Australian Securities and Investments Commission v DB Management Pty Ltd & Ors - Southcorp Wines v DB M-ment

[1999] HCATrans 384

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S105 of 1999

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

DB MANAGEMENT PTY LTD

First Respondent

BATOKA PTY LTD

Second Respondent

WINPAR HOLDINGS LIMITED

Third Respondent

SOUTHCORP WINES PTY LTD

Fourth Respondent

Office of the Registry
  Sydney  No S108 of 1999

B e t w e e n -

SOUTHCORP WINES PTY LTD

Appellant

and

DB MANAGEMENT PTY LTD

First Respondent

BATOKA PTY LTD

Second Respondent

WINPAR HOLDINGS LIMITED

Third Respondent

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Fourth Respondent

GLEESON CJ
GAUDRON J
GUMMOW J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 16 NOVEMBER 1999, AT 10.17 AM

Copyright in the High Court of Australia

MS R.S. McCOLL, SC:  May it please the Court, I appear with my learned friends, MS C. FRANCAS and MS R.A. PEPPER, for the appellant in matter 105 of 1999 and for the fourth respondent in the second matter.  (instructed by V. Malinaric, Regional General Counsel, Australian Securities & Investments Commission)

MR S.D. RARES, SC:  May it please the Court, I appear with my learned friend, MR A.S. BELL, for the appellant in the second matter and the fourth respondent in the first.  (instructed by Allen Allen & Hemsley)

MR P.R. GRAHAM, QC:  If the Court pleases, I appear with my learned friend, MR K.M. CONNOR, for the first respondent in both matters, DB Management Pty Limited.  (instructed by Stephen Blanks & Associates)

MR J.V. GOOLEY:  May it please the Court, I appear for the third respondent in both matters.  (instructed by Winpar Holdings Limited)

MR R.J.C. CATTO appeared in person.  I seek leave to appear on behalf of the second respondent, Batoka Pty Limited. 

GLEESON CJ:   Is that opposed?  You have that leave.

MR CATTO:   Thank you, your Honour.

GLEESON CJ:   Is it agreeable to everybody if these two matters are heard together?

MS McCOLL:   Yes, your Honour.

GLEESON CJ:   Just before the argument commences, I believe the Registrar has informed the parties that I hold some shares in Southcorp Holdings, which I think is a holding company of one of the parties to these proceedings.  I mention that in case anybody wishes to raise any objection.  Yes, Ms McColl.

MS McCOLL: If the Court pleases. The appellant’s case is concerned with the issue upon which, and the appellant in the other matter, failed before the Full Federal Court, namely, whether the appellants’ power under section 730 of the Corporations Law could be used to modify section 701 of the Law to permit the compulsory acquisition of shares issued after the close of a takeover bid on certain conditions set out more fully in the modification.  I will come to the detail of the modification shortly.

The facts are within a very short compass.  They are that in 1996 Southcorp made a Part A offer for all the ordinary shares in Coldstream.  At the time that offer was made in April 1996 it held more than 10 per cent of the shares in Coldstream, a matter which becomes relevant for the purpose of satisfying certain thresholds in section 701, which I will come in detail shortly.  The Part A offer was substantially successful and by the close of the takeover offer on 30 July 1996 Southcorp had acquired 97 per cent of the ordinary shares in Coldstream.  It then moved under section 701 to acquire compulsorily the outstanding shares in the company and it was successful in that too and in due course acquired 100 per cent of the ordinary shares in Coldstream.

By the time it had achieved that position of success there were outstanding some what were called 72 cent options in respect of ordinary shares which had an expiry date of some two or so years after the close of the takeover offer.  It then applied to this appellant for a declaration under section 730 of the Law to modify the operation of the Law to enable it to acquire compulsorily the shares which would issue upon the exercise of those options in October 1998.  Without going to the detail of all the option‑holders at the time of that original application, the fact is that by the time this appellant decided to exercise its discretion under section 730 of the Law in favour of granting the declaration, the shares which could issue on the exercise of the options which were the subject of the modification represented .07 per cent of the shares in Coldstream on a fully‑diluted basis.  In due course the appellant acceded to the fourth respondent’s application for the declaration which appears in our supplementary materials.

Those are the short facts and the question is, and the question which occupied and concerned the majority in the Full Federal Court, was whether the modification power in section 730 could be used in such a manner as to affect third parties whose rights could not be expressly affected by the terms of the legislation, and it was because of the concern of the majority in the Full Federal Court that the legislation should not be so construed as to permit the affectation of third party property rights, in particular, that that majority decided the case in favour of the respondents to this appeal, the first to third respondents.

It might be convenient if I refer the Court to the legislative scheme in which the modification power appears. It appears in Chapter 6. Section 730 is part of Chapter 6 of the Corporations Law, which is, of course, concerned with the acquisition of shares.  The Court would be familiar with the provisions of Parts 6.3 and 6.4 which deal with takeover schemes and takeover announcements and Part 6.5 of the Law deals with various matters which apply both to takeover schemes and takeover announcements.  Division 6 of Part 6.5 deals with matters which arise consequentially upon the completion of either a takeover scheme or a takeover announcement and deals with, as we have indicated in our submissions, the rights of offerors and shareholders, and all the provisions of that division of Part 6.5 are concerned with matters arising consequential upon the conclusion of the offer period.  That, we would submit, is an important point to note at this stage in terms of considering the question of the extent of the power of modification.

Then, with that in mind, could I take the Court to the terms of section 730 which appear in the supplementary materials we provided to the Court yesterday at page 9. Section 730 appears in Part 6.9 of Chapter 6 of the Law which is concerned with powers of the Commission, the Corporations and Securities Panel and ancillary powers of the court. Section 730(1) provides that:

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

So the first point to note, we would submit, is that it is a power of great breadth, it is a power which is unconfined in terms and it is a power which, on the face of it, applies to every provision of Chapter 6 of the Corporations Law.

Some guidance can be obtained and, indeed, is directed to be taken into consideration by the Commission when it looks at whether it should exercise a power under section 730 in section 731 which appears on the next page of our supplementary bundle.  That is the provision which sets out in brief the Eggleston principles about the regulation of takeovers.  We have referred to the source of those principles in our written submissions, but, again, looking at section 731 it can be seen that the Commission is to take into account in exercising its powers under section 730 as well as section ‑ ‑ ‑

GUMMOW J:   What is the relation between 728 and 730 in the scheme?

MS McCOLL: Section 728 is a power which enables the Commission to exempt from the application of any provision of Chapter 6, so there is an extent to which it might be said to overlap to the extent that an exemption might also be affected by an omission, for example, your Honour.

GUMMOW J:   That is what I was wondering.

MS McCOLL:   They are not mutually exclusive but one would not need to go to 728, for example, before you turn to section 730. Under section 728 the appellant can exempt from the application of the Corporations Law and attach conditions to an exemption. It does not have that additional power given under section 730 actually to modify a section of the Corporations Law.

GUMMOW J:   Thank you.

MS McCOLL:   But in exercising both of those powers the Commission is directed to these principles to which I was referring in section 731 and those are principles which, without reading the terms of the section, we would submit, direct the Commission to ensuring that takeovers are workable, having regard to the considerations set out in each of the subparagraphs.  I would draw the Court’s attention to subparagraph (d) in particular, namely:

that, as far as practicable, all shareholders of a company have reasonable and equal opportunities to participate in any benefits –

and, of course, then the final words of section 731:

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

So, while section 730 takes some colour, we would submit, from section 731, at the end of the day it does not govern and dictate or confine the way in which that section 730 power can be exercised and, indeed, that was the way Chief Justice in Equity McClelland construed section 731 in Peninsula Gold, which is one of the cases to which we referred the Court in our written submissions.  So, that being the nature of the section 730 power, can I take the Court then to section 701 in its original form prior to the modification made by the appellant.  That is set out at page 4 of our supplementary materials.

GLEESON CJ:   What is the scheme of this legislation in relation to marketable securities that are not shares?  Section 703, for example, makes reference to “holders of options and notes”.

MS McCOLL:   Section 703, your Honour, operates in a way to ensure that “remaining shareholders and holders of options and notes” are not left locked in a company if the offeror has not made a compulsory acquisition offer for them under section 701 or cannot, because the offeror cannot compulsorily acquire options and notes, be the subject of a compulsory acquisition offer.  The effect of section 703 is to ensure that people in those classes can require the offeror to purchase their shares so that they are not locked in.

GLEESON CJ:   What I was a little more interested in was this.  Section 701 begins at least by talking about takeover schemes in respect of shares.  What are the provisions that affect acquisition of notes and options?

MS McCOLL:   There are no express provisions in the law for a Part A offer, for example, or a takeover announcement to apply to them.  There are, inferentially, provisions in the sense that if one goes to a Part A statement it does say that if an offeror intends to make an offer to acquire convertible securities, if I might loosely refer to them in that way, then the terms upon which it is proposed to acquire them should be set out in a Part A statement but that is not because the Act says that a takeover scheme can extend to those matters so as, for example, to trigger compulsory acquisition rights under section 701.  It is, presumably, to ensure that if you are fortunate enough then all of those people will accept your offer but, because they do not fall into the category of share at the time the offer is made, they are not the subject of a takeover scheme or a takeover announcement.

That is why at the end of the day this particular modification came about because presumably Southcorp would, if it could, have included those people in its offer and, if it could, it would have been able to compulsorily acquire them.  That was what the modification ultimately affected, of course, your Honour, that Southcorp was able compulsorily to acquire the shares which issued on the exercise of those few remaining options at the end of the offer period.

GLEESON CJ:   So that if a company has issued convertible notes or options which may one day result in the allotment of further shares, a takeover offeror who does not get a modification of the kind you are talking about, will end up owning all the existing shares in the company but with outsiders having the potential to become the owners at some future time of shares.

MS M cCOLL:   That is correct, your Honour.

GLEESON CJ:   And modification is the only means, is it, of mopping up those interests?

MS M cCOLL:   It is under the Corporations Law as it stood at the time of this application.  The law has now been amended, although those amendments have not taken effect and may not take effect until some time next year and there is under the new provisions a power to acquire compulsorily convertible securities, but it was not so at the time of this legislation or this application.

GUMMOW J:   Could you give us in due course a reference to that new provision?

MS M cCOLL:    Yes, your Honour.

GUMMOW J:   I realise it has not commenced yet.

MS M cCOLL:    I think my learned friend Mr Graham has supplied it in a bundle provided to the Court yesterday.  I was just going back to section 701 which is the converse, we would submit, of section 703.  Whereas section 703 is designed to ensure minorities do not get locked in, section 701 is directed to ensure that the majority does not, in effect, get locked into a company because a minority retains shares.  It is designed to enable the offeror to move to a position of 100 per cent acquisition of the shares.

So subsection (1) deals with various definitions for the purpose of the provision and subsection (1)(a) and (b) refer to takeover offers having been made under respectively either a full takeover scheme, which this was in relation to the class of ordinary shares then the shares in respect of which the offer was made are defined as “shares subject to acquisition”.  A reference to outstanding shares is dealt with in subparagraph (c) and that is a reference to shares which were:

subject to acquisition…..in respect of which a takeover offer was made but has not been accepted, excluding shares acquired by the offeror otherwise than under the takeover scheme –

then:

(d) a reference to a dissenting offeree is a reference –

looking at subparagraph (i):

in relation to shares in respect of which takeover offers have been made – a person who is the holder of shares that are outstanding shares by virtue of subparagraph (c)(i).

So then that definition of “dissenting offeree” is picked up in subsection (2) which provides that where there has been a takeover offer “under a full takeover scheme, or a takeover announcement”, and then subparagraphs (b) and (c) deal with certain thresholds having been satisfied in relation to the acquisition of certain percentages of shares, so that the first under paragraph (b) is that:

the number of shares in that class to which the offeror is entitled has become not less than 90% of the shares in that class –

and that was the case here; and that percentage is to apply –

(notwithstanding that that number of shares may subsequently become less than that percentage as a result of the issue of further shares in that class); and

(c) if the shares subject to acquisition constitute less than 90% of the shares –

then there is an additional threshold which has to be satisfied and that is that –

(i) three-quarters of the offerees have disposed of to the offeror –

in any way –

the shares subject to acquisition that were held by them; or –

and then there is a variation on that provision in subparagraph (ii).  That was a threshold which Southcorp also had to satisfy because at the time of the Part A offer it held over 10 per cent of the shares in Coldstream, so that the shares subject to acquisition were less than 90 per cent.  So, having satisfied those thresholds, then:

the offeror may –

and it is important to note it is not necessary that it do so, it is not compulsory but it –

may, before the end of 2 months after the end of the offer period, give notice, as prescribed, to a dissenting offeree to the effect that the offeror desires to acquire the outstanding shares held by the dissenting offeree.

Then, under section 701(5):

Where a notice is given under subsection (2), the offeror is entitled and bound, subject to this section –

to section 701 –

to acquire the shares to which the notice relates on the terms that were applicable in relation to the acquisition of shares under the takeover scheme or pursuant to the takeover announcement immediately before the end of the offer period.

That is subject to subsection (6) which enables the dissenting offeree to apply to the court to be relieved from the compulsory effect of the subsection (2) notice, and if such an application succeeds, then subsection (5) does not apply in relation to that dissenting offeree.  So that is the effect of section 701, to enable an offeror to move to the position of full ownership of the shares, of all the shares in the company.

Section 703 which, as I was submitting earlier, is a complementary provision, in effect, provides the converse.  So that under subsection (1) – and this is at page 7 of our supplementary materials – if:

(a) a Part A statement has been served, or a takeover announcement has been made…..; and

(b) during the takeover period the number of shares in that class to which the offeror is entitled becomes not less than 90% of the shares in that class (notwithstanding –

again –

that that number of shares may subsequently become less than that percentage as a result of the issue of further shares in that class);

the offeror shall –

and this notice requirement is mandatory –

the offeror shall, before the end of one month after the end of the offer period, give notice, as prescribed, to the holders of remaining shares in that class who…..had not been given notice under subsection 701(2) –

in effect, the compulsory acquisition notice.  So the offeror has to give them notice if they have not already received a compulsory acquisition notice.

Then under subsection (2) the holder of the remaining shares referred to in the previous subsection may require the offeror to acquire their shares, either on the terms of the takeover offer or, if there were alternative terms, elect which of the terms it will accept.  That deals with remaining shareholders.  Then under subsection (4), again there is a provision which in terms of thresholds is in the same form as subsection (1) but it requires the offeror to give notice to the holders of non‑voting shares renounceable options or convertible notes, again stating that the offeror has become entitled to the shares and containing some other information and if that notice proposes the terms on which the shares might be acquired by the offeror, then it has to be accompanied by experts’ reports stating that the offer is fair and setting out various disclosures which deal with matters of conflict of interest and the like.

GLEESON CJ:   This possibility of outstanding convertible notes or options must be very common.  What is the usual method of dealing with the problem in a takeover scheme under this legislation?

MS McCOLL:   Well, one way, which was the way certainly Southcorp attempted to deal with it at the outset, was to make its takeover offer subject to acquiring all of the options.  That is one way.  Another way, during the takeover period, this appellant has from time to time and, indeed, did so in this case, modified the Law so that the Part A offer can extend to shares issued during the takeover period.  That is another way.

GLEESON CJ:   Is this a power that has been exercised or purportedly exercised by your client on a number of occasions?

MS McCOLL:   The power exercised in the way that is the subject of challenge in this case has been exercised on at least two previous occasions to permit the acquisition of shares issued on the exercise of options or on the accrual of convertible notes and that is in the Full Federal Court appeal book and I can take the Court to that shortly, but, certainly, it has been exercised very early in the piece in at least two cases to achieve the same consequence as was arrived at in this case. 

I might say that after it was exercised in this way in this case a policy statement was issued after debate in the market as to whether or not the modification power should be used in such a way and after receiving submissions from interested parties a policy statement was issued by the appellant expressly setting out that it would make this modification on application.  That policy statement, of course, has been withdrawn pending the outcome of this appeal.  It is not, your Honours, unique but those are some of the ways in which it has been dealt with in the past.

Then under subsection (8) of section 703:

Where a.....holder of any non-voting shares, renounceable option or convertible note –

gets a notice from the offeror, then it too can:

require the offeror to acquire -

its shares, and if the holder of those convertible securities and the offeror cannot reach agreement on the terms on which the acquisition is to take place, then there can be an application to the court for the court to determine the appropriate value.

So those are the complimentary provisions of Part 6.5 which, as I submitted earlier, it can be seen operate at the end of the offer period, in effect, to enable a mop-up to occur, a mop-up either at the behest of the offeror in relation to shares and at the behest of holders of remaining shareholders and holders of convertible securities in the case of section 703.

The modified section 701, the section as modified by the declaration, appears at page 13 of our supplementary materials; it appears in the form in which his Honour Mr Justice Whitlam, in the Federal Court, usefully prepared it so as to highlight how the section had been changed by the modification.  If I could take the Court to that you can see that what his Honour did was to bold the additions and mark through the omissions and deletions.  So, what happened with section 701 was that a new subsection (e) was added to define a “relevant shareholder” as being:

a reference to a person who has become the holder of shares in the target company after the end of the offer period.

and that definition of “relevant shareholder” then carried through to the remaining provisions.  So, in subsection (2), the period during which the offeror may give a notice to acquire compulsorily the shares of the relevant shareholder was defined, we see on page 14, by being a requirement that:

one month after the allotment of shares in the target company issued on the exercise of options for shares in the target company, give notice, in the prescribed form with such adaptations as are necessary, to the relevant shareholder to the effect that the offeror desires to acquire the shares held by the relevant shareholder.

Then four subsections were included setting out the terms on which the offer should be made and the information which should be set out in the notice.  It can be seen that these provisions were an amalgamation of the sort of information provisions that are required to be given under section 701 as to other persons who might be interested or be the subject of a compulsory acquisition notice and the sort of valuation report which was referred to under section 703.  So, subsection (2A) was a requirement to:

set out the cash sum for which the offeror proposes to acquire the shares:  and

(b) be accompanied by a list of every person who presently holds shares or options to subscribe for shares in the target company –

(2B)…..a copy of a report by an expert…..stating whether, in the expert’s opinion, the terms on which the offeror proposes to acquire the shares are fair and reasonable and giving the reasons –

(2C) If the offeror has obtained 2 or more reports…..the notice must be accompanied by a copy of each report.

