In the matter of Sydney Airport Limited and The Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1 [2022] NSWSC 25 (21 January 2022)

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Case Name:	In the matter of Sydney Airport Limited and The Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1
Medium Neutral Citation:	[2022] NSWSC 25
Hearing Date(s):	17 December 2021
Date of Orders:	17 December 2021
Decision Date:	21 January 2022
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order made convening company scheme meeting and approving the scheme booklet for distribution to shareholders. Direct that the Second Plaintiff is justified in convening meetings of unitholders to consider proposed trust scheme. Direct that the Second Plaintiff is justified in proceeding on the basis that, if approved by unitholders, consequential amendments to the constitution of the fund would be within powers conferred by each constitution and s 601GC of the Corporations Act.
Catchwords:	CORPORATIONS – Arrangements and reconstructions – Schemes of arrangement or compromise – Application under s 411 of the Corporations Act 2001 (Cth) for orders convening meeting of members to consider and, if thought fit, to agree to proposed scheme of arrangement – Whether requirements to order scheme meeting are satisfied. CORPORATIONS – Managed investments – Judicial advice sought under s 63 of the Trustee Act 1925 (NSW) by responsible entity – Whether to convene meetings of unitholders – Whether responsible entity would be justified in treating consequential constitution amendments as within power.
Legislation Cited:	- Competition and Consumer Act 2010 (Cth) - Corporations Act 2001 (Cth), s 411 - Foreign Acquisition and Takeovers Act 1975 (Cth) - Trustee Act 1925 (NSW), s 63
Cases Cited:	- Australian Securities Commissions v Marlborough Gold Mines Ltd (1993) 177 CLR 485; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15 - F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 - First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116 - Macedonian Orthodox Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; (2008) 249 ALR 250; [2008] HCA 42 - Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 - Re Adelaide Bank Ltd [2007] FCA 1582 - Re Afterpay Ltd [2021] NSWSC 1435 - Re APN News & Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 - Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 - Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 - Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1421 - Re Bigair Group Ltd [2016] FCA 1296 - Re BIS Finance Pty Ltd [2017] NSWSC 1713 - Re Bolnisi Gold NL (No 2) (2007) 243 ALR 545; (2007) 65 ACSR 510; [2007] FCA 2078 - Re Cashcard Australia Ltd (2004) 48 ACSR 7 - Re Centrebet International Ltd [2011] FCA 870 - Re CSR Ltd (2010) 183 FCR 358; (2010) 265 ALR 703; (2010) 77 ACSR 592; [2010] FCAFC 34 - Re DUET Finance Ltd (2013) 95 ACSR 34; [2017] NSWSC 415 - Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 - Re ERM Power Ltd [2019] NSWSC 1502 - Re Foster’s Group Ltd (No 2) [2011] VSC 547 - Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 - Re GBST Holdings Ltd [2019] NSWSC 1280 Re Macquarie Private Capital A Ltd [2008] NSWSC 323; (2008) 26 ACLC 366 - Re Magellan Asset Management Ltd (as responsible entity of Magellan Global Fund) (2020) 150 ACSR 23; [2020] NSWSC 1535 - Re Mirvac Funds Management Ltd [2014] NSWSC 1569 - Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 - Re Prime Media Group Ltd [2019] NSWSC 1805 - Re rhipe Ltd [2021] NSWSC 1170 - Re SAI Global Ltd [2016] FCA 1312 - Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 - Re Sirtex Medical Ltd [2018] FCA 1315 - Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 - Re Spark Infrastructure RE Limited [2021] NSWSC 1564 - Re Staging Connections Group Ltd [2015] FCA 1012 - Re Sydney Airport Holdings [2013] NSWSC 1665 - Re Tawana Resources NL [2018] FCA 1456 - Re TPG Telecom Ltd [2020] NSWSC 772 - Re Webcentral Group Ltd [2020] NSWSC 1279 - Re Villa World Ltd [2019] NSWSC 1207
Category:	Principal judgment
Parties:	Sydney Airport Limited (First Plaintiff) The Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1 (Second Plaintiff)
Representation:	Counsel: J Williams SC/T O’Brien (Plaintiffs) I Jackman SC (Acquirer) Solicitors: Allens (Plaintiffs) Herbert Smith Freehills (Acquirer)
File Number(s):	2021/332289

1 By Originating Process filed on 22 November 2021, Sydney Airport Limited (“SAL”) seeks orders under ss 411 and 1319 of the Corporations Act 2001 (Cth) that it convene meetings of two classes of securityholders, being the UniSuper Securityholder (as defined) and all members other than the UniSuper Securityholder, to consider a proposed scheme of arrangement (“Company Scheme”) relating to the acquisition of shares in SAL. The Trust Company (Sydney Airport) Limited (“TTCSAL”) as responsible entity for Sydney Airport Trust 1 (“SAT1”), also seeks judicial advice under s 63 of the Trustee Act 1925 (NSW) that it would be justified in convening meetings of the two classes of securityholders, again being the Unisuper Securityholder and all other securityholders to consider resolutions to amend the constitution of SAT1 and associated advice (“Trust Scheme”). Further orders would be sought at a second Court hearing, by way of orders approving the Company scheme in respect of SAL and further judicial advice in respect of the trust scheme concerning SAT1.

