Canwest Global Communications Corp v Australian Broadcasting Authority
[1997] FCA 731
•8 AUGUST 1997
FEDERAL COURT OF AUSTRALIA
MEDIA AND COMMUNICATIONS - BROADCASTING - LICENCES - whether company controlled by foreign persons for the purposes of the Broadcasting Services Act 1992 (Cth) - tests of "control" discussed - definition of "shareholding interests" - whether foreign company had voting interests in Australian company - whether necessary that control be immediate and arise through legally enforceable arrangements - whether Authority afforded natural justice - whether taking of evidence by delegate a breach of procedural fairness.
Broadcasting Services Act 1992, Part 5, ss 8(3), 57, 70, 156, 160, 168, 169, 170, 174, 186, Schedule 1
Administrative Decisions (Judicial Review) Act 1977
Judiciary Act 1903, s39B
Foreign Acquisitions and Takeovers Act 1975, s6(i)
Broadcasting Services Bill 1992
Broadcasting Station 2GB Pty Ltd (1964-5) NSWR 1648 at 1663, considered
Equiticorp Industries Ltd v ACI International (1987) VR 487, considered and distinguished
W P Keighery Pty Ltd v Federal Commissioner of Taxation (1957) 100 CLR 66, considered and applied
Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1957) 100 CLR 95, considered and applied
Newton v Commissioner of Taxation (1959) 100 CLR 1, considered
Mendes v Commissioner of Probate Duties (Victoria) (1956) 122 CLR 152, considered and applied
National Companies & Securities Commission v Brierley Investments Ltd (1988) 14 NSWLR 273, considered and applied
Re Application of The Newscorp Ltd (1987) 15 FCR 227, considered, applied and distinguished
Kolotex Hosiery (Aust) Pty Ltd v Commissioner of Taxation (1973) 130 CLR 64;
(1975) 132 CLR 535, applied
Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447 at 460, considered
Minister for Immigration & Ethnic Affairs v Teoh (1995) 183 CLR 273, applied
Jeffs v New Zealand Dairy Production and Marketing Board (1967) AC 551, applied
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 83 ATC 4015
CANWEST GLOBAL COMMUNICATIONS CORPORATION & ORS v
AUSTRALIAN BROADCASTING AUTHORITY
NG322 & NG384 of 1997
VG183 & VG185 of 1997
CORAM: HILL J
PLACE: SYDNEY
DATE:8 AUGUST 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES AND VICTORIAN )
DISTRICT REGISTRIES )
)
GENERAL DIVISION )
BETWEEN:No NG322 & NG 384 of 1997
CANWEST GLOBAL
COMMUNICATIONS
CORPORATION
Applicant
No VG183 of 1997
DONHOLKEN PTY LTD
Applicant
No VG185 of 1997
SELLI PTY LTD
Applicant
AND:AUSTRALIAN BROADCASTING
AUTHORITY
Respondent
CORAM: HILL J
PLACE: SYDNEY
DATE:8 AUGUST 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
1.Each of the applications be dismissed.
2. The applicants pay the respondent's 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 AND VICTORIAN )
DISTRICT REGISTRIES )
)
GENERAL DIVISION )
BETWEEN:No NG322 & NG 384 of 1997
CANWEST GLOBAL
COMMUNICATIONS
CORPORATION
Applicant
No VG183 of 1997
DONHOLKEN PTY LTD
Applicant
No VG185 of 1997
SELLI PTY LTD
Applicant
AND:AUSTRALIAN BROADCASTING
AUTHORITY
Respondent
CORAM: HILL J
PLACE: SYDNEY
DATE:8 AUGUST 1997
REASONS FOR JUDGMENT
Foreign ownership and control are often regarded with suspicion. Particularly is that so where what is involved is ownership or control of the media. One of the stated objects of the Broadcasting Services Act 1992 ("the Act") is to ensure that Australians have effective control of the more influential broadcasting services. This object presumably runs in tandem with the object also contained in s3 of the Act to promote the development and reflection of a sense of Australian identity, character and cultural diversity through broadcasting services.
On 3 April 1997, the Australian Broadcasting Authority ("the Authority"), having concluded an investigation which it had conducted into the question whether there had been a breach of Part 5 of the Act by CanWest Global Communications Corporation ("CanWest") notified CanWest, pursuant to s70 of the Act, that it was satisfied that that company was in breach of sub-s 1 and 3 of s57 of the Act and directed it to take action to remedy the breaches which the Authority found to have occurred.
Four proceedings are before the Court seeking judicial review pursuant to the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act"), or s39B of the Judiciary Act 1903 and ancillary relief. One of those proceedings was commenced by CanWest in the High Court and remitted to this Court. It seeks, inter alia, declaratory relief. The remaining proceedings were commenced in this Court by CanWest, Selli Pty Ltd ("Selli") and Donholken Pty Ltd ("Donholken"). All four proceedings were, by consent, heard together. Unless otherwise indicated, facts stated in this judgment are taken from the April 1997 report of the Authority, "Investigation Into Control, CanWest Global Communications Corporation/The Ten Group Limited, Second investigation", and are not the subject of independent findings made on evidence adduced before me.
BACKGROUND TO THE AUTHORITY'S REPORT
Although the Authority's investigation was concerned with events which were precipitated by a notice given on 10 October 1996 by Belshaw Pty Ltd, a shareholder with ten percent of the voting shares in Ten Group Ltd ("TGL") (the holder of television licences which, for convenience, may be referred to as "the Channel 10 licences"), the matters considered by the Tribunal have their origin in events which were the subject of an earlier report by the Authority in 1995. The detail of the earlier events is of little relevance to the present dispute save that it provides a background to it.
In 1992, the Ten network was in the hands receivers (Messrs James Millar and Robert Dunn of Ernst & Young) appointed by Westpac Banking Corporation ("Westpac"). In what from the Bar table was referred to as a "rescue operation", a consortium of companies, including CanWest, acquired the shares in TGL and ultimate control of the Channel Ten licences from Westpac. The other shareholders, their shareholding and percentage interests were as follows:
TNQ Television Ltd ("TNQ") 18,200,000 shares 40%
Audant Communications Pty Ltd 4,574,999 shares 10.05%
("Audant")
Belshaw Pty Ltd ("Belshaw") 4,550,001 shares 10%
Corom Pty Ltd ("Corom") 4,550,000 shares 10%
Australian Mutual Provident
Society ("AMP") 2,882,573 shares 6.34%
Leibler Media Holdings
Pty Ltd ("Leibler Media 2,275,000 shares 5%
Holdings")
Winston Capital Inc 732,501 shares 1.61%
("Winston Capital")
Copplemere Pty Ltd 500,000 shares 1.10%
("Copplemere")
Rossendale Investments Ltd 360,000 shares 0.79%
CanWest, through a Netherlands subsidiary CGS Shareholding (Netherlands) BV, acquired 6,824,999 shares (being 1 share less than 15%). Part of the restructure involved TGL acquiring the shares in another company which held the television licenses. The acquisition was funded in part by the share issue described above and in part by issues of debentures, 455,000 convertible debentures having a face value of $1.01 paid to 10 cents and 45,500,000 subordinated debentures with a face value of $1.00 fully paid up were issued to . Thus, while the CanWest direct shareholding interest in TGL was just under the 15% limit permitted by the Act, its real economic interest was considerably greater than that as a result of the debentures. Further, the debentures, if not giving control to CanWest, at least because they were convertible in certain circumstances (although not if to convert them would give rise to a breach, inter alia, of the Act), gave CanWest a greater influence in the affairs of TGL than it might otherwise have had if it had only had the 15% shareholding.
The structure put in place in 1992 was examined by the Authority which issued a report in November 1995 in which it concluded, on the evidence before it, that the provisions of s57 of the Act as then in force were not contravened. That section, as in force at the time of the 1997 report, is in the following terms:
"57(1)A foreign person must not be in a position to exercise control of a commercial television broadcasting licence.
(3)2 or more foreign persons must not have company interests in a commercial television broadcasting licensee that exceed 20%."
Sub-section (2) of the section, which provided that a foreign person was not to have company interests in a commercial television broadcasting licensee that exceeded 50 per cent, was repealed in 1995.
The parties to the rescue operation, being shareholders of TGL, entered into a shareholder's agreement. The precise terms of that agreement are not important. However, it provided that a shareholder desiring to dispose of its shares was first to offer the shares for sale to other shareholders before being free to sell them to outsiders. The pre-emptive right period was 30 days. In about August 1996, Mr. Singleton, the controlling shareholder in Belshaw, made known his desire to sell his Belshaw shares in TGL. It may well be that those discussions prompted CanWest to put a proposal to Leibler Media Holdings (a company associated with Mr Leibler) and Copplemere Pty Ltd (a company associated with Mr Skala) as a mechanism under which shares in TGL, held by Leibler Media Holdings and Copplemere, might be disposed of. Mr Leibler is a prominent Melbourne business man and Mr Skala is a partner in Arthur Robinson & Hedderwicks, Solicitors, Melbourne. In any event, on 10 October 1996, Belshaw gave notice to TGL shareholders that it sought to dispose of its 4,500,001 shares in TGL.
Mr Asper, the Chairman and Chief Executive of CanWest, was concerned to ensure that shares in TGL did not fall into the hands of persons whom he described picturesquely in evidence before the Authority as being "anti-bodies, mischief makers or stupid people". This precipitated the incorporation on 29 October 1996 of three companies, Selli Pty Ltd ("Selli"), Numeration Pty Ltd ("Numeration") and Turnand Pty Ltd ("Turnand"). Numeration and Turnand were wholly-owned subsidiaries of Selli. On 8 November 1996 Leibler Media Holdings sold its TGL shareholding to Turnand. On the same day, Copplemere sold 75 per cent of its TGL shares to Numeration. This transaction was permitted under the terms of the Shareholder's Subscription Agreement (to which CanWest, Belshaw, Copplemere and Leibler Media Holdings were parties). Pursuant to that agreement, the Belshaw shares in TGL were then acquired by Selli on nomination from CanWest and by Leibler Media Holdings, which latter company then onsold then to Turnand. The purchase of the TGL shares by Selli, Numeration and Turnand respectively was financed by the issue of debentures by Selli to Drie Sterren Kapitaal (Nederland) BV ("DSK"), a related body corporate of CanWest incorporated in the Netherlands.
