Lachlan Reit Limited v Garnaut
[2010] VSC 399
•6 September 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. S CI 2010 4565
| LACHLAN REIT LIMITED (ACN 081 102 534) | Plaintiff |
| v | |
| CHRISTOPHER JAMES LOUIS GARNAUT | First Defendant |
| CENTURY FUNDS MANAGEMENT LIMITED (ACN 086 553 639) | Second Defendant |
| CASTLE PARTNERS PTY LTD (ACN 003 709 359) | Third Defendant |
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JUDGE: | JUDD J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 23 and 24 August, 1, 2 and 3 September 2010 | |
DATE OF JUDGMENT: | 6 September 2010 | |
CASE MAY BE CITED AS: | Lachlan Reit Limited v Garnaut & Ors | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 399 | |
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Corporations – Managed Investment Scheme – Meeting of Members – Resolution to remove Responsible Entity – Misleading or deceptive conduct – Validity of proxies – Application by Responsible Entity to enjoin the holding of the meeting – Balance of convenience – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan SC with Mr C E Shaw and Mr N P De Young | DLA Phillips Fox |
| For the Defendants | Mr J G Santamaria QC with Mr E W Woodward and | Clarendon Lawyers |
HIS HONOUR:
By originating process issued on 20 August 2010, the plaintiff, Lachlan Reit Ltd, claimed, against Christopher Garnaut, Century Funds Management Ltd and Castle Partners Pty Ltd, declarations and a permanent injunction to restrain Mr Garnaut from convening meetings or proceeding with the business of meetings of unitholders in two managed investment funds, Becton Office Fund No. 2 and the Becton Diversified Direct Property Fund. The substantive resolution for the consideration of unitholders at the meetings was the removal of the plaintiff as Responsible Entity, to be replaced by Century Funds Management.
The plaintiff is a wholly owned subsidiary of Becton Investment Management Ltd who acquired the plaintiff in late 2007. Becton Investment Management is a wholly owned subsidiary of the Becton Property Group Ltd. In addition to its role as responsible entity, Becton Investment Management and the plaintiff control 19.71% of the units in the Becton Office Fund and 19.13% of the units in the Becton Diversified Direct Property Fund.
Mr Garnaut is a director of Garnaut Private Client Advisers, a financial planning group based in Melbourne. Clients of Mr Garnaut hold approximately 27% of the units in the Becton Office Fund No. 2 and approximately 19% of the units in the Becton Diversified Direct Property Fund. Mr Garnaut, as attorney for fund members, requisitioned the meetings under the respective constitutions. A meeting could be requisitioned under each constitution by members representing 5% or more of the units on issue in the funds. The purpose of the meetings was to remove the plaintiff as Responsible Entity and replace it with the second defendant, Century. There were other proposed resolutions, but these have been overtaken by events and may be disregarded for present purposes. The third defendant, Castle Partners, acted as corporate advisers to Century.
The meetings were originally scheduled to take place on Tuesday, 31 August 2010, but were adjourned for a week after the commencement of this proceeding to allow this interlocutory application to be heard, and to overcame a perceived problem with the timing of proxy votes. The notices of meeting, dated 28 July 2010 and 2 August 2010 respectively, accompanied by explanatory material and a proxy form, were sent to each investor under cover of a letter from Century of the same date. Proxies were to be returned to Computershare Investor Services Pty Ltd by 5.00 pm on 30 August 2010.
Mr Garnaut initiated the campaign to remove the plaintiff as Responsible Entity. He appears to have procured the cooperation of Century as a replacement Responsible Entity and provided information to Castle Partners, Century’s advisers. Mr Garnaut’s motivation for the campaign was his concern at the parlous financial position of the Becton Group, as the plaintiff’s owner, as adversely affecting the performance of the funds and their return to investors. He also expressed concern that the Becton Group was insolvent or near insolvent, drawing a comparison with Timbercorp and other managed investment schemes that had collapsed.
That part of the financial services industry involved in the marketing of securities in unlisted managed property investment schemes, is comprised of the Responsible Entity, or fund manager, investment advisers, such as Mr Garnaut’s firm, and the investors themselves, as members of the fund. While the Responsible Entity or fund manager might deal directly with some investors, it appears that the majority of investors are introduced to the unlisted funds by an investment adviser.
