Australian Unity Funds Management Limited v NorthWest Healthcare Australia RE Limited

By Summons filed on 9 June 2021, Australian Unity Funds Management Ltd (“AUFM”) sought judicial advice as to whether it would be required to give effect to a resolution to amend the constitution of the Australian Unity Healthcare Property Trust (“AUHPT”), in a manner that would give effect to an acquisition of all the units in AUHPT by NorthWest Healthcare Australia RE Ltd (“NorthWest”). NorthWest had exercised its rights as a unitholder in AUHPT to convene a unitholders meeting at which the resolution was to be put. That meeting was then adjourned, by an order of the Court made on 17 June 2021, to take place on 19 July 2021.

By an Interlocutory Process dated 12 July 2021, NorthWest sought a further order that that meeting be adjourned from 19 July 2021 to 7 September 2021. That Interlocutory Process was ultimately not determined by the Court, because evidence filed by AUFM in respect of that Interlocutory Process indicated that sufficient proxy votes had been lodged by unitholders opposed to the constitutional amendment proposed by NorthWest that the proposed resolution would not be passed at the unitholders meeting in any event. In those circumstances, NorthWest properly recognised that there would be little utility in holding that meeting. On 14 July 2021, NorthWest advised unitholders that “the proposal to be considered at the AUHPT unitholder meeting has been withdrawn and will not go ahead on 19 July 2021 as planned” and that AUHPT unitholders should not seek to attend the meeting venue at the previously notified date and time. On 15 July 2021, I made an order in a form agreed by the parties, which cancelled the meeting to take place on 19 July 2021. At the parties’ request, I also made orders reserving the opportunity for further evidence and submissions as to costs.

AUFM now seeks leave to discontinue its application for judicial advice and the parties have also made submissions as to costs.

I will first address the parties’ affidavit evidence. AUFM relied on the affidavit dated 30 July 2021 of Mr Rowan Mead, the chairman of the board of directors of AUFM. Mr Mead’s affidavit exhibited a voluminous bundle of documents in respect of the history of the proceedings. Mr Mead outlined events leading to the commencement of the application for judicial advice, including correspondence received from NorthWest containing, initially, an unsolicited, non-binding indicative proposal in respect of a “trust scheme” by which NorthWest would acquire all the units in AUFM. Mr Mead referred to the subsequent receipt of a letter dated 31 May 2021 from NorthWest which indicated that it would convene a meeting of unitholders of AUHPT held on 1 July 2021 to consider a revised proposal to acquire the units un AUHPT, together with a document described as a “trust scheme” booklet. Mr Mead also referred to subsequent correspondence between the parties and to a further proposal put by NorthWest which increased the price at which it proposed to acquire units in AUHPT and to AUFM’s initial application for an adjournment of the meeting.

Mr Mead also refers to the NorthWest’s subsequent application on 12 July 2021 for a further adjournment of the unitholders meeting from 19 July 2021 to 7 September 2021, to which I referred above, and to a Cross-Summons filed by NorthWest in the application for judicial advice which sought a declaration that several Cross-Defendants, including AUFM, were not eligible to vote on NorthWest’s proposal. Mr Mead also there expressed the view, plainly correctly in the circumstances, that the relief sought in the judicial advice proceeding was no longer necessary where NorthWest had withdrawn its proposal and the unitholder meeting called for the purpose of considering and voting upon that proposal had been cancelled.

NorthWest in turn relied on an affidavit dated 2 August 2021of its solicitor, Mr Clarke, which referred to the circumstances in which NorthWest became aware, on 14 July 2021, that sufficient unitholders had voted by proxy against NorthWest’s proposal, so that it could not succeed. Mr Clarke also referred to correspondence relating to aspects of interlocutory disputes in the course of the judicial advice application.