The structure so created was set up by CanWest's solicitors, paid for by CanWest and the idea for it originated in CanWest. The result, among other things, was a vehicle, namely, Selli, which could thereafter acquire parcels of TGL shares if offered for sale by existing TGL shareholders by the exercise of pre-emptive rights.
Some time after the Belshaw shares became available for purchase, an Executive Vice President of CanWest contacted Winston Capital, a Canadian shareholder in TGL, to indicate that the Belshaw shares had been sold at $13 a share and suggested that if Winston Capital was interested in selling, its executives should talk to the principals of Selli. In the result, Selli acquired Winston Capital's holding in TGL, the transaction again being financed by an issue of debentures to DSK.
On 26 November 1996, two further shareholders in TGL, Corom and Audant, gave under the pre-emptive rights agreement, notice of their intention to sell their TGL shares. On 11 December 1996, CanWest nominated Selli to acquire the TGL shares from Corom and Audant. That nomination was accepted by Selli which entered into an agreement with Corom and Audant to acquire the relevant TGL shares again financed by DSK. The price payable was $15.00 per share, $2 higher than had been paid in the earlier transaction.
TNQ raised objection to the acquisition by Selli, alleging that it would be a breach of the shareholder's agreement. In the result, the arrangements that had been entered into for Selli to acquire the shares and for DSK to finance them, were terminated and CanWest executives and Mr Skala began to seek alternative purchasers for the TGL shares.
The idea that a new company should be established for that purpose came from CanWest and its solicitors. The company so incorporated was Donholken. Three persons became associated with that company. The first was Ms Donnelly who was recommended by Mr Skala. The second was Mr Kennett who had been a friend of Mr Asper's son, David. Mr Kennett had contacted David Asper having read about shareholder's difficulties in the newspaper and offered assistance. The third person was a Mr Hollis who had been a director of a CanWest subsidiary. Although he had not, it would seem, been actively
engaged with CanWest for some time before his becoming involved with Donholken, Mr Hollis only resigned his directorship of Pacific Communications Pty Ltd on Wednesday 8 January 1997.
On Wednesday 8 January 1997, a day after they had met for the first time, Ms Donnelly, Mr Kennett and Mr Hollis agreed to the incorporation of Donholken. On Friday 10 January 1997, Donholken purchased the TGL shares from Corom and Audant. There was no discussion by the Donholken principals about the purchase price. The acquisition was financed by DSK. However, the Donholken shareholders negotiated some changes to the Selli transaction documents. In particular, the call option and voting shares which existed in the Selli and DSK documents, were not adopted. However, DSK had, through a convertible debenture issue, the right to convert debentures to voting shares, but subject, as will be seen, to what is referred to as a "qualifying requirement", discussed in more detail later, that conversion would not result in a breach either of the Foreign Acquisitions and Takeovers Act 1975 ("the FAT Act") or the Act.
THE SELLI STRUCTURE
The Memorandum and Articles of Association of Selli authorise the allotment of five classes of share of which only three classes have been issued. First, there are two Class A voting shares, one held by Leibler Media Holdings and the other by Copplemere. The holders of these shares are not entitled to any dividends but they are entitled to vote. Second, there are four Class B limited voting participating shares, only two of which are issued, one each to Leibler Media Holdings and Copplemere. The holders of the Class B shares are only entitled to vote on matters related to the Class B shares but are entitled to a preferential dividend of $300,000 and 5 per cent of the net distributable income of Selli after payment of expenses and interest to convertible and participating debenture holders. There are 200 million Class C full voting participating shares and 200 million Class D limited voting participating shares none of which have been issued. Finally, there are two Class E non-voting, non-participating shares to which Leibler Media Holdings and Copplemere have subscribed the amount of $1.00 each plus a premium of $24,999.00 each. These shares are redeemable and, on redemption, shareholders are to receive the par value and any premium paid. The Class E shares are non-voting and non-participating.
There are two classes of issued shares in Turnand that have been issued. Leibler Media Holdings holds two Class A voting shares. There are no other voting shares issued. Selli holds 32,247,825 Class B shares in Turnand. These are non-voting, participating shares.
The structure of Numeration mirrors that of Turnand. Copplemere holds two Class A voting shares and Selli holds 4,904,534 Class B shares which are non-voting but participating. In each company, Class B non-voting participating shares and Class C voting and participating shares are authorised but unissued.
The capitalisation of Turnand and Numeration arose as a result of Selli borrowing from DSK to subscribe for the Class B shares. In turn, the monies paid on the shares were used by Numeration and Turnand to purchase TGL shares.
The Class B shares held by Selli in Numeration and Turnand are convertible into voting participating Class C shares. Such a conversion would enable Selli to control a majority of the votes in each of Numeration and Turnand. Conversion is, however, subject to a qualifying requirement that conversion would not breach the FAT Act or the Act.
As has already been indicated, there are two types of debentures which have been issued by Selli to DSK, convertible debentures and participating debentures. Under the Convertible Debentures Deed, DSK, by way of redemption of the convertible debentures, could convert all or any of those debentures into fully-paid Class C and Class D shares in Selli. The right to convert is made subject to "the qualifying requirement" having been satisfied and also subject to the following qualification:
"Notwithstanding anything to the contrary in these Conditions, the rights of a Noteholder under clause 10 to have any conversion shares issued to it or to its nominee should not arise and the issuers obligations under clause 10 to issue any conversion shares to a Noteholder or its nominee do not become binding on it, in each case unless and until the exercise of such rights by the Noteholder would not constitute a breach of Foreign Control and Ownership Legislation or any mandatory directive given thereunder."
The convertible debentures are partly-paid to one cent and attract a ten per cent per annum interest payment.
The "qualifying requirement" provision is expressed in the Convertible Debentures Deed as follows:
"`Qualifying requirement' means that either:
(a)(i) the Noteholder or its nominee is an Australian resident; and
(ii)the conversion of the Notes under clause 10 is not in breach of and does not cause TGL, a shareholder of TGL, any Noteholder or any affiliate of a Noteholder to be in breach of Foreign Control and Ownership Legislation or any mandatory directive given thereunder; or
(b)the Foreign Control and Ownership Legislation (including any mandatory directive given thereunder) at the relevant time and taking into account any approvals or authorisations given thereunder permits conversion of some or all of the Notes under clause 10 in favour of the Noteholder or its Nominee notwithstanding that such Noteholder or its Nominee is not an Australian Resident."
The Participating Debentures Deed secures participating debentures. These have been fully paid to $1.00 and attract an interest payment linked to the distribution which Selli may receive on its TGL shares. The interest is expressed to be 15 per cent but so as not to exceed an amount which is, in effect 95 per cent of TGL dividends and distribution after expenses, Class B dividend payments and interest on convertible debentures.
Subject to default or conversion of the convertible debentures, the participating debentures fall to be redeemed at the expiration of 75 years.
Clause 7 of the Participating Debentures Deed provides as follows:
"Notwithstanding any other Condition, no entitlement or benefit in relation to the Notes or the holder thereof shall arise or be permitted under clause 6 or under any other provision of the Conditions beyond that which would be permitted without contravention of the Act at the time such entitlement or benefit would or could otherwise arise and in the event of dispute as to this, the opinion of the Noteholder's lawyers (confirmed if required by either the Issue or Noteholder by independent Senior Counsel) shall be conclusive."
The Act so referred to is the FAT Act. Should DSK convert under the Convertible Debentures Deeds and thus render the participating debentures payable there is provision for set-off of obligations.
As part of the arrangements, each of Leibler Media Holdings and Copplemere, has granted to DSK call options over the A Class voting shares in Selli. There are similar call options granted by Leibler Media Holdings and Copplemere to Selli over the A Class voting shares in Turnand and Numeration. Each call option is subject to the "Qualifying Requirement" expressed as follows:
"`Qualifying Requirement' means that either:
(a)(i) The Grantee or its Nominee is an Australian Resident; and
(ii)The exercise of the Call Option is not in breach of and does not cause TGL, shareholders of TGL, the Grantee or its affiliates to be in breach of the Foreign Control and Ownership Legislation or any mandatory directive, approvals or authorisations given thereunder; or
(b)The Foreign Control Ownership Legislation (including any mandatory directive given thereunder) at the relevant time and taking into account any approvals or authorisations given thereunder permits exercise of the Call Options by the Grantee or its Nominee notwithstanding that the Grantee or its Nominee is not an Australian Resident."
Finally, it is necessary to refer to the specific constraints to be found in the Memorandum and Articles of Association of Selli. Under its Memorandum of Association, Selli is forbidden to carry on any business undertaking or activity other than the acquiring, holding, maintaining or disposing of TGL shares or other TGL securities, receipt and investment in call bank accounts or with other financial institutions, the payment of dividends in accordance with its Articles of Association or participating in legal proceedings. Selli It is specifically prohibited from borrowing money or issuing shares,
securities or guarantees except for the purposes of the DSK transaction. Neither the Memorandum nor Articles of Selli may be altered without the consent of the holders of the convertible debentures or participating debentures.
The Articles in many places refer to the convertible debentures issued under the "Convertible Debentures Deed". According to the Articles, that is a deed set out in Schedule 1 to the Articles. The copy of the Articles held by the Authority has a blank Schedule 1. It was said from the Bar table that the original is, likewise, blank. However, no evidence was adduced to this effect.
The interpretation provision of the Articles stipulates that any Schedule is part of the Articles.