Mr Garnaut described the Responsible Entity as if a manufacturer of products, marketed through investment advisers as retailers. Whatever analogy is apt to describe the various layers of marketing activity, the role of the financial adviser in the relationship between individual investors and the fund manager is important, even pivotal, and recognised as such by all participants.
Mr Garnaut spoke of an informal code of conduct under which all communications from the fund manager to investors would be made through the adviser, if one existed. Such a relationship may be readily understood in terms of the need for efficient marketing of financial products. The characterisation of wholesaler and retailer may be apt to explain why an informal code of conduct, such as that described by Mr Garnaut, is honoured. In the absence of compliance with such a code, the fund manager would not retain the confidence, and thus the co-operation, of investment advisers upon whom it depended to market its product. The relationship evident in the code is echoed in the register of members, which records the identity of each unitholder’s financial adviser, if there is one.
Mr Garnaut said that he became concerned about the performance of the funds last year. At that time, he attempted to assist Becton in its relationship with the funds’ bankers, the CBA, who were also Becton’s bankers. Mr Garnaut was concerned that the income of the funds, and thus the return to investors, was being eroded by increased interest rate margins. Mr Garnaut’s firm was responsible for introducing investors to the funds, although prior to the takeover of the plaintiff by the Becton Group.
The attempt made by Mr Garnaut to intervene with the CBA on behalf of the funds in mid 2009, with the full support of Becton, did not seem to yield a satisfactory outcome. Mr Garnaut explained his involvement by reference to a continuing obligation to look after the interests of his clients. He was also concerned to avoid client criticism, and possible claims, as a consequence of his having introduced investors to an under-performing fund. Whatever may have been his ultimate motivation, there came a time when Mr Garnaut concluded that his clients would be best served by the removal of the plaintiff as Responsible Entity; and he so advised them. Mr Garnaut was able to obtain authority from a sufficient number of clients to convene a meeting of unitholders.
Those promoting the removal of the plaintiff as Responsible Entity, including Castle Partners, actively sought the co-operation of investment advisers, who they recognised as influential in the decision making process of unitholders. The important role of the investment adviser, as a means of communication with investors, was discussed with ASIC representatives. ASIC seemed to have accepted that communication to investment advisers was a practical means of communicating with investors. Mr Garnaut, Castle Partners and Century communicated information and advocated approval of the resolution to the investment advisers, in addition to the notices of meeting and other information sent to investors.
The basis for the plaintiff’s challenge to the validity of the proposed meetings had five substantive components. First, it was alleged that the information provided to unitholders was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), s 1041H of the Corporations Act 2001 (Cth), s 52 of the Trade Practices Act 1974 (Cth) and/or s 9 of the Fair Trading Act 1999 (Vic). The conduct complained of included statements of fact, opinion or prediction, omissions and confusion caused by contradictory material or different communications made to investment advisers and investors. Second, the plaintiff alleged that the meeting process had been permanently corrupted because of disparate communications made to investment advisers and investors. The vice in this practice was the uncertainty of transmission of information to the investors. The same criticism was made of information placed by Century on its website. The significance of the criticism arose because some such information appeared to correct that which was alleged to have been earlier misstatements. Third, the stated action proposals of Century, if appointed Responsible Entity, had changed with the passing of time and in response to changing circumstances. Investors had been informed directly, by a letter dated 16 August 2010 from Century, of a different management strategy than it had advanced in the initial notice of meeting and accompanying material. The plaintiff argued that some investors might have already completed and sent a proxy, acting on outdated or incomplete information. Of principal concern to the plaintiff was Century’s change of property management strategy and the content of a report prepared by Adviser Edge. The report had been prepared on instructions from Mr Garnaut and distributed to investment advisers only. While generally supportive of the proposed change, the report identified a risk that Century may not be able to refinance the fund’s debt when they fell due. Fourth, Century had improperly attempted to coerce an investment adviser, Mark Gross of RBS Morgan, to influence some of his clients to change their vote from a negative position to one in favour of the resolution. Fifth, the proxies had been directed to Computershare and not to the Responsible Entity, as required by s 252G of the Corporations Act and the constitutions. The plaintiff relied on the decision of Dodds-Streeton J in Bisan Ltd v Cellante.[1]
[1](2002) 173 FLR 310.
