Australian Competition and Consumer Commission v News Corporation Ltd
[1997] FCA 1175
•31 OCTOBER 1997
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 851 of 1997
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
THE NEWS CORPORATION LIMITED
FIRST RESPONDENTTELSTRA CORPORATION LIMITED
SECOND RESPONDENTAUSTRALIS MEDIA LIMITED
THIRD RESPONDENTJUDGE(S):
HILL J
DATE OF ORDER:
31 OCTOBER 1997
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
The affidavits and those parts of the affidavits referred to in the schedule attached and marked “A” (“affidavits confidential to solicitors”) be disclosed by Patricia Henry, Roger Featherston, Ian Pike, Yoland Chora and Rebecca Irwin (“Solicitors for Telstra”) only to the solicitors for the respondents who have signed confidentiality undertakings and to counsel for the respondents (“respondents’ solicitors and counsel”).
The affidavits and those parts of the affidavits referred to in the schedule attached and marked “B” (“confidential affidavits”) be disclosed by the Solicitors for Telstra only to
(a)Bruce Akhurst, General Counsel, Telstra Corporation Limited;
(b)Moya Dodd, General Counsel, Telstra Multimedia Pty Limited;
(c)any other person approved in writing by the solicitor for the applicant and, if necessary, the solicitors for the respondents;
(collectively (“Telstra Representatives”)) and upon the Telstra Representatives signing a confidentiality undertaking in the form or a form substantially similar to the undertaking attached and marked “D”; and
(d)the respondents’ solicitors and counsel.
The Solicitors for Telstra and Telstra Representatives be entitled to disclose the affidavits and/or parts of the affidavits referred to in the schedule attached and marked “C” (“non-confidential affidavits”), being the affidavits that have not yet been read in these proceedings and are not subject to confidentiality orders, to the Australian Due Diligence Committee and the Due Diligence Oversight Committee for the Telstra Corporation Limited Share Sale.
Second respondent to pay 50% of the costs of Optus Communications Pty Ltd and any other Optus company for which Mr R V Gyles QC and Mr D M Yates SC act.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
SCHEDULE “A”
Affidavits confidential to solicitors
Affidavit of Gregory Lawrence Smith sworn 14 October 1997.
Affidavit of Peter George sworn 14 October 1997.
Affidavit of Paul Edward Jennings sworn 14 October 1997.
Affidavit of Gregory Paul Haustorfer sworn 14 October 1997.
Paragraphs 5 to 7, 9 to 14 and annexure A of the affidavit of Christopher John Anderson sworn 16 October 1997.
The percentage figures in paragraphs 25 and 46 and the exhibit PHD-1, PHD-2 and PHD-3 of the affidavit of Peter David Howell-Davies sworn 16 October 1997.
SCHEDULE “B”
Confidential affidavits
Paragraph 25 (with the percentage figure in sub-paragraph (b) masked), paragraph 26 and paragraph 46 (with the percentage figure in the second last line masked) of the affidavit of Peter David Howell-Davies sworn 16 October 1997.
Paragraphs 7 to 13 and annexure A of the affidavit of Robert Nicholls - The Business Model Affidavit sworn 16 October 1997.
Exhibit A of the affidavit of William Robert Spain sworn 17 October 1997.
Paragraph 27 and exhibits WTC-2 and WTC-18 of the affidavit of William Terrence Cassells sworn 20 October 1997.
SCHEDULE “C”
Non-confidential affidavits
Affidavit of Ronald John Cameron sworn 13 October 1997.
Affidavit of Ian Norman sworn 16 October 1997.
Affidavit of Robert Nicholls sworn 16 October 1997.
Affidavit of Luke Alexander Carruthers sworn 13 October 1997.
Affidavit of Brian Randall Perkins sworn 13 October 1997.
SCHEDULE “D”
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 851 of 1997
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
THE NEWS CORPORATION LIMITED
FIRST RESPONDENTTELSTRA CORPORATION LIMITED
SECOND RESPONDENTAUSTRALIS MEDIA LIMITED
THIRD RESPONDENT
CONFIDENTIALITY UNDERTAKING
I, , of
in the State of New South Wales, undertake to the Court in relation to the affidavits and portions of affidavits referred to in the Schedule of this undertaking (the “affidavits”) in these proceedings (the “proceedings”), and in relation to the contents of the affidavits (“information”) that:
I will keep the affidavits and the information confidential at all times.