There are a number of provisions in the Articles which refer to the consent of the holders of the participating or convertible debentures. So the share capital of Selli is not to be altered without the consent of the participating debenture holders. Options may not be granted over unissued share capital without the consent of the participating debenture holders; resolutions to alter the capital of the company, inter alia, by consolidation, sub-division, cancellation or reduction, require the consent of participating debenture holders; participating debenture holders are entitled to receive notices of meetings and to attend them; participating debenture holders may appoint a director to the board and one person as a director of each subsidiary and may remove or replace the appointee; directors' remuneration requires the consent of the participating debenture holders; the director appointed by participating debenture holders counts in a quorum; participating debenture holders are entitled to nominate the person to be put forward to the members for appointment as auditor; a resolution to wind up the company requires the written consent of the participating debenture holders and vesting of property in trustees requires the consent of the participating debenture holders.
The Articles provide (Art 1.5(c)), however, that:
"Notwithstanding anything contained in these Articles, where the requirement for the written consent of the Participating Debenture Holders expressed to be required pursuant to these Articles will give rise to a breach of the BSA [Broadcast Services Act], the expressed requirement for such written consent will be deemed to be severed from these Articles."
By way of further precaution the Articles are to be construed so as not to result, inter alia, in a contravention of the Act (Art 1.6).
The Articles provide that the A and B Class shares, that is to say, those shares held by Copplemere and Leibler Media Holdings, are not transferable. The mirror Articles of Association of Turnand and Numeration have somewhat similar constraints save that in place of the necessity of the consent of the participating debenture holders, there is substituted the prior written consent of Class B members.
Finally, some reference should be made to constraints to be found in the Debenture Stock Trust Deed entered into between Selli, Turnand, Numeration and a company called
Lintondale Pty Ltd ("Lintondale") on 6 November 1996. This document secures the obligation of Selli under the debenture trust deeds creating a charge over the assets of Selli, Numeration and Turnand in favour of DSK held by Lintondale acting as trustee. Under this deed, further debenture stock can not be created without the consent of the trustee which is required also for alterations of the Memorandum and Articles of Association of Selli, Numeration and Turnand. In addition, none of Selli, Numeration and Turnand, whose assets are charged, may lease or hire any assets or create any encumbrance or sell any property without the trustee's consent. Further, the general character of the business of each company may not be changed or discontinued without the trustee's consent. If there is an event of default including an application to wind up a company, changes in shareholdings, reduction in capital and the like, the trustee can become the registered holder of the TGL shares. However, this is again subject to the "Qualifying Requirement" (cl 12.6) being satisfied, that being defined as meaning:
"that either:
(a)the exercise of the relevant Power is not in breach of and does not cause the Trustee, any stockholder or its affiliates, or TGL or any of its shareholders to be in breach of the Foreign Control and Ownership Legislation (FATA and Broadcasting Services Act) or any mandatory directives given thereunder; or
(b)the Foreign Control and Ownership Legislation (including any mandatory directive given thereunder) at the relevant time and taking into account any approvals or authorisations given thereunder permits the exercise of the relevant Power in favour of the Trustee notwithstanding that any stockholder is not an Australian Resident."
THE DONHOLKEN STRUCTURE
The Donholken structure was modelled on the Selli structure. Such differences as there are, are more of style than of substance.
The authorised capital of Donholken is as follows:
(a)100 Class A voting, non-participating shares of $1.00 each; 17 of which are held by each of Murdon Business Pty Ltd ("Murdon"), Jacomo Pty Ltd ("Jacomo") and Rusalka Pty Ltd ("Rusalka"). These three companies are respectively companies controlled by Ms Donnelly, Mr Kennett and Mr Hollis.
(b)51 Class B1 limited voting participating shares of $1.00 each; 17 of which are held by each of Murdon, Jacomo and Rusalka.
(c)49 Class B2 limited voting, participating shares of $1.00 each. None of these shares have been issued.
(d)200,000,000 Class C voting shares of $1.00 each. None of these shares have been issued.
(e)200,000,000 Class D limited voting, non-participating shares of $1.00 each. None of these shares have been issued.
(f)1 Class E non-voting, non-participating share of $1.00 held by Murdon.
Holders of the A Class shares are not entitled to dividends. Holders of B Class shares are entitled only to vote on matters concerning Class B1 shareholders. By way of dividend, the Class B1 shareholders are entitled pro-rata among them to the difference between $300,000 and the remuneration in fact paid by Donholken to its directors. This ensures that each of Ms Donnelly, Mr Kennett and Mr Hollis share among themselves either by way of directors' fees or dividend, $300,000, that is to say, each is to receive $100,000. If the Class B1 shares are redeemed, the holders become entitled pro-rata to approximately five per cent of the net value of Donholken's assets.
There are again two types of debentures issued by Donholken to DSK to finance the acquisition of the TGL shares: convertible debentures and participating debentures.
The convertible debentures are partly paid to one cent and attract a 10 per cent per annum interest payment. They may be converted into fully paid Class C or Class D shares in Donholken. As indicated earlier, Class C shares carry votes; Class D shares carry votes only on resolutions affecting the privileges and conditions attaching to them. The right of conversion is, however, subject to the qualification in a qualifying clause which essentially provides that the result would not breach Foreign Control and Ownership Legislation or any mandatory directive given thereunder.
The participating debentures are fully paid to $1.00 and attract an interest payment being whichever is the lesser of 15 per cent or the amount of any TGL dividend less expenses and after taking account of the $300,000 director's fee or dividends to be paid to the directors or their companies.
There is an overriding provision in the DSK/Donholken Participating Debentures Deed (cl 7) in the following terms:
"Notwithstanding any other Condition, no entitlement or benefit in relation to the Notes or the holder thereof shall arise or be permitted under clause 6 or under any other provision of the Conditions beyond that which would be permitted without contravention of the Act at the time such entitlement or benefit would or could otherwise arise and in the event of dispute as to this, the opinion of the Noteholder's lawyers (confirmed if required by the Noteholder by independent Senior Counsel) shall be conclusive."
Redemption of the notes occurs if there is default, if the convertible debentures are converted when there is a set-off or 75 years from the date of issue.
The substantial difference between the Selli structure on the one hand and the Donholken structure on the other, is that there is not in the Donholken structure a call option over the voting shares. There is, however, a call option in favour of a CanWest subsidiary over the E Class share held by Murdon. Since the Class E share is neither a voting nor participating share, it is difficult to see the part which this call option plays in the structure. The same substantial result is brought about by the ability of DSK to convert debentures into voting shares, in essence an option over unissued voting shares.
The Memorandum and Articles of Association of Donholken mirror those of Selli save that the participating debenture deed is not a Schedule to the Articles. I, thus, have no need to repeat the detailed provisions.
The same matters require the consent of participating debenture holders in Donholken as require the consent of the Selli participating debenture holders.
As was the case with Selli so with Donholken, there are significant restraints on the activities of the company to be found the Debenture Stock Trust Deed. In the event of default under that deed, DSK can procure itself to become the registered holder of TGL shares but subject to the qualifying requirements. There are "qualifying requirements" to be found in the Articles of Association of Donholken and in the Donholken trust deed in terms similar to those to be found in the corresponding Selli documents.
THE RELEVANT PROVISIONS OF THE BROADCASTING SERVICES ACT
As has already been noted, the Authority found CanWest to be in breach of s57 of the Act. The provisions of that section have already been set out. These provisions require the finding of control of a commercial television licence or a "company interest".
There is an inclusive definition of "control" to be found in s6(1) of the Act in the following terms:
"`Control' includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights;"
Section 7 of the Act refers to Schedule 1 as an aid to the determination of control of a licence or for the purpose of tracing company interests. Schedule 1 is in a form which the Explanatory Memorandum to the present Act refers to as a "legislative essay" on control. The Introduction to Schedule 1 of Part 1, stated to be general, provided, at the relevant time:
"1. (1) This Schedule is intended to provide a means of finding out who is in a position to exercise control of commercial television broadcasting licences, commercial radio broadcasting licences, subscription television broadcasting licences, newspapers and companies and a means of tracing company interests.
This Schedule recognises that the concept of control of a licence, a newspaper or a company can be a complex one.
The holding of company interests is not the only way to be in a position to exercise control. Clauses 2 and 3 set out the rules for deciding when a position to exercise control exists. While company interests may be important in deciding that question, they are only one issue. In some cases, it may be important to look at agreements and arrangements between people and at accustomed courses of conduct between people. In this respect, the definition of `associate' in section 6 of this Act is important...
... a person who has company interests exceeding 15% in a company is, in the absence of proof to the contrary, to be regarded as being in a position to exercise control of the company.
Control of a company may also come about through company interests of 15% or less. This could happen where a person holds company interests of say 10% but no other person holds company interests of more than say 2% and those other persons do not act in concert.
A person may be in a position to exercise control of only the media activities of a licensee or a newspaper, but that position is nevertheless to be regarded as a position to exercise control of the licence or the newspaper.
(2) Because of the complexities involved in this area, it is not possible to provide rules which will give a definite answer in all cases. Therefore, the ABA is given a monitoring role over the broadcasting industry and suitable powers of investigation in order to reach a conclusion as to whether a person is in a position to exercise control or not. In order to provide certainty for persons involved in the industry, the ABA is also given, under section 74, a power to give a binding opinion on the question of control."
Part 2 of Schedule 1 sets out the test to be applied for the purposes of that Schedule in determining whether a person is in a position to exercise control of a licence or a company. Relevantly, a person will be in a position to exercise control of a licence or a company if:
"(1) ...
(a)the person, either alone or together with an associate of the person, is in a position to exercise control of the licensee or the company;"
Clause 2(c), applicable to a non-licensee company, deems there to be control if a person, either alone or together with an associate, is in a position to exercise (whether directly or indirectly) control of a significant proportion of the operations of the company.