The plaintiff delivered lengthy points of claim and particulars, which focussed attention on the alleged misleading or deceptive conduct and the more technical defect in the form of proxy. The points of claim predated the impropriety allegation, although its basis was clarified during argument. The impropriety case depended on drawing an inference from an email, dated 25 August 2010, from John McBain, Chief Executive Officer of Century’s holding company, to Mark Gross; and the absence of Mr McBain as a witness who might have explained the communication.
The conduct relied upon by the plaintiff to support the contraventions of the ASIC Act, the Trade Practices Act, the Fair Trading Act and the Corporations Act, involved the formulation by the plaintiff of representations, mostly drawn from a number of sources within the material sent to investors and advisers. The plaintiff’s formulations were designed to state the effect of various statements, or a combination of statements, found in a large body of material. The basis for some of the plaintiff’s formulations were relatively easy to discern from source material, while others were more elusive. At the forefront of the plaintiff’s attack were three broad categories of misrepresentation:
(1)The expectation that Century would be in a position to borrow funds from the CBA, secured against fund assets, on terms more favourable than those negotiated by Becton. That is to paraphrase the alleged representations. There were numerous alleged misstatements and uncommunicated correcting statements relating to the CBA and Century’s capacity to raise funds. The defendants sought to respond to the allegations concerning the CBA, by reformulating the alleged representation as the converse of what the plaintiff described as corrective or clarifying statements. Because each party sought to reformulate representations to suit their own purpose, it became necessary to examine more closely the statements actually made.
(2)Century would reduce fees charged by the plaintiff.
(3)The Becton Group and the Responsible Entity were insolvent.
There were other representations. They included statements that were later corrected or changed, but were said to be misleading because the correction or change should be disregarded as not having been communicated directly to investors or because the change or correction may have post dated a proxy. Time does not permit an analysis of each and every formulation by the plaintiff of a misrepresentation. The plaintiff conceded that the three broad categories mentioned above were its primary case.
CBA
The initial statements made to unitholders in the notice of meeting and covering letter from Century, included a statement that the dominant reasons why investors supported the replacement of the plaintiff as Responsible Entity were an expectation that Century would deliver financial stability through restructuring bank debt; an expectation that facilities arranged by Century would be priced on more favourable lending margins; an expectation that under Century’s management there would be a meaningful increase in distributions; and a concern at the deteriorating performance of the fund since ownership of the Responsible Entity passed to the Becton Group in December 2007. The explanatory memoranda stated that if Century were to be appointed Responsible Entity, it intended to undertake a number of tasks, the first of which was to immediately negotiate with the CBA to extend the existing debt facility to a medium to long-term basis and achieve a material reduction in funding costs. Alternatively, it was stated that Century would refinance the CBA facility, if superior terms were available from another lender.
In the covering letter to each investor, Century emphasised its many claimed attributes, including expertise in property and property funds management; the fact that it did not face financial pressures at a corporate level; and that it was a credible manager whose managed funds would be supported by the banking industry in competitive debt financing. The letter went on to say:
CBA has for a long time been the major lender to Century’s managed property funds and Century has evidenced an ability within its existing property funds to extend debt with CBA (the lender to the fund) on a term basis at lower lending margins than now paid by your fund. Additionally, CBA has recently indicated a willingness to provide increased term lending to new Century managed funds. Century is confident of obtaining significantly enhanced funding terms for your fund upon being appointed as Responsible Entity.
The explanatory memorandum also stated that the existing facility negotiated by Becton had ‘a relatively high lending margin of 3.75%’.
The plaintiff submitted that the representations were false or misleading, primarily because at some time after the notice and covering letter had been sent to investors, the CBA made it clear to Century and Castle Partners that it would not make any commitment to funding unless and until Century was Responsible Entity. The plaintiff submitted that, notwithstanding this advice from the CBA, it was not communicated to investors or advisers except by means of a website maintained by Century, that had not been relevantly updated until 22 August 2010. It further submitted that in a letter to investors, dated 16 August 2010, sent after the CBA had clarified its position, Century failed to adequately correct the erroneous impression conveyed in the original material sent to investors. In that communication, responding to a communication from Becton to investors, Century stated:
Becton notes that its replacement as manager is an event of default under its finance facility with the CBA. Under the Corporations Act, when Century takes over, the loan agreement with CBA will move from Becton to Century. Century has existing facilities with the CBA and is very confident that it can negotiate a replacement facility on more favourable terms. In the unlikely event that it cannot do so, it is confident that it can do so with other bankers. The risk of any impact on Century’s ability to pay distributions and sell the properties when appropriate to do so is low.
