Australian Securities Commission v Bank Leumi Le-Israel
[1995] FCA 1012
•14 DECEMBER 1995
CATCHWORDS
CORPORATIONS - Shares - Secondary Notices issued by Australian Securities Commission to foreign corporation - Compliance risks breach of foreign law - whether foreign corporations bound to comply with notices under Corporations Law, s.722.
Secondary Notices - whether notices can be given to foreign corporations where to do so contravenes foreign law - whether notices can be served by fax under Corporations Law, s.719.
Secondary Notices - whether letters constitute "request" for exemption under Corporations Law, s.721 - whether decision on request vitiated by pre-judgment or failure to take into account relevant considerations.
Substantial Shareholder Notices - whether foreign corporation obliged to give notice if to do so risks contravention of foreign law - whether foreign corporation is a "bare trustee" of shares for the purposes of Corporations Law s.39(b).
Secondary Notices - failure to comply - power to excuse non-compliance under Corporations Law, s.743 - whether foreign corporations should be excused from non-compliance - nature of relief to be granted.
Corporations Law, ss 39(b), 109X, 110D, 603, 613, 708, 709, 719, 721, 722, 741, 742, 743, 744.
Polites v The Commonwealth (1945) 70 CLR 60.
Re North Broken Hill Holdings Pty Ltd (1986) 10 ACLR 270.
Arhill Pty Ltd v General Terminal Co Pty Ltd (1990) 23 NSWLR 545.
De Beeche v The South American Stores (Gath and Chaves) Ltd [1935] AC 148.
Societe Internationale Pour Participations Industrielles et Commerciales, SA v Rogers 357 US 197 (1958).
Federal Trade Commission v Compagnie de Saint-Gobain-Pont-A-Mousson 636 F2d 1300 (1980).
Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Company Ltd (No.4) [1985] 1 Qd R 127.
Hastie & Jenkerson v McMahon [1990] 1 WLR 1575.
Electronic Rentals Pty Ltd v Anderson (1971) 124 CLR 27.
Little v Minister for Land Management (1992) 77 LGRA 346.
Air-India v Wiggins [1980] 1 WLR 815.
Corumo Holdings Pty Ltd v C. Itoh Pty Ltd (1991) 24 NSWLR 370
Regazzoni v K C Sethia (1944) Ltd [1958] AC 301.
Federal Trade Commission v Comagnie de Saint-Gobain-Pont-A-Mousson 636 F2d 1300 (1980)
Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30.
NM Superannuation Pty Ltd v Hughes (1992) 27 NSWLR 26.
Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70.
AUSTRALIAN SECURITIES COMMISSION v BANK LEUMI LE-ISRAEL & ORS
NG 3201 of 1995
Sackville J.
Sydney
14 December, 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3201 of 1995
GENERAL DIVISION )
BETWEEN:
AUSTRALIAN SECURITIES COMMISSION
Applicant
AND:
BANK LEUMI LE-ISRAEL
First Respondent
EBC ZURICH AG
Second Respondent
A.N.Z. NOMINEES LTD
Third Respondent
BB NOMINEES PTY LTD
Fourth Respondent
NATIONAL NOMINEES LTD
Fifth Respondent
GALAH NOMINEES PTY LTD
Sixth Respondent
STATTON NOMINEES PTY LTD
Seventh Respondent
OFFSET ALPINE PRINTING GROUP LTD
Eighth Respondent
ARKLOW PTY LTD
Ninth Respondent
Coram: Sackville J.
Place: Sydney
Date: 14 December, 1995
MINUTES OF ORDER
THE COURT DIRECTS THAT:
The applicant bring in short minutes of order giving effect to these reasons for judgment.
These proceedings be re-listed for any further argument as to the form of orders and submissions relating to costs.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3201 of 1995
GENERAL DIVISION )
BETWEEN:
AUSTRALIAN SECURITIES COMMISSION
Applicant
AND:
BANK LEUMI LE-ISRAEL
First Respondent
EBC ZURICH AG
Second Respondent
A.N.Z. NOMINEES LTD
Third Respondent
BB NOMINEES PTY LTD
Fourth Respondent
NATIONAL NOMINEES LTD
Fifth Respondent
GALAH NOMINEES PTY LTD
Sixth Respondent
STATTON NOMINEES PTY LTD
Seventh Respondent
OFFSET ALPINE PRINTING GROUP LTD
Eighth Respondent
ARKLOW PTY LTD
Ninth Respondent
Coram: Sackville J.
Place: Sydney
Date: 14 December, 1995
REASONS FOR JUDGMENT
INDEX
Page
INTRODUCTION 4
- The Proceedings 4
-The Relief Sought 5
-Other Parties 7
- Timing 8
THE FACTS 8
-Background 8
-The Secondary Notice to Leumi 11
-Leumi's Response 14
-The ASC's Decision in Relation to Leumi 15
-The Second Secondary Notice to Leumi 17
-Leumi's Application to the Administrative
Appeals Tribunal 18
-Secondary Notice to EBC 18
-EBC's Response 19
-The ASC's Decision in Relation to EBC 21
-The Take-Over Offers 22
IIITHE LEGISLATION 23
-Information as to Beneficial Ownership:
Part 6.8 24
-Substantial Shareholdings Provisions:
Part 6.7 28
-Power to Excuse Contraventions 31
-Extraterritorial Operation of the
Corporations Law 32
-Service of Notices 32
THE ISSUES 33
THE EXPERT EVIDENCE 35
-The Expert Witnesses 35
-Swiss Law 37
-Article 273 39
-Article 271 43
-Article 47 of the Banking Law 46
-
WERE LEUMI AND EBC OBLIGED TO COMPLY WITH THE
SECONDARY NOTICES, NOTWITHSTANDING THAT
COMPLIANCE PLACED THEM AT RISK OF VIOLATING
SWISS LAW? 47
-Background 47
-Principles of Construction 49
-Part 6.8 of the Corporations Law 54
-Enforcement and Prescription Jurisdiction 60
-Attorney-General v Heinemann 62
-Self-Incrimination 63
VIIWAS SERVICE OF THE SECONDARY NOTICE IN
SWITZERLAND AUTHORISED BY THE CORPORATIONS
LAW? 67
-The Submissions 67
-The Question of Construction 68
VIIIWAS SERVICE OF THE SECONDARY NOTICES BY FAX
AUTHORISED BY THE CORPORATIONS LAW? 75
-The Arguments 75
-The Authorities 77
-The Construction Issue 79
-An Original Document? 82
WERE THE SECONDARY NOTICES INVALID BY REASON
OF ANY PRE-JUDGMENT BY THE ASC? 84
DID THE ASC FAIL TO CONSIDER PROPERLY
REQUESTS MADE BY LEUMI AND EBC UNDER s.721? 87
-Background 87
-Did Leumi Make a Request? 89
-Did EBC Make a Request? 91
-Pre-Judgment by the ASC 92
-Alleged Failure to Take Into Account
Relevant Considerations 95
DID LEUMI AND/OR EBC CONTRAVENE THE
SUBSTANTIAL SHAREHOLDER PROVISIONS? 97
-Application of s.709 97
-Substantial Shareholder: Leumi 102
-Substantial Shareholder: EBC 106
XIISHOULD LEUMI AND/OR EBC BE EXCUSED FROM
THEIR CONTRAVENTIONS UNDER s.743? 107
-The Arguments 107
-Exercise of Discretion 109
XIIIWHAT RELIEF SHOULD BE GRANTED? 116
-The Submissions 116
-The Relief 119
I. INTRODUCTION
The Proceedings
In these proceedings the applicant, the Australian Securities Commission ("ASC"), seeks relief against two Swiss corporations in respect of what it claims are breaches of the Corporations Law. The corporations are the first respondent, Bank Leumi Le-Israel ("Leumi") and the second respondent, EBC Zurich AG ("EBC"). The ASC alleges, among other things, that Leumi and EBC have failed to comply with secondary notices issued by the ASC under the Corporations Law. The secondary notices required them to provide information concerning their shareholdings in an Australian company. The ASC also alleges that Leumi and EBC have failed to comply with the substantial shareholder notice provisions of the Corporations Law.
Leumi and EBC deny that they have been, or are, in breach of the Corporations Law. They raise many issues by way of defences to the ASC's allegations. At the forefront are their claims that compliance with the notices and with the substantial shareholder provisions, would cause them to breach Swiss law. They argue that the Corporations Law should not be construed so as to require foreign corporations to breach the law of the country in which they are incorporated and conduct business. Leumi and EBC also claim that service of the secondary notices on them breached Swiss law and was not authorised by the Corporations Law.
The Relief Sought
The proceedings were commenced by the ASC on 3 May 1995. The relief claimed by the ASC in its further amended statement of claim includes declarations that Leumi and EBC have contravened s.722(1) of the Corporations Law, by failing to comply with secondary notices served on them by the ASC in relation to shares held by them in the eighth respondent, Offset Alpine Printing Group Ltd ("OAP"). The ASC also seeks declarations that Leumi and EBC have contravened s.709(1) of the Corporations Law, in that each was a substantial shareholder in OAP but had failed to give the required written notice to OAP specifying their interests.
The ASC claims consequential relief, including
lorders that Leumi and EBC comply with the secondary notices;
lorders that Leumi and EBC give written notices complying with s.709 of the Corporations Law;
lorders that the shares be vested in the ASC absolutely or subject to such terms and conditions as the Court thinks fit;
lin the alternative, orders that the nominee companies (the third to the seventh respondents), who are the registered owners of the shares in OAP held on behalf of Leumi and EBC, divest themselves of the shares;
lreservation of liberty to apply to any person claiming an interest in the shareholdings of Leumi and EBC in OAP.
On 4 May 1995, interlocutory orders were made restraining Leumi and EBC from giving instructions for their shares in OAP to be disposed of and restraining the other respondents from disposing of any shares in OAP held by them on behalf of Leumi or EBC. OAP was directed, subject to further order of the Court, to disregard the exercise of any rights in respect of the shares by the third to the seventh respondents, each of which is a nominee company holding shares in OAP on behalf of Leumi and EBC. OAP was also restrained from registering a transfer or transmission of any shares in OAP held by Leumi or EBC. These orders remain in place.
Leumi and EBC entered unconditional appearances in the proceedings. Each has been separately represented and has opposed the relief sought by the ASC. At the hearing Leumi was represented by Mr R. White, who appeared with Ms Wines. Mr Conti QC appeared with Mr Kunc for EBC.
Both Leumi and EBC filed cross-claims. As amended, Leumi's cross-claim seeks an order under s.11 of the Administrative Decisions (Judicial Review) Act 1975 (Cth) ("ADJR Act") extending the time for filing an application to review a decision made by the ASC on 5 September 1995. That decision was to refuse what Leumi claimed was a request under s.721 of the Corporations Law, that the ASC certify that there were special reasons why the information sought in the secondary notices did not have to be given. The amended cross claim also seeks an order quashing the ASC's decision to refuse the request.
EBC's cross-claim seeks orders pursuant to s.743 of the Corporations Law that, if EBC has contravened s.722, the contravention should be excused. The main argument put in support of the cross claim is that there is a real or serious risk that EBC would be in breach of the Swiss Penal Code if it were to comply with the secondary notices.
