Applicants S194-2002, Ex parte Re RRT & Anor

[2002] HCATrans 441

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M44 of 2002

B e t w e e n -

EDENSOR NOMINEES PTY LTD

Applicant

and

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

First Respondent

YANDAL GOLD PTY LTD

Second Respondent

YANDAL GOLD HOLDINGS PTY LTD

Third Respondent

NORMANDY MINING LIMITED

Fourth Respondent

NORMANDY MINING FINANCE LTD

Fifth Respondent

NORMANDY CONSOLIDATED GOLD HOLDINGS LTD

Sixth Respondent

NORMANDY MINING HOLDINGS LTD

Seventh Respondent

Application for special leave to appeal

GAUDRON J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 SEPTEMBER 2002, AT 9.31 AM

Copyright in the High Court of Australia

__________________

MR C.L. PANNAN, QC:   If the Court pleases, I appear with my learned friend, MR D.W. BENNETT, on behalf of the applicant.  (instructed by Schetzer Brott & Appel)

MR S.D. RARES, SC:   If the Court pleases, I appear with my learned friend, MR R.D. STRONG on behalf of the first respondent.  (instructed by the Australian Securities & Investments Commission)

MR N.J. YOUNG, QC:   May it please the Court, I appear with my learned friend, MR R.J. HARRIS, for the second to seventh respondents.  (instructed by Freehills)

GAUDRON J:   Yes, and you appear in the same interests as the applicant?

MR YOUNG:   Yes, your Honour.

GAUDRON J:   We will hear you after the applicant.

MR YOUNG:   If your Honour pleases.

GAUDRON J:   Yes, Mr Pannam.

MR PANNAM:   If the Court pleases. Your Honours, what is sought is special leave to appeal the Full Federal Court’s dismissal of the applicant’s appeal to that court against paragraph 7 of the order made by Justice Merkel on 16 June 1999. That paragraph of the order appears at page 108 of the application book and, as the Court has no doubt seen, it is in somewhat unusual form and the point that is sought to be agitated if leave is granted is whether there was a proper legal platform for the making of that order contained in sections 737 and 739 of the then Corporations Law.

Immediately I will deal with the question as to why it is still a matter of general public importance although sections 737 and 739 are no longer in force. The reason is that precisely the same construction problem arises under the present Act because of the provisions of section 1325A, which is the companion provision to the old sections 737 and 739.

If I can develop the argument in general terms just briefly it is this; that under section 737 and section 739 there was an unresolved question in this Court as to whether those sections could support what, in effect, was a punitive order designed to disgorge a benefit that was obtained as a result of the provisions of the then section 615 of the Act.

GAUDRON J:   Well, was it left open?

MR PANNAM:   The majority in Samic did not deal with 737 because there was found to be no breach of 615, but held that section 739 did not justify the making of a punitive order. The minority, on the other hand, did not deal with 739. They dealt with 737 and said that there was power under section 737.

HAYNE J:   You are equating, are you, punitive orders and orders for disgorgement?

MR PANNAM:   Yes, orders for disgorgement – let us call them that and shy away from the language that I used, your Honour.

GAUDRON J:   Why do you call it punitive?

MR PANNAM:   Because it is not designed to compensate anybody on the facts of the particular case.  It is designed to disgorge a benefit obtained as a result of the breach.

GAUDRON J:   But now let us assume it were a breach of fiduciary duty and there was an order to account for profits.

MR PANNAM:   Yes.

GAUDRON J:   You would not call that punitive, would you?

MR PANNAM:   No.

GAUDRON J:   Well, what is the difference?

MR PANNAM:   The difference is this, if I may say so, your Honours. Under these sections, in sections 737 and 739, they have to be read in the context of the legislation which was then in force where there were specific compensation provisions in the Act and I refer to section 704(7), section 716(1), section 726(1) and section 1005(1). Now, they were specific provisions that took up other general powers that were conferred upon the court in other parts of the legislation.

HAYNE J:   But, therefore, 737 is doing something more when it speaks of giving the court power to make such order or orders as it thinks just.

