person is a person with whom the primary person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing the composition of the designated body’s board or the conduct of the designated body’s affairs;

(c) the second person is a person with whom the primary person is acting, or proposing to act, in concert in relation to the designated body’s affairs (emphasis in original).

26. In interpreting the “associate reference” in s 12, the modified form of s 12(2), dictated by ss 12(3) and 12(5) applies, given that the APDC Trust is a managed investment scheme. The effect of those modifications is that in s 12(2) the “designated body” is the APDC Trust, the “primary person” is APDC and the “second person” is 360 Capital.

27. The associate reference contains three tests: a control test in s 12(2)(a), a relevant agreement test in s 12(2)(b), and an acting in concert test in s 12(2)(c).

(a) Control test

28. Up until 16 January 2018, 360 Capital (the second person) was the holder of the majority of shares in Holdings and controlled APDC (the primary person), with the result that by operation of s 12(2)(a)(ii) of the Corporations Act, 360 Capital was “an associate” of APDC as the responsible entity of the APDC Trust for the purposes of s 253E. It is not in doubt that s 12(2)(a)(ii) ceased to have any application when all of the shares in APDC were sold and transferred out of the APDC Group by Holdings to OIG on 16 January 2018.

(b) Relevant agreement test

29. Section 12(2)(b) is not relied upon by NEXTDC and in any event does not apply for the reasons given in 360 Capital’s written submissions in chief. There is no suggestion, nor evidence, that there is a “relevant agreement” between 360 Capital and APDC, or that those parties propose to enter into a relevant agreement for the purpose of controlling or influencing whether a particular company becomes or remains the responsible entity of the APDC Trust. Nor is there any suggestion, or evidence, of a “relevant agreement” between 360 Capital and APDC, or that those parties propose to enter into a relevant agreement for the purpose of controlling or influencing the conduct of the Trust’s affairs.

(c) Acting in concert test

30. The acting in concert test directs attention to whether the second person (360 Capital) is a person with whom the primary person (APDC) is acting, or proposing to act, in concert in relation to the designated body’s affairs, here, the managed investment scheme’s affairs. In this context, the definition of “affairs of a body corporate” in s 53 of the Corporations Act applies for the purposes of, relevantly, s 12(2)(c): Corporations Regulations, reg 1.0.18(b). Interpreting the “affairs of a managed investment scheme” in s 12(2)(c), in its modified form, the focus is on s 53(j) which provides that the affairs of a managed investment scheme include:

(j) where the body has made available interests in a managed investment scheme – any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and

…

31. As will be seen the focus of inquiry in the present case is on whether 360 Capital and APDC are acting in concert in relation to the APDC Trust’s affairs and therefore 360 Capital is an associate of APDC within s 12(2)(c) of the Corporations Act. If so, 360 Capital is prohibited by s 253E from voting its interest as a scheme member on the Resolution, given that it is not in dispute that APDC as the responsible entity has, in terms of s 253E, an “interest in” the proposed Resolution “other than as a member”.

The parties’ contentions

32. In its statement of facts and contentions of law dated 1 February 2018, 360 Capital contended (par 12) that:

(a) it is not an “associate” of [APDC] as that term is defined by the Corporations Act;

(b) the time for determining a member’s entitlement to vote at a meeting convened under Pt 2G.4 of the Corporations Act (the Relevant Time) is the time at which the Wind-Up Resolution is placed before the Meeting for decision by the members; and

(c) on the basis that there are no material changes in the factual circumstances between the date of this Statement of Facts and Contentions and the Relevant Time [360 Capital]:

(i) will not be an associate of [APDC] at the Relevant Time; and

(ii) is entitled to vote its unitholding in respect of:

(A) the election of the chair of the Meeting; and

(B) the Wind-Up Resolution.

33. NEXTDC responded in its statement of facts and contentions of law dated 12 February 2018 (par 22) that:

By reason of at least:

(a) the terms of stapling arrangements and clause 22.5 of the APDC Trust’s constitution, APDC and Holdings must co-operate in relation to the stapled securities including taking a consistent approach on investments;

(b) the timing and circumstances surrounding the sale of the APDC to OIG and the immediate appointment by OIG of the APDC Subsidiary as the Manager of the APDC Trust;

(c) the nature and extent of the obligations undertaken by the APDC Subsidiary as the Manager of the APDC Trust;

(d) the nature and extent of the independent autonomous functions which are undertaken by the APDC without the involvement of the APDC Subsidiary;

(e) the stated aspiration of the 360 Capital Group during 2017 that one of its subsidiaries be appointed as the responsible entity of the APDC Trust; and

(f) the fact that the responsible entity functions of a stapled entity are not normally outsourced,

NEXTDC contends that 360 Capital and APDC are associates within the provisions of section 12(2) of the Corporations Act 2001 (Cth).

