FEDERAL COURT OF AUSTRALIA
Tower Software Engineering Pty Limited; Pendant Software Pty
Limited v Harwood [2006] FCA 717
CORPORATIONS – interlocutory application to restrain defendant from taking any further step in a proceeding/application in the Takeovers Panel – interlocutory application for orders to dismiss or stay court proceeding – pre-emptive rights regime under company constitution – takeover offer – whether it is within discretion of directors to refuse to register acceptance of shares for reason that may prevent a higher bid – where application made to Takeovers Panel – whether same substratum of facts before Takeovers Panel and the Court – whether declaration by the Takeovers Panel would render proceeding in Court nugatory – role of the Takeovers Panel under the Corporations Act
Corporations Act 2001 (Cth): ss 657A, 659AA, 659B, 1071F
CSR Limited v Cigna Insurance Australia Ltd (1997) 189 CLR 345, considered
National Mutual Holdings Pty Limited v Sentry Corporation (1989) 22 FCR 209, considered
Sage v Australian Securities and Investments Commission [2005] FCA 1043, cited
Hammond v Commonwealth of Australia (1982) 152 CLR 188, considered
Glencore International AG v Takeovers Panel (2005) 220 ALR 495, applied
IN THE MATTER OF TOWER SOFTWARE ENGINEERING PTY LIMITED (ACN 008 602 739)
PENDANT SOFTWARE PTY LIMITED (ACN 117 040 525) v MARTIN HARWOOD & ORS
VID 496 of 2006
GOLDBERG J
6 JUNE 2006
MELBOURNE
|
IN THE FEDERAL COURT OF AUSTRALIA |
|
|
VICTORIA DISTRICT REGISTRY |
VID 496 OF 2006 |
IN THE MATTER OF TOWER SOFTWARE ENGINEERING PTY LIMITED (ACN 008 602 739)
|
BETWEEN: |
PENDANT SOFTWARE PTY LIMITED (ACN 117 040 525) PLAINTIFF
|
|
AND: |
MARTIN HARWOOD FIRST DEFENDANT
BEREND HOFF SECOND DEFENDANT
PETER JOHNSON THIRD DEFENDANT
WILLIAM SCHOFIELD FOURTH DEFENDANT
JAMES SERVICE FIFTH DEFENDANT |
|
GOLDBERG J |
|
|
DATE OF ORDER: |
6 JUNE 2006 |
|
WHERE MADE: |
MELBOURNE |
THE COURT ORDERS THAT:
1. The plaintiff’s interlocutory process filed 2 June 2006 be dismissed.
2. The plaintiff pay the second defendant’s costs of and incidental to the interlocutory process filed 2 June 2006.
3. The first, fourth and fifth defendants’ notice of motion filed 5 June 2006 be dismissed.
4. The costs of and incidental to the notice of motion filed 5 June 2006 be reserved for further consideration.
5. Paragraphs 1 to 5 (inclusive) of the orders made on 24 May 2006 be vacated.
6. The directions hearing be adjourned to a date to be fixed.
7. There be liberty to apply on 24 hours’ notice.
|
IN THE FEDERAL COURT OF AUSTRALIA |
|
|
VICTORIA DISTRICT REGISTRY |
VID 496 OF 2006 |
IN THE MATTER OF TOWER SOFTWARE ENGINEERING PTY LIMITED (ACN 008 602 739)
|
BETWEEN: |
PENDANT SOFTWARE PTY LIMITED (ACN 117 040 525) PLAINTIFF
|
|
AND: |
MARTIN HARWOOD FIRST DEFENDANT
BEREND HOFF SECOND DEFENDANT
PETER JOHNSON THIRD DEFENDANT
WILLIAM SCHOFIELD FOURTH DEFENDANT
JAMES SERVICE FIFTH DEFENDANT
|
|
JUDGE: |
GOLDBERG J |
|
DATE: |
6 JUNE 2006 |
|
PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
1 There are two interlocutory applications before the Court. An interlocutory application on behalf of the plaintiff, Pendant Software Pty Limited (“Pendant Software”) for an order that the second defendant, Mr Berend Hoff, be restrained from taking any further step directly or indirectly in a proceeding/application commenced by him in the Takeovers Panel pursuant to the application made by him dated 25 May 2006.
2 There is also a notice of motion filed on behalf of the first, fourth and fifth defendants, that the proceeding be dismissed generally, or as against them with no order as to costs and in the alternative, an order that the proceeding be stayed generally or against them, until further order.
3 The background to the applications is set against a takeover offer by Pendant Software for all of the shares in the capital of Tower Software Engineering Pty Limited (“Tower”). Tower has an issued capital of 31,176,500 shares held by approximately 124 shareholders. It carries on the business of the supply of software for document management in large organisations, primarily to government and large bureaucratic institutions. Pendant Properties Pty Limited, a company associated with Pendant Software, holds 9,521,000 shares in the capital of Tower representing approximately 30.54 per cent of its issued capital.