(2D)…..a copy of a report which has previously been provided to the relevant shareholder.

Then subsection (4) was amended to just delete the time and amend slightly the time at which a copy of the notice had to be lodged with the appellant and then subsection (5) was amended by omitting the last part of the section and providing that if:

a notice is given under subsection (2), the offeror is entitled and bound, subject to this section, to acquire these shares to which the notice relates on the terms set out in the notice.

Then under subsection (6), again there was a variation so that “the relevant shareholder” was included as a person who could seek the relief of the court under subsection (6), and then subsection (7) which dealt with alternative ‑ ‑ ‑

HAYNE J:   Just in subsection (6), is the disjunctive “or” at the end of paragraph (a) rightly left there?  It seems to me to read as though it should not have been, but is that the effect of the modification in fact made?

MS McCOLL:   It does not affect the modification, it should have probably more carefully been struck through because there is no other clause to which it could relate, your Honour, so that it should read, “before the end of one month after the date on which the notice was given under subsection (2), the Court orders”.  That is how it ‑ ‑ ‑

HAYNE J:   That was the intended effect?

MS McCOLL:   That is certainly my understanding, your Honour.  Then there was a deletion of the subsection set out at the top of page 16 and subsection (10) was amended so that a more mechanical requirement as to when notice should be served on the company that actually issued the shares.  So, those are the terms in which section 701 actually were subject and affected by the modification.  The actual terms of the declaration are set out as part of an attachment to our submissions, but that is really how it works and that is how it changed the operation of section 701 so as to permit the fourth respondent to acquire those shares issued on the exercise of the option at the end of the takeover period.

What we see, we submit, when we look at Chapter 6 and, in particular, provisions such as sections 701 and 703, is that the clear purpose and policy of the legislation is to enable an offeror who has substantially completed a successful takeover to proceed to the full acquisition of all the interests in the company subject to requirements of safeguards for the interests of minorities, but also to ensure that minorities can extricate themselves from a position of being locked into a company at the end of a takeover period so there are converse and complementary compulsory acquisition procedures provided for in the legislation.

It is in those circumstances that section 730 falls to be considered as his Honour Mr Justice Beaumont held in his dissenting judgment below.  Looking at section 730 on its literal words he allowed the modification and on its position in the legislation, looking at the scope of context and purpose of the legislation, he could not find any relevant limitations which would read down the application for provision in the way the Full Court construed it.

It is notable, we would submit, to look at the history of the interpretation of a provision such as section 730 to note, in effect, that in one of the earliest decisions on section 58 of the Code, which was the legislative predecessor in the Companies’ Acquisition of Shares Code to section 730, that very early in the piece this appellant took a far more restricted view of the modification power at a time when it was more narrowly worded, we would submit, than it now is.

GLEESON CJ:   When did the word “modify” come in?

MS McCOLL:   The word “modify” has been in since the modification of power was first enacted in section 58 of the Acquisition of Shares Code, your Honour.

GLEESON CJ:   When was that?

MS McCOLL:   In 1980.  In 1980 “modify” came in and, at that time, “modify” was not defined in the Acquisition of Shares Code and it was not defined, either, in the Companies’ Code at the time.

HAYNE J:   The Code scheme was the first occasion when the corporate regulator was given any power, to use a neutral term, to change the way in which the Law operated, was it not?

MS McCOLL:   Not strictly speaking, your Honour, because there has been a power of exemption in the takeovers provisions going back as early as the section 180 provisions to which we have given ‑ ‑ ‑

GUMMOW J:   They are forerunners of 728, are they not?

MS McCOLL:   They are, your Honour, and so the way it has progressed is from a power to exempt from the operation of the Law by regulation, then the power was given to the Minister to exempt and then the power was given to the Commission, both to exempt and modify, so historically, in so far as an exemption could, obviously, relieve in some way against the operation of a provision, there has been that power for a very long time.  The modification power was then added in 1980.

GLEESON CJ:   Is one of the arguments against you that what is involved here is not a modification but an extension?

MS McCOLL:   The argument which is made against us is that what has happened is not a modification but a new statutory provision.  My learned friend, Mr Graham, makes that submission in his written submissions.  We submit that that is not the case.  What we have done is fully within the intent of a modification.  Modification means to alter something, to change something.  Yes, we have changed something in a way which the legislation must have intended.  We should be able to effect and what I was going to say when I was referring back to that earlier case was that the narrower view and, perhaps, the view my learned friend, Mr Graham, puts, is the way the appellant looked at it very early in the piece before the case of TNT v NCSC before his Honour Mr Justice Gobbo in the Victorian Supreme Court which was one of the very earliest cases dealing with the modification power in which it was actually considered as a part – in which the actual extent of the power was considered.

That case is reported in 11 ACLR.  It is interesting to look at it because, in a sense, it reflects some of the features that are found in this case and, as I said, it is a very early case in which there was an indication that the power should not be read narrowly and should not be confined to the extent, if at all, to which the Full Federal Court seems to have found it should be restricted.

What that case was about was a takeover which TNT was seeking to effect of Ansett Transport which had originally set about to achieve in 1980. At the time it originally made the takeover offer for Ansett it held 23 per cent of the shares in Ansett and another associated company, Newscorp, held 41 per cent. Now at the time that rendered those company’s associates but TNT and News did not realise it at the time, and when that first takeover offer closed there were about 1 per cent of the shares outstanding, and if TNT had realised it was an associated company of Newcorp at the time, it would have been able to move to compulsory acquisition of those shares under section 180x of the Companies Act of Victoria at the time. Because it was not aware of that association it did not do so.

Then about five years later it tried to remedy that situation and made another takeover bid for the outstanding Ansett shares.  Under that takeover bid it got about 66 per cent of the shares but because it already had held more than 90 per cent of the shares at the start, it could not get over that three quarters threshold which I referred to in section 701, which was still in the Code at the time and therefore it still could not move to compulsory acquisition.  The effect at the end of that second takeover bid was that there were .02 per cent of Ansett shares outstanding and it then applied to the NCSC to modify section 42 which was the predecessor of section 401 to enable it to acquire those outstanding shares compulsorily.  In substance, the same sort of application which has been made in this case say that in that case the shares were in existence at the time, whereas in this case, of course, they were not to come into existence until the exercise of the options.

The Commission at the time rejected the application for the modification and TNT appealed to the Supreme Court of Victoria and to challenge the rejection of that application.  It is notable that some of the reasons the Commission advanced at the time to reject the application for the modification were reasons which now seem to have found favour in the judgment below and nevertheless were rejected by his Honour Mr Justice Gobbo.  So if we look at the top  ‑ ‑ ‑

GUMMOW J:   Did his Honour deal with this word “modified”?

MS McCOLL:   No he did not, your Honour.  He did not deal with the word “modified” and, indeed, none of the judgments which have dealt with either section 58 or section 730 have looked at the word.

GLEESON CJ:   The expression is actually “modified or varied”.

MS McCOLL:   Yes, “omitted or were modified or varied”.

GLEESON CJ:   Why are we concentrating on modification here as distinct from variation?

MS McCOLL:   I think it is a compendious way.  We have been describing the power as the modification power; it could equally be referred to as the variation power, your Honour.  Each of those expressions is included within section 730.  We just defined it as the modification power for convenience in the course of our submissions.

HAYNE J:   That is the way the heading for the section reads too.

MS McCOLL:   That is also helpful, your Honour.  Just going back, if I could, to TNT Ltd v NCSC, his Honour Mr Justice Gobbo looked at it in terms of matters of principle at page 62 of his judgment and we see in the second paragraph:

The principal argument advanced –

at that stage –

on behalf of the Commission –

namely –

that section 58 did not empower a modification or variation that departed from what was described as the fundamentals of the Companies (Acquisition of Shares) Code.

And essentially his Honour said that while the concerns the Commission held at the time were important on the issue of discretion:

they are not determinative on the question of power.

And he pointed out that section 58 was:

in very wide terms and its language offers no support for the limitations suggested.

That flavour or that broad definition of the interpretation which his Honour gave there to section 58 is an interpretation which has been given to that power through all of the cases until the decision of the Full Federal Court in this case and he refers to the decision of Mr Justice Needham in OPSM v NCSC.  Again, in that case, his Honour Mr Justice Needham had described the power as wide, but his Honour there was looking at the matter on an interlocutory basis and did not make any relevant binding decision.

So his Honour Mr Justice Gobbo, having said that section 58 was very wide, really said that it is really impossible to decide what are fundamental matters and what are properly matters for modification and you really had to look at each matter on a case‑by‑case basis and perhaps consider matters not as a matter of an extent of power, but more as a question of the proper exercise of discretion.  So very early in the piece the lines were clearly drawn, certainly from the Commission’s point of view, that this power was one which could be exercised very widely but, when one came to exercising the actual discretion as to whether or not to grant an application for a declaration, then one might look more closely at the sort of ways in which an exercise of the power might affect matters found within the Law, or the Code as it was then.

GLEESON CJ:   Does it extend to a power to – again to use a neutral expression – to alter the number 90 in section 701(2)?

MS McCOLL:   It may, your Honour.  If, for example, an offeror had moved to a position of holding 89.99 per cent of the shares, it would fall within the  ‑ ‑ ‑

GLEESON CJ:   Or 29.99 per cent?

MS McCOLL:   Well, that is why his Honour Mr Justice Gobbo said these are really matters one looks in the question of the exercise of the discretion, rather than the extent of the power.  The power takes its colour from the whole of the chapter and the question of whether, for example, under section 701 you have moved to a substantially successful takeover, as a matter of discretion, one might say something around 30 per cent would be far too low, because the figure of 90 per cent has appeared in takeovers legislation for a long time as indicating a substantially successful acceptance by a peer group of a takeover offer, so it is a very important figure, but when one comes to questions of how far on the lower side of 90 per cent the Commission may be able to exercise its modification part, then it really falls, we would submit, to a matter of the exercise of the discretion and the reasonableness of its exercise, rather than the power. 

On its face, it would permit a modification, but the numbers really go to the facts in each case, and that is why we saw that that is the approach his Honour Mr Justice Gobbo took in that early case where there were about .02 per cent of the shares outstanding, and although the question of discretion does not arise before this Court on the special leave, it is not irrelevant to note that here the number of shares outstanding, or which would be outstanding, was .07 per cent.

GLEESON CJ:   What do you mean by that remark about discretion?

MS McCOLL:   My learned friend has addressed some submissions to an issue of manifest unreasonableness in terms of the actual declaration, the actual exercise of the discretion.  That was not a matter which was the subject of special leave, your Honour, and, indeed, the majority in the Full Court did not proceed to consider it at all.  His Honour Mr Justice Beaumont did consider that question and found in favour of the exercise of a discretion.

GLEESON CJ:   I see, I had not noticed that.  The grant of special leave in this case was limited to the question of power, was it?

MS McCOLL:   It was, your Honour, because that was the only question which arose from the decision of the majority.  That is a point, I think, my learned friend, Mr Rares, has advanced in his submissions in reply.  Because we were the original decision maker, we have not ever addressed ourselves to the actual merits of the decision.  We have always confined our submissions to the issue of power and policy within the legislation, in accordance with this Court’s decision in Hardiman.

GLEESON CJ:   There is no notice of contention?

MS McCOLL:   No, your Honour.

CALLINAN J:   Does that mean, Ms McColl, that we should not be concerned with the matters in section 731, any of them?

MS McCOLL:   No, it does not mean the Court should not be concerned with them, because, as I submitted earlier, to a certain extent that gives some colour to the operation of section 730 and to the way in which the power might be construed.  It does not limit it, but it certainly gives some colour to it.

CALLINAN J:   Could I ask you this then:  was there evidence with respect to 731(d), the provision dealing with benefits accruing to shareholders?

MS McCOLL:   When your Honour says, “was there evidence dealing with it” the ‑ ‑ ‑

CALLINAN J:   One of the reasons why I ask it is I notice Mr Justice Gobbo when he was considering discretionary matters in that case had regard to the fact that there was apparently uncontradicted evidence that the price that was being offered was very high and, presumably, in excess of what the market price might have been.  Now ‑ ‑ ‑

MS McCOLL:   Well, there was not evidence in this case going to that sort of matter, your Honour, because ‑ ‑ ‑

CALLINAN J:   There material before your client, perhaps, regarding that, was there?

MS M cCOLL:   All that was before the appellant was the Part A offer and then, of course, the question was how, if the modification was to be made, the rights to receive a fair price, in effect, on the issue of the shares could be satisfied and that was accommodated by making that provision that expert reports should be provided so that there would be a full and fair valuation of the rights, particularly when one comes back to the fact that the options were going to be exercised at some time after the original Part A offer so one might assume that the value of the company might have changed and the value of the shares might have changed in that intervening period.  So that was how that matter was addressed in the actual modification.

CALLINAN J:   It is just that the section seems to assume a takeover which is beneficial to existing shareholders.

MS M cCOLL:    It certainly assumes one which has received substantial success in the sense that, yes, more than 90 per cent of the shareholders and all that three quarters ‑ ‑ ‑

CALLINAN J:   It is to be inferred from the fact that they have lapped up the offer, as it were, perhaps.

MS M cCOLL:    Precisely, your Honour.  And, indeed, in the particular case again, although it is not relevant to the question of construction.  Here at the close of the offer 97 per cent had – to use your Honour’s expression – lapped it up.

So since 1987 at least, and perhaps earlier, if we look at OPSM, this Commission has been directed to apply the modification broadly.  It is also notable, we would submit, and the Court can see this from the history of the legislation we have set out in our written submissions, that after his Honour Mr Justice Gobbo’s decision in 1987 when the Corporations Law was enacted, section 730, in effect, repeated the modification power and it might be said extended it in the sense that it broadened the class of persons and the categories to which modifications could apply.  So the legislator having seen the approach which the judiciary was taking to the section, in effect, confirmed that, we would submit, by re‑enacting in substance and extending the modification power in section 730.

GUMMOW J:   Section 731 is important, though, is it not?

MS M cCOLL:   It is, your Honour.

GUMMOW J:   One matter you are obliged to take into account is spelt out there, even though it is expressed in fairly general language, I suppose.

MS McCOLL:   That is true, and that is why I submitted earlier that it certainly gives colour to the way we can look at the modification power, if we look at the introductory words to section 731, for example, that:

the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market –

Without limiting those matters then there are the particular Eggleston principles set out and then a reservation that, nevertheless, section 731 is not to confine the way the power is exercised.

GUMMOW J:   But was it said by the majority in the Full Federal Court that what your client had done here indicated that it had not taken into account what it was obliged to take into account under 731?

MS McCOLL:   No, it was not expressed that way, your Honour.

GUMMOW J:   What was the error of law, I suppose I am coming to really, because that is all the Federal Court was about.

MS McCOLL:   Yes.

GUMMOW J:   It was a decision of the AAT.  The Federal Court could interfere only if there had been an error of law, and that was the error of law.

MS McCOLL:   The error of law, they must have found, your Honour, even though it was not ‑ ‑ ‑

GUMMOW J:   It is not isolated as such, is it?

MS McCOLL:   No, it was not expressed that way.

GUMMOW J:   That is part of the problem in their judgments.

MS McCOLL: It is one of the problems, your Honour, but essentially it must have been that the AAT had misconstrued the extent of the power in section 730. That is certainly the way the judgment of the majority reads, and, of course, we submit that the essential vice of the judgment of the majority is that what their Honours, with respect, effectively found was that we could only modify the law in a way expressly permitted or contemplated by Chapter 6, but in doing so they took a far too literal approach to the meaning of Chapter 6 and did not, as his Honour Mr Justice Beaumont very neatly described it, look at the matter as a matter of impression, and that when one looks at it as a matter of impression, and indeed when one looks at all the cases which have considered section 701 and the policy which can be discerned from that, then one can see that the exercise of the modification power in this case was permitted by that legislative policy we have identified.

CALLINAN J:   Ms McColl, I think the legal points are stated at pages 101 and 102 in the majority, beginning about line 40 on 101 down to line 45 and then at page 102, I think the second paragraph.  I think those are probably the points of law as found by the majority.

MS McCOLL:   That is correct, and they also perhaps encapsulated their reasoning that is neatly found at page103 where they refer to the “two canons of statutory construction” which they said supported their conclusion, the first, of course, being the presumption that legislation is not intended to interfere with vested proprietary interests, the second exclusio unius, and those principles clearly infuse those preceding pages to which your Honour refers.

GAUDRON J:   So far as the first one is concerned, it is simply inconsistent with the opening words of section 731.

MS McCOLL:   That is correct, your Honour, and it is inconsistent with the heading to Division 6 at Part 6.5:

Rights of offerors and shareholders.

And then all the compulsory acquisition powers which can be used, in effect, to achieve the results we have already directed attention to. Essentially, the way their Honours approached the question of the exercise of section 730 power was to look very carefully at the precise provisions of Chapter 6 and to look at the fact, as his Honour Justice Callinan just indicated, at page 101 of the joint appeal book, both at - as they said, the structure of Part 6.5 strongly suggested that section 730 did not authorise a declaration and that was, again, because they could not find a literal provision allowing the power to be used in this way, but they did not then move, we would submit, to the next step which is to look at the policy of the provisions and to discern the policy from those provisions or to pick up those introductory words, as her Honour Justice Gaudron says, of section 731 to look at the efficiency of the market.

GAUDRON J:   No, ensuring the acquisition of shares.

MS McCOLL: And the acquisition of shares which, of course, is what Chapter 6 is all about.

GLEESON CJ:   This is all about expropriation of property rights.

MS McCOLL:   It is all about expropriation of property rights and that point does not seem to have really found a home in the heart of their Honours when they were really looking at the way we should look at this chapter, and yet that of course was the heart of the matter, that really once you got to a section concerned with the acquisition of shares, once you got to a section which enabled compulsory acquisition and once you got to a power which enabled you to modify those powers, you must be able to modify if and you must be able to use that power to modify the law to enable those shares to be compulsorily acquired.

GLEESON CJ:   Try “vary”.

MS McCOLL:   Or “vary”.  Your Honour, we do not shrink from “modify”.

GLEESON CJ:   “Modify” means “to limit”.

MS McCOLL:   With the greatest respect, it does not, your Honour.  It is not the statutory definition of “modify”.

GLEESON CJ:   No, I was just looking at the dictionary – (1) “to limit”.

MS McCOLL:   Nor is it the dictionary definition that I looked at, your Honour.

