FEDERAL COURT OF AUSTRALIA

D B Management Pty Ltd v Australian Securities & Investment Commission [1999] FCA 293

Corporations – takeovers and compulsory acquisition – function and power of ASIC and Corporations and Securities Panel – construction of s 730 of the Corporations Law – power to ASIC to make declarations under s 730(1) – whether s 730(1) authorises the variation of s 701 to allow the acquisition of shares upon exercise of an option – whether s 730(1) declaration varying s 701 can apply after the close of the takeover offers.

Corporations Law – ss 701, 703, 730, 731, 733(5), 734(6), 744(3).

Australian Securities and Investments Commission Act 1989 – ss 51(1), 56, 57, 195(3).

TNT Ltd v National Companies and Securities Commission (1986) 11 ACLR 59 – cons.

Elkington v Shell Australia Ltd (1993) 32 NSWLR 11 – cons.

Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 21 ACSR 246 – cons.

Otter Goldmines Ltd v Australian Securities Commission (1997) 25 ACSR 382 – cons.

OPSM Industries Ltd v National Companies and Securities Commission (1982) 7 ACLR 192 – cons.

Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd (1993) 177 CLR 508 – cons.

ANZ Executors & Trustees Ltd v Humes Ltd (1989) VR 615 – cons.

D B MANAGEMENT PTY LTD v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION, SOUTHCORP WINES PTY LTD, BATOKA PTY LTD and WINPAR HOLDINGS LTD

NG 764 of 1998

JUDGES: BEAUMONT, O’CONNOR & DOWSETT JJ.

PLACE: SYDNEY

DATE: 25 MARCH 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be allowed.

2.                  The orders made by Whitlam J on 7 July 1998 be set aside.

3.                  The decision of the Administrative Appeals Tribunal dated 16 October 1997 be set aside.

4.                  The declaration made by the first respondent on 1 October 1996 be declared void.

5.                  The first and second respondents are to pay the applicant’s costs of the appeal and of the proceedings in the Court at first instance.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

BEAUMONT J:

INTRODUCTION

1                     In order to understand the issues in this appeal, it will be necessary to describe its background, which is as follows:

2                     Southcorp Wines Pty Ltd (“Southcorp”) (the second respondent) made Part A offers for the ordinary shares of Coldstream Australasia Ltd (“Coldstream”), and separate offers to acquire 50 cent and 72 cent listed Coldstream options. The offers for the shares and options were originally conditional upon acceptances being received for all the options, but the condition was waived during the offer period. The offers closed on 30 July 1996.

3                     The takeover of the shares succeeded when 97 per cent acceptance was achieved. Southcorp then embarked upon the procedure laid down by statute in order to acquire the outstanding shares compulsorily.

4                     With respect to the 50 cent options, which were due to expire on 20 December 1996, there was acceptance or exercise in respect of more than 99 per cent, by more than 97 per cent of their holders. Three hundred of these options remained outstanding, but no question arises in these proceeding with respect to these 50 cent options.

5                     As to the 72 cent options, which were due to expire on 8 October 1998, there was acceptance of 88 per cent by over 97 per cent of the holders, so that 207,750 remained outstanding. Some 3,000 of these are the subject of this litigation.

6                     The outstanding options then represented less than 1.5 per cent of the total issued shares and options as at the commencement of the offers. There was then one outstanding 50 cent option holder and six 72 cent option holders.

7                     Since Southcorp had become entitled to not less than 90 per cent of the voting shares in Coldstream, on 27 August 1996, in accordance with the provisions of s 703(4) of the Corporations Law 1989 (“the Law”), Southcorp gave a prescribed notice to outstanding option holders informing them of their entitlement, under s 703(8)(a) of the Law, to require Southcorp to acquire the options on such terms as are agreed, or as ordered by the Court.

8                     The vast majority of the 72 cent options (198,900) were then held by Mr R E Mews. He sold three small parcels of them, 3,100 in all (2,000 and 1,000 on 29 July 1996, and 100 on 8 August 1996), to a nominee company. These options were subsequently registered in the names of Batoka Pty Ltd (“Batoka”) (the third respondent), DB Management Pty Ltd (“DB”) (the appellant), and Winpar Holdings Pty Ltd (“Winpar”) (the fourth respondent). These 3,100 options are the subject of these proceedings.

9                     On 30 August 1996, Mr Mews gave Southcorp notice, pursuant to s 703(8), requiring it to acquire the remainder of his options. No question arises here in respect of these options.

10                  Subsequently, but before 8 October 1998, DB exercised its options, thus acquiring those shares in Coldstream.