4 The second defendant, Mr Hoff, a director of Tower, owns 9,432,464 shares in the capital of Tower representing approximately 30.26 per cent of its issued capital. Tower’s Constitution has pre-emptive rights for existing shareholders which restrict the opportunity for shareholders to transfer shares in Tower without first offering them to existing shareholders. These pre-emptive rights are found in rule 120 of the Constitution of Tower. Rule 120.1 provides that:
“Subject to rule 120.8, no shares may be transferred to a person who is not a member so long as any member or members are willing to purchase them.”
Thereafter follow provisions to determine whether or not there are any such members who are willing to purchase any shares which a member wishes to transfer or offer for sale.
5 Rule 121 which is headed, “Registration of Transfers – Directors’ discretion”, provides that subject to rule 120.8 the directors may in their discretion refuse to register a transfer of shares from a member to a non member without assigning any reason for refusal. Rule 120.8 is not relevant for present purposes but it provides for the transfer of shares to family members or related entities of a member.
6 On 9 January 2006, Tower sent to shareholders a transfer notice received from a shareholder, Equity Partners One Pty Limited (“Equity Partners”), which was seeking to sell 4,500,000 shares in Tower for $1.45 per share. Tower’s notice to shareholders offered these shares to existing members in accordance with the pre-emptive rights provision contained in rule 120. No shareholders wanted to purchase any of the shares offered for sale by Equity Partners. On 2 February 2006, Tower notified Equity Partners of this fact and stated in a letter:
“I wish to formally confirm that pursuant to the Notice and subsequent offer for sale of shares held by Equity Partners One Pty Limited (EP) that TOWER Software Engineering, acting as agent on behalf of EP has not found any member or members willing to purchase any of the shares offered for sale by EP.
Accordingly, EP is at liberty, subject to rule 121 to sell or transfer the shares (or any of them) to any eligible person at a price not less than the price placed on the shares in the Notice at any time before 2nd May 2006.”
7 On 18 April 2006, Pendant Software announced a takeover offer for all the shares in Tower and served a bidder’s statement and offer on Tower on that date. The offer price was $1.45 per share. The takeover announcement and offer also noted that rule 120 of Tower’s Constitution applied. The conditions of the offer also included a condition numbered 10.8, headed “Registration of Transfers” which provided:
“This Offer and any contract that results from your acceptance of it are subject to the further condition that:
the directors of Tower Software agree to register all acceptances and transfers received by Pendant under the Offer no later than 10 days after acceptances become unconditional or 10 days from the end of the Offer Period (unless extended under the Corporations Act) whichever is the earlier. If this condition is not fulfilled, all contracts resulting from the acceptance of the Offer will be automatically void. This condition cannot be waived by Pendant.”
8 On 18 April 2006 the directors of Tower agreed, with Mr Hoff dissenting, to the following resolution:
“The Board resolved, Brand [sic] Hoff dissenting, to acknowledge receipt of the Bidder’s Statement and further resolved, without Bill Frost participating in the vote, to consent to the Bidder’s Statement being sent by Pendant Software Pty Ltd to all Company shareholders and option holders as soon as Pendant Software Pty Ltd chooses, noting that this may be earlier than otherwise provided in the Corporations Act. The majority of the Directors were of the opinion that it was in the interests of Tower Software to consent to early distribution so that shareholders, and staff in particular, were as fully informed as practicable. Mr Frost declared his interest as a Director and shareholder in the Bidder.”
On 20 April 2006, Pendant Software received an acceptance and transfer dated 19 April 2006 from Equity Partners in respect of its 4,500,000 shares. The acceptance and transfer form was signed by Pendant Software and dated 20 April 2006.
9 On 1 May 2006 Pendant Software declared its offer unconditional pursuant to s 650F of the Corporations Act 2001 (Cth) (“the Act”). It served a notice on Tower which stated:
“Pendant Software Pty Limited (Pendant) gives notice under Section 650F of the Corporations Act and Section 10.11 of Pendant’s Offer dated 18 April 2006 (Offer) made pursuant to the Bidder’s Statement dated 18th April 2006 (Bidder’s Statement) and Supplementary Statement dated 19 April 2006, in relation to its takeover bid for all of the issued ordinary shares and to any person who becomes registered or entitled to be registered as the holder of shares in Tower Software Engineering Pty Limited (Tower Software) that:
1. It declares each Offer and any contract resulting from acceptance of such Offer free from all the conditions set out in Section 10.7 of the Bidder’s Statement.
2. As at 9.00 am on the date of this Notice, Pendant has received acceptances under the Offer for 4,500,000 shares in Tower Software, being 14.43% of all shares in Tower Software on issue. Pendant therefore has voting power in these shares.
It is noted that while Pendant is not the registered holder of any shares in Tower Software that Pendant Properties Pty Ltd, which is associated with Pendant, holds 9,521,000 shares in Tower Software comprising a further 30.54% of Tower Software’s shares. Pendant also has or is deemed to have voting power in those shares.
Accordingly, as at 9.00 am on the date of this Notice, Pendant has voting power in a total of 14,021,000 Tower Software shares, being 44.97% of all Tower Software shares on issue.”