MR PANNAM:   Yes, but we would say because of the specific nature of the powers conferred by those other four sections, there is taken out of the width of that power the sorts of orders that are contemplated by those other specific provisions, namely compensation orders.  Now, the same problem arises under section 1325 because it is in similar wide terms, but under the present Act, if I can refer just to four sections – section 670B, section 670E, section 671C and section 672F, they are specific provisions that deal with the specific power to make compensation orders or orders of that type.  Now, our argument would be that the existence of those four specific provisions in the Act, just as the other four specific provisions in the law, operate to qualify or restrict the otherwise wide powers that, on the face of ‑ ‑ ‑

GAUDRON J:   Well then, what would the power do?  What was said in Samic was an order that protects the interests of persons affected and ensures the policy of the law is implemented. What sort of order do you allow could be made under section 737(1)?

MR PANNAM:   Can I answer it in the negative?

HAYNE J:   No.

MR PANNAM:   That would depend on the infinite variety of circumstances associated with infringing conduct under particular takeover offers.  All we want to see ‑ ‑ ‑

GAUDRON J:   We are concerned with takeover offers, and we are concerned with infringing conduct.

MR PANNAM:   Yes.

GAUDRON J:   So presumably it is an order that somehow relates to the infringing conduct and made in the context of a takeover offer.  So what do you say could happen?

MR PANNAM:   But made, if I may add to that, for the benefit of persons who are not before the court, made in an amount which is entirely uncertain that depends upon events that were not known to the court at the time, namely the number of persons ‑ ‑ ‑

GAUDRON J:   That is a different argument, is it not?

MR PANNAM:   It is related.

GAUDRON J:   We wish to know what sort of orders you say could be made.

MR PANNAM:   Orders that might have the effect of – it is difficult to note in the abstract.

HAYNE J:   Is it not?

MR PANNAM:   Yes, it is, but the central submission we make on this first limb of the argument is that whatever orders they may be, there is taken out of the scope of the width of section 737 and section 739 the specific kind of compensatory orders that are specifically dealt with in other parts of the Act in those four other sections.

GAUDRON J:   And those are other sections which depend on claims being made by persons affected for compensation.

MR PANNAM:   Yes.

GAUDRON J:   Well, you have to go further than that.  You have to say claims made by the regulator.

MR PANNAM:   This kind of claim just made by the regulator, it is on behalf of the group of persons who are not before the court.

GAUDRON J:   Was it so expressed?  Was the claim so expressed?

MR PANNAM:   If one goes back to paragraph 7, the form of the order on its face shows who was going to take the benefit of it, namely they were ‑ ‑ ‑

HAYNE J:   Yes, but ASIC applied simply as the Commission, not as the Commission representing.  Is that not so?

MR PANNAM:   Yes, but the 28.5 million was earmarked to be dealt with in a particular way.

HAYNE J:   Yes, I understand that.

MR PANNAM:   Yes, to be allocated among a class of persons who were not then identified and was a capricious number because it depended upon how many people decided to take advantage of the other orders and to have their share sale set aside, so that it was not truly compensatory in any sense – and I know this goes to another part of the argument – it was not compensatory because it did not reflect the loss that was suffered by any particular shareholder at all, in our respectful submission.

HAYNE J:   But the premise for this branch of the argument is that the only relevant way of looking at it is to look at it as compensation for shareholders and that it is not relevant to look at it as requiring the contravener to disgorge the benefit the contravener obtained, which then is to be distributed in particular ways.

MR PANNAM:   That is the argument, yes.  Now, there is a second branch to the argument if I can just go away from the width of that, and the point of general public importance is that the same problem arises under the Act for the reasons I identified before, but if one then goes to the second part of the argument, the form of the order itself is, to say the least, quite curious.  It was succinctly summarised, the effect of it, by Justice Kirby in the Edensor Case when it was last before this Court at page 617 of the report where his Honour said this:

His Honour described order 7 as a “disgorgement order” which, he said, was “compensatory in that it operates to mitigate the detriment the shareholders suffered as a result of the contravening conduct”.  Thus order 7 was made for the benefit of persons who were not parties to the action; in respect of whom no representative action had been brought by ASIC –

because section 50 had been complied with –

or otherwise; and, by whom no damage had been pleaded, proved or quantified in the proceedings.