Southcorp’s application under s 730(1) for a declaration of modification or variation

11                  By s 730(1) of the Law, it is provided that, upon application being made, the Australian Securities and Investment Commission (“the Commission”) may declare that Chapter 6 of the Law (which deals with the control of acquisition of shares) shall apply as if a specified provision or provisions of the Chapter “were omitted or were modified or varied in a specified manner…”.

12                  On 22 August 1996, Southcorp applied for a declaration under s 730(1) “to modify [s] 701 so that Southcorp is entitled to compulsor[il]y acquire… the shares issued on the exercise of outstanding options”.

13                  Section 701 of the Law deals with rights of dissenting shareholders in the compulsory acquisition of outstanding shares under a take-over scheme.

The Commission’s declaration

14                  The effect of the Commission’s declaration, dated 1 October 1996, as described by the Administrative Appeals Tribunal, was as follows:

“The modification of [s] 701 which is the subject of the present review, varied [s] 701 in a detailed manner. The effect of the modification was to bring within the compulsory acquisition provisions of [s] 701, any shares allotted in Coldstream upon the exercise of options after the close of the takeover offers. In exercise of the powers conferred by that modified section, Southcorp was obliged to give notice to the relevant shareholder to the effect that the offeror desired to acquire the shares held by the relevant shareholder. The notice was to set out a cash sum as the proposed acquisition price and was to be accompanied by a copy of a report made by an expert within six months before the date of the notice, setting out the particulars referred to in [s] 703(7) and stating whether, in the expert’s opinion, the terms on which the offeror proposed to acquire the shares were fair and reasonable and giving the reasons for forming that opinion. Subsection (6) was left largely intact so that a dissenting offeree retained its right to apply to a court for an order that the obligatory acquisition provisions should not apply to the relevant shareholder.”

Proceedings in the Administrative Appeals Tribunal

15                  DB applied to the Administrative Appeals Tribunal to review the decision to make the declaration. The Tribunal affirmed the decision.

Proceedings at first instance in this Court

16                  DB appealed to this Court from the Tribunal’s decision on questions of law. A Judge of the Court dismissed the appeal. DB now appeals to the Full Court from this order.

THE SCOPE OF THE APPEAL

17                  On behalf of DB it is submitted that the s 730(1) declaration was invalid because (a) it was beyond the statutory grant of power; or (b) even if within the statutory grant of power, it was bad as manifestly unreasonable in the Wednesbury sense.

CONCLUSIONS ON THE APPEAL

18                  It will be convenient to consider DB’s submissions in turn.

(a) Was the declaration beyond power?

19                  This question is essentially one of statutory construction, and, I suggest, one of impression. The legislative scheme and the decided cases are explained in the reasons of the other members of the Court.

20                  The key provisions are s 730(1), the source of the power, and potentially, s 731, if relevant in the present circumstances.

21                  There appears to be no square authority on the present point. The question is, of course, not that which was mentioned in ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615, that is, whether Part 6.5 provides for the compulsory acquisition of convertible notes. The issue in this litigation is whether it is within the power of a s 730(1) declaration to bring within the compulsory acquisition provisions of s 701 shares allotted upon the exercise of options after the close of the takeover offers.

22                  Some general guidance on the approach to be taken to s 730 may be found (as the Tribunal and the primary Judge accepted) in the observations made of its legislative predecessor by Gobbo J in TNT Ltd v National Companies & Securities Commission (1986) 4 ACLC 624. In rejecting an argument that an order was beyond power, Gobbo J said (at 627):

“In my opinion, though the considerations advanced by the Commission are very important on the issue of discretion, they are not determinant of the question of power. That falls to be decided by interpretation of the relevant statutory provisions. Section 58 is in very wide terms and its language offers no support for the limitations suggested. I note, too, in this regard the views expressed by Needham J. in O.P.S.M. Industries Ltd v NCSC & Ors (1982) 1 ACLC 479.

The major difficulty with the submission is that it would be virtually impossible to delineate what were said to be fundamental matters and what were properly matters for modification. It would be productive of much uncertainty as to the question of jurisdiction. Moreover, all of the matters relied upon are capable of being adequately considered and, if thought appropriate, recognised in the course of a proper exercise of discretion.” (Emphasis added).

23                  I agree.

24                  Further general guidance on the approach to be taken to Ch 6 and to s 701 in particular may be found (as was also noted below) in the following observations of Kirby ACJ in Elkington v Shell Australia Ltd (1993) 32 NSWLR 11). Kirby ACJ said (at 16):

“Although a power to accept the resistance of a minority shareholder exists in s 701(6) of the Law, it appears, and must be construed, in the context of a section which is designed to facilitate the acquisition of the remaining shares in a company, the target of a take-over. The provision of the facility for such acquisition is the more remarkable because it is a clear exception to the general rule stated above: see WCP Ltd v Gambotto (at 387-388) per Meagher JA. Section 701 should not be given a narrow construction but one which assists in the achievement of the objects of the legislature’s imputed intention with respect to facilitating take-overs which have overwhelmingly succeeded in their object. The ultimate test is not whether acquisition is unfair to the particular shareholder, but to all of the shareholders of the target company. Fairness in this context has that dual aspect: see Cockle v Carlingford Nominees Ltd (1989) 4 NZCLC 65,120 at 65,125.” (Emphasis added).