Other Parties
The third to the seventh respondents are nominee companies incorporated in Australia. Only one of these, the fifth respondent (National Nominees Ltd), appeared in the proceedings. However, it has submitted to the orders of the Court and has played no part in the hearing.
OAP was represented at the hearing by Mr Oakes SC. He argued that any relief granted by the Court should allow the shares held by Leumi and EBC to be sold, in the interests of an efficient market in OAP shares. OAP relied on the fact that by the date of the hearing, two companies, Fobiti Pty Ltd ("Fobiti") and Arklow Pty Ltd ("Arklow") had made competing offers to acquire the whole of the issued share capital of OAP.
At the hearing, Mr Muddle announced an appearance for Arklow and sought an order joining Arklow as a respondent to the proceedings. He did so primarily on the ground that Arklow, having made a take-over offer for all shares in OAP, wished to be heard on the form of relief, if any, to be granted to the ASC. Mr Lindsay SC, who appeared for the ASC, did not object to this course. None of the other respondents objected. Accordingly, I made an order joining Arklow as the ninth respondent, subject to an undertaking, given on its behalf by Mr Muddle, that Arklow would not seek costs from any other party.
Timing
The hearing was expedited. At the time the proceedings were set down for final hearing, only the first takeover offer had been made. It was expressed to expire on 29 November 1995. Since that time two other offers have been made, one of which is a revised offer by the original offeror, Fobiti. Those offers expire, unless extended, on 29 December 1995. In accordance with the parties' request, this judgment has been prepared in sufficient time to enable final orders to be made before the expiration of the current offers.
II THE FACTS
Background
OAP is a company incorporated in Victoria. It was previously known as Oilmet Resources NL. At all material times, OAP has been admitted to the Official List of the Australian Stock Exchange ("ASX"). Its principal activity is printing.
On 5 April 1995, the ASC was informed by the ASX of ASX investigations into the trading of OAP securities. The ASX was concerned that there may have been a failure to comply with the substantial shareholder notice provisions of the Corporations Law. This concern apparently arose out of the fact that the ASX had received information that Leumi and EBC had sold over 720,000 shares into an on-market buy-back scheme for shares in OAP.
On 6 April 1995, the ASC obtained a list of the top 40 shareholders in OAP as at 5 April 1995. This showed that the shareholders in OAP included:
lthe third respondent, A.N.Z. Nominees Ltd ("ANZ Nominees"), holding 4,653,433 shares (19.56% of the issued capital);
lthe fourth respondent, BB Nominees Pty Ltd ("BB Nominees"), holding 162,437 shares (0.68%);
lthe fifth respondent, National Nominees Ltd ("National Nominees"), holding 1,214,319 shares (5.10%);
lthe sixth respondent, Galah Nominees Pty Ltd ("Galah Nominees"), holding 1,783,037 shares (7.49%); and
lthe seventh respondent, Statton Nominees Pty Ltd ("Statton Nominees"), holding 1,380,818 (5.80%).
Between 7 and 10 April 1995, the ASC issued primary notices to those shareholders under s.718 of the Corporations Law. The notices required each recipient to give to the ASC a written statement within two days, providing particulars of all relevant interests in the shareholding of that recipient in OAP.
In consequence of the primary notices, the ASC received information that a total of 4,038,600 shares in OAP (16.97% of the issued capital) were held by the recipients of those notices on behalf of Leumi, and 5,293,771 (22.25% of the issued capital) were held on behalf of EBC. The shareholdings revealed by the primary notices are shown in the chart set out below.
Leumi is incorporated in Switzerland as a stock corporation and is duly registered with the Commercial Register of the Canton of Zurich. It is a bank, permitted to carry on business subject to the provisions of the Swiss Federal Law on Banks and Savings Banks. Leumi carries on business at offices in Zurich and Geneva.
EBC is also a joint stock corporation incorporated in Switzerland and is registered with the Commercial Register of the Canton of Zurich. It is not a bank, but carries on business as a finance company.
The Secondary Notice to Leumi
On 18 April 1995 the ASC prepared a secondary notice, addressed to Leumi at its address in Zurich, Switzerland. The notice was accompanied by a covering letter, as follows:
"I enclose a notice issued pursuant to subsection 719(1) of the Corporations Law requiring information as to the ownership of the shares held by A.N.Z. Nominees Pty Ltd in Offset Alpine Printing Group Limited.
...
Please note that the issuing of the attached notice does not amount to an assertion of extraterritorial enforcement jurisdiction because the subject matter of the notice is Australian shares and any enforcement action for non-compliance would occur in Australia in relation to those shares."
The notice followed Form 609, which may be used for the purposes of a secondary notice under s.719(1): Corporations Regulations, reg.6.8.01(4). The body of the notice was as
follows:
"1.Take notice that the Australian Securities Commission pursuant to a primary notice (as defined in section 717 of the Corporations Law), has received information that you are:
a.*a person with a relevant interest in (1); or
b.*a person who has given relevant instructions (2) in relation to
4,038,600 voting shares in Offset Alpine Printing Group Limited, ACN 003 394 876 that are held by A.N.Z. Nominees Pty Ltd of Level 25, 530 Collins Street, Melbourne VIC 3000.
The Commission requires you to give to the Commission:
(a)in accordance with subsection 722(1) of the Corporations Law; and
(b)within 2 business days after you have received this notice;
a statement in writing setting out:
(c)full particulars of your relevant interest in those shares and the circumstances because of which you acquired that interest; and
(d)so far as you know, full particulars of:
(i)the name and address of every other person who has a relevant interest in any of the shares; and
(ii)each such interest and the circumstances because of which the person has that interest; and
(iii)the name and address of each person who has given you relevant instructions in relation to any of the shares; and
(iv)those relevant instructions; and
(v)the date(s) on which the instructions were given to you.
...
NOTES
(1)See Division 5 of Part 1.2 of the Corporations Law
(2)See section 717 of the Corporations Law
DIRECTION
Under subsection 721(1) of the Corporations Law, an application for exemption from providing any or all of the required particulars may be lodged with the Australian Securities Commission within 2 business days after this notice is received.
The Australian Securities Commission may, under subsection 721(2), modify this requirement to give information."
The document was signed for the ASC "by its delegate Peter Dumas".
On 20 April 1995, the letter and the notice were sent by facsimile transmission ("fax") to Leumi at its offices in Switzerland. In its defence, Leumi admitted that the fax was received by it at its office on 20 April 1995, but pleaded that the fax was not received by an officer having responsibility for the matter "until May 1995".
The original letter and secondary notice were dispatched by international courier to Leumi at its Zurich address. The letter and notice were delivered at that address on 24 April 1995.
On 26 April 1995, the ASC faxed a further letter to Leumi. The letter stated that, unless a satisfactory response to the notice was forthcoming, the ASC intended to apply to the Federal Court to enforce compliance. The letter contained this paragraph:
"Further, the Commission does not accept that Swiss Secrecy Regulations are sufficient reason not to provide the information required under the above Notice".
Leumi's Response
On 27 April 1995, Leumi faxed a letter to the ASC. One of the issues to be decided is whether this letter was a "written request that, for special reasons set out in the request...the information should not be given to [the ASC]", within the meaning of s.721(1) of the Corporations Law. The letter should therefore be set out in full:
"Reference is made to your letter dated April 18, 1995, which was received by us on April 24, 1995, as well as your telefax of yesterday.
With respect to the notice attached to your aforementioned letter requiring information as to the ownership of the shares held by A.N.Z. Nominees Pty Ltd in OFFSET ALPINE PRINTING GROUP LIMITED we cannot but draw the Commission's attention to our status as a Swiss bank. As such we are subject to Swiss law, in particular Swiss Secrecy Regulations. Therefore, and notwithstanding what is said in para.3 of your yesterday's fax, our bank would clearly and seriously infringe applicable Swiss law by furnishing you with the statement required by the Commission as per the said notice.
Please be further advised that the mere fact of this reply may not be interpreted by you and/or the Commission as indication of our bank being aware of any particulars of the subject matter of the notice.
We trust that you and the Commission understand our position which is in compliance with applicable Swiss law and appreciate your and the Commission's comprehension."
There was subsequent correspondence between the ASC and Leumi's Australian solicitors, to which reference is made below. However, Leumi has not provided the ASC with the information sought in the secondary notices.
The ASC's Decision in Relation to Leumi
On 22 June 1995, the ASC, without prejudice to its contention that Leumi had lodged no request within the meaning of s.721(1) of the Corporations Law, invited Leumi, through its Australian solicitors, to identify the details of any request that it alleged had been made pursuant to s.721(1). The letter also invited Leumi to make all submissions and provide material that it alleges should be taken into account in considering the request. By a reply of 28 June 1995, Leumi's solicitors identified the letter of 27 April 1995 as constituting the request. The letter continued as follows:
"(iv)submissions - the special reasons are set out in the letter, namely that compliance with the notice would infringe Swiss law. Further, by way of submission pertaining to such special reasons, it is submitted that forcing a Swiss resident bank to comply with a notice under Australian law contrary to the provisions of Swiss law, which could cause the imposition of penalties on our client, would be unreasonable and harmful to international comity."
Although that letter does not expressly refer to previous correspondence, other than the letter of 27 April 1995, Leumi's solicitors had faxed a letter to the ASC on 21 June 1995. That letter enclosed a memorandum from Dr Schurmann,
described as an "independent lawyer practising in Zurich". Dr Schurmann expressed the view that Leumi would contravene Swiss law if it provided the information sought by the ASC, whether in response to the secondary notice or an order of the Federal Court. The letter of 21 June 1995 included the following:
"We ask you to carefully consider, again, the difficult position [Leumi] is in and the impossibility of it ignoring Swiss law".
On 4 July 1995, the ASC sent a letter to Leumi's solicitors asking a series of detailed questions. Among other things, the letter asked whether Leumi had requested the consent of the beneficial shareholders to compliance with the secondary notices. On 10 July 1995, Leumi's solicitors responded, but did not provide answers to the questions asked, on the ground that the ASC's position required further clarification.
At some stage, the date of which does not appear clearly from the evidence, the ASC asked Mr Goldie, a lawyer in its New South Wales Regional Office, to make a decision under s.721:
"on the unadmitted assumption that a request has been made by [Leumi] to the ASC on 27 April 1995 that information required by secondary notices given to [Leumi] in April 1995 should not be given to the ASC."
Mr Goldie had not previously been involved in ASC's investigation of the ownership of OAP shares, nor in these proceedings.
Mr Goldie gave his decision in writing, pursuant to s.721(3) of the Corporations Law, on 5 September 1995. He refused Leumi's request. After identifying the documents which he had considered, he set out his reasons:
"The reasons put forward by Bank Leumi for its request to the ASC are that, as a Swiss bank, it is subject to Swiss Secrecy Regulations and it would infringe applicable Swiss law by providing the ASC with the statement required by the ASC's secondary notices given to it in April 1995.
I am not satisfied that the reasons put forward by Bank Leumi constitute "special reasons", within the meaning of subsection 721(2) of the Corporations Law, why the information required by the secondary notices given to it in April 1995 should not be given to the ASC. Accordingly Bank Leumi's request is refused.