By an affidavit dated 5 August 2021 in reply, Mr Mead referred to AUFM’s engagement of Link Market Services Ltd (“Link”) to process proxy forms submitted by AUHPT unitholders using a proxy form provided by AUFM in relation to the NorthWest proposal and to an issue in respect of the production of documents subject to confidentiality claims in the course of the judicial advice application. He also referred to the timing of receipt of voting data as at close of business on 13 July 2021 by AUFM from Link. NorthWest in turn relied, in reply, on an affidavit dated 9 August 2021 of its solicitor, Mr Brewster, which dealt with correspondence received by NorthWest from the Australian Securities & Investments Commission (“ASIC”) in respect of the proposed transaction.

As I noted above, AUFM seeks leave to discontinue the judicial advice proceeding under r 12.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). Mr Crutchfield, with whom Mr Rudd appeared for AUFM, submits that the appropriate disposition of the proceedings is by way of discontinuance and that the Court should grant leave to AUFM to discontinue them, where the merits of the judicial advice application have not been dealt with, and the factual substratum for its determination no longer exists, where NorthWest has withdrawn the relevant proposal, when it became apparent that it would not receive approval by the requisite majority of unitholders. Ms Wong, with whom Mr Ahern appears for NorthWest, accepts that discontinuance would be the appropriate outcome, having regard to the fact that there is no longer any basis or any reason for AUFM to pursue the relief sought. I will grant leave to discontinue the application on that basis.

AUFM seeks an order that NorthWest pay its costs of the proceedings, including its costs of NorthWest’s Cross-Summons filed on 11 June 2021, or alternatively that there be no order as to costs between AUFM and NorthWest in respect of the proceedings.

Mr Crutchfield outlined, at some length, the chronology of events as it emerged from Mr Mead’s affidavit. Mr Crutchfield also referred to the Court’s powers with respect to costs under s 98 of the Civil Procedure Act 2005 (NSW) and noted that s 93(2) of the Trustee Act 1925 (NSW) dealt with the costs of the proceedings brought under that Act and provided that:

I bear in mind that a successful party has a “reasonable expectation” of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:

Mr Crutchfield also referred to UCPR r 42.19 which deals with the position where proceedings are discontinued in accordance with UCPR r 12.1 and relevantly provides that:

In Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, McColl JA (with whom Beazley JA agreed) observed that the “default order” in the similar provision in UCPR r 42.20 does not establish a presumption that costs will be ordered against the plaintiff upon the dismissal of the proceedings, and other relevant considerations included those identified in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624–625; (1997) 143 ALR 1; [1997] HCA 6. Santow JA there agreed with that observation and also noted that the onus is on a discontinuing party to justify such an order by reference to the normal costs outcome in such an event. An order contrary to the “default” order will involve an exercise of discretion to depart from that position contemplated by the rule, where “some sound positive ground or good reason for departing from the ordinary course” is established: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [10], [54]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54] per Hodgson JA. The fact that parties were justified or acted reasonably in commencing or defending the proceedings may but will not necessarily support a departure from the provision of the UCPR: Australiawide Airlines at [64].

Ms Wong refers to Metro Hotel Sydney Pty Ltd v Kol Tov Pty Ltd [2010] NSWSC 1195, where proceedings were compromised by the parties after they became otiose, following the sale of a hotel which brought the management agreement that was in issue to an end. Hamilton AJ there noted that the similar provision in UCPR r 42.20 extends, on appellate authority, to dismissals by consent as well as dismissals after a hearing and to that extent intrudes upon the approach laid down in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622. His Honour there held that there should be no order as to costs as between the parties, where the occurrence of that supervening event had led to a compromise of the proceedings and there had been no unreasonable conduct on the part of the defendants. I bear in mind that these proceedings have not been resolved by consent, although the parties here rightly recognised that there was little utility in proceeding to a unitholder meeting where the resolution was bound to fail.

In McNamara v San [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) summarised the principles applicable to the similar provision in UCPR r 42.20 as follows:

That summary was cited with apparent approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64] and I followed it in Parlby v Blair [2013] NSWSC 100 at [11]ff and in Re Myao Travel Pty Ltd [2020] NSWSC 1672 at [6]ff, on which I have partly drawn for these observations as to the case law.