25                  Sheller JA spoke to similar effect (at 19):

“Section 701 enables an offeror, whether or not a company, which has become so nearly a total owner of a company as a 90 per cent or greater shareholding would represent to acquire the holding of a dissenting minority of less than 10 per cent. The legislature is concerned that the offeror should not be prevented by that minority from acquiring total ownership of the shares and, if a corporate offeror, from converting the company into a wholly owned subsidiary. Such was said of s 185 of the Companies Act 1961 by the Privy Council in Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651 at 658-659; [1970] AC 827 at 848-849. The offeror, who may expend considerable sums of money in the expectation of acquiring total ownership of the shares in the target company, should not be prevented by a small minority of shareholders from obtaining commensurate and legitimate benefits financial, administrative and commercial such as those available from ‘grouping losses’ pursuant to s 80G of the Income Tax Assessment Act 1936 (Cth).” (Emphasis added).

26                  Turning then to the actual language used in s 730(1), its terms are expressed, without limitation, as follows:

“The commission… may… declare… that… Chapter [6] shall apply in relation to a specific person… or a specified class… of persons, either generally or in a particular case or classes of cases, as if a specified provisions or provisions of… Chapter [6] were omitted or were modified or varied in a specified manner….” (Emphasis added).

27                  On its face then, a declaration will be within the scope of s 730(1) if it purports to omit, modify or vary a provision of Ch 6 in a specified manner. Taken literally, this declaration does that, and prima facie appears to satisfy the terms of s 730(1).

28                  But literal satisfaction is not always sufficient, as the settled course of authority teaches, limitations may be derived from the context, scope and purpose of a statute.

29                  Section 731 apart for the moment, are any relevant limitations to be implied from the context, scope and purpose of the law? In my opinion, not. To the contrary, as McLelland CJ noted in Peninsula Gold Pty Ltd v Australian Securities Commission (1996) 21 ACSR 246 (at 249 – 250) s 701 “reflects a clear policy… to facilitate the acquisition… under a takeover scheme of all the relevant shares in the target company… where there had been a sufficiently high level of informed acceptance…, subject to prescribed safeguards against unfairness…”. (Emphasis added).

30                  In my opinion, the present declaration falls squarely within this policy for the following reasons:

·                    It facilitates the acquisition of all the shares (but not the options) where there has been, as here, a very high level of acceptance.

·                    It provides safeguards in the form of: (a) the provision of an expert’s report; and (b) the preservation of the Court’s power under s 701(6) to intervene.

31                  Moreover, the very existence of this legislative policy, albeit within its own limits, leaves no room, in my view, for the application here of the general statutory presumption against an intention to interfere with proprietary rights. In other words, provided there is a high level of acceptance, and subject to the prescribed safeguards, the clear legislative policy of Ch 6 is to facilitate the acquisition of the minority shares. In this statutory context, to apply the general presumption of non-interference would be to reverse that policy entirely.

32                  Section 731 remains for consideration. Its potential importance rests in its opening provision that in the exercise of the power under s 730(1) to make a declaration, the Commission “shall take account of” the matters then specified with the object of ensuring that the market is “efficient, competitive and informed”. The importance of these Eggleston principles must not be understated, but in my view they do not bear upon the present question.

33                  In my opinion, the declaration was literally within the grant of power conferred by s 730(1), and there is no reason, derived from the context and scope or purpose of the Law, to read s 730(1) down so as to take the declaration beyond its boundaries. The declaration was, in my view, within power.

(b) Was the declaration “manifestly unreasonable”?

34                  This argument, put in the alternative, necessarily assumes that the declaration is within power, although much of DB’s submissions overlapped with its contentions on the first point.

35                  I have difficulty accepting DB’s argument. Indeed, once the two limiting factors (high level of acceptance, and the preservation of the Court’s role under s 701(6) to intervene) are taken into account, I cannot accept that the declaration was unreasonable, let alone “manifestly” so, i.e. perverse.

36                  I would reject this contention.

ORDERS PROPOSED

37                  I would propose that the appeal be dismissed and that DB pay Southcorp’s costs of the appeal. Given the special limited role in the appeal of the other respondents, I would make no order for their costs.

Associate:

Dated: 25 March 1999

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

O’CONNOR & DOWSETT JJ

The facts of this matter appear sufficiently from the reasons prepared by Beaumont J.