Time when the associate reference is to be considered

34. There was a debate between the parties concerning the time when the existence of an associate relationship is to be determined for the purposes of s 253E. 360 Capital submitted that the relevant time is the time when it becomes necessary to determine entitlements to vote during the course of the meeting, being either at the time when an objection to a right to vote is made and determined by the chair under s 253G, or in the absence of an objection, at the time of casting votes.

35. Against this, NEXTDC submitted that the relevant time is the time when “eligibility” to vote is determined being the time specified by the responsible entity, which cannot be more than 48 hours before the time of the meeting, referring to Corporations Regulations, reg 7.11.37. In closing submissions, NEXTDC accepted that it is unlikely that the competing constructions will have any practical consequence in the present case.

36. The construction advanced by 360 Capital is to be preferred. First, it is consistent with the text of s 253E, which says that the responsible entity “and its associates are not entitled to vote their interest on a resolution at a meeting”.

37. Second, it is supported by the context, relevantly; s 253E appears in Part 2G.4 Division 6, which is headed “Voting at Meetings of Members” and the surrounding provisions of Division 6 which address matters that arise in the course of the meeting.

38. Third, it is consistent with the remarks of Brereton J in AMP Life at [36] (referred to at [22] above), that the question of eligibility to vote at a meeting is a matter for the decision not of the responsible entity, but of the chair of the meeting under s 253G.

39. The difficulty with NEXTDC’s construction is that it focuses on reg 7.11.37 but this regulation is concerned with a different aspect of eligibility to vote, namely, eligibility in terms of who is taken to be a holder of units in a managed investment scheme for the purposes of a meeting. Given that such determination is required to be made by the convenor of the meeting before the notice of meeting is given: reg 7.11.37(4)(b), that determination is anterior to and separate from the determination of entitlements to vote which is made at a meeting by the chairperson: s 253G. Here, the determination by NEXTDC as convenor was recorded in the notice of meeting dated 20 December 2017: see [11] above.

40. The significance of the time when the associate relationship is to be determined was relied upon by NEXTDC for a different but related question, namely, whether it is appropriate to grant declaratory relief in advance of the exercise of the chair’s power under s 253G to prevent (or not prevent) a member from voting at the meeting. It is convenient to defer consideration of this question until after the issues relating to the acting in concert question have been addressed.

Legal Principles: acting in concert

41. The applicable principles are not in dispute. In Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 13 WAR 407 at 432; (1995) 16 ACSR 501 (Ocean Trawlers) at 524-525, Owen J summarised the authorities which have considered the expression “acting in concert” as follows:

“Acting in concert” involves at least an understanding between the parties as to a common purpose or object … It is necessary that the understanding should be consensual and that there should be some adoption of it. However, it is not essential that the parties are committed to it or bound to support it. An arrangement or understanding can be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it notwithstanding their adoption of it … Such an understanding may be proved by inference from the circumstances surrounding the impugned transaction and from what the parties have done as well as by direct evidence. (Citations omitted)

42. Both parties referred to 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; (2012) 91 ACSR 530 (Perpetual v IOOF), where Stevenson J said (at [102]) that in order for two parties to act “in concert”:

(a) there must at least be an understanding between them as to their common purpose of object; a mere coincidence of separate acts is insufficient: per McPherson J in Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co Ltd [1985] 1 Qd R 127 at 132; (1984) 14 ACLR 456 at 459;

(b) there must be some knowing conduct the result of communications between parties and not merely simultaneous actions occurring contemporaneously;

(c) there must be an understanding between the parties as to a common purpose of [sic] object: Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 13 WAR 407 at 431-2; (1995) 16 ACSR 501 at 524-525 (Ocean Trawlers) per Owen J;

(d) there must be contemporaneity and community of purpose (per French J (as his Honour then was) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (1992) 44 IR 264 at 272);

(e) a concurrence of views about the merits of a particular resolution proposed by another person is not sufficient: Re Winepros Ltd [2002] ATP 18 at [33]; (2002) 43 ACSR 566; and,

(f) the understanding between the parties as to the common purpose or object must be consensual and there must be some adoption of it: Ocean Trawlers.