On any view, that was a quite extraordinary order, in our respectful submission.

GAUDRON J:   It depends on what is permitted by the Act, and why should not an order to account for profits, that being the kind of order with which the courts have been familiar for a long time, not be made really?  You may say it is extraordinary, but it is only extraordinary if you look at it in terms of damages.

MR PANNAM:   But that is the only way in which, in our respectful submission, it could be properly characterised.

GAUDRON J:   One can look at it through the eyes of an equity lawyer and get quite a different view is what I am putting to you.

MR PANNAM:   Well, I understand that, but, of course, the width of the equity principle is staggering whereas here, you have to confine it to the identification of the particular power that the court is exercising.

HAYNE J:   Cast in the most general terms.

MR PANNAM:   Yes, well cast in the most general terms, but in a context where compensatory orders of this kind are dealt with in other parts of the legislation, and the argument simply is why bother to have, in those other specific sections, a specific direction of the court to have a power to award a compensation if this wide argument is correct.  They are just simply superfluous.  That is the argument.

GAUDRON J:   Well, you see, the argument is flawed, is it not, Mr Pannam?  One does not imagine that ASIC intervenes in every case.

MR PANNAM:   Could I go to the second part of the argument, because the order is predicated upon there actually being a benefit that should have been disgorged.  The second feature, in our respectful submission, that would warrant the grant of special leave is to challenge that assumption on the special circumstances of this case because neither the primary judge, Justice Merkel, nor the Full Federal Court really analysed the terms of the shareholder’s agreement to ascertain whether or not one reads the judgment in vain, define any foundation in that agreement for the central part of the valuation exercise, namely that Edensor’s liability, if it did not meet its refinancing obligations under the facility, was limited to 90 per cent of the value of the shares that it then held.

Now, that was the fundamental premise.  Now, nowhere does it appear in the judgments that there was any analysis, any reasoned analysis of the operation of the terms of the agreement to produce that result and, indeed ‑ ‑ ‑

HAYNE J:   Why is that a special leave point?  Is not that a point driven wholly and solely by the unique terms of the agreement?  Is there some wider aspect to it?

MR PANNAM:   No, this is a miscarriage of justice point only.

HAYNE J:   Yes.

MR PANNAM:   And it is this, that the fundamental basis upon which the valuation proceeded was never really the subject of any analysis by the court.  There was simply an acceptance of the valuer’s assumption that there was a limitation of liability in Edensor to 90 per cent of the value of the shares.  Now, in our respectful submission, that was not correct and a moment’s reading of the agreement will demonstrate that that is so.  If I could spend just a few moment’s of the Court’s time in taking the Court ‑ ‑ ‑

HAYNE J:   Now, is it right to focus only on the writing in that we have these understandings hovering, do we not, in the background as well?

MR PANNAM:   Yes, but there was no particular finding of an understanding that was relative to this question.  There was no finding to that effect and there was no analysis of the agreements to justify the starting point of the valuation exercise.  There was simply an acceptance by Justice Merkel of the valuer’s approach without really any consideration being given, in our respectful submission, to the analysis of the document that was in question and that approach was just followed in the Full Federal Court.  Now, the point was argued, but one does not find it being resolved by recent argument either in the court below or by the primary judge.

HAYNE J:   Leave aside whether this appears in the reasoning in the courts below, was the effect of the agreement and arrangements made between the parties that there was an acquisition of what percentage of shares in the target?

MR PANNAM:   There was to be 90 per cent.

HAYNE J:   That was the aim, but this gave them interests in each other’s holdings and moved them to 40 per cent, did it not, round about?

MR PANNAM:   Yes, just over 40 per cent.

HAYNE J:   Effectively control.

MR PANNAM:   Yes.

HAYNE J:   It was effectively control?

MR PANNAM:   I think, yes.

HAYNE J:   And, at the broadest of broad brush, what happened was that control of the company passed without a control premium going to the shareholders, is it not?

MR PANNAM:   Yes, that is a reasonable analysis.