Grounds of Appeal

38                  The validity of the declaration is challenged upon the following broad grounds:-

(a) that the first respondent (the “Commission”) had no power to make it;

(b) that the power to make any declaration terminated two months after the end of the takeover offer period;

(c) that the power to make any declaration did not extend to permitting “different offers to be made to the holders of shares in the same class under the same takeover scheme”;

(d) that the declaration was manifestly unreasonable and beyond power.

Powers of the Commission

39                  Section 728(1) provides:-

The Commission may, on application by the person or persons concerned or by a person or persons included in the class or classes of persons concerned, by writing, exempt a specified person or persons, or a specified class or classes of persons, subject to such conditions (if any) as are specified in the exemption, from compliance, either generally or in a particular case or classes of cases, with this Chapter or a specified provision or provisions of this Chapter.

40                  Section 730(1) provides:-

The Commission may on application by the person or persons concerned or by a person or persons included in the class or classes of persons concerned, declare, in writing, that this Chapter shall apply in relation to a specified person or persons, or a specified class or classes of persons, either generally or in a particular case or classes of cases, as if a specified provision or provisions of this Chapter were omitted or modified or varied in a specified manner, and, when such a declaration is made, this Chapter applies accordingly.

41                  Section 731 provides:-

In exercising any of its powers under s 728 or s 730 the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market and, without limiting the generality of the foregoing, shall have regard to the need to ensure:

(a) that the shareholders and directors of a company know the identity of any person who proposes to acquire a substantial interest in the company;

(b) that the shareholders and directors of a company have a reasonable time in which to consider any proposal under which a person would acquire a substantial interest in the company;

(c) that the shareholders and directors of a company are supplied with sufficient information to enable them to assess the merits of any proposal under which a person would acquire a substantial interest in the company; and

(d) that, as far as practicable, all shareholders of a company have reasonable and equal opportunities to participate in any benefits accruing to shareholders under any proposal under which a person would acquire a substantial interest in the company;

but nothing in this section requires the Commission to exercise any of its powers in a particular way in a particular case.

42                  We draw attention to the following aspects of s 730(1):-

(1) the Commission’s power to act depends upon there being an application by “the person or persons concerned or by a person or persons included in the class or classes of persons concerned”;

(2) the declaration to be made is as to the application of Chapter 6 “in relation to a specified person or persons, or a specified class or classes of persons, either generally or in a particular case or classes of cases …”;

(3) such a declaration varies the application of the chapter “as if a specified provision or provisions … were omitted or were modified or varied in a specified manner”.

The Declaration

43                  The declaration is couched in the form of amendments to the provisions of s 701. The preamble provides that:-

Pursuant to subs 730(1) of the Corporations Law (“Law”), the Australian Securities Commission declares that Ch 6 of the Law shall apply to the person named in Sch A (“the offerer”) in the case referred to in Sch B: … …

Schedule A contains the name of the second respondent. Schedule B recites as follows:-

The compulsory acquisition of ordinary shares in Coldstream Australasia Ltd (ACN 006 849 476) issued upon the exercise of fifty cent options on or before 20 December 1996 and seventy-two cent options on or before 8 October 1998 other than seventy-two cent options which are the subject of a notice dated 30 August 1996 given by Richard Ewen Mews under par 703(8)(a) of the Corporations Law.

44                  The effect of the declaration, made upon the application of the second respondent (“Southcorp”), is that Ch 6 of the Corporations Law applies to Southcorp, in connection with the compulsory acquisition of the shares described in Sch B, as if modified or varied so as to authorize the compulsory acquisition of such shares. Southcorp has no other right to such acquisition. The first question for determination is whether s 730 authorizes such a declaration. The discretion conferred by s 730 is undoubtedly very broad, but there must be some limit to its ambit of operation. In this regard, it is appropriate to consider decisions concerning the section and its analogues in earlier legislation.

The Cases

45                  In Peninsula Gold Pty Ltd & Ors v ASC (1996) 21 ACSR 246, a shareholder in a target company had, after the date of service of the Pt A statement, but before dispatch of the offers to shareholders, purported to transfer some of its shares to eighteen other persons and lodged the transfers with the target company. Registration was effected after such dispatch. The offerer and the target company each made application to the Australian Securities Commission for a declaration pursuant to s 730 to the effect that Ch 6 should have effect so as to exclude the consequences of the transfers. In proceedings brought to establish that such a declaration was beyond power, McClelland CJ in Eq said at pp 249-50:-

The discretionary power conferred on the ASC by s 730 is governed by the general rule “that a discretion expressed without any qualification is unconfined except in so far as it is affected by limitations to be derived from the context and scope and purpose of the statute”: R v Australian Broadcasting Tribunal (1979) 144 CLR 45 at 50 …