In making this decision I have determined that, on balance, upholding the objects of Part 6.8 of the Corporations Law in maintaining an informed market in shares listed on Australian stockmarkets - which objects could be defeated if the reasons put forward by Bank Leumi constituted "special reasons" under subsection 721(2) of the Corporations Law - outweigh both considerations of international comity in this instance and the possibility that as an indirect consequence of my so finding the Court may, in its discretion, make orders which vest the shares in persons or bodies other than the current beneficial owners of the shares."
This decision was notified to the Australian solicitors acting for Leumi on 6 September 1995.
The Second Secondary Notice to Leumi
On 6 October 1995, the ASC sent a further secondary notice to Leumi, by means of a letter delivered to Leumi's Australian solicitors. The solicitors responded by making a written request pursuant to s.721(1) of the Corporations Law, on
behalf of Leumi. The request was that the information sought, except as to 80,000 shares which Leumi held as principal, should not be given, as to do so would contravene art.47 of the Swiss Federal Law on Banks and Savings Banks ("Swiss Banking Law") and art.271 of the Swiss Penal Code. In support of the request, the solicitors referred to the evidence of Dr Schurmann filed in the proceedings. The letter noted that the information sought in relation to 80,000 shares beneficially owned by Leumi, had already been provided to the ASC. On 13 October 1995, the delegate of the ASC, Mr Goldie, refused the request. That refusal is not in issue in the present proceedings.
Leumi's Application to the Administrative Appeals Tribunal
On 16 October 1995, Leumi applied to the Administrative Appeals Tribunal ("AAT") for review of Mr Goldie's decision of 13 October 1995. On 3 November 1995, Leumi applied to the AAT under s.29(7) of the Administrative Appeals Tribunal Act 1975 (Cth) for an extension of time to make an application to challenge Mr Goldie's decision of 5 September 1995 to refuse relief under s.721(1) of the Corporations Law. Leumi's applications have not yet been determined by the AAT.
Secondary Notice to EBC
On 18 April 1995, the ASC prepared a secondary notice, addressed to EBC at its address in Switzerland. The covering letter was in the same terms as that to Leumi, the terms of which are set out earlier in this judgment. The notice itself followed Form 609 and, except for the details of the voting shares held by EBC, was identical to the notice sent to Leumi. The notice did not include a reference to the 162,437 shares in OAP held by BB Nominees on behalf of EBC. The notice was signed by Mr Dumas, as the delegate of the ASC.
On 20 April 1995, at 4.41 p.m., Australian Eastern Standard time, Mr Blackwell of the ASC faxed the covering letter and the secondary notice to EBC at its fax number in Zurich. On the same day, Mr Blackwell sent the secondary notice and the covering letter to EBC at its Zurich address by international courier. The notice and letter were duly delivered to EBC's offices in Zurich on 24 April 1995.
On 20 April 1995, the ASC issued a second notice relating to the parcel held by BB Nominees. The covering letter and the notice were, in substance, in the same form as the first notice. The documents were forwarded by the ASC to Switzerland by international courier and were delivered to EBC's officer in Switzerland on 24 April 1995. The covering letter and the notice were also faxed to EBC in Switzerland at 11.41 a.m. Australian Eastern Standard Time on 26 April 1995.
EBC's Responses
On 21 April 1995, EBC sent a fax to the ASC, as follows:
"We acknowledge the receipt of your fax of 20 April 1995.
Due to Swiss secrecy regulations we cannot, however, provide the requested details about the ownership of subject shares."
On 26 April 1995, the ASC responded to EBC's fax. The ASC's response stated, as it had in its letter to Leumi, that it did not accept that "Swiss Secrecy Regulations" were sufficient reason not to comply with the secondary notice. The ASC advised that unless a satisfactory response was received by 28 April 1995, the ASC intended to apply to the Federal Court to enforce compliance.
On 28 April 1995, EBC faxed the ASC to advise that Mr Fundulus, who was handling the matter, was away and would respond shortly to the ASC's fax of 26 April 1995. On 3 May 1995 Mr Fundulus faxed the ASC to advise that "we are contacting clients from all around the world to get instructions and require another fourteen days to get back to you".
On 11 May 1995, EBC's Australian solicitors held a meeting with the ASC. On that date the solicitors advised the ASC that EBC was prepared to consent to an order that the relevant shares be sold on terms acceptable to the ASC. Since EBC maintained that it was a bare trustee in relation to the shares, I infer (as Mr Conti accepted that I should) that EBC made this offer on instructions from the beneficial holders of the shares. A similar open offer was made by EBC on 13 June 1995.
It was common ground that EBC has not provided the ASC with the information sought in the secondary notices.
The ASC's Decision in Relation to EBC
The ASC's position was and is that EBC's fax of 21 April 1995 did not constitute a request by EBC pursuant to s.721(1) of the Corporations Law, that it should not be required to give the requested information to the ASC. However, the ASC took an approach to EBC's letter similar to that which it took in relation to Leumi's faxed letter of 27 April 1995. Mr Goldie was asked to make a decision under s.721, on the unadmitted assumption that the faxed letter of 21 April 1995 constituted a request for the purpose of s.721(1) of the Corporations Law.
On 22 June 1995, after the commencement of these proceedings, the ASC wrote to EBC's Australian solicitors, inviting them to identify any request made pursuant to s.721(1) of the Corporations Law, and to make any submissions that it alleged should be taken into account by the ASC in making a decision in any such request. On 27 June 1995, the solicitors responded by identifying the letter of 21 April 1995 as the request. The solicitors made the following submissions:
"(iv)The provisions of the Swiss Secrecy Regulations and in particular Articles 271 and 273 of the Swiss Penal Code, that our client would breach these provisions if it were to comply with the secondary notices and accordingly ought not to be required to provide the information sought by the secondary notices."
On 4 July 1995, the ASC sought further details from EBC's solicitors of the provisions of Swiss law relied on by them in seeking exemptions from the ASC. The letter also asked whether EBC had advised the persons on whose behalf EBC held the shares specified in the notices and whether EBC had requested their consent to compliance with the notices. There appears to have been no response to this letter.
Mr Goldie gave his decision in writing, refusing the request, on 5 September 1995. His reasons were, in substance, the same as those given by him in relation to the (assumed) request by Leumi. On 6 September 1995, the ASC notified EBC of Mr Goldie's decision.
The Take-Over Offers
Since these proceedings were commenced, a series of unconditional offers has been made for the shares in OAP.
On 13 October 1995 Fobiti lodged a Part C Statement with the Australian Stock Exchange in relation to all ordinary shares in OAP. Fobiti, which is a wholly owned subsidiary of Kalamazoo Holdings Ltd, offered the sum of $2.30 per share cum dividend, or $2.215 per share ex dividend. The Part C Statement recorded that, immediately before the announcement of the offer, Fobiti held 1.29% of the OAP shares on issue. The offer was said to be open until 29 November 1995, unless extended. The directors of OAP recommended acceptance of this offer and indicated that, in the absence of a higher bid, they intended to accept the offer for their own shareholdings.
On 14 November 1995 Arklow, a subsidiary of The Independent Print Media Group Pty Ltd, lodged a Part C Statement in relation to all ordinary shares in OAP. Arklow offered the sum of $2.40 per share ex dividend. At the date of the announcement of Arklow's offer, it was entitled to 1.6% of the issued capital in OAP. The offer was expressed to be open until 28 December 1995, unless extended. The directors of OAP have now recommended acceptance of this offer, in the absence of any higher bid.
On 17 November 1995 Fobiti increased its offer to $2.60 per share ex dividend and extended the offer until 29 December 1995.
III THE LEGISLATION
Information as to Beneficial Ownership: Part 6.8
Part 6.8 of the Corporations Law sets out procedures designed to enable the ASC, or a listed company, to ascertain details of beneficial shareholdings in the company. Section 718(1) allows the ASC to "give to the holder of particular voting shares in a company a primary notice in relation to those shares". A company may also issue its own primary notice: s.718(4). A primary notice is one addressed to the holder of the shares requiring the holder to give a written statement setting out, inter alia, so far as is known to the holder, full particulars of every other person having a "relevant interest" in the shares and the circumstances because of which that person has the interest: s.717. I refer in more detail to the concept of "relevant interest" when dealing with the substantial shareholder provisions, contained in Part 6.7 of the Corporations Law.
Section 719(1) provides for the ASC to give a secondary notice:
"719(1) Where the Commission receives, pursuant to a primary notice or secondary notice given to a person in relation to particular shares in a company, information that:
(a)another person has a relevant interest in any of the shares; or
(b)another person has given relevant instructions in relation to any of the shares;
the Commission:
...
(d)otherwise; may
give to the other person a secondary notice in relation to the first-mentioned shares."
A secondary notice is defined in s.717 as follows:
"'secondary notice', in relation to shares in a company, means a written notice addressed to a person requiring the person to give to the body giving the notice a written statement setting out:
(a)full particulars of any relevant interest that the person has in any of the shares and of the circumstances because of which the person has that interest; and
(b)so far as is known to the person:
(i)full particulars of the name and address of every other person (if any) who has a relevant interest in any of the shares;
(ii)full particulars of each such interest, and of the circumstances because of which the other person has that interest; and
(iii)full particulars of the name and address of each person (if any) who has given to the person to whom the notice is addressed relevant instructions in relation to any of the shares and of those relevant instructions, and the date on which those relevant instructions were given."
"Relevant Instructions", in relation to shares, is defined by s.717 to mean:
"instructions or directions:
(a)in relation to the acquisition or disposal of the shares;
(b)in relation to the exercise of any voting or other rights attached to the shares; or
(c)in connection with any other matter relating to the shares;"
The ASC is empowered to provide information received pursuant to a primary or secondary notice to the company whose shares are the subject of the notice: s.720.
Section 721 was the subject of argument in the present case. It provides as follows:
"721(1) A person who receives a primary notice or secondary notice in relation to shares in a company may, before the end of 2 business days after the day on which the notice was received, lodge a written request that, for special reasons set out in the request:
(a)the information should not be given to the body that gave the notice;
(b)if the Commission gave the notice - the information, if given to the Commission, should not be provided under section 720, or should be so provided only in a particular form; or
(c)if the company gave the notice - the information should only be given to the company in a particular form.
Where the Commission is satisfied that there are special reasons why:
(a)particular information should not be given to the body that gave the notice;
...
the Commission may give to the person a certificate referring to the information and stating that:
..."
If the ASC refuses the request, the person making it must comply with the notice within two business days of being notified of the refusal: s.723(b).
The duty of the person receiving a notice is dealt with in s.722:
"722(1) A person who receives a primary notice or secondary notice in relation to shares in a company shall, unless before the end of 2 business days after the day on which the person receives the notice the person lodges a request under subsection 721(1) in relation to particular information that the notice requires the person to give, comply with the notice before the end of 2 business days after that day."
Where a person has contravened ss.722 or 723 in relation to a notice given to the person under ss.718 or 719, s.742(2) applies. Section 742(2) provides that, on the application of the ASC (among others):
"the Court may make in relation to any of the shares such order or orders as it thinks just, including, but without limiting the generality of the foregoing:
(d)a remedial order; and
(e)for the purpose of securing compliance with any other order made under this subsection, an order directing the company or any other person to do or refrain from doing a specified act."