43. No challenge to the correctness of those propositions was made so far as they went, on the appeal in Perpetual v IOOF which was dismissed: Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Crivelli) v IOOF Investment Management Ltd (2013) 278 FLR 49; [2013] NSWCA 231 (Perpetual v IOOF (CA))

44. In Perpetual v IOOF (CA), Leeming JA (McColl and Gleeson JJA agreeing) referred with approval (at [114]) to the reasoning of Owen J in IPT Systems Ltd v MTIC Corporate Pty Ltd [2000] WASC 316; (2000) 36 ACSR 454, which was adopted by White J in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233; (2010) 77 ACSR 410 at [133]-[134]. There Owen J said (at [26]), in the context of the (now repealed) provisions making void charges created over the assets of a company by a company’s officers or their associates which were enforced within 6 months:

…..It seems to me that the phrase “acting in concert” must mean something more than the mere entry into a transaction. It is not the mere creation of the charge that attracts the operation of the section. If it were as broad as that, then any party involved in the creation of a charge would be an “associate” for the purposes of the definition for a bank may ask a director to have a charge executed. The bank and the director would have the common purpose of effecting the execution (as a critical step in the creation) of the charge. Even if it is benign and in the ordinary course of business, the bank would be a “relevant person” for these purposes. That cannot have been the intention of the legislature.

45. Owen J also observed in IPT Systems Ltd v MTIC Corporate Pty Ltd (at [27]) that acting in concert “will most often (although not always) be found in common purpose to circumvent the letter, or perhaps even the spirit, of some other statutory obligation or requirement”.

46. In C & C Fisher Pty Ltd v Livadaras [2010] FCA 11; (2010) 265 ALR 301; (2010) 77 ACSR 244, a case concerning s 253E, Reeves J said at [8] (by reference to Ocean Trawlers at 524-525) that the expression “acting in concert” has been held to mean:

… an understanding between the parties as to a common purpose or object, which understanding should be consensual and there should be some adoption of it. However, it is not essential that the parties are committed to it, or bound to support it. The understanding can be informal, as well as unenforceable, and the parties may be free to withdraw from it, or act inconsistently with it, notwithstanding their adoption of it. And, the understanding may be proved by inference from the circumstances surrounding the impugned transaction and from what the parties have done, as well as by direct evidence. (Citations omitted)

47. An associate relationship will come to an end when the circumstances giving rise to it cease to exist: Endresz v Whitehouse (1997) 139 FLR 359; (1997) 24 ACSR 208 at 223-224, a case involving the definition of “associate” within the meaning of s 7(4) of the Companies (Acquisition of Shares) (Vic) Code.

Onus of proof

48. 360 Capital accepted that it is required to prove a negative proposition - that no associate relationship exists between 360 Capital and APDC - in order to obtain the declaratory relief it seeks. That is consistent with the principles stated by McLelland CJ in Eq in Massoud v NRMA Insurance Ltd (2005) 62 NSWLR 653 at 660:

These decisions illustrate what I consider to be the principles by which the incidence of the onus of proof is to be determined, namely:

(1) a party who seeks relief has the burden of satisfying the court of facts which (in the absence of proof of other facts) would justify the grant of that relief;

(2) what those facts are depends principally upon:

(a) the nature of the relief sought; and

(b) the operation of any relevant presumptions;

(3) in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party).

49. The above passage was approved in Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735; [1999] NSWCA 422 at [11], and in Gooley v Motasea Pty Ltd [2015] NSWCA 31 at [5] where Leeming JA (Gleeson JA and Bergin CJ in Eq agreeing) said that the onus lay upon the plaintiff to establish, on the balance of probabilities, all facts necessary to support the declaration claimed.

50. In addition to the tender of documentary evidence, 360 Capital relied upon affidavit evidence from Mr John Ballhausen, the chair of the Independent Board Committee of 360 Capital (360 Capital IBC), and oral evidence from Mr Tearle who was called to give evidence on subpoena. Both witnesses were cross-examined. NEXTDC criticised 360 Capital for failing to call other witnesses, including Mr Pitt, the managing director of 360 Capital, who was also a director of Holdings up until 14 May 2018, Mr van Aanholt, the chairman of 360 Capital and also the chairman of Holdings, Mr James Storey, 360 Capital Group’s Fund Manager, and Mr Glenn Butterworth, the CFO of 360 Capital Group.

51. NEXTDC submitted that the failure by 360 Capital to adduce evidence from these witnesses is entirely unexplained and the Court should draw adverse inferences in accordance with the principles in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, including that their evidence would not have assisted 360 Capital in its attempt to establish the negative proposition the subject of the declarations it seeks. Put at such a high level of generality, this submission does not assist in identifying the circumstances in which a Jones v Dunkel inference should be drawn.

