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
•30 October 2012
Supreme Court
New South Wales
Medium Neutral Citation: 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 Hearing dates: 2 and 3 October 2012 Decision date: 30 October 2012 Jurisdiction: Equity Division - Commercial List Before: Stevenson J Decision: Change in Control did not occur
Catchwords: CONTRACTS - construction Legislation Cited: Corporations Act 2001 (Cth)
Corporations Regulations (Cth)
Trade Practices Act 1974 (Cth)Cases Cited: Australian Competition and Consumer Commission (ACCC) v SIP Australia Pty Ltd [2002] FCA 824; (2002) ATPR 41-877
Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co Ltd [1985] 1 Qd R 127; (1984) 14 ACLR 456
Austral Coal Ltd (No. 2) [2005] ATP 13; (2005) 55 ACSR 60
Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501
Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566; (2004) 49 ACSR 597
Bentley Capital Ltd 01R [2011] ATP 13
Brockman Resources Ltd [2011] ATP 3
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346; (2010) 201 IR 64
In the matter of Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137
J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (1992) 44 IR 264
Mount Gibson Iron Ltd [2008] ATP 4
National Foods [2005] ATP 8; (2005) 54 ACSR 80
Newton v Federal Commissioner of Taxation [1958] AC 450
Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331
Viento Group Ltd [2011] ATP 1
Winepros Ltd [2002] ATP 18; (2002) 43 ACSR 566Texts Cited: Austin and Ramsay, Ford's Principles of Corporations Law, vol 2
Renard and Santamaria, Takeovers and Reconstructions in AustraliaCategory: Principal judgment Parties: 2012/68986:
Perpetual Custodians Limited (ACN 000 313 431) (as custodian for Tamoran Pty Limited as trustee for Michael Crivelli) (first plaintiff)
Australian Executor Trustees Limited (ACN 007 869 794) as custodian for Anthony Patterson as trustee for the Patterson Family Trust (second plaintiff)
Australian Executor Trustees Limited (ACN 007 869 794) as custodian for Nandaroo Pty Limited (third plaintiff)
IOOF Investment Management Limited (defendant)
2012/113927:
John Murray (first plaintiff)
Anthony Patterson (second plaintiff)
Nandaroo Pty Limited (ACN 077 890 843) (third plaintiff)
Anthony Patterson as trustee for the Patterson Family Trust (fourth plaintiff)
Perennial Investment Partners Limited (ACN 087 901 620) (first defendant)
Paul Durham (second defendant and first cross claimant)
Stephen Bruce (third defendant)
PSD Nominees Pty Ltd (ACN 103 776 950) as trustee for the Durham Family Trust (fourth defendant and second cross claimant)
Billet Place Pty Limited (ACN 107 426 317) as trustee for the Stephen Bruce Family Trust (fifth defendant)
Perennial Value Management Limited (sixth defendant)Representation: Counsel:
I M Jackman SC with R Scruby and B Le Plastrier (plaintiffs)
P J Jopling QC with P G Liondas and L T Livingston (defendants)
R J Weber SC (first and second cross claimants, 2012/113927)
Solicitors:
2012/68986:
Atanaskovic Hartnell (plaintiffs)
King & Wood Mallesons (defendants)
2012/113927:
Atanaskovic Hartnell (plaintiffs)
King & Wood Mallesons (first defendant)
Holman Webb (second, third, fourth and fifth defendants and first and second cross claimants)
Henry Davis York (sixth defendant)
File Number(s): SC 2012/68986; SC 2012/113927 Publication restriction: Nil
Judgment
Introduction
The issue in these proceedings is whether a "Change in Control" (for the purposes of the share sale agreement referred to below) occurred in IOOF Holdings Limited ("IOOF") as a result of its merger ("the Merger") with Australian Wealth Management Limited ("AWM"), effected by a scheme of arrangement under s 411 of the Corporations Act 2001 (Cth) ("the Act") between AWM and its members ("the Scheme").
The proceedings
Two proceedings were listed before me for concurrent hearing on 2 and 3 October 2012. They were what the parties described as being the "ADP Proceedings" (proceedings 2012/68986) and the "Put and Call Proceedings" (proceedings 2012/113927).
The Change in Control issue is the only issue in the ADP Proceedings. It is one issue in the Put and Call Proceedings. On 22 June 2012 McDougall J ordered the concurrent hearing of the ADP Proceedings and the Change in Control issue in the Put and Call Proceedings.