Section 613 provides that a "remedial order", in relation to the Court, is a reference to any one or more of the following orders:
"(a)an order restraining the exercise of any voting or other rights attached to shares;
(b)an order directing a body corporate not to make payment, or to defer making payment, of any amount or amounts due from the body corporate in respect of shares;
(c)an order restraining the acquisition or disposal of, or of an interest in, shares;
(d)an order directing the disposal of, or of an interest in shares;
(e)an order vesting in the Commission shares or an interest in shares;
(f)an order directing a body corporate not to register the transfer or transmission of shares;
(g)an order that an exercise of the voting or other rights attached to shares be disregarded;
...".
The powers of the Court under a "relevant provision" (including ss.741 and 742), are further dealt with in s.744(7) and (8). Those sub-sections provide as follows:
"(7) Without limiting the nature of the orders that may be made by the Court under a relevant provision directing the disposal of, or of an interest in, shares in a company, such an order may include one or more of the following provisions:
(a)a provision that the disposal shall be made within such time and subject to such conditions (if any) as the Court thinks just, including, if the Court thinks fit, a condition that the disposal shall not be made to a particular person or persons or to a particular class or classes of persons;
...
(8)The Court may direct that, where a share or an interest in a share is not disposed of in accordance with an order of the Court under a relevant provision, the share or interest shall vest in the Commission."
Where a share vests in the ASC by an order under a relevant provision or a direction under s.744(8), the ASC may, subject to any directions of the Court, get in, sell or otherwise dispose of, or deal with, the share as it sees fit: s.744(9) (a).
Substantial Shareholdings Provisions: Part 6.7
The substantial shareholdings provisions are contained in Part 6.7 of the Corporations Law. A person who is a "substantial shareholder" in a company, including a company listed on a stock exchange, is required to give a written notice to the company in the prescribed form: ss.603, 709(1). A person is a substantial shareholder, relevantly, if the person is entitled to not less than 5% of the voting shares in the company: s.708(1),(4),(5). The notice must be given before the end of
two business days after the day on which the person becomes aware of "the relevant interest or interests because of which the person is a substantial shareholder": s.709(4). The notice must state, inter alia, the prescribed particulars of the voting shares in the company in which the substantial shareholder or an "associate" of that person has a relevant interest or relevant interests: s.709(3)(b).
A person is entitled to shares in a body corporate if that person has a "relevant interest" in the shares: s.609(1)(a). The person is also entitled to shares if a person who is an "associate" of the first-mentioned person has a relevant interest in the shares: s.609(1)(b). The "basic rule" is that a person who has power to vote in respect of a voting share, or who has power to dispose of a share, has a relevant interest in that share: s.31; see also s.30(2),(3). A relevant interest in a share is disregarded if the share is subject to a trust and the person has the relevant interest as a bare trustee: s.39(b).
A reference to an "associate" of a person includes
(i)a person in concert with whom the primary person is proposing to act; or
(ii)with whom the primary person is, or proposes to become, associated in any other way, in respect of the matter to which the associate reference relates: s.15(1). However, s.16(1) provides that a person is not an associate of another by virtue of s.15(1) merely because:
"(a)one gives advice to the other, or acts on the other's behalf, in the proper performance of the functions attaching to a professional capacity or a business relationship;
(b)one, a client, gives specific instructions to the other, whose ordinary business includes dealing in securities, to acquire shares on the client's behalf in the ordinary course of that business;
...".
If a person who is already a substantial shareholder increases or reduces the shareholding in a particular class by more than 1% of the shares in that class, a further notice must be given to the company within two days of the person becoming aware of the change: s.710(1)(c),(4). A person who ceases to become a substantial shareholder must also give a notice to the company: s.711(1),(4).
Where a substantial shareholder contravenes ss.709, 710 or 711, s.741(1) provides that the Court, on the application of the ASC or the company, whether or not the contravention continues,
"may make such order or orders as it thinks just, including (without limiting the generality of the foregoing):
(a)a remedial order; and
(b)for the purpose of securing compliance with any other order made under this section, an order directing the company or any other person to do or refrain from doing a specified act."
"Remedial order" has the meaning given by s.613, to which reference has already been made.
Power to Excuse Contraventions
Section 743 confers power on the Court to excuse contraventions.
"743(1) Where a person has contravened a provision of this Chapter and, on application by any interested person, the Court is satisfied that, in all the circumstances the contravention ought to be excused, the Court may make an order declaring any act, document or matter not to be invalid because of the contravention and to have effect, and at all times to have had effect, as if there had been no such contravention.
(2)If the Court is satisfied that in all the circumstances a contravention of section...709, 710, 711, 722 or 723 ought to be excused, the Court shall not make an order under section...741 or 742, as the case may be, other than:
(a)an order restraining the exercise of voting or other rights attached to shares; or
(b)an order that an exercise of voting or other rights attached to shares be disregarded.
(3)The circumstances to which the Court may have regard in deciding whether or not a contravention of a provision by a person ought to be excused include the contravention having been due to the person's inadvertence or mistake, to the person not having been aware of a relevant fact or occurrence or to circumstances beyond the control of the person.
(4)This section applies notwithstanding anything contained in any other provision of this Chapter."
The Court is not to make an order under ss.741, 742 or 743 "if it is satisfied that the order would unfairly prejudice any person": s.744(2).
Extraterritorial Operation of the Corporations Law
Section 110D of the Corporations Law provides for the extraterritorial operation of some Chapters, including Chapter 6.
"110D Chapters 1 to 6, inclusive, and 9, apply, according to their tenor, in relation to:
(a)natural persons, whether resident in this jurisdiction or in Australia or not and whether Australian citizens or not; and
(b)all bodies corporate and unincorporated bodies, whether formed or carrying on business in this jurisdiction or in Australia or not; and
(c)acts and omissions outside this jurisdiction, whether in Australia or not."
Service of Notices
Section 719(1), the terms of which were set out earlier, provides for the ASC to "give...a secondary notice in relation to shares". The service of documents is further addressed in ss.109X and 109Y of the Corporations Law. Both are within Chapter 1 of the Law and are therefore to be applied in accordance with s.110D.
The sections are as follows:
"109X(1) For the purpose of any provision of this Law that requires or permits a document to be served on a person, whether the expression "serve", "give" or "send" or any other expression is used, the document may be served:
(a)...
(b)on a body corporate other than:
(i) a company; or
(ii) a recognised company; or
(iii) a registered body;
by leaving it at, or sending it by post to, the head office, a registered office or a principal office of the body corporate.
(2)Nothing in subsection (1):
(a)affects the operation of any other provision of this Law or any other law of the Commonwealth or of this or another jurisdiction that authorises the service of a document otherwise than as provided in that subsection; or
(b)affects the power of a court to authorise service of a document otherwise than as provided in that subsection.
109Y Where a provision of this Law authorises or requires any document to be served by post, whether the expression "serve" or the expression "give" or "send" or any other expression is used, then:
(a)the service is taken to be effected by properly addressing and posting (under pre-paid post) the document as a letter to the last known address of the person to be served; and
(b)unless the contrary is proved, the service is taken to have been effected at the time at which the letter would have been delivered in the ordinary course of post."
The definition section (s.9), defines the terms "body corporate", "company", "recognised company" and "registered body", all of which are used in s.109X(1)(b). The result is that s.109X(1)(b) applies to a corporation incorporated outside Australia and which is not registered (pursuant to Part 4.1, Div.2 of the Corporations Law) as a foreign company carrying on business in Australia.
IV THE ISSUES
The parties raised a very large number of issues. These can be summarised in the following list of questions:
lWere Leumi and EBC obliged to comply with the secondary notices, having regard to the secrecy provisions of Swiss law?
lWas service of the secondary notices on Leumi and EBC in Switzerland authorised by the Corporations Law, having regard to the provisions of Swiss law governing service of documents in Switzerland?
lWas service of the secondary notices by fax authorised by the Corporations Law?
lWere the secondary notices invalid by reason of any pre-judgment of issues by the ASC?
lDid the ASC fail to consider properly requests made by Leumi and EBC under s.721 of the Corporations Law?
lDid Leumi and/or EBC contravene the substantial shareholder provisions of the Corporations Law?
lShould Leumi and/or EBC be excused from any contra-ventions, by reason of s.743 of the Corporations Law?
lAssuming Leumi and EBC have contravened the Corporations Law, what relief should be granted to the ASC?
Some of these questions, in particular the first two, depend to some extent on findings as to Swiss law. Accordingly, I shall deal at the outset with the expert evidence relating to Swiss law. I shall then turn to each of the questions identified above.
THE EXPERT EVIDENCE
The Expert Witnesses
The general principle, prior to the introduction of the Evidence Act 1995 (Cth), was that foreign law could be provided only by the evidence of appropriately qualified experts: P.E. Nygh, Conflict of Laws in Australia (6th ed. 1995), 269. This principle has been qualified by ss.174 and 175 of the Evidence Act 1995. Section 174 permits evidence of the statutes, proclamations, treaties or acts of state of a foreign country to be adduced by producing official publications or other reliable sources of information. Section 175(1) permits evidence of unwritten or common law to be adduced by producing books which contain reports of court judgments (if that book would be used in the country itself). Section 175(2) allows evidence of the interpretation of statutes to be adduced by producing similar materials.
In the present case, the ASC, Leumi and EBC each adduced evidence, in the form of affidavits and reports, from experts in Swiss law. None of the experts was cross-examined. To the extent that there are differences in their views, it is necessary to resolve them by assessing the comparative qualifications and experience of the experts and by considering their reasoning in the light of the materials on which they relied.
Mr Lindsay read affidavits and reports prepared by Mr Wehrli, a lawyer practising in a private firm in Geneva. Mr Wehrli has comparatively limited experience, having been admitted to the Geneva bar in 1988 and having earned an LL.M. in international banking in 1990 from Boston University. Mr Wehrli's areas of expertise include criminal and banking law, as well as "international mutual assistance".
Mr White relied on affidavits and reports from Dr Schurmann, a senior partner in a Zurich firm of lawyers. Dr Schurmann became a member of the Zurich bar in 1972, after obtaining a Ph.D. in law. His areas of expertise include corporate and banking law and he is a member of a number of professional associations. Dr Schurmann clearly has extensive experience in the practice of banking law in Switzerland.
Mr Conti read affidavits and reports prepared by Dr Nobel, a Professor of Civil, Trade and Commercial law at the University of St Gallen, Switzerland. Dr Nobel received a doctorate for a thesis in law in 1974. He has sat as a substitute judge of the Superior Court and the Court of Commerce of the Canton of Zurich over a period of ten years. Dr Nobel has taught at a number of Universities and published widely in the field of Swiss Banking and Finance Law. Dr Nobel's qualifications are impressive, and he, too, has considerable experience as a commentator and judge in the field of Swiss banking law.