52. In MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416, Macfarlan JA explained at [53] – [54]:

[53] A Jones v Dunkel inference may be drawn against a party where the party would be expected to, but does not, call a witness who could give evidence on a relevant matter and that failure is unexplained (Payne v Parker [1976] 1 NSWLR 191 at 201). The inference to be drawn in these circumstances is not that the witnesses' evidence would have been adverse to the party, but simply that it would not have assisted the party's case (Kuhl v Zurich Financial Services [2011] HCA 11; 243 CLR 361 at [64]; ASIC v Hellicar [2012] HCA 17; 247 CLR 345 at [168] and [232]). The inference permits the Court to make a finding unfavourable to the party with greater confidence (Hellicar at [232]). For example, in G v H [1994] HCA 48; 181 CLR 387, a mother gave evidence suggesting that the defendant was the father of her child. A conclusion as to the defendant's paternity was able to be reached with greater confidence in light of his failure to give evidence and to deny paternity (at 391). As that case illustrates, for a Jones v Dunkel inference to be drawn, there must be evidence that the party against whom it is to be drawn is required to explain or contradict (Schellenberg v Tunnel Holdings Pty Limited [2000] HCA 18; 200 CLR 121 at [51]). This evidence is available to found a judgment against the party. Otherwise, to base a judgment against a party simply upon his or her failure to call evidence would involve the erroneous drawing of an inference that the party's evidence would have been positively adverse to his or her interests.

[54] The High Court has described the foundation of the Jones v Dunkel principle as that "the party or his advisers are presumed to know the content of the absent witness's evidence, otherwise he would not be a witness whom 'that party might reasonably be expected to call'" (Brandi v Mingot (1976) 12 ALR 551 at 560). As Glass JA observed in Payne v Parker, the condition that the missing witness would be expected to be called by one party rather than the other has been described in different terms (at 201). These include descriptions of it being "natural for one party to produce the witness" and the witness being "in the camp of one party, so as to make it unrealistic for the other party to call him" (ibid).

53. In Payne v Parker [1976] 1 NSWLR 191 at 201, Glass JA identified three conditions for the operation of the Jones v Dunkel principle: “(a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained”.

54. Whether such an inference should be drawn in the present case is addressed below, when dealing with the evidence in relation to matters in contention.

Outline of submissions

55. Both parties provided detailed written submissions, supplemented by oral argument. It is not necessary to set out all of the submissions. However, an understanding of the associate issue is assisted by a summary of the essential arguments advanced by the parties, which were refined in closing submissions.

56. 360 Capital submitted that it is not an “associate” of APDC because the effect of the sale and transfer of all of the shares in APDC to OIG, terminated any associate relationship between 360 Capital and APDC arising out of a control relationship under s 12(2)(a)(ii). So much was accepted by NEXTDC (T213 (12-16)). As indicated, that such a control relationship existed up until 16 January 2018 when 360 Capital held 67.31 percent of the shares in Holdings, which in turn held all of the shares in APDC, is not in doubt.

57. 360 Capital advanced four reasons why it is now no longer an associate of APDC. First, the sale of APDC to OIG was a commercial transaction which was entered into after Perpetual withdrew from its negotiations with 360 Capital about becoming the responsible entity of APDC. Second, that APDC is an independent responsible entity without any association with 360 Capital. Third, the establishment of the independent board committee of 360 Capital (360 Capital IBC) fractured any potential link between 360 Capital and APDC, and that was reinforced by the establishment of the APDC IBC. Fourth, the communication protocols implemented by 360 Capital have quarantined 360 Capital from Holdings, APDC SPV and APDC.

58. In further support of absence of any associate relationship, 360 Capital pointed to the following matters: (a) since 16 January 2018, no directors of 360 Capital remain directors of APDC; (b) no directors of 360 Capital are directors of APDC SPV; (c) Mr Pitt retired as a director of Holdings on 14 May 2018, and Mr van Aanholt, who remains a director of Holdings, is a non-executive director of 360 Capital and not a member of the 360 Capital IBC; and (d) since 24 May 2018, no personnel employed by APDC or Holdings or APDC SPV operate from the same premises as 360 Capital.

59. NEXTDC submitted that 360 Capital has failed to discharge its onus of proof that it is not an associate of APDC. NEXTDC further submitted that the evidence provides a proper basis for the Court to positively conclude that such an associate relationship exists. According to the submission, 360 Capital and APDC are acting in concert and are therefore “associates” in relation to the APDC Trust’s affairs on one of two bases:

1. they co-operated so as to facilitate the implementation of arrangements which enabled 360 Capital to vote at a meeting which would consider a resolution to wind-up the APDC Trust but which still permitted 360 Capital to retain effective control of the APDC Trust’s affairs notwithstanding the sale of the shareholding in APDC to OIG, and this was given effect to by:

(a) the sale of APDC to OIG;

(b) the IMA entered into by APDC with the newly created APDC SPV with no employees and the Service Agreement entered into between the APDC SPV and Holdings, which was controlled by 360 Capital; and

(c) that APDC acquiesced in the affairs of the APDC Trust and, in particular, the potential sale of the APDC Trust’s assets, being conducted by Mr Pitt (the managing director of 360 Capital) with the assistance of two of 360 Capital’s senior officers, Mr Storey and Mr Butterworth;

2. there is an ongoing common, commercial purpose or objective, shared by APDC and 360 Capital (through its control of APDC SPV) for 360 Capital to manage and deal with the assets of the APDC Trust.