Decision
In my opinion, for the reasons that follow, there was no such "Change in Control".
Background
On 5 October 2006 IOOF Investment Management Limited ("IOOF Investment") (a wholly owned subsidiary of IOOF) was the owner of 78.15 per cent of the shares in Perennial Investment Partners Limited ("PIPL").
At that time, the minority shareholding (21.85 per cent) of PIPL was held by entities representing key executives of PIPL. Those key executives were Mr Michael Crivelli, Mr Kerry Series, Mr Anthony Patterson and Mr John Murray. I shall refer to these men, and, where appropriate, to their representative entities, as "the Executives". Mr Series did not participate in the proceedings.
PIPL was itself a holding company, specialising in the provision of investment management services to wholesale clients. PIPL provided such services through a range of asset management entities to which PIPL provided various portfolio services. Each of those subsidiaries had a sector or investment style specialisation within the funds management industry.
The corporate structure as at 5 October 2006 is represented by the following diagram: -
The Share Sale Agreement
By a Share Sale and Purchase Agreement ("the Share Sale Agreement") dated 5 October 2006 IOOF Investment agreed to purchase the Executives' 21.85 per cent interest in PIPL.
Consideration
The consideration for the sale of the Executives' shares comprised, first, an "Initial Payment" of approximately $67.9 million. That amount was payable as to approximately $14.98 million to the Crivelli interests, $18.14 million to the Series interests, $26.5 million to the Patterson interests, and $7.9 million to the Murray interests.
Deferred Consideration
Secondly, the Executives, as vendors of the shares, were entitled to a "Deferred Consideration". The Deferred Consideration was either a "Deferred Payment" or (if applicable, and then at the Executives' option) an "Accelerated Deferred Payment".
The Deferred Payment was a cash amount to be calculated by reference to the extent to which the performance of PIPL in the financial year ended 30 June 2009 exceeded an agreed budget for that year. The Deferred Payment was intended to act as an incentive to the Executives to cause PIPL's future earnings to be maximised.
The Deferred Payment was to be calculated at 25 per cent of PIPL's net profit after tax for the financial year ended 30 June 2009, less $320 million. The Deferred Payment was payable within 14 days of the audit of PIPL's 30 June 2009 accounts.
Alternatively, and critically for the purpose of these proceedings, the Executives were entitled, at their option, to an "Accelerated Deferred Payment" (in lieu of the Deferred Payment) if a "Trigger Event" occurred before 30 June 2009. The Accelerated Deferred Payment was intended to operate as an early realisation of the Deferred Payment, in the event that a Trigger Event occurred.
The Accelerated Deferred Payments were: -
(a) To the Crivelli interests $7.8 million;
(b) To the Series interests $9.581 million;
(c) To the Patterson interests $13.83 million; and
(d) To the Murray interests $4.112 million.
There were various Trigger Events, including a change in the "current role" in PIPL of any of Messrs Crivelli, Series, Patterson or Murray.
There was also a Trigger Event described as a "Change in Control", defined to mean, relevantly: -
"In relation to the shareholding of IOOF where a person and that person's Associates together become entitled to more than 40% of the voting shares in IOOF".
The expression "Associates" was defined to have "the same meaning as in the Corporations Act 2001 (Cth)".
Condition precedent
The Share Sale Agreement required, as a condition precedent to completion, that amendments be made to various shareholders' agreements ("the Shareholder Agreements") that had been entered into with respect to the various subsidiaries of PIPL depicted in the diagram set out above.
Those amendments had the effect of giving holders of shares in the subsidiary the right to certain put and call options in the event of a "Change in Control" of IOOF, defined in the same way.
Change in Control as a result of the Merger?
The Executives contend that a Change of Control in IOOF occurred as a result of the Merger.
If that is so, the Executives were entitled, at their option, to the relevant Accelerated Deferred Payment, in lieu of the Deferred Payment. Further, the put and call options to which I have referred became exercisable.
The Merger
The effect of the Merger
The result of the Merger and the Scheme was, in effect, a reverse takeover. All shares in AWM were transferred to IOOF. IOOF became the owner of all shares in AWM. Hitherto, IOOF had no shares in AWM.
At the same time IOOF issued to AWM shareholders one voting share in IOOF for every 3.73 AWM shares held.