HAYNE J:   And that is worth something to the parties who made the agreement, which is a contravention and it is a question of valuation.

MR PANNAM:   It is a question of what you are valuing and what was valued at 28.5 million, a very substantial sum of money, was ‑ ‑ ‑

HAYNE J:   Control of the company was then thought to be worth a lot.

MR PANNAM:   Courts do not exist to make capricious judgments as to what might be in the abstract a fair and reasonable sum to be paid to some fluctuating uncertain group of persons at all.

GAUDRON J:   No, but this part of your argument has to proceed, has it not, on a value of the benefit.

MR PANNAM:   Yes, and the identified – I am sorry, your Honour.

GAUDRON J:   And not what goes to the shareholders.

MR PANNAM:   That is right, and the submission is that there was simply assumed to be the existence of a particular benefit, namely a non‑recourse facility operating in Edensor’s favour that made it not liable in respect of the refinancing of the facility that was used to finance the takeover offer and it is that which we challenge because, in our respectful submission, our client was not given the benefit of any reasoned rejection of the argument that the agreement did not so operate.

GAUDRON J:   But that does not exhaust what might have been taken into account in the valuation of the benefit, does it?

MR PANNAM:   But that is the only thing that was valued, that was the subject of the valuer’s evidence that was accepted by the court.  Anyhow, that is the point.  The point is that the 28.5 million valued something.  The something that it valued, in our respectful submission, did not exist because a proper analysis of the agreement showed that this was not an honorary course situation, that there was a continuing liability in Edensor under the terms of the agreement.  There was no finding that there was a nod and a wink saying, “Despite what is in the agreement, we won’t do anything about it”.  There was no finding to that effect.  That was not the argument.  That was not the way in which the courts approached it.  Now, your Honours, that is the second point.

The third point is another miscarriage of justice point and it is this and I can put it briefly.  It is a causation question.  There could have been a joint bid lawfully made.  There was not.  The market was not aware of the contravening conduct so found by both the primary judge and the Full Court.  In those circumstances, there is a causation question that arises, namely that the contravening conduct did not cause Edensor or Normandy to obtain any advantage at all, in our respectful submission.

HAYNE J:   Sorry, put it again.  You lost me.

MR PANNAM:   Let me put it this way.  There could have been a joint bid lawfully made.  There is no question about that.

HAYNE J:   Yes.

MR PANNAM:   The contravening conduct was only discovered afterwards.  It was contravening conduct that had no effect upon the market in the sense that the market was not aware of it in any respect; the bid presented, on the face of it, as a joint bid.  In those circumstances, the advantage to both Normandy and Edensor came from the acceptance of the bid in the marketplace and not as a result of its contravening conduct. 

Well, your Honours, they are the three points that are relied on to support the grant of special leave limited to testing both of the legal power of the court to act under sections 737 and 739 to make the order and secondly, the terms of the order itself, and we would say a quite extraordinary order, and thirdly, the fact that there was never tested the fundamental premise upon which the measurement of the benefit depended, namely this non‑recourse aspect of the transaction. If the Court pleases.

GAUDRON J:   Yes, thank you, Mr Pannam.  Yes, Mr Young.

MR YOUNG:   May it please the Court, we support the application for special leave.  I will confine my submissions to the first point, namely the submission that the order is beyond power when the sections are properly construed.

Can I start by drawing attention to some aspects of the findings, both before the trial judge and Full Court? First, the only contravention in question was a deemed acquisition of a relevant interest in GCM shares held prior to the takeover, that is to say the 40 per cent held cumulatively pre‑takeover by Normandy and Edensor interests. The shares acquired under the takeover were not acquired in contravention of section 615. That is referable to the opening words of section 737 which makes that a precondition to the operation of the section.

We accept the challenge to demonstrate that these orders, the payment order, was truly characterised as a punitive order beyond power and we draw attention to these findings.  First, Justice Merkel declined to make any finding that the bid price of $1.50 per share was less than a full and fair price:  Justice Merkel at paragraph 125 and the Full Court at paragraph 19.