2 By way of background, SAL and TTCSAL together comprise Sydney Airport, a “stapled security” group listed on Australian Securities Exchange (“ASX”). Under the terms of the constitutions of SAL and SAT1, each share in SAL is stapled to a unit in SAT1 to form a stapled security. Sydney Airport securities are quoted and traded on ASX. It will come as no surprise that Sydney Airport is the operator of Sydney’s international and domestic airport at Mascot, the largest airport in Australia. The proposed company and trust schemes provide for the acquisition of all the Sydney Airport securities by Sydney Aviation Alliance Pty Ltd (“Bidder”) which is a wholly-owned subsidiary of Sydney Aviation Alliance Holdings Pty Ltd (“HoldCo”), an entity ultimately owned by a consortium of investors (“Consortium”), with a qualification as to approximately 15.01% of the Sydney Airport securities that are held by a custodian on behalf of UniSuper, an Australian superannuation fund. Under the proposed schemes, UniSuper will retain its economic interest in Sydney Airport by exchanging its Sydney Airport securities for an equivalent proportion of the securities issued by HoldCo, in effect retaining its economic interest in the Sydney Airport following implementation of the schemes. Sydney Airport and the Bidder entered into a Scheme Implementation Deed (“SID”) on 8 November 2021 by which the parties agreed to implement the schemes subject to satisfaction, or waiver, of various conditions precedent, including Sydney Airport securityholder and Court approval.

3 The consideration which Sydney Airport securityholders (other than the custodian for UniSuper) will receive is an amount of $8.75 cash for each Sydney Airport security held as at the scheme record date. The UniSuper Securityholder will, in respect of 404,969,320 Sydney Airport Securities beneficially owned by UniSuper (“UniSuper Securities), receive 1,501 A and B Class shares in HoldCo (representing 15.01% of the total number of such shares on issue immediately after the implementation of the schemes (“HoldCo Shares”); and a HoldCo A1 Loan Note, a HoldCo A2 Loan Note and a HoldCo B Loan Note each with a specified outstanding principal amount, representing 15.01% of the total aggregate principal amount of the relevant Notes on issue immediately after implementation of the schemes. The proposed schemes treat the UniSuper Securityholder in respect of the UniSuper Securities as a separate class of member, which will vote at a separate meeting for both the company scheme and trust scheme, where UniSuper will receive different consideration in respect of the UniSuper securities. UniSuper has entered into a voting deed with SAL by which it has undertaken to vote in favour of the schemes.

4 I made the orders sought by SAL and TTCSAL at the end of the first Court hearing in respect of the matter. These are my reasons for doing so. I have drawn in this judgment on the helpful submissions of Mr Williams, with whom Mr O’Brien appears for SAL and TTCSAL in respect of the application.

5 SAL and TTCSAL read the affidavit dated 22 November 2021 of Mr Paul Nicols, a partner in the firm of solicitors acting for them, in support of the application. That affidavit exhibits company extracts in respect of the relevant entities and a release made by the Plaintiffs to ASX in connection with the proposed transaction on 8 November 2021.

6 SAL and TTCSAL also rely on the affidavit dated 16 December 2021 of Ms Karen Tompkins, General Counsel and Company Secretary of SAL, which summarises the proposed transaction and deals with the verification of the information contained in the scheme booklet for which Sydney Airport is responsible, the exclusivity provisions and reimbursement fee provisions. Ms Tompkins describes the structure of the Sydney Airport Group, comprising SAL and SAT1, and TTCSAL, which is the responsible entity of SAT1, and other entities controlled by SAL and SAT1. Ms Tompkins describes the stapling arrangements in respect of Sydney Airport securities and the identity of the Bidder and Consortium members, to which I have referred above.

7 Ms Tompkins also outlines the development of the proposed transaction, commencing with an unsolicited and non-binding proposal from the Bidder made on 5 July 2021, followed by subsequent proposals at increased prices made on 16 August 2021 and 13 September 2021, and the entry into the SID with the Bidder on 8 November 2021. Ms Tompkins also referred to the role of UniSuper in respect of the transaction and notes that UniSuper presently holds approximately 15% of the issued securities in Sydney Airport, through a custodian, and the schemes are conditional on it continuing to hold those securities and voting in favour of the schemes. She notes that SAL and UniSuper have also entered into a voting deed which provides that UniSuper will continue to hold those securities and vote, as a separate class of member, in favour of the schemes and, as I noted above, that the schemes provide that the UniSuper Securityholder will transfer its securities to the Bidder and will receive shares and loan notes which will give it a 15.01% interest in the Consortium rather than the cash consideration which is offered to other scheme securityholders. Ms Tompkins also observes that, as I also noted above, it is proposed that the UniSuper Securityholder would vote within a separate class meeting in respect of the schemes. Ms Tompkins refers to the consideration to be provided by the bidder to each scheme securityholder, to which I have referred above, and outlines the structure which has been adopted for provision of the scheme consideration and refers to the proposed conduct of the Company Scheme and Trust Scheme meetings as virtual meetings.