10 On 1 May 2006, Mr Frost, a director of Pendant Software, and also a director of Tower, wrote to the Chairman of Tower, Mr Service, in the following terms:
“A Section 650F Notice was given to Tower Software Engineering Pty Limited (Tower Software), effective today (copy attached). As Pendant Software Pty Ltd (Pendant) has a legally binding unconditional acceptance and transfer from Equity Partners One Pty Ltd (Equity Partners) for 4,500,000 shares (14.43%) I formally request a meeting of Tower Software directors to be held at the soonest possible date.
At that meeting I will request that the directors resolve to agree to register all acceptances and transfers received by Pendant under the Offer to acquire all the shares in Tower Software as per Condition 10.8 of the Bidder’s Statement.
Also Pendant will require a separate resolution agreeing to register the aforementioned transfer of 4,500,000 shares in Tower Software from Equity Partners.
I draw your attention to the 10 day time frame under Condition 10.8 of the Bidder’s Statement and request a meeting of directors be held in sufficient time to give Pendant Software (if the directors so resolve to register all the acceptances and transfers) 3 working days to have the Equity Partners transfers stamped under ACT law and then registered in Pendant Software’s name.”
11 A directors’ meeting was called for 4 May 2006. Prior to the meeting the Chairman of Tower, the fifth defendant, obtained a memorandum of advice from Tower’s solicitors, Mallesons Stephen Jaques. In this memorandum of advice the solicitors summarised the background to the takeover offer and the transfer from Equity Partners, gave advice in relation to the exercise of directors’ discretion and as to the legality of the agreement in relation to the transfer of Equity Partners’ shares to Pendant Software. In particular section 4.7 of the advice which was headed, “Can directors take a further possible bid into account?” stated:
“In exercising their discretion to refuse to register a transfer, the Directors must have regard to what they consider is in the best interests of the company. In our view, where registration of a transfer might prevent or discourage a new bid at a higher price and there is a real prospect of such a bid, that is a factor to which the Directors could properly have regard in exercising their discretion to refuse registration.”
A copy of that advice was given to Mr Frost who sought counsel’s advice in response to it and obtained that counsel’s advice on 2 May. Counsel’s advice joined issue with the advice of Mallesons Stephen Jaques and in substance argued that it was improper for the directors to take into account the possibility of another bid at a higher price as being a reason for justifying the refusal to register the shares. This particular matter was dealt with in paragraphs 41, 48 and 49 of counsel’s advice.
12 The directors’ meeting was held on 4 May 2006. The chairman tabled a letter from Quadrant Private Equity Pty Limited which stated that Quadrant submitted a confidential, non binding proposal on behalf of funds advised by it to acquire on a friendly basis Tower, and set out in summary the proposal with an indicative price of $1.55 per share. The proposal was noted to be incomplete, confidential and non binding.
13 Item 5 on the agenda before the Board was the transfer by Equity Partners to Pendant Software. According to Mr Frost he tabled the acceptance and transfer form executed by Equity Partners in respect of the 4,500,000 shares held by it and moved two resolutions. The first was that the directors of Tower agree to register the acceptance and transfer received by Pendant Software under its offer dated 18 April 2006 from Equity Partners. The second resolution was that the directors of Tower agree to register all acceptances and transfers received by Pendant Software under the offer no later than 10 days after acceptances became unconditional or 10 days from the end of the offer period, unless extended under the Act, whichever was the earlier.
14 According to the Chairman, Mr Service, and the company secretary, the resolution which was put was that the transfer tabled by Mr Frost in respect of 4,500,000 shares in the company from Equity Partners to Pendant Software, for a total consideration of $6,525,000 be registered. For present purposes nothing turns on the difference in the versions of the resolution which were put. In the events which occurred the resolution in relation to the transfer was put, and was defeated. Mr Frost abstained from voting. The second resolution was put and that was defeated as well and again Mr Frost abstained from voting.
15 What then occurred was that after discussion by the Board a further resolution was proposed in the following terms:
“The Directors of Tower agree to register all acceptances and transfers received by Pendant Software Pty Limited under the Offer, such registration to occur after the Offer Period, provided that:
1. The transfers:
· have been properly stamped;
· are signed by a member of Tower as transferor and Pendant Software as transferee;
· are in respect of shares in Tower of which the transferring member is registered as the holder; and
· relate to shares in respect of which rule 120 of Tower's Constitution either does not apply or has been satisfied;
2. to do so would not involve a breach of duty on the part of Directors and it is not otherwise unlawful; and
3. no higher offer is made for Tower Software Engineering Pty Limited's shares during the Offer Period (as extended under the Corporations Act).”
That resolution was passed.
16 Mr Frost in his capacity as a director of Pendant Software, was concerned that;
(a) this last resolution did not constitute a consent or approval to registration within s 1071F(1)(a) of the Act;
(b) condition 10.8 of the offer remained unsatisfied and would remain so on 12 May 2006 so that the offer automatically terminated on that date;
(c) the directors may have acted unlawfully in refusing to agree to register the transfer from Equity Partners.