GLEESON CJ:   “To limit or to restrain.”

HAYNE J:   Dare one ask which dictionary this was, Ms McColl?

MS McCOLL:   I was about to ask if I might dare ask which dictionary that was, your Honour.

GLEESON CJ:   The Shorter Oxford.

MS McCOLL:   I actually looked at the Macquarie Dictionary, your Honour.

HAYNE J:   The dictionary based on the Random House College Dictionary, without attribution.  Is that the one you are referring to?

MS McCOLL:   I did actually look at the Macquarie Dictionary which defines “modify” as it applies to the Australian population and, certainly, as it defined “modify” it includes to alter, to change and, certainly, words which are ‑ ‑ ‑

GLEESON CJ:   You can modify your argument to rely on “vary”.

MS McCOLL:   I was not limiting my argument to “modify”, your Honour, and it certainly extends to “vary”.

HAYNE J:   Those who refer to the Macquarie would do well to read Mr Burchfield’s piece about the origins of the dictionary, Ms McColl.  It is very illuminating.

MS McCOLL:   You always have to come prepared with a Macquarie Dictionary. It is a practice that has grown on us in New South Wales, your Honour, but certainly, can I submit, your Honour, that to the extent that is the way the Shorter Oxford Dictionary may have defined “modify” that it has been overtaken, perhaps, by changed meanings of the word but, in any event, there is a definition in section 9, of course, of the Corporations Law, which defines “modification” to include alterations and “substitutions”, they being the only two words of the relevant definition which have not ‑ ‑ ‑

GUMMOW J:   Where is the definition?

MS McCOLL:   In section 9, your Honour.

GUMMOW J: Section 9, I will have a look at that.

MS McCOLL:  

“modifications” includes additions, omissions and substitutions –

and there is a provision, I think it is section 109M, which says that if a word is used in one grammatical sense somewhere in the Law and another sense elsewhere, it has the same meaning.

CALLINAN J:   A verb counts for a noun.

MS McCOLL:   Precisely, your Honour.  Now, again, my friend takes comfort from the fact that the word “addition” does not find its way into section 730 and he relies on that, in effect, as we understand it, to read down the word “modify”.  Again, we would submit we would not read it in that way, particularly having regard to the history of the appearance of the word “modify” in section 58 but, again, as his Honour the Chief Justice says, we do not need to rely only on the word “modify”.

You look at the concatenation of words and, really, they encompass all sorts of changes to the Law which can be achieved by, in some way, varying, omitting, modifying which your Honour, with the greatest respect, we would submit that to read “modify” in section 730 as being to limit would be, really, to deny the clear purpose of the provision in Part 6.9 of the Corporations Law.  Certainly, particularly in the light of section 731 and all the decisions which have been made in the past on section 730 it has always been read as an expansive, not a limiting power and certainly not a power which, in any other case, has been held to be available to cut down the operation of the Law but rather to expand it.

CALLINAN J:   Was the section you were referring to about different grammatical usages section 109?

MS McCOLL:   Section 109M, I think it is, your Honour.  Yes, section 109M.

CALLINAN J:   Thank you.

MS McCOLL:   Now, could I just then turn to the judgment of the majority in the Full Federal Court and their Honours turned to the question of the statutory context at page 98 of the joint appeal book and set out various provisions under their heading “Statutory Context” and then looked at how Part 6.5 operated, which they clearly recognised.  At paragraph 57:

Part 6.5 operates where there has been a successful takeover –

Then they made the point again that Part 6.3 and Part 6.4 only related to the:

acquisition of shares as distinct from other interests such as options.

Really that point they then make throughout that part of their Honours’ judgment is to just look at the fact that nothing, on its face, of sections 701 or 703 enabled the acquisition of shares issued on the exercise of options.  A point they were very concerned with there was that the compulsory acquisition of “outstanding shares” referred to shares the subject of the original offer.

In this context, and this clearly played a great part in their Honours’ decision, they referred to his Honour Mr Justice Brooking’s decision in ANZ Executors and Trustees v Humes, where in an obiter comment his Honour had said that the offeror in that particular case should have really realised that the Commission could not, or probably could not, exercise the then modification power in section 58 to authorise the compulsory acquisition of convertible notes.

Now, that too at the end of the day may be a matter of debate.  There was some debate about it before their Honours and at the time it was put that that was probably a correct view.  At the end of the day it does not matter for the purposes of this case because that was not what the modification did, but that clearly played an important part in their Honours’ consideration and ‑ ‑ ‑

GLEESON CJ:   Is that why, as a matter of fact, in the present case there was no modification to purport to permit the acquisition of the options?  The modification was to permit the acquisition of shares issued as a consequence of the exercise of the options?

MS McCOLL:   That was the way the application was ultimately made.

GLEESON CJ:   But was it because of what Mr Justice Brooking had said?

MS McCOLL:   Well, not on the part of the appellant.  From this appellant’s point of view, the application it ultimately had before it was only an application to modify in the way it exercised its power.  Originally there was an application by the fourth respondent to modify the Law in either of those two ways, either to acquire the options compulsorily or to acquire the shares issuing on the exercise of the options, and ultimately the first application was withdrawn and only the second was proceeded with and that was ultimately acceded to.

HAYNE J:   But could section 730 be used to reach a result where there was compulsory acquisition, for example, of a piece of land or other property other than shares?

MS McCOLL:   That would be a quite remarkable use of it in the context of a chapter dealing with the acquisition of shares, your Honour.

HAYNE J:   And thus query whether section 730 can be used for compulsory acquisition of an item of property other than a share.

MS McCOLL:   Well, that is clearly a flavour we see running through the decisions and it may have been a matter which influenced the fourth respondent in narrowing its application for the modification.

GUMMOW J:   Or what is at present an executory right which upon exercise would mature into a share.  That is the problem.

MS McCOLL: That is a problem in the context that there may be seen to be, to the extent that one might find at all, some sort of limitation from Chapter 6. There may be discerned a limitation in relation to securities of those classes or interests of those classes, but certainly not in relation to shares.

GUMMOW J:   Is there not a definition of “share”?

MS McCOLL:   There was, your Honour, but they repealed it on 1 July this year.  However, to the extent that it existed prior to 1 July ‑ ‑ ‑

GUMMOW J:   But at the time of this ‑ ‑ ‑

MS McCOLL: At the time of this it was in section 9 and “share” is defined as:

a share in the share capital of a body –

and then one traces through “body” and comes to “body corporate” and the like.  So there was at the time a definition of “share”.

GLEESON CJ:   I do not suppose the power of modification extends to a power to modify section 731?

MS McCOLL:   That would be a novel application of it, if I can put it that way, your Honour.

GLEESON CJ:   Well, the significance of that is that section 731 is about the acquisition of shares.  That may be the basis for a view that you can only exercise this power of modification in relation to acquisition of shares.  See the second line of 731?

MS McCOLL:   I do see it, your Honour, and nevertheless it would be an interesting example of the exercise of the modification power to say it could be used to modify principles which in themselves illustrate a way in which the modification power could actually be exercised.

GLEESON CJ:   Exactly.  So let us assume that the modification power cannot be used to modify section 731, then that may be a reason why a limit on the exercise of the power is that it can only be used in relation to the acquisition of shares.

MS McCOLL:   That is certainly a way of looking at it, your Honour.

GUMMOW J:   But is it the right way?  Of course, it is a way of looking at it.

MS McCOLL:   Well, for the purposes of this case, your Honour, because what was actually done was to permit the acquisition of shares, that might be regarded as in the realm of hypothetical to look at whether that is the utmost boundary of the extent of the modification power.

GUMMOW J:   Well, we are here to try and fix some.

MS McCOLL:   Well, we appreciate that, your Honour, but ‑ ‑ ‑

GUMMOW J:   That is why you got special leave.

GAUDRON J:   Could it modify section 703 to allow for the acquisition of options?

MS McCOLL:   Well again, on its terms, if one was not to read the heading of Chapter 6 as confining the operation of section 730, then, again on its literal terms, section 703 could be modified by the operation of section 730. The modification of section 703, of course, would deal with the rights of remaining shareholders and holders, in effect, to put and require the acquisition of their interests by the offeror, but one way of looking at it may well be to regard the expression in section 731 of the necessity to make sure the acquisition of the shares takes place in an efficient market, as certainly containing the power, if necessary, to so modify the law as to enable the acquisition of the sort of section 703 securities, so that it is not impossible to entertain the idea that the law could be modified to enable the compulsory acquisition of options, but, as I said earlier, for the purposes of this case, all that is before the Court is the question of whether it could be exercised ‑ ‑ ‑

GLEESON CJ:   Yes, but as Justice Gummow has pointed out, a little more is expected of us than necessarily to decide this particular case.  Are the headings part of this Act?

MS McCOLL:   They are; not the headings to sections, but the headings to Chapters and Divisions and Parts.

GLEESON CJ:   So the Chapter heading is “Acquisition of Shares”?

MS McCOLL:   Yes.

GLEESON CJ:   Is that significant?

MS McCOLL:   It is significant, subject to the substantive provisions themselves; it is a part of the Act and it gives colour to what we then see in Chapter 6, but we also have the dictate, the wording and consideration in section 731 about an efficient market; an efficient market may well be regarded as one in which, at the end of the day, you can not only compulsorily acquire shares whenever they issue, but also, notwithstanding the way it is currently expressed in section 703, compulsorily acquire the sort of securities referred to in section 703.

GLEESON CJ:   Under the amending legislation that you told us about a little earlier, does the legislation empower the acquisition, for example, of convertible notes and options?

MS McCOLL:    It does now, your Honour.

GLEESON CJ:   And does it alter the heading of the Chapter?

MS McCOLL:   The new legislation, your Honour, divides up the chapter and we now have a Chapter 6 dealing with takeovers and at Chapter 6A dealing with compulsory acquisitions and by-outs.

GLEESON CJ:   So there is no heading of “Acquisition of Shares” relevant?

MS McCOLL:   I will just make abundantly sure of that, your Honour; I do not believe there is, but I will just check it.

GUMMOW J:   Well the heading appears at page 208 using the numbers down the bottom of the page.

MS McCOLL:    There is a heading to Chapter 6A of “Compulsory Acquisitions and By-Outs” and a heading to Chapter 6 is now “Takeovers” rather than “Acquisition of Shares”.

GLEESON CJ:   I am just trying to work out what was going on in the heads of those who decided in the present case to withdraw the application to modify by permitting the compulsory acquisition of the options and to press ahead with the application to modify by permitting the acquisition of the shares issued as a result of the exercise of the options, and I think I can suspect the answer?

MS McCOLL:   And no doubt, at least, they were partly influenced by the fact that the power had never hitherto been exercised in a way to permit the compulsory acquisitional options.  It had been exercised in a way to permit the compulsory acquisition of shares issuing upon their exercise and, of course, what his Honour Mr Justice Brooking said, may not have been without influence.

GLEESON CJ:   I have not checked, but it may be that if you looked at some of the other provisions in this chapter, you might also find that a number of the safeguards built into the scheme are aimed at acquisition of shares, but would not work in relation to acquisition of other types of security.  I do not know, but that is a possibility.

MS McCOLL:   Well, certainly at the moment, Chapter 6, the flavour is dominated by its heading “Acquisition of Shares”.

HAYNE J:   And that is because the gateway into Chapter 6 is either a takeover announcement or a takeover offer, is it not?

MS McCOLL:   That is correct, your Honour.

HAYNE J:   And those are offers or announcements in respect of a particular kind of security, namely shares.

MS McCOLL:   Yes, and voting shares.

HAYNE J:   Yes.

MS McCOLL:   Yes, that is correct, your Honour.  That is its flavour at the moment and it has been broken out, in a sense, in the new provisions and there is, in fact, a modification power within the takeover section of the new provisions, and a modification power in the compulsory acquisition section of the new provisions, but ‑ ‑ ‑

GUMMOW J:   Is your client in any way the author of section 661F on page 213 in this – what is now a law of the Commonwealth.

MS McCOLL:   Well it is a signpost, your Honour.

GLEESON CJ:   Yes, you could have a hand, could you not, or a finger.

MS McCOLL:    One day you will just be able to click on it and it will be hyper linked to – it is perhaps no different to some of the legislation we see in New South Wales and other areas, which gives us an example of how it operates in any given way.

GUMMOW J:   Is it a command of some sort?

MS M cCOLL:   I am sorry your Honour?

GUMMOW J:   Section 661F, is that a command to the reader?

MS M cCOLL:   Literally it is, your Honour.

GLEESON CJ:   It is really intended to be precatory.  Next they will be saying, “Please see”.

MS M cCOLL:   They will. Returning to the judgment of the majority, their Honours at page 99 of the joint application book, when they were looking at the operation of Part 6.9, at least accepted the matter I was addressing to your Honour the Chief Justice a moment ago when they inferred from the combined effect, or the presence of both sections 700 and 730, that it would be reasonable to infer that any exemption or declaration would be for the benefit of the applicants, and I think I can essentially say it was all downhill from there because then their Honours proceeded to look at other areas of the law and they became very concerned with the way the Panel and, indeed, the appellant under its legislation, the ASIC Act, actually can conduct a hearing.  They became very concerned with the absence from section 730 of any express power or express obligation to afford natural justice to a third party who might be affected by an exercise of the power.

GUMMOW J:   I was going to ask you about this.  Is this power in 730 one to which requirements of natural justice attach?

MS M cCOLL:   We have submitted so in our submissions, your Honour.  We have referred the Court to FAI v Winneke and we would submit that there is no intention on the face of section 730 to exclude the principles of natural justice, and that that was a matter which their Honours should have taken into account when they were applying, in effect, this exclusionary process of reasoning to say that because it was not expressly referred to in section 730, therefore you should construe the legislation as not permitting the affectation of third party rights.

GUMMOW J:   So you do not dispute that these third parties in this sort of situation would have some standing for which they could be heard?

MS M cCOLL:   We do not dispute it at all.  We point to section 1317B which gives them express power to apply for the decision and to seek the relief which was sought in this case, so we say that ‑ ‑ ‑

GUMMOW J:   Yes, that is 1317, is it?

MS M cCOLL:   Section 1317B.  It is in the supplementary materials we provided yesterday, your Honour.

GUMMOW J:   But that has to be read with this.

MS M cCOLL:    Yes, that is so, and unfortunately their Honours did not refer to that and this really comes back to our procedural fairness point because this sort of ‑ ‑ ‑

GUMMOW J:   Now, is it 1317B that got your opponents into the AAT?

MS M cCOLL:   It was.  That was the route which they ultimately took to get to the Full Federal Court, but unfortunately, because we did not debate this process of statutory reasoning which their Honours applied, we did not have the opportunity to really draw it to their attention.  The case was not put that way before them.  So that was really a large part of their Honours’ judgment, and then going over to page 101 was about this concern that you should interpret section 730, or read it down rather, because of the absence of those sort of express provisions dealing with natural justice.

Then when they looked at section 730 at page 101 of their Honours’ judgment, again really they said, because we can find an express position for the compulsory acquisition of outstanding shares – which is paragraph 64 of their judgment – and that absence of any provision relating to shares which were not the subject of the original offer, it suggests that the structure of the section means section 730 does not authorise such a declaration.  The fact that they could not find shares issued following the exercise of options dealt with at all also influenced them.

Now, for what it is worth, it should be noted that the sort of people who might fit into the category of remaining shareholders in section 703 could well be people who had exercised options and became entitled to shares which had not been caught up under the original Part A offer.  So there is, in effect, a reference to shares issued following the exercise of options, and then referring to those two absences, in effect, they said that those matters suggested that Parliament did not intend such shares be subject to compulsory acquisition.  At the bottom of page 101, going over to 102, their Honours, with respect, made an observation which we would submit flies in the face of section 731 and its dictates where they say:

No good point would be served by providing for acquisition after exercise thereof, particularly as, in some cases, such exercise may occur long after the relevant takeover.

They seem, with respect, at that stage to have lost sight of the very good point which would be served by enabling somebody compulsorily or to acquire, whether compulsorily or otherwise, 100 per cent of the shares in a company.

Then on the top of page 102 in paragraph 65, with respect, their Honours just read section 730 far too restrictively. Because they could not

find an express reference to section 7 in section 730 to “affecting the rights of other parties”, they concluded that section 730 could not carry that connotation with it. Again, in our respectful submission, their Honours failed to have regard to the clear affectation of third party rights which runs through Chapter 6 of the Corporations Law.  Then, of course, they refer to their two well-established canons of statutory construction. 

What we have said in our written submissions and what we put is that, with respect, their Honours gave those canons of statutory construction, really, an unbalanced, an overriding weight in their exercise of statutory interpretation, rather than looking at all of the factors which this Court has said in Project Blue Sky and in the Radio 2HD Case should be had regard to when considering the extent of a power such as this, the scope, the context and the purpose of the legislative scheme. Once you looked at the matter that way, as his Honour Mr Justice Beaumont did, then their Honours should, with respect, have come really to the conclusion his Honour did that to apply particularly that canon of construction about the affectation of third party rights in this context would reverse the policy of Chapter 6 entirely.

His Honour Mr Justice Beaumont’s approach was consistent with all of the authorities on the application of this modification power which we referred to in our written submissions.  It is consistent with the policy of the legislation and was, with respect, the correct approach to the proper construction of section 730.  For all of those reasons, we would submit the appeal should be upheld.

GLEESON CJ:   Thank you.  Yes, Mr Rares.

MR RARES:   If the Court pleases, we adopt the submissions of our learned friend, Ms McColl. Your Honours, when one looks at section 730, in light of the definition of “modify” which was introduced when the Corporations Law was enacted, in section 9 including addition and substitution, one sees that the Commission is given a plenary power within Chapter 6 to address anomalies in the market and to address the individual circumstances in which an acquisition of shares takes place.

GLEESON CJ:   What do you say about whether one of the limitations on that power is that the modification can only be such as to permit an acquisition of shares, as distinct from an acquisition of some other kind of property?

MR RARES:   We say that one factor that might impact on how the Court will construe that is to look at the fact that an option or a convertible note, which are species of property with which Chapter 6 deals, are means of acquiring shares. You exercise the option, you acquire a share; you exercise a convertible note, you get a share. So both of those provide means for acquiring shares and that may explain why the legislature put them into Chapter 6 and dealt with them in particular terms. There is a definition of “renounceable option” in section 603 at the commencement of Chapter 6.

