FEDERAL COURT OF AUSTRALIA

Winpar Holdings Ltd v National Consolidated Ltd [2001] FCA 1663

Winpar Holdings Limited and Anor v National Consolidated Limited

N3010 of 2001

ALLSOP J

23 NOVEMBER 2001

SYDNEY

REASONS FOR INTERLOCUTORY ORDERS

1                     In this matter I told the parties yesterday of my views concerning an application to transfer the proceedings to the Victorian Supreme Court under s 1337H of the Corporations Act.  I indicated to the parties that I would give my reasons for my views today.  Before I give reasons, I should indicate in summary form what I indicated to parties yesterday were my views about the application.  I expressed the view that there was a significant conformity of issues between matters raised by the plaintiffs in these proceedings and the matters before Warren J in the Victorian Supreme Court in what I will hereafter refer to as the Acquisition Proceedings.

2                     The matter which is common to both proceedings is, as I will explain later, in short form the matter which has been assumed by Mr Lonergan in an expert report in the Acquisition Proceedings, which assumption is reflected in para 126 of his expert report which is contained in Exhibit A on the motion and behind tab “S”.  Given that there is that conformity of issue in both proceedings, I have taken the view that in order to avoid what might well be a significant repetition of evidence and to avoid the risk of inconsistent findings, I would transfer the matter to the Victorian Supreme Court, but only if her Honour was able and willing to hear this matter.

3                     The reason for that limitation is that if a second judge is to hear this case, I see no utility in transferring the matter to the Victorian Supreme Court merely because her Honour is also hearing the Acquisition Proceeding.  If two judges are to hear the two proceedings then this Court is not only perfectly able to do so but it is just as convenient for this Court to do so.  Therefore, I indicated that the orders that I would make today would, in effect, be to stand the transfer application over and allow the parties to raise the matter with her Honour today or next week in order for her Honour's position and attitude to be ascertained.

4                     Before delivering my reasons, I should emphasise something which I said to the parties yesterday and which I hope they convey to her Honour today and that is this: it should not be taken that I or this Court is in anyway requiring her Honour to do anything or expecting her Honour to do anything.  It may or may not be thought appropriate by her Honour to accept this transfer, as it were, into her list.  There may be internal procedures and views within the Victorian Supreme Court which would make it less than appropriate that her Honour hear this matter.  It should not be taken that anything I am suggesting is something which should be seen as an expectation of me or this Court of her Honour or the Victorian Supreme Court.

5                     The application by originating process was filed by the two plaintiffs on Friday, 2 November.  On that date there was an ex parte application for short service.  No interlocutory relief was sought on that day.  The applicant made clear on that day that no interlocutory relief was to be sought at all.  Rather, what the plaintiffs sought was that short service be given and the defendant be brought to court so that an early final hearing could be ordered.  The orders sought in the originating process were relevantly three, they being as follows:

1.       An order to restrain the defendant from holding the general meeting on 16 November 2001 for which a notice dated 24 October 2001 was given.

2.       In the alternative to 1. a declaration that Austrim Nylex Limited is not entitled to vote at such general meeting.

3.       Further in the alternative to 1. a declaration that holders of cumulative non-redeemable preference shares in the defendant are entitled to vote at such meeting.

6                     I made the matter returnable on Tuesday, 16 November.  The defendant, National Consolidated Limited, which is, by ordinary shareholding, a wholly owned subsidiary of Austrim Nylex Limited, has its head office in Melbourne.  The head office of the defendant was closed on 5 November as is not uncommon in some Melbourne business houses on the Monday of the week of the first Tuesday in November.

7                     On Tuesday, 6 November I stood the matter over to Friday, 9 November.  On 6 November I made directions for the filing of affidavits as to two matters: first, as to why the matter should or should not be transferred to the Victorian Supreme Court, that application being foreshadowed by Mr Moore who appeared for the defendant on 6 November; secondly, the extent to which the defendant was able to meet a final hearing of the matter in the week commencing 12 November.  I also required the plaintiffs to file and serve a properly particularised statement of claim prior to 9 November.