The letter advocated a vote in favour of the resolution and enclosed a further proxy form.
In its dedicated website, updated on 22 August 2010, Century went so far as to inform the reader that the CBA had expressly advised Century that it did not endorse any statements made by Century in relation to the proposal to replace Becton as manager, whether they be in relation to the strength of Century’s existing banking relationship with CBA or other matters. Thus, by 22 August 2010, Century had clarified any misunderstanding that might have existed as a result of what was published to investors at the time of the notice of meeting. The plaintiff submitted, however, that this was not good enough because there was no certainty that investors had access to the website and some investors may already have prepared and sent their proxies, operating under a misunderstanding.
Becton was quick to respond to information provided by Garnaut, Century and Castle Partners to financial advisers and investors. It prepared contradicting material after dissecting the information that had been provided by those advocating its removal as Responsible Entity. The plaintiff and Becton advocated a vote against the resolution. The information prepared by Becton was sent to advisers and investors, apparently by email. Becton also had a website which was being updated with information and advocating its cause. Recipients of the information circulated by Becton were directed to the website. The Becton material ‘strongly’ recommended a ‘no vote’.
Fees charged by the plaintiff
The plaintiff submitted that the reference in the notice of meeting to the ‘current fee basis’, being up to 2% per annum, was misleading because Becton was in fact charging less than 1%. It submitted that the defendants well knew that this was so. In my view, the allegation is misconceived. The fee basis was up to 2%. The explanatory memoranda attached to the notices stated that while such a fee was permitted, ‘we do not know the level at which the RE currently charges the fee’. In any event, that issue has evaporated because Becton has itself proposed to make a change to the constitution to reduce the fee basis to .9%. I do not consider that the defendants were under a duty to disclose their tentative view that the fee charged by the plaintiff was probably less than 1%. On the evidence presently available, the failure to disclose that information does not raise a serious question to be tried.
Insolvency
The alleged representations of insolvency were advanced tentatively, which was understandable having regard to the financial difficulties confronting the Becton Group. The basis for the allegation was a paragraph in a letter sent to financial advisers by Garnaut on 3 August 2010. Mr Garnaut wrote:
Many of you will know of my role as Chairman of the Timbercorp Growers Group, fighting for the rights of the growers following the collapse of the Timbercorp Group. You may have clients with investments in Timbercorp, Great Southern, Forest Enterprises or Rewards and you know the problems caused by the insolvency of a group which includes the Responsible Entity. I do not intend to leave my clients exposed to a similar scenario with Becton.
Mr Goodwin, who filed two affidavits in support of the plaintiff’s application, responded to the alleged misstatement in his second affidavit, affirmed on 27 August 2010. He described the plaintiff’s formulation of the representation as serious and false. Other than to produce the recent accounts of the Becton Group and reports prepared on behalf of the plaintiff, very little was said by the plaintiff to contradict the fundamental proposition, the catalyst for the meeting, that the Becton Group was in a state of severe financial stress. The connection made by Mr Garnaut between Timbercorp, Great Southern and other collapsed managed investment schemes, in the context of ‘problems caused by the insolvency of a group’ might cause a reader to conclude that Mr Garnaut was asserting that the Becton Group was, or was very likely to become, insolvent. I have not been taken to any material prepared by the plaintiff or the Becton Group, and sent to investment advisers or investors, which sought to persuade them that the Becton Group was not facing a difficult financial position. It is obviously experiencing financial stress. Its position is notorious, and reflected in its accounts and a recent notice to the ASX.
To allege that a listed corporation, with an apparently functioning board, is or may be insolvent, is a serious matter. But the fact that Becton shares remain listed on the ASX, and its Board apparently continues to function, would cause an objective observer to conclude that the Board did not consider the Becton Group to be insolvent. An investor, or adviser, interested in the financial wellbeing of the plaintiff would, I think, take what Mr Garnaut said as no more than a warning of the risk of contamination, rather than as a statement of the fact as formulated by the plaintiff.