8 Ms Tompkins also outlines the structure of the scheme booklet and the manner in which the scheme booklet will be dispatched to securityholders, and outlines the drafting and verification process adopted for the scheme booklet which was in conventional form. Ms Tompkins outlines the exclusivity provisions and a break fee provided under the SID. The break fee is substantial in absolute terms, given the very substantial size of the transaction, although it represents approximately 0.64% of the equity value of Sydney Airport. Ms Tompkins also refers to her participation, with certain directors of Sydney Airport, in negotiations on behalf of Sydney Airport in respect of the break fee and exclusivity provisions. She also describes the treatment of performance rights issued under a long term incentive plan to certain management personnel in respect of the schemes. None of those performance rights are held by directors of Sydney Airport and no question arises from those performance rights in respect of director’s recommendations in relation to the scheme. Ms Tompkins in turn describes the conditions precedent to the scheme and notes that conditions precedent in respect of a lack of objection by the Australian Competition and Consumer Commission and the European Commission have now been satisfied and she is not aware of any fact, matter or circumstance that has resulted in, or is likely to result in, the failure of the schemes due to any other conditions precedent not being satisfied or waived.

9 Ms Tompkins also exhibits the draft scheme booklet, through which I was taken in the course of submissions. The chairman’s letter contained in the scheme booklet outlines the structure of the proposed transaction and notes the background to the transaction and the earlier proposals made by the Consortium. The chairman’s letter indicates the board’s unanimous recommendation that Sydney Airport securityholders vote in favour of the schemes in the absence of a Superior Proposal (as defined), noting the board’s belief that the scheme consideration of $8.75 per share “fairly reflects the fundamental long term value of Sydney Airport”. The chairman’s letter also sets out matters which the board has taken into account in its assessment of the proposal, including the fact that securityholders would receive a certain cash price for their investment in Sydney Airport and avoid the ongoing risks and certainties associated with their investment. The chairman’s letter fairly notes a number of matters which have impacted on Sydney Airport including, obviously enough, the COVID-19 pandemic and also addresses a number of wider issues which give rise to risk for the Airport’s operations. The chairman’s letter also discloses non-financial interests affecting Mr Gonski and two other board members in respect of the transaction. It notes that the independent expert retained by Sydney Airport, Kroll Australia Pty Ltd (“Kroll”) has concluded that the schemes are fair and reasonable and in the best interests of Sydney Airport securityholders, other than UniSuper, and has expressed no view in respect of UniSuper’s participation in the transaction.

10 The scheme booklet in turn outlines considerations relevant to securityholders’ votes, including reasons why they might vote in favour of or against the schemes and notes that the Sydney Airport board does not make any recommendation in relation to how the UniSuper Securityholder should vote at the UniSuper scheme meetings. That is understandable given the sophistication of UniSuper and the fact that it will be maintaining its existing interest in Sydney Airport in the manner noted above. A section headed “Frequently Asked Questions” identifies significant issues that are addressed in greater detail elsewhere in the scheme booklet, including the warranties given by scheme securityholders that their securities will be fully paid and free from encumbrances at the time the schemes are implemented, the exclusivity provisions and the reimbursement and reverse reimbursement fees payable if the schemes do not proceed.

11 The scheme booklet also outlines the steps necessary for the schemes to become effective, including the satisfaction of conditions precedent. The scheme booklet also discloses that the Bidder and its associates are excluded from voting on the scheme resolutions, other than where acting in accordance with third party directions. The scheme booklet also provides detailed information as to Sydney Airport, its financial position and material changes to its financial position since 30 June 2001, a matter of some significance given the COVID-19 pandemic, and provides information about the bidder, its holding company and the Consortium, and the manner in which the acquisition of securities from securityholders (other than the UniSuper Securityholder) will be funded through equity funding committed by Consortium members.

12 The scheme booklet also outlines the manner in which performance rights which, as I noted above, are not held by Sydney Airport directors, will be treated under the schemes and identifies the interests of certain Sydney Airport board members in respect of aspects of the schemes; outlines the voting deed between SAL and UniSuper, to which I referred above; and provides a detailed summary of the terms of the SID, including the conditions precedent there specified, the exclusivity provisions and a reimbursement fee, reverse reimbursement fee and termination provisions.

13 The scheme booklet also includes the independent expert’s report, which concludes that the proposed schemes are fair and reasonable to Sydney Airport securityholders, other than the UniSuper Securityholder as to which it expresses no view. That report also identifies matters which affect the value of Sydney Airport and recognises that securities in Sydney Airport are liquid, but there is no certainty as to the price at which securityholders would realise their investment at a future time. It also addresses matters which constrain the likelihood of a superior proposal to the scheme, including the restricted number of Australian institutions which would have the financial capacity to acquire an asset of the relevant size.