GLEESON CJ:   At least in the case of a convertible note, they provide something in addition to an opportunity to acquire a share.

MR RARES:   Yes, but you do have a contract which you are free to exercise at your volition as the option-holder and which you can dispose of in the market?  Section 627 picks up, in part, the concept of acquiring an option or a convertible note, and converting it so as to bring oneself within or outside the central fulcrum provision of section 615, which is the one that says if you acquire shares so that your entitlement goes beyond 20 per cent, then you have to make a takeover offer or make a takeover announcement, unless you had 90 per cent or more before that.

The other way it comes up is in section 701 itself, in subsection (2)(b), where the words in brackets deal with the situation that some people exercise options or convertible notes after the offeror has achieved the 90 percent threshold and dilute that holding below 90 per cent.  You still have the right to compulsorily acquire not only the 10 per cent or less that you did not have at the time you got the 90 per cent threshold, but you get the new shares as well that are issue consequent to allotments.

GLEESON CJ:   We know as a matter of fact in the present case that an application to modify by permitting the compulsory acquisition of the options was not pursued.

MR RARES:   That is right.

GLEESON CJ:   In your submission, could it have been pursued.  I mean by that, would it have been within the power of the Commission to make that form of modification or variation?

MR RARES:   Well, your Honour, we did not pursue it for the reasons that are set out in the Federal Court appeal book at page 145, which I said for abundant caution we were only seeking to exercise to acquire the shares issued on exercise of the option.

GLEESON CJ:   But why did that represent an abundance of caution?

MR RARES:   Because Justice Brooking had made those remarks in a tentative way and ‑ ‑ ‑

GLEESON CJ:   So it was related to the observation made by Justice Brooking in 1990?

MR RARES:   Yes, there is a caution about it.  One has to consider that obviously participants in the market want certainty and no doubt my client took that view, that it was better to go with a route that had been explored and had at least achieved notice.  My friend mentioned there were two instances where the National Companies and Securities Commission had previously allowed the compulsory acquisition of shares issued consequent upon the exercise of options and they are to be found at pages 113 and 114 of the Federal Court appeal book.  The first one is a case of Newmont Mining and the second is a case of Pioneer.

Now, it may be that when one looks at the fact that Chapter 6 does include these other species of property, namely, renounceable options and convertible notes, that its reach would permit a modification of that extent, although when one is taken to the words of section 730, and particularly 730(1), one has to have regard to the acquisition being of shares themselves as opposed to interests which may entitle one at a later stage to get shares, but the scheme of Chapter 6, of course, is concerned with not only acquiring shares within the definition of section 51 in the Act, which also seems to seize on actual shares or an interest in shares that presently exist as opposed to an option. So I think the better view is going to be that of Justice Brooking on this.

GLEESON CJ:   I infer from what Ms McColl said or did not say that the Commission has not in the past administered the Act on the basis that it permitted modification so as to allow the compulsory acquisition of property other than shares.

MR RARES:   Yes.

GLEESON CJ:   If the Commission had done that in the past, I would have expected a more vigorous response by Ms McColl.

MR RARES:   Yes, but, I mean, in this particular case the modification is one which clearly deals with the situation of a company in which all of the shares at the time of the takeover have been acquired or subject to compulsory acquisition and they were ultimately all acquired and you have a very, very small group of option‑holders who do not sell their options under the offer under 703(4) that was made to existing option‑holders so they could get out and the question is:  how does the Commission in taking “account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market” within the words of section 731, go about trying to address that situation?  The mechanism that has been adopted of saying when and if the options or convertible notes are exercised for the purposes of acquiring shares, the person who exercises that right becomes obliged to make over the shares on the payment of a fair price.  One of the things that this modification did and which the Deputy President in the AAT specifically addressed was to make sure that there was a fair price and, secondly, that in the event that the new shareholder, as it were, did not like the price that was fixed by an independent expert, they could apply to the court under the modified section 701(6), so that elements of preserving fairness to the shareholders and making sure that there was no oppression by the majority shareholder in the circumstances were all preserved and yet if, where there is no mechanism for acquiring compulsorily options or convertible notes, the whole scheme of the takeovers legislation could be frustrated by a number of option‑holders or convertible note‑holders holding out and simply saying, “Well, we’re not going to sell in and we’ll exercise our options later.”

In that situation the competitiveness and efficiency of the market and the very things that a 100 per cent takeover are designed to achieve would be frustrated, and so one looks at the public policy purpose that section 731 and section 730 vest in the Commission and we say that consideration of public policy informed the exercise of the discretion to vary or modify the shares.

HAYNE J:   You said that the price was fixed by the expert.  Is that right?  Was not the price fixed by Southcorp and then said to be fair and reasonable in the opinion of an expert?

MR RARES:   Your Honour is quite right. 

HAYNE J:   Yes.

Now, the Full Court majority sought to interpret Part 6.9 in a way that did no have the benefit of any submissions made on their view of how the interaction occurred between the Commission’s powers and the Panel’s powers and the Court’s powers and had their Honours considered the way the Panel’s powers worked they may not have taken the view that the Panel was concerned, as they say at the bottom of page 99 of the joint book, with enforcement and that the powers they say in:

section 728-731 are not concerned, they say, with enforcement, but with relaxation of the Law.

The way this scheme is structured:  your Honours will notice when one looks at the old section 58 that it was the Commission without the need for any application to it that could exercise the power to vary or modify the Law.  What happened when they introduced the Corporations Law was that they put into 728 and 730 that there had to be somebody within the class, at least, who made an application to the Commission and that the Commission then had regard to the Eggleston principles – did not have to follow them but it had to have regard to the – that are set out in 731.

The way the Panel works, as this Court explained in Precision Data Holdings Ltd v Wills (1991) l73 CLR 167 was that the Commission, where it thought there were unacceptable circumstances, that is, breaches of the Eggleston principles, did not itself, of its own motion, exercise its powers, it referred to the Panel the question whether there were unacceptable circumstances and the Panel made a declaration - the same mechanism as you have got in 730 that the Commission makes a declaration – the Panel makes a declaration that there are unacceptable circumstances.  As a result of that declaration new rights and new liabilities come into existence.

Similarly, when the Commission makes a declaration at the suit of some applicant - and it can be a dissenting shareholder, it does not have to be a takeover offeror - the Commission makes a declaration and new rights and new liabilities come into existence as a result.  If one looks at the joint judgment of the whole Court, at page 187, their Honours look at the way that the Panel’s powers operate and refer back to 731 in a manner which we would say is informative and analogous to the present case.  In the middle of the page their Honours refer to section 731 and at the foot, just before the last new paragraph on the page, their Honours say:

The matters dealt with in the opening words of s. 731 all impinge upon the public interest –

and we emphasis that, that that is when one is looking at the 2HD test, or the way that the Court approached statutory interpretation, subject matter, scope and purpose of the Act, public policy considerations were not to be limited and we say that the Full Court just applied an erroneous interpretation in the majority judgment.  At page 190 the court explains what the Panel is doing when it is making a declaration is not exercising judicial powers but is creating new rights and liabilities by making this declaration operating on events that have occurred.  In a takeover, such as the one we have here, the events that have occurred are that there are outstanding options.  My client says, “Well, what do we do about it?  Can we create some new regime?”  The Commission says, “We will declare that the law now applies in this way in this particular instance”.

New rights and liabilities are created.  People go to court and seek to exercise them in the same way that the Panel when it makes a declaration of the converse, that is, where it is said that there have been unacceptable circumstances, it says, “Well, we declare there are unacceptable circumstances ‑ ‑ ‑

GLEESON CJ:   I am not quite sure how you are relating this to the issue in the present case.

MR RARES:   What seems to be being put is that you cannot vary the law because section 730 is to do with simply relaxing it.  What we say is it does not necessarily mean it is relaxed at all.  The Commission can exercise a power to – whereas, say, a predator or an offeror has made an offer that is not within the Eggleston principles, and a dissenting shareholder goes to the Commission and says, “Listen, we want you to vary the law to bring it within the spirit of the Eggleston principles, even though it is currently within the spirit of the law” the Commission can vary the law to make it harder for the offeror to pursue the takeover.  What the Full Court has done is adopted an interpretation that somehow seeks to restrict the Commission’s powers by completely, we would respectfully submit in the majority judgment, misconstruing how the Panel operates and how the Commission operates and how these sections operate.

It is talking about, simply 730 relaxing the law.  That does not necessarily apply at all.  The Commission has got a plenary discretion and it is entitled to move to make the law more difficult because somebody is within the letter but not within the spirit of Eggleston principles.

What the Commission is doing when it does that is declaring new rights and liabilities in the same way as the Panel does when the Commission is the only person who is concerned that the letter and spirit of the law are not harmoniously being respected in a takeover or an acquisition of shares context. It is not just in a takeovers context that Chapter 6 applies. It applies to any acquisition of shares in the market so that one can have culminations of people where the view is taken that there are unacceptable circumstances or the like, the Panel comes in and says, “We’re going to have a vesting of those shares and we’re going to order those to be put back on the market” or whatever.

What the Court said at about point 5 on 190 was that when the Panel made an inquiry, which is a step further than the Commission needs to go, although in this case, the Commission afforded all of the current complainants who are the relevant other respondents, natural justice at the time.  They all got natural justice as my learned friend, Ms McColl, pointed out.  There is Part 9.4B which is the 1317D provisions that say even if you are not heard you have a right of appeal if you are affected.  The Commission does not have to notify everybody who might be affected so that although the Commission would, ordinarily, afford natural justice, any failure to do so is curable in the AAT and you get a complete rehearing on the merits.

Now, in the Full Court at paragraph 60 on page 100, between lines 20 and 35, their Honours seek to use this erroneous interpretation of the limits on the Commission’s powers to suggest that, really, it is because the Panel and the court are there to enforce the law that the Commission should not be seen to be able to modify it to allow for the modification that occurred in this case and, in our submission, it just does not follow.  The Panel is not there to enforce the law.  It is there to make new rights and new liabilities by making a declaration of unacceptable circumstance.

GAUDRON J:   Including by removing section 701(6)?

MR RARES:   What the Panel can do is make orders or declarations under section 734 declaring unacceptable acquisitions or unacceptable conduct and then if one looks at 734(2)(a) it has a protective power to deal with matters.  Now, your Honour, that is a general power and it may be it is really to deal with the particular person who has engaged in the conduct and addressed the consequences of that person’s conduct and it does not appear to have the same width of power as 730 gives to the Commission to deal with ‑ ‑ ‑

GAUDRON J:   You would say 730 gives to the Commission the power to delete, as it were, section 701(6)?  You must, must you not?

MR RARES:   It must, yes.  The question is then whether, if the Commission did that, that would be something that would be susceptible to judicial review but it is clearly able to do that and likewise, in this case, there was a modification to that subsection to allow the converting option‑holder to apply to the court within a month after the purported compulsory acquisition applied so, yes, your Honour.             

Your Honours, our learned friends have referred to manifest unreasonableness in their submissions.  Does the Court wish me to address that at this stage?

GLEESON CJ:   Let us just understand where we are going procedurally.  There was no notice of contention.

MR RARES:   There is no notice of contention.

GLEESON CJ:   So there is no attempt to uphold the decision of the Full Court of the Federal Court on the ground other than the ground of that decision?

MR RARES:   That is correct.

GLEESON CJ:   And that ground of decision was not related to unreasonableness?

MR RARES:   That is correct.  It simply relates to power.

GLEESON CJ:   Yes, you can wait and see what, if anything - - -

MR RARES:   If your Honour pleases.  Unless there is anything else, those are our submissions, your Honour.

GLEESON CJ:   Yes, thank you, Mr Rares.  Yes, Mr Graham.

MR GRAHAM:   If the Court pleases, there are six principal matters that we wish to address and then there are three additional matters in my learned friend Mr Rares submissions that we will wish to comment on. The six matters we wish to address are, of course, in addition to our written submissions. Firstly, the word “modification”, secondly, following the theme that Justice Gummow raised earlier as to the relationship between sections 728 and 730, and our submission is they are complementary. The third matter we wish to address is the control imposed on the exercise of the power under section 730 by section 731. The fourth matter we wish to address is the scope and purpose of Chapter 6 and what it demonstrates by way of legislative intent.

Fifthly, the principle that proprietary rights cannot be interfered with in the absence of a clear intendment to do so; and sixthly, the significance in section 730 of the words “shall apply as if”. Dealing firstly with the question of the meaning of the word “modification”, our submission is that section 730 does not give to the word “modification” the extended meaning contemplated by the definition of the word “modifications” in section 9. It suggests that “modifications” includes omissions, additions and substitutions. Our submission is that because of the fact that section 730 already introduces the concept of “omitted”, then one cannot rely upon the definition in section 9 to read “modified” as if it read “omitted, modified, substituted, added”.

In that context we would draw the Court’s attention to the fact that the word “were” has been used twice in section 730 in the phrase dealing with omission, modification and variation.  It provides:

that this Chapter shall apply…..as if a specified provision or provisions of this Chapter were omitted or were modified or varied –

It does not read “as if a particular specified provision were omitted, modified or varied”, nor does it read “were omitted, were modified or were varied”; rather it reads “were omitted or were modified or varied”, providing some conjunction between the use of the word “modified” and the use of the word “varied”.  As the Chief Justice has said, “modified” means limited; “varied” picks up a concept perhaps of change.  Another way of looking at it would be to suggest that because of the way the word “were” has been used, that the two expressions are intended to be synonymous in the phrase in which they are used.

In relation to the second matter ‑ ‑ ‑

HAYNE J:   Just before you leave the first, I do not understand what the consequence is that you attribute to this discussion of that part of the section.

MR GRAHAM:   I think the consequence is that, effectively, what the declaration does in this case, your Honour, is to create a new statutory provision and it operates in the nature of an addition to the law rather than a modification or variation of the law.

HAYNE J:   That is, is it your contention that the word “varied” does not include “varied by adding”?

MR GRAHAM:   Correct. It contemplates change, and that perhaps leads into the second matter that I wish to put. The second matter deals with the relationship of sections 728 and 730. Our submission is that the two sections are complementary. Section 730 allows relief falling short of exemption ‑ ‑ ‑

GUMMOW J:   What does “complementary” mean in this submission?

MR GRAHAM:   What it means, your Honour, is I think in my next sentence, section 730 allows relief falling short of exemption to be granted.

GUMMOW J:   Exemption from what?

MR GRAHAM:   Exemption from compliance with the provisions of the Act.  To put this submission fairly I need to trace some of those historical sections, if I may.

HAYNE J:   I should say to you I do not understand where the submission is going.  I am not sure what the proposition is that you are about to take us to the history to demonstrate.  What is the proposition?

MR GRAHAM:   Can I illustrate it in this way. One of the sections that has not yet been referred to in the case is section 615 which is a threshold section in Chapter 6. Section 615 is the section which imposes restraints upon the acquisition of shares unless, to use your Honour’s expression, one follows one of the gateways, namely, section 616 to use a “takeover scheme” or section 617 to use a “takeover announcement”. The effect of section 615 is to say that you cannot acquire voting shares in a company which will take your share holding from below 20 per cent to above 20 per cent or, if you are already between 20 and 90 per cent, you cannot increase your share holding except by following a takeover scheme or a takeover announcement which complies with the Act. That, of course, excludes the creep provision, the 3 per cent every six months, which I put to one side.

Can I illustrate what I mean in this way.  If one were to contemplate a company which by statute was precluded from owning more than 22 per cent of the shares in any other company, such a company may go to the Commission and say, “We would like an exemption from section 615.  We would like to be able to acquire shares without being constrained to go via the route of a takeover scheme or a takeover announcement”.  The Commission would be permitted to say, “Because of your statutory restraint on the acquisition of shares in excess of 20 per cent of any company, we will give you an exemption”.  Alternatively, it might say, “We will make a declaration modifying the application of section 615 to you, so that the threshold of 20 per cent shall in your case be 22 per cent”.  So that, were the law to change so that that company could later acquire, say, 50 per cent of the shares in a company, if it had the benefit of the exemption, it would be able to blaze ahead and go up to 50 per cent.  If it only had the benefit of a declaration modifying the application of the Law to it, it would be constrained by the terms of the declaration to not increasing its shareholding to more than 22 per cent without following the requirements of the Law.

I would like, if I could, having given that illustration, to take the Court to the relevant sections.  The first relevant section is set out in my learned friend Ms McColl’s document, a bundle entitled “Appellant’s Materials Accompanying Submissions”, page 35.  This forms part of the 1971 amendment to the 1961 Companies Act, the Uniform Companies Scheme, which for the first time introduced a reasonably extensive takeover provision into the Companies Act.  Section 180V which is set out on page 35 provides that:

The Minister may…..exempt a person , as specified in the order and subject to such terms and conditions…..from compliance with all or any of the provisions of this Part or of the requirements set out in the Tenth Schedule.

There was at that stage in 1971 no power to make a declaration modifying or varying.

The next relevant provision is then at page 78 of the same bundle which is the genesis of the Companies (Acquisition of Shares) Code, sections 57 and 58.  At page 78 one has section 55 of the Company Take‑Overs Bill 1979 and that introduces for the first time the concept of a declaration.  Section 55(1) repeats the concept of exemption:

The Commission may, by instrument in writing, exempt a person, as specified…..from compliance –

and subsection (2) of the exemption power deals with the question of modification in these terms:

The Commission may, by instrument in writing, declare that this Act shall have effect in its application to or in relation to a particular person or persons in a particular case as if a provision…..specified in the instrument was or were omitted or was or were modified or varied in a manner specified –

If one goes to the explanatory memorandum referable to that provision, which is on page 80, two pages later, one has the words of paragraph 157 in the explanatory memorandum for that Bill:

The NCSC will be able to grant exemptions from compliance with any provisions of the proposed takeover code –

and that is nominated as being:

based on existing section 180V.

And then:

To cover a situation where the proposed code expressly prohibits the action in respect of which exemption is sought, the NCSC will also be able to declare that provisions of the code apply in a particular case as if varied or modified –

demonstrating that section 730 is complementary to section 728; its genesis lies in the concept that if exemption is sought but the Commission feels that inappropriate, it may meet them halfway and make a declaration, which will omit a provision or modify or vary a provision so as to provide some relief from the strictures, falling short of exemption.

GUMMOW J:   But did this 1979 Bill become a statute?