I will not use the affidavits or the information or any part of either of them, for any purpose other than the purpose of the conduct of the proceedings.
Subject to 4 below, the affidavits and the information and any part of either of them will not, without the prior written consent of the applicant or unless:
(a)such disclosure is expressly authorised by the Court; or
(b)such part of the affidavits or information has already been disclosed otherwise than in contravention of a confidentiality undertaking.
be disclosed by me either directly or indirectly to any person including the parties to the proceedings, their servants and agents.
The affidavits and the information may be disclosed by me:
(a)to any other person who has been approved in writing by the applicant and who has signed an undertaking in similar form to this confidentiality undertaking;
(b)to counsel and solicitors retained on behalf of the respondents in the proceedings and their secretaries and photocopying staff;
(c)to my secretary.
I will, upon the conclusion of the proceedings, ensure that:
(a)any affidavit or copies of any affidavit are returned to the solicitors for the applicant; and
(b)any documents made by me or given to me recording the information are destroyed.
Date:
........ ........ ........ ........ ........ ........ ....
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 851 of 1997
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
THE NEWS CORPORATION LIMITED
FIRST RESPONDENTTELSTRA CORPORATION LIMITED
SECOND RESPONDENTAUSTRALIS MEDIA LIMITED
THIRD RESPONDENT
JUDGE(S):
HILL J
DATE:
31 OCTOBER 1997
PLACE:
SYDNEY
REASONS FOR JUDGMENT (NO. 3)
In the period since the present proceedings were commenced by the Australian Competition and Consumer Commission (“the ACCC”) a considerable body of affidavit evidence has been filed. Most of that evidence at the present stage has been filed by the ACCC in support of its application for interlocutory relief restraining the respondents from entering into a merger agreement in pursuance of heads of agreement already signed, or otherwise giving effect to, that agreement. Some of the affidavits have been in support of interlocutory applications and were filed either by the ACCC or the respondents.
Much of the affidavit evidence filed has been the subject either of confidentiality orders made by me on 14 or 20 October 1997. But, in addition, undertakings have been given by various individuals, who are solicitors for one or other of the parties, pursuant to those orders. Included among the persons who have given individual undertakings are Patricia Henry, Roger Featherston, Yolanda Chora and Rebecca Irwin who are among the lawyers acting for Telstra Corporation Limited (“Telstra”), the second respondent, and who are hereafter referred to as “the Telstra lawyers”. Some affidavits will have been read in conjunction with interlocutory applications, so that, subject to confidentiality orders or undertakings, their contents are now in the public domain. However, there is still a body of material which has been filed but not yet read, as to which it is clear that there is an implied undertaking that it only be used for the purposes of the litigation: Harman v Secretary of State for the Home Department [1983] AC 280, Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1996) 57 FCR 360.
Telstra now moves the Court to release the Telstra lawyers from their undertakings and from the implied undertaking to use material filed in the proceedings solely for the purposes of the litigation so as to enable them to disclose material in the affidavits to the Australian Due Diligence Committee for the Telstra Corporation Limited Share Sale, the formal observers to that Committee and others referred to in a schedule marked “A” to the notice of motion filed by Telstra and the Due Diligence Oversight Committee for the Telstra Corporation Limited Share Sale, the formal observers and others associated with that Committee being those persons referred to in the schedule to the notice of motion marked “B”.
In support of the motion there was read an affidavit of a Mr Atkin, a partner of Mallesons Stephen Jaques, the solicitors for Telstra. Mr Atkin deposes to the fact that his firm has acted as the legal advisers to Telstra in relation to what is generally referred to as the partial privatisation by the Commonwealth of Australia of up to one-third of the shares it presently owns in Telstra. That proposal is presently in the course of implementation by way of a public offer of shares in Australia and in various other countries including the United States of America. In Australia the share offer is being implemented by way of a prospectus consisting of an offer volume, and a volume of appendices, both of which are dated 29 September 1997. The United States offer is being implemented by a registered public offering. Pursuant thereto, on 29 September 1997 Telstra filed a preliminary F1 Registration Statement with the Securities and Exchange Commission (“SEC”) in the United States, which is apparently commonly referred to as “Red Herring”. Both offers are presently scheduled to close on 14 November 1997. It is then proposed that Telstra will file a final F1 registration statement which will become the effective registration statement for the public offer on that day. The settlement of the sale of securities under the offer is currently scheduled for 25 November 1997.
