HSBC vs Quarz: Internalisation of Sabana REIT Management & Unitholders' Voting Rights
In HSBC Institutional Trust Services (Singapore) Ltd v Quarz Capital Asia (Singapore) Pte Ltd and others, the High Court of Singapore addressed an application by HSBC, the trustee of Sabana Industrial Real Estate Investment Trust (Sabana REIT), for guidance on issues arising from resolutions passed by unitholders regarding the internalisation of Sabana REIT's management. The court, presided over by Hri Kumar Nair J, declared on 23 May 2024 that the 2nd to 4th Defendants, the ESR Entities, are prohibited from voting on certain proposed resolutions to amend the trust deed. The court found that the ESR Entities had a conflict of interest due to their association with the external manager, whose fee income would be affected by the internalisation.
1. Case Overview
1.1 Court
General Division of the High Court of the Republic of Singapore1.2 Outcome
Declaration that the ESR Entities are prohibited from voting on the Proposed Amendments, insofar as these are required to implement Internalisation.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The High Court addressed whether certain unitholders could vote on resolutions to amend a REIT's trust deed for internalisation of its management.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| ESR Group Ltd | Defendant | Corporation | Orders made against | Lost | |
| E-SHANG Jupiter Cayman Ltd | Defendant | Corporation | Orders made against | Lost | |
| E-SHANG Infinity Cayman Ltd | Defendant | Corporation | Orders made against | Lost | |
| HSBC Institutional Trust Services (Singapore) Ltd | Applicant | Corporation | Application granted in part | Partial | |
| Quarz Capital Asia (Singapore) Pte Ltd | Defendant | Corporation | Orders made against | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Hri Kumar Nair | Judge of the High Court | Yes |
4. Counsels
4. Facts
- HSBC is the trustee of Sabana REIT.
- Sabana REIT is listed on the Mainboard of the Singapore Exchange.
- Quarz holds about 14% of the total issued units in Sabana REIT.
- The ESR Entities collectively hold about 21% of the issued units in Sabana REIT.
- The ESR Entities are the ultimate 100% owners of the External Manager.
- The Unitholders passed resolutions to remove the External Manager and effect the Internalisation.
- The Trustee took the position that various provisions in the Trust Deed would have to be amended to effect the Internalisation.
5. Formal Citations
- HSBC Institutional Trust Services (Singapore) Ltd v Quarz Capital Asia (Singapore) Pte Ltd and others, Originating Application No 19 of 2024, [2024] SGHC 153
6. Timeline
| Date | Event |
|---|---|
| Trust Deed dated | |
| Unitholders passed resolutions at an Extraordinary General Meeting for the removal of the External Manager and to effect the Internalisation | |
| Trustee sent a letter acknowledging the resolutions and informing that the External Manager will continue to serve as interim manager | |
| Quarz tabled a series of resolutions aimed at expediting the Internalisation process | |
| SGX stated that there is no requirement under the SGX-ST Listing Rules for the Sponsor and its related parties to be disenfranchised from voting on the Trust Deed Amendments | |
| Originating Application (Amendment No. 1) dated | |
| Quarz and other Unitholders tabled resolutions directing the Trustee not to amend the Trust Deed and to implement the Internalisation | |
| Hearing date | |
| Court declared that three of the Unitholders, the 2nd to 4th Defendants, are prohibited from voting on certain proposed resolutions | |
| Extraordinary General Meeting scheduled | |
| External Manager stated that it would not be proceeding with the EGM as substantial amendments had been made to the proposed resolutions | |
| Full grounds of decision issued |
7. Legal Issues
- Conflict of Interest
- Outcome: The court found that the ESR Entities had a material conflict of interest.
- Category: Substantive
- Sub-Issues:
- Material interest in a matter
- Extraneous interest
- Interpretation of Trust Deed
- Outcome: The court interpreted the trust deed to prohibit the ESR Entities from voting on the proposed amendments.
- Category: Substantive
- Sub-Issues:
- Voting rights of unitholders
- Amendment of trust deed
8. Remedies Sought
- Declarations regarding the interpretation of the trust deed
- Declaration regarding the voting rights of the ESR Entities
9. Cause of Actions
- Application for interpretation of trust deed
- Declaration of voting rights
10. Practice Areas
- Commercial Litigation
- Trust Law
- Corporate Law
11. Industries
- Real Estate
- Finance
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Urs Eller v Cheong Kiat Wah | High Court | Yes | [2020] SGHC 106 | Singapore | Cited for the principle that contractual interpretation applies equally to the interpretation of trust deeds. |
| Yap Son On v Ding Pei Zhen | N/A | Yes | [2017] 1 SLR 219 | Singapore | Cited for the key principles of contractual interpretation. |
| Vandervell v Inland Revenue Commissioners | N/A | Yes | [1967] 2 AC 291 | England | Cited for the principle that the objectively-ascertained intentions of the parties to the instrument which forms the cornerstone of the interpretative exercise. |
| Byrnes v Kendle | N/A | Yes | (2011) 243 CLR 253 | Australia | Cited for the principle that the objectively-ascertained intentions of the parties to the instrument which forms the cornerstone of the interpretative exercise. |
| Yeo Geok Seng v Public Prosecutor | N/A | Yes | [1999] 3 SLR(R) 896 | Singapore | Cited as an example of local caselaw that has dealt with the phrase “material interest” in the context of a director’s disclosure obligations under s 156 of the Companies Act 1967, which is not relevant to the issue at hand. |
| Re AMP Capital Funds Management Ltd (in its capacity as responsible entity of the AMP Capital China Growth Fund (ARSN 122 303 744)) | New South Wales Supreme Court | Yes | [2016] NSWSC 986 | Australia | Cited and endorsed on appeal for the prophylactic purpose of Section 253E of the Australian Corporations Act 2001, which is said to be the removal of any potential for a conflict of interest. |
| AMP Life Ltd v AMP Capital Funds Management Ltd | New South Wales Court of Appeal | Yes | [2016] NSWCA 176 | Australia | Cited for the proper construction of s 253E, a responsible entity and all its associates are not entitled to vote on a resolution if the responsible entity or one of its associates has an extraneous interest in the resolution. |
13. Applicable Rules
| Rule Name |
|---|
| Rule 748(5) of the Listing Rules |
| Rule 105(1) of the Listing Rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act 1967 | Singapore |
| Australian Corporations Act 2001 | Australia |
15. Key Terms and Keywords
15.1 Key Terms
- Internalisation
- Sabana REIT
- Trust Deed
- Unitholders
- External Manager
- ESR Entities
- Material Interest
- Proposed Amendments
15.2 Keywords
- Trusts
- REIT
- Internalisation
- Voting Rights
- Conflict of Interest
- Singapore
- High Court
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Trust Law | 90 |
| Real Estate Investment Trust | 70 |
| Commercial Disputes | 60 |
| Purpose trusts | 50 |
| Commercial Law | 40 |
| Arbitration | 30 |
| Corporate Law | 30 |
16. Subjects
- Trust Law
- Real Estate
- Corporate Law
- Collective Investment Schemes