MR GRAHAM:   No, your Honour.  The next statute is the ‑ ‑ ‑

HAYNE J:   But the discussion reveals the purpose of the change, does it not?  You can exempt from compliance.  On its face there would seem to be some difficulty about exempting from a prohibition.  How then is the legislature to deal with what might loosely be described as the problem of exempting from a prohibition?  It deals with that by providing for variation or modification.

MR GRAHAM:   I suppose shortly, your Honour, if there was a prohibition you shall not acquire more than 20 per cent of the shares without following an established procedure, they could be exempted from it, in which case you could have an exemption from the prohibition.

HAYNE J:   But the exemption provision was exemption from compliance, was it not?

MR GRAHAM:   Yes, your Honour, but I think, with great respect, my submissions stand.  The next statutory provision is the Acquisition of Shares Code of 1980, which came into force on 1 July 1981.  The relevant sections are set out on page 76 in this bundle and, for the first time, instead of having them expressed in one section, as in the Company Take‑Overs Bill, they are to be found in two sections, 57 and 58.  57 confers the exemption power and 58 confers the modification power in terms substantially similar to what we now have in 728 and 730.  The Court will appreciate that 729, the intermediate section in the present scheme, simply deals with the obligation to comply with conditions if they are imposed in the grant of an exemption under 728.

I am sorry it is not in this particular bundle of documents, but may I ask the Court to go to the explanatory memorandum in respect of sections 57 and 58 which are to be found in the bundle entitled “First Respondent’s Accompanying Material”.  In the first document in that bundle we repeat the Company Take‑Overs Bill and the explanatory memorandum.  The second document in the bundle is the explanatory memorandum in respect of the Company (Acquisition of Shares) Bill - it follows the first yellow piece of paper – and paragraph 164 deals with the exemption power and paragraph 165 with the modification power.  In relation to the exemption power, 164 provides:

The NCSC will be able to grant exemptions from compliance with any provisions of the proposed code.

And then in relation to clause 58, the modification power, paragraph 165 provides:

The NCSC may, by instrument in writing, declare that provisions of the code apply in a particular case as if modified or varied, and where such a declaration is made, the code has effect accordingly –

then they give the illustration –

eg in the case of a situation where the proposed code expressly prohibits an action in respect of which an exemption is sought –

so the link is apparent in that illustration as it was, indeed, in the explanatory memorandum in relation to clause 55 of the Company Take‑Overs Bill that the purpose of section 730 is to allow relief falling short of exemption to be granted.  It is not ‑ ‑ ‑

GAUDRON J:   Or one purpose.  You have got, for example, one purpose is the best you can make out of that, is it not?

MR GRAHAM:   The use of the “for example” but if one goes back to the explanatory memorandum in respect of the earlier Bill I think it demonstrates that it is the intended purpose.  Yes, that it is to allow relief short of exemption to be granted.

GLEESON CJ:   Well, even within that example the power is a power to permit that which the statute prohibits.

MR GRAHAM:   Yes, but by way of modification of the section as it applies and I will amplify that when I come, if I may, to my sixth point dealing with the words “shall apply as if”. The next submission we wish to put, the third point, deals with section 731. Section 731 speaks prospectively. It contemplates that a section 728 exemption – and may I add, of course, a further indication as to the link between 728 and 730 is demonstrated by the fact that 731 is a control on the exercise of both of them, in exercising any of its powers under the one or the other these are the principles that are to be taken into account. If one looks at the words of section 731, it starts off with:

the Commission shall take account of the desirability of ensuring –

Those words contemplate that at the time of the exercise of the power of exemption or declaration the acquisition of shares will not have proceeded or, at least, the offer will remain open and the offer period will not have closed.  That is reinforced by the second constraint that the Commission:

shall have regard to the need to ensure –

certain matters, firstly, information as to identity of offerors speaks prospectively.  A reasonable time to consider the proposal speaks prospectively.  Thirdly, information is provided to enable them to assess the merits of the proposal and then, finally, (d), which is perhaps the most important one:

all shareholders of a company have reasonable and equal opportunities to participate in any benefits accruing to shareholders under any proposal –

so that those words, in our respectful submission, which are mandatory and which control the exercise of the powers under 728 and 730, it may be that because of the last two lines that having considered them the Commission does not adhere to them, but in addressing whether or not to exercise the power, it must look at the situation prospectively and, in our respectful submission, that means certainly no later than the end of the offer period.

Here, of course, the declaration in question was made on 1 October 1996 and that was after the offer period had closed on 30 July 1996.  The section 701 notices had been sent out on 31 July 1996.  All of the shares had been compulsorily acquired, to which the offer related, so that they had acquired 100 per cent of the relevant shares and after that occurred the declaration was made that dealt with the other interests.

GLEESON CJ:   The provisions of section 701, unmodified, may operate after the end of an offer period, may they not?

MR GRAHAM:   They do, inevitably, because the compulsory acquisition power only arises if you have achieved certain thresholds and within the offer period.

GLEESON CJ:   Then, can you not modify section 701 under section 730?

MR GRAHAM:   In our submission, not after the end of the offer period for the reason that all those proposals that were referred to were acquisition of shares under offers, not acquisition of shares by compulsory procedure.

GLEESON CJ:   So, although, in your submission, the Commission can make a declaration under section 730 affecting section 701, it has to make that declaration before the end of the offer period.

MR GRAHAM:   That is our submission.

HAYNE J:   Does it also follow from that submission that the Commission could not reopen, effectively reopen, a closed offer, even if of the view, “that the shareholders and directors of a company” had not had “a reasonable time in which to consider” the proposal.

MR GRAHAM:   Yes, your Honour, because there would then be no proposal.

HAYNE J:   That is that despite 731(b) and the second of the Eggleston principles that cannot be given effect to in the circumstances described.

MR GRAHAM:   Because there would be no offers on the table.  In the circumstances that your Honour contemplates revisiting it would be to no avail because there would be no offer that if you gave a more ample reasonable period by extending the time nunc pro tunc there would be no offers on the table because the offers would have closed at the earlier time.  Whilst I am addressing section 731 may I remind the Court that the first requirement in 731 is that:

the Commission shall take account of the desirability of ensuring that the acquisition of shares in companies takes place in an efficient, competitive and informed market –

Some have construed those words as indicating that there is an economic goal to be achieved of converting companies into subsidiaries – wholly‑owned subsidiaries of others.  Certainly, those words offer no support for that proposition at all.  An “efficient” market is one in which shares are freely traded.  A “competitive” market is one where there are no restraints on the buying and selling of shares and an “informed market” is one which ensures that buyers and sellers of shares know what they are doing and what the background circumstances are.  The word “market” is a key word in that phrase and one that needs to be taken into account.

The fourth matter that we wish to address is the scope and purpose of Chapter 6 or subject matter scope and purpose, context scope and purpose as the cases use that expression. In our submission, Chapter 6 clearly demonstrates a legislative intent to confer rights, not to impose obligations, on the holders of renounceable options. That is clearly evident from section 703(4) to (8). Section 703 really needs to be analysed in the two parts that make it up.

As Ms McColl said in her submissions, there is no obligation on a company which has achieved 90 per cent ownership of the shares in a company to serve a compulsory acquisition notice.  It is open to an offeror who has achieved 93 per cent to sit tight and not require the remaining 7 per cent to be transferred to it, compulsorily acquired.

Section 703(1) to (3) confers rights on those holders of 7 per cent in my illustration to choose whether or not they wish, knowing that the offeror has succeeded in getting 93 per cent - whether they wish to opt out and compel the offeror to buy them out so that they do not remain locked in a minority situation in relation to such a company.  Section 703(4) to (8) complements those provisions and provide rights on the holders of non‑voting shares, convertible notes and renounceable options who are confronted by a situation where an offeror has acquired more than 90 per cent of the voting shares in the company to again opt out and say, “We do not want to be in a position where, if we choose to convert our notes or if we choose to exercise our options or if we are a holder of non‑voting shares” they do not want to be in a position where they must stay there with the prospect of becoming a minority shareholder.

GUMMOW J:   The question is, granted all of that, what happens if they want to stay there?

MR GRAHAM:   If they wanted to stay there they simply choose not to serve a notice under section 703(8) requiring the offeror to buy them out.  I think I am right in saying subsection (8).

GLEESON CJ:   Mr Graham, if there were not a capacity to make a declaration of the kind made in the present case, issuing options or convertible notes would become a standard form of defence to a takeover, would it not?

MR GRAHAM:   Yes, your Honour.

CALLINAN J:   And might prevent other shareholders from getting the takeover premium that shareholders often look for in their shares.  I mean, it frequently happens that a company under‑performs but has very large value in assets and it is said that there is a takeover premium in the share price.  Now, in the circumstances referred to by the Chief Justice, to construe the provisions as you would have them construed might deny the ordinary shareholders the benefit of that takeover premium because nobody would want to take over a company in those circumstances.

MR GRAHAM:   I think, with respect, your Honour uses the expression “takeover premium” in a way which requires some analysis because, if you have your body of shareholders to whom you initially make your offer, the takeover premium is that which the holder of the most significant block of shares can command to compel the offeror to lift its bid to enable it to acquire that block of shares.

CALLINAN J:   No, not necessarily; it is not used in such a confined way and I was not using it in such a confined way.

MR GRAHAM:   I am sorry, your Honour; I think that one needs to distinguish between that use of it and the use of a second control premium that might arise if you have a renounceable option which is exercised after the close of a takeover, after a shareholder has acquired, as they did in this case, 100 per cent, and then they are watered down to 99.9 per cent by virtue of the exercise of options.  There is certainly a right then conferred on those new shareholders to claim a premium if indeed the offeror wishes to make another offer and remove them from the register.

CALLINAN J:   I was really referring to the deterrent effect upon takeovers that the existence of a body of option holders might have if the legislation were to be construed in the way you suggest; that is all.  And if there is a deterrent upon takeovers, that might prevent shareholders from getting the value that they would otherwise get in a free market, where takeovers could take place on a 100 per cent basis in accordance with the way on which the appellant says the legislation should be construed.  That is all I was suggesting.

MR GRAHAM:   Yes.  I think to answer the Chief Justice’s question, there is no mechanism whereby that form of defence to a takeover offer can be avoided beyond imposing conditions on your offer itself that the offer is conditioned upon there being no fresh issue of renounceable options or convertible notes during the currency of the offer period and, secondly, by providing, as Southcorp did in this case, that its offers were conditional upon securing 100 per cent of acceptance of the offers.  What it chose to do as a matter of fact was to negotiate a commercial arrangement with Coldstream Australasia that if it waived its conditions, Coldstream would recommend the bid to the shareholders.  They took that commercial risk and thereby exposed themselves to the possibility that after they acquired 100 per cent of that which they were seeking, they would then be diluted at a future point in time, potentially to 99.9 per cent or some lesser per cent.

The second element of scope and purpose that I would wish to take the Court to is in the words of sections 701(2)(b) and 703(1)(b) where the existence of later issued shares is clearly in the contemplation of the legislature when it provided the compulsory acquisition procedure.  It may be appropriate if I return after the adjournment to the meaning of the last three lines of section 701(2).  The power of compulsory acquisition that is conferred by section 701 is confined to shares to which the offers related.  The power is to give a notice to a dissenting offeree, which is a defined expression defined in section 701(1), to the effect the offeror desires to acquire the outstanding shares – that is again a defined expression in section 701(1) – held by the dissenting offeree – which is, of course, a defined expression in 701.  But if one looks at section 701(2)(b), the words in parentheses, one of the two conditions that must be satisfied before a compulsory acquisition notice is served is that:

during the takeover period the number of shares in that –

relevant –

class to which the offeror is entitled has become not less than 90% of the shares in that class –

Then the legislature said to itself, “but it may be that by the time the compulsory acquisition notice is served, that will no longer be the case”, and it makes that point abundantly clear by the words which follow:

(notwithstanding that that number of shares may subsequently become less than that percentage as a result of the issue of further shares in that class) –

The period during which the compulsory acquisition notice may be given is, of course, 2 months after the end of the offer period.  What they are saying is that on the 59th day after the offer period, you may no longer satisfy the test which you did satisfy at the end of the offer period.  At the end of the offer period, if you have 90 per cent, then you may serve a compulsory acquisition notice, even if that 90 per cent has become 89 per cent or 88 per cent, or 70 per cent, because in the intervening 2 month period, fresh shares have been issued, either by the company allotting them themselves, Coldstream, or by convertible notes being converted, or by renounceable options being exercised. 

The same contemplation is apparent in section 703(1)(b) in relation to the entitlement which is conferred on the remaining shareholders to have notice that the offeror has secured over 90 per cent, and then to give them the option to sell out in the absence of a compulsory acquisition notice.  The same words are there in parentheses that you must 703(1) notice if you have 90 per cent:

(notwithstanding that that number of shares may subsequently become less than that percentage as a result of the issue of further shares in that class).

To hark back to what the Chief Justice asked Ms McColl earlier, it is clear that the definition of “renounceable option” in section 603, the express reference to the exercise of options in section 627, the express rights conferred on option holders in 703(4), and the provisions of Part A and Part C, those paragraphs that require details of offers in relation to renounceable options to be disclosed in Part A statements to shareholders and Part C statements to shareholders – I think the paragraphs are 10, 11 and 12, or 9, 10 and 11, something like that, in each case – they demonstrate that the legislature clearly had in mind that there would be people in the position of option holders, convertible note holders and the holders of shares acquired subsequent to the end of the offer period in relation to whom there would be no compulsory acquisition mechanism.  Having made their intention clear in the way in which they formulated the relevant provisions, it is, in our submission, quite clear that it was not intended that section 730 could be used to create a power of compulsory acquisition that is outside what was plainly within the purview of the legislature at the time.

GLEESON CJ:   Is that convenient time, Mr Graham?

MR GRAHAM:   Yes, your Honour.

GLEESON CJ:   We will adjourn until 2.15.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

GLEESON CJ:   Yes, Mr Graham.

MR GRAHAM:   If the Court pleases.  Your Honour the Chief Justice this morning put the proposition to me that a defence mechanism that could be followed to frustrate a takeover would be to issue renounceable options or convertible notes during the currency of the offer.  The response that I gave is that that is commonly controlled by the inclusion of a condition in the offer documents that no such securities will be issued.  One then has to address the second situation of what happens if you have a case like Coldstream Australasia where there are three existing long‑standing classes of options long before Southcorp ‑ ‑ ‑

GUMMOW J:   Well, it is also dealt with by section 684, is it not?  It would be a prescribed occurrence perhaps.

MR GRAHAM:   It could be dealt with by the Panel as under 684 were they to be allotted or issued during the currency of the offer, but I want to move to the situation we have here where there were employee options, 50 cent options that expired I think in – I have forgotten the precise date – but between 1996 and 1998 and then the 72 cent options which expired on 8 October 1998.  One can either follow the route of making a bid as Southcorp did for 100 per cent of them and make that a condition that the takeover will only proceed if all of the options are acquired. 

The other route that is commonly followed is to make it a condition of the offer that a scheme of arrangement be put through by the target company with its shareholders and option‑holders to, in effect, discharge the options so that they can then invoke the power of a three‑quarters majority to seek to enforce upon a dissentient 25 per cent minority a scheme of arrangement and the way in which that proceeds is that the cases have treated option‑holders as being in the nature of contingent creditors on the premise that if the option contract is broken then they will become a creditor of the company and that is the route that is commonly followed as an alternative.

Of course, as Justice Gummow asked this morning, the new Corporate Law Economic Reform Bill - we have provided extracts from the 512‑page document which makes up the assent copy of the Bill, which, as I understand it, has either gone to the Governor‑General last Friday or will be going to him this week ‑ it was passed in the Senate and then in the House in late October – makes express provision for the compulsory acquisition of securities and, indeed, for bids to be made for securities and the section, for your Honour Justice Gummow is section 661A, is the equivalent of section 701 in the present legislation and the operative section that needs to be read with that is section 92(3), which is set out on page 363 of the materials we provided. Section 661A is on page ‑ ‑ ‑

GUMMOW J:   208.

MR GRAHAM:   ‑ ‑ ‑ 208, thank you, and section 92(3) is on 363. It defines securities to include convertible securities such as renounceable options.

GLEESON CJ:   I gather I may have misunderstood something that I read in the facts, but I gathered that a couple of these option‑holders have just disappeared.

MR GRAHAM:   They were found, your Honour.  There were two in England.  They were accessible through their registered address.  With respect, this case has to be measured and dealt with on the same basis as if, for instance, Mr Mews had not entered into an arrangement with Southcorp.  In relation to the options, they did not secure 90 per cent.  They got less than 90 per cent of the options and it was only when they served a section 703(4) notice on Mr Mews, who had close to 200,000 options, that they were able to get to the situation where they were left with this rump that they did not like made up of the couple of people from England and the 3,100 odd options held by DB Management, Batoka and Winpar.

At the adjournment I was putting submissions in relation to our fourth proposition or the fourth matter I wanted to deal with orally and the submission that we put is that the scope and purpose of Chapter 6 demonstrates a legislative intent, firstly, to confer rights, not obligations; not to impose obligations on option‑holders and we referred to section 703(4) to (8).

Secondly, it was to leave the holders of later acquired shares unaffected by the compulsory acquisition provisions and, at the adjournment, we were referring the Court to section 701(2)(b) and to section 703(1)(b) where the legislature plainly contemplated later acquired shares which would be free from the compulsory acquisition provisions of the legislation. 

Now the very good reason why that is the legislative intent is that the policy of the legislation is to permit expropriation only when the threshold levels of 90 per cent and three-quarters have been achieved and the dissentient is a member of a peer group which has assessed the offer and judged it to be reasonable.  To use Mr Rares’ submission founded on the Greene Report, the purpose of compulsory acquisition is to prevent oppression of a majority by a minority and the Law plainly operates in this way, that section 615 imposes a restraint on the making of acquisitions of shares that take you above 20 per cent in a company unless you play by the rules.  Those rules are rules of fairness and reasonableness directed at ensuring a quality of treatment by the shareholders who hold the remaining 80-odd per cent.

The quid pro quo, as we say in our written submissions, is that if the majority, the overwhelming informed majority, consider the offers to be reasonable, then the legislature judged that those who were offerees should be subjected to the judgment of their peers as to the reasonableness of the offers that have been made and, of course, there is no occasion for a judgment by peers in a situation where the declaration, in this case, is directed at shareholders who will not receive any offers to acquire their shares, who will not have the opportunity to say that the body of shareholders of whom they form part do not judge this fair and reasonable.  There will be no thresholds in place and what is more, one of the fundamental propositions of the Law will be breached, namely that the offers will not be the same.