17 As a result, the proceeding in this Court was instituted against the directors of Tower on 9 May with a claim for interlocutory relief. The relief sought in the initiating process was:
“1. A declaration that the second and third provisos set out in the resolution of the directors of the company passed on 4 May 2006 (as set out in the affidavit of Frederick John Frost affirmed in this proceeding on 9 May 2006) are void and of no effect and that the said resolution is and was from 4 May 2006 otherwise valid according to its terms and constitutes and constituted a consent or approval to registration within the meaning of s 1071F(1)(a) of the Corporations Act.
2. An order nunc pro tunc (with effect from 4 May 2006) under section 1071F(2) of the Corporations Act that the instrument of transfer dated 19 April 2006 between Equity Partners One Pty Limited as transferor and the Plaintiff as transferee in respect of 4,500,000 shares in the capital of the First Defendant be registered.
3. Further or alternatively, an order nunc pro tunc (with effect from 4 May 2006) under section 175 of the Corporations Act that the plaintiff be entered on the first defendant’s register of members as the holder of the shares referred to in Order 2 of these orders.”
18 The interlocutory relief was sought in the following terms:
“1. Subject to final hearing and determination of the proceeding or further order, an interlocutory order requiring the defendants (as the “relevant authority” as that term is defined in s 1071F of the Corporations Act), by no later than 5pm on 11 May 2006, to consent to or approve (subject only to payment of stamp duty) the registration of all instruments of transfer delivered to the company for registration by the plaintiff in respect of acceptances received by the plaintiff under the takeover offer made by the plaintiff for shares in the company dated 18 April 2006 including the instrument of transfer dated 19 April 2006 between Equity Partners One Pty Limited as transferor and the Plaintiff as transferee in respect of 4,500,000 shares in the capital of the company.
2. Further or alternatively and subject to final hearing and determination of the proceeding or further order, an interlocutory order requiring the defendants (as the “relevant authority” as that term is defined in s 1071F of the Corporations Act), by no later than 5 pm on 11 May 2006, to consent to or approve (subject only to payment of stamp duty) the registration of the instrument of transfer dated 19 April 2006 between Equity Partners One Pty Limited as transferor and the Plaintiff as transferee in respect of 4,500,000 shares in the capital of the company.
3. Further or alternatively and subject to final hearing and determination of the proceeding, a condition set out below or further order, that the instrument of transfer dated 19 April 2006 between Equity Partners One Pty Limited as transferor and the Plaintiff as transferee in respect of 4,500,000 shares in the capital of the company (subject only to payment of stamp duty) be registered by no later than 5pm on 11 May 2006 and that the plaintiff be entered on the first defendant’s register of members as the holder of said shares.
CONDITION
The plaintiff consenting to its removal from the first defendant’s register of members as the holder of said shares (and with effect as if the plaintiff had never been so registered) if the court discharges this injunction or determines, as a matter of final determination, that this order ought not to have been made.
4. Directions for an urgent trial as may be appropriate.”
19 The cause of action was based substantially on s 1071F of the Act which provides:
“(1) If a relevant authority in relation to a company:
(a) refuses or fails to register; or
(b) refuses or fails to give its consent or approval to the registration of;
a transfer or transmission of securities of the company, the transferee or transmittee may apply to the Court for an order under this section.
(2) If the Court is satisfied on the application that the refusal or failure was without just cause, the Court may:
(a) order that the transfer or transmission be registered; or
(b) make such other order as it thinks just and reasonable, including:
(i) in the case of a transfer or transmission of shares – an order providing for the purchase of the shares by a specified member of the company or by the company; and
(ii) in the case of a purchase by the company – an order providing for the reduction accordingly of the capital of the company.
(3) In this section:
relevant authority, in relation to a company, means:
(a) a person who has, 2 or more persons who together have, or a body that has, authority to register a transfer or transmission of securities of the company; or
(b) a person, 2 or more persons, or a body, whose consent or approval is required before a transfer or transmission of securities of the company is registered.”
20 The application for interlocutory relief was heard on 11 May 2006. It was opposed by the directors. It was argued, in substance, that the third proviso to the resolution of 4 May 2006 disclosed a refusal to register the shares for an improper purpose.
21 In the course of the hearing s 659B of the Act was raised in relation to the Court’s jurisdiction to hear the interlocutory application. Section 659B provides:
“(1) Only the following may commence court proceedings in relation to a takeover bid, or proposed takeover bid, before the end of the bid period:
(a) ASIC;
(b) a Minister of the Commonwealth;
(c) a Minister of a State or Territory in this jurisdiction;
(d) the holder of an office established by a law of:
(i) the Commonwealth; or
(ii) a State or Territory in this jurisdiction;
(e) a body corporate incorporated for a public purpose by a law of:
(i) the Commonwealth; or
(ii) a State or Territory in this jurisdiction;
to the extent to which it is exercising a power conferred by a law of the Commonwealth or a State or Territory in this jurisdiction.