In my view, Dr Schurmann and Dr Nobel have rather more impressive qualifications and greater experience in banking law than does Mr Wehrli. This factor cannot be conclusive in resolving any conflict in their evidence; plainly it is necessary to assess the reasoning process and the materials relied upon by each expert. In this respect it will be seen that I have not found Dr Schurmann's evidence to be especially helpful on some aspects of Swiss law. However, some weight should be attached to the respective qualifications and experience of the experts.
Swiss Law
All experts agreed that the provisions of Swiss law relevant to the present proceedings were arts. 271 and 273 of the Swiss Penal Code and art.47 of the Swiss Banking Law. An English translation of these provisions as provided by Mr Wehrli, is as follows:
"Article 271 of the Swiss Penal Code
Any person who, without authorization, carries out, on Swiss territory, actions which fall within the province of the public authorities, [and] any person who carries out such acts for a foreign State, individual, or organisation, [and] any person who sanctions such acts, shall be punished by imprisonment or, in serious cases, reclusion.
Any person who uses violence, deception or threats to force a person onto foreign territory in order to deliver said person to a foreign authority, individual or organisation, or to put said person's life or bodily integrity in danger, shall be punished by reclusion.
Any person who provides for such a delivery shall be punished by reclusion or imprisonment."
"Article 273 of the Swiss Penal Code
Any person who tries to discover a manufacturing or business secret in order to give it to a foreign government or individual, or to a foreign company, or to the agents of any of the above, [and] any person who gives a manufacturing or business secret to a foreign government or individual, or to a foreign company, or to the agents of any of the above, shall be punished by imprisonment or, in serious cases, by reclusion. The judge may also demand payment of a fine."
"Article 47 of the Swiss Federal Law on Banks and
Savings Banks
Whoever divulges a secret entrusted to him or of which he has become aware in his capacity as officer, employee, mandatory, liquidator or commissioner of a bank, as representative of the Banking Commission, officer or employee of a recognised auditing company and whoever tries to induce others to violate professional secrecy, shall be punished by imprisonment for not more than six months or by a fin[e] of not more than CHF50,000.
If the act has been committed by negligence, the penalty shall be a fine not exceeding CHF30,000.
The violation of professional secrecy remains punishable even after termination of the official or employment relationship or the exercise of the profession.
Federal and cantonal regulations concerning the obligation to testify and to furnish information to a government authority shall apply."
Dr Nobel stated that, in ordinary cases, the maximum penalty for breach of arts. 271 and 273 was three years' imprisonment. However, he expressed the view that it was unlikely that such a term would ever be imposed, although other consequences, such as loss of a dealer's licence, could follow for a person convicted.
Article 273
Dr Schurmann attached to one of his reports a memorandum prepared by the Office of the General Attorney of Switzerland in 1986. That memorandum identified several goals pursued by art.273 of the Swiss Penal Code.
"It is designed, first of all, to protect Switzerland from infringements upon its sovereignty resulting from direct gathering of information or from denounciations [sic.] to a foreign addressee on the one hand, and from disclosures of information compelled by foreign authorities, on the other. Furthermore, it is designed to protect the Swiss economy, which is affected as such whenever persons or companies falling under the jurisdictional scope of Article 273 are the object of such inquiries. The Swiss Supreme Court has repeatedly emphasised that violating or endangering private business secrets also impairs the interests of the Swiss economy. Thus, the protection of the economic interests of companies affected constitutes indirectly also one of the basic aims of this penal norm. Where extensive information is sought by foreign courts or administrative bodies outside of the established framework of judicial assistance pursuant to international treaties and Swiss law, the disclosure sought may well conflict with the purposes of Article 273."
The memorandum also states that the interests of foreigners are protected by art. 273 against disclosure only if they are so intertwined with the interests of Switzerland as to be "inseparable". On this basis, Mr Wehrli expressed the view that if the shares in OAP held by Leumi and EBC were held on behalf of persons domiciled outside Switzerland (as he thought was likely to be the case), the interests of those persons would not have sufficient contact with Switzerland to attract the operation of art.273 in the event of an unauthorised disclosure. In his view, the mere fact of having a banking or business relationship with a Swiss bank or company is generally not considered to create a sufficient link with Switzerland to affect Swiss sovereign interests in the Swiss economy.
Accordingly, although Mr Wehrli accepted that the Swiss courts and authorities had taken a broad view of the phrase "business secret", he did not think that art.273 would protect the interests of non-Swiss domiciliaries for whom Swiss corporations held shares in an Australian company. By implication, as I read his evidence, Mr Wehrli accepted that, if the Swiss corporations held shares in an Australian company on behalf of a party domiciled in Switzerland, there could be sufficient connection with Switzerland to attract art.273. In these circumstances, a disclosure of the Swiss domiciliary's beneficial interest, without the authorisation of the domiciliary, would breach art.273.
Dr Schurmann's opinion was that a Swiss bank (and presumably a non-bank Swiss corporation) "may be found to violate" art.273 if it surrenders substantial information regarding its customers to foreign authorities, without a formal request for assistance being made to Swiss authorities. However, this conclusion was not justified by a substantial process of reasoning, and I have not found it particularly helpful.
Dr Nobel expressed the opinion that there is a sufficient connection with Switzerland, for the purposes of art.273, if a disclosure of a business secret affects an owner of the secret who is domiciled in Switzerland. If the owner is not so domiciled, the question is whether the owner of the secret is regarded by Swiss law as having a "legitimate interest" in maintaining its secrecy. Dr Nobel considered that the question was not certain, because Swiss courts had not ruled on the situation and the information sought by the notices was directed to "private economic interests" in a company incorporated outside Switzerland. Dr Nobel observed that art.273 "was implemented to protect manufacturing or business secrets which, in the national economic interest of Switzerland require protection". However, he thought that there was a "risk", because of the uncertainty, that EBC would breach art.273 if it supplied the information sought by the notices without the consent of clients.
In his second report, Dr Nobel was more definite in his opinion. He expressed the view that there is a "real and appreciable risk of liability" for EBC's officers, employees and agents, should EBC comply with the notices. He supported
this conclusion by referring to the works of legal scholars, who have argued that art.273 is attracted if a secret is physically "materialised" in Switzerland. Dr Nobel expressed the view that, if a corporation like EBC holds foreign shares for foreign domiciliaries, the secret is "materialised" in Switzerland. Unfortunately, the authorities referred to by Dr Nobel (mostly in German or French) were not adduced in evidence, so that it is difficult to assess whether his characterisation of EBC's arrangements is supported by the literature. It is also relevant that Dr Nobel stressed the importance to a Swiss corporation of not giving any reason for suspicion that the criminal law might have been violated. Dr Nobel pointed out that media reports could be very harmful. This reasoning rather suggests a concern, not so much with the likelihood of a successful prosecution, but with the harmful effects of an investigation, whatever its outcome.
I accept Dr Nobel's evidence that, if EBC provides to the ASC the information sought in the secondary notices, there is "real and appreciable risk" that a Swiss court would find that art.273 applies to EBC's officers, employees and agents, at least where EBC holds the shares in OAP for a Swiss domiciliary. I also accept that there is also a small risk that a Swiss court would find that art.273 applies to a disclosure by EBC without the consent of its clients, where EBC holds the shares in OAP for non-Swiss domiciliaries. However, having regard to the views expressed by Mr Wehrli and to Dr Nobel's reasoning, I think that that risk is significantly less than where the beneficial owner of the shares is a Swiss domiciliary. I do not accept that it is accurately described as a "real and appreciable" risk.
The experts did not suggest that Leumi's circumstances are materially different from those of EBC, so far as the application of art.273 is concerned. Accordingly, I find that Leumi's position in relation to art.273 is the same as EBC's.
All the experts agreed that a Swiss corporation, and its officers, employees and agents would not be exposed to liability under art.273 if the client consented to or authorised disclosure of the information. I accept this evidence.
Article 271
Mr Wehrli acknowledged that the purpose of art.271 of the Swiss Penal Code is to protect Swiss sovereignty and that the service of process is an act of State that can be executed in Switzerland only by a Swiss authority. However, in his view, art.271 does not apply to the service of notices which do not include any threat of sanction. Mr Wehrli observed that the secondary notices issued by the ASC did not contain an explicit threat of sanctions. Although Mr Wehrli did not say so expressly, I infer that his view is that service of the notices on Leumi or EBC, whether by fax or courier, did not violate art.271.
Dr Schurmann considered the applicability of art.271 only in relation to the service of a notice to answer interrogatories, where the notice is issued in the course of Australian proceedings. (A question relating to interrogatories arose at one stage in these proceedings but is no longer relevant.) I do not think that Dr Schurmann's observations on this issue can be readily applied to the secondary notices.
Dr Nobel, in his first report, expressed the view that art.271 extends to the act of serving documents in order to enforce a law. Moreover, a foreign regulatory authority which sends a notice requiring information to a Swiss corporation commits an act for which a "public authority is competent", within the meaning of art.271. Accordingly, in his view, the employees or agents of the ASC who sent the secondary notices to Switzerland by fax or courier, had breached art.271. He also considered that any officers, employees and agents of EBC who provided information to the ASC in answer to the notices illegally served "could be held in breach of [art.271] as aiders and abetters" of the breach by the ASC's employees and agents. Dr Nobel pointed out that Swiss courts had adopted a broad interpretation of aiding and abetting, although he acknowledged that the matter had not been considered by the Swiss courts in the context of persons answering notices of the kind involved in the present case.
In his second report, Dr Nobel expressly disagreed with Mr Wehrli's view that the secondary notices would not be regarded as having a legal effect on the recipients. Dr Nobel's view was that any kind of legal effect, including those imposed by Australian law, would be enough.
On the question of whether the notices contain a threat of sanctions, I think that Dr Nobel's analysis is more convincing than that of Mr Wehrli. I think, however, that there is a real question as to whether persons sending a fax transmission ("fax") from Australia to Switzerland "[carry] out, on Swiss territory, actions which fall within the province of the public authorities", within the meaning of art.271. Neither Dr Nobel nor Mr Wehrli specifically addressed this issue, although Mr Wehrli did not appear to disagree with the proposition that the sending of a fax was within art.271. However, this may well be because his attention was not directed to the issue.
I find that service of the secondary notices on Leumi and EBC by courier in Switzerland was likely to have breached art.271 of the Swiss Penal Code. Doing the best I can with the material available to me, I find that there was a risk that service of the secondary notices on the Swiss corporations, by means of faxes sent from Australia to Switzerland, breached art.271. However, the risk of a prosecution succeeding under Swiss law in such circumstances is significantly less than in the case of service of documents effected in Switzerland by courier.
I also find that there is some risk that Leumi and EBC, and their officers and agents, would contravene art.271, as aiders and abetters of any breaches of art.271 by the ASC and its agents, if Leumi and EBC complied with the secondary notices. However, it is necessary to have regard to the lack of authoritative guidance on this issue under Swiss law and the rather general character of Dr Nobel's reasoning on this point. I think that the risk of a prosecution based on aiding and abetting, although not fanciful, cannot be described as real and appreciable. If the disclosure to the ASC were made with the authority of the clients of Leumi and EBC, I think that the risk of prosecution of the Swiss corporations, or their servants or agents, as aiding and abetting any contravention by the ASC of art.271, is not appreciable.