Clause 2(d)(ii) and (iii) deem the necessary control to exist where the person, alone or with an associate, is in a position to:
"(ii)appoint or secure the appointment of, or veto the appointment of, at least half of the board of directors of the licensee or the company; or
(iii)exercise, in any other manner, whether directly or indirectly, direction or restraint over any substantial issue affecting the management or affairs of the licensee or the company;"
Control will exist also where a company acts, or is accustomed to act or, under a contract, arrangement or understanding is intended or expected to act in accordance with the directions, instructions or wishes of a person or associate: Clause 2(1)(e). Finally, clause 6 of Part 3 of Schedule 1 provides that if a person has "company interests" in a company the person is deemed to exercise control of the company.
Definition s6(1) defines "company interests", relevant to s57(iii) and clause 6 of Part 3 of Schedule 1, as follows:
"'Company interests', in relation to a person who has a shareholding interest, a voting interest, a dividend interest or a winding-up interest in a company, means the percentage of that interest or, if the person has 2 or more of those interests, whichever of those interests has the greater or greatest percentage;"
Section 8(2) defines "voting interest". A person will have a voting interest "if the person is in a position to exercise control of votes cast on a poll at a meeting of the company". The percentage of the interest is the percentage of votes that could be cast at a meeting of the company which the person is in a position to control.
"Dividend interest" is defined in s8(3)(a)(ii) relevantly to exist where "under the memorandum and articles of association of the company, a share of any profits of the company is to be, or may be, paid or credited or accrue to the person otherwise than as dividends on shares".
"Associate" is defined in s6(1) to extend beyond related bodies corporate as defined in the Corporations Act 1990 to include, inter alia, a person (whether a company or not) who acts or is accustomed to act or under a contract or arrangement or understanding (whether formal or informal) is intended or expected to act in accordance with the directions, instructions or wishes of in concert with some other person. However, persons will not be associates:
"...if the ABA is satisfied that they do not act together in any relevant dealings relating to that company, licence or newspaper, and neither of them is in a position to exert influence over the business dealings of the other in relation to that company, licence or newspaper".
EXPLANATORY MEMORANDUM TO THE BROADCASTING SERVICES BILL 1992
According to the Explanatory Memorandum which accompanied the Broadcasting Services Bill 1992, a major failing of the 1942 Broadcasting Act was that it had attempted to be definitive in stating a test of control and thus left loopholes. By contrast, it was intended that the 1992 legislation would recognise that `control' depends on particular circumstances. The 1992 Act was intended to provide flexibility for the Authority to assess a corporate structure agreement or an association to determine if it conferred control. The approach was said to be intended to discourage:
"the construction of corporate entities for the purposes of avoiding fixed concepts of controls that might be embodied in legislation".
Commenting on clause 57 of the Bill, the Memorandum notes that the control rules are concerned "with whether a person is in a position to exercise control of a licence, whether or not that control is exercised; in other words the focus "is more on the person(s) who pulls the strings".
THE AUTHORITY'S CONCLUSIONS - A BRIEF SUMMARY
There were five separate grounds for the conclusion reached by the Authority that CanWest was, in relation to the Selli structure, in breach of s57 of the Act.
First, the Authority found that CanWest was in a position to exercise control of votes cast by Selli on a poll at a meeting of TGL, that CanWest was in a position to exercise control of the votes that could be cast by Numeration on a poll at a meeting of TGL and likewise control of the votes cast by Turnand on a poll at a meeting of TGL. On this basis, CanWest had a voting interest of 52.5% in TGL. Since this voting interest was greater than any dividend or shareholding interest in TGL, it followed that CanWest had a company interest of 52.5% in TGL. Because it had a company interest in TGL exceeding 15%, it was, by virtue of clause 6 of Schedule 1 of the Act, in the position to exercise control of the company and thus, by the application of clause 2(1)(a) of Part 2 of Part III of the Schedule, taken to be in a position to exercise control of the licence held by TGL.
The second way in which s57 was said to be breached arose by virtue of the application of s8(3)(a)(ii) of the Act. The Authority found that because the Participating Debentures Deed provided for interest to be calculated by reference to the TGL dividend paid to Selli and because the Debenture Stock Trust Deed was a Schedule to the Articles of Association of Selli, DSK (and through DSK CanWest) had a dividend interest in Selli because under the Articles of Association a share of the profits of Selli was to be or could be paid or credited to DSK. Because, under the Schedule, company interest can be traced through a chain of companies, it followed that because DSK was in a position to exercise control of Selli, by force of the company interest, it was in a position to exercise control of the Selli shares in TGL and, through that percentage interest, the licence.
The third approach taken by the Authority was to consider whether DSK, CanWest and Selli were "associates". This entailed consideration of the test of association in s6(e)(ii)
of the Act. The Authority concluded, having regard to the provisions of the debenture trust deeds and the Memorandum and Articles of Association, that DSK was in a position to exercise direction or restraint over various substantial issues affecting the management or affairs of Selli, these being the raising of capital, the appointment of auditors, changes in the Articles or general character of the business and the ability to generate profits. Thus DSK was an "associate" of Selli. As DSK and CanWest were, on any view of the matter, associates, together they were in a position to exercise control of Selli and as well Turnand and Numeration.
The fourth test which the Authority found satisfied was that CanWest was in a position to exercise control of TGL without reference to any associate relationship. This conclusion the Tribunal reached because it found that CanWest, through its control of DSK, was in a position to exercise directly or indirectly direction or restraint over a substantial issue affecting the management or affairs of TGL. The Tribunal considered the restrictions on Selli's ability to transfer TGL shares, the control of Selli and the restraints over the transfer of TGL shares in Numeration and Turnand in reaching this conclusion.
Finally, the Authority, relying upon clause 2(1)(d)(ii) of Part 2 of Schedule 1 to the Act found that CanWest was in a position to secure the appointment of at least half of the Board of Directors of TGL and was thus in a position to exercise control of TGL and the licence.
THE AUTHORITY'S CONCLUSIONS CONCERNING DONHOLKEN - A BRIEF SUMMARY
In essence, the Authority's conclusions in relation to the Donholken structure mirrored those set out above in respect of the Selli transactions.
However, there was one difference. Because the terms of the participating debentures were not scheduled to the Memorandum and Articles of Association of Donholken, the Authority accepted it could not find that CanWest had a "dividend interest" in Dunholken.
Subject to this matter, such differences as there were in the respective structures, were not regarded as significant.
THE APPLICANT'S SUBMISSIONS - GENERAL
Submissions were made by senior counsel on behalf of each of CanWest, Selli and Donholken. Generally speaking, Selli adopted the CanWest submissions and vice versa and Donholken adopted the CanWest submissions and vice versa.
It might be noted at this stage that the applications or statements of claim, as the case may be, contained numerous grounds alleging errors of law, errors of fact and Wednesbury unreasonableness. It was made clear to all counsel that matters not dealt with in written or oral submission would be treated as being abandoned. Thus, for example, although the CanWest application referred to "erroneous findings" of numerous
facts, no submission was directed to these so called "erroneous findings" and, accordingly, submissions that had been prepared by the respondents to deal with these matters were not handed up and are not dealt with in this judgment.
THE NO EVIDENCE SUBMISSION
CanWest raised as a ground of review that the Authority had based its decision on the existence of control by CanWest of Selli and Donholken and/or interests held by them in TGL whereas such control did not in fact exist.
In support of this ground, Mr Asper gave evidence. He said in an affidavit that to the best of his knowledge and belief there were no trusts, agreements, arrangements, understandings or practices between CanWest or any of its subsidiaries and any of Mr Leibler, Mr Skala, Selli, Copplemere, Turnand, Numeration, Ms Donnelly, Mr Kennett, Mr Hollis or Donholken whereby CanWest or any of its subsidiaries was entitled to exercise control over any of those persons or entities or any interest held by any of them directly or indirectly in TGL.
Evidence in that form was in my view entitled to little weight for a number of reasons. First, the suggestion that there were no trusts, arrangements, understandings etc. in relation to control was expressed, necessarily, only by reference to Mr Asper's knowledge and belief. As became clear in cross-examination, most of the arrangements between CanWest and Messrs Leibler, Skala, Kennett, Hollis and Ms Donnelly, were on the part of CanWest negotiated by persons other than Mr Asper. Second, Mr Asper's affidavit refers to "control" without defining what is meant by it. In particular it does not follow that the "control" to which Mr Asper referred was "control" as that word is used in the Act.
Ultimately, CanWest made no submission referring to this evidence. In any event, for the reason already indicated, the evidence did not, in my opinion, found a conclusion that no breach of s57 of the Act had been committed.
ADDITIONAL SUBMISSIONS
The main case of the Applicants challenged the conclusions upon which the Authority's decision under s57 was based. CanWest, however, made a number of additional submissions which were said to arise for decision. These may briefly be noted here.
First, it was submitted that the Authority's conclusion should be set aside as involving an abuse of power or error of law because it was inconsistent with its 1995 conclusions and there was no stated or rational justification for the inconsistency.
Next it was said, that the Tribunal reached its conclusion in relation to control by reference to its own knowledge and experience according little weight to the evidence of Messrs Leibler and Skala. This is said involved a misapplication of s169 of the Act.
Third, it was said that the notices given by the Authority under s70 were invalid because they did not specify what action was required to be taken to remedy what had been found by the Authority to be breaches of s57. The submission was that s70 required a notice to state with particularity remedial action required to prevent a continuing breach.
Then it was submitted that because s160(d) of the Act obliged the Authority to perform its functions in a manner consistent with Australia's obligations under any Convention, the Authority should have taken into account various international law requirements, particularly the obligation not to engage in arbitrary conduct. It is said, and I accept, that the Authority's report contained no reference to Australia's international obligations. So it is said, somewhat illogically, that I should infer that international law requirements were not taken into account by the Authority and that, accordingly, the notices given by it were invalid.
Next, there is said to have been a breach of procedural fairness in that evidence of witnesses, excluding Mr Leibler and Mr Skala, was taken by delegates and not the persons who ultimately made the decisions on behalf of the Authority. Because matters of credit were said to have been involved, it was said to be a breach of procedural fairness that evidence not be taken personally by the persons responsible for decision-making.