14 By his affidavit dated 17 December 2021, Mr Guy Alexander, also a partner in the firm acting for SAL and TTCSAL in respect of the proposed schemes, outlines their engagement with the Australian Competition & Consumer Commission, the European Commission and ASX and Australian Securities & Investment Commission (“ASIC”) in respect of the proposed schemes and deals with the provision of the draft scheme booklet and other materials to ASIC.

15 By his affidavit dated 13 November 2021, Mr David Gonski, who is a non-executive director and the chair of SAL, indicates his consent to act as chair of the class meetings in relation to the Company Scheme and the Trust Scheme in respect of each of the UniSuper Securityholder and all other securityholders. Mr Gonski also there discloses certain interests including that he is a non-executive director and chair of Barrenjoey Capital Partners Holdings Pty Ltd (“Barrenjoey”), and a subsidiary of that entity was one of two financial advisers appointed by SAL and TTCSAL in respect of the schemes. Mr Gonski notes that he had declared his conflict in that respect and recused himself from deliberations in relation to the appointment of the financial advisers; that he has not discussed the proposed engagement of that firm with its board or its employees, he is not a shareholder of that firm and his remuneration as a non-executive director and chair of that firm are not tied to any fees that it received as part of the advisory mandate. I am satisfied that these matters do not prevent Mr Gonski acting as chair of the relevant company scheme and trust scheme meetings. By her affidavit dated 13 December 2021, Ms Ann Caroline Sherry, also a non-executive director of SAL, confirms her willingness to act as chair of the scheme meetings if Mr Gonski is unable to do so.

16 By his affidavit dated 15 December 2021, Mr John O'Grady, who is the Executive Director, Legal of IFM Investors Pty Ltd, a member of the Consortium, outlines the structure of the Bidder, HoldCo and the Consortium, refers to the background to the scheme and outlines the verification process which has been adopted in respect of information concerning the Bidder, Holdco and the Consortium in the scheme booklet, and also addresses the exclusivity provisions and reimbursement fee provided under the SID. Mr O’Grady expresses the view, on the basis of the verification process, that all material statements in the bidder information are accurate and compete, true and correct and not misleading or deceptive and that information does not omit any material information. Mr O’Grady also indicates the nature of the costs incurred by the Consortium in respect of the schemes which provide support for the amount of the reimbursement fee, including advisory costs in respect of a significant number of Australian and international advisors and costs incurred by representatives of the Consortium in assessing, pursuing and implementing the proposed transaction over several years. Mr O’Grady also addresses the deed poll executed by the Bidder and HoldCo in favour of scheme securityholders, in the form contained the scheme booklet, by which they covenant to provide or procure the provision of the scheme consideration to scheme securityholders and undertake other necessary actions in respect of the schemes.

17 By his affidavit dated 15 December 2021, Mr Barry Azzopardi, who is a senior relationship manager with Computershare Investor Services Pty Ltd (“Computershare”) refers to the services provided by Computershare to SAL and TTCSAL and the steps which will be taken for the dispatch of scheme materials, by email, letter or as a postal booklet or email booklet as appropriate, and to the Computershare platform which will be used to conduct the virtual scheme meetings.

18 By his affidavit dated 15 December 2021, Mr Ian Jedlin, who is a managing director of Kroll, refers to the preparation of the independent expert’s report in respect of the schemes and confirm that he holds the opinions set out in the draft independent expert report and has complied with the expert witness code of conduct and had regard to ASIC Guidance Note 15 Trust Scheme Mergers, ASIC Regulatory Guide 111 Content of Expert Reports and ASIC Regulatory Guide 112 Independence of Experts in preparing that report. I have referred to the conclusions reached in Mr Jedlin’s report above.

19 The Plaintiffs also tender a letter dated 17 December 2021 by which ASIC has confirmed that it has been given at least 14 days’ notice of the hearing and has had a reasonable opportunity to examine the terms of the company scheme and the draft explanatory statement, indicates that it does not currently propose to appear to make submissions or intervene to oppose the Company Scheme, and reserves it position under s 411(17)(b) of the Corporations Act to the second Court hearing in the usual way. They also tender a Statement of Facts (Ex P1) in respect of the trust scheme, in accordance with common practice in an application for judicial advice.

20 Mr Williams observes that, before the Court will order the convening of the scheme meeting and approve the draft explanatory statement, it will need to be satisfied that the plaintiff is a Part 5.1 body; the proposed scheme is an arrangement within the meaning of s 411; the scheme booklet will provide proper disclosure to members; the scheme is bona fide and properly proposed; ASIC has had a reasonable opportunity to examine the terms of the scheme and the scheme booklet and make submissions and has had 14 days’ notice of the proposed hearing date; the procedural requirements of the Supreme Court (Corporations) Rules 1999 (NSW) have been met; and there is no apparent reason why the scheme should not, in due course, receive the court’s approval if the necessary majority of votes is achieved: Re Staging Connections Group Ltd [2015] FCA 1012 at [19]- [20]; Re Atlas Iron Ltd (2016) 112 ACSR 554; [2016] FCA 366 at [30]; Re DUET Finance Ltd (2013) 95 ACSR 34; [2017] NSWSC 415 at [15]; Re BIS Finance Pty Ltd [2017] NSWSC 1713 at [20]; Re Villa World Ltd [2019] NSWSC 1207 at [15].