The balance sheet of Becton as at the end of June 2010 indicates very substantial trading losses and a deficiency in net assets. In an audit report dated 25 February 2010, Deloitte drew attention to the adverse financial position of the company, but went on to say that, notwithstanding its reservations about the group as a going concern (implicit in its report) the directors had prepared the financial report on a ‘going concern basis’ after due consideration of cash flow forecasts for the coming 12 months, which indicated a reliance on the successful repayment and negotiation of existing facilities, the sale of some non-core assets and a recapitalisation strategy. On 31 August 2010, Becton announced to the ASX its recapitalisation and debt refinancing plan. These documents confirm that the Becton Group is indeed under severe financial stress.
Role of advisers
The institutional link between advisers and investors is part of the matrix of fact that must be taken into account when analysing the effect of statements made by the opposing sides leading to the meeting. In my view it is more probable than not that information communicated to advisers would be passed on to their clients. After all, the advisers would be anxious to protect their own positions and avoid criticism that they withheld material relevant to their client’s financial interest. Nor do I regard communications made to advisers in this case as confusing or corrupting the flow of information to investors, so as to invalidate a proposed meeting. The advisers are regarded by the plaintiff and Becton as important marketing and information targets. They have directly targeted investors with their responsive material, no doubt in the belief that information provided by the defendants to advisers will be passed on to investors.
In my view the analysis of the information circulated by the defendants should include a consideration of all information provided to investors directly, to advisers and placed on the websites. A proper analysis will only be complete when a vote is taken. It is also necessary to consider the information in context. While it is true that the statements and conduct complained of were made by the defendants, who are sophisticated commercial entities, and in the case of Mr Garnaut, the principal in a large firm of investment advisers, the subject matter of the statements concerned, and the occasion was, an attempt by investors to exercise one of the few opportunities they had to deal with a perceived risk to their investments, brought about by the financial position of the plaintiff’s holding entities. The investors who called the meeting wish to challenge the continuation of the plaintiff in its role as Responsible Entity managing their assets on trust for them. If the concerns expressed by Mr Garnaut are taken as a reflection of the concerns of his clients, a significant number of investors are concerned that the plaintiff’s ability to function as manager, and protect their assets, may be compromised by its inseparable relationship with the Becton Group. If the Becton Group were to slip into insolvency, or if an administrator were to be appointed, the plaintiff, as a business unit, would be regarded as an asset of the group even though the assets under management by it are not. Funding arrangements could be threatened, and the continuity of management interrupted with adverse consequences to unitholders.
It is in that context that the plaintiff and the Becton Group are fighting for the plaintiff’s survival as manager of the funds. This is not a case where the manager is neutral in a passionate contest between competing member groups. The purpose of the meeting and the proposed resolution places the plaintiff in a position of profound, irreconcilable conflict, between its duty to investors and its self-interest.
These circumstances are not unlike the facts in City Pacific Ltd v Bacon,[2] where the Responsible Entity sought injunctive relief to restrain a meeting of members at which a resolution for its removal was to be considered. I share the doubts expressed by Dowsett J in that case concerning the difficulty in applying the notions of misleading or deceptive conduct to statements made in the course of a debate leading to a meeting of members at which a resolution is to be put to the vote. That is not to say that things said or done may never be found to be misleading or deceptive, in contravention of the law, whether in relation to financial services, a financial product or in trade or commerce. The difficulty becomes immediately apparent when these concepts are applied to an ongoing dialogue or debate involving, for the most part, public expressions of opinion and predictions, in the course of advocating for a particular outcome, prior to a vote. The ground will inevitably shift as parties adjust their platforms or arguments to respond to opposing argument. The meeting process commenced with the notice of meeting and will only conclude with a vote at the meeting. It is an inherently dynamic process, incapable of a useful analysis, if one is to be undertaken, as to the accuracy of statements until its conclusion. The intervention of a court during that process, to adjudicate on statements and advocacy, would be premature, and a significant intrusion upon the member’s rights to call for and participate in the meeting process.