A declaration of the kind in contemplation would fall within the literal terms of s 730. Would it fall outside any limitations to be derived from the context, scope and purpose of the Law, or more particularly, ch 6 of the Law? In my opinion, it would not. Section 701 reflects a clear policy on the part of the legislature to facilitate the acquisition by an offerer under a takeover scheme of all the relevant shares in the target company so that the target company would become a wholly owned subsidiary of the offerer, where there had been a sufficiently high level of informed acceptance of the offer by offerees, subject to prescribed safeguards against unfairness, no doubt in recognition of (inter alia) indirect economic benefits to the community from such commercial activity. A modification or variation of the application of critical parts of s 701 in order to avoid the deliberate frustration of that policy by means of artificial transactions … would fall well within the context, scope and purpose of Ch 6. Although such a modification or variation may well tend to promote “an efficient, competitive and informed market” within the meaning of s 731, I do not think that it is necessary to find support for any particular exercise of the power conferred by s 730 in the terms of s 731. The desirability of the objectives specified in s 731 must be taken into account by the ASC in exercising its power under s 730, but it does not follow that the ambit of the exercise of that power is limited to the promotion of those objectives.

A declaration of the kind in contemplation would not effect any substantive alteration to the general law: the power of a shareholder to split its holding or otherwise deal with its shares and any exercise of that power, would remain lawful and effective. All that would be changed is the effect of s 701 on the state of affairs resulting from particular instances of such dealings designed to frustrate the policy of the legislation. Such changes are, in my view, well within the intended reach of s 730.

46                  In Otter Goldmines Ltd v Australian Securities Commission (1997) 25 ACSR 382 Merkel J said (Beaumont and Sundberg JJ concurring,) at pp 387-8:-

The power of modification conferred by s 730 … is expressed in wide terms and in language that offers little support for any implied limitation on the scope of the power conferred under it: see OPSM Industries Ltd v NCSC (1982) 7 ACLR 192 at pp 194-5 per Needham J and TNT Ltd v NCSC (1986) 11 ACLR 59 at p 62 per Gobbo J.

Subject to the matters referred to in s 731 the ASC’s discretion is confined only by the subject matter, scope and purpose of the relevant statutory provisions in the Law …

Section 731 is based on the recommendations of the Eggleston Committee and contains what are known as the Eggleston Principles …The section states the matters that the ASC is to “take account of” and “have regard to” in a particular case, prior to the exercise of any of the powers conferred by s 728 and s 730. The ASC must thus give way to those matters as fundamental elements in exercising the powers …

For the detailed takeover code in Ch 6 to be workable, broad discretions of exemption and modification are necessary and desirable, inter alia, for “ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market”…

…

The AAT while accepting that power of modification under s 730 is necessarily a broad power, added that “it should be used sparingly”. If the AAT was purporting to state a general proposition, which I do not accept as necessarily being the case, then the proposition is wrong. For the reasons I have set out above the power is not so confined or constrained. The power of modification is to be exercised when the ASC determines, in its discretion, that it is appropriate to do so after having regard to the considerations set out s 731 and any other matters which it determines to be relevant including any applicable ASC policy.

47                  Notwithstanding the very broad ambit of operation described in that passage, his Honour considered that limits were to be found in s 731 and in the “subject matter, scope and purpose of the relevant statutory provisions”. The two cited authorities are of interest. In OPSM Industries Ltd v National Companies and Securities Commission (1982) 7 ACLR 192 Needham J, considered s 58 and s 59 of previous legislation, which were similar in effect to s 730 and s 731 respectively. At pp 194-5 his Honour said:-

It is clear, I think, that s 58 is not a power to make by-laws, but is a power to omit, modify or vary portions of the legislation. How far the Commission may go in that respect may be a matter which will have to be determined at some stage.

48                  At p 195, his Honour continued:-

However, it seems to me that the plaintiff has not established a right at this stage to an interlocutory injunction of the kind sought, and the reasons which I would ascribe for that conclusion are firstly that I do not think I should, on such an application, without full argument from all parties, construe s 58 of the Code in such a way as to limit the apparently wide powers given by the legislature to the Commission. It may be on a final hearing that some limitation will be found to be proper to s 58, but at this stage the plaintiff has not really put to me any philosophical basis for any limitation which it suggests might be placed upon s 58, nor have I had the benefit of any suggestion as to the nature of the limitation which should be found to exist.

… the defendants have submitted, with some force, I think, that s 59 is a philosophical section, and have also pointed to the last two lines in the section, namely that nothing in the section shall be taken to require the Commission to exercise any of its powers in a particular way in a particular case. It would be difficult to invalidate some decision of the Commission under s 58 by reference to s 59.