21 Mr Williams also points out that the Court’s approach at the first court hearing is that it will not ordinarily grant leave to convene a meeting unless the scheme is of such a nature and cast in such terms that, if it receives the statutory majority at the meeting, the court would be likely to approve it on the hearing of a petition which is unopposed: F T Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72, approved in Australian Securities Commissions v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 504; (1993) 112 ALR 627; (1993) 10 ACSR 230; [1993] HCA 15. Mr Williams also refers to the observations of French J in Re Foundation Healthcare Ltd (2002) 42 ACSR 252; [2002] FCA 742 at [36] and [44], cited with apparent approval in Re CSR Ltd (2010) 183 FCR 358; (2010) 265 ALR 703; (2010) 77 ACSR 592; [2010] FCAFC 34 at [58] that:

22 Mr Williams also points out that, at the first Court hearing, the Court is concerned not with whether final approval should be given to the company scheme, but whether the scheme is one which is adequately explained to those who have a financial interest in it, and whether there is any obvious flaw in the scheme, such that it would be inappropriate even for it to be submitted for consideration: Re Abacus Funds Management Ltd [2005] NSWSC 1309; (2006) 24 ACLC 211 at [23]; Re Villa World Ltd above at [18]. He points out that the Court is not required to be satisfied that no better scheme could have been proposed, and the question is whether it is reasonable to suppose that sensible business people might consider the arrangement proposed is of benefit to members: Re Centrebet International Ltd [2011] FCA 870 at [29]; Re SAI Global Ltd [2016] FCA 1312 at [18]; Re DUET Finance Ltd above at [14]; Re BIS Finance Pty Ltd above at [22].

23 Turning now to the trust scheme, it is now commonplace for a responsible entity of a registered managed investment scheme to seek judicial advice pursuant to s 63 of the Trustee Act in connection with a trust scheme. In giving advice in such an application, the Court proceeds by analogy with the approach governing the exercise of its discretion under section 411(1) of the Corporations Act 2001 (Cth): Re Mirvac Ltd (1999) 32 ACSR 107; [1999] NSWSC 457 at [47]; Re Sydney Airport Holdings [2013] NSWSC 1665 at [2], [6], [19]; Re DUET Finance Ltd above at [16]; Re Magellan Asset Management Ltd (as responsible entity of Magellan Global Fund) (2020) 150 ACSR 23; [2020] NSWSC 1535 at [17]; Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 at [26]. I summarised of the applicable principles in Re DUET Finance Ltd above at [14] and [16] as follows:

24 Section 601GC(1)(a) of the Corporations Act in turn provides that the constitution of a registered scheme may be modified or repealed and replaced with a new constitution by special resolution of the members of the scheme, being 75% of the votes cast by members entitled to vote on the resolution. The power of alteration under s 601GC(1)(a) of the Corporations Act is very wide, unlimited in terms, and its exercise is within the Court’s jurisdiction under s 63 of the Trustee Act in a trust scheme context: Re Mirvac Ltd above at [44]-[47]; Re DUET Management Company 1 Ltd (2013) 95 ACSR 34; [2013] NSWSC 817 at [10]. There is no implied limitation on the Court’s power to give advice pursuant to s 63 of the Trustee Act, nor on the discretionary factors that the Court may take into account: Macedonian Orthodox Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; (2008) 249 ALR 250; [2008] HCA 42 at [55]- [59].

25 Mr Williams points out that it is proposed that there will be two Court-ordered company scheme meetings and two trust scheme meetings, being a company and trust scheme meeting in relation to the scheme securityholders other than the UniSuper Securityholder in respect of the UniSuper securities, to be held concurrently, and then a company and a trust scheme meeting in relation to the UniSuper Securityholder in respect of the UniSuper Securities, also to be held concurrently. All of the scheme meetings will be conducted through the online meeting platform provided by Computershare. Mr Williams points out that online attendance at the meetings is presently permitted by s 253Q of the Act provided the technology used gives members as a whole a reasonable opportunity to participate without physically being present in the same place.

26 Mr Williams also points out that the Sydney Airport directors unanimously recommend that scheme securityholders (other than the Unisuper Securityholder) vote in favour of the schemes, in the absence of a Superior Proposal (as defined) and do not make any recommendation as to how the UniSuper Securityholder should vote at the UniSuper scheme meetings in relation to the UniSuper Securities. As I noted above, UniSuper has entered into a voting deed to the effect that it will vote in favour of the schemes. Mr Williams also notes that Sydney Airport engaged Kroll to prepare an independent expert’s report in relation to whether the schemes are in the best interests of scheme securityholders (other than the UniSuper Securityholder) and Kroll has concluded that the schemes are in the best interests of scheme securityholders (other than the UniSuper Securityholder in respect of the UniSuper Securities, whose interests Kroll did not consider), in the absence of a Superior Proposal. Kroll has formed the view that the schemes are fair, by reference to the scheme consideration, and are reasonable by reference to matters including the premium that the scheme consideration represents to recent trading prices and alternatives to the schemes, and that the schemes are in the best interests of scheme securityholders (other than the UniSuper Securityholder in respect of the UniSuper Securities, whose interests were not considered). Mr Williams also points out that the obligations of the Bidder and HoldCo under the schemes are supported by an executed deed poll given by them in favour of the scheme securityholders.