[2](2009) 72 ACSR 418 (‘City Pacific’).
In a contest, such as that between the plaintiff and Century, it would be surprising if there was a moment leading up to the meeting when the position of one or other did not change as part of the ongoing process of advocacy. Should the Court intervene to restart the process each time a change or correction takes place?
There are, of course, obvious examples of where it may be appropriate to restrain a meeting. For example, where preconditions have not been satisfied. But to restrain a meeting, properly called, in the course of the debate leading to a vote, should only be done in exceptional circumstances. I agree, with respect, with the observations of Dowsett J in City Pacific where his Honour said:[3]
It may be difficult to apply the notion of misleading and deceptive conduct to the conduct of a member in requisitioning a meeting of this kind. There will often be significant disagreement amongst members as to facts which are said to justify a proposed resolution. A function of the meeting of members will be to allow them an opportunity to hear different points of view and decide how each can best protect his or her own interests. Members would not resolve any disagreement as to relevant facts as a court would.
Members who disagree with statements made in support of a proposed resolution cannot simply resort to the court in order to determine whether or not those facts are true. Such procedure, if it were available, would presumably also be applied to statements made at a meeting. The practical difficulties are obvious. It would be an abuse of the judicial process and would undermine the proper function of the meeting of members. Even if there is an arguable case for remedying misleading conduct by intervening in the conduct of a meeting, the court would normally be careful not to do so in areas where the dispute may be more a difference of opinion than a case of truly misleading or deceptive conduct.
[3]Ibid, [13] – [14].
Assuming, as I do, that an advocate for a particular outcome at a meeting of members, called to consider a resolution, may be found to contravene one or other provision prohibiting misleading or deceptive conduct, the evidence presently available does not satisfy me that the plaintiff has established a serious question to be tried that a contravention has occurred. At trial, with more complete evidence, and after the conclusion of the meeting process, the plaintiff may succeed in establishing one or more contraventions.
An important component of the plaintiff’s case was the allegation that the ground had shifted, either by correction of misstatements or the provision of additional information responding to changed circumstances, such as Century’s intention to retain or sell assets. The plaintiff argued that proxy forms may have been completed and returned prior to the correction or notification of a change. The plaintiff emphasised the role proxies play in the meeting process. I accept that proxies may have been completed and delivered in the absence of complete information. That is the inevitable consequence of giving a proxy, which must be completed and returned prior to the meeting. A proxy may, of course, be replaced by a new proxy or invalidated by attendance at the meeting. It is always open to an investor to obtain a new proxy form or attend the meeting.[4] I reject the notion that the investors are a class of commercially illiterate beings, unable to discern the real issues and vote according to their own commercial interests.
[4]See Re Australian Foundation Investment Company Limited [1974] VR 331, 338.
I am not satisfied that the evidence goes so far as to establish a serious question to be tried that Century improperly attempted to induce an adviser to procure a client to change their vote. The protagonists are bombarding advisers and investors with material. Becton and the plaintiff are strongly advocating a ‘no’ vote, well after proxy forms were distributed. If an attempt by one side to bring about a change of a vote is improper, so is the conduct of the other. I do not place the events recorded in the relevant emails and the absence of Mr McBain as a witness to explain them, as supporting an inference of impropriety.
The plaintiff alleged that the proxy forms were invalid because they specify the return address of Computershare. A similar argument was advanced in City Pacific. In that case Dowsett J said:[5]
The third ground involves s 252D of the Act which provides that proxy documents must be received by the responsible entity at least 48 hours before the meeting. It is said that this means that the proxies must be sent only to the responsible entity, and not to any other intervening party. It is further submitted that any failure to comply with this requirement will result in the proxies being invalid or the meeting being invalid, or both. Authority for this proposition is said to be found in the decision of Dodds-Streeton J in Bisan Ltd v Cellante(2002) 43 ACSR 322 ; 173 FLR 310 ; [2002] VSC 430 and Re Portman Iron Ore Ltd; Golden West Resources Ltd (2008) 170 FCR 409 ; 67 ACSR 676 ; [2008] FCA 1362, a decision of McKerracher J. A different approach was taken by the Takeovers Panel in Re Lion Selection Ltd (No 2)(2008) 66 ACSR 656 ; [2008] ATP 16.