8                     On Friday, 9 November Mr Santamaria QC appeared with Mr Moore for the defendant.  Mr Cotman SC appeared for the plaintiffs.  Discussion and debate took place before me as to the issues thrown up by the statement of claim and the bearing they had on the question of transfer and the question of an urgent final hearing.  After hearing the parties I delivered an oral judgment in which I refused, on the material before me, to force the defendant into an early final hearing the following week: [2001] FCA 1662.  Having decided that matter the application to transfer the proceedings came into sharper focus.  I was unhappy with the level of specificity of the submissions on this matter filed to that point.  They appeared to require me to wade unaided through 400 pages of exhibits to an affidavit which had been filed.  I am not intending to be critical of the solicitors or counsel for the defendant.  I had required the affidavit to be filed at short notice.  In any event, I required further submissions concerning the transfer and I also required a defence to be filed.  Those matters were attended to and I considered the submissions of the parties, the pleadings and the evidence prior to the matter being listed yesterday afternoon.

9                     For the record, the evidence filed which I recounted yesterday afternoon was as follows: two affidavits of Ms Carmichael dated 6 and 8 November 2001, two affidavits of Mr Annetta of 6 and 8 November 2001, an affidavit of Robert John Charles Catto of 2 November and exhibit A which is a folder of material said in Mr Annetta's affidavit to be annexed to his affidavit which was in fact exhibited and separately tendered.

10                  The parties are in litigation before Warren J in the Supreme Court of Victoria.  What that is about and what this application is about require a little explanation.  I will refer to the subsidiary company, that is National Consolidated Limited which is the defendant in these proceedings, as the defendant.  I will refer to its parent as Austrim Nylex.  Austrim Nylex is a party to the Acquisition Proceedings.  The defendant is not a party to the Acquisition Proceedings.

11                  All the defendant's ordinary share capital is owned by Austrim Nylex.  Austrim Nylex is a listed public company.  The plaintiffs hold 5 per cent fixed cumulative preference shares of $2.00 each.  Austrim Nylex owns a significant proportion of the preference shares; it does not own all of them.  In Victoria there are proceedings brought by Austrim Nylex for the compulsory acquisition of the balance of the preference shares by Austrim Nylex, that is by the shareholder (parent) of the defendant.  The plaintiffs are some of the parties to those proceedings in Victoria. 

12                  Austrim Nylex and its related entities to which I will refer as the Group has been in discussion with its financiers about its affairs.  I need not go into any detail.  The existence of those discussions is a matter of public record.  It was not in any way confidential before me that there is a standstill agreement reached between Austrim Nylex and the Group on the one hand and the financiers on the other.  I would infer that this has arisen from some degree of financial stringency within some or all companies of the Group.  As I said this matter is not in evidence before me other than there is evidence of the existence of these arrangements called in the proceedings before me a standstill agreement.

13                  Austrim Nylex and the defendant desire that the defendant, along with many if not all other companies in the Group, give security to the financiers.  The defendant has already guaranteed obligations up to at least $390 million, being obligations of other companies in the group to various financiers.  The defendant is a public company for the purposes of Chapter 2E of the Corporations Act.  It is not a listed company.  The listed entity is its parent, Austrim Nylex.  It was accepted for the debate before me that for the defendant to grant security it would be giving a financial benefit to a related party in the group, in particular Austrim Nylex.  So the regime provided for by Part 2E.1 of the Act would obtain.  It was proposed (and it did occur, as I understand it) that the members of the defendant meet to vote on a resolution to convert the status of the defendant to that of a proprietary company under the Corporations Act.

14                  If this were done (as I understand it has been purported to be done) with the status of the company so changed, there would be no requirement to comply with the regime under Part 2E.1 of the Corporations Act.  It is that meeting to change the defendant's status which the plaintiffs sought to stop, not by pursuing interlocutory relief, but by having an early final hearing.  The meeting was not stopped because I refused in the circumstances to order an early final hearing.  It is proposed that the defendant grant the security.  One of the reasons which I indicated in my oral reasons for refusing to expedite the final hearing was that if the meeting was indeed flawed, as was submitted by the plaintiffs, I apprehended that the change of status would be ineffective.

15                  I should add at this point something I have overlooked and that is that on 9 November there was an amendment made to the originating process in terms of a paragraph 3A, as follows:

A declaration to the effect that the meeting of the defendant proposed to be convened on 16 November 2001 ought to be conducted pursuant to the provisions of sections 217 to 227 of the Corporations Act.