27 I am satisfied that SAL is a Part 5.1 body, the proposed Company Scheme is an arrangement within the meaning of s 411 of the Act and there is no reason to doubt that the scheme booklet provides proper disclosure to SAL shareholders. I have referred to evidence of a verification and due diligence process above. There is no reason to doubt that the proposed scheme is bona fide and properly proposed and could be approved at the second Court hearing if it receives the requisite shareholder approvals. Subject to the specific issues that I address below, I am satisfied that the orders sought should be made in respect of the proposed company scheme.

28 I will deal with several specific issues that extend to the trust scheme below. I am otherwise satisfied that TTCSAL, as responsible entity of the SAT1, would be justified in proceeding on the basis that the making of the proposed amendments to the SAT1’s constitution in connection with the trust scheme, following the requisite approval by unitholders, would be within its powers, including the power of alteration conferred by the SAT1’s constitution and s 601GC of the Act.

29 Mr Williams drew several aspects of the schemes to the Court’s attention. First, he addressed the position of UniSuper, which beneficially owns approximately 15.01% of the securities in Sydney Airport. As I noted above, different consideration is to be provided to UniSuper under the schemes in exchange for those securities, in the form of an equivalent proportion of the equity and debt securities in HoldCo, and the economic effect of the schemes is to preserve UniSuper’s 15.01% ownership interest in Sydney Airport. As I also noted above, UniSuper has entered into a voting deed with SAL, under which it has relevantly agreed not to dispose of the UniSuper Securities and to vote those securities in favour of the schemes, and that voting deed is disclosed in section 9.10 of the scheme booklet.

30 Mr Williams notes that it is proposed to treat the UniSuper Securityholder in respect of the UniSuper Securities as a separate class for both the company scheme and trust scheme. He refers to the test for whether there is a separate class of member (or creditor), involving questions as to the rights that existing members (or creditors) have against the company and to what extent are they different; to what extent are those rights differently affected by the scheme; and does the difference in rights or different treatment of rights make it impossible for the members or creditors in question to consider the scheme as one class?: First Pacific Advisors LLC v Boart Longyear Ltd [2017] NSWCA 116 at [80]. Mr Williams submits, and I accept, that UniSuper will here be differently affected by the schemes because it will maintain an equity interest in Sydney Airport. This matter is properly addressed by the proposed separate class meetings to avoid any potential that the will of the scheme securityholders as expressed in the outcome of the meetings to consider the schemes might be affected by the different interests of UniSuper.

31 Mr Williams also points out that the independent expert has not considered whether the schemes are fair and reasonable for UniSuper, or whether the schemes are in its best interests, and directors have not made a recommendation to UniSuper. I am satisfied those matters are not an obstacle to convening the scheme meetings where UniSuper is plainly a sophisticated investor capable of forming an independent view of its own interests, and has already done so by agreeing to the voting deed which obliges it to support the schemes and is in effect retaining its existing equity interest in Sydney Airport.

32 Second, Mr Williams notes that section 6.8(a) of the scheme booklet discloses that some of the Consortium members hold Sydney Airport securities totalling approximately 2.92% of the Sydney Airport securities on issue, which were acquired by or on behalf of business units, investment teams or external investment managers of Consortium members whose ordinary course of business involved dealing in, trading, or holding listed securities. The notices of scheme meetings contain a voting exclusion statement to the effect that the Bidder and its associates will not vote at the scheme meetings unless, relevantly, the associate is acting as a fiduciary on behalf of a third party investor. This matter is not a reason not to convene the scheme meetings

33 Third, Mr Williams notes that Chairman's letter and section 9.7 of the scheme booklet disclosed that several directors of Sydney Airport have indirect and non-financial interests in the recommendation made in favour of the schemes. Mr Gonski, the non-executive director and chairman of SAL, is the non-executive Chairman of Barrenjoey, a subsidiary of which is one of two financial advisers to Sydney Airport on the proposed transaction. He was not involved in settling the terms of the mandate, is not a shareholder of Barrenjoey and his remuneration is not tied to any fees that Barrenjoey may receive as part of the mandate. Mr John Roberts, a non-executive director of SAL, is also the non-executive Chairman of Macquarie Infrastructure and Real Assets which is related to Macquarie Capital, the financial adviser to the Consortium on the transaction. Mr Roberts is not privy to any non-public details concerning that engagement and his remuneration is not tied to it. Ms Anne Rozenauers, a member of the Sydney Airport Trust Board, is employed by Perpetual and TTCSAL, the responsible entity for SAT1, is a wholly owned subsidiary of Perpetual. Another subsidiary of Perpetual has been engaged by the Consortium to provide custodial and wholesale trustee services to the Consortium in respect of the proposed transaction. Ms Rozenauers’ remuneration from Perpetual is not directly linked to these services and the other members of the Sydney Airport Trust Board considered the potential conflict to be remote.