The AWM shareholders who voted in favour of the Scheme (referred to by the parties as the "Voting Members") became entitled to approximately 48 per cent of the voting shares in IOOF. The other AWM shareholders became entitled to a further 22 per cent of the shares in IOOF. Overall, former AWM members became entitled to approximately 70 per cent of the voting shares in IOOF.
Before the Merger, AWM was itself entitled to some 2.14 per cent of voting shares in IOOF. As a result of the Merger, AWM's interest in IOOF was reduced to approximately 0.64 per cent.
The Executives contend that: -
(a) AWM and the Voting Members were "Associates";
(b) AWM and the Voting Members "together became entitled" to more than 40 per cent of the voting shares in IOOF;
(c) this occurred between 30 April 2009 and 12 May 2009 or, alternatively, between 7 May 2009 and 12 May 2009;
(d) accordingly, there was a Change in Control for the purpose of the Share Sale Agreement and the Shareholders Agreements.
Steps in the Merger
On 24 November 2008 IOOF and AWM issued an ASX Release announcing their intention to merge to create "a leading financial services company".
The "Merger Highlights" were described as being: -
(a) IOOF would issue AWM shareholders with one IOOF share for every 3.73 AWM shares;
(b) the Merger was expected to generate "post tax cost synergies" of $20 million per annum in the first 12 months post Merger;
(c) the Merger was unanimously recommended by the boards of IOOF and AWM;
(d) the merged group would be owned approximately 30 per cent by IOOF's shareholders and 70 per cent by AWM shareholders;
(e) the IOOF Chairman would be Chairman of the merged group and the AWM Managing Director would be Managing Director and Chief Executive Officer of the merged group.
IOOF and AWM also announced that they had signed an Implementation Deed to effect the Merger of the two companies.
On 6 March 2009 the Supreme Court of Victoria made orders authorising the convening of an extraordinary general meeting of AWM and approved the "Scheme Booklet". The Australian Securities and Investments Commission ("ASIC") did not require that the shareholders of IOOF approve the Merger.
On 22 April 2009 the members of AWM approved the Scheme.
On 29 April 2009 the Supreme Court of Victoria approved the Scheme. On the same day IOOF and AWM announced that deferred settlement trading of AWM shares in IOOF would commence on 1 May 2009.
On 1 May 2009 a copy of the order of the Supreme Court of Victoria was lodged with the ASIC and, by operation of s 411(10) of the Act, the Scheme became effective. On this day the IOOF board was reconstituted.
The next day, 1 May 2009, AWM shareholders became entitled to trade their shares in IOOF on a deferred settlement basis.
12 May 2009 was the "Implementation Date" for the purpose of the Scheme. On this date the further shares in IOOF were issued and relevant transfers occurred.
Result of the Merger
Prior to the Merger, IOOF had an "open register". There was only one substantial shareholder, Bendigo and Adelaide Bank Limited, which held 13.15 per cent of the shares. 60 per cent of the shareholders held less than 12 per cent of the issued capital. A further 35 per cent of the shareholders held 30 per cent of the issued share capital.
After the merger, Bendigo and Adelaide Bank's shareholding decreased from 13.2 per cent to 7.8 per cent. The only other substantial shareholder was an individual holding 12.11 per cent. No other shareholder acquired more than 5 per cent of the shares in IOOF.
It is thus fair to say, as IOOF submitted, that no one shareholder, or group of shareholders, had control of IOOF, before or after the Merger.
Further, as I have said, 70 per cent of the shares in IOOF came to be held, as a result of the Merger, by former AWM shareholders. Within that 70 per cent group, the Voting Members (that is the members of AWM who voted in favour of the Merger) held 48 per cent of the shares in IOOF.
Principles concerning proper construction
There was no dispute before me as to the principles I should follow in relation to the proper construction of the Share Sale Agreement. They were recently summarised in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 in which Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) said (at [52]): -
"The principles underlying the construction of written contracts are well established and it is not necessary to deal with them at length. A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphafarm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; (2011) 282 ALR 604."
Thus, I must have regard to: -
(a) the language used by the parties;
(b) the context in which that language is used; and
(c) the purpose and object of the transaction.
I turn first to the language used by the parties as, in my opinion, the matter can be resolved by reference to that language (including that incorporated by reference from the definition of "Associates" in the Act).
Entitlement
The definition of Change in Control requires that a person and that person's Associates together become "entitled" to more than 40 per cent of the voting shares in IOOF.
Before considering whether AWM and the Voting Members were "Associates", I will consider whether AWM and the Voting Members ever "together became entitled" to more than 40 per cent of the voting shares in IOOF.