Secondly, the Full Court explicitly found that there was no “control premium” missing from the bid price of $1.50.  That is to the contrary of the question your Honour Justice Hayne asked.  The Full Court made that explicit finding at paragraph 56, page 167 of the application book, about the first five or six lines, particularly the second line:

The amount of $28.5 million, the subject of the disgorgement offer, is not an assessment of any “control premium” element which should have been included in the fair price for shares in Great Central.

Next, Justice Merkel found that absent Edensor’s…..there may have been no bid.  Now, that is a critical part.

GAUDRON J:   There may have been.  I would not have found that was a critical finding at all.  I mean, if he had found it on the balance of probabilities, that would be one thing, but what is the relevance of a “may not have been”.

MR YOUNG:   His Honour never addressed the possibility or probability, remote, likely or speculative of any bid at a different price.  His Honour simply made no findings in that regard of any kind at all.

GAUDRON J:   But why would such a finding be necessary?

MR YOUNG:   Because that is a critical part of his reasoning process of concluding that there was some deprivation of an opportunity of getting a higher bid.  I will explain, if I may ‑ ‑ ‑

GAUDRON J:   What difference does that make overall to the orders, to order 7?  You see, it depends how you characterise it.  If you start from the assumption that it is compensatory or that it should be compensatory, you get one view and that seems to me to be the assumption underlying your submissions.

MR YOUNG:   His Honour Justice Merkel described the order as compensatory or remedial, but a critical part of that characterisation is the proposition that there was some deprivation of an opportunity of a significantly higher bid, but there was no deprivation of any such opportunity.

GAUDRON J:   Why not simply the deprivation of the opportunity to keep the shares which may have increased over time, the value of which may have increased?

MR YOUNG:   Other orders gave the shareholders back their shares so they got that opportunity restored in that regard.  The opportunity of a higher bid in future was fully restored by the avoidance orders.  Can I continue, your Honour, because it really is quite important the order is seen in the context of the findings that were made.

Next Justice Merkel found that any detriment to shareholders could not be “satisfactorily measured or valued” and he made no attempt to value that supposed detriment to shareholders.  That is page 96, paragraph 161.  Next, Justice Merkel found that the gold price and the GCM share price both fell steeply after the takeover offer.

Now, for that reason, his Honour said that it was inappropriate and unjust to make orders for the disposal of shares acquired by the offeror under the takeover offer because that would simply result in wasted costs, legal and brokerage fees and the like, and the reacquisition of the shares by the respondents at a price lower than $1.50.  However, it is noteworthy that his Honour went on to make the orders he described as unjust and inappropriate as a self‑executing way of enforcing the payment order for the $28.5 million. 

Next, Justice Merkel held that the avoidance order, of and by itself, was sufficient to:

deprive the contravening respondents of the fruits of their contravention –

That is paragraph 154, at page 94, and we observe that if that order of and by itself was also sufficient to restore to shareholders the opportunity of getting bids in future, better prices or in competition with other offerors.  Now, the question is, having made all those findings, what characterisation is appropriate for this order?  Can I then turn to ‑ ‑ ‑

HAYNE J:   The first step then is to identify the acquisition that is contravening.

MR YOUNG:   Yes.

HAYNE J:   The acquisition that is contravening is the acquisition by the entry of the shareholder agreement and associated arrangements.

MR YOUNG:   The acquisition of deemed relevant interest which is contingent on the fact that they used a single corporate vehicle to propound bid.

HAYNE J:   And the benefit assessed as flowing from that acquisition was the subject of Mr Lonergan’s evidence, was it not?

MR YOUNG:   No.

HAYNE J:   Why not?  I am looking at page 96, paragraph 162.

MR YOUNG:   I think I am only quibbling with your Honour’s language.  I think your Honour said the benefit resulting from that contravention.  The financing benefit was part of the shareholder’s agreement which, itself, was the contravening conduct.

HAYNE J:   Yes.

MR YOUNG:   That is the only point that we make.  It cannot be said that the acquisition of the deemed relevant interest then in future produced some financial benefit.

HAYNE J:   I understand that, but Mr Lonergan’s evidence is directed to valuing the benefit obtained as a result of the contravening conduct, is it not?