16                  Whether or not the matter should be transferred to the Victorian Supreme Court depends in significant part on whether there is a substantial overlap of issues to be decided in these proceedings and in the proceedings in Victoria.  It is quite inappropriate for two courts to be deciding the same issues between the parties if that matter can be avoided.  However, mere overlap of some issues will not, of itself, require transfer.  Also, the general statement which I have just identified, that is the inappropriateness of two courts deciding the same issues, can be qualified if in one court two judges are to hear the same issues.  If two judges in one court are to hear the same issues then it seems to me that it is not necessarily so inappropriate that two courts hear the same issues.  Questions might arise, of course, as to appeals and the like and their ability to be consolidated in one court. 

17                  It is claimed by the defendant that the defendant and Austrim Nylex are closely held corporations within the meaning of s 214 of the Act and so that no member approval is in any event needed for the security.  This will raise an issue about the meaning of the word ‘member’ in Chapter 2E and whether in the circumstances here it includes the plaintiffs as preference shareholders.  Notwithstanding the above, it is admitted by the defendant that an explanatory memorandum under s 219 of the Act is and would be required if the security were to be given while the defendant was a public company.  The defendant denies the entitlement of the plaintiffs to vote at any meeting under Chapter 2E. 

18                  The defendant says that if a meeting was called to approve security, which is said not to be required because of s  214, Austrim Nylex could vote at that meeting because Austrim Nylex or the defendant would be entitled to apply for an exception under subs 224(4) of the Act from the operation of subs 224(1) of the Act which prohibits a related party voting.  That exception involves an application to the Australian Securities and Investment Commission. 

19                  These matters are pleaded in support of the lawfulness of the meeting to change the status.  These matters are pleaded in answer to a plea by the plaintiffs that the convening of the meeting and the proposed resolution is conduct undertaken for other than proper purposes in that the true purpose of the meeting is to give a financial benefit to Austrim Nylex without the steps it would be required to take under Part 2E.1 of the Act.

20                  The defendant says that proper purposes and good faith are being exhibited by the defendant's board and that there are objective reasonable grounds in support of that position.  A view that the security is in the best interests of the Group and the defendant is pleaded by the defendant.  Objective grounds for that view are pleaded.  The defendants also plead that there is no financial risk to the preference shareholders and the defendants also plead the lack of entitlement of the plaintiffs to vote at any relevant meeting.

21                  The plaintiffs also plead that the explanatory memorandum for the meeting is misleading or deceptive.  The defendant denies this.  The plaintiffs also claim in the statement of claim that the grant of the security would be an act of oppression and that the defendant is not entitled to grant the security.  As I have indicated above, the defendant wishes the matter to be transferred to Victoria.  The Victorian proceedings, that is the Acquisition Proceedings, were commenced on 15 March 2001 by Austrim Nylex for an order under s 664F of the then Corporations Law for the acquisition of the preference shares including those of the plaintiffs.  The case is to be heard by Warren J commencing on 29 November, next week.

22                  The principal issue is what is the fair value of the shares being acquired.  It is said in para 6 of the submissions of the defendant that the answer to that question will depend on three matters: first, in part on the proper interpretation of the provisions of the Corporations Act; secondly, in part upon findings as to the existence of certain benefits which the defendants, that is, the preference shareholders in the Victorian proceedings contend will flow to Austrim Nylex if it grains 100 per cent control of the defendant; and, thirdly, in part upon findings as to the value of the benefits referred to in the second element above.

23                  It is said by the preference shareholders in the proceedings before her Honour that the defendant is not able to charge its assets.  It is said by the defendant before me that that allegation or proposition by the defendants to the Acquisition Proceedings including, the plaintiffs here, is at the heart of the preference shareholders’ contentions.  These matters are set out in paras 7 and 8 of the defendant’s submissions on the motion before me.  Those propositions are elaborated upon in the defendant's submissions under the heading “Common Legal and Factual Issues” commencing on page 5 of those written submissions.

24                  Before going to the main and most persuasive issue before me I should deal with and dismiss one matter raised by the defendant.  In paras 16 to 19 of its submissions the defendant relies upon matters deposed to by Mr Catto in his affidavit that no one has offered him money for his shares.  I doubt the relevance of these matters in Mr Catto's affidavit to the matter before me and I do not think the matters there raised, that is, in paras 16 to 19, form any basis for transferring the matter to the Victorian Supreme Court.  More important is what follows under the heading “Ability to Charge NCL Assets”.

25                  In paras 20 and following the defendant sets out, I think, powerful reasons why there is a substantial commonality of issues between these proceedings in this Court and the Acquisition Proceedings in the Victorian Supreme Court.  At the heart of the statement of claim variously expressed is the view that it would be wrong to grant the security whether because of improper purpose or oppression.  At the heart of the Victorian proceedings is the evidence of Mr Lonergan, a highly experienced accountant and valuer who has sworn an affidavit which has been filed by those acting for the preference shareholders and which deals with the value of the shares.