Finally, it was submitted that the directors had each given evidence before the Authority that they would act independently of CanWest. It was said that the Authority had failed to give them natural justice because they were not given the opportunity to comment on the conclusion reached by the Authority that their independent position would give way to commercial reality.
I turn now to deal with the substantial challenges to what senior counsel for CanWest referred to as the "gateways" through which the Authority found control to exist.
THE FINDING THAT CANWEST WAS IN A POSITION TO EXERCISE CONTROL OF VOTES CAST BY SELLI OR DONHOLKEN, AS THE CASE MAY BE, AT A POLL OF A MEETING OF THE TEN GROUP OF TGL
Before turning to the submissions alleging error or law on the part of the Authority in reaching its conclusion that CanWest was in a position to exercise control of the votes of Selli or Donholken at meetings of TGL, it is necessary to set out in more detail by way of summary the process of reasoning which the Authority adopted. I do so only in respect of Selli. However, the same general reasoning process was applied also to the Donholken arrangements.
The Authority's report sets out, perhaps in greater detail than I have, the circumstances which gave rise to the Selli structure and the acquisition of the TGL shares from Belshaw and Winston Capital. The Authority noted that the structure was devised by CanWest and that that company had agreed to pay a premium on the Copplemere and Leibler Media Holding shares in return for Messrs Leibler and Skala retaining voting rights. It was noted that there were considerable benefits to Mr Leibler and Mr Skala which might act
as incentives to ensure that the arrangements continued. There was, for example, the preferential dividend of $150,000.00 per annum each for as long as Mr Leibler and Mr Skala had participating shares in Selli. Also, Mr Skala and Mr Leibler anticipated receiving benefits in the event of a float of TGL. Each had the benefit of continued board representation and the potentiality to realize an entitlement of 5% of capital appreciation. The Authority found that each of Mr Leibler and Mr Skala had a strong interest in the continuation of the arrangements "which could be jeopardised without the continuing goodwill of DSK and CanWest".
The Authority took note of the various transaction documents, the call option deed and the debenture deeds as mechanisms by which DSK could alter the arrangement at will to place in jeopardy the benefits which Mr Leibler and Mr Skala would receive through Selli. It was noted that powers could be exercised to ensure that the TGL shares passed to other Australian residents in the event that the directors of Selli were to exercise any powers in a manner inconsistent with the wishes of DSK. The Authority noted that DSK could ensure that a qualified nominee acquired a majority of the voting shares in Selli through the convertible debenture deed which could bring about the redemption of the class B shares and the removal of the Selli directors from the board and the appointment of new directors. The powers open were substantial commercial sanctions available to DSK to exercise as it saw fit. The Tribunal said (at 54):
"While these mechanisms could not practicably be used to control each and every exercise of the TGL votes held by Selli, they could be used on particular issues (such as the former proposed float) to ensure that the votes are cast by members whose views on the issue are known to coincide with those of DSK/CanWest. The existences of these powers is relevant to the degree of independence from CanWest which those directors might be expected to exercise on such an issue."
It can be argued and indeed was argued that the power to convert notes to shares held by a nominee, and the power to call for the transfer of the voting shares in Selli to a nominee, cannot be exercised in favour of a nominee which DSK in fact controls, therefore cannot lead to DSK securing control. While this argument reinforces the conclusion that DSK cannot obtain a legally enforceable and immediately exercisable "right to exercise control of the requisite voting power", it does not overcome the wider test of control which the Act poses. On any particular TGL issue of importance to DSK/Canwest, the powers could be used to effect the replacement of Messrs Leibler and Skala as directors of Selli with a person whose views on the issue are known to coincide with those of DSK/CanWest, albeit that such person was not "controlled" by CanWest.
The Authority noted that, having regard to the commercial benefits accruing to members of Selli while the arrangements with DSK subsisted and the special purpose nature of Selli, the best interests of the members of Selli, would usually be served by Selli exercising its TGL votes in accordance with the wishes and interests of DSK and CanWest. The Tribunal concluded that the Directors of Selli would pay particular regard to the wishes and interests of DSK in exercising TGL votes.
The Authority noted the duty of directors to act in the interests of shareholders as a whole although, as it noted, directors could properly have regard to the interests of outsiders such as debenture holders, unless so to do would involving disregarding the interests of shareholders generally. It made reference to the decision in Re Broadcasting Station 2GB Pty Ltd (1964-5) NSWR 1648 at 1663 and said:
"These statements of legal principle accord with the Members own knowledge and experience. Directors usually act in accordance with the wishes and interests of a party that has brought about their appointment and on whose goodwill there continuation in office often depends unless that places them in breach of their duties. The ABA is satisfied that all of the current Selli directors, including Messrs Leibler and Skala (albeit that they were formally appointed as a result of Leibler Media and Copplemere's shareholding in Selli), would follow the wishes and interests of DSK/CanWest to that extent in exercising Selli's TGL votes.
The ABA accepts that Messrs Leibler and Skala would act in accordance with their duties as directors of Selli. However, the Authority places very little weight on their evidence that they would act independently of DSK/CanWest in exercising Selli's TGL votes. The ABA does not accept that they would so act on any matter of substance on which CanWest sought to influence their vote unless satisfied that a breach of their duties would otherwise result. The ABA has concluded that these statements of general intention would give way to commercial reality on any particular TGL issue of importance to CanWest.
In light of the above findings of fact, and the reasons given above, the ABA finds that CanWest is in a position to exercise control of votes cast by Selli on a poll at a meeting of the Ten Group Limited."
The starting point of the challenge to this conclusion is the Authority's acceptance of the proposition that Messrs Leibler and Skala would not do anything which would place them in breach of their duties as directors. That duty, senior counsel for CanWest submitted, meant that each and every decision they made would have to receive separate consideration and that consideration would need to be a consideration on the merits. It would, it was submitted, be a breach of duty for Mr Leibler or Mr Skala to vote in accordance with the wishes of CanWest/DSK without a separate consideration of the matter.
That neither Mr Leibler nor Mr Skala would breach his duties as a director must be accepted. The crux of the difference between the position which the applicants contend for and that adopted by the Authority lies in the question whether the "control" of which the Act speaks in relation to votes is an "immediate enforceable control" or whether something less than that sufficies to constitute control for the purposes of the Act. The Authority at one stage appears to have accepted that the power to control which the Act refers to must be "immediately exercisable", citing Equiticorp Industries Ltd v ACI International [1987] VR 487. However, the context of the Tribunal's citation of Equiticorp is not as clear as it might be since the Authority uses the expression
"immediately exercisable" in the sense of "not being subject to any requirement for external approval or other external condition precedent".
The meaning of "control" depends upon context. In revenue cases, "control" generally refers to immediate and legally enforceable control of the votes at a general meeting of a company. In W P Keighery Pty Ltd v Federal Commissioner of Taxation (1957) 100 CLR 66 and in Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1957) 100 CLR 95, the question arose whether a company was "capable of being controlled by any means whatever" by one person or by persons not more than seven in number as at a particular date, namely the end of the year of income. In Keighery two persons had ordinary shares but 20 other persons held redeemable preference shares which could be redeemed on seven days' notice but not within the period between 24 June and 7 July. It was held that as at 30 June the holders of the ordinary shares were not capable of controlling the company. In their joint judgment, referred to shortly thereafter with approval by the Privy Council in Newton v Commissioner of Taxation (1959) 100 CLR 1 Dixon CJ, Kitto and Taylor JJ said (at 85):
"A power in a person to provide shareholders with an incentive or inducement to exercise their voting power as that person may wish is not aptly described as making the company capable of being controlled by that person. The person must be able to dictate the decisions of the general meeting, through a preponderance of voting power which either is vested in him or is subject to his command."
A like conclusion was reached in Sidney Williams. In that case the High Court said:(at 111):
"The absence of an immediate right of conversion is enough by itself to make par. (f) inapplicable to the case. If it cannot be said of a company on the last day of the year of income that seven persons (or fewer) are presently able to control the company, in the sense of securing the passing of a resolution at a general meeting, the company cannot be described as capable on that day of being controlled by one person or by persons not more than seven in number."
The decision of the High Court in Mendes v Commissioner of Probate Duties (Victoria) (1956) 122 CLR 152 demonstrated further, in the context of probate duty, that the fact that shares carried rights entitling the holder to a majority of votes on certain issues only at general meetings did not mean that the shareholder controlled the company.
Clearly enough, it follows from these cases that if the Act concentrated on the question whether CanWest or DSK was capable of controlling Selli and no other statutory provision intervened, the applicants might be entitled to succeed. Even then there would be room for argument that the context of regulating a sensitive industry such as the media might give rise to different a different interpretation of control to that adopted in revenue cases, and adopted at a time when courts were apt in such cases to adopt a legalistic view of statutory interpretation. But there are other statutory provisions relevant to the
meaning of control in the present legislation, notwithstanding which, Keighery, Sidney Williams and Mendes are still called in aid to demonstrate that CanWest does not control, through DSK, Selli.
What is particularly relied upon, in addition to the passage cited earlier, is the following passage from Keighery (at 85):
"It is, of course, nothing to the point that the existence of the power of future redemption might conceivably have made the holders of the redeemable preference shares more willing than otherwise they would have been to comply with the wishes of Mr and Mrs Keighery. Clearly enough, the description of a company as `capable of being controlled' is not satisfied by the mere fact that a majority of shareholders, while not under any legal or equitable obligation to obey the directions of other persons, may possibly prove so anxious to retain shares which those other persons are able to eliminate that they will obey those directions against their own desires."
Keighery and Sidney Williams were relied upon by the Full Court of the Supreme Court of Victoria in Equiticorp, a case concerned with control in the context of the FAT Act. That Act stipulated as a test the question whether a person was in a position to control not less than 15% of voting power. Section 8 of the FAT Act was in the following terms:
"A reference in this Act to control of the voting power in a corporation is a reference to control that is direct or indirect, including control that is exercisable as a result or by means of arrangements or practices, whether or not having legal or equitable force, and whether or not based on legal or equitable rights."