Article 47 of the Banking Law
Article 47 of the Swiss Banking Law applies only to Leumi, since EBC is not a bank. The only evidence on the application of art.47 was given by Dr Schurmann and Mr Wehrli. As I read their evidence, there was no substantial disagreement between them on the scope of art.47. The following emerges from their evidence.
Article 47 was primarily enacted to protect the private interest of investors and other clients, as well as the interests of a sound and efficient financial market. It applies to all Swiss banks, as well as branches of foreign banks in Switzerland. Article 47 applies regardless of the domicile of customers. Article 47 does not prevent a Swiss bank from seeking or obtaining the consent of persons to whose behalf they hold shares to divulge information of the kind sought in the secondary notices. Nor does it prevent the person on whose behalf the shares are held from instructing the bank to comply with the notices. However, under Swiss law, there is no obligation on the bank to seek the customer's approval for the disclosure of information. If the bank does not receive consent to the information being divulged to a foreign regulatory authority it would be a breach of art.47 for the bank to divulge the information.
Mr Wehrli and Dr Nobel disagreed as to whether Swiss banks follow a practice of requesting customers in advance for a waiver to permit answers to be given to questions raised by foreign regulators. On the evidence I cannot find that there is any such general practice.
VI.WERE LEUMI AND EBC OBLIGED TO COMPLY WITH THE SECONDARY NOTICES, NOTWITHSTANDING THAT COMPLIANCE PLACED THEM AT RISK OF VIOLATING SWISS LAW?
Background
Leumi and EBC argued that they were not obliged to comply with the secondary notices issued by the ASC, since compliance would expose them to the risk of contravening the secrecy provisions contained in art.273 of the Swiss Penal Code and art.47 of the Swiss Banking Law. This argument was based on the proposition that s.722 of the Corporations Law, which imposes a duty on a person receiving a secondary notice to comply with that notice within two business days, was not intended to apply to a foreign corporation which can comply with the secondary notice only at the risk of contravening the law of a friendly foreign country.
Leumi and EBC also submitted that service of the secondary notices on them, whether by fax or by courier, was not authorised by s.719 of the Corporations Law. This was because giving the notice in this fashion (so it was said) contravened art.271 of the Swiss Penal Code and s.719 did not contemplate that the ASC could serve a notice on a foreign corporation in breach of foreign law.
These issues are interconnected, since they each depend on the construction of Part 6.8 of the Corporations Law, having regard to principles of international comity. It is, however, convenient to commence with the argument that Leumi and EBC were not obliged to comply with the secondary notices because they would be at risk of contravening Swiss law.
In putting this argument, both Leumi and EBC commenced with the proposition that disclosure of the information sought in the secondary notices would infringe Swiss law. The findings I have made suggest that the position is not quite as clear-cut as this. A distinction must be drawn, so far as art.273 of the Swiss Penal Code is concerned, between customers of Leumi and EBC who are Swiss domiciliaries and those who are not. Moreover, art.47 of the Swiss Banking Law applies only to Leumi and not EBC. I shall deal with the argument on this issue on the assumption that disclosure of the information sought in the secondary notices would place Leumi and EBC at a real and appreciable risk of contravening Swiss law.
Principles of Construction
The approach to the construction of legislation said to breach international law or principles of international comity was not in dispute between the parties. As Latham C.J. said in Polites v The Commonwealth (1945) 70 CLR 60, at 69:
"every effort should be made to construe Commonwealth statutes so as to avoid breaches of international law and of international comity."
See, also, at 77, per Dixon J., at 80-81, per Williams J.; Minister for Immigration and Ethnic Affairs v Teoh (1995) 69 ALJR 423, at 430, per Mason C.J. and Deane J.; at 447, per McHugh J. However, as the Chief Justice observed in Polites, the Commonwealth Parliament has power to legislate in breach of international law, taking the risk of international complications, if it wishes to do so: Polites, at 61; Chu Kheng Lim v Minister for Immigration (1992) 176 CLR 1, at 65, per McHugh J. It was not suggested by any party that these principles did not apply to the Corporations Law which is a law in force in the Australian Capital Territory, and applied to each State by the Corporations Act of each State.
Territorial supremacy is an established principle of international law: Oppenheim's International Law, eds. R. Jennings and A. Watts (9th ed, 1992), at 458. Thus, under international law, a sovereign power is bound to respect the subjects and the rights of all other sovereign powers outside its territory: The Queen v Jameson [1896] 2 QB 425, at 430. In accordance with the principle of construction to which I have referred, domestic legislation is generally presumed not to be intended to breach this principle: Meyer Heine Pty Ltd v China Navigation Co Ltd (1965) 115 CLR 10, at 23-24, per Kitto J.; Attorney-General of New Zealand v Ortiz [1984] 1 AC 1, at 19, per Lord Denning MR. However, the presumption is rebuttable and its strength will depend upon the subject matter of the legislation: Air-India v Wiggins [1980] 1 WLR 815 (HL), at 820-821, per Lord Scarman.
It follows that the presumption that legislation operates territorially can be rebutted by explicit language stating that the legislation is to have effect in the territory of another country. It can be rebutted, even without explicit language, as illustrated by Re North Broken Hill Holdings Pty Ltd (1986) 10 ACLR 270 (S.Ct. Vic/Fullagar J.), a case concerned with s.261 of the Companies (Vic.) Code 1981, the forerunner to the provisions now contained in Part 6.8 of the Corporations Law. Fullagar J. held that the word "person", as used in s.261, applied to a Swiss corporation, neither registered nor carrying on business in Australia. His Honour considered (at 282) that a more restrictive interpretation would "set at nought" the elaborate statutory machinery established by the Code, which was designed to promote an informed market for shares in public companies. (The decision was reversed by the Full Court, but on other grounds: Crosley Ltd v North Broken Hill Holdings Ltd [1987] VR 119 (S.Ct. Vic/FC).) This case should be compared with Arhill Pty Ltd v General Terminal Co Pty Ltd (1990) 23 NSWLR 545 (NSW S.Ct/Rogers C.J. Comm D), at 550-555. There Rogers C.J. Comm D. refused to read a general rule of court, which permitted service outside the State of documents other than originating process, as authorising service of a subpoena on a Japanese company in Japan. His Honour took into account that service of the subpoenas would infringe Japanese sovereignty.
Section 110D of the Corporations Law explicitly states that Chapter 6 applies, according to its terms, to natural persons, whether resident in Australia or not, and whether Australian citizens or not. It also states explicitly that Chapter 6 applies to all bodies corporate, whether formed or carrying on business in Australia or not and to acts and omissions outside Australia. Leumi and EBC acknowledged that the express provisions of s.110D of the Corporations Law rebut the presumption against extra-territorial operation of the legislation.
Leumi and EBC nonetheless contended that s.110D is insufficient to rebut the presumption that Australian Parliaments in the interests of international comity, do not intend to create obligations on foreign corporations compliance with which would contravene the law of a friendly state. This presumption is based not merely upon the principles of territorial supremacy, but on the notion that Australian law will not compel the fulfilment of an obligation which requires something to be done which is illegal in another country: De Beeche v The South American Stores (Gath and Chaves) Ltd [1935] AC 148 (HL), at 156, per Viscount Sankey L.C. The principle was applied by the House of Lords, in the context of an action to enforce a contract, in Regazzoni v K.C. Sethia (1944) Ltd [1958] AC 301. In that case, as a matter of comity, the House of Lords declined to enforce a contract, which contemplated that jute bags would be shipped from India to South Africa, in violation of Indian law.
Clearly, very considerable caution must be exercised before construing legislation so as to impose duties on foreigners which create a risk that they may be required to contravene foreign law. Ultimately, however, the question is one of ascertaining the intention of the legislature by reference to the language used and the objects of the legislative scheme.
Sometimes the issue is specifically addressed in the local legislation. For example, s.5(1) of the Trade Practices Act 1974 (Cth) extends some sections of the Act to conduct outside Australia by bodies corporate carrying on business in Australia. A claim for damages under s.82 of the Act cannot, however, be made by reason of such conduct unless the Minister gives written consent: s.5(3). The Minister must give consent unless, inter alia, "the law of the country in which the conduct concerned was engaged in required or specifically authorised" the conduct: s.5(5)(a). If, however, the legislation does not address the issue specifically the question is whether, having regard to the presumption that legislation should be construed in accordance with principles of international law and comity, there is a sufficiently clear legislative content to impose duties on foreigners, even though compliance may require the foreigner to breach (or be at risk of breaching) foreign law.
The point is illustrated by a decision of the Supreme Court of the United States, Societe Internationale Pour Participations Industrielles et Commerciales, SA v Rogers 357 US 197 (1958). A Swiss corporation, Society Internationale, said to be closely associated with the German firm I.G. Farben, brought suit under the Trading with the Enemy Act to recover assets held by the Alien Property Custodian. Society Internationale sought to be relieved from orders for the production of documents, on the ground that disclosure of the required bank records would violate Swiss law. Indeed the Swiss Federal Attorney, taking the view that disclosure would violate art.273 of the Swiss Penal Code and art.47 of the Swiss Banking Law, confiscated the records. Harlan J., for the Court, held that the policies underlying the Trading with the Enemy Act justified the production order. In particular, the need to allow the US Government the opportunity to establish links between a claimant and enemy aliens supported the making of the order. To hold that the fear of punishment meant that Societe Internationale did not have "control" of the documents, would undermine Congressional policies and "invite efforts to place ownership of American assets in persons or firms whose sovereign assumes secrecy of records" (at 205).
Societe Internationale v Rogers has been regarded in the United States as establishing that the "blocking statute" of another country does not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence, even though the act of production may violate the blocking statute: Societe Nationale Industrielle Aerospatiale v United States District Court for the Southern District of Iowa, 482 US 522 (1987), at 544, n.29.
Part 6.8 of the Corporations Law
In determining whether a foreign corporation must comply with s.722 of the Corporations Law, even if compliance involves a breach or risk of a breach of foreign law, it is necessary to consider the legislative scheme of which s.722 is but one component. Section 722, of itself, is equivocal. It simply imposes a duty to supply information on persons who "receive" secondary notices. But s.722 must be read with s.110D. This section provides that Chapter 6 applies according to its tenor in relation to all bodies corporate, whether or not formed or carrying on business in Australia, and to acts and omissions, whether outside Australia or not. It is true that s.110D does not specifically address the question of compliance by a foreign corporation with a secondary notice where compliance with the notice would contravene foreign law. Nonetheless, s.110D evinces a legislative intend that the Corporations Law should apply to foreign corporations and to acts and omissions outside Australia. If read literally, ss.722 and 110D in combination impose a duty on a foreign corporation to comply with a secondary notice served outside Australia, even if compliance requires the corporation to take steps outside Australia.
Leumi and EBC argued that, if their submissions as to construction of the legislation were rejected, questions of international comity should nonetheless be taken into account in considering whether their breach of s.722 should be excused. Mr Conti, in particular, argued that it was not appropriate to consider the conduct of any party other than the corporation on whom the secondary notice had been served. The notices had been served only upon Leumi and EBC and it was their officers and agents who were at risk under Swiss law if they complied with the secondary notices. The Swiss corporations should not face the dilemma of either having to commit an offence in Switzerland or being penalised for failing to comply with the Corporations Law. Moreover, Mr Conti submitted that, if the ASC was to conduct an investigation into suspected criminal offences, such as a contravention of Part 6.7 of the Corporations Law, it should do so in accordance with the treaty arrangements described earlier in this judgment.