This is perhaps best illustrated by going to section 634 of the Corporations Law which deals with takeover schemes which, as Justice Hayne said, is one of the two gateways that you can follow if you are to get around section 615. Section 634 provides that element of reasonableness for the shareholders – to use the expression in 731(d), the idea of the legislation is to secure “reasonable and equal opportunities” for shareholders. Well, this is codified in section 634 and following, 634 providing that:

offers to acquire shares are made under a takeover scheme if, and only if, the offers relate only to a class of shares in a company (in this Division called the “relevant class”) and the requirements of this Division have been complied with.

So that 635(a) firstly says that the offers must relate “to all the shares in the relevant class”.  You cannot selectively say, “Well, we’ll pick shareholders 1 to 20 and leave out 21 to 40”.  You have to direct your offer to all shareholders.  Most importantly, 636(1), “The offers must be the same”.  Now, critically, in relation to what is advanced here, the offers will not be the same.  The offers that were directed to all of the shareholders was $1.06.  Originally, it was less.  It was increased to $1.06.  The offer that is proposed in the instant case is not the same offer.  It is proposed that it should be, I think as Justice Hayne said, whatever amount Southcorp sees fit to offer, provides that it is supported by a report saying that that offer price is reasonable.

HAYNE J:   That, I think, is not quite what I said.  I think that the offer price of it - is it $2 - had been chosen by Southcorp and the expert had said that that was fair and reasonable, being above market.  I was referring to the Ernst & Young Report in the Federal Court appeal book.  Perhaps I have misstated it.

MR GRAHAM:   That was in respect of the conversion of 50 options by, I think, Winpar Holdings Limited, your Honour, into shares, yes.  But if one goes to section 638(4), not only must the offers be made to all the shareholders and the offers must be equal, the:

offer must specify…..the total number of shares in the class –

which is what, of course, Southcorp did.  They nominated.  “We are going to make a bid for these shares”.  They nominate the number; they make the offer to all; the offer is equal.  The offer was overwhelmingly approved by more than 90 per cent.  Because they started from a base of above 10 per cent they had to satisfy the three‑quarters test as well under 701(2).  They satisfied that and that entitled them - not as Ms McColl put in her submissions.  That did not entitle them to then obtain full ownership of all the shares in the company.  Section 701 has nothing to do with securing full ownership of all the shares in the company.  Section 701 is directed at ensuring that you can obtain full ownership of all of the shares to which your offers relate where the peer group assessment has been made that it is reasonable and you can then force on the minority the judgment of the majority.

Here we have a situation which is totally different because Southcorp secured 100 per cent of the shares.  They got over 90 per cent.  They served their section 701 notices.  They got everything that had been the subject of the peer group assessment.  What they then sought to do was, having achieved 100 per cent, try to get 101 per cent.  They tried to achieve something to which their offers never related.  They tried to achieve ownership of shares held by people to whom no offers had been made, where there had been no peer group assessment and where no relevant thresholds had been achieved.  They just wanted a straight‑out right of expropriation of property.

GLEESON CJ:   Mr Graham, I am not sure whether you adopt the reasoning of the majority in the Full Court or would prefer to answer this question in your own way, but the problem that Mr Justice Gobbo had in the case to which we were referred this morning was to draw a line short of giving the words of section 730 a full literal meaning.  Where do you say, or where did the majority in the Full Court say, the line should be drawn short of permitting, for example, any kind of variation as a matter of power, of course, leaving aside the question of discretion?

MR GRAHAM:   I think what the Full Court said, your Honour, was at page 101.  Can I say this:  your Honours will no doubt have observed that in our written submissions we have not specifically referred to the reasons for judgment of the majority in the Full Court; we have addressed the matter, in effect, afresh.  But, looking at those reasons, even if they are flawed in some respects, they are not flawed in the primary respect.  What their Honours did was they addressed this case at three levels.  The first level at which they addressed it was to look at the subject matter, scope and purpose, they focused on the provisions of the sections that I have taken the Court to this afternoon in 701 and 703 and found that it was the clear intent of the legislature that it should not permit a declaration to be made which would allow the compulsory acquisition of later acquired shares.

Secondly, they focused upon the principle that if you are going to interfere with proprietary rights, then the legislation in dealing with section 730 would need to make it quite clear that it was intended that it should reach that far.  Thirdly, they then went on to address the question of natural justice and drew on other matters.  We would respectfully submit they did not need to go as far as the third aspect of the matter, but your Honours will no doubt have observed that what the majority said was firstly, to look at the matter on pages 98 and 99 of the joint appeal book, under the heading “Statutory Context” and then “Takeovers and Compulsory Acquisition” and then they made a finding in respect of the matter based on subject matter, scope and purpose at page 99 at lines 30 to 35 and it is important to note, with respect, the words that they have underlined on page 99 and given emphasis to.  What their Honours said was:

In the absence of express provision to such effect, it is difficult to see why section 730 should be construed as authorizing the compulsory acquisition, at the suit of the offeror, of shares issued pursuant to the exercise of options, at least where the exercise occurs after the expiry of the original offer, and where such shares were not the subject of it.

And then they go and address their second or third level of argument and they come back to the primary level of argument on page 101 where, at the middle of the page, under the heading “Proper Construction of Section 730”, they address it, and then I think - I have forgotten, I apologise.  The specific levels of argument are then restated, commencing at line 39:

The structure of Pt 6.5 strongly suggests that section 730 does not authorize a declaration such as that now in question.  The express provision for the compulsory acquisition of outstanding shares and the absence of any provision relating to shares which were not the subject of the original offer point to that conclusion.

GLEESON CJ:   But they seem to invoke two principles of construction, as I understand them.  One is the principle that you do not construe a law as warranting expropriation of property unless that is made clear.

MR GRAHAM:   Patently clear.

GLEESON CJ:   And the argument that is put against you is that this is a law that is all about expropriation of property.  Let us put that to one side for a moment.  The second principle was really expressio unius, as I understand it.  It is a little difficult to apply that principle, is it not, to a power to vary that which is expressed?  If section 730 achieves anything, it achieves what is, in effect, a power in the Commission to make an ad hoc amendment of the Law.

MR GRAHAM:   I think, your Honour, what they are saying, with great respect, is that there is still clearly discernible, notwithstanding that broad power, a scope and purpose in the legislation which renders these shares immune from expropriation.  It was never intended that the power would reach that far.

I have referred to the specific provisions I have, and I will not repeat myself, but can one explore it another way?  I think your Honour the Chief Justice put the proposition earlier, does that confer a power to exempt a person from compliance with section 731, or could you make a declaration that section 731 would have no effect in relation to a specified person?  Another one would be, could you make a declaration that 730 would have no effect in relation to a person?  Could you make a declaration that would take away from the Court under, say, section 701(6) its jurisdiction?  Or another way of putting it, I think, is well put in the submissions of Mr Gooley – and I do not want to trespass into his domain – but what has effectively happened in relation to this declaration is that a new section has been enacted and a new jurisdiction has been conferred on the court by section – the new section 701(6) confers a jurisdiction that the court never had to assess whether or not a compulsory acquisition of later acquired shares should be enforced on particular people.

So that if one analyses it in that way, we would respectfully submit, there must be a scope and purpose to be found by which this is limited, and I use those illustrations to indicate some areas that plainly a declaration could not trespass into.  We would respectfully submit that the very heading of the chapter which may properly be taken into account, as my friend said, although the section headings cannot, the chapter is about the acquisition of shares; and yet within the chapter itself, it recognises that not only are there shares, there are also other forms of security like convertible notes and renounceable options, yet it makes no provision for them.  So that we would respectfully submit that, plainly, you cannot have it reach to the compulsory acquisition of convertible notes and, equally, if you cannot do that, how can you say, well, you can twist it and say, “Well, look, when the renounceable options have been exercised that it reaches or can reach to the shares issued pursuant to those options”.

May I take the Court to the Privy Council judgment in Blue Metal Industries 117 CLR 651. The passage I wish to take the Court to is at pages 658 and 659. At page 658 the advice of the board provided, the middle of the page:

it appears to their Lordships that there are two possible alternative views.

Now, this is in relation to section 185 which was the first of the compulsory acquisition powers which is to be found in Ms McColl’s “Materials Accompanying Submissions” at page 46, if I can give that reference.  This was where the power of compulsory acquisition was only available if there was a company offeror in respect of another company.  The company offeror was referred to as being the transferee company and the target company was referred to as being the transferor company in the terms of the section, and the views that were expressed were these:

The first –

page 658 –

is that the section was designed to make obligatory upon a small minority of shareholders the acceptance of terms for the acquisition of their shares which terms have been approved by so large a majority as ninety per cent of all the shares in the company or of the relevant class.  The size of the majority, it is said, is taken to show, with at least a strong presumption, that the terms are fair:  and that this is an underlying consideration is, it is said, reinforced by the post-1929 amendments which have the effect of emphasizing the requirement that the ninety per cent majority should be, so far as possible, independent of the offerors.

The alternative view is to regard the section as essentially a structural section, concerned with the amalgamation or merger of companies:  it should, it is said, be regarded as complementary to s.183 –

which dealt with, I think, compromises, I think.

That section was designed to facilitate the merger of companies through the transfer of the undertaking, or part of it, of one company to another.  But since, commercially, it might be desirable that the entity of one transferring company, with its undertaking, should be preserved intact…..the provisions…..were introduced in order to provide an alternative method of achieving a commercially similar result, namely through the acquisition of shares.  The significance of the ninety per cent figure is, on this view, that once a company has become so nearly a total owner, or parent, of another company as a shareholding of ninety per cent would represent, it should not be prevented from converting the other company into a wholly owned subsidiary by so small a dissenting minority as ten per cent or less but should be entitled to acquire the holding of that minority.

Now, they are the two views.

GLEESON CJ:   The difference between those two views was only important because the issue that arose in that case was whether an offer made jointly by two offerors was, as it were, subject to the scheme of the Act.

MR GRAHAM:   Quite, quite, with, I think, CSR and was it Blue Metal – acquiring Readymix or CSR and Readymix acquiring Blue Metal.

GLEESON CJ:   But if you did not appreciate that aspect of the case, you would wonder what they were talking about in posing these two alternative views, which both look the same if you ignore that.

MR GRAHAM:   Quite, but then it is important to see why they in that case picked the later, which they indicate in the next paragraph:

Their Lordships are of opinion that the second of these views is to be preferred.  They consider it important to bear in mind that the statutory procedure provided by s 185 and invoked in this case is one which involves the involuntary acquisition by a private interest of the property of another – an exceptional interference with rights of individual ownership.  They can find nothing in the scheme or philosophy of the companies legislation to suggest that the legislature intended to permit this power to be exercised merely because a majority, even an overwhelming majority, thought fit to agree to it.  It is particularly significant that the power can not be exercised by an individual or, even on the hypothesis that plural acquisition is possible by a company or companies and an individual or individuals together.  This seems strongly to support the indication that the section is a company structure section and not one of concentration of property interests.

GLEESON CJ:   They probably got a bit of support for that view if they had read the Greene Report too, which described it as a company structure section.

MR GRAHAM:   Quite, quite, but that was section 185.  That was at a time when there was no threshold of 75 per cent of offerees required before you could under section 701(2)(b) now proceed to effect an acquisition, compulsory acquisition.  Secondly, it was before the situation arose, as now, where you can have an individual – and, indeed, it has happened – make a takeover for a company rather than having a corporate offeror.  If I could invite the Court, please, to go to the Jenkins Report or an extract from it which is in my friend’s materials, the appellant’s materials accompanying submissions.  It is at pages 62 to 75.  This is in 1962.  The relevant passage that I would wish to take the Court to is paragraph 283 on page 70 and it says:

Under section 209(1), where a small minority of shareholders have not accepted a take‑over offer, they are liable to have their shares compulsorily acquired by the offeror and under section 209(2) they have a corresponding right to call upon the offeror to buy them out.  This power and this right may be exercised only if the offeror is a company “whether a company within the meaning of this Act or not”.  It has been suggested that both the power to acquire and the right to be bought out should be available even if the offeror is an individual.  We do not think it reasonable to give to an individual a power of compulsory acquisition which is designed to facilitate the merger of companies, nor do we think that a dissentient minority should be given rights under section 209 against an individual offeror since the latter could never have powers of compulsory acquisition.

HAYNE J:   Well, what is the point you make out of that that has any relevance to any of the issues that we have to discuss, Mr Graham?

MR GRAHAM:   Well, your Honour, what I seek to draw from that is that the Jenkins Committee proceeded on the premise that the second alternative interpretation of the Privy Council in Blue Metal Industries was correct and, in effect, that it ought to be maintained and that ‑ ‑ ‑

HAYNE J:   Well, let that be assumed.  What bearing, if any, does that have on the construction of the particular provisions that we have to consider in this case?

MR GRAHAM:   I think your Honour is, with great respect, by your Honour’s question of me that when one looks at this section the section is now so different that it demonstrates that the correct and proper view to be adopted in relation to it in its present form is the first alternative that was advanced by the Privy Council in the passage which I have taken the Court to.  I think my fifth point that I was going to raise was the question of, if you are going to have an interference with proprietary rights it has to be done with clear intendment.  I will not say anything more about that.  The sixth point, and it is a very important point, is the significance of the words “shall apply” – “as if” in section 730.

May I indeed to the Court that the expression “persons concerned” is not a defined expression.  We suggest that it probably means persons concerned with the application of the provisions of the chapter.  If a person concerned makes an application the Commission has power to:

declare, in writing, that this Chapter shall apply in relation to a specified person…..as if a specified provision or provisions of this Chapter were omitted or were modified or varied in a specified manner –

In our respectful submission, the words “shall apply” – “as if” connote that the relevant provision must have application and then by the declaration that application is modified.  My learned friends in their submissions have put that the power is one which modifies the Law.  It does not modify the Law; it modifies the application of the Law to a specified person in a specified way.  Now, if that is correct, and it is the simple answer to the case, with great respect ‑ ‑ ‑

GUMMOW J:   Wait a minute.  When you say “it does not modify the Law” that has some assumptions in it, does it not?  The Law is ‑ ‑ ‑

MR GRAHAM:   The last words are,  “this Chapter applies accordingly”.  What it means is it applies in relation to the specified person as if the specified provision had been modified in a specified way, but it proceeds on the premise that the relevant provision does have application before the declaration is made.  It is made a little bit clearer by the terms of section 58 of the earlier legislation which used a more expansive phrase.  If the Court has section 58(1), the former wording was:

The Commission may, by instrument in writing, declare that this Code shall have effect in its application to or in relation to a particular person or persons in a particular case as if a provision or provisions of this Code specified in the instrument was or were omitted or was or were modified or varied –

Then the operative words were:

this Code has effect accordingly.

Now, in our respectful submission, by condensing the phrase, “has not changed its effect” that the words “shall apply” – “as if” clearly connote that there must be an application before that application can be modified or varied.

GLEESON CJ:   We know from the specific example that was given in the explanatory memorandum way back in relation to the ‑ ‑ ‑

MR GRAHAM:   The Companies Take-Overs Bill.

GLEESON CJ:   Yes, that one example of the way this provision was intended to operate was that if a provision prohibited, presumably under penalty, some form of conduct, this would empower the Commission to do away with that prohibition.

MR GRAHAM:   That is so.

GLEESON CJ:   So, if the Law says, “This particular form of conduct is prohibited.  Contravention of the prohibition attracts a certain penalty”, the Commission has power to say the Chapter applies as if that provision were omitted?

MR GRAHAM:   That is so, so the chapter then has application minus that provision.

GLEESON CJ:   Yes.  That looks like a power to amend the Law in its application in a particular instance to a particular person.

MR GRAHAM:   Can I test that this way, your Honour.  It can be generally, but normally it would be specified as being in a particular case as well.  In this particular case the Court appreciates that the section 730 power was used on 7 May 1996 so as to change, amongst other things, section 701 to insert some words into section 701 that were not there originally in relation to the acquisition of shares in Coldstream.

HAYNE J:   And 701 was a provision which applied to Southcorp, was it not?

MR GRAHAM:   Yes.

HAYNE J:   It was, therefore, a provision that had application to Southcorp before modification.

MR GRAHAM:   That is so.

HAYNE J:   What is the point you now make then when you say that the relevant provision must have had application before modification but the application can be changed by 730?  Is that not met entirely by what happened here?

MR GRAHAM:   I give your Honour two answers, with respect.  The first answer is that as at 1 October 1999 when the second declaration was made, section 701 had no application in respect of Southcorp.  Southcorp had bid for a defined number of shares.  It had secured over 90 per cent and over three‑quarters acceptance.  It had compulsorily acquired the remainder.  It was 100 per cent the owner of all shares in relation to which section 701 had any work to perform and as at 1 October it had no application to Southcorp.

The second answer I proffer to your Honour is that it had and never had any application to the holders of renounceable options, nor did it have or ever have any application to people who may become shareholders after the close of the offer period as a result of the exercise of the renounceable options because those persons never had any offers made to them which would produce the possibility of “outstanding shares”, to use the expression in section 701, which could be compulsorily acquired.

Can I make myself a little clearer by putting this to the Court, that probably, although this point has never been argued, the section 730 declaration is bad in the form in which it is expressed because, if your Honours were to contemplate how it should be worded, then, with great respect, Schedule A should not nominate as the specified person simply Southcorp.  It should have nominated Southcorp, Coldstream and the holders for the time being of shares issued upon the exercise of options because if in its modified form it only has application to Southcorp, which is the way it is expressed, then that entitles nobody to compulsorily acquire shares because, for there to be a compulsory acquisition of shares, you have to have Southcorp serve a notice which makes it entitled and bound to compulsorily acquire shares, but under section 701(10), I think, there is an obligation cast upon “the target company” in the last words of 701(10) to:

register the offeror as the holder of those shares.