At all relevant times, AWM held 1,460,632 voting shares in IOOF. Prior to the Merger this amounted to approximately 2.1 per cent of those voting shares. Once the further shares in IOOF were allotted to AWM members (on 12 May 2009) AWM's shareholding in IOOF was reduced to approximately 0.64 per cent of the total shareholding.
The Executives submitted that the Voting Members became "entitled" to voting shares in IOOF as soon as they had an enforceable right to become beneficial owners of the IOOF shares. The Executives submitted that by 30 April 2009, or alternatively by 1 May 2009, and certainly by 7 May 2009, AWM shareholders, including the Voting Members, obtained a present unconditional right to the future property represented by the IOOF shares, to be allotted on 12 May 2009.
IOOF submitted that AWM shareholders only became "entitled" to IOOF shares when the shares were actually issued (on 12 May 2009). IOOF submitted that to "become entitled" to shares means, in effect, to become possessed of the voting power associated with those shares.
I prefer the Executives' submissions.
In my opinion, AWM shareholders (including the Voting Members) became "entitled" to the shares that were to be allotted to them in IOOF on 1 May 2009. On that date, AWM shareholders lost their right to trade AWM shares, but obtained an equivalent right to trade, on a deferred settlement basis, the IOOF shares which they were to receive on the Implementation Date, 12 May 2009. I accept the Executives' submission that the right to trade IOOF shares on a deferred basis necessarily bespoke an "entitle[ment]" to IOOF shares for the purposes of the definition of Change in Control.
Both parties referred me to the observations of White J in Fardell v Coates Hire Operations Pty Ltd [2010] NSWSC 346; (2010) 201 IR 64. In that case, White J construed a contract containing the words "any person becomes entitled to more than 50% of Coates Hire's shares". One question was when an "entitle[ment]" to such shares arose in circumstances where they were required to be issued under a scheme of arrangement. The particular question was whether such an "entitle[ment]" arose after the date of court approval but before the acquisition of the shares the subject of the scheme.
There is an important distinction between the facts in Fardell and the facts in this case. In Fardell, the scheme of arrangement provided that all existing shares in Coates Hire would be transferred to the bidder. In this case new shares were to be issued and allotted to AWM members.
Nonetheless, the observations of White J have some bearing on this case. His Honour held that "entitled" means having a title, right or claim to something (at [69]) and that a change in legal title was not necessarily a condition precedent to a change in "entitlement" (at [70]).
In this case, on 1 May 2009, AWM shareholders obtained a right to trade, on a deferred settlement basis, the IOOF shares they would receive on the Implementation Date (12 May 2009). They thus had a right or claim to the IOOF shares, notwithstanding the fact that they did not then have legal title to the shares.
Therefore my conclusion is that between 1 May and 12 May 2009, the Voting Members "became entitled" to more than 40 per cent (in fact around 48 per cent) of the voting shares in IOOF.
At that time AWM owned, and was thus entitled to, 2.1 per cent of the voting shares.
Thus, during this period, AWM and the Voting Members "together became entitled" to something in the order of 50 per cent of the voting shares in IOOF.
Associates
The next question is, assuming AWM and the Voting Members "together became entitled" to more than 40 per cent of the voting shares in IOOF, were they, at that time, "Associates".
The definition of Change in Control incorporates the meaning of "Associates" in the Act.
The relevant sections of the Act are s 12(2) and s 15(1) which, so far as is relevant to these proceedings, are in the following terms: -
"12 (2) ...a person (the second person) is an associate of the primary person if, and only if, one or more of the following paragraphs applies:
...
(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; [or]
(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.
...
15 (1) ... The associate reference includes a reference to:
(a) a person in concert with whom the primary person is acting, or proposes to act; and
...
(c) a person with whom the primary person is, or proposes to become, associated, whether formally or informally, in any other way;
in respect of the matter to which the associate reference relates." (emphasis in original)
IOOF submitted that s 12 and s 15 of the Act were mutually exclusive and referred to Austin and Ramsay, Ford's Principles of Corporations Law, vol 2 at [23.250] and Renard and Santamaria, Takeovers and Reconstructions in Australia, at [430] and [434].
However Mr Jopling QC, who appeared with Mr Liondas and Mr Livingston for IOOF, accepted that, for the purposes of deciding the issues in these proceedings, there was no relevant difference between the two sections. Argument proceeded upon that basis.