(2) A court may stay:
(a) court proceedings in relation to a takeover bid or proposed takeover bid; or
(b) court proceedings that would have a significant effect on the progress of a takeover bid;
until the end of the bid period.
(3) In deciding whether to exercise its powers under subsection (2), the court is to have regard to:
(a) the purposes of this Chapter; and
(b) the availability of review by the Panel under Division 2.
(4) For the purposes of this section:
court proceedings in relation to a takeover bid or proposed takeover bid:
(a) means any proceedings before a court in relation to:
(i) an action taken or to be taken as part of, or for the purposes of, the bid or the target’s response to the bid; or
(ii) a document prepared or to be prepared, or a notice given or to be given, under this Chapter; and
(b) includes:
(i) proceedings to enforce an obligation imposed by this Chapter; or
(ii) proceedings for the review of a decision, or the exercise of a power or discretion, under this Chapter; or
(iii) proceedings for the review of a decision, or the exercise of a power or discretion, under Chapter 6C in relation to securities of the target of a takeover bid during the bid period; and
(iv) proceedings under Part 2F.1A for leave to bring, or to intervene in, proceedings referred to in paragraph (a) or subparagraph (b)(i), (ii) or (iii).
This is not limited to proceedings brought under this Chapter or this Act but includes proceedings under other Commonwealth and State or Territory laws (including the general law).
(5) Nothing in this section is intended to affect the jurisdiction of the High Court under section 75 of the Constitution.”
22 In the reasons I handed down on 11 May 2006 for granting the interlocutory relief, I found there was a serious question to be tried whether the relevant directors of Tower were under an obligation to agree to register the acceptances and transfers which were in issue in the proceeding and whether there may be a breach of duty in the steps taken already by the directors in relation to resolutions for the acceptance and consent to those transfers. I also found that the balance of convenience was in favour of the grant of interlocutory relief. In relation to s 659B I found that although it might be put that the action before the Court was taken for the purpose of the bid an issue of characterisation of the relief arose because the substantive and ultimate relief which the plaintiff was seeking was a remedy for refusal of ultimate registration and an acceptance for registration of the transfers under s 1071F of the Act. I held that s 659B was a general provision and s 1071 was a specific provision in relation to a specific remedy and I considered that there was a serious question to be tried as to whether the Court had jurisdiction in relation to granting interlocutory relief where the ultimate relief sought was in respect of relief under s 1071F of the Act.
23 I made a limited order on that day for the purpose of keeping the takeover offer alive having regard to the self executing nature of condition 10.8 of the offer. The order I made on that day subject to the usual undertaking as to damages which was given was in the following terms:
“1. Subject to the final hearing and determination of the proceeding, the conditions set out below or further order, the defendants/respondents (as the “relevant authority” as that term is defined in s 1071F of the Corporations Act 2001 (Cth) (“the Act”) by no later than midnight on 11 May 2006, consent to or approve (subject only to payment of stamp duty) the registration of all instruments of transfer delivered to Tower Software Engineering Pty Limited (“the company”) for registration by the plaintiff/applicant in respect of acceptances received by it under the takeover offer made by it for shares in the company dated 18 April 2006 including the instrument of transfer dated 19 April 2006 between Equity Partners One Pty Limited as transferor and the plaintiff/applicant as transferee in respect of 4,500,000 shares in the capital of the company.
2. The conditions referred to in par 1 of this order are as follows:
A This order shall be treated, as between the parties, as if never made if it is discharged or not continued at the final hearing and determination of this proceeding or by further order.
B This order shall be without prejudice to each of the defendants/respondents being at liberty to contend at any further hearing of this proceeding (including the final hearing and determination of this proceeding) that:
(i) this order ought not have been made
(ii) that they are not required to register acceptances and transfers received by the plaintiff/applicant under the Offer on the basis that:
(a) to do so would involve a breach of duty on their part and is otherwise lawful
(b) a higher offer is made for the company’s shares during the Offer Period (as extended under the Act).
C The plaintiff/applicant will not, by virtue of the making of this order, contend that the making of this order constitutes an admission by the defendants/respondents or any of them that they were not entitled to pass the resolution in the form of Resolution 3 (as referred to in par 61 of the affidavit of Frederick John Frost affirmed in this proceeding on 9 May 2006) or that such resolution did not constitute an agreement or consent for the purposes of s 1071F of the Act.
3. Liberty is reserved to all parties to apply on one day’s written notice to each other party.
4. Costs reserved.”
24 I then adjourned the further directions hearing in the matter to 22 May 2006 which was extended by consent to 24 May 2006. At the directions hearing on 24 May 2006 I was told that the resolution contemplated by my order of 11 May had been passed and that the only issue left in the proceeding was the issue of registration.
25 I was also informed that Mr Hoff, as a shareholder in Tower, was proposing to issue an application before the Takeovers Panel the next day and wanted to adjourn the further directions hearing for the time being. Pendant Software’s takeover offer was open until 18 July 2006.
26 The issue which was before the Court at this stage was put rather succinctly by Mr Glick S.C. for Pendant Software, in the following terms.