It was held that for a person to be in a position to control voting power, that person must have an enforceable and immediately exercisable right to exercise control of the requisite voting power at the relevant time, which was, in that case, the time of registration of a transfer. In coming to this conclusion, the court rejected an argument that, as a matter of commercial reality, control was able to be exerted. The court accepted that Keighery's case provided a relevant authority to test whether a capacity to control existed.
Three things may be said of the decision. First, the legislation, that is say, the context in which the question arose, differed from the present both in language and, perhaps, policy. Second, the provisions of s8 of the FAT Act was given virtually no attention at all. No evidence was apparently directed at the trial to it. Further, it was held, as a matter of construction, to apply only where there was first control of voting power, albeit indirect. It was said not to apply to the question how one secured or acquired voting power.
I would always follow a decision of the Supreme Court of Victoria, and a fortiori a decision of a full court of that court as a matter of comity, although not bound by that decision. I am, however, of the view that the comments made in that case about control are clearly wrong, and in so far as they form any part of the ratio of the case, I would
not follow them. To the extent that the case turns on the difference between issued and unissued shares that is a separate matter.
The second case upon which reliance was placed was the decision of Hodgson J in National Companies & Securities Commission v Brierley Investments Ltd (1988) 14 NSWLR 273. That case arose in the context of the Companies (Acquisition of Shares) (New South Wales) Code ("the Acquisition Code"). The statutory question was whether there was a power to exercise or to control the exercise of the right to vote attached to a share. The following two paragraphs of the Acquisition Code were said to have particular relevance:
"9. ...
(2)It is immaterial for the purpose of this section whether the power of a person -
(a)to exercise, or to control the exercise of the right to vote attached to a voting share; or
(b)to dispose of, or to exercise control over the disposal of, a share,
is express or implied or formal or informal, is exercisable alone or jointly with another person or other persons, cannot be related to a particular share, or is, or is capable of being made, subject to restraint or restriction, and any such power exercisable by a person jointly with another person or other persons shall, for those purposes, be deemed to be exercisable by either or any of those persons.
(3)A reference in this section to power or control includes a reference to power or control that is direct or indirect or is, or is capable of being, exercised as a result of, or by means of, or in breach of, or by revocation of, trusts, agreements, arrangements, understandings and practices, or any of them, whether or not they are enforceable, and a reference in this section to a controlling interest includes a reference to such an interest as gives control."
In argument in that case, a distinction was sought to be made between actual control and a mere potentiality to obtain control. In support of that distinction, Keighery and Equiticorp were cited. Hodgson J commented (at 287):
"So far as concerns the case of Equiticorp, in my view, it does show that a distinction between power to control, and a potentiality to obtain power to control, may apply to these provisions. However, it does not, in my view, exclude the possibility that a person who has, as a matter of legal entitlement, only a potentiality to obtain power to control, may at the same time have an immediate factual power to control, based on understandings
or arrangements, and further supported by the legal entitlement to which I have referred. That possibility is expressly put to one side in Equiticorp(at 242-243) as not being the subject of evidence in that case, and the general statement in that case that `there must be an enforceable and immediately exercisable right to exercise control' should be read with that in mind: if that general statement were read as being entirely unqualified, it would, I think, be inconsistent with the Foreign Takeovers Act (Cth), s8."
His Honour then distinguished the Acquisition Code from the FAT Act by reference to the provisions of s 9(2) and (3) set out in full above. The wording, particularly of s 9(3), with reference to breach or revocation of trusts etc. suggested some element of futurity inconsistent with a test of immediacy. In the circumstances of the case, his Honour found a "factual control" notwithstanding that there was a potentiality rather than a legally enforceable immediate right.
My view that Equiticorp should not be followed in the context of the present legislation is reinforced by the comments made by Hodgson J in discussing Equiticorp case.
On the other hand, Brierley Investments may be distinguished from the present case so far as it turned on the language of s 9(3) of the Acquisition Code which is not identical to the definition in the present legislation.
Perhaps of greater significance to the approach which I should adopt is the decision of the Full Court of this court in Re Application of The Newscorp Ltd (1987) 15 FCR 227. That case concerned the Broadcasting Television Act 1942, the predecessor of the present legislation. Two sections were considered by the court. The first, s92D, posed the test of whether a foreign person was "in a position to exercise control, either directly or indirectly, of the company holding the licence". The second section, s92B, set out three examples of deemed control, one of which was a 15% shareholding interest. A shareholding interest arose, inter alia, where a person was "in a position to exercise control of more than 15% of the maximum number of votes that could be cast on a poll". Section 91(1) provided, subject to a contrary intention, that "control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force, and whether or not based on legal or equitable rights."
The substantial issue in the case was the relationship between s92D and s92B. That is not an issue which concerns us. However, what is important is more the approach which the Full Court took to the interpretation of 92D. Bowen CJ, speaking of the words "in a position to exercise control of a company" as used in s92D said (at 242):
"...there is no logical reason to read down the meaning of the expression by reference to ss 90E and 92B. Still less should it be read down by reference to the common law test of control laid down in cases such as Mendes (supra). Sections 90E and 92B were themselves enacted to widen the common law test."
After expressing a view that in the sense in which control was used in the legislation, a power to veto could constitute control, his Honour referred to Keighery's case and the reasoning in that case that there was a difference between potentiality to exercise a power in the future and a present right to exercise that power. At 244, his Honour continued:
"In my opinion, the decision in Keighery is not decisive of the present question. First, it is to be noted that the provision there in question, s105(1)(f) of the Income Tax and Social Services Contribution Act 1936, was worded differently from the provision now under consideration. The words "in a position" were not present. Those words, which appear in s92D(1) of the Broadcasting and Television Act 1942, convey a wider concept of control. They are capable of applying to a situation where the control is not being exercised in fact as at the date of the inquiry. The words are, thus, `in addition to and expansive of, 'control' simpliciter'."
Lockhart J (at 246) said of the Act in its then form:
"It is plain that questions of control, whether through voting power or financial interests, are to be determined by practical and commercial considerations rather than highly refined legalistic tests. The relevant provisions of the Act are not directed to or concerned with subtleties of company law."
The same may with even greater force be said of the present legislation. The intention of the legislature as appears from the legislative essay in the First Schedule was to define control broadly. It was certainly not to return to the legalities and intricacies of tests of "control" used in the Income Tax Assessment Act 1936.
Adopting this practical approach, his Honour spoke of the arrangement that had been entered into by News Corporation and the policy of the legislation and said that the submission that control did not exist made nonsense of the purpose underlying the Act.
The same may be said of the applicant's submission in the present case.
I turn now to construe the provisions of the Act with such guidance as may be available from the authorities to which I have referred.
Section 57(1) is concerned with control of a licence, not control of a company.
Where the question of control of a company is at issue, and "control" is not defined, usually what will be intended is control in the sense of capacity to carry an ordinary resolution at a general meeting of shareholders: Keighery, Sidney Williams, Mendes and Kolotex Hosiery (Aust) Pty Ltd v Commissioner of Taxation (1973) 130 CLR 64 at 77-8 per Mason J; (1975) 132 CLR 535 at 572-3 per Gibbs J.
The context of s57(1) directed as it is to ensuring that foreign persons are not in a position to control licenses, suggests that the question of control is to be
determined by practical and commercial considerations rather than "highly refined legalistic tests", see per Lockhart J in Newscorp at 246.
That the question is one of de facto rather than legal control is reinforced by the inclusive definition of control in s6(1), which makes it clear that what are to be looked at are not merely legal and equitable rights and obligations, but arrangements, understandings and practices, whether or not enforceable.
The alternative test of "shareholding interest" must likewise be construed broadly, having regard to the definition of "control" in s6(1) of the Act. Actual control of votes to be cast or a poll is not the test of "voting interest". The test is whether a person is in a position to exercise control of votes to be cast on a poll and in determining that question too, regard may be had, not merely to legal agreements, but arrangements, understandings and practices, whether or not enforceable.
The question whether a person is in a position to exercise control of a license is not to be answered by reference to whether that person has an immediately enforceable right to control the license. Likewise the question whether a person is in a position to exercise the right to votes cast on a poll is not to be determined by reference to whether that person has an immediately enforceable right. The Act was not intended to be limited to the general law tests of control discussed in cases such as Keighery or Sidney Williams.
In determining whether persons who have been appointed directors would act generally in the interests of a company which appointed them, or here which financed the entire activity of the company, even if technically it did not appoint the directors, the fact that the directors would act in accordance with their fiduciary duty does not negate a finding of control, notwithstanding a strong submission to the contrary: cf Newscorp per Bowen CJ at 244-5. The test is one of commercial and economic reality rather than of legal theory.
Where a company is established in circumstances that its sole business is the holding of shares in another company; where every substantial question which could in that company arise for decision requires the consent of the foreign person, where the foreign person carries substantially all of the financial risk and where the foreign person can act to ensure that both the shareholders and directors can be replaced by persons who might be expected to do the bidding of the foreign person if the existing shareholders and directors do not, common sense and reality permits of only one conclusion, namely that the shares held by the special purpose company are under the control of the foreign person. In the present circumstances, that carries the inevitable conclusion that the foreign person is in a position to exercise control of the licence. It would defy common sense to find otherwise.
The same process of reasoning leads to the conclusion which the Authority reached, namely that DSK and, through it, ultimately CanWest was in a position
to exercise control of votes cast by Selli at meetings of TGL and likewise control of the votes cast by Turnand, Numeration and Donholken.