I will consider each of the relevant sections in turn.
Section 12(2)(b): relevant agreement for the purpose of controlling or influencing the composition of IOOF's board or the conduct of IOOF's affairs
The question which arises under s 12(2)(b) of the Act is whether, at the time of the Merger, AWM and the Voting Members, proposed to, or did enter into a "relevant agreement" for the purposes of: -
(a) controlling or influencing the composition of the IOOF board; or
(b) controlling or influencing the conduct of IOOF's "affairs".
By Regulation 1.018 of the Corporations Regulations (Cth) the "affairs" of IOOF include the matters set out in s 53 of the Act. The matters in s 53 upon which the Executives particularly relied as constituting the relevant "affairs" were: -
(a) the membership of IOOF (s 53(a));
(b) the ownership of shares in IOOF (s 53(e)); and
(c) the circumstances under which a person becomes entitled to acquire shares in IOOF (s 58(h)).
Relevant agreement?
"Relevant agreement" is broadly defined in s 9 of the Act to mean an agreement, arrangement or understanding whether: -
(a) formal or informal, or partly formal and partly informal;
(b) written or oral, or partly written and partly oral;
(c) whether or not having legal or equitable force and whether or not based on legal or equitable rights.
The plaintiffs submitted that the Scheme was a "relevant agreement" within the meaning of this definition.
Section 411(1) of the Act, which deals with schemes of arrangement, speaks of "a compromise or arrangement" between, relevantly, a body and its members.
In In the Matter of Hostworks Group Ltd [2008] FCA 64; (2008) 26 ACLC 137 Mansfield J said at [26]: -
"Section 411 [of the Act] further requires that the Court is satisfied that the scheme can properly be described as a compromise or arrangement so as to come within its ambit. The word 'arrangement' has been held to be a word of wide import, not limited by its relationship or the expression 'compromise'. An arrangement may extend to any subject matter which is something which a company is able to agree with its members, and is likened to a contract between a company and its members."
In my opinion, it follows from the wording of s 411(1) of the Act, and from the observations of Mansfield J in Hostworks, that the Scheme was an "arrangement", if not also an "agreement", between AWM and its members. It was thus a "relevant agreement" within the meaning of the definition in s 9.
Indeed, that proposition was not contested by IOOF, although Mr Jopling submitted that the "relevant agreement" comprised by the Scheme ceased on 12 May 2009. That does not seem to me to be relevant to the issues that I must determine.
Purpose
In order that the definition of Associates in s 12(2)(b) of the Act be enlivened it is necessary for the plaintiffs to demonstrate that AWM and the Voting Members entered the Scheme for the purpose of either (a) controlling or influencing the composition of the IOOF board or (b) controlling or influencing the conduct of IOOF's affairs.
I accept IOOF's submission that "purpose" goes beyond simply having an appreciation that certain actions have a likely effect.
Deane J said in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 42 FLR 331 at 348-439 that "purpose" in s 45D of the Trade Practices Act 1974 (Cth) should be understood as referring to "the operative subjective purpose of those engaging in the relevant conduct" and is: -
"...to be answered not by reference to whether it was appreciated that the relevant conduct might have the specified effect but by reference to the real reason or reasons for, or the real purpose or purposes of, the conduct and to what was in truth the object in the minds of the relevant persons when they engaged in the conduct in concert."
Although Deane J was speaking of s 45D in the Trade Practices Act there is no reason, in my opinion, to adopt a different approach to the word "purpose" in s 12(2)(b).
Purpose is the end sought to be accomplished, or the effect sought to be achieved; the "end in view": Australian Competition and Consumer Commission (ACCC) v SIP Australia Pty Ltd [2002] FCA 824; (2002) ATPR 41-877 at [104] per Goldberg J, referring to Newton v Federal Commissioner of Taxation [1958] AC 450 at 465.
Purpose is to be contrasted with motive (which is a reason for seeking that end), or the effect itself.
What was the purpose of the Voting Members in relation to the Scheme?
No evidence was adduced from any of the Voting Members as to what their purpose was in voting in favour of the Scheme.
AWM had an open register with a large, diverse and disparate shareholding. The vast majority of AWM shareholders were small shareholders.
In my opinion, the fact that the Voting Members all voted the same way (that is in favour of the Scheme) does not, itself, give rise to any inference as to what their purpose was.