In connection with the Australian share offer a modification instrument has issued from the Australian Securities Commission modifying the provisions of Division 3A of Part 7.12 of the Corporations Law and the Regulations made for the purpose of that Division in respect of the Telstra offer. It will be necessary shortly to mention the effect of these modifications as concerns ss 1005 and 1043C of the Corporations Law.
It appears that to comply with the laws in Australia and the United States, there has been established, in connection with the proposed partial privatisation, an Australian Due Diligence Committee, responsible for overseeing the drafting of the Australian prospectus and subsequent steps which need to be taken until settlement of the offer on 25 November 1997. In addition to members of that Committee there are observers and others who assist it. These are the persons listed in schedule A. In addition there is a Due Diligence Oversight Committee to coordinate due diligence in other countries including the United States of America . These are the person listed in schedule B. Included in both of these Committees is Mr Atkin. Although Mr Atkin personally has not been directly involved in the day to day conduct of the present proceedings, he has read the non-confidential material. He has not at this stage read, or had access to, the non-confidential material.
By force of s 1005 of the Corporations Law as modified, a person who suffers loss or damage:
“... by conduct of another person that was engaged in contravention of a provision of this Part or Part 7.12 might recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention.”
A contravention would arise where a notice is required to be given under s 1043C of the Corporations Law and the notice is either false or misleading, or there has been a material omission from it. Section 1043B together with s 1043C, as modified provides for the giving of a notice or notices. Section 1043C(2) then provides:
“Subject to subsection (3), the notice must contain such information as investors and their professional advisers would reasonably require, and reasonably expect to find in the notice, for the purposes of making an informed assessment of:
(a)the assets and liabilities, financial position, profits and losses, and prospects of the company; and
(b)the rights attaching to the shares.”
It is submitted that Mr Atkin would accordingly have an obligation as a member of the Committee under the Corporations Law to disclose any material, confidential or not which affects the assets, and liabilities, financial position, profits or prospects of the company, because otherwise he will be in breach of s 1043C and thus potentially liable to suit by investors under s 1005 of the Law.
I put to one side the question whether there could be imputed to Mr Atkin material known to persons in his firm in circumstances where those persons have undertaken to the Court to keep the information confidential, and not to disclose it to any person including him. It is hard to imagine how this would be the case.
The substantial question is whether, in the circumstances, assuming all the material confidential and non-confidential were known to him, he could incur a civil liability if he failed to disclose, not merely to the Due Diligence Committee but to the investing public, some aspect of that material which falls within the language of s 1043C. If the answer to that question is yes, then it is clear that there would be a strong case made out that he and others be released from any confidentiality order or other implied undertaking. It would, nevertheless still be then a matter of balancing the detriment on the one hand to Mr Atkin, as against the interests of those who desire the information to be kept confidential, and this is particularly Optus Communications Ltd and related companies which appear to oppose the motion and in respect of the affairs of which there has been filed by the Commission through deponents employed by Optus a deal of information which it is agreed is commercially sensitive. It suffices to say that Optus is a competitor of Telstra in a number of respects.
In my view neither Mr Atkin, or for that matter any other employee of Telstra, could be the subject of civil suit in Australia under s 1005 for a breach of s 1043C, where the complaint was that they had not made known to a person who invested money information of the kind referred to in s 1043C in circumstances where they were prevented by a confidentiality order, an undertaking to the Court or an implied undertaking of the kind discussed in Harman. This being the case I see no reason why I should permit Mr Atkin or others to communicate to either Committee material which is confidential, on the basis of any suggested liability which could arise under the Corporations Law. It thus becomes unnecessary for me to attempt to weigh on the one hand the risk to Mr Atkin and on the other the damage which might accrue to Optus, or for that matter other parties, if confidential information found its way to either Committee and ultimately to the public.