60. The essential difference between the two asserted common purposes or objectives is that the second is more confined and a sub-set of the first, in that it does not involve the common purpose or objective of facilitating 360 Capital voting on the Resolution. NEXTDC pointed to essentially the same matters in support of both contentions.

60. 360 Capital disputed that the common purpose or objective of the arrangements put in place with APDC on 16 January 2018 was for 360 Capital to vote on the Resolution. Further, and in any event, 360 Capital disputed that it would, notwithstanding those arrangements, retain effective control of the Trust’s affairs. 360 Capital also says that there is no ongoing commercial purpose or objective shared by APDC and 360 Capital in relation to the affairs of the APDC Trust.

The sale of APDC to OIG

62. The starting point is to identify the purpose (or purposes) of 360 Capital in externalising the responsible entity function of the APDC Trust by selling APDC to OIG in January 2018. To place this transaction and the related arrangements – the IMA and the Services Agreement - in context, it is first necessary to say something about the earlier proposals in the second half of 2017 to change the responsible entity of the APDC Trust.

Proposals to externalise the responsible entity function

63. In June 2017, 360 Capital Group proposed that the responsible entity function be externalised to itself, in particular, that 360 Capital should replace APDC as the responsible entity. At that time, 360 Capital held 19.9 percent of the stapled securities in the APDC Trust. The stated justification given by 360 Capital in the explanatory memorandum accompanying this proposal included that the APDC Group was not being proactively managed and was sub-scale as an internally managed REIT, and that there would be costs savings in having 360 Capital appointed as the responsible entity.

64. Ultimately, the scheme meeting convened for 28 July 2017 to consider this proposal was not held. APDC Group agreed in late July 2017 to allow 360 Capital Group to undertake due diligence in connection with its proposal to acquire all of the securities in the APDC Group. Nonetheless, 360 Capital Group foreshadowed the possibility of a further meeting of the APDC Trust to replace the responsible entity if it considered it to be necessary.

November 2017 - 360 Capital approaches Perpetual

65. In early November 2017, 360 Capital approached Perpetual in relation to the proposed externalisation of the responsible entity function for the APDC Trust. In an email to the directors of 360 Capital on 9 November 2017, Mr Pitt described the proposal as one that would enable 360 Capital “flexibility in voting and provide further independence”.

66. NEXTDC submitted that the shift away from having 360 Capital installed as the responsible entity of the APDC Trust in June 2017 is entirely unexplained. I do not agree. In a memorandum to the Board of 360 Capital dated 15 November 2017. Mr Pitt expressed the view that:

The current structure of ADJ is appropriate when ADJ has scale and is widely held. Unfortunately, with the shareholder base going forward and the motivation of NEXTDC, we believe it is more appropriate to appoint an independent responsible entity.

67. The memorandum also noted that the proposal to restructure the APDC Group included that Perpetual as the new responsible entity would enter into an investment management agreement with APDC, and APDC would enter into a sub-investment management agreement, it seems with 360 Capital.

68. Due diligence was undertaken by Perpetual in November and December 2017. On 22 November 2017, Perpetual provided 360 Capital with a draft investment management agreement for a listed fund (for the provision of services of a Manager to Trust Company RE), if Trust Company RE, a subsidiary of Perpetual, was appointed the responsible entity. Among other things, the draft investment management agreement provided differential termination rights by the responsible entity (cls 10.2 and 10.5) and the Manager (cl 10.3).

69. On 23 November 2017, Mr Pitt updated a meeting of the directors of Holdings and APDC on discussions that had begun with Perpetual. Also on 23 November 2017, Mr Pitt signed, on behalf of APDC, an updated offer letter from Perpetual accepting the terms of Perpetual’s proposal. The fees proposed by Perpetual included establishment and legal fees totalling $40,000 and a sliding scale of annual fees as responsible entity of 8 basis points for a gross asset value (GAV) of the fund up to $250 million, reducing to 7 basis points for a GAV of the fund between $250 million and $500 million, and 6 basis points for a GAV in excess of $500 million, plus a minimum annual fee of $120,000, together with fees calculated at hourly rates for additional administrative services.