34 Fourth, Mr Williams notes that Sydney Airport operates a Long Term Incentive Plan under which performance rights are issued to certain management personnel. Each performance right entitles its holder to acquire one Sydney Airport security upon satisfaction of certain vesting conditions for no consideration. The holders of such performance to rights are identified in section 9.3(c) of the scheme booklet, and,, if the schemes become effective, all outstanding performance rights will vest and be cash settled on the Implementation Date (as defined). No SAL directors hold performance rights so no question arises in respect of the appropriateness of their making a recommendation in respect of the schemes. Mr William submits, and I accept, that holders of performance rights who are also scheme securityholders are not in a separate class of scheme securityholders by reason only that they also holds such performance rights: Re Foster’s Group Ltd (No 2) [2011] VSC 547 at [38]- [43]; Re Cashcard Australia Ltd [2004] FCA 223; (2004) 48 ACSR 738.

35 Fifth, Mr Williams points out that the schemes are subject to a number of regulatory conditions precedent as disclosed in section 3.4 of the scheme booklet. A no objection notification under the Foreign Acquisition and Takeovers Act 1975 (Cth) is a condition precedent to the schemes and has not yet been received. Conditions that the Australian Competition and Consumer Commission have notified the Bidder that it does not propose to intervene in respect of the transaction pursuant to the Competition and Consumer Act 2010 (Cth) and that the European Commission declare any concentration with a community dimension as a result of the schemes is compatible with the common market have been satisfied.

36 Sixth, Mr Williams points out that cl 11 of the SID contains an exclusivity provision which includes a “no shop”, a “no talk”, and a “no due diligence” restriction and a “notification” and “matching right” obligation. Mr Williams also points out that exclusivity provisions in this form are now commonplace in schemes of arrangement and are not inconsistent with Guidance Note 7: Lock-up devices issued by the Takeovers Panel: Re Villa World Ltd above at [23]. The Court will have regard to whether such any exclusivity period should be for no more than a reasonable period capable of precise ascertainment; whether any exclusivity clause dealing with an unsolicited alternative merger proposal is subject to a fiduciary carve-out; and whether the provision is clearly disclosed in the explanatory statement sent to shareholders: Re Arthur Yates & Co Ltd (2001) 36 ACSR 758; [2001] NSWSC 40 at [9].

37 Mr Williams points out that the “Exclusivity Period” here lasts from the date of the SID until the earlier of its termination, implementation of the schemes and the “End Date”, namely 15 March 2022, unless extended in specified circumstances to 31 May 2022 (cl 1.1). I accept that this is a reasonable period in respect of a substantial and complex transaction, and is comparable with exclusivity periods in other schemes that have previously been accepted by the Courts: Re Sirtex Medical Ltd [2018] FCA 1315 at [37]; Re Tawana Resources NL [2018] FCA 1456 at [33]; Re GBST Holdings Ltd [2019] NSWSC 1280; Re ERM Power Ltd [2019] NSWSC 1502; Re Prime Media Group Ltd [2019] NSWSC 1805 at [23]; Re Webcentral Group Ltd [2020] NSWSC 1279 at [23]. The “no talk” and “no due diligence” restrictions in cl 11.2 in the SID are here subject to an overriding obligation not to breach the directors’ fiduciary or statutory duties under cl 11.3 of the SID, and the fact that the “no shop” restriction and “matching right” is not subject to fiduciary carve-out is consistent with authority: Re Bigair Group Ltd [2016] FCA 1296 at [21]; Re DUET Finance Ltd above at [24]. The exclusivity provisions are clearly disclosed in section 9.11(d) of the scheme booklet and there is evidence that they were the product of arm’s length negotiations between the parties. These matters do not give rise to any reason not to convene the scheme meetings.

38 Seventh, Mr Williams observes that a break fee or “Reimbursement Fee” of $150 million is potentially payable by Sydney Airport to the Bidder in specified circumstances under cl 12 of the SID and is disclosed in section 9.11(e) of the scheme booklet. The reimbursement fee is not triggered solely by scheme securityholders failing to approve the schemes and is not a disincentive to securityholders in their consideration of the schemes: Re Adelaide Bank Ltd [2007] FCA 1582 at [31]; Re Bolnisi Gold NL (No 2) [2007] FCA 2078; (2007) 243 ALR 545; (2007) 65 ACSR 510 at 513; [2007] FCA 2078. A “reverse” break fee of $150 million is also payable by the Bidder to Sydney Airport if Sydney Airport validly terminates the SID for material breach by the Bidder. There is evidence that the reimbursement fee was negotiated between the parties in the course of arms’ length negotiations in which all parties were represented by experienced advisers; the reimbursement fee represents approximately 0.64% of the equity value of Sydney Airport, or 0.75% of the equity value of the Sydney Airport Securities which are being acquired for the cash consideration under the schemes, excluding the UniSuper Securities; it is not inconsistent with the guideline percentage in the Takeovers Panel’s Guidance Note 7: Lock-up Devices; and such reimbursement fees are commonplace in schemes of this kind: Re TPG Telecom Ltd [2020] NSWSC 772 at [24]. I accept that, although the reimbursement fee is large in absolute terms, this reflects the large size of the proposed transaction and provides no reason not to convene the scheme meeting: Re Afterpay Ltd [2021] NSWSC 1435 at [35].