Both Leumi and EBC contended that they had taken all steps available to them under Swiss law to comply with the secondary notices served on them. The fact that their clients had declined to consent to disclosure did not detract from the conclusion that the Swiss corporations had contravened s.722 by reason of circumstances beyond their control.
Mr Lindsay submitted that it was "of central importance" in the case that persons claiming an interest in OAP through Leumi and EBC had deliberately chosen to acquire and maintain shares in an Australian company, but to decline to provide information that, but for Swiss law, they would be required to furnish to the Australian authorities. He pointed out that (as is the case) there was undisputed evidence to the following effect:
lDr Beker, a Swiss lawyer acting for Leumi, had personally given notice to the "relevant clients" of Leumi with respect to the secondary notice received by it on 24 April 1995. He had received express instructions not to disclose to the ASC the information sought in the notices.
lDr Fundulus had communicated by telephone with EBC's clients whom he "presumed" to be the beneficial owners of the shares held by EBC in OAP. All clients had informed him that they did not agree to the release of the information to the ASC.
lEBC and Leumi were regularly were sent ANZ Nominees' "Custody Services Newsletter" which, on occasions, summarised the requirements of Australian law relating to the reporting of substantial shareholdings and the tracing of beneficial ownership in shares held in Australia companies.
Mr Lindsay argued that this evidence showed that Leumi and EBC were aware of the requirements of Australian law. Moreover, their clients had refused to exercise the choice available to them under Swiss law, to instruct Leumi and EBC to make the disclosures sought in the secondary notices. Accordingly, the Court should not permit Leumi or EBC or their customers to circumvent the policy favouring the maintenance of an informed market.
Exercise of Discretion
In my view, the fact that the recipient of a secondary notice is at risk of violating the law of a foreign country by complying with the notice is an important factor to consider in the exercise of the discretion conferred by s.743(1) of the Corporations Law. In general, Australian courts should strive, so far as is consistent with Australian legislation, to avoid a situation where an individual or corporation is caught between the conflicting requirements of Australian law and foreign law: compare Bank of Crete SA v Koskotas (No.2) [1992] 1 WLR 919 (Ch.D/Millett J.), at 926. In particular, if a foreign corporation finds itself unable to comply with the requirements of Australian law, because it has been unavoidably placed in a position where to do so would conflict with the law of the country in which it does business, an Australian court would regard this as a very powerful reason to excuse a contravention of Australian law.
It is also appropriate, in my view, to take into account that enforcement of the Australian law violates or might violate principles of international law or comity. I have previously held that, as a matter of construction, the Corporations Law requires a foreign corporation to comply with a secondary notice given under s.719(1), even where compliance places the corporation at risk of contravening foreign law. However, that does not mean that principles of international comity should be ignored in the exercise of a statutory discretion to excuse a contravention of s.722 of the Corporations Law. It is no light matter for Australian laws to be enforced in circumstances which infringe the legislative policies of other countries, even if those laws advance legitimate regulatory objectives in Australia.
In the present case, there are additional factors that favour Leumi and EBC being excused for what would otherwise be a contravention of s.722. Both have endeavoured to obtain the consent of their clients to the release of the information sought in the secondary notices. Leumi provided information to the ASC in respect of 80,000 shares in OAP that it held as principal. I accept that the requests made by Leumi and EBC to their respective clients were made in good faith and that they would have acted on their clients' instructions to divulge the information sought, had those instructions been received. I did not understand Mr Lindsay to suggest that either Leumi or EBC was party to a deliberate attempt to circumvent Australian laws. In any event I would reject such a suggestion. The evidence showed, for example, that both Leumi and EBC were long-standing clients of ANZ Nominees. EBC had purchased shares in OAP before about 1990 on the recommendation of Mr Rivkin, a stockbroker. This is not a case where the evidence suggests that either Leumi or EBC has courted legal impediments to the production of the information: compare Securities and Exchange Commission v Banca Della Svizzera Italiana 92 FRD 111 (1981) (US Dist Ct, SDNY), at 117; Minpeco SA v Conticommodity Services Inc 116 FRD 517 (1987) (US Dist Ct, SDNY), at 528. Moreover, I am not in a position to assess the motives of the beneficial owners of the shares held by Leumi and EBC, since there is no evidence as to who the beneficial owners are or what prompted them to acquire their shares.
Despite the factors suggesting that Leumi and EBC should be excused for their contravention of s.722 of the Corporations Law, in my view they are outweighed by other factors. First, Leumi and EBC each holds over 15% of the issued capital of OAP. Leumi's shareholding totals 16.97% of the issued capital. EBC's shareholding, if the BB Nominees parcel (which was the subject of a separate secondary notice) is ignored, totals 21.57%. I accept for these purposes that Leumi and EBC do not hold the shares beneficially (even though EBC is a "substantial shareholder" for the purposes of s.709(1)) and that it is possible that no single beneficial shareholder holds more than 5% of the issued stock. Nonetheless, the beneficial ownership of over 38% of the issued capital of a listed company is a matter of considerable importance to an informed market. The policy underlying Part 6.8 of the Corporations Law strongly suggests that contraventions relating to such significant shareholdings should not lightly be excused.
In this connection, Mr Conti submitted that the market was adequately informed, despite the failure of Leumi and EBC to comply with the secondary notices, because of the take-over offers made by Fobiti and Arklow. But the fact that these offers have been made, following the contraventions of s.722, does not necessarily demonstrate that the market is fully informed. Nor, to the extent that the market is better informed, do the take-over offers show that Leumi or EBC are responsible for the improvement. The market for OAP shares includes persons who are contemplating or might contemplate making further offers. They still do not know who controls the shares held by Leumi and EBC. Furthermore, the evidence does not suggest any connection between Leumi and EBC and the take-over offers. The fortuitous advent of those
offers, although perhaps having considerable importance for the form of relief, does not diminish the significance of the contraventions of s.722 having regard to the policy underlying Part 6.8 of the Corporations Law.
Secondly, although this is not a case of bad faith, I do not regard Leumi and EBC as being placed in a predicament that is wholly beyond their own control. Under Swiss law it was open to Leumi and EBC, if they chose, to acquire shares in Australian stocks, only on behalf of persons or corporations prepared to waive the secrecy provisions. The point has been made in American cases that art.47 of the Swiss Banking Law and art.273 of the Swiss Penal Code are intended primarily to protect rights of commercial privacy rather than some broader public interest (Minpeco v Conticommodity at 525). The cases also suggest that hardship to Swiss corporations could be avoided if they obtained waivers prior to trading for customers' accounts: Minpeco v Conticommodity, at 527. Neither Leumi nor EBC adduced evidence to explain why such a course was not feasible or appropriate. I appreciate that, as I have found, compliance with the secondary notices exposes Leumi and EBC to a risk of prosecution for aiding and abetting the ASC's breach of Swiss law by serving the notices in Switzerland. However, I have also found that the risk of a successful prosecution on this ground is small.
Thirdly, the fact that a contravention of Part 6.8 is not excused does not necessarily mean that a foreign corporation should be subjected to an order under s.742(2)(e) directing it to do an act in contravention of Swiss law. The appropriate course may be (and, in the present case, for reasons I will give, is) to limit the relief available to the ASC, so that neither Leumi nor EBC is compelled by a court order to provide the information sought in the secondary notices. Limiting the relief in these proceedings does not alter the fact that the foreign corporation has contravened Part 6.8. Nor does it prevent consequences flowing from the corporation's contravention of Part 6.8. It does, however, avoid the result that an Australian court directs a Swiss corporation to act in breach or possible breach of Swiss law.
A fourth factor affects only EBC's submission that its contravention of s.722 should be excused under s.743 of the Corporations Law. I have found that EBC would not be at appreciable risk of a successful prosecution under art.273 of the Swiss Penal Code if it chose to reveal the beneficial shareholdings of non-Swiss domiciliaries in OAP. It has made no offer to do so. (Leumi's position in relation to art.273 is the same as EBC's. However, Leumi, unlike EBC, is subject to art.47 of the Swiss Banking Law.)
I should add two further comments on this aspect of the case. First, I think that Mr Conti is correct in submitting that attention should be focussed on the conduct and position of Leumi and EBC, as the recipients of the secondary notices, rather than on what Mr Lindsay described as the deliberate conduct of the beneficial owners of the shares. I do not know what motivated those shareholders to refuse to waive the secrecy requirements of Swiss law. I am not prepared to find that their refusal stems from any desire to avoid Australian laws. Even so, for the reasons I have given, the contravention by Leumi and EBC of Part 6.8 of the Corporations Law should not be excused.
Secondly, I do not think that EBC should be excused for its contravention of s.709(1). The factors I have identified in relation to the contraventions of s.722 apply to its failure to lodge substantial shareholder notices.
XIII WHAT RELIEF SHOULD BE GRANTED?
The Submissions
The ASC, as I have previously noted, seeks declaratory relief and orders that Leumi and EBC comply with the secondary notices and that the shares held for them be vested in the ASC. Some of the submissions were directed to the proposition that to vest the shares in the ASC absolutely would amount to the confiscation of shares worth many millions of dollars for a contravention that carries a penalty of a fine of $2,500 and/or imprisonment for six months: Corporations Law, s.1311(3); Schedule 3. However, Mr Lindsay made it plain that the ASC is not seeking orders that deprive the beneficial owners of their entitlement to the shares or to the proceeds of sale of the shares. Rather, the ASC seeks orders limiting the entitlement of Leumi and EBC to deal with or obtain the benefit of the shares, unless and until each remedies its failure to comply with ss.722 and 723 of the Corporations Law. As I understood him, Mr Lindsay relied on ss.742(2) and 613(e) as the source of the power to make orders of this kind.
Mr White, on behalf of Leumi, pointed out that in May 1995 Leumi had offered to agree to an order that would enable the shares to be disposed of in the market over a period of about six months. Given the take over offers made by Fobiti and Arklow, Mr White contended that, on an appropriate undertaking by Leumi to instruct ANZ Nominees to sell the shares pursuant to a current or future take-over offer, no remedial orders should be made. Mr White again stressed the need to take into account considerations of international comity and the co-operative actions of Leumi, within the constraints imposed by Swiss law. He also argued that, if the shares were vested in the ASC without any directions that they be disposed of, there could well be "unfair prejudice" (within the meaning of s.742(2)) to other shareholders of OAP. This was because the unavailability of 38% of the shares to an offeror might reduce the price the offeror was prepared to pay. Mr White further suggested that the offerors would be unfairly prejudiced if they were prevented from acquiring 100% of the shares in OAP.
Mr Conti, for EBC, adopted Mr White's submissions on this issue. As I followed him, Mr Conti also argued that orders conditioning release of the shares or the proceeds of their sale upon EBC disclosing the information sought in the secondary notices, would constitute unfair prejudice to the officers and agents of EBC, who would be exposed to the risk of prosecution under Swiss law.