70. On 30 November 2017, Perpetual informed 360 Capital that its Board had given their in-principle support to progress the responsible entity transition for APDC.

71. By early December 2017 a draft notice of meeting and explanatory memorandum, which sought securityholder approval to appoint Trust Company RE as the responsible entity of the APDC Trust, had been prepared and discussed. The advantages of the proposal were stated to include providing an additional layer of independence in the management of the APDC Trust and an anticipated reduction in APDC’s administrative costs. The disadvantages were identified as fees and expenses charged by Trust Company RE as responsible entity and the incurring of additional costs by APDC as a result of Trust Company RE and APDC engaging third party service providers, including appointing 360 Capital Group as a service provider. Nonetheless, it was also stated that APDC believed that, in the absence of such service agreements, significant additional resources would be required in order for APDC to take advantage of the market opportunities currently available.

72. The draft explanatory memorandum also outlined the proposal that the new responsible entity would appoint APDC as Manager of the APDC Trust, and that APDC intended to appoint a subsidiary of 360 Capital Group to act as a service provider to APDC on arm’s-length terms.

NEXTDC announcement on 14 December 2017

73. On 14 December 2017, Mr Pitt sent an email (at 9:52 am) to Mr van Aanholt, Mr Gibbs and Mr Wilson, copied to Mr Andrew Moffat, Mr Graham Lenzner and Mr Ballhausen, enclosing the NEXTDC announcement of the winding-up proposal, and stated:

We will talk later if we can. We have Perpetual ready to go but this has got in front of us.

74. As indicated, Perpetual informed 360 Capital on 20 December 2017 that following the due diligence review and recent announcements, Perpetual would not be able to progress consenting to becoming the responsible entity.

Independent board committees established

75. As at December 2017, there was a commonality of directors of 360 Capital, Holdings and APDC following the change of control of the APDC Group to the 360 Capital Group in November 2017. Mr van Aanholt, Mr Pitt, Mr Gibbs and Mr Wilson were directors of Holdings and APDC; and Mr van Aanholt, Mr Pitt, Mr Ballhausen, Mr Moffat and Mr Lenzner were directors of the 360 Capital. Steps were taken in December to establish independent board committees for both APDC and also 360 Capital.

76. On 18 December 2017, the APDC IBC was established for Holdings and APDC (comprising Mr Wilson and Mr Gibbs). The role of the APDC IBC was to consider NEXTDC’s winding-up proposal, whether the responsible entity services to APDC Trust should be outsourced and any matter where 360 Capital Group had a material interest over and above that of any other member.

77. On 22 December 2017, the 360 Capital IBC was established at the recommendation of Mr Pitt, comprising Mr Ballhausen as chairperson and Mr Moffat and Mr Lenzner. Mr Ballhausen deposed (affidavit, 23/1/18, par 31) that the 360 Capital IBC was established to:

(a) consider:

(i) the investment by 360 Capital Group in [APDC Group];

(ii) the meeting booklet circulated by the Second Defendant;

(iii) any ASX announcement and other correspondence that 360 Capital Group may make in relation to the investment in [APDC Group]; and

(iv) any ASX announcement and any other communications by [APDC Group], NEXTDC and any other person that may be relevant to the investment in [APDC Group]; and

(b) instruct any advisers that the 360 Capital IBC may retain in relation to the above, to ensure that the interests of securityholders of 360 Capital Group are independently promoted and considered.

78. On 29 December 2017, Mr Ballhausen sent an email to Mr Pitt requesting that he ensure that management of the 360 Capital Group direct all communications regarding APDC Group to him as chairperson of the 360 Capital IBC (the communication protocols). On the same day, Mr Ballhausen informed the directors of Holdings (Mr Wilson, Mr Gibbs, Mr Pitt and Mr van Aanholt) of the establishment of the 360 Capital IBC and requested that they direct all communications from APDC Group to 360 Capital Group to him as chairperson of the 360 Capital IBC. On 31 January 2018, Mr Butterworth sent an email to Mr Ballhausen confirming that staff of 360 Capital Group had been notified of the establishment of the 360 Capital IBC and of the communication protocols and that no exceptions to the protocols had been identified to date. Mr Ballhausen deposed (affidavit 3/5/18, par 28 and affidavit 5/6/18, par 26) that so far as he was aware, the communication protocols had been complied with and that Mr Pitt and Mr van Aanholt had not engaged in any matters relating to APDC Group in their capacity as directors of 360 Capital Group or 360 Capital.