49                  The case should not be taken as authority for any proposition as to the ambit of s 58. Needham J merely expressed a tentative opinion on an interlocutory application, without full argument.

50                  In TNT Ltd v NCSC (1986) 11 ACLR 59 Gobbo J considered s 58. At p 62 his Honour said:-

The principal argument advanced on behalf of the Commission was that s 58 did not empower a modification or variation that departed from what was described as the fundamentals of the Companies (Acquisition of Shares) Code. In the present case, it was said, there was a breach of such fundamentals and there was no takeover offer and no situation of an offeror moving from less than 90 per cent holding to over 90 per cent acquisition as TNT already held over 90 per cent of the Ansett shares when it made its latest takeover offer.

In my opinion, though the considerations advanced by the Commission are very important on the issue of discretion, they are not determinant of the question of power. That falls to be decided by interpretation of the relevant statutory provisions. Section 58 is in very wide terms and its language offers no support for the limitations suggested. I note, too, in this regard the views expressed by Needham J in OPSM Industries Ltd v NCSC …

The major difficulty with the submission is that it would be virtually impossible to delineate what were said to be fundamental matters and what were properly matters for modification. It would be productive of much uncertainty as to the question of jurisdiction. Moreover, all of the matters relied upon are capable of being adequately considered and, if thought appropriate, recognized in the course of a proper exercise of discretion.

51                  In Sagasco Amadeus Pty Ltd v Magellan Petroleum Australia Ltd (1993) 177 CLR 508 at p 516, the High Court (Mason CJ, Dawson, Toohey, Gaudron JJ) said:-

Section 731 sets out four principles, commonly known as the Eggleston Principles, for the exercise of the Australian Securities Commission’s powers in respect of the acquisition of shares.

52                  If the s 731 considerations are “principles … for the exercise of the (Commission’s) powers”, it may be that in Peninsula, McLelland CJ in Eq understated their effect. A similar criticism might be made of the view expressed by Needham J in OPSM. Merkel J, in Otter, described the s 731 considerations as “fundamental elements in exercising the powers”. That is consistent with the view expressed in Sagasco. Subsequently, however, his Honour also said (at p 388):-

To the extent that the policy enunciated in Policy Statement 57 reflects or seeks to give effect to the Eggleston Principles, the ASC could be expected to have regard to the policy, as required by s 731, always reserving unto itself the decision as to whether, and if so how, it should exercise its power”.

53                  At pp 388-9, his Honour also said:

The power of modification is to be exercised when the ASC determines, in its discretion, that it is appropriate to do after having regard to the considerations set out in s 731 and any other matters which it determines to be relevant, including any applicable ASC policy.

54                  These passages should not be read as detracting from the status of the s 731 considerations as “principles” for the exercise of the s 730 discretion.

Statutory Context

55                  Clearly enough, s 728 authorizes exemption from compliance with Ch 6 or part thereof. Section 730 must be intended to authorize something more than that. The power is very wide, particularly as s 9 of the Law defines “modification” to include “… additions, omissions and substitutions”. However to say that the power is wide says little about the circumstances in which it is to be exercised.

56                  To understand the ambit of operation of both s 728 and s 730, it is necessary to consider the overall operation of Ch 6. That chapter is headed “Acquisition of Shares”. Part 6.1 provides definitions. Part 6.2 is headed “Control of Acquisition of Shares”. It regulates the circumstances in which a person may acquire various levels of shareholding in a company without complying with the provisions relating to takeover schemes or announcements. Part 6.3 prescribes the provision for takeover schemes while Pt 6.4 deals with takeover announcements. Part 6.5 deals with both and contains ss 701 to 703. Section 701 is the subject of the s 730 declaration presently under consideration. Part 6.6 deals with liability for mis-statements in documents. Part 6.7 deals with substantial shareholdings, requiring notice of such shareholdings to the company. Part 6.8 confers power to obtain information as to the beneficial ownership of shares. Part 6.9 confers powers upon the Commission, the Corporations and Securities Panel and the Court. This part includes ss 728, 730, 731. Part 6.10 prescribes the powers of the Court for various purposes. Part 6.11 contains miscellaneous provisions and Part 6.12 relates to the forms of various takeover statements. Part 6.13 contains transitional provisions.

Takeovers and Compulsory Acquisition

57                  Part 6.5 operates where there has been a successful takeover pursuant to Pt 6.3 or Pt 6.4. These latter parts relate to the acquisition of shares as distinct from other interests such as options. Division 6 of Pt 6.5 provides for the acquisition of outstanding shares and other interests (including options). Pursuant to s 701(2) an offeror who has been substantially successful may notify any dissenting offeree that he or she desires to acquire that offeree’s outstanding shares. Thereafter, the offeror is “entitled and bound” to acquire the relevant shares. This step must be taken before the end of two months after the end of the offer period. Such notice need not be given to all dissenting offerees. The section authorizes the compulsory acquisition of outstanding shares which were the subject of the original offer. See par 701(1)(a) (“shares subject to acquisition”), sub par 701(1)(c)(i) (“outstanding shares”), par 701(1)(d) (“dissenting offeree”) and s 701(2). Southcorp’s offer was limited to existing shares and shares issued during the offer period. It did not apply to shares issued thereafter as were the shares which are presently relevant.