“The single point in our application is this, there being no attack on the offer or anything like that from the target. The single point is this. It is a single point. It is almost like a case stated. Is it within the discretion of the directors under these articles to refuse to register an acceptance of shares for the reason that registration of those shares may, may prevent, another person bidding a higher price for the shares? Now, I may not have put that elegantly but that is a single point. Is that a proper or improper purpose?”
In the course of argument, Mr Glick acknowledged that Mr Hoff had the opportunity to go to the Takeovers Panel and seek relief if he was so disposed. Directions were then given on the basis of a Panel hearing and determination probably occurring thereafter.
27 On the following day, 25 May 2006, Mr Hoff filed an application with the Takeovers Panel seeking declarations pursuant to s 657A of the Act of unacceptable circumstances in relation to Tower in respect of:
(a) the Board resolution of 18 April 2006;
(b) Pendant Software’s acceptance of the notice of acceptance and transfer by Equity Partners of its shares in Tower.
28 The parties to the application before the Takeovers Panel were Mr Hoff as the applicant, Pendant Software, Equity Partners and Tower. Mr Hoff sought a number of orders from the Takeovers Panel in the following terms:
“(a) the resolution of the Board of Directors of Tower on 18 April, 2006 [the terms of which were set out] be declared to be unacceptable circumstances.
(b) the distribution of the Bidder’s Statement to shareholders prior to 3 May, 2006 be declared to be unacceptable circumstances.
(c) the acceptance by Pendant Software of the Notice of Acceptance and Transfer dated 19 April, 2006 from Equity Partners be declared to be unacceptable circumstances.
(d) the acceptance by Pendant Software of the Notice of Acceptance and Transfer from Equity Partners dated 19 April, 2006 is void.
(e) no shareholder be able to accept the bid, or submit to Pendant Software in response to the bid a valid Notice of Acceptance and Transfer, prior to the date of the Panel’s determination, alternatively, prior to the date of the Target’s Statement (17 May, 2006).
(f) Pendant Software pay the costs of the Applicant of the proceedings before the Panel.”
29 On 29 May 2006 Pendant Software filed a submission with the Takeovers Panel submitting that it should decline to hear the application because the substantive disputes between the parties were already the subject of the proceeding in this Court. It should be noted that there were different parties in each proceeding. Although Mr Hoff was a party to both of them he was a party in a different capacity. As a defendant in this Court his capacity was that of director; in the Takeovers Panel application he was proceeding as a shareholder.
30 The validity of the Equity Partners acceptance and transfer is in issue in both proceedings. Pendant Software contends that the issues raised by Mr Hoff before the Panel substantially overlap issues raised in the Court. However, the Panel brief raises many issues which will not be before the Court. For example, there are the issues raised under the heading, “Disclosure” in paragraphs 10 and following of the annexure of issues for consideration annexed to the Panel brief. There are the issues under the heading, “Early dispatch of the bidder’s statement”, in paragraphs 23 and following. It is also fair to say that the Panel brief does raise one of the issues which is before the Court in paragraph 39 which asks, “How does the Applicant’s submission that Equity Partners’ acceptance ought to be declared void fit with the current Federal Court proceedings?”
31 On 2 June 2006 the Panel said it would abide any order of the Court. It is not a party to the interlocutory application to restrain the continuation of the proceeding before it. The restraint which is sought is against Mr Hoff.
32 There was a meeting of the Board of Tower on 1 June 2006 at which Mr Frost said he was not seeking registration of the transfer from Equity Partners. The Chairman said that he and the first and fourth defendants had no objection to the transfer being registered immediately on it being presented to Tower in registrable form. It is in those circumstances that the first, fourth and fifth defendants filed their motion to seek dismissal or stay of the proceeding as they contend that the point is now moot.
33 Pendant Software seeks in substance an anti-suit injunction against Mr Hoff. The principles of anti-suit injunctions are well established. Mr Ehrlich who appeared on the interlocutory application for Pendant Software referred to two well known authorities in this area. In CSR Limited v Cigna Insurance Australia Ltd (1997) 189 CLR 345, Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ, said at 391:
“The counterpart of a court’s power to prevent its processes being abused [by granting a stay] is its power to protect the integrity of those processes once set in motion. And in some cases, it is that counterpart power of protection that authorises the grant of anti-suit injunctions. Thus, for example, if “an estate is being administered ... or a petition in bankruptcy has been presented ... or winding up proceedings have been commenced ... an injunction [may be] granted to restrain a person from seeking, by foreign proceedings, to obtain the sole benefit of certain foreign assets”. Similarly, as Gummow J pointed out in National Mutual Holdings Pty Ltd v The Sentry Corporation, a court may grant an injunction to restrain a person from commencing or continuing foreign proceedings if they, the foreign proceedings, interfere with or have a tendency to interfere with proceedings pending in that court.