360 Capital approaches OIG

79. Following the winding-up announcement on 14 December 2017, Mr Matthew Anderson, a partner at Clayton Utz, attempted to speak by telephone with Mr Tearle of OIG. It seems that Mr Tearle was unavailable. They spoke by telephone the following day. Mr Anderson asked Mr Tearle whether OIG might be interested in acquiring a responsible entity where there was a dispute, in particular, they had looked at changing the responsible entity through the normal course of holding a meeting of unitholders, but that was going to take too long and whether OIG was open to the proposition of “buying the responsible entity”. Mr Tearle responded affirmatively indicating that OIG had done it before in similar situations in a listed structure (T87 (28-40)). Mr Tearle gave evidence that Mr Anderson did not give any details of who he was acting for or his role (T129 (2-3)).

80. Mr Anderson telephoned Mr Tearle sometime in the middle of the following week and told him that the matter involved “APDC” (T 87 (37-40)). According to Mr Tearle, Mr Anderson mentioned that he expected that a motion for an extraordinary general meeting to wind-up the trust was imminent, and that if OIG were to acquire the responsible entity that may facilitate the 360 Group voting in respect of the Resolution. Mr Anderson told Mr Tearle that it would remove one of the arguments that was currently being raised. Mr Tearle agreed in cross-examination that it was made clear to him at the outset that this was the main reason that the sale of the responsible entity was proposed and that OIG had been approached (T129 (18-31)).

81. Mr Tearle gave evidence that he was called to a meeting at Clayton Utz on about 19 December 2017 to meet Mr Anderson and a couple of people from 360 Capital (T96 (7-12)). Mr Gibbs and Mr Pitt attended that meeting. Mr Tearle attended a second meeting at Clayton Utz on 19 December 2017, attended by Mr Gibbs and Mr Wilson (T96 (16-21)). Mr Tearle was asked to provide an indicative proposal and fees that OIG had in mind if it acquired APDC, and the information required for due diligence. Mr Tearle sent an email to Mr Anderson on 19 December 2017:

In respect of the transaction and the fees, we were thinking:

• Purchase price - $10

• Upfront DD fee - $35k, refundable if we choose not to proceed, DD completed within a week if DD provided asap

• RE fees:

• Minimum transaction fee - $200k (excluding the DD fee)

• Annual RE fee (with external custody) – 0.07% of GAV, subject to a minimum fee of $7k per month

• Annual RE fee (with custody) – 0.9% of GAV, subject to a minimum fee of $9k per month

• Regulatory capital - $1.1m left in the RE, OIG agrees to repay within 12 months, limited recourse to the assets of the RE

• Key persons/RMs – need to remain until we can replace them.

82. Mr Tearle gave evidence that OIG had previously taken on a responsible entity function by acquiring shares in the responsible entity, and although this was more unusual, OIG had done it two or three times previously over nine years. He said that it was the most efficient way because the change of the responsible entity occurs when the transaction is completed, rather than the lack of certainty associated with a members’ resolution (T97 (1-25)). Mr Tearle also gave evidence that in his professional experience the circumstances in which OIG was appointed to take over the responsible entity was unrelated to how it operated as a responsible entity once in that position (T98 (9-15)).

83. Mr Tearle said that the proposed fees took into account the nature of the role, that it was a little more risky and time-consuming and that it was not clear whether it would be a long-term role. He gave evidence that he was told “very clearly” by Mr Anderson that it might be a role for three months and then OIG would be out because either it had been replaced or the resolution to wind-up the trust proceeded (T98 (35-42)). Mr Tearle agreed in cross-examination that he knew at this point in time that Mr Anderson’s client was 360 Capital Group (T130 (43-50)).

84. Mr Tearle explained the reference to the “Key persons/RMs” was the inconvenience of removing the existing responsible managers under the Australian financial services licence and appointing new persons (with ASIC’s approval) if the role turned out to be a three-month role (T99 (25-39)). Mr Tearle agreed in cross-examination that one of the reasons he negotiated the key person clause was because he understood that the position of responsible entity could be terminated within a very short period of time, relevantly, three months (T131 (16-23)).

APDC IBC engages Wexted Advisors

85. Around the same time as the approach to OIG, the APDC IBC approached Mr Joe Hayes of Wexted Advisors to provide advice. On 21 December 2017, Mr Hayes sent the final version of an engagement letter by email to Mr Gibbs and Mr Wilson. The scope of the engagement was to provide advice to the APDC IBC in respect of a number of matters, including the Resolution, to review the responsible entity services provided by APDC to the APDC Trust, including the range of potential values that could be ascribed to those services in the event those services were outsourced to an appropriate third party provider, a recommendation in respect of the delivery of those services and advice on the terms of any such outsourcing and the method of implementation.