The question whether Mr Atkin and the Telstra lawyers should be released from their implied undertaking not to disclose material not subject to confidentiality orders, but which has been filed but not yet used in the litigation, is a quite different question. It is clear, in consequence of Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, a judgment of Wilcox J applied in a number of later cases including Allstate, that special circumstances must prevail before leave is granted. Circumstances will be special where a case is made out for departure from the ordinary rule or, to quote Wilcox J (at 225):
“For ‘special circumstances’ to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court’s discretion, many factors being relevant.”
Among the factors which is clearly relevant is the attitude of the parties whose material it is as to the release from the undertaking. For this reason I adjourned the motion until today to ascertain the attitude of the parties to the litigation. None of them (other than Optus, which is not a party) had any objections.
What takes the present case out of the ordinary is the existence of the public offering. It can hardly escape judicial notice that it is one of the largest, if not the largest public offering ever made in Australia. That is not, of itself, necessarily a special circumstance, but it is obvious that there is a strong public interest, reflected in the Corporations Law that the market for the shares, particularly among those subscribing be as well informed as possible. When it is noted that the material filed is presently filed on the basis that it will be in the public domain when it is read in a few weeks time, it seems to me that the circumstances are such as to be quite special and merit the exercise of discretion in favour of releasing Telstra, the Telstra solicitors and Mr Atkin from the implied undertaking in respect of matters not covered by confidentiality. It should follow, I think, that the implied undertaking should be released to permit not merely disclosure to the Australian Committee, observers and others advising it, but also to the American Committee, observers and those advising it.
I turn now to the American position. There was adduced in evidence a memorandum from Sullivan & Cromwell, attorneys concerning disclosure obligations under the Securities Act of 1933 (US). The memorandum encloses a copy of r 409 of that Act in the following terms:
“Information required need be given only insofar as it is known or reasonably available to the registrant. If any required information is unknown and not reasonably available to the registrant, either because the obtaining thereof would involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the registrant, the information may be omitted, subject to the following conditions.”
Subject to r 409, the situation in the United States is that there is a requirement that all material information be disclosed, information being material if a reasonable investor would consider the information important in deciding whether or not to purchase securities. Not surprisingly the attorneys say that in light of the potential liability of both Telstra and the Commonwealth under the laws of the United States there should be disclosed all material information.
Rule 409 on its face may not provide much safeguard for Telstra, or for that matter Mr Atkin, to the extent that he, his firm or the Telstra lawyers may have secondary liability. The Rule on its face would not seem to envisage the non-disclosure of material which is known to “a Registrant” albeit that the Registrant was prohibited from disclosing that information in any public document, by virtue of express or implied orders or undertakings to the Court. It was for this reason too that I adjourned the proceedings until today to clarify the position in the United States. American law is, in the present context, a matter of fact and should be proved. Although I could proceed in an attempt to construe r 409 in accordance with Australian law in the absence of any evidence of United States law, I do not regard that course as satisfactory in all the circumstances.
I have now been told that the American lawyers have confirmed that no liability could accrue to Telstra, the Commonwealth, Mr Atkin or any relevant person if there were a failure to disclose information where that failure resulted from an order of the Court prohibiting disclosure. In these circumstances, I would not release any person from the obligation to keep confidential material presently the subject of confidentiality orders or undertakings, but will replace the confidentiality undertakings with orders.
Accordingly I make the orders 1-3 in the draft orders prepared by counsel for Telstra. Telstra should pay 50% of the costs of Optus Communications Pty Ltd or any other Optus company for which Mr R V Gyles and Mr D M Yates SC act, but otherwise there is to be no order as to costs.
I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill
Associate:
Dated:
Counsel for the Applicant:
J R Sackar QC and S T White Solicitor for the Applicant: Australian Government Solicitor Counsel for the First Respondent: F M Douglas QC and R J H Darke Solicitor for the First Respondent: Allen Allen Hemsley Counsel for the Second Respondent: T F Bathurst QC and N Manousaridis Solicitors for the Second Respondent: Mallesons Stephen Jaques Counsel for the Third Respondent: J J Spiegelman QC and R W White Solicitors for the Third Respondent: Norton Smith & Co Counsel for the Optus companies: R V Gyles QC and A J Payne Solicitors for the Optus companies: Gilbert & Tobin Date of Hearing: 31 October 1997 Date of Judgment: 31 October 1997
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