26                  In his evidence he refers to what is called the “special benefit issue”.  One of the special benefits which Mr Lonergan identifies as flowing to Austrim Nylex from the obtaining of the 100 per cent ownership of the preference shareholders is an ability to charge the assets of the defendant subsidiary.  This will, he assumes, lower the interest burden of the Group.  In his report Mr Lonergan ascribes a range of values of benefits flowing from this ability of the defendant to mortgage or charge its assets as set out in para 13 of his report where he says that in his opinion the total value of special benefits is approximately $3.88 million to $7.48 million plus $3.6 million to $7.2 million in estimated interest rate benefits.

27                  It is those interest rate benefits which are the benefit reflected by the reduced financing costs available by the existence of security which will be brought about, it is said, by the ability to grant security which could not be given absent the compulsory acquisition.  That this is the position is made clear by para 126 of Mr Lonergan's report in which he outlines the assumption or one of the assumptions he has been asked to make.  He says in that paragraph:

For the purposes of our assessment of the value of special benefits likely to be gained by Austrim upon acquiring 100 per cent control you have instructed us to assume that Austrim is not able to charge the assets of National Consolidated for Austrim's Group borrowings at any time of its choosing without considering the position of the preference shareholders.  Consequently we have assumed that Austrim will obtain a further benefit from having 100 per cent control being the ability to charge National Consolidated assets for group borrowings at any time it wishes to do so.

28                  Though a trifle qualified I take that as an assumption that until Austrim Nylex is the owner of all the preference shareholders of the defendant it is either prevented or significantly impeded from causing the defendant to grant security.  While the Acquisition Proceedings are not the subject of pleadings it appears to me that whether the defendant can charge its assets and in what circumstances raises questions very much of the kind referred to in paras  31 to 33 of the defendant's submissions which on my reading of the statement of claim will raise factual and legal questions of great similarity to the matters pleaded in the statement of claim in this Court.  As I said earlier, it is wrong in my view to deal with the same issues twice in two courts or between two judges if it is possible to avoid it.  This is especially so, where though the parties are closely related, Austrim Nylex is not a party to the present proceedings and the defendant in the present proceedings is not a party to the acquisition proceedings.  Res Judicata and issue estoppels may well not flow between parties in the Acquisition Proceedings and the proceedings in this Court.

29                  As I have said earlier, unless it is convenient for her Honour to deal with these matters, I am not persuaded that I should transfer the matter to the Victorian Supreme Court.  As I said earlier, if two judges have to hear the matter, this court can hear these proceedings.  Section 1337H and in particular, subsection (2) as affected by s 1337L gives ample and wide power for the transfer of proceedings should that seen to be appropriate in the light of the interests of justice and the appropriateness of any transfer.

30                  I am not minded at the present time to remove the matter to Victoria by reason of the questions of convenience of the parties and witnesses.  It may be that if I do not transfer the matter, that these matters will in the future become of such weight and character that another application could reasonably be made.  For the present, I set aside those matters of mutual convenience, sometimes referred to as forum conveniens or forum non conveniens issues and concentrate only on what I see as the real question which goes to the interests of justice and that is, the hearing of similar or identical issues by different judges.

31                  I do not have material before me which would indicate that Warren J is able and willing to hear these proceedings.  I propose to adjourn the matter to allow the parties, in particular the defendant to approach her Honour in order to ascertain her Honour's position and for that purpose I propose to adjourn the matter until Friday, 7 December, 2001 for mention.  I should add that in my view, subject to not wishing to overburden her Honour with unnecessary material, her Honour should be provided with a copy of these reasons for judgment, my reasons of 9 November, the originating process, statement of claim and amended defence, the written submissions of the parties on transfer, Mr Annetta's affidavit of 8 November and Mr Lonergan's expert report, being annexure "S" to Mr Annetta's affidavit of 8 November, so that her Honour may be in a position to appreciate my reasons of today.

32                  For those reasons, I propose not to make any orders today on the motion to transfer under s 1337 but rather stand the motion over and I order that the motion and the proceedings be stood over until 7 December with liberty to apply and two days' notice.  I also give the parties liberty to approach me, through my associate, in the meantime for any further order that might be required in disposing of this transfer application. 

Associate:

Dated:              26 November 2001