[5](2009) 72 ACSR 418, [10].
I share the reservation expressed by his Honour as to the correctness of the proposition underlying the plaintiff’s argument. His Honour said:[6]
I turn to the question of the proxies. As I have said, there is authority which supports the proposition that proxies must be sent to the nominated recipient, the company in the case of a corporation, and the responsible entity in the case of a scheme. However, s 252Z does not actually say that. It requires only that the proxy documents be received by the responsible entity at least 48 hours before the meeting. That seems not to exclude the possibility that they might be collected by a third party. I accept that the authorities to which I have referred may be distinguishable but, nonetheless, they suggest that there is a serious question to be tried with respect to the question.
The defendants conceded that there was a serious question to be tried in relation to the validity of the proxy address and I will proceed on that basis.
[6](2009) 72 ACSR 418, [26].
The defendants submitted that there was no utility enjoining Mr Garnaut, as he was not conducting the meeting – it having been called by members. I accept the plaintiff’s submission that at least at this stage of the proceeding, an injunction directed to Mr Garnaut would be effective to stop the meeting. In the longer term, however, it would be necessary for the plaintiff to give further consideration to necessary parties.
I am of the opinion that the balance of convenience overwhelmingly favours a rejection of the plaintiff’s application to enjoin or even delay the meeting of members, so that correcting or more complete material can be circulated. The plaintiff’s primary position was that the meeting should be enjoined – finally or at least until trial. An alternative position advanced by the plaintiff was to restrain Mr Garnaut from holding the meeting for at least two weeks to enable accurate material to be circulated, hopefully by agreement.
Investors in unlisted managed investments schemes have limited options to remedy a threat to the security of their investment. A group of investors has requisitioned a meeting through Mr Garnaut and is prima facie entitled to have that meeting convened to consider the resolutions. The plaintiff and its parent group are resisting the holding of the meeting and strongly urging unitholders, if the meeting is to take place, to vote against the resolution to remove the plaintiff as Responsible Entity. The conflict of duty and interest, evident in the position of the plaintiff, should cause it to maintain a neutral position in the meeting process. The fact that it has chosen to engage in a debate, advocating for its own survival, causes me to conclude that a ‘clean process’ for the delivery of further corrective information, is illusory. The plaintiff is unlikely to accept the accuracy or adequacy of any information unless supporting its position. What is at stake for the plaintiff extends well beyond the integrity of the meeting process.
In my view, an injunction granted at the plaintiff’s behest would not have the practical consequence of ensuring a ‘clean’ meeting process satisfactory to the plaintiff. There would almost certainly be further disputation and possibly resort to the courts. The alternative proposal, advanced on behalf of the plaintiff, that an injunction be granted for a short time to allow corrective material to be placed before investors, also has little prospect of success. There is little or no prospect of agreement as to what was correct or what ought to be place before investors. The Court should not assume the role of prescribing or endorsing information and opinions in a meeting process. In any event, any material misstatement by the defendants have been corrected by them or by information prepared and circulated to advisers and investors on behalf of the plaintiff and the Becton Group.
In the end, it is the interest of the investors that is paramount. They have an interest in receiving correct information – in not being misled or deceived – but they also have an interest in having the meeting convened and to vote on the resolutions. ASIC has exercised a limited but meaningful supervisory role over this meeting process.
There is no investor before the Court, complaining about the adequacy of information, or that the information has been confusing or overwhelming, or that there is any unfairness in the process so far. If the meeting is allowed to proceed, the plaintiff may still challenge the validity of any resolution. By that time, all of the evidence concerning the timing and status of the proxies and their significance to the overall vote will be clearer. All of the information provided to advisers and investors may, if necessary, be dissected and analysed without the urgency attending this application. Then again, the resolution may fail and the need for any further hearing may consequently evaporate.
The plaintiff has not advanced any prejudice it may suffer as a consequence of the meeting being allowed to proceed next Tuesday, save for the obvious risk that it may be removed as the Responsible Entity of the schemes and thus no longer derive an income stream. The plaintiff, understandably, does not rely upon any prejudice that might flow to the Becton Group.
In my opinion the balance of convenience clearly favours a conclusion of the meeting process commenced by the notices of meeting. The application is dismissed.
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