MR YOUNG:   Well, your Honour, yes, so long as it is accepted that the benefit was the financing benefit that was integral to the shareholder’s agreement which was, itself, that which gave rise to the contravening conduct, rather than following it.

HAYNE J:   Yes, I understand that.  Now, what then is the error that you assign to that process?

MR YOUNG:   Having made all the findings that I have reviewed, your Honour, one of those critical findings is that there was no lack of a control premium in the price that was paid and there was no contravention in acquiring shares under the takeover offer, no separate contravention.  That was an authorised acquisition under section 616.

What his Honour Justice Merkel did was to say the financing benefit has been valued at $28.5 million.  It is just that that be diverted or redirected to shareholders receiving offers and electing to remain acceptors rather than avoid under the takeover offer and he did that in circumstances, your Honour, where he made no attempt to value any detriment to shareholders under the takeover offer.  He expressly said, “I’m not going to do it, and I can’t do it.  I’m simply going to take the $28.5 million and redirect it”.  He said that at page 95, 157 to 158.  The premise appears in the previous paragraph, 157, part‑way through:

As a consequence of the payment of that “price” –

that is the financing benefit –

the shareholders were deprived of the opportunity of receiving an offer of a significantly higher price at –

that time, but there is no factual finding that a higher price was ever contemplated, was ever likely, was ever more than a theoretical possibility.  In the next paragraph, 158, this redirection occurs:

Is it just that that “price” be redirected to those who suffered the detriment arising from its payment?

His findings were they suffered no detriment arising from its payment.  The only supposed detriment was being deprived of an opportunity of receiving a significantly higher price and the view expressed was that it was just that it be redirected.  In circumstances where that opportunity itself was never valued that is a chance and the law would say, “You’ve lost a chance to value the chance”, discounting ‑ ‑ ‑

GAUDRON J:   Again, that proceeds on the basis that it is intended to be compensatory.

MR YOUNG:   No, your Honour.  His Honour has said he is redirecting it because he equates benefit to Edensor somehow with detriment suffered by shareholders.  It is that equation, your Honour, which is fallacious.

GAUDRON J:   I do not think he equates.  I do not think there is an equation in his Honour’s reasoning.  He says shareholders suffered a particular detriment, that is lost an opportunity.  Edensor got a benefit, which has been valued.

MR YOUNG:   Yes.

GAUDRON J:   And he is treating them as you would treat people to whom a fiduciary obligation was owed.

MR YOUNG:   Your Honour, can I direct your Honour to pages 95 and 96, paragraph 160:

The disgorgement order:

·          will enable the other shareholders to participate in the –

that is the financing benefit –

·is compensatory in that it operates to mitigate the detriment . . . 

·will deprive Edensor of the value of the benefit it received as consideration for entering into the contravening “agreements”.

In 161 his Honour says, about four or five lines in:

ensuring appropriate compensation for that detriment which cannot otherwise be satisfactorily measured or valued.

His Honour simply has assumed, without any valuation process, that he will translate $28.5 million over here to over there in the absence of any evidence or findings that there was any real detriment of any kind suffered by the shareholders.

HAYNE J:   Would your point be good if his Honour’s reasons were to be read as saying, “There was some detriment of an amount I cannot estimate.  I know there was benefit in an amount which has been estimated.  I will order disgorgement of the benefit which has been estimated and distribution to those who have suffered a detriment, whether it is greater, lesser or not is not to the point.”?

MR YOUNG:   No, your Honour.  Our point goes more deeply than that.  It goes to the very foundation for saying that there is a detriment of any kind.  Can I take the Court to page 85, at about line 8:

Thirdly, the substantive issue is whether, by reason of the respondents’ contraventions of the Corporations Law, the shareholders in Great Central Mines have suffered a detriment of a kind which ought to give rise to relief.  In the present case a reasonably reliable and accurate answer to that question is to be found in Normandy’s Board papers . . . rather than in the Court seeking to independently ascertain a fair price for the shares at the time the bid was made.

His Honour then turns to the board papers.  He emphasises one passage that says:

than an offer that did not have Edensor’s support would be less likely to achieve success or would require a significantly higher price.”