Mr Crutchfield submits that there is a sound positive ground or good reason for the Court to exercise its discretion to order that NorthWest pay AUFM’s costs of the discontinued proceedings. He submits that NorthWest’s unsolicited “trust scheme” necessitated the application for judicial advice and raised novel issues. I accept that NorthWest’s proposal, at a factual level, prompted the application for judicial advice and I also accept that that application was properly brought, where NorthWest’s proposal raised significant issues as to the legitimacy of a proposal by which one unitholder would acquire all of the units owned by other unitholders, at a specified price, where some unitholders whose units would be acquired would not be excluded from voting on that transaction. Mr Crutchfield also refers to a letter sent by ASIC to NorthWest’s solicitors, at a late stage of the proceedings, which raised issues which overlapped with those raised by AUFM. It seems to me that the fact that the corporate regulator raised similar issues also provides some support for the proposition that those matters would properly concern the responsible entity of an unlisted trust so as to warrant an application for judicial advice. However, I am not persuaded that the costs of the proceedings should be ordered against NorthWest merely because its proposal to acquire the units of other unitholders was the factual occasion for the application for judicial advice or raised novel issues that required the responsible entity to seek that judicial advice. The fact that a party takes a commercial action which may require a trustee to seek judicial advice does not seem to me to support a view, generally or in this case, that costs should be ordered against that party.

Mr Crutchfield also submits that AUFM has achieved “substantial practical success” in the proceedings on the basis that its rejection of the NorthWest proposal as “contrary to the interests of unitholders” was “ultimately vindicated by the substantial number of votes cast” by AUHPT unitholders against the NorthWest proposal. I do not accept that submission. AUFM’s success in the judicial advice proceeding would be measured by the determination of the issues that needed to be addressed, not by the question whether NorthWest’s proposed acquisition of units in AUHPT proceeded or did not proceed, and the votes of those unitholders establish only that they did not consider NorthWest’s proposal was sufficiently attractive to vote for it, rather than that it was “contrary to the interests of unitholders”. All things being equal, it would likely have been in unitholders’ interests to have the opportunity to consider that proposal, notwithstanding that a significant number of them ultimately did not favour it.

For these reasons, I do not accept AUFM’s submission that this is an appropriate case for the Court to order that NorthWest pay AUFM’s costs of the proceedings. AUFM also seeks an order, for substantially the same reasons, that NorthWest pay AUFM’s costs of NorthWest’s Cross-Claim, which would also be discontinued on the basis that the proposal was withdrawn. For substantially the same reasons, I am not persuaded that such an order should be made.

Ms Wong in turn refers to the circumstances in which it became apparent that more than 25% of the total value of units on issue in AUHPT had been voted against the proposal, and submits that, from the commencement of the application until 14 July 2021, AUFM actively opposed the proposal and recommended to unitholders that they voted against it. Ms Wong also refers to the question of the appointment of proxy collection agents by each of AUFM and NorthWest, although that issue was not raised in the course of the application and it seems to me that the proposition that it had any impact on when it became apparent that the majority of unitholders would vote against the proposal is speculative at best.

Ms Wong submits, and I have accepted above, that this is not a situation where AUFM has achieved “practical success” in the proceeding because, although the proposal has not gone forward, the issues which were the subject of the proceedings have not been determined on their merits.

Ms Wong also submits that this is not a situation where the proceedings have been rendered unnecessary by circumstances beyond AUFM’s control, and points to the fact that AUFM was actively opposing the proposal, at the same time it was seeking judicial advice. While it is apparent that AUFM opposed the proposal, it seems to me the votes of independent unitholders were beyond both parties’ control, and it can properly be said that the proceedings were rendered unnecessary by the exercise of independent unitholders’ decision whether to vote for or against a proposal. AUFM submits, in reply, and I accept, that the unitholders meeting ultimately did not proceed by reason of NorthWest’s conduct in withdrawing its proposal, which is plainly a matter that was outside AUFM’s control.