58                  Pursuant to s 703(1) a substantially successful offeror must, before the end of one month after the end of the offer period, give notice to the holders of outstanding shares in the relevant class who have not been given notice under s 701(2), disclosing the offeror’s entitlement to shares in the company. Section 703(4) prescribes that a similar notice be given to the holders of non-voting shares and renounceable options or convertible notes. Recipients of such notices may require the offeror to acquire their shares or other interests, however Pt 6.5 makes no provision for the compulsory acquisition of options at the suit of a successful offeror. In ANZ Executors & Trustees Ltd v Humes Ltd (1989) VR 615 at p 638, Brooking J suggested that there was no power pursuant to s 58 of the earlier legislation to modify the takeover provisions to authorize the compulsory acquisition of convertible notes. In the current proceedings, it was accepted that this view was correct and that s 730 could not be used to permit the compulsory acquisition of options. In the absence of express provision to such effect, it is difficult to see why s 730 should be construed as authorizing the compulsory acquisition, at the suit of the offeror, of shares issued pursuant to the exercise of options, at least where the exercise occurs after the expiry of the original offer, and where such shares were not the subject of it.

Operation of Part 6.9

59                  As the powers conferred by s 728 and s 730 may only be exercised upon the application of ‘the person or persons concerned or by a person or persons included in the class or classes of persons concerned’, it is reasonable to infer that any exemption or declaration will be for the benefit of such applicant or applicants. Thus ss 728-731 are not concerned with enforcement, but with relaxation of the Law. Sections 732-736A and Part 6.10 are concerned with enforcement. Sections 732-5 deal with the powers and functions of the Corporations and Securities Panel (the “Panel”). The Panel’s primary function is to determine, on the application of the Commission, whether unacceptable circumstances have, or may have occurred in relation to the acquisition of shares or as a result of conduct in relation to shares in, or the affairs of a company. It may also make consequential orders. The Panel may not make such a determination or consequential orders without hearing relevant persons. See s 733(5) and s 734(6). The Court has power under s 736 to secure compliance with an order made by the Panel. Part 6.10 authorizes the Court to make “remedial orders” (defined in s 613) and other associated orders in connection with breaches of s 615, which effectively prohibits the acquisition of shares otherwise than in accordance with Pt 6.2. There is also power to make orders in respect of breaches of other sections in Ch 6 and to excuse contravention thereof. Section 744(3) provides for the Court to order service of notice of any application for relief pursuant to Pt 6.10.

60                  Clearly, both the Panel and the Court have roles to play in achieving the objectives of Ch 6. It is not the Commission alone which must perform that function. We consider that the Commission’s discretion pursuant to s 730 is limited so as to exclude conflict with the powers vested in the Panel and the Court. Because the Commission’s power is to vary the extent to which a person is bound by Ch 6, and the respective functions of the Panel and the Court are designed to ensure compliance with that chapter, there may be little likelihood of overlap. Nonetheless, the existence of powers vested in other authorities suggests the need for care in making assertions as to the unlimited nature of the Commission’s power. We also doubt whether s 730 authorizes variation of the provisions of Pts  6.9 and 6.10 so as to alter the functions and powers of the Panel or the Court in relation to a particular person, although the Panel and the Court would, of course, apply Ch 6 to any person in accordance with relevant declarations by the Commission pursuant to that section.

61                  It is significant that the Panel is directed to allow interested parties to be heard and that it is, understandably, expressly contemplated that the Court will do likewise. In the case of the Panel, such obligation must be considered in the context of Pt 10 of the Australian Securities and Investments Commission Act 1989 (the “ASIC Act”) which establishes it and authorizes it to conduct inquiries in connection with its functions. It is contemplated that those functions will be derived from other legislation, of which the Law is an example. Sections 733(5) and 734(6) of the Law plainly contemplate interested persons being heard at such an inquiry at which the “rules of procedural fairness” would apply. See ASIC Act, s 195(3).