Now, that is the extent of his Honour’s investigation; no factual inquiry as to whether Normandy ever contemplated or would contemplate a higher price, no examination of whether a higher price was likely.

It is interesting that when his Honour then turns to saying there is a detriment on the next page, page 86, paragraph 131, his Honour repeatedly uses a particular formula about the board papers.  In the third line:

at a significantly lower price than would have had to be paid at that time had a bid proceeded . . . I am satisfied that those benefits resulted in a significant detriment to shareholders who were effectively and permanently deprived of the opportunity of a higher bid price on that or, a later occasion, and in a practical sense were left with little choice but to accept the bid on the terms offered.  Whilst I accept that without the contraventions there may have been no bid in February 1999, the then likelihood was a bid by Normandy on that, or a later occasion, which would have had to be at a “significantly” higher price if Normandy was to proceed –

It is a theoretical proposition extracted from the board papers, not a factual finding.  It is simply the hypothesis that if a bid were to proceed it would have had to have been at a higher price than the 150.  Now, that is the only factual finding his Honour made about detriment.  It says there was no examination of how real, likely, remote or truly speculative the idea was that an opportunity was lost of any value and in any event the balance of the orders did the work his Honour was concerned about.  Avoidance deprived the contraveners of the fruits ‑ the shares ‑ and gave the shares back to shareholders.

GAUDRON J:   There were other opportunities lost in the interim, Mr Young?  I mean, if you turn back the clock, people might have sold, even without a takeover bid at a higher price.  You see, in truth, one cannot really effectively value shares in a context in which these events have happened.  All you can see is people were deprived of opportunities.

MR YOUNG:   But does that mean, your Honour, that without examining the value of those opportunities you say, “You over there pay $30 million to compensate these people”.

GAUDRON J:   It depends on the nature of the order.  His Honour did not say pay compensation.  He said it would have a compensatory effect.

MR YOUNG:   Yes, your Honour, but that only reinforces our point.  The effect of the disgorgement order is to punish ‑ ‑ ‑

GAUDRON J:   It was one of three effects, one of three effects.

MR YOUNG:   Well, two of them were punitive and one was said to be mitigating an area requiring compensation.  So it was not truly compensatory in any sense of the word and the other aspects were punitive.  Nothing in Samic would say that these sections go so far as to authorise such an order and it is demonstrable, really, in the fact that, at the end of the day, his Honour tried to enforce this order by a set of self‑executing orders which he found were inappropriate if they were to stand alone.

I draw attention also to the Full Court’s reasoning at page 163 paragraph 51.  Now, an argument was put to them that the Full Court never really dealt with.  At paragraph 51 the idea of detriment was challenged:

That contention is based upon the assertions that “there was no third party bidder and no finding that Normandy was likely to have bid higher for the other shares”, and that the takeover could have been made lawfully at $1.50 per share.

With all respect to their Honours, they never came to grips with that argument at all.  In what follows they do not address the fact that what his Honour identified, Justice Merkel, were theoretical matters founded entirely upon a board paper with no relevant findings of fact to support the orders.

It is apparent that their Honours and the Full Court simply made the false assumption that his Honour had made findings of fact, rather than

theoretical observations about what would have to have been the case logically.  That is apparent at page 162, the previous page, paragraph 48:

his Honour found that the payment of that “price” deprived the Great Central shareholders of the opportunity of receiving an offer at a significantly higher price.

Well, his Honour did not make any such finding.  His finding was a higher price that would have had to be paid if a bid were to be made as a matter of logic.  So, in our respectful submission, the attempt to identify the detriment and to say that because there is a detriment, this money can be redirected to shareholders who got a full and fair price really demonstrates that the order went beyond the proper bounds of the sections.

If the Court pleases, those are our submissions.

GAUDRON J:   Yes, thank you.  Yes, Mr Rares.

MR RARES:   If your Honours please.  If your Honours could go to page 163 where the Full Court set out the passage from the majority in Samic.  That passage makes it abundantly clear that what his Honour did and what the Full Court upheld was to:

deprive the offeror of any advantage which it would not have obtained had it complied with the Law.”