There is no evidence, nor, in my opinion, inference available, that the Voting Members had any shared links, or prior dealings or prior collaborative conduct (cf Viento Group Ltd [2011] ATP 1 at [120]; Bentley Capital Ltd 01R [2011] ATP 13 at [38]; Mount Gibson Iron Limited [2008] ATP 4).
The inference I would draw is that the purpose of the Voting Members was no more than to acquire shares in IOOF, and to thus have a share in a widely held public company and merged business.
This was the unanimous recommendation to the Voting Members (and all AWM shareholders) from the AWM board.
In the Scheme Booklet it was stated: -
"The AWM Directors...consider that the Merger is in the best interests of AWM and the AWM Shareholders. The AWM Directors unanimously recommend that, in the absence of a superior offer [and none was received], you vote in favour of the Scheme."
The basis of that recommendation was set out in detail in s 1 of the Scheme Booklet.
Further the AWM Directors had engaged Ernst & Young as an independent expert to provide a report on the Scheme. Ernst & Young's Independent Expert's Report and Financial Services Guide was included as an annexure to the Scheme Booklet. The report was some 70 pages in length and examined the merits of the proposed merger in great detail.
Ernst & Young's conclusions were: -
(a) the value of the consideration being offered to AWM shareholders (being shares in IOOF) was greater than the value of an AWM share on a stand alone basis;
(b) taking into consideration the matters set out in the report, the Scheme was in the best interests of AWM shareholders.
The inference I would draw from this evidence is that the "operative, subjective purpose" of the Voting Members was no more than to act on these recommendations and become shareholders in the merged business by reason of their shareholding in IOOF.
Purpose to control or influence the composition of the IOOF board?
In my opinion, there is no basis to conclude that the "operative, subjective purpose" of the Voting Members was to control or influence the composition of the IOOF board.
No doubt the effect of entry into the Scheme was to change the composition of the IOOF board (although IOOF retained a majority on the board).
However, I cannot conclude that this was the "purpose" of the Voting Members.
Purpose to control or influence the conduct of IOOF's affairs?
As I have mentioned, the plaintiffs focused on that part of the definition of "affairs" as referred to membership, ownership of shares in, and the circumstances under which a shareholding was acquired.
I have been taken to decisions of the Takeovers Panel, which cast light on the meaning of this provision.
In National Foods [2005] ATP 8; (2005) 54 ACSR 80, the Takeovers Panel said (at [58]): -
"Section 12(2)(b) and (c) should not be read unduly widely, as many agreements relate to the conduct of a company's affairs, which should not ordinarily be treated as within the policy of the association provisions, and which have never been held to be associations."
In Brockman Resources Ltd [2011] ATP 3 the Panel said (at [54]): -
"The definition casts a wide net, given the broad definition of an entity's affairs, although we are principally concerned with the accumulation and exercise of voting power." (citations omitted)
In Austral Coal Ltd (No. 2) [2005] ATP 13; (2005) 55 ACSR 60 the Panel said (at [237]) that the concept of the "affairs" of a company in s 12: -
"...must relate to the affairs of the relevant company in general and not to discrete matters which happen to form part of those affairs."
Finally, in National Foods the Panel said (at [55]) that an agreement to control the conduct of a company's affairs: -
"...must be aimed at exerting pervasive control or influence over the company's direction and management."
Taking into account these observations, and the plain words of the section, I cannot conclude that it was the purpose of the Voting Members to control or influence "the conduct" of IOOF's affairs.
Rather, the purpose of the Voting Members was, as I have set out above, to take the advice given to them by the AWM board, to accept the recommendation given by Ernst & Young, and to participate as shareholders in the merged business.
Section 12(2)(c) and section 15(1)(a): acting in concert
For the purposes of these sections, the questions are whether: -
(a) AWM and the Voting Members proposed to act, or did act "in concert" in relation to the affairs of IOOF (s 12(2)(c)); and
(b) AWM and the Voting Members proposed to act or acted in concert in respect "of the matter to which the associate reference relates" (s 15(1)(a)).
So far as concerns s 15(1)(a), "the matter to which the associate reference relates" is the definition of Change in Control in the Share Sale Agreement; that is, it relates to whether the putative associates have "together become entitled to more than 40% of the voting shares in IOOF".
Acting in concert
In order that two parties 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, (1984) 14 ACLR 456 at 132;
(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 object: Bank of Western Australia v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 at 524-525 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: Winepros Ltd [2002] ATP 18; (2002) 43 ACSR 566 at [33]; 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: Bank of Western Australia v Ocean Trawlers.