86. Also on 21 December 2017, OIG sent an engagement letter by email to Holdings. It was in similar terms to the proposal in its 19 December 2017 email referred to above. Mr Wilson emailed a copy of the OIG engagement letter to Mr Hayes (copied to Mr Gibbs) on 21 December 2017 and stated that this was a matter he would like Mr Hayes to inspect and guide and added:

Keen to ensure you recommend this as the right approach.

The reference by Mr Wilson to “this”, is plainly a reference to outsourcing the responsible entity function by selling APDC to OIG.

87. On 22 December 2017, Mr Tearle attended on short notice a meeting with the APDC IBC (Mr Gibbs and Mr Wilson) and also Mr Anderson and Mr Hayes. Mr Tearle gave a presentation explaining who OIG was and the services that it could provide. Mr Tearle gave evidence that he explained to the APDC IBC:

… in particular, I guess, circumstances similar to these in the present case and where we’d taken over in similar circumstances. (T 88 (45-46))

88. The minutes of the APDC IBC meeting on 22 December 2017 record that OIG had expressed interest in being appointed responsible entity of the APDC Trust or acquiring the shares in APDC, and that the committee and Mr Hayes discussed their meeting with Mr Tearle. Mr Tearle gave evidence, which I accept, that OIG was only ever asked whether it would consider acquiring the shares in APDC (T89 (4-5)).

89. The minutes noted that the APDC IBC considered the OIG proposal and resolved that a further proposal be provided by OIG in respect of the provision of administrative services. The APDC IBC resolved to expedite its consideration of outsourcing of the responsible entity functions of APDC Trust and requested Wexted Advisors to settle its opinion on an urgent basis. The APDC IBC also resolved to appoint Wexted Advisors to review the governance/outsourcing of the responsible entity arrangements and the financial implications of the Resolution independent of each other.

90. At a further meeting of directors of Holdings and APDC held on 22 December 2017, attended by Mr van Aanholt (as chairman), Mr Pitt, Mr Gibbs and Mr Wilson (with Mr Anderson and Mr Webster as observers), the chairperson tabled a copy of the protocol for the committee of independent directors and noted that it had been adopted by the APDC IBC, and the Board also resolved to adopt the protocol. Under the heading “Governance Arrangements”, the minutes record that the Board noted that Perpetual had withdrawn its proposal due to the conflict and uncertainty which had arisen as a result of NEXTDC announcing the Resolution and that any changes to the governance arrangements of the APDC Trust or the provision of responsible entity services to the APDC Trust would be a matter for the APDC IBC.

91. On 22 December 2017, Mr Tearle sent an email to Mr Hayes confirming their discussion that day that he would prepare a note on some of the compliance and governance benefits of outsourcing the responsible entity functions, which he did in an email to Mr Hayes on 23 December 2017. That email set out a number of issues that the board of Holdings should consider in determining whether the role of responsible entity of the APDC Trust should be internalised or outsourced to an independent provider of responsible entity services such as OIG.

92. Contrary to the submissions of NEXTDC, I do not consider that it was inappropriate for Mr Hayes to seek such information as part of his consideration of the matters on which he had been retained to advise, nor for Mr Tearle to respond to Mr Hayes’ request to provide a note on such matters.

93. On 4 January 2018, Mr Gibbs sent an email to Mr Hayes and Mr Wilson informing them of his conversation with Mr Butterworth that morning: that APDC was establishing an SPV in which Mr Wilson and Mr Gibbs would be asked to be directors; the SPV would function as an asset manager and enter into an asset management agreement with OIG, in the event OIG agreed to be the responsible entity; the SPV would appoint an asset/property manager as either an employee or contractor to the SPV; and Mr Butterworth was assisting in organising a contractor to commence the duties of financial accounting for the APDC Trust and other administrative duties as required. Mr Gibbs noted that it may not now be necessary to request a quote from OIG regarding the provision of finance and administrative functions. APDC SPV was incorporated on 5 January 2018 with Mr Gibbs and Mr Wilson as directors.

94. Also on 4 January 2018, Mr Gibbs on behalf of Holdings accepted the engagement letter from OIG dated 21 December 2017, subject to some handwritten amendments. The terms of the engagement letter included a due diligence fee of $35,000 to be paid to OIG within 15 days of acceptance of the letter. That fee was to be refunded if OIG determined not to proceed with the acquisition of APDC. The due diligence was to be completed within one week of acceptance of the engagement letter. Mr Tearle gave evidence, which I accept, that the due diligence process in relation to a company such as APDC, which is not really an operating company, can normally be done in about one day if the requested information is provided (T91 (15-21)). In this case, OIG received information from APDC and requested some additional information as part of the due diligence process (T91 (11-13)).

1. The second defendant to pay the plaintiff’s costs.

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Decision last updated: 07 September 2018