If the declaration does not apply, if it does not nominate a Coldstream as a specified person, the law so far as Coldstream is concerned remains the unamended law.  There is no obligation on it to register and equally, as you appreciate from the words of section 701(1), the mechanism whereby Coldstream comes under that obligation is that Southcorp must serve on the target company:

a copy of the notice…..together with an instrument of transfer of the shares signed on behalf of the holder of the shares by a person appointed by the offeror, and also signed by the offeror –

so that you have a statutory appointment of agent of putatively my client DB Management Pty Limited being a person nominated by Southcorp as my agent to sign a transfer of shares which Coldstream then registers.  So that for this section to apply, and to be made to apply properly, it has to apply to three separate people.  If you do not specify three persons, it has no application.  It does not modify ‑ ‑ ‑

GUMMOW J:   Is this an argument that the particular instrument here was defective?

MR GRAHAM:   I have said, your Honour, that it probably is but I am not advancing that as an argument.  I am seeking to draw the Court’s attention to it for the purpose of demonstrating the significance of these words “shall apply as if”, and the whole - - -

GUMMOW J:   It says “shall apply in relation to as if”.

MR GRAHAM:   It says: “shall apply in relation to a specified person”, so that you have to specify the person in relation to whom the specified provision as modified shall apply.  So they said it shall apply in relation to Southcorp as if specified provisions were modified or varied in a manner which they nominated.

GUMMOW J:   No, it is the chapter that applies in relation to a specified person.

MR GRAHAM:   So it is the chapter as modified which applies accordingly in relation to that person.  It does not apply in relation to other persons.  So that given that it had no application to Southcorp because it already had 100 per cent, given it had no application and never had any application to the holders of shares arising from options that had never been in receipt of an offer, then plainly, in our submission, it could not be modified and certainly could not be modified in the manner in which it was in this particular case.  Having put that submission, I think I have really put the substance of what we want to say in support of our ‑ ‑ ‑

GLEESON CJ:   I thought you said you were going to make six points and then you had three additional things to talk about.

MR GRAHAM:   I did.  One of them I have already addressed and that is my friend’s submission that, in effect, we had a right to undo a successful takeover.  In our respectful submission, the boot is on the other foot.  They had the option to make their takeover successful.  They chose to abandon or waive their 100 per cent condition, and that is that.

The two other submissions that I wanted to make are these.  In paragraph 19 on page 8 of Southcorp’s submissions, it was put that in relation to a takeover, third party property rights are always in play.  Now, maybe it is only a phrase or an expression which he has adopted there but in our submission third party property rights are not always in play.  They may be affected by a takeover scheme or a takeover announcement, but they are not, in effect, capable of being caught up in the net which is what he is suggesting is that you can – I think Justice Hayne’s illustration of the block of land: could you use section 730 to compulsorily acquire a block of land is another way of putting it, but you cannot compulsorily acquire something that is not, in fact, caught up in the net.  And the net in this case was the shares in relation to which the offers were made and no more.

The final submission that we wanted to put is that my friend in paragraph 26 on page 11 of his submissions put that the declaration:

places the new shareholder in a position akin to a shareholder during the currency –

of the takeover scheme.  That, with great respect, is nonsense because, firstly, there were different offers made; secondly there are no thresholds that apply under section 701(2) before the compulsory acquisition provisions can be enforced and there has plainly been no peer group assessment.  This is a case where out of the cold from left field they want a compulsory acquisition right without ever having complied with the principles of section 731, of having afforded reasonable and equal opportunities to the shareholders who acquire shares as a result of the exercise of options to participate in benefits accruing to shareholders under the proposal.  There is no proposal ever put to them; they never have an offer to address.  If the Court pleases.

GLEESON CJ:   Thank you, Mr Graham.  Yes, Mr Catto.

MR CATTO:   Your Honours, you have my submission in your hands.  There is really just one point to make at the beginning and that is that at the time that the decision was being made by ASIC - and that was a decision that Deputy President McMahon had to review - there was a quantity of information that was not quite right before ASIC and was recognised by the time that Deputy President McMahon was looking at it, but there were other alternatives available to Southcorp at that time.  There were 200 and something thousand of these options of which they were in contact with Mr Mews and he had 198,000 of them, so the normal way of cleaning up options and notes and other…..securities is by schemes of arrangement either before or after the event and they had that scope quite well within their power at that time.

These options, the ones held by Winpar and DB Management and Batoka, they were available in the marketplace, as it turns out from Mr Mews, in the last week of July 1996 and if Southcorp had wished, if it wished to pay just a few cents more for them in the marketplace, as that was the price that Mr Mews was offering them in the marketplace, it could have bought them, applied that higher price to all of the option holders who had accepted their 72 cent option offer, as it was revised, and there would have been no problem at that stage.

ASIC and its antecedents say that they are interested in creating an informed and efficient market.  ASIC has not volunteered, and neither did it grant modifications to the offerors in Hume in 1990 or in Ampolex in 1997, where there were minuscule quantities of notes still outstanding.  This particular modification approach is one adopted, I believe, peculiarly and solely by the Australian Legal Group.  In the past my mother actually lost some notes in Besser Queensland Ltd when Pioneer took that company and she discovered that she lost her notes when they were coming to the conversion time three or four years after the takeover.  So at least now we know that ASIC is becoming more client friendly and is at least giving people the right to put their note forward.  But I believe there are no other examples of modifications in this area other than from Allens and/or Arthur Robinson.

Your Honour Justice Callinan, there was just one area that I wish to address to you.  The takeover was initially an unsolicited, very conditional takeover at 90 cents a share from Southcorp to Coldstream and at that price, with the directors saying, “No, don’t accept”, there was very little market acceptance of that takeover in its first few weeks, in May/early June of 1996.  Then there were discussions between Southcorp and the Coldstream directors and for an increase in price to $1.06, I believe it was, they were able to achieve the recommendation from the directors of Coldstream, which was crucial in order to get them from 20‑something per cent through to 97 per cent.

Those directors gave that recommendation and were aware at the time that the conditions pertaining to getting 100 per cent of the options were being relaxed and that would mean, of course, that the shareholders would get their takeover premium, their takeover premium of an extra 16 cents, because, if they had relied on the previous condition that said that they had to find and get all of the options, they would have been going through the exercise of trying to find these people in the UK, which turned out not to be a difficult exercise, but they decided that they would relax that condition, pay the takeover premium and with the support of the directors get from 27 through to 97 or so per cent.

Finally, can I say that the usual method to clean up after takeovers is this scheme of arrangement method and at that stage you can get that accepted by the unit holders or the note holders or the preference shareholders or whatever by a 75 per cent majority.  There is no need to pass the 90 per cent type test or the 75 per cent by number type test that normally apply.

Finally, may I say that I find it a trifle strange and very disturbing that the law which allows the expropriation of my property emanates from a public servant and not the Parliament and, further, that the public servant’s decision was reviewable by a Deputy President of the Administrative Appeals Tribunal who was unable to hear about the constitutionality of the whole Act, and now with that decision under review here today we cannot look at that constitutionality aspect of this whole series of events.  Thank you very much.

GLEESON CJ:   Thank you.  Yes, Mr Gooley.

MR GOOLEY: Your Honours, we rely on the written submissions which have been handed in in addition to the submissions of Mr Graham, but I would like to add one or two short points, if I may. Section 730 empowers the Commission to modify the operation of Chapter 6 of the Corporations Law and it is our submission that that presupposes before there is any modification that Chapter 6 had some operation prior to the modification.

GUMMOW J:   Now, what does that mean?  It had some operation.  Of course it had an operation.

MR GOOLEY: Well, with respect to section 701 the particular offer did not have application to the option‑holders whose shares were created after the exercise of that option and it is our submission that any modification must relate to the application of Chapter 6 rather than to anything else. If I could take your Honours to ‑ ‑ ‑

GUMMOW J:   I still do not understand actually. Section 615 imposes a prohibition upon everybody: “a person shall not”. That is the operation of Chapter 6.

MR GOOLEY:   Yes, that is correct. 

GUMMOW J:   I do not understand what your launch pad is for this submission.  The launch pad is section 615, it seems to me.  That is what kicks this chapter off.

MR GOOLEY:   I accept that.  If I could perhaps come back to that, your Honour.

GUMMOW J:   That is what industrial lawyers always say when they stand up in this Court.

MR GOOLEY:   In Brierley v Dextran, your Honour, Justice Tadgell at page 465 around about point 22 said, and this is in reference to the predecessor section:

Section 58 does not confer power on the NCSC to modify or vary the Code.  What it does is to confer a power of an unusual kind to declare that the Code is to have effect to particular circumstances as if its provisions said something other than what they say in fact.

Here, Chapter 6 does not say anything about later issued shares and we would submit has no application to later issued shares and a consequence being that section 730 cannot be then used as a substitute.

GUMMOW J:   This comes back to the argument about modification and variation, does it not?

MR GOOLEY:   Yes, that is correct.  Finally, your Honours, section 703 does not ‑ ‑ ‑

GUMMOW J:   Which you have to construe, I think, as some form of contraction, as permitting any contraction.

MR GOOLEY:   Yes.  Finally, section 703 does not confer power ‑ ‑ ‑

GUMMOW J:   Well, Ms McColl says the opposite.  Why is she wrong?  She says you do not vary something by necessarily constricting it.

MR GOOLEY:   Well, is not the answer, your Honour, that what section 730 is being used here is to, in fact, create a new set of provisions which did not formerly exist.  That is as high as I can put that.

GUMMOW J:   So?

MR GOOLEY:   So, it being a ‑ ‑ ‑

GUMMOW J:   It may come down to this.  This is the form of delegated law making.  It is not performed by the Governor‑General in Council.  It is performed by this Commission.

MR GOOLEY:   Yes, and I will accept that.  I do accept that.  Finally, your Honour, section 703 – there has been some talk today about section 703 – it does not confer power on the offeror to compulsorily acquire options.  What it does is confer on option‑holders the right to be, if you like, bought out or compulsorily acquired.  With the submissions that we have already made, we have no further submissions to make, if it pleases ‑ ‑ ‑

GLEESON CJ:   Thank you, Mr Gooley.  Yes, Ms McColl.

MS McCOLL:   If the Court pleases, can I just make some short points.  In relation to the historic development of the modification power through various explanatory memoranda, could I just draw the Court’s attention to the way the explanatory memorandum referred to section 730 which is in my learned friend Mr Graham’s bundle of materials - the second‑last extract which was provided, the explanatory memorandum to the Corporations Bill of 1988 - paragraph 2243 in relation to clause 730 which was this modification power was actually expressed that:

This clause represents a significant extension of the modification powers under CASA s. 58 –

and it referred to the fact that –

Under that provision, the NCSC could modify or vary the provisions of CASA in their application to a particular person in a particular case.  The ASC, under –

the new section –

will also be able, so far as the Commonwealth Constitution permits, to modify or vary the provisions in their application to classes of persons either generally or in particular cases or classes of case.

Certainly no limitation, if one could be read into the earlier provision by reference to that example which was given in the explanatory memoranda which accompanied section 58 to any apparent link to the exemption power. 

We would also make the point that, in any event, the explanatory memorandum cannot override the plain meaning of the words of the legislation and that is the point of first reference and, of course, explanatory memoranda take second place in that process of construction. 

I also thought it might assist if we drew the Court’s attention to the two cases where we can see the form of the modifications which have occurred and which the Court, in effect, upheld.  The Court can find those in Peninsula Gold v ASC (1996) 21 ACSR, which was the decision of Mr Justice McLelland, the Chief Justice in Equity, and the form of the modification appears on page 247.  The Court will see that on that occasion section 701(2)(c) was modified or varied by omitting the paragraph and substituting a new paragraph and, similarly, the same subsection was modified in relation to subparagraph (ii).

GUMMOW J:   His Honour’s reasoning is at 249, line 40, which may be quite important, I think.

MS McCOLL:   Yes, and his Honour there found that that form of declaration fell “within the literal terms” and he then took the purposive approach and found that it did not fall outside any limitation to be derived from the Law and that is where he expresses the “clear policy” of section 701 to which we referred this morning.  It might be useful just to dwell on what his Honour said there in relation to, again, the submissions which fell from my learned friend, Mr Graham, where his Honour says:

Section 701 reflects a clear policy on the part of the legislature to facilitate the acquisition of an offeror under a takeover scheme of all the relevant shares in the target company so that the target company would become a wholly owned subsidiary of the offeror, where there had been a sufficiently high level of informed acceptance…..subject to prescribed safeguards against unfairness, no doubt in recognition of (inter alia) indirect economic benefits to the community –

and, of course, in this case we would submit we see that “sufficiently high level of informed acceptance of the offer” in the 97 per cent acceptance that was achieved prior to the compulsory acquisition, and then, of course, the “prescribed safeguards against unfairness” are those which were preserved in the modification, and it was the combination of those factors, of course, which impressed his Honour Mr Justice Beaumont in reaching the decision he did.

Then the other variation which can be seen in the cases is that which was made in Otter Gold 25 ACSR 382 and there the modification in question was a modification to section 618 of the Law and that appears there at page 384 in the form of the declaration. In this case there was the replacement of a formula for the calculation of an acquisition and the whole formula was replaced by the form of words which we see at the bottom of page 384. Then the section was also “varied by omitting subsection (2)” which had defined the meanings in the formula which was omitted from the earlier subsection. So, those are two illustrations of the form of declarations which have been upheld in the courts on earlier occasion as valid exercises of the modification power and although the terms of the modifications were not set out expressly in that earlier case to which my learned friend Mr Gooley referred of Brierley v Dextran, if the Court, when looking at that case, needed to work through some rather complicated facts but it is apparent that in the course of Brierley v Dextran the modification powers exercised on at least four occasions, one of which his Honour Mr Justice Tadgell found was probably unnecessary, but, nevertheless, all of which were held to be have been valid exercises of a power throughout the course of a takeover, both before the offers were sent out, before the compulsory acquisitions were finally achieved and then at the end ‑ ‑ ‑

HAYNE J:   But one of them was to give a compulsory acquisition capacity where the law did not, was it not?

MS McCOLL:   Precisely, your Honour, yes.  It was a very extensive recognition of the way the power could be used in this context.  Those three cases give illustrations of how the power has been upheld on previous occasions and the extent of the sort of modifications we can see and variations, to use your Honour the Chief ‑ ‑ ‑

GLEESON CJ:  I am sorry, I noted Peninsula and Otter, what was the third case?

MS McCOLL:   Brierley v Dextran, (1990) 3 ACSR, the judgment of his Honour Mr Justice Tadgell.

GLEESON CJ:   Thank you.

MS McCOLL:   Then in terms of the point made by my learned friend Mr Graham that in the context of these shareholders they do not get an offer themselves, that really goes to a point, we would submit, as to the exercise of the discretion more than to the extent of a power and, at the end of the day, that was encompassed within the preservation of safeguards within the ultimate amendment which was made or the modification which was made.  Your Honour the Chief Justice said this looked like a power to amend the law and his Honour Justice Gummow said it looks like a form of delegated legislation.  There have not been any clear attempts to identify precisely what the nature of the power is.

His Honour Mr Justice Needham in OPSM said it is not a power to make a by‑law and that must be the case because it is only a power to modify the law in each particular case.  We looked at whether it could be regarded as a Henry VIII power and it clearly is not that because it is not a form to make delegated legislation.  The closest anyone has got to looking at that is that reference in his Honour Mr Justice Tadgell’s judgment in Brierley v Dextran.  It is an unusual power.  It is, we would submit, in the form of a Henry VIII power, although it is a modification from time to time and certainly it appears to be a commonly‑used device in modern legislation to give a form of a power to a body such as the Commission to modify the law as it applies from time to time in particular cases and that has been seen in the exemption context as far back as section 180V to which I referred this morning.

HAYNE J:   You have emphasised “from time to time” in what you just said, but what is the ambit of the power conferred by the words “either generally or in a particular case or class of cases”? On its face would it suffice under section 730 to say that licensed superannuation providers class of persons are not to be bound by Chapter 6?

MS McCOLL:   It could be used in that way, as a class.  That would fall into the category of a class order which is contemplated by this expanded section and that was one of the ways it was broadened, as I drew attention to in that explanatory memorandum, and that can be seen, your Honour.  We have given a list of other modification powers in one of the footnotes to our submissions and some of them do enable that sort of class application in a general context rather than in a particular takeover.  I use the expression

“from time to time” in a context of this takeover and the ones which have been the subject of decision because that is the sort of context in which the power has been used hitherto.

GUMMOW J:   What do you say about sections 728 and 730 and the relation of 729 to 744? One distinction between 728 and 730, it seems to me that 728 picks up the enforcement mechanism of 729, which involves court orders, and then that picks up 744 and in particular 744(3) or 744(2), this notion of unfair prejudice to any person.

MS M cCOLL:   Yes, your Honour.

GUMMOW J:   How is that accommodated, if at all, through 730?

MS M cCOLL:   Section 730, once the declaration has been made, a declaration can be enforced in the court’s recognition that the declaration itself and it is given through consequential orders.  If, for some reason, somebody was not going to accept the way the declaration applied, it is not picked up through that route that your Honours have identified through sections 729 and 744.

HAYNE J:   Is it possible to impose conditions under 730?

MS M cCOLL:   No, it is not, your Honour. It is the only power to apply conditions is through that section 728 route.

HAYNE J:   And 729, at least on its face, seems directed to the enforcement of the condition.

MS M cCOLL:   Yes, your Honour.  One might ask, in some circumstances, it may be possible to achieve the result achieved by a modification through an exemption and a condition.  But for present purposes section 730 does not carry that correlative provision through, or does not pick up section 744.  It stands on its own.  It must be enforced as if it were a provision of the Law and the court’s jurisdiction would be attracted by the fact that the chapter has to be applied accordingly.  So it could be enforced through consequential orders seeking recognition of the declaration in its power.  If it please the Court.

GLEESON CJ:   Yes, thank you, Ms McColl.  Yes, Mr Rares.

MR RARES:   On the last point that my learned friend was addressing on, if one looks at section 730, what it is providing is that once a declaration is made then, so far as the person to whom it applies is concerned that is the Law and then the ordinary enforcement provisions of Chapter 6 or the other provisions of the Corporations Law, so far as they may bear on it, such as 1323 and 1324, which was the injunction and declaration provisions, apply, because the Law is treated as if it had been varied accordingly by the declaration, so far as it then applies to the new situation.  Whereas, when you are looking at 728 you have got an exemption from the Law, so you are saying the Law does not apply to you, and then there is a provision for making it enforceable if there are conditions that are applied and 729 then kicks in and 744 picks it up specifically to say you can enforce the condition directly by the action that is given under 729 through the 744 mechanism.