Mr Oakes, on behalf of OAP, submitted that, since there were now two competing bids for the shares in the company, the overriding objective should be to ensure that the market is "efficient". Mr Oakes said that one purpose of the take-over provisions now contained in Chapter 6, is to ensure "that the acquisition of shares in a company takes place in an efficient, competitive and informed market": Gjergja v Cooper [1987] VR 167 (S.Ct. Vic/FC), at 215, per Ormiston J. The uncertainty created by the freezing orders or by vesting the shares in the ASC, without directing their disposal, was inimical to an efficient market. For this purpose Mr Oakes relied on an opinion given, without challenge, by the Chief Executive Officer of OAP, Mr Anstee. Mr Anstee expressed the view that the injunctions restraining sale of shares held by Leumi and EBC were inhibiting the operation of an efficient market. Mr Anstee also said that uncertainty surrounding the frozen shares could have a depressing effect on the share price, although he expressed this opinion before Arklow's take-over offer of 14 November 1995 and Fobiti's revised offer of 17 November 1995. Mr Oakes contended that OAP was unfairly prejudiced by the freezing orders and the orders proposed by the ASC because it had an interest in the take-over activity being conducted quickly and without uncertainty.
Mr Muddle, for Arklow, submitted that it was inconsistent with the maintenance of an informed market that uncertainty should surround 38% of OAP's share capital. Any orders should therefore facilitate the sale of the shares to the highest bidder, but, if otherwise appropriate, quarantine the proceeds of sale by requiring payment to be made to the ASC. Mr Muddle argued that any order which prevented or hindered sale of the shares to the highest bidder would be unfairly prejudicial to Arklow, since it would be deprived of its ability to achieve its stated intention of acquiring all shares in OAP. There was evidence, which I accept, that Fobiti also wished to acquire 100% of the shares in OAP and would be prevented from doing so if the shares were not available to the market. Accordingly, Mr Muddle submitted that Fobiti would also be unfairly prejudiced if the shares were not available to the market.
The Relief
The relief granted in the circumstances of the present case must take into account several matters. First, s.744(2) provides that an order cannot be made under s.742 if the Court is satisfied that the order would unfairly prejudice any person. This is a statutory directive which must be followed. Secondly, the orders should advance the principal objective of Part 6.8, namely, to create and maintain an informed market for shares in listed Australian companies. Thirdly, the orders should intrude to the least extent feasible upon principles of international comity, including the principle that a foreign corporation and its officers and agents should not be required, by orders made by an Australian court, to perform acts that would or might infringe foreign law.
Section 744(2) of the Corporations Law uses the term "unfair prejudice". The fact that a person is prejudiced by an order does not establish, of itself, that the order is unfair: Waldron v M.G. Securities (Australasia) Ltd [1975] VR 508 (S.Ct.Vic./Pape J.), at 532; Gjergja v Cooper, at 173-174, per McGarvie J., at 218-219, per Ormiston J. It is also not necessarily the case that if an "innocent person" is prejudiced by an order, that prejudice is unfair: Gjergja v Cooper, at 174. Whether it is or not may depend upon whether the order is essential to give effect to the relevant legislative policy and whether evidence is presented as to the precise nature of the prejudice said to have been suffered.
In the present case, I consider that each of the competing bidders for shares in OAP would suffer unfair prejudice if orders were made under s.742 preventing the shares presently held by Leumi and EBC from being available for sale to the highest bidder. This would be the case, for example, if the shares were vested in the ASC, to be held by it until disclosure was made by Leumi and EBC of the information sought in the secondary notices. On the evidence there is nothing to suggest other than that the offers have been made in good faith and for genuine commercial motives. No suggestion has been, or could be, made that either of the offerors holds shares in OAP, other than those disclosed in their Part C Statements. Neither is responsible for the fact that 38% of the company's share capital is held by Swiss corporations, or that the beneficial shareholders refuse to consent to those corporations providing information to the ASC. The offerors each wish, for their own valid commercial reasons, to acquire 100% of the share capital in OAP.
It is true that both Fobiti and Arklow were aware at the time they made their respective offers that the shares in OAP had been the subject of injunctions and that the ASC was seeking orders, inter alia, that the shares be vested in it. But Fobiti and Arklow and, for that matter, any other bidder, are entitled to expect that they can operate in a market unimpeded by orders that might lock up a substantial proportion of OAP's share capital for a considerable period. If the orders sought by the ASC were made, without ensuring that the shares are available to the market, the shares could be effectively frozen for a considerable period. Accordingly, I think that any order made under s.742 which fails to facilitate the sale of the shares held by Leumi and EBC to the highest bidder, would unfairly prejudice Fobiti and Arklow. Such an order therefore cannot be made.
Mr Lindsay did not press for an order directing Leumi and EBC to comply with the secondary notices. To comply with such an order would expose the corporations and their officers to the risk of prosecution under Swiss law. In my view, any relief should be confined to declaratory relief and to orders affecting the shares or the proceeds of their sale. The shares, for the purposes of international law, are located within Australia.
The next question is whether it is sufficient to make orders that have the effect of ensuring that the shares will be sold, or whether the shares and the proceeds of sale should be vested in the ASC (or, in the case of the proceeds, paid into court) until the information sought in the secondary notices is provided.
Had the takeover offers not been made by Fobiti and Arklow, there would have been much to have been said for the latter course of action. The market remains less than fully informed if the identity of the beneficial owners of the shares held by Leumi and EBC is not known. The value of the shares is such that freezing them or the proceeds of their sale would be very likely to produce the information sought in the secondary notices. Moreover, the information might be provided in a way that does not infringe Swiss law. This would be the case, for example, if the beneficial owners of the shares instructed Leumi and EBC to comply with the secondary notices. Of course, in determining whether the shares or the proceeds of sale should be frozen until the information was provided, it would be necessary to take into account the open offer from Leumi and EBC, on the instructions of their clients, to sell the shares.
The present case is, however, unusual because of the competing take over offers and the strong likelihood that one of these two bidders, or some other bidder who chooses to enter the fray, will succeed in obtaining control of the company if the Leumi and EBC shares are made available for purchase by the highest bidder. The availability of those shares to the bidders, although not establishing a perfectly informed market (since the identity of the beneficial shareholders is not known to the market), would remove the major source of uncertainty in the market and clarify what is to happen to the 38% of shares held by Leumi and EBC. Making those shares available for purchase by the highest bidder is likely as a practical matter to lead to the best price being realised for shareholders and to overcome any unfair prejudice that otherwise would be experienced by bidders for the company. To vest the shares in the ASC indefinitely, pending disclosure of the information sought in the secondary notices, would continue uncertainty and create a risk of further unfair prejudice to the bidders and, indeed, to other shareholders seeking the best price for their shares.
An alternative is to allow the shares to be sold and to freeze the proceeds of sale until the identity of the beneficial shareholders is made known. This would not be an entirely futile exercise, since it would emphasise the importance of compliance with the disclosure provisions in Part 6.8 of the Corporations Law. But care must be taken not to make orders designed to punish those who, rightly or wrongly, might be suspected of sheltering behind Swiss secrecy laws. That is not a purpose for which the powers conferred by s.742 should be exercised. It is, however, appropriate to take into account the degree of culpability of Leumi and EBC in their contraventions of s.722 of the Corporations Law: Metals Exploration Ltd v Samic Ltd (1994) 181 CLR 109, at 126, per Mason C.J., Gaudron and McHugh JJ.
If the proceeds of sale were effectively frozen until disclosure was made, the policy underlying Part 6.8 of the Corporations Law would be vindicated. But the probabilities are that any disclosure would be made after all shares in OAP had been acquired by one or other of the bidders. To my mind this would smack of punishment of the beneficial shareholders rather than pursuing the objectives underlying Part 6.8 of the Corporations Law. I do not think that the degree of culpability of Leumi and EBC is such as to warrant freezing the proceeds of sale. Their actions have been prompted by genuine concerns about the operation of Swiss law. Even though I have found that the predicament they are facing did not entirely arise out of circumstances beyond their control, they have not acted dishonestly or in a manner that can be characterised as reckless. They have raised in these proceedings matters of considerable importance and complexity that have not previously been determined by Australian courts.
I have taken into account the finding I have made that EBC has contravened s.709, as well as s.722, of the Corporations Law. However, I do not think that this should result in different orders made in relation to EBC's shareholding than in relation to Leumi's shareholding.
The question is which orders best give effect to the statutory objectives, having regard to all other relevant circumstances that should be taken into account in exercising the discretion conferred by s.742(2) of the Corporations Law. In the unusual circumstances of the present case, I think it is appropriate to make orders to the effect of those suggested by Leumi and EBC. The suggested orders are as follows:
LEUMI:
"That the first respondent instruct the third respondent to sell to the highest bidder on any day up to and including the last remaining date for the acceptance of any offer now current (whether or not subsequently varied or extended) for the shares of the eighth respondent ("the shares") or of any other offer made or announced during the term of any offer now current or any variation or extension thereof ("the relevant date"), any part of the whole of the parcel of the shares held by the third respondent such that by the relevant date the third respondent has disposed of the shares held by it for the first respondent.
In this order "any other offer" means an offer for all or part of the shares:
(i)whether or not subsequently varied or extended; and
(ii)whether by Part A Statement, Part C Statement or by any other kind."
EBC:
"Order that the Second Respondent instruct each of the Third, Fourth, Fifth, Sixth and Seventh Respondents severally (the "EBC Nominees") to sell to the highest bidder on any day up to and including the last remaining date for the acceptance of any offer now current (whether or not subsequently varied or extended) for the shares of the Eighth Respondent ("the shares") or of any other offer made or announced during the term of any offer now current or any extension or variation thereof ("the relevant date"), any part or the whole of the parcel of the shares held by each of the EBC Nominees respectively such that by the relevant date each of the EBC Nominees has disposed of the shares held by it for the Second Respondent.
In this Order "any other offer" means any offer for all or part of the shares:
(i)whether or not subsequently varied or extended; and
(ii)whether by Part A Statement, Part C Statement or by any other bid."
It will be necessary to continue or to make orders to ensure that the shares held by Leumi and EBC are not disposed of, save in accordance with directions of the kind proposed by Leumi and EBC. In addition, the ASC is entitled to appropriate declaratory relief.
I direct the ASC to bring in draft minutes of order. I shall hear the parties on costs.
I certify that this and the preceding 125 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated: 14 December, 1995
Heard:20-21 November, 1995
Place: Sydney
Decision:14 December, 1995
Appearances: Mr G. Lindsay SC, instructed by Mr Peter Stepek, Regional General Counsel of the Australian Securities Commission, appeared for the applicant.
Mr R.W. White and Ms P.P. Wines, instructed by Atanaskovic Hartnell, Solicitors, appeared for the first respondent.
Mr R.A. Conti QC and Mr F. Kunc, instructed by Freehill Hollingdale & Page, Solicitors, appeared for the second respondent.
Mr M. Oakes SC, instructed by Landerer & Company, Solicitors, appeared for the eighth respondent.
Mr W.G. Muddle, instructed by Minter Ellison, Solicitors, appeared for the ninth respondent.
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