62                  The ASIC Act also regulates the activities of the Commission. It may conduct hearings “for the purpose of the performance or exercise of any of its functions or powers”, with certain irrelevant exceptions. See ASIC Act, s 51(1). As with the Panel, the ASIC Act contemplates functions and powers being conferred on the Commission by other legislation such as the Law. Sections 56 and 57 contemplate that such legislation will require that affected persons be heard at a hearing at which the rules of natural justice would apply. See ASIC Act, par 59(2)(c). There is no such requirement in connection with s 730. Thus the Commission may conduct a hearing prior to making a declaration pursuant to that section but is not bound to do so. It is difficult to accept that s 730 is intended to authorize a declaration affecting the property rights of third parties in the absence of a requirement that such parties be heard, especially in light of the express provisions in connection with the Panel and the Court.

Proper Construction of Section 730

63                  Little was said in argument about how one might identify, in a definitive way, the ambit of operation of s 730. For the appellant, it was simply submitted that the section is not wide enough to include the declaration which was made in this case. The third and fourth respondents supported that submission. The first and second respondents submitted that the section confers a power wide enough to authorize the declaration. We have spent some time in analysing the cases and the legislation, largely out of deference to the detailed submissions which were made concerning those matters.

64                  It is, in our view, much easier to answer the narrow question posed by the parties as to the validity of this declaration than it is to answer the wider question as to the precise ambit of operation of the section. The structure of Pt 6.5 strongly suggests that s 730 does not authorize a declaration such as that now in question. The express provision for the compulsory acquisition of outstanding shares and the absence of any provision relating to shares which were not the subject of the original offer point to that conclusion. In addition, that part deals expressly with options, but no provision is made for the compulsory acquisition thereof at the suit of an offeror. Shares issued following the exercise of options are not dealt with at all. All of these matters suggest that Parliament did not intend that such shares be subject to compulsory acquisition at the suit of an offeror. The obvious way to deal with them would be to permit acquisition of the options following a successful takeover. No good point would be served by providing for acquisition after exercise thereof, particularly as, in some cases, such exercise may occur long after the relevant takeover.

65                  Even more compelling are the provisions of s 730 itself which simply do not authorize the abrogation of the property rights of third parties. The section purports only to authorize the Commission to vary the Law as it applies “in relation to a specified person or persons, or a specified class or classes of persons”, clearly referring to the person or persons making the application for a declaration or on whose behalf it is made. The section says nothing about affecting the rights of other parties. Had Parliament contemplated that such rights might be affected, it would surely have dealt with the matter expressly. The absence of any provision in Pt 6.9 providing for notice to persons whose property rights are to be affected by a proposed declaration, or conferring on them a right to be heard, points in the same direction, especially given the express provisions of Pt 6.9 (in connection with the Panel and the Court) to which we have referred. Questions may arise as to the power to make a class application in the absence of express authority from all class members. Such an application might involve a proposed variation of third parties’ rights (ie of the other members of the class). That problem does not presently arise.

66                  We note that the learned Judge at first instance quoted with apparent approval the following passage from the reasons of the Administrative Appeals Tribunal:-

“33. … The modification does not affect the option holders’ rights. It operates only if an option holder chooses to exercise some or all of the options. Once having exercised such an option, an option holder is in the same position as a person who was a shareholder during the currency of the offer. …”

67                  With all respect, we cannot accept that proposition. Clearly, an option holder’s rights are affected by a declaration which has the effect that any shares issued as a result of the exercise of that option are immediately liable to compulsory acquisition.

68                  In support of our general approach is the fact that s 730 authorizes variation of the application of ch 6 to persons who have applied for such variation. That is not a mandate to use ch 6 to vary other provisions of the Law or of the general law as they apply to other persons A declaration which adversely affects the rights of such other persons, in a way not prescribed or clearly contemplated in ch 6, exceeds the mandate granted by the section.

69                  Our conclusions are supported by two well-established canons of statutory construction. The first is the presumption that legislation is not intended to interfere with vested proprietary interests. See Pearce and Geddes, Statutory Interpretation in Australia (4^th ed), par 5.12. The second is the proposition that an express reference to one matter indicates that other matters are excluded. See Pearce and Geddes, par 4.22. These canons of construction must be applied with care, but there can be little doubt as to their applicability in the present case. We consider that the declaration was not authorized by s 730 of the Law:-

70                  There was no suggestion that the declaration was authorized by any other power conferred upon the Commission. It is not necessary for present purposes that we say any more about the ambit of operation of s 730 or deal with the other arguments raised at the hearing of this appeal.

71                  We propose the following orders:-

(1) Allow the appeal.

(2) Set aside the orders made by Whitlam J on 7 July 1998.

(3) Set aside the decision of the Administrative Appeals Tribunal dated 16 October 1997.

(4) Declare that the declaration made by the first respondent on 1 October 1996 was and is void.

(5) The first and second respondents are to pay the applicant’s costs of the appeal and of the proceedings in the Court at first instance.

Associate to Dowsett J:

Dated: 25 March 1999