39 Eighth, the question of performance risk is ordinarily considered at the first Court hearing in respect of a company scheme or trust scheme, where a third party provides consideration or benefits to shareholders or unitholders under the scheme: Re SFE Corporation Ltd (2006) 59 ACSR 82; [2006] FCA 670 at [4]; Re APN News & Media Ltd [2007] FCA 770; (2007) 62 ACSR 400 at 405; [2007] FCA 770; Re Sydney Airport Holdings above at [17]; Re Mirvac Funds Management Ltd [2014] NSWSC 1569 at [7]; Re Villa World Ltd above at [22]; Re Spark Infrastructure RE Ltd above at [29]. Mr Williams points out that the provision here for payment of the cash scheme consideration to a trust account with an Australian ADI operated by SAL or on its behalf, prior to transfer of the scheme securities, is a safeguard against the risk that scheme securityholders will suffer delay or default in the provision of the scheme consideration after their securities have been transferred to the Bidder.

40 Mr Williams acknowledges that Consortium members are here not party to the deed poll given by the Bidder in favour of securityholders. However, he points out that the Bidder, SAL and TTSCAL have the benefit of equity commitment letters given by the Consortium Members (as defined) which are conditional upon the schemes becoming effective upon lodgement of the Court’s orders approving the scheme with ASIC. I accept that condition poses no real risk to Scheme Securityholders as it will be satisfied before their securities are acquired: Re Spark Infrastructure RE Limited [2021] NSWSC 1564 at [20]. The equity commitments will only terminate upon the payment of the scheme consideration or effective termination of the SID and do not provide the Consortium members with any rights of termination and the Bidder has provided a warranty that it will not, and will procure that each member of the Consortium does not, relevantly amend or waive the equity commitment letters or rights under them. Mr Williams also points out that, under cl 9.4 of the scheme of arrangement, SAL undertakes from the effective date of the scheme to enforce the deed poll against the Bidder and HoldCo and, to the extent necessary, enforce SAL’s rights under the equity commitment letters given by members of the Consortium, on behalf of scheme securityholders. Mr Williams is anxious to emphasise that this provision should not be taken as a precedent for requiring such a commitment in future schemes. I need not comment on that matter, and it is sufficient to note that it provides additional support for securityholders’ entitlement to receive the consideration under the proposed schemes.

41 In the result, scheme securityholders are in a position to enforce the obligation of the Consortium members to provide the scheme consideration by requiring performance of SAL’s undertaking under the scheme to enforce SAL’s rights under the equity commitment letters. I accept that similar arrangements with consortium members have been considered and approved previously, including in circumstances where the commitment letters permitted the members of the consortium to terminate on specified grounds: Re Spark Infrastructure RE Ltd [2021] NSWSC 1385 at [31]- [33]; [2021] NSWSC 1564 at [15]- [29].

42 Ninth, Mr Williams addresses the means of despatch of scheme materials and reminders to vote. Mr Williams notes that the provisions of a hard copy chairman’s letter and a link to the balance of the scheme booklet, absent a request for a hardcopy, and the sending of "reminder to vote" emails and letters to scheme securityholders have been accepted in other schemes: Re rhipe Ltd [2021] NSWSC 1170 at [27]; Re Australian Leisure and Entertainment Property Management Ltd [2021] NSWSC 1421.

43 Tenth, the schemes provide for a deemed warranty by scheme securityholders that their scheme securities will be free from encumbrances (cl 9.5 of the Company Scheme and proposed cl 7.4 of Schedule 1 of the Sydney Airport Trust Deed), and appropriate prominence is given to the deemed warranty in section 3.8 of the scheme booklet . This matter give rise to no reason not to convene the scheme meetings: Re APN News and Media Ltd (2007) 62 ACSR 400; [2007] FCA 770 at [57]- [63]; Re Ardent Leisure Ltd [2018] NSWSC 1665 at [26].

44 Eleventh, Mr Williams also submits, and I accept, that the Court should address the question posed by s 411(17) of the Act on an application to approve a scheme at the second Court hearing: Re Macquarie Private Capital A Ltd [2008] NSWSC 323 at [25]- [37].

45 For these reasons, I made the orders sought by SAL and TTCSAL at the conclusion of the first Court hearing on 17 December 2021.

Supreme Court of New South Wales

In the matter of Sydney Airport Limited and The Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1 [2022] NSWSC 25 (21 January 2022)

Supreme Court of New South Wales Decisions

In the matter of Sydney Airport Limited and The Trust Company (Sydney Airport) Limited as responsible entity for Sydney Airport Trust 1 [2022] NSWSC 25 (21 January 2022)