It is no answer in my view that the most that CanWest can do through DSK without breaching the terms of the agreement is effectively to replace Selli and Donholken as shareholders in TGL, but not replace that company with any person it controls. That is true, but it does not lead to the conclusion which the Applicants seek too draw. The reality is that CanWest can replace Selli and Donholken, if necessary, with persons it might expect to be more likely to do what it wishes, should Mr Leibler or Mr Skala decide to act contrary to the wishes of CanWest. There is no particular reason to expect that this course of action would be necessary. Messrs Leibler and Skala are being remunerated for their trouble with directors fees or dividends and a small share of any ultimate capital gain and expect to be rewarded, as the Authority found, in any ultimate float of TGL. All commercial risk is taken by DSK, none by the Australians participating in the arrangements.
I was attracted, during the course of the hearing, by a submission that the Authority may have erred in not having first reached a conclusion whether there was an arrangement or understanding between CanWest, on the one part, and Mr Skala, Mr Leibler or the Donholken directors, on the other, as a factual foundation for a conclusion that CanWest controlled the voting rights in TGL. Normally, where control is not direct through trusts or shareholdings, it would be necessary for the Authority to reach a conclusion as to whether an arrangement as to the exercise of votes existed without which a finding of control could not be reached. Certainly it would have been open to the Authority so to find in the present case, just as it was also open to the Authority to find that there was no necessity for any understandings or arrangements to have been arrived at because of the straightjacket in which the Selli and Donholken directors and shareholders were placed, as a result of the provisions in the Memorandum and Articles of each company and the debenture trust deed, apart from the existence of the convertible debenture and, in the case of Selli, the option over the voting shares.
The arrangements put in place in each case ensured in a real and practical sense that each company was under the control of the CanWest interests, and that that control gave to CanWest indirectly the capacity to control the way each company would vote its shares at meetings of TGL. So tight was the control that there was, in my view, no need in this case for the Tribunal to make a finding of arrangement. In my view the Authority did not err in law in reaching its conclusion. To the contrary, no other conclusion was possible.
DID THE SELLI TRANSACTION GIVE RISE TO A DIVIDEND INTEREST?
The Authority concluded that because the participating debenture deed was said to have been scheduled to the Articles of Selli and because the Selli profits were a factor in the computation in the interest payable to DSK, the Selli transaction gave rise to a share of profits becoming payable to DSK under the Memorandum or Articles of Association of that company.
In my view this conclusion is erroneous. The mere fact that the deed was scheduled to the Articles, if that be the case would not mean that amounts payable under the deed were payable under the Articles. Further, in my view, even though the interest payable under the debenture deed fluctuated in accordance with the profit of Selli, it did not follow that what DSK received from Selli was a share of the profits of that company. The submission of CanWest and Selli that interest does not become a share of profits merely because the interest rate varies with the profit of the borrower is, in my view, correct. There is no reason why the word "profit", as used in the Act, should be given a meaning which differs from its ordinary sense. This ordinary sense is provided by the well known definition of Fletcher Moulton LJ, in In re Spanish Prospecting Co Ltd [1911] 1 Ch 92 at 98, cited with approval by Gibbs CJ with whose judgment Mason, Deane, Brennan and Dawson JJ agreed in Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447 at 460:
"Profit implies a comparison between the state of a business at two specific dates, usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates."
While noting the caveat in Slater Holdings that this dictum is not of universal application as the meaning of the word "profit" depends on context, I think that it is clear that in the Act the context is of a fund out of which a dividend would be payable. Where a person, albeit not a shareholder, receives, or becomes entitled to receive, a share of profits, that is a share of the fund out of which dividends would otherwise be payable, that person, if the share reaches the prescribed percentage, will have a "dividend interest" provided that the entitlement arises under the memorandum or articles of association. However, here the interest would need to be taken into account before the fund of profit from which dividends may be paid is calculated. For that reason it is arguable that the payment to DSK is not the payment of "a share of ... profits." However, I prefer to rest my decision on the more limited ground that the payment was not made "under the memorandum and articles". Consequently, the Authority's conclusion to the contrary must be set aside.
WHETHER CANWEST IS IN A POSITION TO CONTROL TGL TOGETHER WITH ASSOCIATES
The Authority's findings under this gateway depended upon whether Selli and Donholken were associates and, if so, whether they together were in a position to exercise control of TGL.
That Selli and Donholken were each, within the meaning of the Act, in a position to control TGL was not the subject of controversy, since each had direct company interests in TGL in excess of the 15% threshold: see clause 6(1) of Schedule 1. The question whether Selli and Donholken were each "associates" of CanWest was more controversial.
The Authority found association to exist through the application of the test in paragraph (e)(ii) of the definition of "associate" in s6(1) of the Act. That paragraph provides that there will be association where one person is in a position to exercise control of a significant proportion of the operations of the other. The Authority relied then on paragraph 2(1)(d)(iii) which provides:
"(d) the person, either alone or together with an associate of the person, is in a position to:
(iii)exercise, in any other manner, whether directly or indirectly, direction or restraint over any substantial issue affecting the management or affairs of the licence or the company."
However, as the concluding words of the definition of "associate" make clear in s6(1), that association is not to be taken to exist where the Authority:
"... is satisfied that they do not act together in any relevant dealings relating to that company, licence..., and neither of them is in a position to exert influence over the business dealings of the other in relation to that company licence or ..."
The matters of management etc over which it was said that CanWest, through DSK exercised restraint were:
1.The ability to raise capital;
2.The nomination of auditors;
3.Changing the business or constitution of Donholken; and
4.The ability of each of Selli and Donholken to generate profits.
These matters are self explanatory. There is no dispute that DSK can, through the trust deed or the memorandum and association of each company, veto any capital raising; DSK is the only person who can put forward a person to act as auditor; Neither company can alter its business activity or its constituent documents without the consent of DSK and, finally, not only is the business of each company limited to holding and selling the TGL shares but it can not even sell the shares without the consent of DSK.
Two arguments are put by the Applicants in opposition to the Authority's conclusion. First, it is said that the matters to which reference is made are matters of structure, matters affecting the framework in which the business decisions of the company were made, not matters affecting "management or affairs". I do not agree. In my view the words should not be given a legalistic interpretation. It is hard to imagine a case where the management or affairs of a company are more rigorously circumscribed than the present.
The second argument is that every normal security document would contain one or more of the constraints relied upon by the authority in reaching its conclusion. So it is said that Parliament can not have intended that every company which made a secured borrowing is to be regarded as controlled for the purpose of the Act by the financier. It may well be
true that comparable provisions are to be found in ordinary security documents but it is virtually inconceivable that provisions such as those found in the present case would coincide in an ordinary financing transaction. Nor were the Selli or Donholken transactions in any real sense ordinary financing transactions.
But there is another answer. The Schedule to the Act excludes cases involving ordinary borrowings from banks and finance companies of which the present is not one. By expressly so doing, the legislation has reinforced the conclusion that where a borrowing is not from a stipulated bank or finance company control may exist for the purposes of the legislation by force of restraints to be found in the financing documentation. The legislature was no doubt aware that financing arrangements could be made the foundation for control by a foreign person and thus the policy of the legislation is that control through restraints will be taken into account for the purposes of the Act, even where the restraints arise in a financing transaction, so long as the financing is not exempted from consideration as emanating from a bank or stipulated financier.
In my view, the Authority committed no error in concluding that DSK was in a position to exercise restraint over a substantial issue affecting the management or affairs of Selli and the affairs of Donholken. In consequence, the Authority committed no error in finding through this gateway that CanWest controlled TGL.
However, the Authority in my view erred by not then proceeding to a consideration of whether they acted together or are in a position to exert influence. By not so doing, the Authority erred. Having regard to my earlier conclusions, however, the error will not affect the outcome.
CONTROL OF TGL BY DSK OTHER THAN THROUGH ASSOCIATION
In reaching its conclusion that without association CanWest through DSK controlled TGL the Authority again relied upon clause 2 (1)(d)(iii) of Schedule 1 to the Act. That clause, it will be recalled, deems control to exist where a person, either alone or together with an associate, is in a position to:
"exercise, in any other manner, whether directly or indirectly, direction or restraint over any substantial issue affecting the management or affairs of the licence or the company"
The Authority concluded that CanWest, through its control of DSK, could restrain the transfer of, or the transfer of the control of, the TGL shares held by each of Selli, Donholken, Numeration and Turnand. In so finding it took account of the fact that the relevant TGL shares could not be transferred because they were the subject of charges and covenants not to transfer; that under the Selli transaction documents there could be no change of ownership or control of that company without the consent of DSK so that DSK was in a position to exercise restraint over any change in control of Selli and thus to restrain the transfer of the ownership of the TGL shares held by Selli. Similar conclusions were reached in relation to the other companies, Donholken, Numeration and Turnand.
It was submitted on behalf of the Applicants that the Tribunal was in error in so doing for two reasons. First, consistent with the submission under the previous gateway it was argued that the CanWest restraint went not to a matter of "management or affairs" but structure. While I do not accept that restraint over the disposition of shares owned by Selli would be other than a matter of restraint concerning its affairs, I do not see how restraint over the affairs of Selli and Donholken affects the management or affairs of TGL. I am unable at all to follow the logic of the Authority's conclusion. This leads me to believe that the Authority must have committed an error of law in arriving at it. I find no need therefore to consider what, if any, effect the qualifying requirement clauses would have on the result. Having regard to the conclusions earlier reached, any error on the part of the Authority in its conclusions or this gateway can not affect the ultimate result.
WHETHER CANWEST IS IN A POSITION TO SECURE THE APPOINTMENT OF AT LEAST HALF THE BOARD OF TGL
The final matter considered by the Authority was whether CanWest was, in accordance with clause 2(1)(d)(ii) of Schedule 1, in a position to:
"... secure the appointment of, ... at least half of the board of directors of the licensee or the company."
Under the Articles of Association of TGL CanWest had the right to and did appoint two directors. The Authority concluded that in funding the various acquisitions of shares CanWest did so "with the understanding" that Messrs Leibler, Skala, Kennett, Hollis and Ms Donnelly would be directors appointed by the respective companies. It is then said that CanWest, through DSK, "enabled" the various companies to appoint these persons as directors by financing the acquisitions. So it is said CanWest "secured" the appointment of at least half of the directors of the TGL board, from which it is then said to follow that CanWest is in a position to secure the appointment of at least half of the board of directors of TGL and is therefore in a position to exercise control of TGL.