GLEESON CJ:   Well presumably underlying the idea behind like section 728 and 730, is a view that it is not self-evident that the most effective and efficient way to deal with subject of takeovers is solely by legislative prescription. You could go to another extreme, of the kind that exists in London, where you could go to an intermediate situation under which you have a mix of legislative prescription and administrative discretion and this is intended to be our way of finding some solution to that problem of what is the proper mix.

MR RARES:   Yes.  We respectfully adopt that and really what this is trying to do is to say the regulator must be able, whenever a market situation presents itself, to respond to make sure that the objects, inter alia, that are set out in 731, are achieved and to take into account any other public policy questions, which are relevant to the exercise of a discretion to mould the regulatory regime that should apply to that situation in a way that is appropriate to achieve the overall objects of the Commission.

Your Honours have the objects of the Commission set out in section 1(2), I think, of the ASIC Law which give it an overriding reach to regulate the markets and the like.  These provisions recognise the need for flexibility and that black letter law just cannot address every market situation that is going to arise or address it in a satisfactory way and requires a responsiveness, and the safeguard that is provided by the legislature is that the decisions of the Commission are subject to, firstly, an administrative review through the AAT where it has to decide what is the correct and preferable decision and the Court looked at that in, for example, Wilson v The Minister for Aboriginal and Torres Strait Islander Affairs 189 CLR 1 at page 18, and it picks up the judgment of Justice Brennan when he was President of the AAT about how the AAT exercises its powers.

That comes back to what I was seeking to put earlier in‑chief in Precision Data v Wills 173 CLR.  The joint judgment of the Court at 191 at about point 9 says:

As the making of a declaration necessarily proceeds in part, at least, from an assessment of considerations of commercial policy, not solely from an application of the law to the facts as found, neither the making of a declaration nor the making of orders is binding in the same sense that a judicial determination would be binding.  Both are subject to judicial review. 

Now, that is not – the Panel has a slightly different function, but it is relevantly analogous and it meets the situation that your Honour the Chief Justice was ‑ ‑ ‑

GLEESON CJ:   But one thing you do require black letter law for is expropriation of property.

MR RARES:   Well, you do ‑ ‑ ‑

GLEESON CJ:   You could, if you wanted to, say, “The legislature is going to keep out of the area of takeovers.  We will let the Stock Exchange regulate that and they can bring peer pressure to bear in order to avoid what they regard as unacceptable conduct”.  But one thing the Stock Exchange cannot do is transfer property from one person to another.

MR RARES:   But the Panel can make a declaration and make orders that has that effect.  Now, to enforce them, you have to go to the courts.  Then there is the Brandy v Human Rights Commission interface that the Court has to decide whether that is an appropriate exercise of power and whether it is going to enforce it.  That brings into play 744 and the like where the Court has to decide whether unfair prejudice would be caused by these things.

But the liabilities are sought to be created by this legislative device, as it were, of structuring Part 6.9 to provide this range of regulatory mechanisms, firstly through the exemption and modification powers, and also through the Commission’s ability to ask the Panel to declare a new set of rights, as the Court explained in the Precision Data Case. Clearly, Chapter 6 proceeds upon the fact that acquisitions of property are being made and they are being made in any takeover situation where you get to the compulsory acquisition stage in an obligatory way, and they are also being regulated in the way that the offeror is allowed to make the offer through the mechanisms of either a Part A or a Part C statement and how they are responded to.

It is inherent in that scheme that there must be the flexibility of the Commission to address the situations that 731 recognised in the Eggleston principles speaks of about how people are to have opportunities to have proper consideration given to acquisitions that are proposed and the like and it must follow that a provision such as 701 or 703 can be modified and when my learned friend, Mr Gooley, was putting to you that 703 works in one direction, namely, that the option-holders can ask under 703(4) and following to have their options acquired, one then can inquire, “Well, why would not 730 be able to modify that and say that the offeror can be given such a power to require a sale in a situation where you have a successful takeover?”  The question of how the power is exercised is one for the administrative and judicial review mechanisms that the legislation provides.

GUMMOW J:   And the Constitution in section 75(v).

MR RARES:   Well, yes.

GUMMOW J:   Members of the Commission are officers of the
Commonwealth, are they not?

MR RARES:   Yes, and also one has got the interface that it is, in fact, State legislation in most cases, or Territories legislation, that has been delegating to the Commonwealth body, the ASIC, a power to make these changes to the law on a uniform basis for the overall regulation ‑ ‑ ‑

GUMMOW J:   Cram’s Case says that does not matter.

MR RARES:   Yes.  No, no ‑ ‑ ‑

GUMMOW J:   It is still officers of the Commonwealth in section 75(v).

MR RARES:   No, no, I was not seeking to disagree with your Honour.  I was simply making the observation that what is being actually delegated is not a Commonwealth power but a State power, but ASIC is as the Commonwealth body and is subject to administrative review under 75(v), judicial review under 75(v), changing. 

Our learned friend, Mr Graham, has put his submissions in the six categories that he outlined.  His first was to say that when one reads section 730 the verb “were” is used in a way that supports his submission.  In our respectful submission, the way that the grammar of that particular provision works is that you cannot read it to say “were omitted in a specified manner”.  You either omit something or you do not, but you vary something or modify something in a specified manner and that is why the words “in a specified manner” qualify the words that follow “were” where secondly appearing.

His second submission was to give an illustration in relation to the interaction of 728 and 730 by referring to a modification that would enable a 22 per cent holding to be achieved.  All we say about that is that demonstrates one can amend the law because the Corporations Law provides 20 per cent is the threshold.  If you can increase it, you are amending it in a substantive way that affects other people’s rights.

The other point to note is that in relation to the point my learned friend was seeking to draw from the old clause 55 of the 1979 Act, when one moved to sections 57 and 58 of the Companies (Acquisitions of Shares) Codes you have got two sections and two substantive provisions dealing with two different subject matters.  My learned friend’s third proposition was, you could not, after the close of the offer period, do anything to amend the law in respect of 701.  In our submission, that cannot be right.  One only needs to consider that something might happen in the market in relation to a company that provoked a breach of the Eggleston principles.  Why would ASIC be powerless and why would you have a construction of the section of a broad and general nature conformably with the way that 2HD and The Water Commission v Browning and that line of cases in this Court of construed broad and plenary powers such as 730, to put an artificial time limit into it, in our submission, just would do violence to the plenary nature of the power. 

There is no limit of that kind in section 730, while 731 directs the Commissions to have regard to matters, 730 is the plenary power and so long as the Commission has regard to matters it does not necessarily need to apply them if it regards them as not being appropriate, in the circumstances.  The third is next.  My friend’s next point was to say that the usual way of mopping up the outstanding interests such as convertible notes options, et cetera, after the close of an offer was to engage in a scheme of arrangement.

One can see that in terms of having an efficient competitive market, that may not always work.  Schemes of arrangement require the class affected to vote in favour of it.  Seventy-five per cent of the option-holders may – and in this case it may be a very small number – would not be expected, necessarily, to cooperate with a particular scheme of arrangement, whereas there are still safeguards built in the mechanism that has been devised in this case which ensure that there is fairness in the principles that Gambotto used of both procedural fairness and the right to go back to the Court and say, “Look, this should not happen to us”.

The Deputy President in his decision at paragraph 33, which is at the front of the Federal Court Appeal Book, looks at this and carefully weighs the discretionary factors in that regard.  My learned friend then sought to say that the words “as if” in section 730 somehow presupposed that the provision had to apply already.  It seems to us that there are two answers to that.  Firstly, that that just does not follow as a matter of logic and does not follow as a matter of logic because there is no reason why you cannot have a prospective variation before one is affected but where one can tell one will be affected by the provision.  For example, one knows one is going to be in breach the next day because you cannot get your offer out within the time limits under sections 636 or 637, so, you go to the Commission and ask, but at that time you are not in breach but you can still get a modification.  Secondly, where you have got thresholds such as the 19 per cent, if you ask for a modification, presumably you do it before you breach the threshold.  You ask can you exceed the limit.

GUMMOW J:   It would be odd if this section could not apply quia timet, that is what you are saying?

MR RARES:   Yes.

GLEESON CJ:   Which is the court to which section 701(5) as modified in the present case refers?

MR RARES:   Following Wakim, it would be the Supreme Court.  It would have to be because there is no judicial power in a Commonwealth court to have that jurisdiction conferred.  There is no basis on which a State can confer judicial power in a Commonwealth court or the Federal Court to do that unless there was some associated jurisdiction or you got into a matter for the purposes of Chapter 3.

GLEESON CJ:   What is the process of definition by which you reach that result?

MR RARES:   “Court” is defined, I think, in section 9 as having the meaning in 58AA and then there are Courts and courts but, in our respectful submission, the process of construction must be that to the extent that the Federal Court would otherwise be able to exercise jurisdiction under Chapter 3, you may be able to get that question before the Federal Court if there is a sufficient connection of the subject matter of whatever right you are seeking to assert arises under a federal law. But, in our submission, one would have to read, following the decision of the Court in Wakim, “court” to apply to the Supreme Court ‑ ‑ ‑

GLEESON CJ:   This is a New South Wales statute we are concerned with?

MR RARES:   Yes, and to the extent that it might involve the territories power, the Federal Court may have the power because it is a court created by the Parliament and we do not have to really deal with that in this case.  But there is no interference in the judicial power of the Commonwealth by the modification to 701(6) in this case.  The judicial review route would get you into the Federal Court because the Commonwealth judicial review laws apply under the covering Corporations Acts of each of the States.

GUMMOW J:   It gets you there through the AAT Act.

MR RARES:   Yes.  Your Honour, my learned friend Mr Graham did not press it, so we have assumed that no point is now raised against us on the manifest unreasonableness ground.

GLEESON CJ:   But there is no notice of contention.

MR RARES:   No, that is right.  Unless there is anything I can assist the Court further with, those are our submissions.

GLEESON CJ:   Thank you.

MR GRAHAM:   Your Honour, before your Honour rises, can I just say something about the notice of contention issue and that is that none is required by Order 70 rule 6 of the Rules.  A notice of contention is only required when you seek to contend that a decision below has been in error on a point and you want to say that if it had been correctly decided you would have succeeded in any event.  The manifest unreasonable issue was not addressed in the court below because the majority came to the conclusion they need not look at it and therefore they did not decide it adversely to my clients, hence no need under Order 70 rule 6(5) for a notice of contention.

GLEESON CJ:   And manifest unreasonableness of what?

MR GRAHAM:   The manifest unreasonableness was ‑ ‑ ‑

GLEESON CJ:   No, of what decision, whose decision, who was unreasonable?

MR GRAHAM:  I am sorry, the decision of ASIC in making the section 730 declaration.

GLEESON CJ:   So it is what appears at about pages 34 and 35 of the Federal Court appeal book?

MR GRAHAM:   Yes, and 36, your Honour.

GLEESON CJ:   Yes.  Well now, what is unreasonable about that?

MR GRAHAM:   Your Honour, 36 specifically, and I do not want to say anything more about it than we have addressed in our written submissions, your Honour.

GUMMOW J:   Well, how does it get into the case?

MR GRAHAM:   Well, probably it is a matter where, if the Court was against us, that it ought to be sent back ‑ ‑ ‑

GUMMOW J:   No, no.  How would it get into the Federal Court?  The only ground of review there is error of law through the AAT route.  It is not an AD(JR) Act case.  It is much narrower, and deliberately so.  That is why the Commonwealth scheme is erected as it is.  If you do not like an administrative decision and you want it reviewed on the merits, you go to the AAT, but then you are stuck with it unless you can find an error of law.  If you want to get a full administrative review, with all the grounds in the AD(JR) Act, well then you go that route.

MR GRAHAM:   Yes.

GUMMOW J:   Now, that is the scheme of the Commonwealth legislation and you are really relying on Wednesbury unreasonableness, are you?

MR GRAHAM:   Yes, that is so, yes.

MR GRAHAM:   That is so, yes.

GUMMOW J:   I have never seen a Wednesbury unreasonableness point taken coming from the AAT myself.

MR GRAHAM:   Yes.  Chief Justice, there is one other matter.  Justice Gummow said something to my learned friend Mr Rares about the TNT/Ansett situation which I would like to correct if I could.  That is the facts are sadly not adequately reported in the TNT Case. The best one can do, however, is if one looks at the report in 4 ACLR 624, at 626 second column, the seventh line, it is indicated that the second takeover offer was made in December 1985 and the only other relevant date that one can pick up is page 628 second column about the tenth line. There is a reference to Justice Gobbo saying that he proposed to order that a:

modification requested in TNT’s application to the Commission as set out in its letter of 20 December 1985 –

be made.  So that the point is this is not a case where the modification was made after the end of the offer period.  Plainly if the offers were made in December 1985 and the application for the declaration was made on 20 December 1985, it was during the currency of the offer that the application was made.

GUMMOW J:   I am not at all happy about the way this Wednesbury unreasonableness point has been led.  Where do you deal with it in your written submissions?

MR GRAHAM:   The last two or three pages, your Honour.

GUMMOW J:   It should not have been dealt with in this way at the heel of the hunt, it seems to me?

MR GRAHAM:   I think the answer is, with respect, your Honour, that if your Honours were against us on the point of power that as it was not decided in the court below it should be sent back to the Full Federal Court.

GUMMOW J:   Well, that is the question.  That is why I was raising with you just what I have raised.

MR GRAHAM:   Your Honour, our submissions deal with it.

GUMMOW J:   Whereabouts?

MR GRAHAM:   Under the heading “Manifest Unreasonableness” on page 11, paragraphs 25 through to the end.  It is the last page and a half.

GAUDRON J:   You have to say, do you not, that there is a limitation to be read into the provision that it shall be exercised reasonably in the same way as there is a limitation with respect to natural justice read into the provision?

MR GRAHAM:   Yes.

GAUDRON J:   And you can only get to unreasonableness that way through the AAT, but there is no authority to support that approach, is there?  There are suggestions, I think, by me in Abebe that that might be one way of looking at it but I do not think there is any authority to support that approach.

MR GRAHAM:   Your Honour has advanced the thought in Abebe and we would take it up and submit that that ought to be the case.

GUMMOW J:   Well, you do not say it in your written submissions.

MR GRAHAM:   No.

GLEESON CJ:   Yes, thank you, Mr Graham.  Does anybody else want to say anything about the matter that Mr Graham has just referred to before we adjourn?

MS McCOLL:   Can I just repeat what I said this morning, that we have only ever dealt with the issues of power and policy because of our role as a decision maker in the case and that is why we did not address the point and left it to my learned friend.

GUMMOW J:   No, but it must be of significance to your client as to what extent applications to the AAT can be brought on this ground which is now put forward as a matter of power of the AAT.

MS McCOLL:   Before the Tribunal the Tribunal was empowered to stand in our shoes and make the decision, but once it got beyond the Tribunal, as your Honour has said, it was only reviewable by the court, the Federal Court, on an error of law.

GUMMOW J:   On what ground?  Yes, and what is your submission as to whether what Mr Graham is now putting is within the concept of an error of law which founds the jurisdiction of the Federal Court.  We cannot send something back to them for a futility.

MS McCOLL:   No.  Certainly, your Honour, we would have thought that if the matter was so manifestly unreasonable as to be beyond any proper exercise of the discretion that that could be subsumed within the terms of an error of law and we certainly did not take any point on that point not being available before his Honour Mr Justice Whitlam.

GUMMOW J:   Was it argued before Mr Justice Whitlam?

MS McCOLL:   Yes, the issue of manifest unreasonableness was argued before his Honour.

GUMMOW J:   I see.  All right.

GLEESON CJ:   Yes, Mr Rares.

MR RARES:   Your Honours, we submit that a notice of contention plainly is required under Order 70 rule 6(5) because my friend is seeking to contend that a matter of fact or law has been erroneously decided and does not seek a discharge of the current judgment below and he is required to file a notice of contention, what the rule provides, and he does not have to cross‑appeal.  In our submission, there is no error of law and if one identifies my learned friend’s submissions on pages 11 and 12 of his submissions there is nothing in there about errors of law.  It is an attempt to effect a merits review of the AAT’s decision and to do it in a way that identifies no misapprehension of law anywhere in the decision.

Your Honours, Mr Justice Beaumont in the Full Court considered this matter at page 90 of the High Court appeal book, joint appeal book, and dispatched it very shortly, as did Justice Whitlam in the first instance.  At paragraph 35 his Honour said:

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

And, with respect, that is eminently good sense.  Justice Whitlam dealt with it as shortly as that too at page 408 of the Federal Court appeal book.  At the bottom of the page his Honour noted the submission, referred to it as an “error of law” in the sense in Peko Wallsend and said:

Two matters were lightly developed on behalf of the applicant:  the Tribunal’s consideration of the question whether the holders of shares issued on the exercise of the options in Coldstream should be entitled to a control premium, and the weight attached by the Tribunal to the level of acceptances Southcorp received in respect of its offers for the options.  I need only say that I do not think it is seriously arguable that the Tribunal erred in law in either of the respects suggested.

And, with respect, we would again say that is right and the way the Full Court majority dealt with the matter, they found the error of law and the misconstruction, as it were, of what section 730 meant and they said there was no power under 730, therefore, the whole thing miscarried for that reason.

So, in our respectful submission, there is nothing in the error of law or Wednesbury unreasonableness point, and your Honour the Chief Justice referred my friend to pages 34, 35 and 36 in the Federal Court appeal book.  That is the ASIC statement of reasons.  The AAT’s reasons proceed that from pages 1 to ‑ ‑ ‑

GLEESON CJ:   Yes, but it was the ASIC’s reasons that he said were unreasonable.

MR RARES:   But that is not a ground of review, because he has had a full merits review in the AAT and Calvin v Carr, and I think we have referred to it in our submissions in R v Marks in 147 CLR.  Once you have natural justice and a right of re-hearing, it is the new body’s decision that binds.  In Guo Wei Rong v The Minister for Immigration, the Court said you cannot comb through these reasons and try and nit-pick for errors, you have to give

them a fair and purposive construction.  In our submission, when one reads Deputy President McMahon’s consideration of the matter, he is manifestly reasonable and addressed all the points and sought to find and achieve the balance in an appropriate and legally correct way.  In our respectful submission, that ground should be dismissed.

GLEESON CJ:   Thank you, Mr Rares.  We will reserve our decision in this matter.

AT 4.00 PM THE MATTER WAS ADJOURNED