That was why this idea of this being a punitive order is just nonsense, in our submission.  The case was conducted on the basis at the trial and Mr Richards was cross‑examined on these board papers that my learned friend took your Honours to at page 85 where Normandy had set this deal up with Edensor, needing Edensor’s support to run a bid that it could not have made succeed without that support and the way it bought that support was to carry, in a commercial sense, Edensor through the whole transaction and by the time the chase facility, which Normandy had completely organised and made itself liable for, was to be paid out in three years time, Edensor got a benefit, in a commercial sense, valued by Mr Lonergan, of this $28.5 million.

What his Honour did was to go through the evidence on which, I can assure your Honours, there was cross‑examination of Mr Richards in some detail, and his Honour found as a fact that all these witnesses, including the merchant banker from Schroeders called by the respondents, Mr Lonergan and Mr Richards agreed this kind of deal was unprecedented.  They had never heard of a deal as good as this for somebody who was making a bid and so, when his Honour quoted from the board paper my learned friend took your Honours to that it was clear that an offer that did not have

Edensor’s support would be less likely to achieve success or that it would require a significantly higher price, that was not a theoretical possibility, that was the assessment by Normandy’s board in determining that it would go forward with this bid.  If it did not get Edensor’s support it could not fund the bid.

So the market was deprived of a fully informed position of being told exactly what Edensor got.  It was deprived of a bid that would have been conducted in accordance with the law that would have required Normandy, in order to make sure Edensor supported it, guarantee Edensor did not sell into the bid, not by an agreement, arrangement or understanding in contravention of the law, but by making sure, lawfully, that it did not do it and the way it had to do that was to pay Edensor some extra money.

That would have increased, presumably, the bid price, but that did not happen so his Honour was not able to value it on that basis.  What he had to do was to do what this Court had said in Samic, namely deprive the contravener of the benefits of the contravention and the contravener was Edensor and his Honour saw that as being a means of achieving the purpose that the Court had said.

GAUDRON J:   Yes.  We do not need to trouble you further, Mr Rares.  Yes, anything in reply, Mr Pannam.

MR PANNAM:    No.

GAUDRON J:   Mr Young?

MR YOUNG:   No, your Honour.

GAUDRON J:   Yes, thank you.

The proposed appeal seeks to raise, amongst other issues, questions as to the construction and effect of an agreement between the applicant and other entities who are respondents to this application with respect to a takeover offer to be made by Yandal Gold Pty Ltd.  The answers to those questions turn on the particular facts of the case and raise no question of general principle that might appropriately attract the grant of special leave.

The applicant’s primary contention is that, as a matter of statutory construction, section 737(1) of the Corporations Law did not authorise an award of compensation or a punitive order and that order 7 of the orders made at first instance and upheld by the Full Federal Court is to be characterised in one or other of those ways.  Order 7 is not to be so characterised.

The order is more aptly described as an order to account for the benefits resulting to the applicant from the agreement with respect to the takeover bid, which order, in terms used in Metal Exploration Limited v Samic Ltd (1994) 181 CLR 109, both protects the interests of persons affected and assures that the policy of the law is implemented.

On this primary point, the proposed appeal does not enjoy sufficient prospects of success to justify the grant of special leave.

The applicant raises a number of subsidiary issues with respect to order 7 including that the ultimate beneficiaries were not parties to the action; that some who will benefit bought their shares after the announcement of the takeover offer.  Further, the applicant complains of the failure of the primary judge and the Full Court to consider the interrelationship between order 7 and order 4 which allows for shareholders who accepted the takeover offer to buy back their shares at the takeover price.

The effect of order 4, it is said in the written submissions, is that at least in theory the ultimate beneficiaries of order 7 may be few in number and the amount that they may ultimately receive may be far in excess of the value of any detriment suffered.

So far as concerns the last point, the practicalities would indicate that that result is entirely theoretical.  More fundamentally, however, the subsidiary arguments with respect to order 7 proceed on the assumption that it is an award of compensation, an assumption which as previously indicated cannot properly be made.

For these reasons, special leave is refused with costs.

AT 10.18 AM THE MATTER WAS CONCLUDED