It is submitted that the reasoning process of the Authority is flawed, in that to provide finance to a company with the knowledge that, thereafter, certain things would happen is not to secure that those things will happen. Further it is said, in any event to be illogical to jump from the fact that DSK secured the initial appointments of directors in Selli and Donholken to the conclusion that DSK was in a position to do so thereafter, let alone to appoint at least half the Board of TGL.
If the question depended upon legal rights, then it is clear that CanWest does not have directly, or through DSK, the right to appoint half of the directors of TGL. However, I think that as a matter of construction, Clause 2(1)(d)(ii) of Schedule 1 looks at practicalities, rather than legalities. If that is right, if practically DSK controls Selli and Donholken, and through Selli, Turnand and Numeration, it is clearly in a position to ensure that it can have appointed to the Boards of those companies the persons it has confidence in. This being said, CanWest can ensure that the votes of the TGL shares
held by the four companies are exercised in favour of persons it desires to have appointed.
In my view the qualifying requirements clause does not require a contrary conclusion. Too much weight is placed by the Applicants on this clause. I do not say that it is a sham, or that it would be consciously ignored by the parties to the various agreements, but the practical result is that CanWest can, at any stage, ensure that options are exercised or debentures converted to ensure that the shares in Selli and Donholken are held by persons who, although not controlled by CanWest, nevertheless are known to be sympathetic to that company. Indeed, it may be assumed that even although there are no arrangements or understandings between CanWest and the present directors, it can readily be inferred that Messrs Leibler and Skala and the Donholken directors would vote in a way consistent with the best interests of CanWest, except where to do so would involve a breach of their duties as directors. After all, it is CanWest's money which is invested, not their own.
In my view, no error of law has been shown.
THE MISCELLANEOUS SUBMISSIONS
Inconsistency with 1995 conclusions
The submission is that the Tribunal upon investigation in 1995 found the structure originally established whereby a CanWest subsidiary advanced money to TGL on participating and convertible debentures not to be in breach of the Act. That structure was substantially the same, so it is said, as the Selli and Donholken structures. It is said that to reach a different and inconsistent conclusion from that reached in 1995, without rational justification, shows an error of law.
With respect, the submission is without merit. Administrative decision making does not found an estoppel. This is particularly so where the estoppel is said to go to principle, rather than fact. The Authority may well have been mistaken in 1995. It is not bound in a later investigation to perpetuate error. Alternatively, there may have been different facts as to practical control emerge in the present enquiry from those which emerged in the earlier enquiry. Either way, there is no rule of law which requires the Tribunal to follow an earlier conclusion or to explain any inconsistency between decisions which might, although not necessarily are, inconsistent.
That little weight was given to the evidence of Mr Leibler and Mr Skala
At pp61-2 of its published report the Authority concluded that Messrs Leibler and Skala would follow the wishes of DSK/CanWest, except when to do so would involve a breach of their duties as directors. The report refers to the knowledge and experience of the members of the Authority in reaching this conclusion. The Authority then said (at pp61-62):
"The ABA accepts that Messrs Leibler and Skala would act in accordance with their duties as directors of Selli. However, the Authority places very little weight on their evidence that they would act independently of DSK/CanWest in exercising Selli's TGL votes. The ABA does not accept that they would so act on any matter of substance on which CanWest sought to influence their vote unless satisfied that a breach of their duties would otherwise result. The ABA has concluded that these statements of general intention would give way to commercial reality on any particular TGL issue of importance to CanWest."
The question of what weight should be given to the evidence of a witness is a matter for the Tribunal and the issue whether too much or too little weight is given to the evidence of a witness involves no reviewable matter of law. In particular, nothing in the passage in question suggests that the Authority misconstrued s169 of the Act.
Non specification of remedy
The submission is that by not specifying in the s70 notices the action which was required to remedy the breach of the Act said to have been committed, the Authority erred in law.
Section 70 requires the Authority, if satisfied that a breach of certain provisions, including s57, has been committed, to give notice directing the addressee or licensee to "take action so that the person is no longer in breach of" the relevant provision. Nothing in that section requires that the notice specify the action which must be taken to rectify the breach. All the notice must do is to notify the addressee that action must be taken to rectify the breach and the time in which that action must be taken. It is for the addressee to determine the action which is necessary to rectify the breach. The addressees here might have taken one of a number of courses to rectify the breach. It is not for the Authority to determine which of those steps is taken, so long as whatever is done brings about the result that the Act is no longer infringed.
International Obligations
It is submitted that the Authority was required to perform its obligations in a manner consistent with Australia's international obligations. There are many such obligations. Let it be accepted, for the purpose of the present case (and I do not need to decide the point), that the Authority was under a duty to exercise its discretions so as to accord with Australia's international obligations: Minister for Immigration & Ethnic Affairs v Teoh (1995) 183 CLR 273. However, before a decision of the Authority could be set aside for failure to comply with those obligations it would be necessary for the applicants to identify what international obligations are referred to and in what way the Authority has failed to take them into account. The applicants have not done so, save to refer generally to the OECD Declaration on International Investment and Multi-national Enterprises, which requires, consistent with international law, no less favourable treatment to be given to residents of member countries than is given to nationals. However, that obligation can not stand against specific legislation of the Australian parliament directed specifically
against foreign ownership and control. In any event, merely because international obligations are not referred to by a decision maker, it is not to be assumed that they have been ignored. There is an assumption of regularity of decision making. It is for the applicant to demonstrate error. The Applicants have not, in this respect, done so.
The taking of evidence by witnesses
It may well be the case that in some circumstances it will be a denial of natural justice if a decision maker relies on evidence taken before a delegate without personally seeing the witness and assessing the witness' evidence: Jeffs v New Zealand Dairy Production and Marketing Board [1967] AC 551 at 568. This is particularly so when credibility is at issue. But regards must be had, in reaching that conclusion, to the context in which the question arises.
The Act confers upon the Authority an information gathering function. In carrying out that function the Authority may hold hearings and inform itself in any manner it thinks fit: s168. The procedure it adopts is required to be "the quickest and most economical in the circumstances": s168(2).
The Authority is also required to conduct investigations: s170. Such investigations may be directed to be held in public. Evidence on oath may be taken: s174 The Authority may also hold "hearings". These are to be conducted as quickly and as economically as the requirements of the Act permit: s186.
It is clear that not every member of the Authority can participate in every investigation or hearing. The maximum constitution of the Authority is a total of 7 members including the Chairperson and Deputy Chairperson. Members may be part-time appointments and, experience shows, often are. There may be "associate members" (s156) but this only partly alleviates the problem. It is for this reason that s194 permits the powers of the ABA, in relation to the conduct of particular hearings, to be exercised by a member authorised so to do: s173(a). In regard to an investigation by the Authority, the Act provides specifically for delegates of the Authority to put questions relevant to the subject matter of the investigation and to examine a person on oath. That is what happened in the present case.
The Authority was engaged in an "investigation" into the question whether the provisions of Part V of the Act were being complied with. The Act permitted evidence to be taken by a delegate and evidence was taken. It can not be said, in these circumstances, where the Act permitted the course which was taken, that there was a failure to give natural justice any more than would be the case if the powers of the Authority to conduct a hearing were exercised by one member only in accordance with the Act. It seems that transcripts of all evidence taken were prepared and circulated to all members of the Authority. In these circumstances, there was no additional requirement that evidence be taken by the full complement of members of the Authority participating in the report before a conclusion could be reached.
It may be added that the report, in any case, made no adverse finding against the credit of any witness. Its conclusions were drawn largely from the documentation and non controversial evidence. This ground must, therefore, fail.
A final submission was put that it was unfair that the Authority not give the directors a final opportunity to deal in evidence with the conclusion that what they had said about director's duties would "give way to commercial reality".
There is a limit to the requirements of natural justice. Reference to the rule in Browne v Dunn (1894) 6 R 67 will not avail the Applicants. For that rule, as properly understood, does not require all adverse matters to be put to a witness. A court on appeal, will not grant a new trial if there is a failure to put to a witness a matter which was clearly in dispute between the parties so that from the existence of the dispute it should have been apparent without express notice, cf Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 83 ATC 4015, at 4027.
Each of the directors who participated in the Selli/Donholken transactions was given an opportunity to be heard in the framework of an investigation into whether CanWest, through DSK, controlled the four companies, Selli, Donholken, Turnand and Numeration. There was no requirement that they be given notice of what the Authority proposed to find so that they could make further submissions. They were given the opportunity to put to the Tribunal any relevant matter. They availed themselves of that opportunity. The Authority needed to do no more than it did.
In the result the Applications will each be dismissed with costs.
I certify that this and the preceding
thirty-three (33) pages are a true copy
of the Reasons for Judgment herein of
the Honourable Justice Hill
Associate:
Dated: 8 August 1997
Counsel for the Applicant RBS Macfarlan QC
in NG 322 and NG 384 of 1997: and JE Griffiths
Solicitors for the Applicant Clayton Utz
in NG 322 and NG 384 of 1997:
Counsel for the Applicant N Young QC and P Tate
in NG 183 of 1997:
Solicitors for the Applicant Arthur Robinson Hedderwicks
in VG 183 of 1997:
Counsel for the Applicant A Archibald QC, C Scerri
in VG 185 of 1997: and P Cosgrove
Solicitors for the Applicant Arnold Bloch Leibler
in VG 185 of 1997:
Counsel for the Respondents B Oslington QC, N Williams
in NG 322, NG 384, and E Collins
VG 183 and VG 185 of 1997:
Solicitors for the Respondents Australian Government
in NG 322, NG 384, Solicitor
VG 183 and VG 185 of 1997:
Dates of Hearing: 14-18 and 21-23 July 1997
Date of Judgment: 8 August 1997
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