The inherent power to grant anti-suit injunctions is not confined to the examples just given. As with other aspects of that power, it is not to be restricted to defined and closed categories. Rather, it is to be exercised when the administration of justice so demands or, in the context of anti-suit injunctions, when necessary for the protection of the court’s own proceedings or processes.” (footnotes omitted)
34 In National Mutual Holdings Pty Limited v Sentry Corporation (1989) 22 FCR 209 Gummow J said at 232:
“In Australia, there is the further consideration that where a court has begun to exercise the judicial power of the Commonwealth in relation to a particular matter, it has the exclusive right to exercise or control the exercise of the functions which form part of that power or are incidental to it: cf Pioneer Concrete (Vic) Pty Ltd v Trade Practices Commission (1982) 152 CLR 460 at 471–3, 474.”
35 Mr Dixon, who appeared on behalf of Mr Hoff, submitted that a more appropriate approach was to consider the principles involved with potential commissions of contempt of Court in relation to an administrative proceeding which might impinge upon a Court proceeding. He referred to Sage v Australian Securities and Investments Commission [2005] FCA 1043, and to Hammond v Commonwealth of Australia (1982) 152 CLR 188, where Gibbs CJ, with whom Mason and Murphy JJ agreed, said at 196:
“The ground of the application for the injunction is that the further examination of the plaintiff, and the making of the report, would constitute a contempt of the County Court before which the criminal proceedings against the plaintiff are pending. To succeed in obtaining an injunction on that ground, the plaintiff must establish that there is a real risk, as opposed to a remote possibility, that justice will be interfered with if the Commission proceeds in accordance with its present intention. The tendency of the proposed actions to interfere with the course of justice must be a practical reality - a theoretical tendency is not enough. So much is recognized by the Builders Labourers’ Case.
The first question that arises is whether it would be an interference with the due administration of justice if the examination of the plaintiff were to proceed before the Commission. A witness appearing before the Commission is subject to the obligations imposed by s. 6 of the Royal Commissions Act 1902 (Cth) and s. 16 of the Evidence Act 1958 (Vict.).”
36 A particularly relevant question to ask is what is the matter which is before the Court? I consider that the matter is not the integrity of the takeover offer as a whole; that is a matter for the Panel. The primacy of the Panel’s jurisdiction in relation to takeover offers is found in ss 659AA and 659B of the Act. Section 659AA provides:
“The object of sections 659B and 659C is to make the Panel the main forum for resolving disputes about a takeover bid until the bid period has ended.”
37 It is important to note that the Panel does not adjudicate on disputed rights, nor does it exercise judicial power to resolve disputes. The distinction between the task of the Panel and the task of a Court such as the Federal Court, was clearly identified by Emmett J in Glencore International AG v Takeovers Panel (2005) 220 ALR 495, where his Honour said at [55] and [56]:
“The making of binding declarations of right, by way of adjudication of disputes about rights and obligations that arise from the operation of the law upon past events or conduct, is a classical instance of the exercise of judicial power. However, the declarations for which s 657A provides are not binding declarations of right, in the sense in which that term is used in the context of the exercise of judicial power. The adjudication made by the review panel in the present case was not an adjudication of a dispute about rights and obligations of the parties that had arisen from the operation of the law on past events or conduct. The object of the review panel’s declaration and orders was not to resolve a dispute about existing rights and obligations, by determining what those rights and obligations were, but to determine what legal rights and obligations should be created.
The orders made under s 657D created rights and obligations that, prior to the making of the orders, did not exist. In that sense, the decisions of the review panel did not involve any adjudication of a dispute about existing rights and obligations. In applying for a declaration and orders, Centennial was not seeking the vindication of any right or obligation. The declaration made by the review panel did not resolve any actual or potential controversy as to existing rights: see, generally, Precision Data Holdings Ltd v Wills (1991) 173 CLR 167 at 188-190; 104 ALR 317 at 325; 6 ACSR 269 at 277.”
38 Mr Ehrlich emphasised that the orders which Mr Hoff was seeking before the Panel included a declaration of the acceptance by Pendant Software of the notice of acceptance and transfer from Equity Partners dated 19 April 2006 to be unacceptable circumstances and that such acceptance be declared void. He submitted that if the Panel made a declaration that the transfer, which is the subject of this proceeding, was declared void then a declaration sought in this proceeding would be rendered nugatory. However, it is open to the Panel to make such a declaration for reasons unrelated to the reasons which might move the Court to grant the relief that is open to it in this proceeding.
39 The Panel, pursuant to s 657A of the Act, can declare circumstances in relation to the affairs of a company to be unacceptable circumstances. That opportunity or option is not available to the Federal Court. The Panel can make a declaration of unacceptable circumstances for a reason that it is not open to the Federal Court in respect of a matter on which the Federal Court cannot adjudicate upon. Although the directors reserve the right in this proceeding to allege that they are entitled to refuse registration of the transfer for just cause because of unlawful conduct on the part of Pendant Software the Federal Court cannot approach that matter on the basis of determining whether any conduct of Pendant Software constituted unacceptable circumstances as contemplated by s 657A of the Act.