In this case, the common purpose must relate to either "the affairs of IOOF" (s 12(2)(c)), or "together becoming entitled" to 40 per cent of the voting shares in IOOF (s 15(1)(a)).
Were AWM and the Voting Members acting in concert?
In my opinion, the evidence does not establish that AWM and the Voting Members were acting in concert either in relation to IOOF's affairs or in relation to the acquisition by the Voting Members of voting shares in IOOF.
The only overt act relied upon by the plaintiffs as constituting the alleged "acting in concert" is the act of the Voting Members of voting in favour of the resolution at the Scheme meeting on 22 April 2009.
I see no basis for concluding that there was a community of purpose between AWM and the Voting Members, or any other collaboration or interaction which could lead to the conclusion that the Voting Members were acting in concert with AWM.
The more probable inference, and one which I draw, is that the various Voting Members were separately pursuing their own interests (acquiring a stake in IOOF), which interests coincided with those of the other Voting Members and those of AWM.
This is not surprising. Plainly, the board of AWM thought the Scheme was in AWM's interests. That is why the board unanimously recommended the proposal to the AWM members. Further, the Merger had the unqualified recommendation of the independent experts, Ernst & Young.
Section 15(1)(c): other association
The question that arises under this section is whether AWM and the Voting Members were, or became, "associated" whether formally or informally or in any other way "in respect to the matter to which the associate reference relates"; that is "together becoming entitled to 40% of the voting shares in IOOF".
Section 15(1)(c) requires that the alleged association be "in respect of" the "specific and delineated" matter to which the associate reference relates: Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566; (2004) 49 ACSR 597 at [43]. In Bateman Barrett J rejected the case sought to be made there in reliance on s 15(1)(c) of the Act because of: -
"... the absence of any direct evidence of actual communication as to voting intentions or of common intentions actually and knowingly shared (as distinct from coinciding)...". (at [42]).
I accept IOOF's submission that the same result should follow in this case. Indeed, in the circumstances of this case, it is hard to see how the requirements of s 15(1)(c) could be satisfied if those of s 12(2)(c) and (d) and s 15(1)(a) were not.
In my opinion AWM and the Voting Members did not propose to and did not become "associated" for the purpose of the section.
Conclusion
For these reasons, my opinion is that there was no Change in Control of IOOF as a result of its merger with AWM.
I have come to this conclusion based upon my analysis of the language used by the parties, including the language, incorporated by reference into the Share Sale Agreement, of the provisions of the Act to which I have referred.
IOOF advanced extensive submissions as to the other matters relevant to my consideration of the proper construction of the expression Change in Control, namely: -
(a) the context in which the language of the parties was used; and
(b) the purpose and the object of the transaction comprised by the Share Sale Agreement.
IOOF also made submissions as to the "absurd" consequences that it argued followed from adoption of the plaintiffs' submissions.
In view of the conclusion to which I have come it is not necessary for me to deal with these matters.
However, I do accept IOOF's submission that the conclusion that there was no Change in Control as a result of the Merger is consistent with, and promotes the evident object and purpose of the relevant part of the Share Sale Agreement.
As IOOF submitted, the commercial purpose or object of the Accelerated Deferred Payment provision in the Share Sale Agreement was to protect the Executives if a change occurred that might adversely affect their ability to control whether PIPL met the agreed budgets, and, therefore whether they earned the Deferred Payment. Their ability to meet those budgets, and claim the Deferred Payment, might have been impacted either by their removal from their current roles, or by new controlling shareholders of IOOF or PIPL changing the way in which PIPL was run and affecting such operational independence that PIPL had previously enjoyed.
The Merger between IOOF and AWM was unlikely to have any effect on the ability of the Executives to do what they could to ensure that PIPL met the agreed budgets for the financial year ended 30 June 2009.
The board of IOOF remained controlled by directors nominated by IOOF. The shareholding in IOOF remained widely held, without any party having a controlling interest.
Were the Executives to be entitled to the cash payment comprised in the relevant Accelerated Deferred Payment, rather than the share of PIPL's performance over budget for the financial year ended 30 June 2009, they would achieve a windfall of a kind that, in my opinion, could not possibly have been contemplated by the parties to the Share Sale Agreement.
I invite the parties to bring in short minutes to give effect to these reasons.
**********
Decision last updated: 30 October 2012
2
6
3