Ms Wong also submits, and I accept, that this is not a case where NorthWest has effectively surrendered in relation to the subject matter of the proceedings, or where AUFM was almost certain to have succeeded in respect of the complex issues as to which judicial advice had been sought, or where it could be said that either party had acted unreasonably in relation to the proceeding.

Ms Wong submits that that the starting point under UCPR r 42.19 is that AUFM would be required to pay NorthWest’s costs of the proceedings unless the Court otherwise orders, and she submits there is no sound positive ground or good reason from departing from that starting point. I do not accept that there is no sound reason for departing from that starting point in respect of either AUFM’s claim or NorthWest’s Cross-Claim, where AUFM appropriately brought the judicial advice application, it has not been determined on its merits and the proceedings are now unnecessary for the reasons noted above. Ms Wong also refers to UCPR r 42.1 which provides that, subject to UCPR Pt 42, if the Court makes an order as to costs, it is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. It seems to me that that provision has no application here where, as will typically be the case where proceedings are mooted by events, there is no “event” by way of a determination on the merits from which costs should follow. I have not neglected the fact that, in an annexure to her submissions, Ms Wong also addressed the substantive issues raised by the judicial advice application. It seems to me that it would plainly not be appropriate for me to express a view as to those issues, which are potentially of considerable significance in respect of unlisted managed investment schemes, where the matter has not gone to a substantive hearing.

In the alternative, Ms Wong submits that, if there are grounds from departing from the starting point under UCPR r 42.19, then the appropriate order is that each party bear their own costs. I accept that submission for the reasons noted below. Ms Wong also submits that, as to the question of the costs of four interlocutory processes in the proceeding, AUFM should pay NorthWest’s costs of its application to have the confidentiality restrictions lifted and each party should bear their own costs of the other interlocutory processes. I do not consider it necessary or appropriate to make orders in respect of the costs of particular interlocutory processes, which are best treated as aspects of the conduct of the proceedings generally, to be resolved in the same manner as the costs of the proceedings generally.

It seems to me that there is good reason, in respect of both AUFM’s claim and NorthWest’s Cross-Claim, to depart from the usual rule that the discontinuing party pay the costs of the discontinuance, and to order that there be no order as to the costs of the discontinuance, with effect that AUFM and NorthWest will each bear their respective costs of the application for judicial advice, subject to their respective rights of indemnity against the funds of which they are trustees. One of the circumstances recognised in the case law in which the starting point that a plaintiff must pay the defendant’s costs of the proceedings is displaced is where the proceedings are rendered unnecessary by circumstances beyond the plaintiff’s control, and the case law also recognises that the Court should not “try a hypothetical action between the parties” to determine the question of costs and the relevance of whether the parties respectively acted reasonably in commencing and defending the proceedings in all the relevant circumstances. Here, issues of substance were raised by the application and not determined on their merits; the proceedings were ultimately unnecessary because a sufficient number of unitholders voted against NorthWest’s proposal such that it could not succeed and NorthWest then sensibly withdrew it; and there is no basis to find that either party did not act reasonably in advancing or addressing the issues raised in the application for judicial advice and in the Cross-Claim.

I note, for completeness, that NorthWest sought to reserve its position as to whether AUFM would be entitled to have its costs paid out of the assets of AUHPT. It does not seem to me that it was entitled to do so. If it sought to contend that AUFM was not entitled to its costs as a trustee pursuant to cl 8.3 of AUHPT’s constitution or s 59(4) of the Trustee Act, then now was the time to advance that contention. It has not done so and AUFM’s entitlement to rely on the indemnity under the Trust Deed and under the Trustee Act is not limited by the orders for costs that I will make.

For these reasons, I grant leave to the Plaintiff to discontinue the proceedings and order that each party pay its own costs of the proceedings.