40 The Federal Court does not have available to it the framework within which the Panel may declare circumstances to be unacceptable circumstances, although of course the Court can determine whether breaches of the Act have occurred. It may well be that the opportunity for the directors to argue that they were not obliged to agree or consent to registration of the transfer from Equity Partners to Pendant Software will raise for consideration whether there has been a breach of s 606 of the Act, so that for the purposes of s 1071F of the Act, the directors were entitled to refuse to give their consent or approval to the registration of the transfer.
41 As Mr Ehrlich put it, whether there was a breach of s 606 and a pre-bid understanding may well form part of the substratum of facts that go to the question whether the directors had just cause to refuse to agree or consent to registration of the transfer. Nevertheless the determination of whether such an issue gives rise to unacceptable circumstances is a matter committed to the Panel under the Act. There is a statutory scheme, the object of which is enshrined in s 659AA, namely that the Panel is the main forum for resolving disputes about takeover bids until the bid period has ended.
42 As counsel for Pendant Software acknowledged earlier, it is no part of Pendant Software’s application to this Court to exclude the operation of the Panel in relation to the takeover offer. What Pendant Software does seek is to challenge what it called a self-evident attempt to render nugatory the Federal Court proceeding and destroy the subject matter of it. However, if the Panel makes a declaration which has a consequential effect upon the transfer from Equity Partners to Pendant Software, it will do so not because it has assumed the role of the Federal Court, but rather for a reason, namely the existence of unacceptable circumstances, with which the Court cannot deal. That matter is committed to the Panel.
43 The Federal Court is not seized of the determination of all the issues raised by Mr Hoff before the Panel; it is seized of the issue whether the directors have acted in a way which invokes s 1071F of the Act. Although the Court has to determine whether the directors were, on 11 May 2006 and prior thereto on 4 May 2006, entitled to refuse to agree or consent to the registration of the transfer from Equity Partners, the Court is not set at large upon the sea of the takeover offer, although it can determine whether the directors had just cause to refuse to agree or consent to the registration of the transfer. If there be any unacceptable circumstances found in the lead up to an implementation of Pendant Software's takeover offer then it is for the Panel to tease those out and make declarations in relation to them. That is not a task committed to the Federal Court under the Act.
44 If there be such unacceptable circumstances found which the Panel determines have an effect or consequence upon the transfer from Equity Partners to Pendant Software then that decision or declaration is not impinging upon the jurisdictional turf of the Federal Court. It is a consequence of the Panel undertaking the task identified by Emmett J in par [56] of his judgment in Glencore (supra). It is not the Panel making a decision on, or a declaration in relation to, the issue of the obligation of the directors on 4 or 11 May 2006. The consequence of the Panel’s determination may be to remove the substratum of the basis for the registration of the transfer sought by Pendant Software, but that is not because of the Panel assuming the task of the Court or destroying the substratum of the matter before the Court. It is because there is a separate and independent basis for a challenge to the consequences of the carrying out and implementation of Pendant Software’s takeover offer.
45 Mr Ehrlich submitted that what was left alive by the interlocutory order I made on 11 May 2006 was the lawfulness of the directors’ conduct in relation to the transfer. Assuming for the moment that that submission is correct, it does not follow that the Panel cannot reach a conclusion in relation to the takeover which may equate with the unlawfulness of directors’ conduct. It will not be a finding of unlawful conduct such as a Court might make, rather it is as a result of a finding of unacceptable circumstances within a framework of the takeover offer and the Panel provisions of the Act.
46 Accordingly I am not disposed to restrain Mr Hoff from continuing with his application to the Panel. I am also not disposed to dismiss the proceeding as against the first, fourth and fifth defendants or stay the proceeding against them as sought in their motion. Their counsel in argument did not press for dismissal. Mr Hoff and the third defendant are not parties to that motion. The terms of my order on 11 May 2006 leave it open for them to argue that they did not have to agree or consent to the registration of the transfer. Whilst that reservation is still alive it is premature to deal with that motion. Although the first, fourth and fifth defendants are prepared to register the transfer they are not prepared, or it was not clear whether they were prepared, to consent to judgment. There is also the issue of costs and whether Pendant Software was entitled to commence the proceeding having regard to the qualified resolution on 4 May 2006.
47 Subject to anything counsel may say I would propose an order that each of the interlocutory applications or motions brought before me yesterday be dismissed.
|
I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. |
Associate:
Dated: 7 June 2006
|
Counsel for the plaintiff: |
P Ehrlich |
|
|
|
|
Solicitor for the plaintiff: |
Septimus Lee Jones |
|
|
|
|
Counsel for the 1st, 4th & 5th defendants: |
R Strong |
|
|
|
|
Solicitor for the 1st, 4th & 5th defendants: |
Mallesons Stephen Jaques |
|
|
|
|
Counsel for the 2nd defendant: |
J Dixon |
|
|
|
|
Solicitor for the 2nd defendant: |
Macpherson + Kelley |
|
|
|
|
Date of Hearing: |
5 June 2006 |
|
|
|
|
Date of Judgment: |
6 June 2006 |
